June 2008 Interview with: American TonerServ Corp, (ASVP-OTC: BB) President and CEO, Daniel J. Brinker - featuring: their service of the printing needs of small-and medium-sized businesses by consolidating leading independent operators in the $6 billion recycled printer cartridge and printer services industry,.
|American TonerServ Corp (ASVP-OTC: BB)|
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American TonerServ Is Building On Its
Leadership Position In The $6 Billion Compatible Toner Cartridge And Printer
Service Market Through Rapid Acquisition And Organic Growth
Mr. Brinker has been a Director of American TonerServ since 1995. Since November 2005, he has served as President, CEO and Principal Financial and Accounting Officer of the Company. As of July of 2006, he no longer serves as the Principal Financial and Accounting Officer of the Company.
From 2002 to 2005, Mr. Brinker has been a business consultant and served as President of ASKM Enterprises, Inc., his consulting firm. Mr. Brinker served as President of ATS from 1995 to 2002. 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 companies including American Home Shield (a publicly traded company) and Benchmark Lending Group. 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 Corp. ("ATS") is building a
nationwide organization to efficiently serve the printing needs of small-and
medium-sized businesses by consolidating leading independent operators in
the $6 billion recycled printer cartridge and printer services industry,
offering top-quality, environmentally-friendly products and local service
Mr. Brinker: “The management team of ATS is focused on growing our business rapidly and profitably through execution of our consolidation strategy. The recycled or compatible toner cartridge and printer service business is highly fragmented. Our business model is to build a “hub-and-satellite” structure that allows for rapid growth through acquisition and then a focus on organic growth.”
CEOCFO: You recently announced a new acquisition; who are you acquiring, what is your criteria and how do you put everyone together?
Mr. Brinker: “Our next acquisition is The Pendl Companies up in the Milwaukee, Wisconsin area. We are looking for acquisition targets like Pendl that in the top thirty major metropolitan markets. We are looking to buy what we call a hub company, a company that is doing anywhere from $3 million to $20 million in revenue, and to follow that acquisition with smaller “satellite” acquisitions that will leverage our brand into surrounding areas. We are looking for owners that are engaged in the business and want to stay on. They have started the business, they have been there for ten or more years, they see that the climate is changing and they want to stay with ATS and go for a ride. They are dedicated owners, they have a good reputation in that industry, good brand awareness, they have some service technicians on staff, a loyal customer following, and they are doing well financially. We are not going into companies trying to turn them around, we are looking for companies that are doing well and try to make them a lot better.”
CEOCFO: How do you make the companies you acquire better?
Mr. Brinker: “There are a number of different ways; one primary way is to give them buying power. We have really good relationships with some of the larger cartridge re-manufacturers and we are able to immediately see improvements in the gross margins through volume buying power. A lot of the companies that we are buying have been doing the manufacturing of cartridges themselves, so our ability to buy in volume versus them running manufacturing lines is a game-changer. We also help them analyze the business, beginning with evaluating customer attrition, the margins that they capture, what vertical markets are they actually selling to, and determining the best product offering for their markets. We look at their systems to see if the software platform is adequate for their business, and we give them sales and marketing tools to be able to educate the customers more fully on the benefits that they are able to provide. Our customers need more than replacement cartridges; we see opportunities in print management systems, and if an acquired company is not offering this kind of service, we help bring that to the table, train them on it. Printing is the largest uncontrolled cost in business today, it ranges anywhere from 1% to 11% of top-line revenue. ATS and the companies that we are buying are uniquely positioned to help our small to medium-sized business customers control that uncontrolled cost. Printing volume just keeps growing and it is very expensive, so we are giving our business owners more tools to help their customers control their costs. We also have some real nice environmental programs that capture the empty cartridges and recycle them back into the system as opposed to them ending up in landfills. It is estimated that there are 400 million cartridges disposed of in US landfills a year.”
CEOCFO: Do your typical customers realize what printing is costing; do they realize the potential cost savings or do you have to explain to why they need to purchase from you or make use of your services?
Mr. Brinker: “It varies, some CFOs are all over it, and some aren’t but part of our opportunity is going in there and evaluating where they are and educating them about the benefits we can bring to the table. Oftentimes there is a lack of awareness of the quality of the re-manufactured or compatible cartridge today. Right now the US market is over $20 billion of ink and toner annually and the compatible sector is about 25% and expected to grow to 35% of that in the next three years or so. Therefore, people are becoming more and more aware that the quality is comparable to the OEM monochrome cartridges at a much better price. We are seeing great improvements in the quality of the re-manufactured color cartridges now and we are continually assessing the best offerings in this segment. If customers are not aware of the advantages, we will go in and educate them. Another thing that is occurring in our industry is everybody is becoming aware of a cost per page for printing and copying, because the machines actually track them. Now there are some nice software programs that we are able to utilize to plug in unobtrusively into a network of printers to be able to actually see the print counts and read the LED screens to see if the toner cartridges are low or if there are is a problem with the toner. We can proactively manage their entire fleet of printers from a central location or remotely. We have customers like hospitals for instance that have 500 to 1,000 printers and we are able to save them a considerable amount of money and minimize down time.”
CEOCFO: What is the competitive landscape like for you?
Mr. Brinker: “It is really fragmented. Remanufacturing started twenty years ago with guys doing the “drill and fill,” and it has become more sophisticated where the quality of cartridges is comparable to OEM cartridges. At ATS, we focus more on the retail end, catering to small and medium-sized businesses, offering them printing supplies and service. The competition is from over two thousand companies spread throughout the country and from the big box retailers like Staples, Office Depot and Office Max that sell directly to small and medium sized businesses. What we see in our business is we have a pretty nice differentiator in that we have Service Technicians who proactively manage the equipment and if something breaks we are there, if a cartridge is out or there is a problem we have people on site making sure the customers are happy. We have sales people too as opposed to just running a call center.”
CEOCFO: Are companies looking for service in the toner market or is this a new area?
Mr. Brinker: “The industry statistics from Lyra Research, which is following the industry technology space shows that of the top three things that the customers are looking for, the third one on the list is price, believe it or not. It might seem that printer supply cartridges could be a commodity but in fact what customers are looking for first is service and second they are looking for quality, and the third priority is price. Therefore, there is a big opportunity and that is why we really emphasize service and quality along with a very competitive price.”
CEOCFO: How do you reach your potential customer? Is it done centrally or does each of your companies act on their own?
Mr. Brinker: “Our company has a strategic plan where acquired companies are enabled to go out and actively farm new business. There are some vertical markets that we are concentrating on where we have had nice success, industries that utilize a lot of printing, and we try to leverage those successes. We are really focusing on referrals and industry associations where the CFO is really pleased with us and he or she will refer over to a counterpart. What we are experiencing now with our business model being nationwide and able to offer nationwide service, we are able to grow horizontally. We started with one customer that was in the Florida market in one city, it expanded throughout the state, now it is in a few neighboring states and we are looking at an opportunity over at corporate headquarters to go national with them. We are also fine-tuning the type of sales person that it takes to be very successful in our space. Everybody uses print, print volumes continue to increase. Cartridges are the razorblade in this version of the razor/razorblade model. Manufacturers basically give away the printers but the cartridges are very expensive so we have an opportunity to get sales people out there to offer a very attractive way to save money. We are giving them sales skills training and tools, and there are various lead generation programs that we have in place as well. Those are some of the benefits that we provide as a headquarters if you will, to the companies that we are buying because some of the companies have these really nice tools, but some don’t.”
CEOCFO: What about brand-name recognition?
Mr. Brinker: “The brand-name recognition is already there at a local level. Our target acquisition The Pendl Companies has some really nice name-brand national accounts already and in their market are really well known, they have been around forever it feels like. Tonertype, a recent acquisition in Florida, has their brand recognition as well. Increasingly the ATS brand is becoming known in our space. The compatible toner market space is approximately $5 billion to $6 billion per year, and we feel like we have a first mover advantage because a lot of people in this industry now know who we are and what we are doing, so we are gaining a lot of momentum. I was just on the phone with somebody who is organizing an industry convention in Las Vegas where there are five-thousand attendees and we will be the lead speaker when it comes to consolidation.”
CEOCFO: What is the financial picture these days for ATS?
Mr. Brinker: “We just issued our press release for our first quarter results. Our revenues were up 155% over the prior quarter. Our annual run-rate of revenue in December of last year was about a little over $10.6 million or so. We anticipate a revenue run rate at the end of this year around $45 million. As we grow this business through acquisition and organic growth, we anticipate that we will be a very profitable company and a well-capitalized company to be able to execute on our plan and continue to acquire. We are looking to grow this business to a $250 million business or more in the next three or so years.”
CEOCFO: How do you handle the organization of the company as you grow?
Mr. Brinker: “The hub-and-satellite strategy that we are using and we have proven in the Florida market is one that has worked really well for two companies, including Global Imaging Systems, which did the exact same play in the copier hardware space. The built their business over a dozen years or so to a billion dollars in revenue and they had 22 core companies, in the major metro markets they made eighty acquisitions in total. Global Imaging was public until Xerox bought them a year ago. They were able to manage that business, bringing value to their end customers, and they kept those relationships because they kept a brand and the management at the local level and that is what we are doing. Another public company with a similar strategy that we have looked at is American Reprographics Company. We are not changing the companies we acquire; we are only going to enhance them. We are not stripping away that local positive image and brand. We have seen other consolidation strategies not work very well to maintain relationships with the end customers where they are stripping the brand, stripping the management, and trying to manage from a central location. We feel that the satellite strategy is the way to go and is working well for us.”
CEOCFO: In closing, why should potential investors be looking at you now and what might be misunderstood or overlooked that people should realize about American TonerServ?
“American TonerServ is a real solid investment for five primary reasons.
Number one, the market opportunity is large, it is a $6 billion printer
supply and service market. This is a highly fragmented industry with the
OEMs really focused on the Fortune 2000 companies. Number two, our
consolidation strategy allows for rapid expansion with the hub-and-satellite
approach. Number three are the strong financial metrics; our customers have
the razor, we are selling the “razor blades.” It is a high returning model
as long as we are giving consistent quality and service and value. Ours is
strong financial model that it is good for ATS and the companies that we buy
but it is also great for the customer because we are giving them value. We
can oftentimes save the customer anywhere from 20% to 50% off of what the
OEM companies like an HP or Lexmark, are charging for replacement
cartridges, so we can save them a lot of money. Fourth is our experienced
management team, with have public company experience, industry experience,
and consolidation experience. The final reason investor should look at us
now, and you could say it is the icing on the cake, is the fact we are
offering to our customers a wonderful environmental solution to allow them
to enhance their green footprint and help the environment.”
“Printing is the largest uncontrolled cost in business
today, it ranges anywhere from 1% to 11% of top-line revenue. ATS and the
companies that we are buying are uniquely positioned to help our small to
medium-sized business customers control that uncontrolled cost. Printing
volume just keeps growing and it is very expensive, so we are giving our
business owners more tools to help their customers control their costs.” -
Daniel J. Brinker
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