Gentner Communications  

1825 Research Way
Salt Lake City, UT 84119
Phone: 801-975-7200 , Fax: 801-977-0087
ir@gentner.com

Ms. Frances. M. Flood
Chairman, President and Chief Executive Officer  

Interview conducted by: Walter Banks , Co-Publisher  

CEOCFOinteriviews.com

January 2001  

ABOUT GENTNER

TheDataPort.com is a Webconferencing service that enables you to conduct live, interactive meetings with anyone, anytime, anywhere in the world, right over the Internet. All you need is a connection to the Internet and your PC. Your presentation can include graphics, slides, graphs, charts, Q & A, even video and audio. Plus, your event can be saved for people who may have missed it live. All for a fraction of the cost incurred through travel.

CEOCFOinterviews – Ms. Flood, please give us a brief history of Gentner Communications, and where you expect to be in three years.

Ms. Flood – “Gentner was founded in 1981 and our roots are in the broadcast market.  We developed the technology that enables radio and television talk show hosts to bring telephone callers “on-air” live by taking audio off of the telephone line and cleaning it up to create a broadcast-quality audio signal.  Our broadcast audio products were so effective at eliminating such audio problems as feedback and echo that a few years later we migrated the technology into high-end audioconferencing products for such applications as boardrooms, courtrooms, and distance learning environments.  Despite a tremendous technological base, the company had experienced very desultory performance.  It had been run as an entrepreneurial, invention driven company, rather than one that was a professionally managed and publicly traded.  As part of a management change in December 1997, I was appointed president and the new management team developed a plan whereby we would profitably grow the corporation.  Looking back at Gentner’s performance, you can see that we have delivered on the numbers. In the fourth quarter of fiscal 1997, six months after the change in management, we returned the company to profitability and have been profitable every single quarter since, having just reported our 15th consecutive quarter of profitability.”

CEOCFOinterviews – Could you tell us about the strategy, which turned Gentner around?

Ms. Flood – “Our audioconferencing products are essentially sold through a distribution channel of VARS, dealers, integrators and installers.  They are our customers, and they typically work with the end users of our products in developing and installing complete audio/visual systems for corporate boardrooms, distance learning facilities, and other complex applications. Our products are discreet, meaning they are installed behind the scenes, in a rack located in a cabinet or in a separate room with a number of other products. The only evidence of our products in the room is often a number of small, strategically-placed microphones.  In 1998, we launched the AP800, the first in our Audio Perfect family of products.  These products combine the features and functionality of four separate audio products into a single box.  The AP800 not only simplified the integration process for our dealers and integrators, but also gave us a much more robust product that enabled us to increase the average retail price of our products from $1995.00 to $4995.00.  At that point, we coined the term that described our intentions in the conferencing market, which is to “increase our share of the room install” when it comes to conferencing systems. We also discovered through our research that 50% of Gentner’s audioconferencing systems were being attached to competitors’ videoconferencing systems to improve the audio quality.  Therefore, in July 2000, to further increase our share of the room install, we purchased the assets to technology for a videoconferencing product and a lower-end conference phone from of ClearOne, Inc.”

CEOCFOinterviews – What do you intend to do with the technology that you acquired with ClearOne?

Ms. Flood – “We are going to increase our presence in the conference room and dominate the space in the A/V closet, or as we like to say, “go deep,” with a top quality videoconferencing product.  We also want to “go wide” as an organization by targeting rooms, or applications, of all sizes.  Prior to the acquisition of ClearOne, we focused primarily on the very high-end applications in large- and medium-sized rooms.  The lower-end ClearOne conference phone gives us a viable solution for smaller conference rooms, including small office/home offices market. Additionally, we rolled out a product in December of 2000 called the PSR1212, which stands for “Perfect Sound Results.”  This product enables us to target extra-large venues such as hotel or convention center conference rooms, auditoriums and houses of worship.  For example, in a hotel you might have two large rooms divided by a sliding partition, with one hundred microphones in each room. The PSR1212 lets you combine those rooms so that when you open the partition and hit a button on the system, all two hundred microphones work together seamlessly.  The PSR1212 continues our strategy of “going deep” within the rack and the room by increasing our product mix, and “going wide” by expanding the size of the rooms that we’re targeting.” 

CEOCFOinterviews – What is the market size for your product?

Ms. Flood – “To give a perspective of this, the market opportunity for Gentner’s audio telephone hybrid products—the products that gave us our start targeting the broadcast industry—is approximately $10 million annually in the United States.  This meant that we were very limited in our opportunity because of the market size.  Going into the audioconferencing market essentially increased the market opportunity for our products domestically to about $110 million.  By going into the video market, as well as into the high-end market, we are now looking at an overall worldwide market opportunity of about $3.5 billion dollars, and that is projected to grow to over $4 billion by 2005. So, we are obviously now going after a much larger market. 

CEOCFOinterviews – What is your current market share?

Ms. Flood – Currently, we have about 14% of the audioconferencing system market.  We believe that we can capture an even greater share of the market now that we have a lower-priced product offering that can be sold through retail channels. The other nice piece of the equation is that we are addressing markets that are growing.  Therefore, we’re not just stealing from the existing market share.  Of the current $110 million audioconferencing system market, the lower end of the product spectrum is dominated by Polycom.  Their highest priced product is about $1,995.  Prior the acquisition of ClearOne our lowest cost product was $2,995.  You had about a thousand-dollar delta between Ploycom’s high-end and Gentner’s lowest-end products.  Additionally, with the products that Polycom sells, people can walk into a supply store and pick them up, where as Gentner’s products require professional installation and are only sold through professional dealers and integrators.  Therefore, we were addressing a very specific market niche, where Polycom was addressing a much larger universe. However, just with that specific niche, we have been able to start capturing market share, because more and more people are realizing the need for higher-end products in a greater number of applications.  So, it’s easy to see why we don’t currently own the lion’s share of the market, as heretofore we had not gone after the largest share of the audioconferencing product universe.  With the acquisition of ClearOne we have added a product that retails for $399. We can now go after the lower-end spectrum, and are covering the waterfront completely now with our product line.  Moreover, we have won the contract to be in Staples and are just now being placed on their shelves.  We now have a better opportunity to go after the market share in a much more aggressive way.”

CEOCFOinterviews – How do you market your products?

Ms. Flood – “We have our own internal marketing team and we also use an advertising agency.  Our strategy is to create awareness of the Gentner brand within the retail market and to provide product and technical education for our dealers and integrators. Because the majority of our products are not, quote, “plug and play,” an integrator is needed to install them, so we spend a fair amount of money training our very valued dealer base.  We have approximately six hundred dealers throughout the world. We have a good relationship with our dealers and integrators, and they are very familiar with the Gentner brand.  If you were to talk to some of the most prestigious dealers out there, they would have sterling things to say about the Gentner brand being synonymous with quality and excellent technical support.  Therefore, our marketing is geared towards creating brand awareness at the retail level, which will also help our dealers, and a lot of our marketing dollars are spent on dealer education.”

CEOCFOinterviews – Are there any other new products that Gentner is offering which will increase revenue?

Ms. Flood – “One of the other products that we now offer is a service called, “1-800 LETS MEET®”.  It is very complementary to our conferencing products in that we provide the service that can connect literally thousands of people on the same conference call. It has been the fastest growing piece of our business, literally growing at 100% year over year in revenue since 1998.  The other interesting side of 1-800 LETS MEET is that it is a renewable revenue source, and as long as you can retain the client, the revenue will continue to grow.  Therefore, we have a service business and a product business that complement each other extremely well, and provide us with a much broader market opportunity.”

“In 1996, when I came to Gentner Communications, we owned 3% of the audioconferencing product market, according to Frost and Sullivan.  In 1999, our market share grew to 14%.  Therefore, our motto and our strategy of going deep within the rack and getting more share of the room is absolutely working.  Our expectation is that if we can sustain the same strategy to keep increasing our overall share of the markets we target, then you can see the dynamics of going after a multi-billion-dollar opportunity.  If we can get 10% of that opportunity worldwide . . . obviously the math is very impressive.”

CEOCFOinterviews – How many products are in your pipeline?

Ms. Flood – “Today we have about 65 core products.  A key element of our technology is that our products are modular.  If someone wants to enhance a competitors videoconferencing system with Gentner’s audio, they can do that.  And, if they want an integrated audio/videoconferencing system from a single manufacturer, we can do that too.  We also offer microphones and speakers, so what we are doing is offering the total conferencing package, but keeping our products flexible enough to easily interface with the products of our competitors. This gives the dealer or customer a choice as to what products they want to install, but also simplifies the integration process for the dealer by providing a single source for product and technical support.”

CEOCFOinterviews – Which aspects of your company do you feel give you a competitive edge?

Ms. Flood – “There are several things that give us a competitive edge.  One is our core competency in audio engineering.  In any type of conferencing, the most integral component is the audio, because if you don’t have audio, you don’t have a conference.  You can have a wonderful video picture, but if there is no sound, the meeting ends.  Gentner is known by our dealers for high-end, best-in-breed audio. We are also known in our space for providing superior technical support.  Therefore, I believe that we have several key things that distinguish us from our competition.  Another thing that Gentner is doing is creating products that will interface with whatever transmission pipe the customer will be using, whether it is ISDN, T-1, H.323, Internet or DSL.  This enables us to have an end-to-end solution and to stay ahead of the technology curve.  We are really addressing the Internet and DSL, and are moving forward on that front.”

CEOCFOinterviews – What percentage of your revenue goes towards research and development?

Ms. Flood – “We put between 5% and 6% of our revenue into R&D.”

CEOCFOinterviews – Is your product pipeline built through R&D or acquisitions?

Ms. Flood – “Almost all of our products have come from R&D.”

CEOCFOinterviews – Are there any other possible acquisitions or partnerships on the horizon?

Ms. Flood – “Some of the most key partnerships that are quite note worthy are in the audioconferencing service environment. Gentner has a partnership with XO Communications, formerly Nextlink.  We are private labeling our audioconferencing services so that XO’s sales force, which numbers between eight and nine hundred people, will sell Gentner’s audioconferencing services under the XO label.  I might add that this is a relatively new phenomenon and we see a tremendous potential in that partnership.  Additionally, we provide Web conferencing services through a partnership with WebEx Conferencing, and we’ve just completed the development of a relationship with a company called, Symatrix, which is the largest IBM reseller of Lotus productivity software. With Symatrix, we have developed a solution that enables instant scheduling of audio and Web meetings through the Lotus Notes calendar and Lotus Sametime Meeting Center. With this solution, when Notes/Sametime users schedule a meeting, they will be able to add the audio and Web components with the click of a button.”

CEOCFOinterviews – How are you situated with cash and/or credit to continue your growth?

Ms. Flood – “Right now we are debt free and have an available line of credit of about $5 million.  Additionally we are sitting on about $5 million in the bank.  Therefore, we are in a very good cash liquidity position in the event that an investment opportunity presents itself, and we are always looking for good investment opportunities.  If you look at our financial strategy, one of the key things is that we believe we can grow organically.  In fact, we have publicly stated that this fiscal year we expect to grow revenue 40%-50%.  We are also targeting a minimum of $0.68 EPS, at the end of the fiscal year.  Strategically we have established a mergers and acquisitions area inside of the corporation.  If we identify a technological opportunity that we’re not currently pursuing that would take us too long to develop in house, we would be inclined to look to acquire the technology. A perfect example is our recent acquisition of ClearOne, which gave us an 18-month jump on the development of our videoconferencing system.  The possibility of an acquisition also addresses the issue of increasing our float.  As a micro cap company, our float is relatively small, in the neighborhood of about 6.7-6.8 million shares.  Our shares outstanding right now are about 9 million.  We are in the business to grow the company, but to grow the company while making money.”

“One of the most interesting aspects of Gentner, which I also think makes us very unique, is that when the new management team was put into place in 1997, the company had come off of a very mixed performance, and the shareholders were not getting the biggest bang for their investment.  In order to attract a new team of management to the corporation, while still keeping the shareholders interest in mind, we created a rather unique stock option plan. In this plan, our stock options will vest as we hit specific fully-diluted EPS targets.  Therefore, the shareholders are always kept at the forefront of this corporation because our interests are aligned to theirs.  If we don’t meet EPS targets, then we don’t get our stock options, and that really fuels and drives this corporation and its management team.  For us to get all of our stock options in the 2003 fiscal year, this corporation has to hit $1.49 in EPS.  It really works out best when all of our interests are aligned.  Coming out with great products, we understand that if we deliver quality to our dealers, it will drive the revenue. And, if we drive the revenue, making sure that we are doing it at a profit, then it aligns to the employees and even our corporate community.  We pay a healthy amount of tax, but that’s a good sign for the corporation, in that we are profitable.  Therefore, we’re contributing back to the community as well as keeping the shareholders best interests at heart.”

CEOCFOinterviews – Is there a final thought that you would like to leave with potential investors and your shareholders?

Ms. Flood – “I believe that you need to look at the sustainable growth pattern that we’ve had and, most importantly, that we’ve done it while making a profit. If you compare our current value to many of our competitors, we are certainly undervalued. However, we fundamentally believe that regardless of what’s going on in the stock market, as we continue to focus on the business at hand and deliver on the numbers, ultimately the market will reward the corporation commensurately.”