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Management has an acquisition and marketing strategy in place to
take advantage of a fractured marketplace and to make American TonerServ the recognized
brand name when middle and upper-end organizations are looking for toner cartridges and
Business Software & Services
American TonerServ Corporation
475 Aviation Blvd., Suite 100
Santa Rosa, CA 95403
Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
Published March 15, 2007
DANIEL J. BRINKER, CHAIRMAN OF THE BOARD, PRESIDENT AND
CEO - Mr. Brinker has been a Director of American TonerServ since 1995,
and served as President from 1995 to 2002. Since November 2005, he has served as
President, CEO and Principal Financial and Accounting Officer of the Company. Since 2002,
he has been a business consultant and serves as President of ASKM Enterprises, Inc., his
consulting firm. He has over twenty years of experience as a principal, operating officer
and financier of financial and other service businesses, and technology companies. Mr.
Brinker has extensive operational, financial and/or senior management experience with a
number of financial services companies including American Home Shield (a publicly traded
company), Benchmark Lending Group and Hard Drywall, Inc. Mr. Brinker served as
President of American Home Shield (AHS), the nation's largest home warranty company, from
1987 to 1995. Mr. Brinker led a turnaround management team that engineered a buyout of AHS
by ServiceMaster and management in 1989. Mr. Brinker is a Certified Public Accountant and
earned a Bachelor of Science degree in Accounting from Santa Clara University in 1979. Mr.
Brinker has also completed certain graduate courses at Stanford University.
American TonerServ Corporation (OTCBB: ASVP) has recently entered
the public markets after more than a decade in operations providing a range of supplies
and services for office equipment. The companys stated mission is to become the
nations leading distributor of compatible toner cartridges. American TonerServ (ATS)
has assembled a strong management team and advisory group to provide experience and
direction as the company looks to expand its existing nationwide service network, and to
gain market share in this large but highly fragmented compatible toner market.
CEOCFO: Mr. Brinker, what was your vision when you became
CEO of American TonerServ and where are you today?
Mr. Brinker: My vision was to bring
value and efficiency to a highly fragmented toner cartridge marketplace. So far, we are
doing a phenomenal job and we are on-track.
How has the toner market been served traditionally?
Mr. Brinker: I do not think there are
any perfect numbers out there, but it is estimated that the market size in North America
is somewhere between 20 and $30 billion. Historically, it has been owned exclusively by
the OEMs (Original Equipment Manufacturers), however about 15 years ago, a compatible
remanufacture industry arose. In the last fifteen years, it has become approximately 25%
of that marketplace. Every industry has its ups and downs, but through advancements in
research and development and quality controls, the compatible cartridges are high quality
now and accepted in the marketplace. Therefore, you are now seeing franchises pop up
throughout the US. You are seeing a number of the big box stores come out with private
label brand so, there is a bigger awareness today than ever that the compatible cartridge
is here and it is very affordable. The quality is there and it is generally priced
considerably less than what you get with the OEMs in the market place. Hewlett-Packard
(NYSE: HPQ) leads the way with about 65% of the market and the other OEMs are about
CEOCFO: Where do you fit in this arena?
Mr. Brinker: We have noticed over the
last half-a-dozen years or so that there has been a big push toward consolidation in the
remanufacturing sector which are the businesses that actually rebuild the cartridges or
build brand-new compatible cartridges. We are not focusing on that, we are partnering
and/or acquiring distributor businesses. Our niche is that we feel that we are in a
position to contact and work with toner distributors. There are thousands of toner
distributors in the United States and some of them are still doing remanufacturing, but
some have moved on realizing that consolidation is occurring and they cannot compete as a
remanufacturer. They have thousands of customers that they have been selling cartridges to
throughout the years and our business model is to acquire toner distributors and allow
them to break through to the next level, by providing them with both operational and
financial support to do so. We have a web-based, very scaleable service and operational
platform, which allows us to carry no inventory.
We have made three acquisitions last year and what we do is offer a complete back office
solution, allowing the business owner the flexibility to allow for much more time to go
out and service his customers and attract new customers. On the financial side, because we
are a public entity, we can bring to them much more efficient capital than generally what
the smaller businesses have available to them. They have been in the business for five to
fifteen years, they either want an exit strategy or they want to partner with a company
that will bring a lot more resources to the table. There are many economic inefficiencies
in the industry and there are thousands and thousands of these companies spread throughout
the United States. We are focusing on those businesses that have the relationships with
the end-customers. We are concentrating on the business to business market. On top of
that, we feel like we are uniquely positioned in that we have a service network that our
business has established over a number of years that is capable of servicing the printers
on a nationwide basis. This allows us to provide for our customers a one-stop-shop, to be
able to both provide the supplies and service on all their printing needs.
Are most mid-sized businesses going to a specific toner company and is that the typical
way of buying toner?
Mr. Brinker: There are many different
ways. There are companies now that are selling via the internet, so you can buy that way,
but you generally do not have the relationship with whomever you are buying from. You can
go into the Office Depots and Staples of the world, or catalogues and buy it through
Corporate Express and other businesses like that. You can also go to the small independent
businesses that actually have service technicians in the area that provide office
supplies. Therefore, there are a variety of ways to purchase toner. Since the compatible
toner market is somewhere between 5 to $8 billion there are many different types of
businesses that can be acquired. However, we know that there are many people out there
already with relationships with small and medium-sized businesses and those are the
businesses we are actually looking to help and partner with.
When you look to acquire a business and take them on, do you expect to keep the same
management in place?
Mr. Brinker: We would prefer to keep
them management in place, if that is what they want. In my prior business career, I was
the president and CEO of American Home Shield, which was the nations largest home
warranty business. It was publicly traded and we built it up with high revenue, great
profits and sold it to ServiceMaster (NYSE: SVM). Therefore, I have a lot of experience in
running a national business and a public business at that. We think that we have the
ability to find business owners that understand the value proposition that we can bring as
part of a bigger team and big organization yet friendly, not big and demanding. My vision
is to make American TonerServ the equivalent of the Hewlett-Packard in the compatible
sector. We want to have our brand recognized as the brand that you and other people in
their businesses know is out there that they can depend on.
With such a variety of people out there in the toner business, how do you know whom you
should focus on?
Mr. Brinker: We made three
acquisitions and we are now just starting to get our word out. We have a strong management
team, a great board of directors and we are assembling an excellent strategic advisory
board very experienced in mergers and acquisitions. We are advertising in some of the
trade journals and we are attending various conferences. We are getting random calls from
some of the large vendors that are looking for us to utilize their services. They have a
number of different relationships out there that we are getting referrals to, so right
now, we have many companies that we are talking to, but we are always looking for more. We
see the United States as a big market and we are looking for key players in major
metropolitan markets to partner with us.
You are at the beginning of what appears to be a very large and fruitful endeavor!
Mr. Brinker: I would say yes. It was
not until a year ago that our company actually got final approval through the SEC and
NASDAQ to be a public company and we were not going to execute our plan until we did that.
Subsequent to that, we assembled a very strong proven management team. One of those
members who is a very integral part is Andrew Beaurline, our vice president of corporate
development and strategy. Mr. Beaurline has more than 25 years experience with mergers and
acquisitions, and most recently in an industry that was consolidating as well. We have an
operational team that we feel is more than up to the task to accomplish our goals. We plan
to add significant value to the businesses that we acquire. We have just begun but we have
aggressive plans and goals. We would like to capture 3 to 5% of the market over the next
three to five years which would be a very successful business.
New endeavors are quite costly; what is the financial picture like today at American
Mr. Brinker: We have some private
placement funding and additional funding that we are in the process of lining up. We do
not want the funding too early to protect shareholder value. We are trying to find the
businesses that we can acquire and pull down the funding and time it correctly, so as we
grow, our shareholder value grows and there is not too much dilution. We have a mapped-out
strategic financial plan in place of which there are some potential investors. However, we
are always looking for people that believe in our space, believe in our management and
have confidence that we can achieve our plans.
How big a part do you expect the service component to be for you?
Mr. Brinker: I expect it to be a very
large part because of what is happening in the industry and it will be interesting to see
how it plays out. Literally we are batting 1,000%, which seems absurd, but everybody that
we have talked to feels that we are in the right place at the right time, and having the
service component is icing on the cake, yet it can be very critical because of what is
happening in our industry. Not too long ago the industry came out with a cost-per-page
model, which allows customers the ability to pay for what they are actually using on
printers, similar to copiers. In order to do that, you bundle your service and supplies.
However, you can only do it if you have the service component. We have the technology
where we can see via software and the internet, all the printers on our customers
network; not intrusive, but just see how much toner is available, whether there is error
readouts on the printers themselves. This software allows us to determine if a printer
needs service. Therefore, we can proactively manage the network of printers, which is just
fantastic and it is now starting to evolve and more and more middle to upper-end customers
are using it. In addition, there is more sophistication coming. When we acquire a business
in a major metropolitan market that has their own local service network, we can help them
expand their sales by providing them access to our nationwide service network. Therefore,
it opens up a tremendous amount of business opportunity for our partnering
What should we expect in the next couple of years and what should investors be looking
Mr. Brinker: I expect to have our name
out there in the investor community. We will make a big splash; therefore, we want to do a
lot of public relations. Just as important is executing on our business plan. I was
talking the other day to a remanufacturing business that 5 years ago was doing practically
nothing. However, through organic growth and acquisitions did $220 million last year in
profitable revenue and will probably do about $300 million this year. Therefore, that is
where our sights are set; we would like to see those kinds of numbers.
In closing, what might potential investors miss when they look at ATS? Why is this a
good time to be interested?
Mr. Brinker: It is early. We are in a
market that we are bringing tremendous efficiency to, and the margins are very strong. The
gross margins are 40% on up and we feel that with our purchasing power as we go forward
that there is going to be some pricing pressures on the top end. We feel that purchasing
businesses at reasonable multiples with strong execution and concentration on growing our
acquired businesses will translate into increased shareholder value. These multiples are
extremely reasonable from our point of view. We are paying two-and-a-half to four times
and we are just starting to get going. We feel there is a lot of accretion on all of these
acquisitions and the financing strategies that we have are to pay some cash, some notes
and some of the notes are contingent notes and some stock. We feel the companys
ability to have a great return on the investment is there and we have a lot of good
strategies in-place to ensure the growth is maintained at a workable pace.
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