C&J Energy Services, Inc. (CJES) priced its 11.5 million share IPO at $29.00, above the indicated range of $25-$28. Of the shares offered Friday, 4.75 million are primary or company shares, while the remaining 6.75 million are secondary shares being offered by selling shareholders. The proceeds to the company will be used to repay indebtedness under its revolving credit facility, and any remaining proceeds to partially fund the purchase of its on order hydraulic fracturing fleets. At the $29.00 price, the market capitalization is approximately $1.52 billion. The lead underwriters for the offering are Goldman Sachs (GS), JP Morgan (JPM) and Citi (C).
C&J is a differentiated energy services company that offers hydraulic fracturing, coiled tubing and pressure pumping services to large exploration and production companies with significant unconventional resource positions. They focus on the most complex projects in the most challenging basins, including South Texas, East Texas/North Louisiana and Western Oklahoma. Customers include (but are not limited to): EOG Resources (EOG), EXCO Resources (XCO), Anadarko (APC), Plains Exploration (PXP), Penn Virginia (PVA), Petrohawk (HK), El Paso (EP), Apache (APA) and Chesapeake (CHK). C&J currently operates 4 modern, 15,000 psi pressure rated hydraulic fractioning fleets, with a current aggregate of 142,000 horsepower, which will increase to 206,000 horsepower by the end of 2011, and further increasing to 270,000 after the delivery of fleet 8 in the second half of 2012. CJES also operates a fleet of 15 coiled tubing units, 16 double pump pressure pumps and 9 single pump pressure pumps. The company will have an additional 4 coiled tubing units and 5 double pump pressure pumps in 2011. C&J competes with other service companies performing fracturing services on highly complex wells such as: Baker Hughes (BHI), Halliburton (HAL), RPC Inc. (RPC) and FracTech. CJES has the highest average monthly revenue per horsepower (HHP) of $331 (followed by BHI with $273), and the highest return on capital employed of 43% (followed by 35% for FracTech).
Revenue has also grown rapidly along with growth in HHP, with revenue growing at a 98% CAGR from 2008 to 2010, from $62.4 million to $244 million, and HHP growing from 34,000 in 2009 to 142,000 by April 2010. From 2008 to 2010, adjusted EBITDA grew from $19.9 million to $82.6 million. For the first quarter 2011, sales were up 290% over the same period in 2010 to $127 million, and EBITDA margin was up 41% from 238% in the same period for 2010. The company states that it has had 13 years of positive comp store sales. Based on the company’s guidance for 2Q2011, it will have outpaced the full year revenue from 2010 in just 6 months of 2011 by more than 25%. And maybe the most important aspect of all is that the company is profitable on a net income basis as well with over a 13% net income margin for 2010 and an increase to 22% for 1Q2011.
Unlike the brand name and growth retail IPOs that have come through recently, or the handful of growth tech IPOs creating a lot of buzz, C&J operates in a rather unsexy space. Nevertheless, this company is a growth story as can bee seen by its recent financial performance, and that growth is enough to have created plenty of demand. This may not have the same day one gains as the other “hot deals” this week in Dunkin’ Brands (DNKN) and Teavana (TEA), up 46% and 63% respectively, but C&J will still produce a nice day one return for those lucky enough to get an allocation on the deal.