Cal Dive International, Inc. (DVR)

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Cal Dive International Inc. (DVR)

Q4 2007 Earnings Call

February 29, 2008 12:00 pm ET

Executives

Quinn Hébert - CEO

Scott Naughton - COO

Kregg Lunsford - CFO

Lisa Buchanan - General Counsel

Analysts

Jim Rollyson - Raymond James

Roger Read - Natexis Bleichroeder

Joe Gibney - One Southcoast

Joe Agular - Johnson Rice

Steven Gengaro - Jefferies

David Smith - JPMorgan

Joe Hill - Copia Capital

John Bair - SKA Financial Services

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2007 Cal Dive International Earnings Call. (Operator Instructions).

I would now like to turn the presentation over to your host for today’s call, Mr. Quinn Hébert, Chief Executive Officer. Please proceed.

Quinn Hébert

Good morning, everyone. Welcome to Cal Dive’s 2007 fourth quarter earnings call. With me today is Scott Naughton, our Chief Operating Officer; Kregg Lunsford, our Chief Financial Officer; Lisa Buchanan, our General Counsel and Brent Smith, our Director of Finance and Investor Relations.

If you go to our slide show, on slide 3, agenda this morning will be similar to our previous formats, where I’ll give some color on the 2007 year-end review. Kregg Lunsford will walk us through the financial statements. Then I’ll talk about 2008 going forward. And we’ll review the earnings guidance and then we will open up the phone lines to questions-and-answers.

Hopefully, everyone has access to our press release and slideshow. If you don’t, you can find that at the website at caldive.com.

Before I start, I’ll turn it over to Lisa Buchanan, our General Counsel for an important message.

Lisa Buchanan

Thank you, Quinn. This conference call includes forward-looking statements, particularly with respect to any statements that we make regarding our earnings expectations. The forward-looking statements made during this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially due to a variety of factors.

For information concerning factors that could cause our actual results to differ, we refer you to the risk factors described in our Form 10-K on file with the Securities and Exchange Commission. This call also includes certain non-GAAP financial measures. For a reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures, we refer you to our earnings press release and the presentation slides for this call.

Quinn Hébert

Okay. Let’s jump into 2007. 2007 was a really successful year for us. It was the full year that we had our entire busy fleet available for work and as a result, we saw increased revenue in EBITDA levels year-over-year. Our debt utilization remained strong through 2007; however, we did experience a return to customary winter seasonality in Q4. This decreased utilization in fourth quarter really impacted our service fleet.

If you look at what we did in ‘07, approximately 55% of our work in the Gulf was inspection, repair and maintenance, and about 45% was new construction. Of those types of projects we performed, 60% of them on day rate and about 40% of them were qualified turnkey projects.

Overseas, the lion share of our work was in the new construction market. With commodity prices in corresponding offshore activity levels, we had a high level of this new construction work and this translated a strong utilization for both our pipelay and our saturation fleets. We completed about 45 pipelines on 32 different projects for about 20 clients. Additionally, we worked for virtually all of the top-20 producers on the shelf and an additional 80 clients. So, we worked for over 100 clients in 2007.

Overseas, we are busy continuing with our international penetration in our target markets. Those target markets are Southeast Asia, Australia, the Middle East and Mexico. As a result, we saw our international revenues actually double year-over-year and they represented about 25% of our total revenues. As many of you know, we ended the year with a successful closing of the acquisition of Horizon around mid-December. As you can recall, while, we added about nine barges and vessels to our fleet, bringing our combined fleet to about 30 vessels.

This acquisition really sets us up greatly as it expands our capabilities on the derrick barge and also in our pipelay markets and accelerates the international expansion. With this combined fleet and the personnel under the two combined companies, we’ll be able to offer the clients an integrated solution to take on larger and more complex projects.

Before turning it over to Kregg, I would be remiss if I didn’t recognize the great effort of our men and women offshore and onshore in 2007. Our results really reflect their dedication and commitment to Cal Dive. Okay, Kregg.

Kregg Lunsford

Thanks, Quinn. Good morning, everyone. As Quinn said, we had a very strong 2007. Year-over-year, we had 22% revenue growth and 7% growth in EBITDA. We did experience some gross margin compression of about 8%, as it primarily relate to our increased investments in our international infrastructure and overhead including the full year of the Fraser Diving acquisition. We also had some decreased utilization as seasonality returned in the fourth quarter, and we also had increased regulatory required drydock amortization that had an impact on our margins.

We had net income of $105.6 million and earnings per share of $1.24 on a full year reported basis. Our EPS on a recurring basis was $1.36. Our net income decreased by 12% year-over-year, primarily as a result of our $12 million non-cash impairment of our investment in OTSL, as well as the increased drydock amortization and also interest expense related to the debt we incurred in connection with our IPO in December of 2006.

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