Eric Almeraz of Apis Capital Advisors’ long case for Cal Dive International, Inc. (NYSE:DVR). Cal Dive began operations in California in the 1960’s and moved to the Gulf of Mexico in the 1970’s providing dive services to the fledgling offshore oil & gas market. Primarily through acquisitions, they built the fleet to 23 ships by the end of 2005 and became the dominant operator in the Gulf.

In 2006 the company IPO’s issuing 22 million shares for $13 raising $288 million. At the time of the IPO, ship utilizations were in the 90%+ range. Cal Dive International, Inc. (NYSE:DVR) was generating strong results and delivered $80 million of free cash flow in 2007 and over a dollar of earnings per share. After a large acquisition, average fleet utilization was just over 70% in 2007 and revenue per ship per year (a very “sloppy” attempt to measure pricing given the wide variety of ship types) was about $35 million per ship. Another large acquisition occurred in 2007 adding 9 ships and taking the total to over 30 by the end of 2007. Utilization slipped through 2009 offset by a rising average revenue per ship. It’s unclear how much of this was impacted by the new acquisition.

By 2010, the aftermath of the financial crisis was underway, acquisitions stopped and pricing began to deteriorate along with utilization. Ebitda margins, which peaked at over 40% in 2006, had slipped to 13% by 2010. The BP plc (ADR) (NYSE:BP) (LON:BP) Macondo accident added to the malaise. Drilling activity in the Gulf collapsed. Ebitda margins for Cal Dive International, Inc. (NYSE:DVR) continued to slip into 2011 and in 2012 reached a trough of just 1%. During this time the discovery of shale oil and gas in the US further deferred any cyclical recovery in the Gulf. Cal Dive responded by selling assets ($27 million in 2012), restructuring their debt and refocusing their efforts on international markets which had historically been ~1/3 of sales. The debt restructuring involved refinancing a portion of a $150 million term loan due in 2016 with a combination of revolving credit and a convertible bond.

Today, Cal Dive International, Inc. (NYSE:DVR) operates 28 ships with 1,200 employees, down from 2,050 in 2009. They have begun to see a recovery in their margins and have witnessed a significant recovery in the backlog. Their focus has moved beyond the domestic Gulf of Mexico to areas seeing growth such as Mexico, Australia and the North Sea.

H/T Curry Goat

Eric Almeraz of Apis Capital Advisors: Long Cal Dive