Globecomm Systems, Inc. (GCOM-NASDAQ)
November 28, 2008 Issue
The Most Powerful Name In Corporate News and Information.
Providing Infrastructure Solutions For Satellite-Based Communication, Globecomm Systems Can Build, Service And Maintain The Systems For Their Customers
square foot headquarters facility on Long Island, in Hauppauge, New York is
dedicated to the system engineering, integration and test of satellite
communications systems and networks. We employ over 310 people with nearly
200 engineers and technicians. All of our engineers and technicians are
experts in either digital communication earth station systems, IP-based
networks or both.
facilities have been certified to the ISO-9001 International Quality System
standard since December 1997.
Interview with David E. Hershberg,
Founder, Chairman and CEO conducted by: Walter Banks, Published
– November 28, 2008
Mr. Hershberg: “We are a full service provider of telecommunications equipment and services. We provide services worldwide. We have a teleport here in Hauppauge, Long Island and we have one in Maryland. We also operate out of California, Poland, Dubai, and Hong Kong. We can cover the whole world. We are providing telecommunication services by satellite. We have build infrastructure so we can build complete networks as well as individual gateway earth stations for our customers. We built cellular systems, we’ve built video broadcast centers and video uplinks; anything to do with satellite or having a satellite component. Our vision is to utilize IP technology to it’s fullest. We have been operating in the IP environment, since 1996 when we had an Internet company providing Internet services. So, basically using Internet Protocol, we can provide any type of telecommunications; data, voice, video services. We can build the systems, we can service the systems and we can maintain the systems for our customers.”
CEOCFO: Globecomm Systems is not a household name, but consumers couldn’t receive their data, voice and video service from the big brand names without a Globecomme.
“That’s true to a large extent. Let me give
you some examples of where we touched consumers and people utilize our
services. Let’s first talk about direct to home-video services. We provide
uplink services and have built systems, for about 15 direct to home
businesses, including DISH, Direct Home Services, and DTH for Direct TV, for
people in the Middle East, such as Nilesat. For Mr. Murdock, services in
Hong Kong, India and Britain. We provide those kinds of services for people,
so that they can receive video in their home by satellite.
CEOCFO: You have both government and enterprise customers; which is your greatest focus?
Mr. Hershberg: “We have been focusing a lot on the US government. In 2000, we weren’t doing much US government. It wasn’t until September 11, when the government started spending more money for satellite equipment and services that we got in it. Last year, when our year ended on June 30th, we did over 50% business with the US government; not all military, but a lot of it with different government agencies. We have been concentrating on the US government because they have a great need for what we do.
CEOCFO: Is there any particular things that you do with the government that we should be aware of?
Mr. Hershberg: “We have built small tactical terminals for the field. We provide gateways for different agencies to bring data into the US. We connect between the Middle East and the US into the government networks. For enterprises, one of our major customers there is Bank of America, where we provide video to different bank branches. We also provide things like FAA networks. We have about 50 sites in the US, and the Caribbean that back up links for the FAA. We provide service for the National Weather Service, bringing all of their data to 174 different sites.”
CEOCFO: Would you say most of your growth is organic or through acquisitions?
Mr. Hershberg: “We did one acquisition that was very successful last May. They have been with us now for about 16, 17 months. It’s a company in Maryland that provides a lot of services very similar to our services but mainly for the US government. In addition, we are actively looking to do some acquisitions, so we do go out and raise some cash for that purpose. We have probably gone through ten or 15 different potential candidates and we are still looking.”
CEOCFO: How do you acquire your customers; is it through a sales and marketing team or through partnerships?
Mr. Hershberg: “Most of our growth has been organic, but we do have this one acquisition that contributes about 15% to our revenue, now. We have offices in Dubai, Hong Kong, the UK and we do have our own sales offices, plus we have a number of agents worldwide. We also have a relatively large sales force, in the Washington area. We continue to monitor what’s coming up, what kind of RFPs do we have. We won a good-sized job out of NATO where we are providing force tracking for them within Afghanistan. I would say 95% of what we win we have to bid on a competitive basis. So, it’s difficult to keep growing organically, but we have been able to do it.
We are participants in a number of basic ordering agreements with the US government and with other people. We announced a $117 million basic ordering agreement with an international customer. With the US government, we are part of a $5 billion satellite buying opportunity called WWSS, which has five companies including Boeing, Datapath, and General Dynamics along with us. We are a part of these. We are probably in about six or seven of these basic ordering agreements. It’s not that easy. The key we think is to maintain the customers we have; to grow with them and then get new customers. We try to make sure our customers are happy with us and that we have very little churn in our service business. Each year, we try to bring in some new ones. So, it’s a constant struggle.
CEOCFO: What sets you apart from your competition?
Mr. Hershberg: “We are very well-known in this field. I have been in the satellite communication field now for 49 years. A lot of my people have been in for 25 or 30 years. I think we are a very trusted supplier, we really emphasize quality. We have had the same customers for 30 or 40 years that we have been working with and our reputation is extremely good in this field. When you are really concentrating on a niche business like ours, you can be the best at what you do. We have four laboratories here, including an IP networking laboratory where we are the best there is IP networking by satellite. We have a video laboratory; we have a media laboratory and a software laboratory here. We continually try to stay abreast of what the technology is and offer our customers the best of what’s available out there. The key is your reputation; how you treat customers, being on time with you’re your deliveries and providing superior products. In a small company like ours, we have to keep doing that.”
CEOCFO: What does the financial picture look like right now; do you see yourself going to the street or borrowing in the near term?
Mr. Hershberg: “We haven’t done a raise for about a year now. I think our balance sheet is very good. We have got over $50 million in cash with no debt. Therefore, we don’t think we need to do any raise. We have a good line of credit with Citibank and we have talked to them just recently, so there is no problem obtaining more credit if we need it. I don’t think we are in a situation where we are looking for anything financially. From the standpoint of what’s going on out there in the world, you have got to take a deep breath and take a look at what we have got and see where we hold on to it or where we spend our money. Keeping the cash around is very important these day.”
CEOCFO: What is your R&D spending right now?
“In the R&D spending we have a relatively unique R&D process in here. What
we tend to do is, we develop new products on projects. When there is a
government agency or somebody wants to do projects, we will bid it, and what
we will do is part of that, will be R&D. However, we put it into cost of
sales and the reason we do that is if you are running an R&D program and the
R&D is involved in the project that you are doing, then you have very good
oversight on the cost and the schedule and people have a definitive goal in
delivering the product to our customers. You won’t see very large part of
the budget on our books because most of that R&D is the cost of sales.
That’s just the way we do it. We do some R&D where we develop some new
products, which is strictly R&D. We developed a new set of software for
network management, which is in R&D.”
CEOCFO: What is your current position in the industry and what are we looking at over the next two years as far as growth?
Mr. Hershberg: “The two or three growth areas we see are in the cellular area. The cellular telephones now have overtaken wireline a while ago, but most of the cellular growth has been in large population areas. Our products that we have developed are very good for small rural areas and if the cellular industry is going to continue to grow, we think that’s the area it’s going to grow in. We think that’s going to be a major area for us. The second thing is IPTV; we are experts in IPTV. We provided for instance, the IPTV broadcast center for IP Prime, which is SES. We have just finished a very large IP broadcast center in India. We are a technology leader in this area and expect the business to have good growth potential. We will also continue to work on expanding our market share in the government area.”
CEOCFO: Let’s close up by addressing potential investors and why you feel they should consider Globecomm Systems.
Mr. Hershberg: “If anybody’s looked at our growth, we have had revenue growth in the 20% range. We have had a bottom line growth of 40% to 50% range over the last four or five years. We are well positioned in the industry, but I think we are going to be suffering along with everybody else in this economy. I don’t know exactly how we are going to end up this year. We have been booking some business. We haven’t lost any, but there have been some slow downs. If you look at what we’ve done, we have met all of our numbers every year. We have been very transparent to the investors. They know all the good things and all the bad things about what’s going on. In addition, our technology is very good; it’s a very good niche business that we are in and it’s a growth area. We are pretty much an open book. Anybody can go to our website, take a look at what we have done, at the products that we have, the customers that we have and look at our history. I think we have a very good future.”
Chief Executive Office and Chairman of the Board
DAVID HERSHBERG. Mr. Hershberg started his career in 1959 at ITT Defense Communications working on earth stations for the first active communications satellite carrier as well as many other early satellite programs. He founded ITT Space Communications, Inc. in 1968; Comtech, Inc. Systems Division in 1972; and Satellite Transmission Systems, Inc. in 1976, each becoming extremely successful.
During his 18 years as President and CEO of Satellite Transmission Systems, Inc., STS became the global leader and premier company in the field of satellite communications ground station systems. STS had annual sales in excess of $110 million, and an installed base of over 1,000 major earth terminals installed. Under his leadership, STS was a 1992 winner of the New York State Exporter of the Year Award, and STS became the first company in its field to achieve the coveted ISO 9001 certification. In addition to his duties at STS, Mr. Hershberg also served as the President of the Satellite Communications Group of California Microwave Inc., which included responsibility for EF DATA, Inc. and CMI Mobile Products.
Mr. Hershberg founded Globecomm Systems Inc. in 1994 as an integrator of satellite communication systems and networks. In a short time it became a leading provider of end-to-end solutions, including systems, connections, and services. In 1996 he founded NetSat Express, Inc. as a subsidiary of GSI, to provide Internet service to developing countries. It is now a leading provider of Internet-via-satellite services for international ISPs and end-to-end Enterprise Solutions, with content delivery offerings such as SkyborneSM.
Mr. Hershberg received a patent for his innovations facilitating two-way Internet-via-satellite services, a core offering of NetSat Express since its inception. Mr. Hershberg also developed innovations in L-band earth terminal architecture that have become part of the foundation of large gateway as well as very small aperture terminal design. Under his leadership, Globecomm Systems, Inc. received an award as one of Long Island’s fastest growing top 50 companies for two years in a row. In 2000 GSI won the “Teleport Operator of the Year Award” presented by the World Teleport Association.
Considered an industry leader by many of his peers, Mr. Hershberg has championed many new technical and management innovations, and was recently honored as the recipient of The Ernst & Young “Entrepreneur of the Year Award” for the Long Island region in the Emerging Technology category. This award recognizes the business attributes of those who have founded or are growing a leading-edge company. In March 2008, Mr. Hershberg was inducted into the Long Island Technology Hall of Fame (LITHF). The intention of the Long Island Technology Hall of Fame is to recognize, honor and preserve the contributions, accomplishments, and dedication of historical figures or current leaders in science or technology who have had, or are having, an impact on Long Island.
Working to improve United States industry competitiveness, Mr. Hershberg was invited to testify before the United States Congress, and met with President Clinton on competitive trade issues. In addition he has worked on trade issues with the Department of Commerce, the U.S. Trade representative, AEA, TIA, and the Council on Competitiveness. An accomplished expert on quality issues, Mr. Hershberg has lectured to companies, government agencies, and industry groups on Continuous Improvement and Total Quality Management.
holds Masters degrees in Electrical Engineering from Columbia University and
Management Science from Stevens Institute of Technology; he also holds a BEE
from Rensselaer Polytechnic Institute (RPI).
“We are very well-known in this field. I have been in the satellite communication field now for 49 years. A lot of my people have been in for 25 or 30 years. I think we are a very trusted supplier, we really emphasize quality. We have had the same customers for 30 or 40 years that we have been working with and our reputation is extremely good in this field. When you are really concentrating on a niche business like ours, you can be the best at what you do.” - David E. Hershberg
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