Equity Research: Research Summary

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1 TechnologySpecialistsof Equity Research: August 10, 2015 KBCM Topics: CNP, HIL, IPCM, LABL, PDCE, STN, TISI, TKPPY PCS Topics: AMD, INTC, MRVL, NVDA, ON, SYNA Rating Changes Ticker Company Old Rating New Rating Analyst IPCM IPC Healthcare, Inc. Overweight Sector Weight Gurda Estimate Changes Ticker Old 2015E New 2015E Cons. Old 2016E New 2016E Cons. Old 2017E New 2017E Cons. Analyst LABL Josephson, CFA STN Afzal TISI Afzal TKPPY Afzal Important disclosures for the companies mentioned in this report can be found at Please refer to the analysts' recently published reports for company-specific valuation and risks. KeyBanc Capital Member NYSE/FINRA/SIPC

2 INDUSTRIAL: Trucking - ALERT: KeyBanc Capital Markets Truckload Spot Rate Index Week 32 Fowler 3 TECHNOLOGY: Notebook ODM Tracker Update McConnell 6 ENERGY: CNP - ALERT: 2Q15 in Line; 2015 Guidance Intact; New Dividend Growth Target Tucker 7 INDUSTRIAL: HIL - ALERT: Shareholders Vote against Activist at Annual Meeting Afzal 8 HEALTHCARE: IPCM: Downgrade to Sector Weight Post-Acquisition Gurda, CFA 9 INDUSTRIAL: LABL: Raising FY16 Estimates on Lower Taxes and Interest; 2Q Off to a Slow Start Josephson, CFA 10 ENERGY: PDCE - ALERT: Mitigating Outflows Moving Forward Deckelbaum 11 INDUSTRIAL: STN: Key Takeaways from 2Q15 Results, Revised Outlook Afzal 12 INDUSTRIAL: TISI: Key Takeaways from F4Q15 Results and FY16 Outlook Afzal 13 INDUSTRIAL: TKPPY: Adjusting Estimates Post 2Q15 Results Afzal 14 KeyBanc Capital Disclosures and Certifications 15 Page 2

3 32 Trucking - ALERT: KeyBanc Capital Markets Truckload Spot Rate Index Week Todd C. Fowler / (216) / tfowler@key.com Joseph Frankenfield, CFA / (216) / joseph.y.frankenfield@key.com Our KeyBanc Capital Markets Truckload Spot Rate Index for dry-van (excluding fuel) was down 9% YOY and flat sequentially during week 32 (ending August 7, Exhibit 1). Refrigerated rates excluding fuel were down 6% YOY but up 1% sequentially (Exhibit 2); flatbed rates excluding fuel were down 7% YOY and 1% sequentially (Exhibit 3). In our view, spot rates are exhibiting seasonality typical of early 3Q trends, while YOY trends remain impacted by challenging comparisons. We expect sequential comparisons to stabilize in coming weeks as demand improves seasonally, but for rates to be lower YOY as challenging comparisons continue into the 3Q. That said, spot rates remain in line on an absolute basis, and could potentially strengthen if consumer or housing demand accelerate in 2H15, or industrial and manufacturing end markets stabilize. Average dry-van spot rates are down 10% YOY 3Q15-to-date, and down 3% year-to-date. Refrigerated rates are down 6% YOY 3Q15-todate and down 1% year-to-date, and flatbed rates are down 6% YOY 3Q15-to-date, but up 1% year-to-date. This compares to full-year 2014 increases of 16% for dry-van rates, 12% for refrigerated rates and 13% for flatbed rates. All amounts exclude the impact of fuel on rates and are based on information from Internet Truckstop. Our current estimates reflect low to mid-single-digit increases in revenue per mile for Large truckload carriers typically haul freight based on contractual terms established annually with shippers; however, we view spot rates as a leading indicator for contractual pricing, as well as an indicator of available capacity industry-wide. Additionally, spot dynamics can favorably (or unfavorably) impact reported revenue per mile trends resulting from mix opportunities, while sustained improvement may result in reworking contractual rates to more accurately reflect market rates. See Exhibit 5 for a time series comparison of spot and contractual rates. Exhibit 1: KeyBanc Capital Markets Dry-van Spot Rate Index Rate per mile (excluding fuel surcharges) KeyBanc Capital Markets Dry-van Spot Rate Index $2.10 $2.00 $1.90 $1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $ Week Source: KeyBanc Capital, Internet Truckstop Page 3

4 Exhibit 2: KeyBanc Capital Markets Refrigerated Spot Rate Index $2.45 KeyBanc Capital Markets Refrigerated Spot Rate Index Rate per mile (excluding fuel surcharges) $2.30 $2.15 $2.00 $1.85 $1.70 $1.55 $1.40 $1.25 $ Source: KeyBanc Capital, Internet Truckstop Exhibit 3: KeyBanc Capital Markets Flatbed Spot Rate Index $2.10 KeyBanc Capital Markets Flatbed Spot Rate Index Rate per mile (excluding fuel surcharges) $2.00 $1.90 $1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $ Source: KeyBanc Capital, Internet Truckstop Page 4

5 Exhibit 4: Internet Truckstop Market Demand Index 36 Truckstop.com Weekly Market Demand Index Index Value Week Source: KeyBanc Capital, Internet Truckstop; Note: The MDI is a measure of demand relative to available trucks in the spot market Exhibit 5: KeyBanc Capital Markets Dry-van Spot Rate vs. Contractual Rate $2.10 KeyBanc Capital Markets Dry-van Spot vs. Contractual Rates $2.00 $1.90 $1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Spot Contract Source: KeyBanc Capital, Internet Truckstop, Truckloadrate.com Page 5

6 Notebook ODM Tracker Update July Shipments Miss Our Recently Lowered Estimates; Maintaining Q3 Shipment Estimate at +5% Q/Q July unit shipments were below recently lowered estimates. Unit shipments of 9.65 million, down 21% m/m, were lower than recently lowered estimates of million, down 17% m/m, primarily due to lower-than-expected shipments at Quanta, which came in 300,000 lower than our estimates. We believe weakness at Quanta was due to lower-than-expected shipments to two Asian PC OEM customers. Semiconductors Michael McConnell Hans Chung, CFA Our unit shipment estimate of +5% q/q/-14% y/y remains unchanged. Despite lower-than-expected July shipments, notebook ODMs continue to guide Q3 unit shipments to grow by 5% to 10% q/q. That said, given weak macro economy, we remain relatively cautious and maintain our unit shipment estimate at +5% q/q and -14% y/y. PC demand outlook is sub-seasonal for Q3. Conversations with the PC supply chain indicate a sub-seasonal outlook for PC end demand in Q3, despite Microsoft s Windows 10 launch and Intel s upcoming release of its Skylake family of processors in late Q3. While Q2 is expected to be a bottom for end demand, signs of excess notebook system inventory at PC OEMs, continued currency headwinds, no hardware upgrade requirements for Windows 10 (free), a higher bill of materials for Skylake platforms (due to the 10% to 15% price premium for DDR4), and uncertainty with macroeconomic demand are driving a subdued outlook for this quarter. Intel s implied CCG guidance for Q3 is not as aggressive as it looks. While investors remain highly skeptical of Intel s implied CCG sales guidance for Q3 (+8% q/q) and overall sales guidance for the year (-1% y/y), we contend that this guidance is not as aggressive as it looks: (1) Intel sell-in versus PC supply chain sell-out in Q2 (see page 2) was the lowest since 2Q12, indicating that Intel undershipped PC end demand in 1H15, and (2) unit demand forecasts at motherboard manufacturers remain more optimistic than notebook ODMs for Q3 given acute demand weakness in 1H15, with units still expected to grow over 10% q/q. In addition, we believe Intel s unchanged 2015 outlook for DCG growth (15%+ y/y) should support the stock at current levels. Other PC-exposed companies in our coverage universe include AMD, MRVL, MU, NVDA, ONNN and SYNA. Stock Implications Positive, Negative, Neutral Company Stock Rating Target Price Mkt Cap. Advanced Micro Devices, Inc. AMD SW NA $2.09 $1,626.0M Intel Corporation INTC OW $35.00 $28.88 $141,771.9M Marvell Technology Group Ltd. MRVL SW NA $12.51 $6,694.9M NVIDIA Corporation NVDA SW NA $22.98 $12,776.9M ON Semiconductor Corporation ON SW NA $10.25 $4,472.1M Synaptics, Incorporated SYNA SW NA $75.61 $2,946.5M Page 6

7 CenterPoint Energy, Inc. (Sector Weight) CNP - ALERT: 2Q15 in Line; 2015 Guidance Intact; New Dividend Growth Target Matt Tucker / (917) / mtucker@key.com Grier Buchanan / (917) / gbuchanan@key.com CNP s 2Q15 operating EPS (guidance basis) declined 5.1% YOY to $0.19, which compares to our estimate of the same and consensus of $0.18. Management reiterated 2015 EPS guidance of $1.00-$1.10 vs. our estimate of $1.02 and consensus of $1.05, indicating it now expects 2015 EPS from utility operations to finish near the high end of its $0.71-$0.75 guidance range, with ENBL expected near the low end of its $0.29-$0.35 range. Notably, management re-established long-term dividend growth guidance at 4-6% through 2018, which is consistent with its consolidated EPS growth forecast. Previously, CNP had guided to a dividend CAGR of 8-10% before suspending the target due to uncertainty around ENBL in January 2015, at which time it announced a 2014 hike of 4.2%. Key Drivers. Relative to our estimate, stronger than expected Utility Operations EPS of $.13 (vs. KBCM $0.11) was offset by a lower contribution from ENBL of $0.06 (vs. KBCM $0.08). Within Utility Operations, operating income at Electric T&D and Energy Services exceeded our expectations and were partly offset by a lighter than expected result at Gas Distribution. Operating income of $186M was flat vs. 2Q14, as higher Electric T&D was offset by lighter results at Natural Gas Distribution and Energy Services, while EPS declined $0.02 primarily due to weaker YOY results at ENBL. At Gas Distribution, operating income fell 37% YOY to $19M (vs. KBCM $28M), as a YOY weather headwind ($5M), increased D&A and slightly higher O&M more than offset customer growth (+1.1% YOY). Electric T&D operating income increased 14% YOY to $131M (vs. KBCM $127M), driven by a weather tailwind ($13M), strong customer growth of 2.2% and rate relief, partially offset by equity true-up along with higher O&M and D&A. Initial Take. We would expect a neutral response to the $0.01 EPS beat vs. consensus, intact 2015 outlook and initiated L-T dividend growth guidance, which we view as within the range of investor expectations, though perhaps at the lower end. On today s 11:30 am EDT conference call, we primarily look for an update on the economic backdrop in Houston and management s outlook for recent rate requests at Natural Gas Distribution and Electric T&D. We maintain our Sector Weight rating. Page 7

8 Hill International, Inc. (Overweight) HIL - ALERT: Shareholders Vote against Activist at Annual Meeting Tahira Afzal / (917) / tafzal@key.com Sean Eastman / (917) / sean.eastman@key.com Preliminary results of HIL s annual shareholders meeting on Friday indicate that management was able to garner sufficient votes to retain its power to appoint the two rotational Board seats that were up for re-election and reject the call from an activist shareholder to hire an investment banker to consider alternatives for the Company. HIL has re-elected Camille S. Andrews and Brian W. Clymer to the Company s Board of Directors. Official results are pending a final tally from the inspector of elections. The activist Bulldog Investors LLC s concomitant press release indicates that the annual meeting also entailed an agreement to eventually elect two independent directors that will be identified by major public shareholders (this is yet to be confirmed). Given HIL s consulting-oriented model, we sense the Company may remain susceptible to activists if it falls behind on its plan as of now, we estimate the Company to be on track to deliver on its cost optimization plan. Page 8

9 IPC Healthcare, Inc. IPCM: Downgrade to Sector Weight Post- Acquisition We are downgrading shares of IPCM from Overweight to Sector Weight following the proposed acquisition by TMH at $80.25/share, announced August 4th. The acquisition price represents a 37% premium over IPCM's closing price the day prior to the announcement. In addition to being the largest hospitalist management company in the U.S., IPCM offers TMH: 1) significantly larger exposure to Medicare's Bundled Payments for Care Improvement (BPCI) program; and 2) enhanced post-acute care management capabilities, as 35% of IPCM s encounters occur in a post-acute care setting. Jason Gurda, CFA / (917) jason.gurda@key.com Jason Twizell / (917) jason.twizell@key.com 3.5 NASDAQ: IPCM Rating: Price Target: Sector Weight NA Price: $ Oct-14 Vol (mil) Dec-14 Feb-15 Apr-15 Jun Aug-15 IPCM Company Data 52-week range $36 - $80 Market Cap. (M) $1,406.4 Shares Out. (M) Enterprise Value (M) $1,484.8 Avg. Daily Volume (30D) 365,859.0 SI as % of Float 5.4% SI % Chg. from Last Per. 3.0% Book Value/Share $21.78 Estimates FY ends 12/31 F2014A 1Q15A 2Q15A 3Q15E 4Q15E F2015E F2016E EPS (Net) $2.30 $0.53 $0.53 $0.54 $0.57 $2.16 $2.60 Cons. EPS -- $0.53 $0.53 $0.54 $0.59 $2.19 $2.52 EBITDA (M) $72.6 $16.8 $17.0 $17.4 $18.5 $69.8 $86.2 Cons. EBITDA -- $16.8 $17.2 $17.8 $19.3 $71.1 $84.0 Valuation P/E 34.5x x 30.5x EV/EBITDA 20.5x x 17.2x Page 9

10 Multi-Color Corporation LABL: Raising FY16 Estimates on Lower Taxes and Interest; 2Q Off to a Slow Start LABL reported 1Q16 results that were roughly in line with estimates, with EPS beating on account of lower taxes and lower interest. LABL expects organic growth at the lower end of its target range in 2Q on account of inventory destocking and walking away from some business in North America. Our FY16 EPS estimate is increasing on account of lower taxes and lower interest expense; our EBIT estimate is modestly lower, even with the addition of the pending Super Label Group acquisition. We consider the valuation fair. We are increasing our FY16 EPS estimate from $3.45 to $3.70 on account of lower taxes (which boosts our FY16 EPS estimate by ~$0.20) and lower interest expense (which boosts our estimate by another ~$0.08), partially offset by a larger FX drag (LABL estimates FX will be a ~$0.04 EPS drag in 2Q16, compared to our previous estimate of a $0.01 drag). Beyond the issues we noted earlier (the inventory de-stocking and walking away from business in North America), LABL said that July was a slow start to its 2Q, and that it had poor performance in Mexico in 1Q. We are increasing our FY17 EPS estimate from $3.66 to $3.86, again on lower taxes and lower interest; our EBIT estimate remains the same. Our FY17 estimate implies 4% growth, following 16% growth in FY16. For perspective, LABL said on its call that it continues to believe that it can earn $4.00 of EPS by the end of FY17; we are assuming $3.86. Adam J. Josephson, CFA / (917) ajosephson@key.com Marc Solecitto / (917) marc.solecitto@key.com NASDAQ: LABL Rating: Price Target: Sector Weight NA Price: $ Oct-14 Vol (000s) Dec-14 Feb-15 Apr-15 Jun-15 Company Data Aug-15 LABL 52-week range $39 - $72 Market Cap. (M) $1,091.3 Shares Out. (M) Enterprise Value (M) $1,584.4 Avg. Daily Volume (30D) 89,685.0 Annual Dividend $0.20 Dividend Yield 0.3% SI as % of Float 2.5% SI % Chg. from Last Per. 2.5% Estimates FY ends 3/31 F2015A 1Q16A 2Q16E 3Q16E 4Q16E F2016E F2017E EPS (Net) $3.20 $0.91 $1.01 $0.84 $0.93 $3.70 $3.86 Cons. EPS $3.58 $0.97 $1.10 $0.92 $0.96 $ Previous -- $0.79 $0.99 $0.82 $0.85 $3.45 $3.66 Valuation P/E 20.2x x 16.7x Page 10

11 PDC Energy (Overweight) PDCE - ALERT: Mitigating Outflows Moving Forward David Deckelbaum / (917) / ddeckelbaum@key.com Chris Stevens / (917) / chris.stevens@key.com Brendan Blake, CFA / (917) / brendan.blake@key.com Christopher Wolpert, CFA / (917) / christopher.wolpert@key.com 2Q15 Recap. PDCE reported 2Q15 EPS and DCPS of $0.27 and $2.42, respectively, below our estimates of $0.46 and $2.44 and a DCPS beat to consensus of $0.41 and $2.31. Production for the quarter was 37 MBOED, 1.1% below our estimate of 37.4 MBOED and in line with consensus of 37.0 MBOED. Liquids mix of 64% was relatively in line with a 3.5% beat on crude volumes, offset by a 10% miss on NGLs. Wattenberg production was in line while Utica production came in 8.5% lower vs. our estimate. We will look for more color on this morning s call regarding basin level commentary 7% stronger natural gas pricing ($2.03/mcf vs $1.90/mcf) helped offset 28% poorer than expected NGL realizations ($10.01/boe vs $13.90/ boe). LOE was relatively in line with our model, with the main variances to our estimates driven by higher DD&A (-$0.17/sh impact), offset by lower G&A (+$0.03/sh impact) and lower marketing costs (+$0.01/sh impact). 2Q15 capex was $176M, 12% above our estimate Guidance Increased, 2016 Looks Efficient. Increased working interests and well level efficiencies drove the uptick in guidance, with management moving to MMBOE at the midpoint vs. 14 MMBOE previously. PDCE will exit 2015 at 48 MBOED, setting the table nicely for Management will upsize its projected well counts for the year, choosing to drill 30% more gross wells (155 vs. 119) and completing 10% more, effectively building a stronger backlog for 2016 ops. Capex will climb to $535M at the midpoint for '15. Highlighting the efficiencies, PDCE will drop to a four-rig program in late 2015 and into Given the inventory backlog and faster D&C times, PDCE believes it can operate within cash flow in 2016 while growing production at 35% YOY. We will look to the call for more color on 2016 plans as we had previously modeled PDCE to outspend by roughly $100M (25%) at strip and to grow production by 24% (consensus 26%), including the incremental cost data points ($3.1M/SRL well, $4.1M/XRL well). Our Take. We expect shares of PDCE to outperform peers today given the heightened guidance for both 2015 and 2016 that reflect both PDCE s quality of inventory, as well as efficient capital management and strict focus on cost reductions. Page 11

12 Stantec Inc. STN: Key Takeaways from 2Q15 Results, Revised Outlook We are reiterating our SW rating and lowering our 2015 EPS estimate to reflect more pronounced oil & gas headwinds as per management s revised organic growth outlook. We are maintaining our 2016 estimates on comfort around a return to normalized operating performance and STN s exposure to potentially inflecting end markets. We remain on the sidelines as we gauge STN's current premium valuation to its peers already reflects the Company s diversified business model and acquisition track record. Lowering 2015 EPS Estimate on More Pronounced Oil & Gas Headwinds We have revised our 2015 EPS estimate to $1.85 (from $1.88), which includes roughly $0.06 of non-recurring gains in 2Q15, to reflect management s more draconian oil & gas outlook for 2H15, as well as slightly lower margin assumptions to bake in oil & gas pricing pressure and a utilization drag. Our 2015 estimates reflect a slight visibility cushion to management s revised organic revenue growth outlook of 2% (from 3%). We are maintaining our 2016 EPS estimate of $2.00 on comfort around STN s ability to deliver margins in line with the Company s historical operating performance on low single-digit organic revenue growth given the outsized severance and integration costs incurred in Highlight Exposure to Inflecting End Markets We view management s 2% organic growth target for 2015 as achievable against the expected decline in STN s oil & gas business (which is 15% of total revenues and mostly midstream), an easier comp for the Energy & Resources segment in 2H15 and conviction on the Company s growth markets (within the Buildings and Infrastructure segments) continuing to gain momentum. Specifically, we concur with management s positive outlook on nonresidential construction, water and transportation markets - particularly in the U.S., where STN has built a strong position with 6,000+ employees. We view STN to be a wellpositioned beneficiary of a potential long-term federal highway bill and a ramp in water infrastructure spending, as well as the anticipated opportunities with U.S. utilities in connection with coal ash regulations. View Valuation as Reasonably Placed We highlight that STN continues to trade at a premium valuation to peers, which we view as being reasonably placed in light of the Company s relatively stable business model and acquisition track record. We look for more color on the pace of the oil & gas decline and growth outlook into 2016 to get more constructive on the name. Tahira Afzal / (917) tafzal@key.com Sean Eastman / (917) sean.eastman@key.com NYSE: STN Rating: Price Target: Price: 0 Oct-14 Vol (000s) Dec-14 Feb-15 Sector Weight Apr-15 NA C$33.53 Jun-15 Company Data Aug-15 STN 52-week range C$29 - C$38 Market Cap. (M) C$3,173.6 Shares Out. (M) Enterprise Value (M) C$3,543.5 Avg. Daily Volume (30D) 23,798.3 Annual Dividend C$0.32 Dividend Yield 1.0% SI as % of Float 0.6% SI % Chg. from Last Per. 6.5% Net cash/market cap (11.7)% Estimates FY ends 12/31 F2014A 1Q15A 2Q15A 3Q15E 4Q15E F2015E F2016E EPS (Net) C$1.74 C$0.40 C$0.46 C$ C$1.85 C$2.00 Cons. EPS -- C$0.44 C$0.45 C$0.53 C$0.48 C$1.86 C$2.16 Previous C$ C$ Valuation P/E 19.3x x 16.8x Page 12

13 TEAM, Inc. TISI: Key Takeaways from F4Q15 Results and FY16 Outlook We are reiterating our SW rating and raising our FY16/FY17 estimates to reflect a slightly higher organic outlook, but largely the Qualspec contribution. TISI s on-budget FY15 performance despite changing market dynamics suggests a successful restructuring effort (translating into a more flexible business structure) and a more cautious approach to budgeting. That said, we gauge current trading levels already incorporate this success, and we look for visibility on cross-selling through Qualspec to get constructive. View Implied Organic Outlook as Largely in Line, Turnaround Outlook Relatively More Upbeat Management s guidance embeds a slightly higher organic growth scenario vs. our estimate, which is predicated on a broad-based healthier outlook for its segment. While acknowledging an overarching challenging environment of spending for energy customers, management is assuming a stronger fall turnaround season to date. While we gauge TISI s peers have largely indicated a relatively more benign tone, we note management s more cautious approach to budgeting and TISI s more agile business model as exhibited in the past couple of quarters and, hence, our comfort on management s ability to react rapidly to a changing environment. Qualspec Cross-Selling Could Imply Sustainable Upside through Bundling We see Qualspec s cross-selling opportunities as a possible compelling positive catalyst and upside driver for TISI over the next couple of years. While we are generally skeptical of material cross-selling benefits for E&C names given the limited, evident track record to date, we observe that our initial channel checks with peers and the fairly differentiated products/services of the two segments suggest a visible bundling opportunity. We look for better visibility on timing and scope to get comfort on the materiality of this opportunity. Tahira Afzal / (917) tafzal@key.com NYSE: TISI Rating: Price Target: Sector Weight NA Price: $ Oct-14 Vol (000s) Dec-14 Feb-15 Apr-15 Jun-15 Company Data Aug-15 TISI 52-week range $35 - $48 Market Cap. (M) $981.0 Shares Out. (M) Enterprise Value (M) $1,032.3 Avg. Daily Volume (30D) 81,708.0 SI as % of Float 2.8% SI % Chg. from Last Per. (21.7)% Book Value/Share $14.20 Leverage Likely to Improve as Free Cash Flow Remains Healthy While TISI s debt leverage ratio at roughly 3x post the Qualspec deal is the highest it has been over at least the past 10 years, it remains below the covenant limit of 4x. Given TISI s relatively less risky execution model and consistent cash flow generation in the past, we remain comfortable on the Company s ability to reduce its leverage to historical levels over the next several years. Estimates FY ends 5/31 F2015A 1Q16E 2Q16E 3Q16E 4Q16E F2016E F2017E EPS (Net) $2.00 $ $2.52 $2.82 Cons. EPS $2.48 $0.50 $1.13 $0.15 $1.20 $ Previous $ Valuation P/E 22.7x x 16.1x Page 13

14 Technip TKPPY: Adjusting Estimates Post 2Q15 Results Adjusting our EPS estimates while maintaining our OW rating and price target of $22 we are incrementally comfortable around our 2015/16 EPS estimates post color on backlog profile and management s restructuring plan. We estimate the notable restructuring savings, if delivered on the timeline indicated, provide an ample cushion to our EPS estimates for 2015/16. Further, we expect TKPPY s book-to-bill to start inflecting up in the 2016 time-frame, serving as an important catalyst into Revising Our Estimates post 2Q15 Results & Detailed Commentary Revising our 2015/16 EPS estimates to bake in 2Q15 results and our follow-up with management. Trimming 2015 EPS estimate to Euros 5.28 (from Euros 5.31)/USD 1.48 (from USD 1.62) our trim reflects a lighter top line and operating margin in 2H15. Holding our 2016 EPS estimate intact at Euros 5.31 (this translates into an ADR value of $1.50 vs. $1.66) our intact Euro-based estimate assumes a weaker top line (high single-digit decline), but offset on the margin line with the help of the recently announced restructuring plan. View Backlog Visibility, Restructuring as Amply Cushioning 2015/16 Timeframe While visibility issues around energy capex remain a source of concern, our comfort around our estimates is driven by the visibility around TKPPY s backlog, its implicit margin profile, and benefits of recently announced restructuring. We highlight TKPPY has roughly 82% of our subsea revenue estimate for 2016 in backlog which compares to an 8-year range of 37-82%, and has roughly 73% of our 2016 onshore/offshore revenue estimate in backlog as well this does not include the PMC work that TKPPY has already won and flows in more as walk-in work. Further, our project specific compilation supports our revenue estimates for 2016 as well and we estimate that the restructuring plan amply offsets the likely pressure on pricing (our estimate assumes a 500 bps deterioration in variable cost margin in 2016 vs. the implied variable cost margin given for 2014). Tahira Afzal / (917) tafzal@key.com NASDAQ: TKPPY Rating: Overweight Price Target: $22.00 Price: $ Oct-14 Vol (mil) Dec-14 Feb-15 Apr-15 Jun-15 Company Data Aug-15 TKPPY 52-week range $13 - $23 Market Cap. (M) $6,208.3 Shares Out. (M) Enterprise Value (M) $4,660.7 Avg. Daily Volume (30D) 261,643.0 Annual Dividend $0.36 Dividend Yield 2.6% Book Value/Share $10.24 See Book-to-Bill Inflection as Likely in 2016 Time-Frame, Important Catalyst Based on customer commentary to date and the rapid cost deflation to date, we gauge project starts could potentially regain momentum into the middle of We gauge while the price deflation implies optically lower dollar-sized projects on average, we nonetheless sense investors will view the restart of activity as an important inflection point in sentiment. Estimates FY ends 12/31 F2014A 1Q15A 2Q15A 3Q15E 4Q15E F2015E F2016E EPS (Net) $1.54 $0.25 $0.45 $0.42 $0.41 $1.48 $1.50 Cons. EPS -- $0.24 $0.52 $0.37 $0.40 $1.36 $1.28 Previous $0.40 $0.49 $0.49 $1.62 $1.66 Valuation P/E 8.9x x 9.1x Page 14

15 KeyBanc Capital Disclosures And Certifications Important disclosures for the companies mentioned in this report can be found at Disclosures.action. Reg A/C Certification The research analyst(s) responsible for the preparation of this research report certifies that:(1) all the views expressed in this research report accurately reflect the research analyst's personal views about any and all of the subject securities or issuers; and (2) no part 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(s) in this research report. Rating Disclosures Distribution of Ratings/IB Services KeyBanc Capital Markets IB Serv./Past 12 Mos. Rating Count Percent Count Percent Overweight [OW] Sector Weight [SW] Underweight [UW] Rating System Overweight - We expect the stock to outperform the analyst's coverage sector over the coming 6-12 months. Sector Weight - We expect the stock to perform in line with the analyst's coverage sector over the coming 6-12 months. Underweight - We expect the stock to underperform the analyst's coverage sector over the coming 6-12 months. Note: KeyBanc Capital Markets changed its rating system after market close on February 27, The previous ratings were Buy, Hold and Underweight. Additionally, Pacific Crest Securities changed its rating system to match KeyBanc Capital Markets rating system after market close on April 10, 2015, in conjunction with the merger of the broker dealers. The previous ratings were Outperform, Sector Perform and Underperform. Page 15

16 Other Disclosures KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital, Member NYSE/FINRA/SIPC ( KBCMI ), and KeyBank National Association ( KeyBank N.A. ), are marketed. Pacific Crest Securities is a division of KeyBanc Capital KeyBanc Capital ( KBCMI ) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This report has been prepared by KBCMI. The material contained herein is based on data from sources considered to be reliable; however, KBCMI does not guarantee or warrant the accuracy or completeness of the information. It is published for informational purposes only and should not be used as the primary basis of investment decisions. Neither the information nor any opinion expressed constitutes an offer, or the solicitation of an offer, to buy or sell any security. The opinions and estimates expressed reflect the current judgment of KBCMI and are subject to change without notice. This report may contain forward-looking statements, which involve risk and uncertainty. Actual results may differ significantly from the forward-looking statements. This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the specific needs of any person or entity. No portion of an analyst s compensation is based on a specific banking transaction; however, part of his/her compensation may be based upon overall firm revenue and profitability, of which investment banking is a component. Individuals associated with KBCMI (other than the research analyst(s) listed on page 1 of this research report) may have a position (long or short) in the securities covered in this research report and may make purchases and/or sales of those securities in the open market or otherwise without notice. As required by NASD Rule 2711(h)(1)(A), financial interest, if any, by any research analysts listed on page 1 of this report will be disclosed in Important Disclosures, Company-specific regulatory disclosures located above in the Disclosure Appendix. KBCMI itself may have a position (long or short) in the securities covered in this research report and may make purchases and/or sales of those securities in the open market or otherwise without notice. As required by NASD Rule 2711(h)(1)(B), if KBCMI beneficially owns 1% or more of any class of common equity securities of the subject company(ies) in this research report as of the end of the month immediately preceding the date of publication of this research report will be disclosed in Important Disclosures, Company-specific regulatory disclosures located above in the Disclosures Appendix. This communication is intended solely for use by KBCMI clients. The recipient agrees not to forward or copy the information to any other person without the express written consent of KBCMI. Page 16