HIIT HII Technologies Inc. – Mar. 25, 2015 11:03 AM ET $HIIT


HIIT HII Technologies Inc. – Mar. 25, 2015 11:03 AM ET $HIIT.

Hii Technologies Management Answers Reader Questions About HydroFlow And Vivione Rapid-B

Disclosure: The author is long HIIT. (More…)

Summary

  • Two weeks ago I detailed a PR that was published by HIIT in which the company announced two major agreements with oil and gas operators for use of its technologies.
  • I detailed the combination technology was a clear evolution to the existing technology and that the PR and subject technologies had far reaching implications for HIIT.
  • HIIT management has provided answers to reader questions in an effort to help SeekingAlpha readers better understand the developments at this fast growing company.
  • I remain long HIIT and bullish on all durations.

A few weeks ago I detailed a PR that was published by Hii Technologies (OTCQB:HIIT) in which the company detailed two major agreements it had reached with oil and gas operators for the use of its combined AES HydroFLOW® and Vivione Rapid-B test technologies (via Vivione Biosciences Inc. (TSXV:VBI)). I opined that this combination technology was a clear evolution to the existing technology and that I believed the PR and subject technologies had far reaching implications not just for HIIT but for the entire space. I still believe those statements to be true.
I also promised readers that I would try to secure an interview with management at HIIT to get further granularity as to the specific questions readers had in the comments section of the article. While we knew that management at HIIT would have to be very tight lipped with the majority of the questions (for competitive and fair disclosure reasons) management did engage us in several. I believe this information is trade critical and information that should provide SeekingAlpha readers a unique, if not abbreviated, insight into the underlying technologies. As is par for the course I would expect management to be much more accommodative with answers (as they’ll be under less legal red tape) on the next earnings call which I’ll participate in for readers as well.
Still, I’m thankful for what management has provided us at SA and I look forward to providing continuing coverage. This interview took place via email and was presented in Q&A format. The interview was presented to HIIT CEO Matthew Flemming, who has done Q&A interviews for SA readers before. The interview questions were sent to Mr. Flemming the day of the PR and were returned today (Wednesday, March 25):

Q: Great PR about the AES HydroFLOW® and the Vivione Rapid-B test technologies. Can you elaborate, and I understand you might not be able to get granular, on anything in regards to the actual revenue growth that should come from the two agreements PR’d? Readers have been interested to know what sort of near, mid, and longer-term top-line additions can be expected from these two early adoptions. Obviously readers understand that the performance of the technologies will ultimately drive the mid and longer term figures but can you talk at all about say the next 3 quarters and any type of incremental top-line additions coming from this announcement?
A: We believe these new technology service offerings will continue to scale and provide a meaningful amount of revenues (on top of our growing base) later this year and more in 2016.
Q: With the understanding that for competitive reasons you might not be able to discuss the economics associated with the dual technologies but from a “bird’s eye view” can you give any color as to the margin profile of these technologies? Will this solution as a whole be among HIIT’s higher margin offerings or will these be something that is offered more along the lines of cost and used as a retention tool? So two questions, one being around the margin profile and then if you could shed some light on this is going to be positioned in the broader HIIT value-prop and total portfolio.
A: The margins are at the high end of our range, 40 to 50%, because of their value to the customer while being a new technology offers such a step change so as to save the operator money.
Q: Along those same lines and again keeping in mind you have to be discreet for competitive reasons, does HIIT have analytics as to any type of cost savings for operators inclusive of the total technology usage? I think market participants familiar with the space understand the cost of not doing anything and the cost of current solutions having lows levels of efficacy but is HIIT able to come to an operator and say “look here is your breakeven point and here is your cost savings using this combination”? Anything along the lines of a per barrel or margin profile figure would be particularly helpful.
A: Each technology is different and is difficult to discuss in that question venue.
Q: It seems like the one upside cap that’s on the potential of this PR in terms of driving revenues is the capacity of the AES HydroFLOW® – the fact that the total solution requires the AES HydroFLOW® to be effective and total AES HydroFLOW® capacity is finite at this point. Also, that HIIT’s operating expertise is needed to operate the AES HydroFLOW® and that as well is finite at this point. Is this something that HIIT would consider or could see licensing (the dual technologies) to other operators? I guess more simply put for readers, would HIIT allow other operators to fund AES HydroFLOW® capacity build-out if they intended to use it to license the total solution? Presumably that would provide for rapid PP&E expansion on the AES side at zero CAPEX to HIIT while also driving (I’m assuming adjusting for the costs of the AES HydroFLOW® build-out expense) revenues from the Rapid-B testing. More importantly that would presumably allow HIIT to become “national” in scale without taking on any excess risk.
A: We have been open about the company’s commercialization strategy to end users and regional players in other markets. To date, we are busy with the activity in our own market.
Q: With HIIT licensing the Rapid-B test is HIIT entitled to the analytics data collected by the testing? I guess I’m asking if HIIT can develop any type of analytics offering via the solution being deployed. I could see HIIT being able to sell blind data to operators considering new wells in any particular area during the prospecting stages which makes this question important. Does HIIT anticipate any sort of analytics offering to come from this dual solution technology?
A: We do not see selling blind data as an opportunity at this time. Each customer’s need to identify where bacteria is coming from or verify that it doesn’t exist currently seems to be with each end user. Once this segment of industry matures we are open to that type of thinking or using the data / experiences to further bundle/sell our other services.

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.

 

 

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