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With the world focused on environment and public health concerns
Insituform Technologies is in the right place at the right time creating breakthrough
products that along with robotics allow them to repair crude oil and sewer pipes and now
drinking water pipes
Industrial Goods
Heavy Construction
(INSU-NASDAQ)
Insituform Technologies, Inc.
17988 Edison Ave.
Chesterfield, MO 63005
Phone: 636-530-8000
Thomas S. Rooney, Jr.
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - March 15, 2007
BIO:
Thomas S. Rooney, Jr.
President and CEO
Born in 1959, in Chester, Pennsylvania, Thomas S. Rooney, Jr. grew up in Illinois and Florida.
Tom earned a Bachelor of Science degree in Civil Engineering from Cornell University in
1982 and a Master of Business Administration from the University of Chicago in 1991. He
joined Insituform Technologies, Inc. on April 1st of 2003, and was named
President and CEO in July of 2003.
Prior to joining Insituform, Tom worked for Turner Construction Co., The Centex
Corporation, and Gilbane Building Company, three of the largest construction management
firms in the United States.
Tom and his wife, Marilyn, reside in Ladue, Missouri.
They have four children, Katie, Tommy, Patrick and Meghan.
Company Profile:
Insituform Technologies®, Inc. is a leading worldwide provider of proprietary
technologies and services for rehabilitating sewer, water and other underground piping
systems without digging and disruption.
CEOCFO: Mr. Rooney, what was your vision
when took on the role of CEO and where are you today?
Mr. Rooney: “I joined Insituform
Technologies on April 1st of 2003. I was brought in as the president and COO of
the company to ultimately succeed the then CEO of the company in a transitionary period.
In fact, that period only lasted about four months and I became the CEO of the company in
July of 2003. My vision coming in was clearly to reenergize and turnaround the company.
The company has been around since 1971, a publicly traded company. It was founded on some
blockbuster-patented technologies that started the company and propelled tremendous
success to the company around the world. The patents expired in 1993 and the company was
on a glide path from 1993 to 2000, but really began to falter from the year 2000 to 2003.
It was in pretty difficult straights in 2003 when I took over. Frankly, my vision as I
took over the company was to reenergize it, develop long-range strategies for success,
rebuild our market share and rebuild our technology development group. In addition,
partially keep the company going, but also develop long-range strategies to propel the
company for many years into the future.”
CEOCFO:
Will you tell us what has been done to reshape Insituform and what is in progress?
Mr. Rooney: “The most pressing issues
for Insituform Technologies in 2003 included poor operations performance. That included
things such as safety, which was not working well for us, as there had been five
on-the-job deaths in the three years prior to me joining the firm. We had been operating
at an unacceptable level in a number of dimensions. Our cash flow was very unfortunate. We
were taking 130 days to collect cash, we brought that down to 90 days now and we are
continuing to bring it down. Our safety record has improved by 90% since 2002, so we have
one tenth of the number of accidents and injuries that we had in 2002. We pushed our
market share from 40% back up to 60%. We have opened new offices around the world; we
operate in about 45 countries now. We have invested in huge patented technology, so today
we have 80 some odd patents in an industry where most firms have none. We have done a
great deal. I really focus on three primary dimensions; one is re-growing the company so
as to have advantage to scale; I refer to that as growth. The second one is heavy
investment in innovative research and development for new technologies. The third primary
dimension is operational excellence for simple things like managing cash flow and managing
safety, crew productivity and so on.”
CEOCFO:
What’s new in the underground piping?
Mr. Rooney: “What is new in the
underground piping industry is the advent of new robotic technologies for working in the
pipes. Specifically, drinking-water pipes underground are very hard to access and repair
without having to dig entire streets up. During a recent visit to Hong Kong, I met with
the water department, and they have very aged underground pipes for their water. They also
have rules where once a street has been laid; no one is allowed to penetrate the asphalt
for five years for any reason at all. They do not have the option to dig up streets to
replace and repair water pipes; they have to do it outside of the streets. Therefore,
robotic technology we have developed to be able to go down and run down the inside of a
pipe to be able to fix it, is probably the hottest new technology. We refer to it as
iTAP™, using robots that we designed ourselves that can actually run like a little
torpedo down the inside of a pipe.”
CEOCFO:
You mentioned having a leg up on your competition with the technology; what is the
competitive landscape?
Mr. Rooney: “When we invented the
industry there was no one but ourselves doing it but now, just in North America, we have
about 100 competitors. We have 50 or 60% of the market, the other 99 or 100 competitors
share the other 40% of the market, so we are ten times as large as our largest competitor
and fifty to one hundred times as large as the generic competitor. Therefore, it is a
highly fragmented industry except for one very large competitor in the middle.”
CEOCFO:
What drives customers to you?
Mr. Rooney: “They come to us for one of
a couple of reasons. We have one segment of our business, which is to repair crude oil
pipelines, and we are the world’s leading firm in terms of repairing crude oil
pipelines. People may remember this past summer up in Prudhoe Bay, Alaska, BP, Plc. (LSE:
BP, NYSE: BP) made national and international news over an oil leak in the Canadian
tundra. It is repairing and reinvigorating oil lines like that, that we are the
world’s leader and we do it with a plastics technology that simple no one else in the
world can use. In certain markets like that, people come to us because we have a
technology that no one else even understands let alone is able to use. The other end of
the spectrum, in replacing sewer pipes is where we have 100 competitors. In that world,
people come to us because our technologies are so powerful that we can perform the work
far cheaper than anyone else can at extremely high quality levels. It is our innovative
technology that has enabled us to be by far the low cost provider. It depends on which end
of the spectrum; for oil pipelines, it is product differentiation and for sewer pipelines
it is price differentiation.”
CEOCFO:
Do you do project-by-project or long-term contracts; what is your model?
Mr. Rooney: “It is some of both of
those. In the water and sewer world, we deal with municipalities around the world. In oil
pipelines, we deal with oil companies. In the municipal world we often times will have
multi-year contracts. We will also have sometimes-spot contracts where we will handle a
hundreds of miles of pipe. The third instance is emergency contracts. More and more we are
getting called by municipalities where a pipeline has ruptured and we come in on an
emergency basis to make significant repairs. In the case of crude oil pipelines and oil
companies, often times we are just their preferred vendor and we are on something of a
continuum of work.”
CEOCFO:
Do you maintain offices and crews worldwide? How much training is involved for your
crews?
Mr. Rooney: “We have permanent crews in
25 different countries on 5 continents. We have manufacturing on three continents, North
America, South America and Europe. We have 75 crews in the sewer business and another 15
crews in the oil pipeline business in the Americas. We have about 60 crews through Europe
and Asia that are permanently based. Training is a requisite, the typical crews consists
of 6 to 7 people working in a particular location and the crews stay together. On one
crew, you have someone that needs to understand how to run a robotic device underground
with a video camera and cutting devices and so on. That is a highly trained position; a
person does not necessarily need to be college educated, but the degree of training is
incredible. It would take 6 months to become effective at doing that. We also have between
half-million and three quarters of a million dollars in equipment onsite with that crew,
such as high-energy steam boilers and things like that.
As an example of how well trained a crew needs to be; this last summer of 2006, I
challenged all of our crews around the world to increase crew productivity, which is to
say, increase the number of feet of product installed in a week. The winning prize was
that whatever crew in the world had the greatest crew productivity gain in the 1st
Quarter of 2006 would get a week off. The crew that would take over for that crew while
they had their week’s vacation was lead by me. My six-person crew consisted of the
CFO, the COO, the chief information officer, the general counsel, vice president of human
resources, the vice president of engineering and me. We literally put ourselves through
the company standard training and safety program. As it turns out, in May of 2006, we went
and took over the three quarters of a million dollars of equipment in Mobile, Alabama; the
crew went on vacation in Mexico and we performed the exact same amount of footage that
they did on an average basis.
I will tell you, we had to work till the wee hours of the morning whereas they could get
it done in an eight hour day. It is possible even to take some semi-trained individuals
like a CEO and go and do the work. However, where the rubber meets the road is not whether
a crew can get work done on any one day, it is at the marginal areas, which is to say, can
they continuously produce very high levels. For us, the crew productivity is the most
important thing and whether they are producing 1700 feet per week or 2200 feet or 2300
feet, makes a world of difference to us.”
CEOCFO:
You had a good 4th Quarter, what do you still need to work on, and how do you
continue your success?
Mr. Rooney: “The most important thing
for us is we have become very dominant in our industry, which is to say for us to continue
to grow is not as much a matter of us winning work against our competition anymore as much
as it is to change the dynamic in the industry. What that means is there is an almost
infinite amount of work that needs to be done in underground utilities, it is by far the
most undermanaged and undermaintained asset in the world; that is according to the United
Nations and the American Society of Engineers. The pent up demand for what we do is
enormous, but for various reasons that work is not being tended to. Therefore, the
greatest challenge for our company going forward is to cause the work to be done by our
clients through greater regulatory involvement, greater public awareness and so on. That
is our challenge. For us to continue growing at the breathtaking pace we have been
growing, we need to cause market stimulation as much as we need to be fierce competitors
in the market. So far, in the 3½ years that I have been here, we have succeeded in
fine-tuning our operations. Our crew productivity is up 25 % this past year; our safety
incident rate went down 20% again this year. Our cash flow has improved, our tax rate we
have brought down, there is almost no dimension that I could name for you that isn’t
far superior today. As I sit here, I realize we have an amazing operations machine, the
challenge is of course feeding it with tremendous amounts of new work coming up. The good
news and the bad news is that we can produce it in huge volumes; we just have to go create
the market.”
CEOCFO:
How do you create the market?
Mr. Rooney: “The large dose of it is
public awareness, and Booz Allen Hamilton, Inc.’s quarterly client magazine recently
had a cover story that suggests that the underground infrastructure problem is $22
trillion worldwide problem, by far the largest. However, the average person has no idea
that this degree of investment needs to take place around the world. Therefore, one of the
ways I create awareness is by going on national TV talking about it and lobbying
regulators in D.C. In addition, I spend a lot of time around the world meeting with
governmental leaders, and talking about these issues. It is really just bringing the issue
to the surface, which is that there are pipes underground that carry crude oil, water and
sewage that have been under the ground for over 50 years. They have been completely
under-maintained and un-tended and the degree to which people understand that, they
realize these pipes only were intended to last 50 years. They are coming due at a horrific
rate and when people become aware of that, they tend to do things. There was a 350 feet
deep sinkhole in Guatemala that killed 3 people, which was caused by a sewer pipe gone
bad. Therefore, whether it is catastrophic events in Guatemala or sewage dumps on Waikiki
beach, Hawaii, the issue is becoming more and more a public awareness issue for us.”
CEOCFO:
Do you see acquisitions in the future?
Mr. Rooney: “Yes, and we have acquired
five or six companies in the three-and-a-half years I have been here. We are typically
focused on technology acquisitions and because we are so large and represent approximately
60% of the market anyway, there is no sense in us acquiring the revenue of our
competitors. Therefore, instead we are looking at acquiring adjacent technologies and we
would consider an acquisition if it made a lot of sense and we do that almost on a regular
basis.”
CEOCFO:
Why should investors be looking at Insituform Technologies and what should they know that
does not jump off the page?
Mr. Rooney: “The water sector, which is
described as drinking water and disposal of water, such as sewage, is becoming a hot
investment sector all the way around the world. People are awakening to the fact that,
according to Booz Allen Hamilton, $22 trillion needs to be invested in this over the next
25 years. Currently the spend in the United States is only about $3 billion. You are
talking about presumed growth rates of exorbitant levels; Goldman Sachs Group Inc. (NYSE:
GS) for example, I think refers to the water sector, as ‘water is the new oil’.
Therefore, when investors who have caught on to the notion that an incredible amount of
money is going to be spent in the next 10 to 15 years in water, and look for companies
that are currently active in the water space, Insituform Technologies as a company always
comes very near the top of the list. This is because we are a pure-play in the water
sector and we are by far the preeminent firm in terms of what we do with the global
spread. The belief from a lot of investors is that this sector has inevitable growth well
into the future and there are very few companies actually working in the space; we are one
and as it turns out we have an unbelievable market share and technology advantage. I think
that is one of the primary reasons people invest in us. We had a weak spot from 2000 to
2003 where strategically we lost some direction, but we have been a phenomenal success
story, nearly doubling profits of late, so we are back on track. The element that is
grabbing a lot of attention is that we have made some bold moves in the last 12 months in
terms of launching a new division within our company. That division is called Insituform
Blue™, which takes us from being a company that was primarily and almost exclusively
a sewer pipe repair company to a company serving the sewer and drinking-water pipe market
and that is predicated on the technology breakthroughs including iTAP™.”
CEOCFO:
In closing, what should people remember most about Insituform?
Mr. Rooney: “What people should
remember most is how to pronounce the name. I cannot tell you how many times people
stutter over the name Insituform. Insitu is Latin for the word in-place, so you get form
in-place or Insituform, which means reformed pipes inside of other pipes that are in
place. They should remember that we are a great company with an exciting future. For more
information visit http://www.insituform.com/.”
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