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Over the last few years management has taken steps to strategically position the company to participate in the move to cloud computing. Improved profitability is being accomplished by a combination of: The growing relative importance of facilities management, the most profitable and most rapidly growing business segment; cutting costs; and Rebuilding the balance sheet.

The company is in the business of consulting, planning, designing, building and maintaining mission-critical facilities including IT data centers and communication facilities that, because of their complexity and high technology environment, demand a wide variety of specialized expertise in order to be run cost-effectively, efficiently, and smoothly.

Between 2006 and 2008 Fortress made five acquisitions to gain critical mass, to diversify its customer base and to achieve greater economies of operational scale. Now FIGI offers a full menu of services under three headings:

  • Technology Consulting,
  • Construction Management
  • Facilities Management

It is the latter that is the most profitable, that has a recurring revenues business model and that is benefiting from the accelerating trend to cloud computing (which requires building and managing high-tech data facilities).

Last year, the Facilities Management business accounted for only $16 million out of the $74.9 million in company revenues. So far this year, it accounts for about $9.4 million (47%) of the $20.1 million of Fortress’ revenues and for some 27% of FIGI’s backlog (now).

This better business mix explains the year-to-year improvement in Gross Margins on lower revenues. Adjusted EBITDA year-to-date is $2.6 million vs. $800,000 last year. Minus the one time positive “other income”, reported first half EPS was $0.14 this year vs. $0.01 last year. Management remains optimistic about its ability to maintain a sustained level of high profitability given its expectations regarding customer wins and company orders already in hand.

I think these shares are deeply undervalued. FIGI has a market cap of $27.5 million and no Wall Street coverage but this could change for the better if earnings surprise on the upside or if the company decides to list the stock or if a takeover offer emerges (see below).

On April 5th, international energy management giant Schneider Electric (OTCPK:SBGSF) ($15 billion in revenues) acquired privately-held Lee Technologies, a company comparable to FIGI. This acquisition confirms the growing interest, and the desirability of participation, in this space. Although no financial details of the transaction were released, based on conversations with industry contacts and applying an estimated comparable valuation, my "guesstimate” is that FIGI could be worth over $3 a share in a buyout scenario.

Source: Profitability at Fortress International Is Booming