Flotek Industries, Inc. - University of Oregon Investment Group

April 4th, 2014
IME
Flotek Industries, Inc.
Ticker: FTK
Recommendation: Outperform
Current Price: $27.32
Implied Price: $29.90
Investment Thesis
Key Statistics

An increase in horizontal drilling and fracking extraction methods located
in low permeability or shale reservoirs is causing high demand for complex
nano fluids to aid in extraction.

Acquisitions are expanding business possibilities and diversifying Flotek
into an upstream energy leader across all products and services.

High demand for d-Limonene and other bio-based chemistries can be
expanded to a magnitude of industries creating new opportunities.

12.77%
Record wells being drilled per rig will increase revenue growth for rental
and services within drilling technologies and artificial lift technology
segments.
Diluted Shares Outstanding
53.7M
One-Year Stock Chart
Average Volume (3-M onth)
750,500
52 Week Price Range
14.56 - 29.19
26.17
50-Day M oving Average
Estimated Beta
1.90
Dividend Yield
0%
1.45B
M arket Capitalization
3-Year Revenue CAGR
Trading Statistics
Institutional Ownership
73.5%
Insider Ownership
9.61%
Forward EV/EBITDA
7000000
$30.00
6000000
$25.00
5000000
$20.00
16.22x
4000000
$15.00
Margins and Ratios
3000000
Gross M argin
41.85%
EBITDA M argin
20.60%
Net M argin
12.72%
Debt to Enterprise Value
$10.00
2000000
$5.00
$0.00
Oct-12
1000000
0
Dec-12
4.09%
Feb-13
Volume
Apr-13
Jun-13
Adjusted Close
Aug-13
Oct-13
50-Day Avg
Dec-13
Feb-14
200-Day Avg
Covering Analysts: Justin Goschie
Email: [email protected]
1
University of Oregon Investment Group
University of Oregon Investment Group
Date of Presentation
Business Overview
Flotek Industries is a well-diversified, technology-driven company that develops
and supplies oilfield products, services and equipment to the oil, gas and mining
industries, and high value compounds to companies that make cleaning
products, cosmetics, food and beverages and other products that are sold in the
consumer and industrial markets.
Flotek was originally incorporated in British Columbia on May 17 th, 1985.
However due to a 120-1 stock split and reverse merger with CESI Chemical
Inc., Flotek became it’s own company again and reincorporated itself in
Delaware in October of 2001. Since then, Flotek Industries have grown both
organically and by a series of acquisitions which will be discussed in greater
detail in the following pages of this report. The company has four business
segments: Energy Chemical Technologies, Consumer and Industrial
Technologies, Drilling Technologies and Artificial Lift Technologies. Pictured
left is the revenue breakdown by segment, and a breakdown of each segment
follows.
Flotek did not start trading on New York Stock Exchange (NYSE) until
December of 2007.
Energy Chemical Technologies
This business segment provides all of flotek’s specialty chemicals to the oil and
natural gas fields. Some of the uses of these chemicals are drilling, cementing,
completion, stimulation and production activities that are designed to maximize
recovery in both new and mature fields. The company owns and operates two
laboratories for research and development and technical services. Each of these
labs focuses on design improvements, development and viability testing of new
chemical formulations and continued enhancement of existing products.
Complex nano-Fluid technologies (CnF products) are patented both
domestically and internationally and are proven strategically cost-effective
performance additives in Oil and Gas markets (O&G).– 10-K
Consumer and Industrial Chemical Technologies
A new segment for 2013 reporting, CIGT was added with the acquisition of
Florida Chemical in May 2013. The acquisition allowed the company to source
citrus oil domestically and internationally. They are now the largest processor of
citrus oils in the world. Products produced are: high value compounds used as
additives by customers in the flavors and fragrances market and environmentally
friendly chemical for use in the O&G industry. These technologies are also used
in the beverage and industrial cleaning industries. – 10-K
Florida Chemicals, founded in 1942, offers contract pricing to its customers that
give an advantage in shorter lead times in a volatile market for citrus products.
They operate certified food grade manufacturing facilities, a GMP compliant
facility and a worldwide network of distributors.
Drilling Technologies
Flotek is a leading provider of downhole drilling tools for the use in oilfield,
mining, water-well and industrial drilling activities. Flotek manufactures and
sells equipment through both direct and agent-based sales. The company also
rents equipment and inspects specialized equipment. Flotek’s equipment is used
in drilling, completion, production and work-over activities. Established tool
rental operations are strategically located throughout the US and increasing in
UOIG 2
University of Oregon Investment Group
Date of Presentation
international markets. Rental tools include stabilizers, drill collars, reamers,
wipers, jars, shock subs, wireless survey, measurement while drilling tools
(MWD), Stemulator tools, and mud rotors. – 10-K
Artificial Lift Technologies
This segment provides electric submersible pumps (ESPs), gas separators,
pumping system components, and production valves. Patented products optimize
pumping efficiency in horizontal well completions as well as in heavy oil wells
and walls with high liquid to gas ratios. These patented products increase the
flow per stroke and eliminate gas locking of traditional ball and seat valves that
traditionally require more maintenance. The patented gas separation technology
is particularly effective in coal bed methane production, efficiently separating
gas and water downhole as well as ensuring solution gas is not lost in water
production. Gas separated downhole contributes to a reduction in the
environmental impact of escaped gas to the surface. Artificial Lift systems
satisfy the requirements of coal bed methane and traditional oil and natural gas
production and assist natural gas, oil, and other fluids movement from the
producing horizontal surface. The systems are manufactured in China,
assembled domestically and distributed globally. – 10-K
Strategic Positioning
Unique Chemistries
Source: Flotek’s Images
Flotek provides individualized chemistries that form tailored nano-structures on
a customer need basis. They have uniquely positioned themselves as one of the
leaders in chemical formulations and can quickly bring products to market or
delivered to an extraction site. Like mentioned above, the company has two labs
in which uses for such tasks as well as constantly improving existing products.
The company also has a strong policy on protecting intellectual property, both
within and outside of the US. Flotek aggressively pursues patent protection of
all of their products and methods to ensure continued strategic advantages.
Without this aggressive pursuit, Flotek’s trade secrets, proprietary designs, and
manufacturing and operational expertise would quickly be consumed by
competitors who, in more cases than not, have the ability to put heavy
downward pressure on prices. This would effectively destroy small companies
like Flotek and cause them to go out of business. Intellectual property plays a
larger role relative to most industry and is critical factor that Flotek has excelled
at.
Green Technologies
CnF products are environmentally friendly being composed of citrus oils, water
and surface-active agents, which organize molecules into nanostructures. CnF
products come from renewable, plant derived, cleaning ingredients and oils that
are certified as biodegradable. A huge milestone for CnF products was the
approval for use in the North Sea, which has some the most stringent oil field
environment standards in the world. It passed aquatic toxicity, bioaccumulation,
and algae environment test and made it onto the list of chemicals that can be
used in the US Clean Water Act. The advanced frac fluid chemistry is seen as a
win/win across the industry that improves performance and remains one of the
most environmental friendly industrial chemicals to date.
Source: Google Images
The acquisition of Florida Chemical helps reduce their input cost as most of the
green tech is based on citrus oils or d-limonene. This is yet another example of
strategic positioning by Flotek, which should provide immediate results in 2014.
:
UOIG 3
University of Oregon Investment Group
Date of Presentation
Business Growth Strategies
International Growth
Flotek Industries have established itself with customers primarily based out of
the Texas, Oklahoma, and North Dakota regions of the United States. Most
companies who enter in a new contract with Flotek’s products typically renew
those year by year. To put this in perspective, the three largest customers
accounted for 16%, 7% and 7% of consolidated revenue for fiscal year 2013.
The outlook through 2023, with the help of their great sales team who has been
helping set record revenues over the past couple reporting periods, sees further
organic growth within the US as well as North America.
However, the main driving force to keeping up their growth rates will come
from the expansion in Africa for mining, and Europe for the O&G industry.
Underlying this driving force is the now legal use of CnF technologies in the
North Sea, as mentioned above is a huge opportunity for Flotek to capture. They
have put this in motion ahead of schedule by opening subsidiaries in South
Africa in Dundee and Port Elizabeth.
Acquisitions
Before the collapse of the company’s stock in 2007, Flotek was acquiring
companies at a rapid pace. In 2005, they bought four companies to help with
expansion, and three in 2006. This heavily increased the size and breadth of
their rental tool inventory and made it possible to expand geographically. They
are committed to acquiring companies to further diversify but have only stated
mergers with Eclipse IOR, LCC, a leading O&G technologies company to
further conduct research under the name Flotek Gulf Research, LCC. This will
be effective as of January 1, 2014.
Source: Florida Chemical Images
Industry
Overview
The Oil and Gas industry is extremely large. According to the Department of
Energy (DOE), fossil fuels (including coal, oil and natural gas) make up more
than 85% of the energy consumed in the US. The oilfield service sector, which
Flotek’s participates mostly in, is directly connected to the success of drilling
companies and their rig utilization rates to increase the commodity price of oil.
Recently with the vast improvement in drilling technology over this decade,
that’s allowing drillers to move into more remote locations, the use of energy
chemicals have steadily increased their importance to maximize the extraction of
wells. When you combine the solvents that form these nanostructures,
improvements in well treatment results. CnF chemistries have also achieved
successful results for customers in low permeability sand and shale reservoirs.
Through nanoparticle complex, the d-limonene-based chemical dramatically
reduces surfaces tension and downhole tensions. This allows water to be held in
place by capillary forces that must be overcome in order to for the gas or oil to
enter and flow through the frac. The graph located to the left shows the
projected 20-year forecast performance advantage using d-limonene-based
nanotechnology versus wells treated with other types of additives.
Source: The American Oil & Gas Report
UOIG 4
University of Oregon Investment Group
Date of Presentation
Macro factors
Source: EIA.gov (WTI Crude)
Being a commodity driven industry, there are a magnitude of factors that can
affect O&G. Firstly, breakout the oil industry. Oil’s number one macro factor is
the price of crude oil. It is the supply and demand, the lifeblood, of the industry
(The figure directly left shows the price history of oil). Oil commodity prices are
volatile, as well future contracts used for hedging. A study done at the Stern
business of Business in 2009 by Aswath Damodaran, found when you regressed
several large oil firms operating income against the oil prices over the same
period, you attain over 90% adjusted-R squares in the model. In other words, a
firm’s income is strongly controlled by the spot price of oil. Organizations of
Petroleum Exporting Countries (OPEC) also play a major rule as they set most
of the market’s production levels. There are several other macro factors that
include: weather conditions, cost of exploration and transport of oil, and
increasing political pressure for clean technology in some regions of the world.
The natural gas industry is very similar to the oil industry but with some factors
not included above. The spot price of natural gas is still the number one concern
over. One other factor that affects the industry is the ability for firms to store the
natural gas, as availability is volatile over time. Also pipeline capacity to critical
markets a more important role with natural gas. Unlike oil, natural gas
infrastructures are just now catching up to future demand forecast.
Source: EIA.gov (Henry Hub)
Lastly, as an industry broad factor that underlines most of the bigger macro
factors listed above is the change in average number of drilling rigs year over
year. From 2012 to 2013 the data shows a decline of 7.4%, the key thing one
should look at is the number of wells those rigs are drilling per quarter. That
increase in efficiency puts upward pressure on both commodity prices and
benefits the industry. (See chart left)
Competition
The ability to compete in the oilfield service industry and the consumer and
industrial markets is dependent upon a company’s ability to provided superior
quality and service while maintaining a competitive cost structure. It is a highly
competitive industry with unpredictable commodity price fluctuations that create
risk or opportunity.
The main competitors to Flotek are other citrus processors or solvent sources
that can substitute as a product. Pine oil provides an effective, but lower quality,
substitute that is cheaper then the company’s product line. Management has said
that political and environmental issues continue to promote CnF products and
diminishes the threat of substitution in sensitive regions. Flotek has also hedge
against this risk by producing over 12 million pounds of pine oil in order to fill
those orders.
Source: 10-k
A more extreme competitor is CARBO ceramics, Inc. They offer ceramic
proppants for use in in hydraulic fracturing of natural gas and oil wells in the
United States. While, it’s not an environmentally friendly alternative, relative to
CnF, it does have potential risk in the short run as the oil industry uses what
their comfortable with before potential regulations changes.
UOIG 5
University of Oregon Investment Group
Date of Presentation
Management and Employee Relations
John Chisholm, CEO & President
Total Executive Compensation (in $M)
2012
9.76
2011
12.81
2010
4.09
2009
3.4
2008
3.5
0
2
4
Mr. Chisholm was appointed Chief Executive Officer in March of 2012 and has
served as the president since August of 2010. He served as Interim President
when the company was days away from bankruptcy. He has been with Flotek
since being appointed to board in November 1999. He is the founded of an O&G
software develop firm, Wellogix, Inc. His knowledge within the industry
continues as he also co-founded ProTechnics, which ran diagnostic services to
the energy industry.
Steve Reeves, Executive Vice President of Operations
6
8
10
12
14
Prior to joining Flotek, Mr. Reeves served in various positions over a 30-year
career with Halliburton Energy Services. His experience includes: formulation
evaluation, global operations, and field engineer.
Portfolio Strategy
Flotek is well positioned for the Svigals portfolio, as it is a high growth stock.
The portfolio is also unbalanced in small cap and IME in proportion to our
benchmark. Cash can be used from several of the IME EFTs we hold currently
and allocated to the purchase of FTK. Due to the high volatility in the stock
price and also being a small cap stock, Flotek would not fit in with the strategy
of Tall Firs as it is not a value pitch.
Recent News
Flotek Industries Announces Flotek Gulf Participation in
OGWA 2014
March 18, 2014 – Newswire.com
Flotek’s Middle East joint venture, Flotek Gulf, will exhibit at the OGWQ
Exhibition. The biannual conference is one of the largest gatherings of oil and
gas professionals across the Middle East and Africa. Flotek Gulf will be
showing their specialty chemistry capabilities for primary completion and
production as well as enhanced oil recovery to executives.
Flotek Industries Announces Intent to Acquire SiteLark, LLC
February 11, 2014 - Reuters
Flotek entered into a letter of intent to acquire Texas-based SiteLark. SiteLark is
a provider of reservoir engineering and modelling services for a variety of
hydrocarbon applications. 600,000 of cash and 10,000 of FTK stock will be used
to complete the transaction.
Flotek Industries Receives Contract
August 8, 2013- Reuters
AlMansoori Production Services Company, LLC (MPS) put in an order that
could have potential revenue of 4 million. Flotek will provide their advanced
chemistry technologies and consulting services. MPS will utilize the chemistries
to enhance maturing wells and a sustainable long-term production.
UOIG 6
University of Oregon Investment Group
Date of Presentation
Catalysts
Upside



Governments globally are reacting strongly to hazardous chemicals in
O&G operations and that positions Flotek to increase topline growth
rapidly with their green technologies.
The use of vertical integration by acquiring Florida Chemical
effectively reduces input costs to the already highest margin business
segment.
Increasing number of new wells and more importantly an increased
efficiency in the industry drives up commodity prices.
Downside



A severe drop in oil and natural gas prices which would cause
operating income to decrease.
Demand for fossil fuels decreasing year over year (ex: new tech)
New government regulations on industrial chemicals could impact
Flotek in deep sea wells.
Forward Comparable Analysis
A forward comparable analysis was used to determine multiples in order to find
an implied price of Flotek relative to its peers. Due to the fact the upstream
energy markets are extremely diversified in the way they operate, there are no
industry specific multiples in which to value these companies. EV/Revenue,
EV/GP, EV/EBITDA, and P/E were considered in the final valuation.
Comparables were screened off growth rates, beta, market cap, industry,
international exposure, capital structure and exposure to commodity prices. In
addition, growth rates were hard to pair in an industry filled with extreme
diversification and specialization.
EV Energy Partners – 30%
“EV Energy Partners, L.P. is engaged in the acquisition, development, and
production of oil and natural gas properties in the United States. The company
operates in two segments, Exploration and Production, and Midstream. Its
properties are located in the Barnett Shale; the Appalachian Basin; the
Mid– Continent areas in Oklahoma, Texas, Arkansas, Kansas, and Louisiana;
the Monroe Field in northern Louisiana; Central and East Texas; the San Juan
Basin; Michigan; and the Permian Basin. As of December 31, 2013, the
company had estimated net proved reserves of 13.1 million barrels of oil, 819.7
billion cubic feet of natural gas, and 48.9 million barrels of natural gas liquids.
EV Energy GP, L.P. serves as the general partner of EV Energy Partners, L.P.
The company was founded in 2006 and is based in Houston, Texas.” – Yahoo!
Finance
EVEP was selected for their similar market cap within the same industry. Their
expected top line growth for years 2014 and 2015 matched with those of Flotek.
EVEP operates out of the same regions in the US and have experience similar
net margins. Also, EVEP has the same exposure to commodity market
conditions and captures some of the risk Flotek has associated with.
UOIG 7
University of Oregon Investment Group
Date of Presentation
CARBO Ceramics Inc – 35%
“CARBO Ceramics Inc., an oilfield services technology company, manufactures
and sells ceramic proppants, resin-coated ceramic, and resin-coated sand
proppants for use in the hydraulic fracturing of natural gas and oil wells in the
United States and internationally. The company offers ceramic proppants,
including CARBOHSP and CARBOPROP designed for use in deep gas wells;
CARBOLITE used in medium depth oil and gas wells. They also provides
fracture simulation software under the FracPro brand, as well as offers hydraulic
fracture design and consulting services. In addition, the company provides a
range of technologies for spill prevention, containment, and countermeasures. It
principally sells its products and services to operators of oil and natural gas
wells, and oilfield service companies. The company was founded in 1987 and is
headquartered in Houston, Texas.” – Yahoo! Finance
CRR was selected as a primary direct competitor. The ceramic products they
offer directly compete with Flotek’s rental equipment and artificial lift
technologies. CRR also has a similar capital structure as Flotek has little debt.
EBITDA growth rates were also screened for and CRR fell within the range to
justify a good comparable. Lastly, CARBO Ceramics has the same systematic
market exposure with a beta of 1.77, which is similar to Flotek’s 1.90.
TransAtlantic Petroleum Ltd. – 15%
“TransAtlantic Petroleum Ltd. is engaged in the acquisition, exploration,
development, and production of oil and natural gas. It holds interests in
approximately 1.9 million net acres of developed and undeveloped oil and
natural gas properties in Turkey and Bulgaria. As of December 31, 2013, it had
estimated proved reserves of approximately 12,221 net million barrels of oil
equivalent. TransAtlantic Petroleum Ltd. was founded in 1985 and is based in
Addison, Texas.” – Yahoo! Finance
TAT is a company who is primarily exposed to oil and gas markets
internationally. To capture, Flotek’s growth within the Africa and beyond,
TransAtlantic was selected to give my comparables exposure to these markets
while still be a high growth small cap stock. Revenue growth and EBITDA
growth looking ahead was similar and beta was also similar to Flotek, although
more risky.
FMC Technologies Inc. – 5%
“FMC Technologies, Inc. provides technology solutions for the energy industry
worldwide. Its Subsea Technologies segment offers subsea systems for the
offshore production of crude oil and natural gas, as well as installation and
workover tools, service technicians for installation assistance, and field support
for commissioning, intervention, and maintenance of its subsea systems. Its
Energy Infrastructure segment offers measurement systems for the custody
transfer of crude oil, natural gas, and refined products, as well as design,
engineering, project management, training, commissioning, and aftermarket
services; fluid loading and transfer systems to the oil and gas, petrochemical,
and chemical industries; material handling solutions, such as bulk conveying
systems to the power generation and mining industries; systems that separate
production flows from wells into oil, gas, sand, and water; and automation,
control, and information technology for the oil and gas, and other industries. The
UOIG 8
University of Oregon Investment Group
Date of Presentation
company was founded in 2000 and is headquartered in Houston, Texas.” –
Yahoo! Finance
FMC Technologies had comparable EBITDA in 2014 and 2015. EPS growth
was also comparable in 2015. They only received a 5% weighting due to being
9x the market cap of Flotek. Betas were similar as well as EBITDA margins.
Natural Gas Services Group Inc. – 15%
“Natural Gas Services Group, Inc. provides small to medium horsepower
compression equipment to the natural gas industry in the United States. It is
involved in the rental of small to medium horsepower compression equipment
primarily to non-conventional natural gas production businesses, including coal
bed methane, gas shale, and tight gas. As of December 31, 2013, the company
had 2,556 natural gas compressors in rental fleet totaling 351,187 horsepower. It
is also involved in the compressor fabrication activities, which assembles
compressor components into compressor units for rental or sale; and engineers
and fabricates natural gas compressors for sale to customers to meet their
specifications based on well pressure, production characteristics, and
applications. Natural Gas Services Group, Inc. was founded in 1998 and is
headquartered in Midland, Texas.” – Yahoo! Finance
NGS also was selected on comparable growth rates but more importantly
conducts operations similar to Flotek. In order to rent their equipment, much like
Flotek, they have a sales team constantly marketing their product. They directly
compete in regions where Flotek operates and both have similar capital
structures in extremely low debt relative to their size.
Discounted Cash Flow Analysis
Revenue Model
Revenue was projected mainly on qualitative factors. Originally, each segment’s
operating income was regressed against commodity prices of oil, natural gas,
and orange juice. However, due to the huge growth rates of Flotek’s revene
(small cap stock) the regressions only yielded at best an adjusted r-squared of
52.86. Instead of looking at future prices, research was done in order to figure
out where market prices were headed. I used this to build into my assumptions
and create my revenue numbers into 2023.
R&D Expense
80.00
70.00
60.00
Cost of Goods Sold
COGS were projected as a percentage of revenue. The key assumption being
used is with the acquisition of Florida Chemical, it will reduce input costs in dLimonene products resulting in higher gross margins. From 2014 through 2023
roughly 3 percent, a very reasonable forecast.
50.00
40.00
30.00
20.00
10.00
0.00
Research and Development
This was forecasted to increase by a percentage of revenue as Flotek will need to
spend the time and money in advancing its chemistries in order to stay on the
competitive edge. Also, with customer specific orders increasing, more money
will be spent in the labs, but in return these will also help drive profits further.
Selling, General & Administrative
Flotek has a unique team of marketers and also outsources some of their selling
abroad. Due to the high revenue growth, this was forecasted to be decreasing as
UOIG 9
University of Oregon Investment Group
Date of Presentation
a percentage of revenue and costs will be reduced as Flotek’s expands its own
international footprint.
Capital Expenditures
Depreciation & Amortization
D&A was projected as a percentage of PP&E. As newly acquired companies
begin to operate under the reporting of Flotek, depreciation will increase as a
result by taking on more assets.
200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
Capital Expenditures
Capex was forecasted consistently upward with revenue. As the company
expands, more cash will need to be used to keep up with capacity and
geographical growth.
Acquisitions
This served as the most difficult and most likely the more debatable line items in
my valuation of Flotek. Flotek use to acquire companies for a very large amount
of cash. But the oil markets rapidly decreased and the complete fall out by the
company in 2009 lead to a very conservative approach. Since then, they have
only made one big purchase with Florida Chemicals and management has only
hinted at a trend of buying micro companies like this year’s SiteLark. I
continued this trend of purchasing small companies until 2019 when I begin to
ramp up acquisitions through a percentage of revenue.
Recommendation
Methods
Forward Comps
DCF
Final Implied Price
Current Price
Undervalued
Weighting
Implied Price
30.0%
70%
29.90
27.32
9.44%
28.30 I’m placing a outperform on Flotek Industries with a price target of $29.90. I
30.58 believe Flotek as a lot more room to run as we see the oil industry, and crude oil
reaching all-time highs. They are uniquely positioned to capture sizeable growth
as a record number of wells are using nano fluids to aid in extraction. Flotek also
has the lowest exposure to government regulations in these fluids, as CnF
products are completely green and a renewable product.
UOIG 10
University of Oregon Investment Group
Date of Presentation
Appendix 1 – Comparables Analysis
Comparables Analysis
FTK
Flotek
($ in millions)
Stock Characteristics
Current Price
Beta
Max
$138.29
2.15
Min
$8.80
0.88
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
43.3
1,329.8
399.1
19.1
0.0
236.0
12,737.6
13,729.9
0.0
0.0
2.7
0.0
0.0
12.7
329.1
373.0
0.6
26.5
24.4
0.0
0.0
37.4
1,626.7
2,595.3
Growth Expectations
% Revenue Growth 2014E
% Revenue Growth 2015E
% EBITDA Growth 2014E
% EBITDA Growth 2015E
% EPS Growth 2014E
% EPS Growth 2015E
27.8%
23.9%
33.2%
25.5%
82.7%
75.0%
8.2%
10.3%
14.3%
15.1%
-0.6%
22.4%
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
53.73%
35.33%
65.56%
16.40%
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Capital Expenditures
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
EVEP
EV Energy
Partners
Median
Weight Avg.
$33.49
$67.06
1.71
1.47
CRR
CARBO
Ceramics Inc.
TAT
TransAtlantic
Petroleum Ltd.
$27.32
1.90
30.00%
$33.49
0.88
35.00%
$138.29
1.77
15.00%
$8.80
2.15
8.7
366.4
62.1
1.0
0.0
42.0
2,350.1
2,664.1
26.4
35.7
2.7
0.0
0.0
53.7
1,458.9
1,518.3
0.0
980.3
11.7
0.0
0.0
48.6
1,626.7
2,595.3
0.0
0.0
94.3
0.0
0.0
23.1
3,194.8
3,100.6
14.3%
14.1%
25.5%
22.7%
18.7%
29.1%
17.4%
15.0%
22.5%
22.0%
34.7%
42.6%
22.5%
23.9%
27.8%
24.5%
45.1%
22.4%
27.8%
16.4%
26.5%
22.7%
82.7%
52.8%
21.94%
12.48%
15.50%
8.14%
31.45%
26.57%
46.76%
13.78%
20.16%
26.43%
46.21%
14.39%
41.85%
18.98%
20.60%
12.72%
$56.00
0.38
3.71
36.41
$0.00
0.00
0.00
0.00
$9.30
0.10
0.72
4.72
$19.85
0.15
1.32
4.79
$0.00
0.04
0.66
0.00
$7,749.8
$1700.5
$966.9
$1201.6
$630.9
$400.6
$102.0
$54.8
$27.1
$47.7
$16.7
$18.9
$403.0
$227.1
$142.4
$202.3
$66.1
$115.8
$800.7
$172.7
$153.7
$231.8
$91.6
$127.3
6.44x
13.65x
20.87x
16.22x
47.85x
32.11x
1.77x
6.81x
8.89x
4.00x
(621.67x)
17.05x
3.66x
8.07x
14.20x
9.82x
17.14x
23.03x
454.50
190.21
86.27
93.63
57.80
18.86
4.43x
3.34
6.20x
7.98
16.88x
17.60
10.65x
16.22
(73.44x)
20.31
25.64x
25.24
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
FTI
NGS
FMC
Natural Gas Services
Technologies Inc.
Group Inc.
5.00%
15.00%
$53.97
1.71
$30.59
1.18
43.3
26.5
12.9
0.0
0.0
37.4
329.1
386.0
42.5
1,329.8
399.1
19.1
0.0
236.0
12,737.6
13,729.9
0.6
12.2
24.4
0.0
0.0
12.7
384.7
373.0
8.2%
14.1%
17.6%
23.5%
18.7%
29.1%
23.8%
13.8%
33.2%
25.5%
-0.6%
75.0%
8.8%
10.3%
25.5%
17.3%
26.4%
22.7%
14.3%
16.9%
14.3%
15.1%
14.4%
28.0%
N/A
35.33%
65.56%
16.40%
31.45%
20.58%
28.02%
13.78%
N/A
26.79%
59.63%
11.91%
21.94%
12.48%
15.50%
8.14%
53.73%
26.57%
46.76%
16.37%
$56.00
0.38
3.71
4.72
$0.00
0.00
0.00
0.00
$9.30
0.18
0.72
10.39
33.00
0.10
1.14
36.41
$0.00
0.03
0.27
0.00
403.0
N/A
142.4
264.2
66.1
115.0
722.0
227.1
148.6
202.3
99.5
137.5
6.44
4.29
N/A
13.65
18.23
20.87
9.82
15.33
17.39
47.85
24.61
32.11
Implied Price
Weight
36.36
35.00%
20.85
10.00%
25.99
10.00%
17.46
15.00%
-103.29
0.00%
27.58
30.00%
$28.30
27.32
3.60%
162.0
N/A
43.4
96.6
19.3
115.8
2.38
N/A
8.89
4.00
-20.11
17.05
UOIG 11
7,749.8
1,700.5
966.9
1,201.6
630.9
400.6
1.77
8.07
14.20
11.43
17.14
20.19
102.0
54.8
27.1
47.7
16.7
48.3
3.66
6.81
13.76
7.82
-621.67
23.03
University of Oregon Investment Group
Date of Presentation
Appendix 2 – Discounted Cash Flows Analysis
Discounted Cash Flow Analysis
($ in millions)
2009A
2010A
2011A
2012A
2013A
2014E
Total Revenue
112.6
147.0
258.8
312.8
371.1
% YoY Growth
-50.21%
30.59%
76.07%
20.88%
18.62%
78.2
89.5
149.0
176.8
216.3
% Revenue
69.52%
60.87%
57.57%
56.52%
58.28%
Gross Profit
$34.3
$57.5
$109.8
$136.0
30.48%
39.13%
42.43%
43.48%
36.94
41.86
50.61
66.42
32.82%
28.48%
19.56%
21.23%
Cost of Goods Sold
Gross Margin
Selling General & Administrative Expense
% Revenue
Depreciation & Amortization
% of PP&E
Research & Development
% Revenue
Gain on Disposal of Long-Lived Assets
% Revenue
Impairment of Goodwill & Intangible Assets
% Revenue
2024E
$367.47
$154.8
41.72%
94.08
78.20
2015E
454.50
2016E
563.23
264.29
326.68
2025E
2026E
58.15%
58.00%
$437.29
$491.95
$299.08
41.85%
42.00%
42.45%
98.91 112.93 98.31
140.56
91.35
20.05%
9.30%
4.93
4.54
3.98
4.41
10.68%
9.07%
7.81%
9.19%
57.55%
$236.56
20.10%
8.18%
405.46
$190.21
21.07%
26%7.27
2017E
704.54
2018E
891.97
Intermediate
Growth
Rate
22.48%
23.92%
25.09%
26.60%
19%
7.36
508.87
2027E
57.05%
$528.84
2019E
2842.24
26.85%
26.71%
26.31%
25.90%
24.67%
23.38%
644.37
813.63
2028E
1,024.06
1,286.98
1,591.65
1,960.31
56.75%
56.55%
56.45%
56.00%
55.90%
$620.08
$555.28
$786.83
$992.88
$1,250.58
$1,546.50
43.45%
43.55%
44.00%
44.10%
350.41
434.31
534.34
639.99
19.05%
18.80%
18.25%
56.95%
43.05%
93.37221.77
177.50
10.18
9.60%
9.75%
2023E
2279.87
42.95%
19.90%
2022E
1810.90
$487.10
19.95%
2021E
1433.70
$383.10
12.5%
13.77
2020E
1131.47
43.25%
86.62
278.86
3506.81
19.60%
19.45%
19.35%
18.37
8% 25.25
48.97
66.36
89.23
119.32
9.80%
10.10%
10.40%
10.90%
11.00%
11.05%
11.15%
5%
34.62
2.12
1.44
2.34
3.18
3.75
5.23
7.04
9.51
12.93
18.10
25.81
36.22
46.74
58.27
71.89
1.88%
0.98%
0.90%
1.02%
1.01%
1.15%
1.25%
1.35%
1.45%
1.60%
1.80%
2.00%
2.05%
2.05%
2.05%
0.00
2.10
0.00
-1.01
-0.42
0
0
0
0
0
0
0
0
0
0
0.00%
1.43%
0.00%
(.32%)
(.11%)
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
18.50
9.29
0
0
0
0
0
0
0
0
0
0
0
0
0
16.44%
6.32%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Earnings Before Interest & Taxes (OI)
($28.18)
($1.72)
$52.87
$63.03
$66.00
$86.27
$106.41
$135.24
$174.30
$221.98
$280.79
$351.24
$445.47
$568.74
$715.30
% Revenue
-25.04%
-1.17%
20.43%
20.15%
17.79%
18.98%
18.89%
19.20%
19.54%
19.62%
19.59%
19.40%
19.54%
20.01%
20.40%
15.52
19.40
15.96
8.10
2.09
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
13.79%
13.20%
6.17%
2.59%
.56%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Interest Expense
% Revenue
Change in Fair Value of Warrant Liability
% Revenue
Loss on Extinguishment of Debt
% Revenue
Other Expense (Income)
-0.47
21.46
-9.57
-2.65
0.00
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-0.41%
14.60%
(3.70%)
(.85%)
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0
1.00
3.23
7.257
0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.00%
0.68%
1.25%
2.32%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.16
0.89
0.004
0.452
-0.316
0.5
0.8
1.8
2.2
4.0
6.5
10.0
14.8
18.5
24.5
% Revenue
0.14%
0.60%
0.00%
0.14%
-0.09%
.10%
.15%
.25%
.25%
.35%
.45%
.55%
.65%
.65%
.70%
Earnings Before Taxes
(43.39)
(44.47)
% Revenue
Less Taxes (Benefits)
43.25
49.87
64.22
86.27
106.41
135.24
174.30
221.98
280.79
351.24
445.47
568.74
715.30
16.71%
15.94%
17.31%
18.98%
18.89%
19.20%
19.54%
19.62%
19.59%
19.40%
19.54%
20.01%
20.40%
2.02
-5.55
7.86
-4.33
20.77
28.47
35.65
45.98
59.70
77.14
98.28
122.93
155.92
199.06
250.35
4.65%
-12.47%
18.18%
-8.69%
32.34%
33.00%
33.50%
34.00%
34.25%
34.75%
35.00%
35.00%
35.00%
35.00%
35.00%
Net Income
($45.41)
($38.92)
$35.39
$54.20
$43.45
$57.80
$70.76
$89.26
$114.60
$144.84
$182.51
$228.31
$289.56
$369.68
$464.94
Net Margin
-40.3%
-26.5%
13.7%
17.3%
11.7%
12.72%
12.56%
12.67%
12.85%
12.80%
12.73%
12.61%
12.70%
13.01%
13.26%
Add Back: Depreciation and Amortization
4.93
4.54
3.98
4.41
7.27
7.36
10.18
13.77
18.37
25.25
34.62
48.97
66.36
89.23
119.32
Add Back: Interest Expense*(1-Tax Rate)
14.80
21.82
13.06
8.81
1.42
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
($25.68)
($12.56)
$52.43
$67.42
$52.14
$65.16
$80.94
$103.03
$132.97
$170.09
$217.14
$277.27
$355.91
$458.92
$584.27
(22.81%)
(8.55%)
20.26%
21.55%
14.05%
14.34%
14.37%
14.62%
14.91%
15.03%
15.15%
15.31%
15.61%
16.15%
16.66%
50.08
59.74
85.22
93.36
134.93
165.47
202.71
249.19
311.98
394.00
496.10
624.90
783.51
969.61
1,191.39
44.50%
40.65%
32.93%
29.85%
36.36%
36.41%
35.99%
35.37%
34.98%
34.82%
34.60%
34.51%
34.37%
34.11%
33.97%
24.58
34.23
39.70
41.93
62.56
66.89
85.87
110.42
141.36
202.40
256.39
306.12
386.06
484.63
604.91
21.84%
23.29%
15.34%
13.40%
16.86%
14.72%
15.25%
15.67%
15.85%
17.89%
17.88%
16.90%
16.93%
17.05%
17.25%
$586.48
Tax Rate
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
$25.50
$25.51
$45.52
$51.43
$72.37
$98.58
$116.84
$138.77
$170.62
$191.60
$239.70
$318.78
$397.45
$484.98
22.66%
17.36%
17.59%
16.44%
19.50%
21.69%
20.74%
19.70%
19.13%
16.93%
16.72%
17.60%
17.43%
17.06%
16.72%
$0.01
$20.01
$5.91
$20.93
$26.21
$18.26
$21.93
$31.85
$20.98
$48.10
$79.08
$78.67
$87.53
$101.50
Change in Working Capital
Capital Expenditures
6.56
6.06
9.98
20.70
15.01
18.86
23.66
29.94
40.58
52.61
68.10
87.83
113.99
142.11
175.34
5.82%
4.12%
3.86%
6.62%
4.04%
4.15%
4.20%
4.25%
4.55%
4.65%
4.75%
4.85%
5.00%
5.00%
5.00%
0.00
0.00
0.00
0.00
53.37
0.68
1.41
2.47
3.57
5.09
13.62
17.20
23.94
31.26
15.78
% Revenue
0.00%
0.00%
0.00%
0.00%
14.38%
.15%
.25%
.35%
.40%
.45%
.95%
.95%
1.05%
1.10%
.45%
Unlevered Free Cash Flow
-32.23
-18.63
22.44
40.81
-37.17
19.40
37.61
48.69
56.96
91.41
87.32
93.16
139.32
198.01
291.64
% Revenue
Acquisitions
Discounted Free Cash Flow
EBITDA
EBITDA Margin
EBITDA Growth
17.14
29.36
33.58
34.71
49.20
41.53
39.15
51.72
64.95
84.51
-23.3
2.8
56.9
67.4
73.3
93.6
116.6
149.0
192.7
247.2
315.4
400.2
511.8
658.0
834.6
-20.66%
1.92%
21.97%
21.56%
19.75%
20.60%
20.70%
21.15%
21.60%
21.85%
22.00%
22.10%
22.45%
23.15%
23.80%
-112.12% 1916.81%
18.62%
8.65%
27.78%
24.53%
27.81%
29.30%
28.32%
27.58%
26.88%
27.89%
28.55%
26.85%
UOIG 12
Intermediate Growth Rate
2024E
2025E
2026E
2027E
2028E
$367.47
$437.29
$491.95
$528.84
$555.28
94.08
98.91
98.31
93.37
86.62
26%
19%
12.5%
8%
5%
University of Oregon Investment Group
Date of Presentation
Appendix 3 – Revenue Model
Consolidated Revenue
($ in Millions)
2009A
Energy Chemical Technologies
% Growth
% of Total Revenue
2010A
2011A
2012A
2013A
Artificial Lift Technologies
% Growth
% of Total Revenue
Total Revenue
% Growth
2017E
2018E
2019E
2020E
2021E
2022E
2023E
66.1
140.8
184.0
200.9
258.5
335.4
437.4
577.1
759.2
993.8
1293.9
1677.5
2144.7
2704.5
34.13%
113.00%
30.64%
9.21%
28.65%
29.75%
30.40%
31.95%
31.55%
30.90%
30.20%
29.65%
27.85%
26.10%
43.80%
44.99%
54.42%
58.81%
54.15%
56.88%
59.55%
62.08%
64.70%
67.10%
69.31%
71.45%
73.58%
75.46%
77.12%
0
0
0
42.9
51.6
62.7
77.1
95.2
117.2
144.0
175.7
214.3
260.4
315.3
20.25%
21.55%
22.85%
23.45%
23.15%
22.85%
22.05%
21.95%
21.55%
21.05%
8.99%
0
% of Total Revenue
% of Total Revenue
2016E
49.3
% Growth
% Growth
2015E
-54.92%
Consumer & Industrial Chemical Technologies
Drilling Technologies
2014E
11.57%
11.36%
11.14%
10.94%
10.67%
10.36%
10.04%
9.70%
9.40%
9.16%
50.8
65.8
102.5
116.7
112.4
126.2
142.5
161.9
184.5
211.2
242.6
277.9
315.7
357.2
402.0
-48.33%
29.56%
55.77%
13.92%
(3.71%)
12.25%
12.95%
13.60%
13.95%
14.50%
14.85%
14.55%
13.60%
13.15%
12.55%
45.11%
44.76%
39.60%
37.32%
30.29%
27.76%
25.30%
22.98%
20.68%
18.67%
16.92%
15.35%
13.85%
12.57%
11.46%
12.5
15.1
15.5
12.1
14.8
18.2
22.6
28.2
35.2
43.9
53.4
63.4
72.4
79.9
85.0
-32.34%
20.83%
2.65%
(21.79%)
22.25%
23.00%
24.00%
24.90%
24.95%
24.55%
21.65%
18.80%
14.15%
10.35%
6.45%
11.09%
10.26%
5.98%
3.87%
3.99%
4.01%
4.01%
4.00%
3.95%
3.88%
3.72%
3.50%
3.17%
2.81%
2.42%
112.6
147.0
258.8
312.8
371.1
454.5
563.2
704.5
892.0
1131.5
1433.7
1810.9
2279.9
2842.2
3506.8
-50.21%
30.59%
76.07%
20.88%
18.62%
22.48%
23.92%
25.09%
26.60%
26.85%
26.71%
26.31%
25.90%
24.67%
23.38%
UOIG 13
University of Oregon Investment Group
Date of Presentation
Appendix 4 – Working Capital Model
Days in Year
365
365
365
366
365
365
365
365
365
365
366
365
365
365
366
Working Capital Model
($ in millions)
Total Revenue
Current Assets
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Deffered Tax Assets
% of Revenue
Income Tax Receivable
% Revenue
Other Current Assets
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Charges
Days Charges Outstanding
% of Revenue
Income Taxes Payable
Days Taxes Outstanding
% of Revenue
Deferred Tax Liabilities
% of Revenue
Current Portion of Long Term Debt
% of Revenue
Interest Payable
% of Revenue
Total Current Liabilities
% of Revenue
2009A
2018E
2019E
2020E
2021E
2022E
2023E
$112.55
2010A
$146.98
2011A
$258.79
2012A
$312.83
2013A
$371.07
2014E
$454.50
2015E
$563.23
2016E
$704.54
2017E
$891.97
$1,131.47
$1,433.70
$1,810.90
$2,279.87
$2,842.24
$3,506.81
14.6
47.4
13.0%
27.2
127.0
24.2%
0.8
0.68%
6.61
5.9%
0.9
0.77%
50.08
44.5%
27.3
67.8
18.6%
27.8
113.6
18.9%
0.6
0.39%
2.973
2.0%
1.0
0.71%
59.74
40.6%
44.6
62.9
17.2%
37.9
92.8
14.6%
0.8
0.32%
0
0.0%
1.9
0.75%
85.22
32.9%
42.3
49.4
13.5%
45.2
93.5
14.4%
1.3
0.41%
0
0.0%
4.7
1.49%
93.36
29.8%
65.0
64.0
17.5%
63.1
106.6
17.0%
2.5
0.68%
0
0.0%
4.3
1.15%
134.93
36.4%
79.7
64
17.53%
77.0
106.35
16.94%
3.4
0.75%
0
0.0%
5.4
1.18%
165.47
36.41%
98.4
63.75
17.47%
93.1
104.05
16.53%
4.5
0.80%
0
0.0%
6.7
1.19%
202.71
35.99%
123.0
63.70
17.45%
111.9
100.70
15.88%
6.0
0.85%
0
0.0%
8.4
1.19%
249.19
35.37%
155.3
63.55
17.41%
138.0
98.95
15.47%
8.0
0.90%
0
0.0%
10.7
1.20%
311.98
34.98%
197.0
63.55
17.41%
173.0
98.00
15.29%
10.4
0.92%
0
0.0%
13.6
1.20%
394.00
34.82%
248.9
63.55
17.36%
216.2
97.25
15.08%
13.3
0.93%
0
0.0%
17.6
1.23%
496.10
34.60%
315.3
63.55
17.41%
269.8
96.15
14.90%
16.8
0.93%
0
0.0%
23.0
1.27%
624.90
34.51%
395.1
63.25
17.33%
336.9
95.55
14.78%
21.7
0.95%
0
0.0%
29.9
1.31%
783.51
34.37%
491.0
63.05
17.27%
411.0
94.25
14.46%
27.9
0.98%
0
0.0%
39.8
1.40%
969.61
34.11%
603.6
63.00
17.21%
500.8
93.50
14.28%
34.4
0.98%
0
0.0%
52.6
1.50%
1191.39
33.97%
66.84
6.56
0.00
4.93
60.25
110.34
98.03%
60.25
6.06
0.00
4.54
42.52
102.27
69.58%
42.52
9.98
0
3.98
43.91
129.14
49.90%
43.91
20.70
0
4.41
56.45
149.81
47.89%
56.45
15.01
53.37
7.27
79.11
214.05
57.68%
79.11
18.86
0.7
7.4
106.02
271.49
59.73%
106.02
23.66
1.4
10.2
141.26
343.96
61.07%
141.26
29.94
2.5
13.8
187.44
436.63
61.97%
187.44
40.58
3.6
18.4
249.96
561.94
63.00%
249.96
52.61
5.1
25.2
332.91
726.91
64.24%
332.91
68.10
13.6
34.6
449.25
945.35
65.94%
449.25
87.83
17.2
49.0
603.25
1228.15
67.82%
603.25
113.99
23.9
66.4
807.54
1591.05
69.79%
807.54
142.11
31.3
89.2
1070.15
2039.76
71.77%
1070.15
175.34
15.8
119.3
1380.60
2571.99
73.34%
8.0
37.4
7.13%
4.9
48.8
4.39%
0.0
0
0
0
0.00%
8.9
7.95%
2.7
2.37%
24.58
21.84%
13.5
55.2
9.20%
12.0
104.2
8.13%
0.0
0
0
0.12
0.08%
6.5
4.39%
2.2
1.49%
34.23
23.29%
18.6
45.5
7.17%
8.4
60.6
3.24%
9.9
458.50
3.82%
0
0.00%
0.8
0.30%
2.1
0.81%
39.699
15.34%
22.4
46.3
7.15%
6.5
35.8
2.08%
3.5
293.86
1.11%
0
0.00%
9.5
3.02%
0.1
0.04%
41.93
13.40%
19.9
33.6
5.36%
12.8
59.6
3.44%
3.4
59.06
0.91%
0
0.00%
26.4
7.12%
0.1
0.03%
62.56
16.86%
25.0
34.55
5.50%
15.0
60.00
3.30%
4.7
60.00
1.03%
0
0.00%
22.0
4.85%
0.14
0.03%
66.89
14.72%
32.1
35.85
5.70%
19.2
62.00
3.41%
6.0
61.00
1.06%
0
0.00%
28.4
5.05%
0.20
0.04%
85.87
15.25%
42.2
38.00
5.99%
24.0
62.25
3.40%
7.7
61.00
1.09%
0
0.00%
36.3
5.15%
0.27
0.04%
110.42
15.67%
54.6
39.15
6.12%
30.4
62.55
3.41%
10.1
61.55
1.13%
0
0.00%
45.9
5.15%
0.36
0.04%
141.36
15.85%
70.7
40.05
6.25%
38.2
62.85
3.37%
13.3
62.85
1.17%
0
0.00%
79.8
7.05%
0.45
0.04%
202.40
17.89%
91.0
40.95
6.35%
48.2
63.30
3.36%
16.9
63.00
1.18%
0
0.00%
99.6
6.95%
0.57
0.04%
256.39
17.88%
115.5
41.15
6.38%
61.8
64.35
3.41%
21.3
63.30
1.18%
0
0.00%
106.8
5.90%
0.72
0.04%
306.12
16.90%
148.3
42.05
6.50%
77.5
65.15
3.40%
27.1
63.50
1.19%
0
0.00%
132.2
5.80%
0.91
0.04%
386.06
16.93%
195.6
44.85
6.88%
95.4
65.15
3.36%
34.8
63.80
1.22%
0
0.00%
157.7
5.55%
1.14
0.04%
484.63
17.05%
249.3
46.55
7.11%
115.5
66.05
3.29%
43.9
64.15
1.25%
0
0.00%
194.6
5.55%
1.58
0.05%
604.91
17.25%
UOIG 14
University of Oregon Investment Group
Date of Presentation
Appendix 5 – Discounted Cash Flows Analysis Assumptions
Discounted Free Cash Flow Assumptions
Tax Rate
Considerations
35.00% Terminal Growth Rate
Risk Free Rate
3.00%
2.73% Terminal Value
Beta
5,615
1.90 PV of Terminal Value
Market Risk Premium
5.75% Sum of PV Free Cash Flows
% Equity
% Debt
Cost of Debt
Avg. Industry Debt / Equity
37.87%
788.46
Avg. Industry Tax Rate
24.42%
917.14
Current Reinvestment Rate
95.94% Firm Value
1,706
Reinvestment Rate in Year 2019E
4.06% Total Debt
62.11
Implied Return on Capital in Perpetuity
8.05%
2.73
Terminal Value as a % of Total
46.2%
1,643
Implied 2014E EBITDA Multiple
18.2x
2.87% Cash & Cash Equivalents
CAPM
13.67% Market Capitalization
WACC
13.19% Fully Diluted Shares
Terminal RFR
183.24%
54
3.56% Implied Price
30.58
Terminal CAPM
14.50% Current Price
27.32
Terminal WACC
13.98% Undervalued
11.95%
Vasicek Beta
37.27%
Implied Multiple in Year 2023E
0.9x
Free Cash Flow Growth Rate in Year 2023E
32%
Beta
Hamada Beta
SE
Weighting
5-Year Monthly
1.74
0.71
0.00%
5-Year Daily
2.15
0.11
25.00%
Beta
Weighting
SE
Variance
Beta
Weighting
D/E
3-Year Weekly
2.42
0.20
0.00%
EV Energy Partners
0.89
30.00%
0.07
0.0049
EV Energy Partners
0.89
30.00%
0.88
0.00
0.48
3-Year Daily
2.28
0.10
30.00%
CARBO Ceramics Inc.
1.57
35.00%
0.10
0.0098
CARBO Ceramics Inc.
1.57
35.00%
0.00
0.32
1.57
1-Year Daily
1.57
0.14
15.00%
TransAtlantic Petroleum Ltd.
0.53
15.00%
0.16
0.0242
TransAtlantic Petroleum Ltd.
0.53
15.00%
0.42
0.23
0.40
FMC Technologies Inc.
1.38
5.00%
0.05
0.0022
FMC Technologies Inc.
1.38
5.00%
0.59
0.31
0.98
3-Year Daily Hamada
1.20
15.00%
1.52
15.00%
0.07
0.0048
Natural Gas Services Group Inc.
1.52
15.00%
0.00
0.36
1.51
3-Year Daily Vasicek
1.75
15.00%
1.027
Flotek Beta
Company
Natural Gas Services Group Inc.
Industry
Beta
Flotek
1.19
2.28
0.0094
0.0091
Weight
49%
51%
Vasicek Beta
1.75
Variance
Company
Tax Rate Unlevered Beta
Weight Average Unlevered Beta
Flotek
0.249
Levered Flotek Beta
Methods
Forward Comps
DCF
Final Implied Price
Current Price
Undervalued
32.34%
1.2005371
Weighting
Implied Price
30.0%
28.30
70%
30.58
29.90
27.32
9.44%
UOIG 15
1.90
University of Oregon Investment Group
Date of Presentation
Appendix 6 –Sensitivity Analysis
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
30
2.0%
2.5%
3.0%
3.5%
4.0%
0
2.3%
2.3%
3.0%
3.8%
4.5%
1.70
32.74
33.42
34.18
35.02
35.97
2.10
(4.78%)
(4.78%)
(2.75%)
(0.43%)
2.24%
1.80
30.70
31.27
31.90
32.60
33.38
2.00
0.59%
0.59%
2.98%
5.73%
8.93%
1.90
28.89
29.37
29.90
30.48
31.13
1.90
6.61%
6.61%
9.44%
12.73%
16.58%
2.00
27.28
27.69
28.14
28.62
29.16
2.00
0.59%
0.59%
2.98%
5.73%
8.93%
2.10
25.84
26.19
26.57
26.98
27.43
2.10
(4.78%)
(4.78%)
(2.75%)
(0.43%)
2.24%
Adjusted Beta
Adjusted Beta
Terminal Growth Rate
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
30
2.3%
2.3%
3.0%
3.8%
4.5%
0
2.3%
2.3%
3.0%
3.8%
4.5%
12.99%
29.51
29.51
30.32
31.25
32.35
12.99%
8.03%
8.03%
10.97%
14.38%
18.40%
13.09%
29.32
29.32
30.11
31.02
32.10
13.09%
7.31%
7.31%
10.20%
13.55%
17.48%
13.18609%
29.13
29.13
29.90
30.80
31.85
13.19%
6.61%
6.61%
9.44%
12.73%
16.58%
13.29%
28.94
28.94
29.70
30.58
31.61
13.29%
5.92%
5.92%
8.70%
11.92%
15.69%
13.39%
28.75
28.75
29.50
30.36
31.37
13.39%
5.23%
5.23%
7.97%
11.13%
14.82%
WACC
WACC
Terminal Growth Rate
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
30
2.3%
2.3%
3.0%
3.8%
4.5%
0
2.3%
2.3%
3.0%
3.8%
4.5%
33%
29.12
29.12
29.89
30.79
31.84
33%
6.58%
6.58%
9.42%
12.70%
16.54%
34%
29.12
29.12
29.90
30.79
31.84
34%
6.60%
6.60%
9.43%
12.71%
16.56%
35%
29.13
29.13
29.90
30.80
31.85
35%
6.61%
6.61%
9.44%
12.73%
16.58%
36%
29.13
29.13
29.90
30.80
31.85
36%
6.62%
6.62%
9.46%
12.74%
16.60%
37%
29.13
29.13
29.91
30.81
31.86
37%
6.64%
6.64%
9.47%
12.76%
16.61%
Tax Rate
Tax Rate
Terminal Growth Rate
UOIG 16
University of Oregon Investment Group
Date of Presentation
Appendix 7 – Sources
Sources
SEC Filings(10-Ks)
Flotek Investor Relations page
Flotek presentations
Earnings call transcripts
MorningStar
IBIS World
Factset
Yahoo! Finance
Google Finance
Aswath Damodaran’s research paper
EAI.org
UOIG 17
University of Oregon Investment Group
Date of Presentation
UOIG 18