A Brief Summary of Thoughts on DPDW
Hello,
I visited the company and indicated I would post a report or even a blog on that trip after following up with subsequent due diligence. I have been busy on other fronts so I did not put up my comments. I will not do a blog on DPDW as I have certain limitations on what I can say. What I can write I can do it here. I will not do a blog at this time due to other professional considerations where my opportunities far exceed my stake in DPDW, though it is quite large, and are not served by blogging about an investment I made on the open market like this.
I will keep it short and to the point. These are some of the areas of emphasis I think most here can benefit from regardless of whether anything is new information or not.
1. Deep Down is involved with basically all of the major oil companies operating in the Gulf of Mexico and also with many of the important oil companies globally. Repeat business is definitely a fact of life for the company and it should continue to grow in addition to contracting with new clients. As it is, their client list now is not fully promoted, but it is very extensive and impressive.
2. Deep Down has business globally. They are operating on other continents now with staff on location servicing client operations. This does mean there can be and should be important service and hardware contract wins coming from major deep sea projects in international waters in the future (I am not suggesting any time frames).
3. The DPDW work site is already fully equipped to fill all orders and can handle increased work loads. The work site is very active and morale is high. It is structured to meet all quality control review standards prior to shipment. Their current engineering and machining capacities are extensive and any complementary services required to complete a job are easily obtainable. Basically, they are ready to scale as order flow increases.
4. The company does not announce every order filled. There is plenty of activity with clients making repeat orders so while there may be silence on the PR level that in no way should lead anyone to think they are not busy at their home location prepping orders for delivery. Prior camera coverage of incoming and outgoing site traffic and gear movement was accurate in nature (it was on camera previously, but in person those impressions are verifiable).
5. The company has an already significant work force and may grow to over 100 employees in the coming year or so (my assumption, not their statement). With Mako closing soon, that assumption may already be met.
6. Over time there should be growth of additional streams of income coming from the boating sector and other markets that may be marketed to and penetrated by DPDW divisions with ElectroWave leading the way. The Mackinaw control systems are the real deal and it is just a matter of time before the Colonel is booking sales in this segment. The market is quite broad for systems control consoles and ElectoWave has cutting edge tech in this area with innovations in development in addition to those already designed. There is a sophisticated facility dedicated to these operations on site that is clearly a highly functioning operation with many irons in the fire. Fundamentally, their immediate value to the company are the direct synergies from its computerization of Deep Down mechanical devices, but over time EW looks to be a growth arm of the company generating new markets and sales channels that will grow revenues.
7. Clients maintain active roles in the development of products designed and crafted for them. As such, DPDW evidences deepening and ongoing relationships with clients for whom they are delivering new products.
8. The company is led by an expert in his field. Ron Smith is often senior in background and capabilities to those running the deep water rigs he advises for. The major oil companies and their hierarchies means more junior people are often placed into daily operational and implementation roles on the deep water platforms. Many are not equipped to trouble shoot these projects the way Smith is. As DPDW ramps up in size, their already growing reputation as problem solvers will translate into greater size orders coming from mega-billion oil deep sea development budgets.
9. Deep Down has relationships with all of the independent private companies that are also go to teams on the deep water projects. As a result, Ron Smith has been working alongside the intellectual leaders of the deep sea field and is friends with many of the CEOs of the key independent services company in his sector. These are the people driving many of the technological innovations in the deep sea sector, not the in-house engineers of the big clients.
10. Many of these top senior independent CEOs in deep sea oil services do not want to be absorbed into major oil companies, but are interested in both capitalization for growth and to capture more of the growing budgets in the sector as well as getting equity stakes in a public company they can help to grow. DPDW was the one in the group to go public and has the leadership position now from which to consolidate the deep water services into THE NUMBER ONE company in its space. Therefore, it is implicit in the business strategy to grow the company into a billion dollar revenue operations both through organic growth and via acquisitions and thus attain the status of the premier deep water oil services company in the world. They have a very good shot at doing just that.
11. On most products, Deep Down's turnaround time is vastly faster than larger companies that may provide similar gear. This time factor is likely going to be a growth driver unto itself and factor into securing even more contracts. It should also translate into better pricing advantages for DPDW as clients will pay a premium on a mission critical item that can be delivered and implemented a year faster than your competition. Therefore there should be advantageous increases in sales margins on some of their product lines as sales grow.
12. DPDW has made it to the next level where they are capitalized, larger, integrated and staffed to the degree larger companies will be comfortable placing more and larger orders. It is a common catch-22 for smaller growth companies that even if you have the best products and service available the largest companies may still give their business of a larger competitor of yours until the client sees you've attained a certain size yourself. Large companies want guarantees you will stay in business and can deliver on large contracts. DPDW is entering this phase now.
These are some basic ideas I'd focus on in continuing analysis of the company and their future prospects.
Take care and happy investing
