Stonegate Capital Partners Initiates Coverage on Deep Down, Inc.

DALLAS, TX / ACCESSWIRE / May 19, 2016 / Stonegate Capital Partners initiates research coverage on Deep Down, Inc. (OTCQX: DPDW).

Company Description

Deep Down, Inc. is an oilfield services company specializing in complex deepwater and ultra-deepwater oil production, distribution system, and support services. Its services and technological solutions include providing distribution with installation support, engineering services, umbilical terminations, loose-tube steel flying leads, ROVs, and related services along with marine automation, monitoring and control systems, and the design and fabrication of large onshore and offshore carousel systems. It also supports subsea installation, commissioning, and maintenance projects through specialized, highly experienced service teams and engineered technological solutions.

Summary

Deep Down, Inc. provides innovative concepts of subsea distribution systems with specialization in engineering services, installation management, custom fabrication, site integration testing, and inspection and repair of equipment for the subsea oil and gas industry.

• The Company focuses on complex ultra-deepwater oil production support services and products. Importantly, Deep Down is focused on supporting clients on the completion side vs. drilling.

• Deep Down provides support for subsea engineering, installation, and maintenance projects through specialized, highly experienced service teams and engineered technological solutions. Importantly, the Company is more services oriented but also produces some specialized products such as steel flying leads.

• One of the Company's core competencies is its ability to collaborate with oil and gas operators, installation contractors and subsea equipment manufacturers to determine the fastest, safest, and most cost-effective solutions to the full spectrum of complex issues which arise in the Company's industry.

• While the Company has a diversified base of customers that include operators, installation contractors and original equipment manufacturers (OEMs), Deep Down has recently made significant inroads with majors.

• Global spending on subsea production systems is due to reach $65B between 2015 and 2020, a 56% increase from the previous period.

• Over the last 3 years, the Company has grown its backlog from $20M in FY12 to $30+M as of Q1 2016 and anticipates additional growth in the future.

• Deep Down is focused on margin improvement. In Q1 2016, the Company reported gross margins of 33%, but in Q4 2015 it was 38%. The Company believes it can return to the 38% range for FY 2016.

• The Company recently sold its manufacturing facility in Channelview, TX for $3.8M, allowing DPDW to pay off its only debt of $2.7M and significantly strengthening its balance sheet. Additionally, due to the sale of Channelview, and improved efficiency in its remaining facility, the Company expects to realize cost savings of~$35K to $45K/month.

• Significant upside exists if DPDW can sell two carousels it repurchased in FY 2013. Expected sale proceeds are ~$10M with an expected $5M+ profit once sold. Alternatively, long-term rental income (estimated at $10-12,000 per day) could materialize if carousels are rented by customers.

We employ a scenario analysis using multiple relative valuation frameworks. The details are on page 7 of the full report, and all scenarios show upside. We also note that the current market capitalization of $14.00M is significantly less than the Company's tangible net worth of $23.3M, with $6.9M in cash on its balance sheet as of Q1 2016.

The full report can be accessed by clicking the following link: http://www.stonegateinc.com/reports/DPDW_May_2016 Final.pdf

About Stonegate Capital Partners

Stonegate Capital Partners is a Dallas-based corporate advisory firm dedicated to serving the specialized needs of small-cap public companies. Since our inception, our mission has been to find innovative, undervalued public companies for our network of leading institutional investors who seek high quality investment opportunities.

SOURCE: Stonegate Capital Partners