Unitek Global Services enters Earth’s atmosphere

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Reentry and deployment of drogue parachutes

In a posting on July 1st, 2013, I detailed the steps that Unitek Global Services, a company that I have followed for a while and that I believe yields significant opportunity for value investors — in spite of the company’s considerable debt.

As I explained in the posting (here,) my investment in the company, which on April 12th, 2013, announced that it had uncovered fraud in one of its divisions, was based on what I perceived as a strong over-reaction by the market, giving bottom-feeders like myself an opportunity to buy a valuable equity at a significant discount.

From a 70,000 feet perspective the following were the steps that I identified in the path to recovery: (1) the company will refinance its debt, (2) the company’s largest customers will confirm its support of the company, (3) the company will announce its earnings and revenues for fiscal year 2012 and for the first two quarters of 2013, restating earnings and revenues for 2012 with resulting significant earnings loss, (4) the company will focus on operating its business and bringing down its debt, (5) a purported class action lawsuit against the company will be settled or otherwise disposed of, and (6) the debt will be paid off, possibly through a secondary offering once the per share price has normalized.

Since the publishing of this posting, the company has systematically worked its way through my list (or, more correctly, a similar and probably infinitely more detailed list that it has tacked up on the wall in its boardroom,) starting with a debt refinancing on July 22nd, 2013.

In a posting on July 22nd, 2013 (here,) I drew a parallel between the first refinancing, a refinancing of the company’s revolver, and the commencement of Apollo 11’s Command Module’s trans-Earth injection on July 21, 2013, in which the module fired its Service Propulsion System engine for 2 1/2 minutes, setting the spacecraft on a trajectory that would roughly intersect the Earth.

In the months since July, Unitek Global Services has been on a non-stop journey towards recovery and yesterday it appears to have final reached safe heaven, entering the financial equivalent of the Earth’s atmosphere.

During its journey, Unitek Global Services has refinanced its revolver and its long term debt, restored its credit rating, cemented its relationship with its largest customer and restated its 2012 financials to reflect the division level fraud (surprisingly, I think, showing only a modest revenue and income impact from the fraud.)

This week, the company took the near-final step, releasing its financial results for the first two quarters of 2013 (showing no restatements.) Subsequently, the company was upgraded by S&P.

But that was not all.

Surprising to all, the company’s results for 2013 reflected no lost business as a results of the turbulent six months. Quite the contrary.

For the six months ended June 30th, 2013, the company’s revenues increased 26.2% year-over-year to $235 million, while adjusted EBITDA for the same period improved 40.5% year-over-year to $17 million, and net loss fell approximately 50% to $15.4 million.

And that is not all. At the same time the company announced that with the release of the quarterly filings it had regained compliance with Nasdaq listing requirements.

Here is the letter from the Securities and Exchange Commission, letting Unitek Global Services know it no longer is in the doghouse:
Unitek no longer in doghouse
MTSL October 16And, so, with the drogue parachutes having deployed after re-entry, providing for a secure splashdown, the per share price of UNTK, the company’s equity, took off this morning.

The path to use for the next steps is now clearly visible and should be easily achievable: The disposal of the silly lawsuit and early payment of the debt will be paid off, possibly through a secondary offering once the per share price for UNTK has normalized at between $5 and $10 per share.

And there is more… As I wrote about in an earlier posting, the restatement of the 2012 results yielded a surprise that may very well be material for the company moving forward (read more about this here.)

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