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					August 12, 2009 Oil Services

Flotek Industries, Inc. (NYSE: FTK)
Remaining Cautious After Recent Developments Investment Summary
Despite the progress in terms of its covenants, liquidity, and new leadership, we remain cautious on FTK given the earnings risk that was evident from the lower-than-expected quarterly report and the significant potential for equity dilution as a result of its private placement of convertible preferred.
Neutral $1.84 $2.00 NYSE:FTK $17.49 - $1.21 18.40 $43.2 648.8 (27)% 0.0% $194.9 $44.2 NA

Company Update
Estimate Change Rating: Price: Price Target: Bloomberg:

Event
• FTK reported a Q2 2009 net loss of $(19.8) million, or a $(1.01) loss per share. Excluding a goodwill impairment charge of $12.3 million, the earnings per share would be around a ($0.60) loss per share, depending on the tax rate and diluted share count used. (A full P&L was not provided in the press release.) The earnings were significantly lower than our estimate of $(0.12) loss per share and the consensus estimate of $(0.08) loss per share. • FTK announced a private placement of convertible preferred stock for gross proceeds of $16 million, which resulted in FTK obtaining covenant relief and improving its liquidity position. However, we estimate that the liquidation preference of 15.0% would amount to approximately a $2.4 million dividend per year and that total incremental common shares if the stock triggers the $2.30, $2.31, and $2.45 exercise prices would be 42.6% of the cumulative shares pro-forma the conversions and exercise of both warrants. • The company announced that Jerry Dumas plans to retire from FTK. He will remain Chairman of the Board through the 2010 annual meeting and remain CEO until January 1, 2010 or until his successor is appointed. FTK Director John Chisholm, who will be interim President, has significant experience in roles including founder of Wellogix, Inc. and co-founder and President of ProTechnics Company, which was sold to Core Laboratories N.V. (CLB-$91.98) in 1996. • We will review our earnings model following the conference call scheduled for August 13 at 8:30 a.m. EST, dial-in 800-860-2442.

Facts
52-Week Range Shares Out (MM) Market Cap. (MM) Avg. Daily Vol(000) Year-to-Date Return Dividend/Yield EV(MM) LT Debt (MM) Net Debt/Total Cap Source: Company Filings, Bloomberg

Estimates Operating EPS
Q1 (Mar) Q2 (Jun) Q3 (Sep) Q4 (Dec) FY EPS

2008E
0.18A 0.26A 0.30A 0.11 0.85

2009E
(0.10)A (0.60)A (0.16) (0.16) (1.02)

2010E
----(0.40)

Valuation

2008E

2009E

2010E
NM

P/E 2.2x NM Source: Company Filings, PCP Estimates Mark Brown Senior Research Analyst (212) 682-7895 mbrown@pritchardcapital.com

Investment Thesis
We remain cautious on FTK, as we expect that operating performance will remain challenging, and even if performance improves in the future, it appears that shares could be significantly diluted based on the terms of the convertible preferred.

Valuation/Risks
Downside risks include its significant exposure to onshore North American drilling and highly leveraged balance sheet. Upside risks include an increase in commodity prices or a rebound in North American drilling that occurs more quickly than anticipated.
Please see pages 3 - 7 for Important Disclosures.

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Pritchard Capital Partners, LLC

Key points on the convertible preferred are below, although additional details are provided in the press release: • The terms of the preferred stock are dependent on shareholder approval of certain terms. The liquidation preference per annum would be 15.0% if shareholder approval is obtained or would increase to 17.5% and 20.0% if shareholder approval is not obtained within 120 days and 240 days, respectively. The liquidation preference of 15.0% would amount to approximately $2.4 million in dividends per year (see our calculations below). In addition, each unit of convertible preferred stock would be convertible to 434.782 common shares per units at a conversion price of $2.30 per share, which would represent approximately 7.0 million common shares. Each unit of convertible preferred stock would also come with a warrant and contingent warrant. The first warrant would allow the holder of the convertible preferred stock to purchase up to 155 shares of FTK common stock at an exercise price of $2.31 per share, representing approximately 2.5 million common shares. The contingent warrant would allow the purchase of up to 500 shares of common stock at an exercise price of $2.45 per share, representing approximately 8.0 million common shares. We estimate that the total incremental common shares would be 17.4 million if the exercise prices were reached for the conversion of the convertible preferred and exercise of both warrants. Based on the approximately 23.5 million diluted shares as of April 24, 2009, as per the March 31, 2009 10-Q, we estimate that the incremental shares would represent approximately 42.6% of the cumulative shares pro-forma the conversion of the convertible preferred and exercise of the warrants.
FTK — Convertible Preferred Summary
Assumptions: Common shares Gross proceeds Units Price per unit % liquidation preference per annum Liquidation preference per unit Liquidation preference per annum Convertible preferred units Total dividend per annum 23,490,437 as of Apr. 24, 2009, as per March 31, 2009 10-Q $16,000,000 16,000 $1,000 15.0% $1,000 $150 16,000 $2,400,000 17.5% $1,000 $175 16,000 $2,800,000 20.0% $1,000 $200 16,000 $3,200,000

•

•

Note: Dividend rate increases from 15.0% to 17.5% in 120 days and 20.0% in 240 days if shareholders fail to approve Convertible at $2.30 conversion price: Common shares per unit Convertible preferred units Incremental common shares

435 16,000 6,956,512

Warrant for 155 shares at $2.31 exercise price: Common shares per unit 155 Convertible preferred units 16,000 Incremental common shares 2,480,000 Contingent warrant for 500 shares at $2.45 exercise price: Common shares per unit 500 Convertible preferred units 16,000 Incremental common shares 8,000,000 Summary: Total incremental common shares Current common shares Cumultative common shares Total incremental as % of cumulative

17,436,512 includes convertible, warrant, and contingent warrant 23,490,437 as of Apr. 24, 2009, as per March 31, 2009 10-Q 40,926,949 42.6%

Source: Company reports, PCP estimates

Flotek Industries, Inc.

Please see pages 3 - 7 for Important Disclosures.

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Pritchard Capital Partners, LLC

Valuation Methodology
We value stocks using either an EV/EBITDA, P/E, or a free cash flow yield basis. We use multiples on historical and future earnings while adjusting our expectations for individual company characteristics such as growth expectations, profitability, balance sheet considerations, and other factors. We also take into account peak earnings multiples relative to past cycles.

Investment Risks
There is no guarantee that the stocks discussed in this report will reach our forecasted estimates. Risks that could prevent the company from reaching our estimates include the following: • Volatile commodity prices. Downturns in commodity prices can affect the need for the services provided by the specific company. • Overly aggressive assumptions. Our valuations are based on our forecasts of future performance. There is no guarantee that our forecasts will prove to be accurate. • Competitive Differentiation. Many oil service businesses offer very similar products and services which may be duplicated easily. Similar product introductions can lead to lack of pricing power and cause decrease in forecasted margins. • Severe Weather. Weather can effect operations by delaying drilling, workover and construction projects and have a negative impact on revenues. • Overall market weakness. While commodity prices may be the key driver of oil service stock performance, there is no guarantee that a weak overall stock market will not cause oil service stocks to sell off.

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Pritchard Capital Partners, LLC

Rating History
Rating and Price Target History for: Flotek Industries, Inc. (FTK) as of 08-11-2009
01/05/07 I:B:$26 12/18/08 S:$2 03/03/09 S:$1.5 03/17/09 S:$1 05/11/09 S:$1.25 08/10/09 N:$2

60 45 30 15 0

Q3 2007

Q1

Q2

Q3 2008

Q1

Q2

Q3 2009

Q1

Q2

Created by BlueMatrix

Rating and Price Target History for: Core Laboratories NV (CLB) as of 08-11-2009
01/09/09 I:B:$85 02/12/09 B:$80 04/23/09 N:$85 07/23/09 N:$80

180 150 120 90 60 Q3 2007 Q1 Q2 Q3 2008 Q1 Q2 Q3 2009 Q1 Q2 30

Created by BlueMatrix

Distribution of Ratings
IB Serv./Past 12 Mos.
Rating Count Percent Count Percent

BUY [BUY] HOLD [NEUTRAL] SELL [SELL]

50 30 3

60.20 36.10 3.60

7 0 0

14.00 0.00 0.00

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Pritchard Capital Partners, LLC
1 Year Price History for FTK
20 16 12 8 4 0
4 3 2 1 0

Q3

Q1

Q2

2009

Created by BlueMatrix

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Pritchard Capital Partners, LLC

Important Disclosures
Other Public Companies Mentioned in this Report

Core Laboratories NV (CLB - NYSE - $91.98 - Neutral) ; Flotek Industries, Inc. (FTK - NYSE - $1.84 - Neutral)
Analyst(s) Certification

The research analyst(s) who is primarily responsible for this report certifies that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research.
Compensation

The research analyst(s) responsible for the preparation of this report receives compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from Institutional Equities and Investment Banking. Pritchard Capital Partners, LLC has not managed an investment banking services transaction for any of the companies mentioned herein within the past 12 months. Recipients of this report should assume that Pritchard Capital Partners, LLC is currently seeking or will seek investment banking services compensation within the next three months from companies mentioned herein.
Ownership

The author(s) of the report do not have positions in any securities mentioned in this report.
Ratings Definitions

Buy-Shares that have more than 15% upside potential from current levels. Neutral-Shares with less than 10% downside and 15% upside potential from current levels. Sell-Shares with downside potential of >10% from current levels. Risk Disclosures
Valuation Methodology

We value stocks using either a NAV or a discounted cash flow approach. Our NAVs are based on either discounted cash flows or market values of assets as determined by comparable sales or estimates. For companies where a cash flow valuation is more appropriate, we use a relative multiple approach, comparing a company to a peer group on a DCF and EBITDA basis, and determining the appropriate relative multiple based on a quantitative and qualitative analysis on the company and its growth prospects.
Investment Risks

There is no guarantee that the stocks discussed in this report will reach our forecasted estimates. Risks that could prevent the company from reaching our estimates include the following: • Volatile commodity prices. Downturns in commodity prices can affect the need for the services provided by the specific company. • Overly aggressive assumptions. Our valuations are based on our forecasts of future performance. There is no guarantee that our forecasts will prove to be accurate. • Competitive Differentiation. Many oil service businesses offer very similar products and services which may be duplicated easily. Similar product introductions can lead to lack of pricing power and cause decrease in forecasted margins. • Severe Weather. Weather can effect operations by delaying drilling, workover and construction projects and have a

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Pritchard Capital Partners, LLC

negative impact on revenues. • Overall market weakness. While commodity prices may be the key driver of oil service stock performance, there is no guarantee that a weak overall stock market will not cause oil service stocks to sell off.

Other Disclosures
Information has been obtained from sources believed to be reliable but Pritchard Capital Partners, LLC does not warrant its completeness or accuracy except with respect to any disclosures relative to Pritchard Capital Partners, LLC’s and the analyst’s involvement with the issuer. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make his or her own independent decisions regarding any securities or financial instruments mentioned herein. Please contact your Pritchard Capital Partners, LLC representative for additional information.
Pritchard Capital Partners, LLC New Orleans • New York • Atlanta • Washington DC • Houston Trading 800.871.0608 • Member FINRA, SIPC • www.pritchardcapital.com

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