Strong Recent Results and News
HII Technologies, Inc. (OTCQB:HIIT) reported strong revenue and adjusted EBITDA growth of 144% and 141% for the six months ended June 30, 2014, respectively. Revenues were $14.3 million for the six months ended June 30, 2014. According to HIIT, Hamilton Investment Group ("Hamilton") generated $4.5 million in EBITDA in 2013. HIIT also stated in a recent press release that it was projecting $8-$10 million in pro forma adjusted EBITDA for 2014. We have reviewed HIIT's SEC filings and its recent press releases and attempted to determine if HIIT would generate actual EBITDA for 2014 - in addition to pro forma EBITDA. Our estimates are provided below. We believe HIIT will generate at least $1.9 million in actual EBITDA for 2014.
NYSE MKT Uplisting Likely
We also believe there is a more important topic to discuss that management has yet to publicly disclose. HIIT has a long history as an OTC stock and its CEO has been at the helm for a long time now. If HIIT could qualify for a listing on a senior exchange such as the NASDAQ or NYSE, we believe Mr. Flemming will jump at the chance to apply for a listing. We note that HIIT's stockholders' equity was approximately $4.0 million as of June 30, 2014. The recent $4 million capital raise and the fact that large losses appear highly unlikely in the near future, suggest that HIIT's stockholders' equity should remain above $4 million for at least the foreseeable future. This is very important. We believe the market has not acknowledged that it is very likely that HIIT already qualifies for a listing on the NYSE MKT under listing standards 2 and 3, respectively - with one exception that should easily be resolved. HIIT would likely have to complete a reverse stock split in order to reach a $2 or $3 minimum price - unless the stock trades up to that price level in the short term. It is also possible that changes to the Board of Directors will be needed but again this is not generally difficult to execute. We expect Mr. Flemming can direct and complete this process quickly and do not see any issues that should delay this application.
We also note that HIIT hired Roth Capital to complete its recent debt financing. It seems likely to us that Roth Capital has already advised HIIT to seek a listing on a senior exchange, and more specifically the NYSE MKT. We do not see any downside to applying for the listing. However, there is significant upside. We expect this application process is already under way and a NYSE MKT application will be filed shortly. We do note that HIIT would have difficulty qualifying for the NASDAQ at this point.
The Impact of an Uplisting
We believe an approval for a listing on a senior exchange such as the NYSE MKT is a critical event and is a significant indication of upside in a stock. We noted the recent uplisting of Cellular Biomedicine Group, Inc. (OTCQB:CBMG) as a prime example of the impact a successful senior exchange listing can have. We cannot predict the future of course but we see immediate short-term upside in HIIT.
Undervalued - Short-Term Upside
We note that our initial article identified an average peer price to sales ratio of 1.62 times sales. If HIIT does complete a NYSE MKT listing and also reports revenues for 2014 that suggest a $50 million pro forma for 2014 and a similar short-term revenue run rate for 2015, we believe HIIT can approach a market capitalization of $81 million (i.e. $50 million in sales times 1.62).
Our estimates of value are still very simplistic as we have yet to reach management to discuss our valuation assumptions. We are making the assumption that the market could value HIIT at up to 1.62 times revenues, which is in line with the peer companies we previously compared to HIIT in our initial article.
Investors will note that our previous article about HIIT was highly critical of HIIT in December 2013. We acknowledge that HIIT has performed well in 2014 thus far and the future appears bright in many respects. We caution investors to some degree however. We believe many of the concerns addressed in our initial article continue to apply today. A few concerns that we believe still need to be addressed by management are as follows:
- Management has not responded to our charge that there are no significant barriers to entry associated with their business.
- Management has not responded to our charge that they do not possess any technological advantages that allow them to compete and succeed within their sector.
- Management has not explained why they will succeed in a sector that is highly competitive and likely to become even more competitive as the frac sector continues to grow and larger, stronger companies enter the market.
- We believe most great companies today are great because of their people and their technology. We have previously questioned Mr. Flemming's credentials to lead HIIT. We noted his various failures in our initial article. We acknowledge his recent successes. However, we still think he has a lot to prove.
All information is sourced from SEC filings at sec.gov, Bloomberg.com, Yahoo Finance, and other sources as indicated within this article. The author maintains an investment in HIIT and may purchase or sell shares of HIIT both before and subsequent to the publication of this article. Stocks covered by SkyTides are generally risky investments. An investor in these stocks should always be willing to lose their entire investment in the stock. No publication by SkyTides should be seen as an offer or suggestion to buy or sell any stocks covered by SkyTides. An investor should always review the company's SEC filings at sec.gov and all other publicly-available information about the stock before investing. SkyTides is under no obligation to update its research at any time.
- The acquisition closed on August 12, 2014. Analysis assumes no EBITDA growth for remainder of 2014 and Hamilton EBITDA equal to 2013.
- Assumes full drawdown on $18M debt financing occurred on or about August 12, 2014.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.