HS GovTech (CSE: HS, OTC: HDSLF, FRA: 38H) is a leading provider of SaaS applications for governments in Canada and the US. While the company achieved several landmarks, its stock price is near its 52-week low. Furthermore, HS GovTech increased revenues and works on decreasing expenses and signed contracts. So please, doctor, tell us the wound leading to an underappreciated valuation. 

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Sector Overview

In 2021, the size of the worldwide government cloud market was USD 26.79 billion. By 2030, it is projected to have increased by 17.75% CAGR to reach USD 99 billion. Virtualization and cloud computing platforms designed explicitly for governmental organizations are referred to as "government clouds." This international effort strives to find and create cloud solutions that serve federal governments' operational, budgetary, strategic, and IT objectives worldwide. Growing census data (continuous population growth), new policies and initiatives, collaboration with other areas, and rising GDP due to the explosion of new firms are all contributing to an increase in the creation of government data. Legacy systems reliant on physical hardware are inefficient and may become space constrained. This calls for the use of the government cloud. Vendors are now offering public, private, or hybrid cloud solutions for government data relating to its administration, security, backup, or compliance. This is known as the "next big thing" in technology. The services can be divided into groups based on their delivery, such as Infrastructure-as-a-Service, Platform-as-a-Service, or Software-as-a-Service.

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Company Overview

HS GovTech, established 23 years ago, is the top supplier of web-based and mobile solutions for North American health and safety regulatory agencies. The business is dedicated to the goal of improving the effectiveness of government regulatory organizations, with a focus on organizations that are in charge of inspection and permitting. The team has over 300 years of collective expertise working with regulatory agencies to fulfill their goals and offer solutions that make their agency more effective and transparent and assist in expanding and improving the services they can deliver to the public for each budget dollar spent.

The product platform "HS Cloud Suite" from HS GovTech, which was introduced in 2018, reflects this innovation and all of their years of expertise. It combines the most recent cloud-based technology with mobile app technology for iPad or Windows devices for use in the field.

The company also holds HS Pay, an online mobile payment platform that creates a unified solution for government revenue collection. In a news release from March 2, HS GovTech details this solution’s Third Party Verification has exceeded all of 2022 processing volume. Furthermore, the average TPV has increased to $75k per week, up from $25k per week as reported on December 21, 2022. 

“Our cloud-based and mobile platforms help to revolutionize every aspect of government regulatory work. Creating ease in every facet of government workflow, from licensing and permitting to inspections, invoicing, and accounting, even disease surveillance.”

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Share Structure / Financials 

The latest financial statements occurred for the period ending September 30, 2022. HS GovTech has $631k in cash, $7.2M in total assets, and $2.6M in total liabilities. Over the quarter, the company generated $1M in revenue, but it still wasn’t enough to be profitable. The company has high costs, which totalled $2.64M. Implementation expenses ($793k) and general and administrative costs ($736k) were the highest costs for the company. 

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Besides, the company started to get significant contracts. As a proof of example, the company announced on September 7, 2022, a massive $9.4M (USD) contract over 8 years: 

-Annual Recurring Revenue (ARR) will be $1,074,073 per year, not inclusive of HSPay revenue.

-Professional Services and implementation fees are $801,000.

-HSPay will be the processor of all online electronic payments.

-State will initially use 100 concurrent seats for GovCall with the option to add additional seats as needed.

It is also important to mention the company witnesses a sales momentum. The TCV, which stands for total contract value for deals that are either executed as of the midway point f Q1 or awarded for executions as of the midway point of Q1, is $5.7M. Potentially we could see the company being profitable by the end of the year. Subsequent earnings will be crucial to see where HS GovTech is heading. 

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Furthermore, HS GovTech closed a $2.4M financing by issuing 5.6M shares at $0.37 per share. Each share is entitled to a $0.50 warrant. The funds raised will be used for sales, marketing, research and development, working capital, and general corporate purposes. 

As of March 6, 2023, 53.2M shares were issued and outstanding. 17.6M warrants and 3.6M options & Restricted Share Units are available. 

This being said, the stock price trades nearby its 52-week low of $0.25 while it had a 52-week high of $0.74. Current positive changes don’t seem to impact the share price positively. 

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Bottom Line

HS GovTech (CSE: HS, OTC: HDSLF, FRA: 38H) commences bringing significant revenues, as marks the $5.7M TCV. The company is well-funded thanks to the recent financing, and we can hope for HS GovTech to break even by the end of the year. Nevertheless, it will be essential to determine where its expenses stand and what new contracts the company will get. 

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