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A new business model and financial structure has enabled Lyrtech
to establish a major turnaround
Technology
Digital Signal Processing
(LYT-TSXV)
Lyrtech Inc.
4495, Boulevard Wilfred-Hamil, bureau 100
Quebec QC Canada G1P 2J7
Phone: 418-877-4644
Miguel Caron
Chief Executive Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
March 10, 2005
Biography of Migüel Caron
Migüel Caron, CEO graduated from the Royal military College in Military
Strategy.Results-driven sales, marketing, financial and operations executive, M. Caron has
over 12 years of organisational leadership experience and a proven track record of driving
strong, sustainable revenue/profit and productivity gains within highly competitive
national and global markets.
Company Profile:
Lyrtech is a recognized player in the worldwide digital signal
processing (DSP) market with more than 20 years of experience in the delivery of advanced
technology solutions in Asia, Europe and the Americas. Lyrtech is the one-stop place for electronic design, prototyping,
manufacturing and delivery of a full range of value-added products and services, which
range from off-the-shelf DSP/FPGA development platforms to turnkey project solutions and
electronic manufacturing services (EMS).
The company works in partnership with industry leaders such as Altera, StarCore, Texas Instruments, The MathWorks, and Xilinx. Lyrtech delivers unsurpassed quality
and support to its large OEMs customer base, which includes many prestigious names such as
Fujitsu, Sony, Honeywell, ITT Industries, Harris Corporation, Dolby Laboratories, BAE
Systems, Mitre, Los Alamos National Laboratories, Neural Audio and many worldwide
recognized Universities.
CEOCFOinterviews: Mr. Caron, How has the company changed
under your leadership?
Mr. Caron: "The company has been built by two fantastic
engineers over 22 years. These two great engineers were able to create fantastic
technology but did not have the knowledge for marketing or commerce. They were selling
their technology based on how much it cost them or how long it took them to invent it, vs.
selling it for the value it had for the customers. When I arrived, Lyrtech was in
tremendous financial difficulties, they were basically in technical financial bankruptcy.
So what we did was change the business model and financial structure of the company and
financed it. We then hired a sales team, because the company didn't have a sales team for
the past twenty years; it was engineers selling to other engineers. We hired the sales
team back in 2003 and began to see growth in 2004, since we were now focusing on marketing
and sales instead of just trying to find the next super technology. We changed from an
R&D, engineering company to a marketing and selling company."
CEOCFOinterviews: Can you give us some more details on what
you are selling?
Mr. Caron: "The core of our technology that was worked
on for the past twenty two years is Signal Processing. Humans can only track with analog
signals such as voice, sound and light; we are unable to process digital signal. However,
electronic is the other way around, because electronic can not deal with analog signal. It
can only deal with numerical signals such as 0s and 1s. Two people sitting in a bar with
lots of noise around them can still hear and understand each other, even if their speech
becomes slurred, because the brain is a very powerful analog computer. We can do the same
thing electronically, but it is much more complex and takes a lot of processing. There is
a gap between what humans can track with and what electronics can track with, but Lyrtech
has covered that gap. If you are in a bar and you take your cell phone and talk; just
within the first few seconds the cell phone has grabbed your voice. It has also increased
your voice and decrease the sound of background noise and the person at the other end
doesn't hear the noise and music; all he or she hears is your voice. This is because of
signal processing, the expertise of Lyrtech. That is one example of the application of
signal processing; it is basically taking an analog signal; putting it in 0s and 1s,
changing its state using algorithms, which is a mathematical formula and putting it back
into analog again. If you remember about ten years ago we used to teach people how to use
technology, with a VCR manual being about an inch thick; what the market is driving is the
other way around again. we are teaching electronics how to do human functions. You will
take your cell phone and say to it, 'call home'; it will call home and PDAs can recognize
your normal writing, so that it will type what your are writing on the screen. Even the
ABS (Automatic Braking System) on your car is done with signal processing and at the core
of signal processing is the push to make electronics more usable and that is what we are
good at."
CEOCFOinterviews: What is about what Lyrtech is selling that
sets you apart from the competition?
Mr. Caron: "Knowledge! We have been doing this for a
long time. We were actually the first company to be expert in signal processing, 22 years
ago. Actually, the founder of Lyrtech, who is still a member of our team right now is
Louis N. Belanger and he did a Master in signal processing, even before signal processing
existed on the industrial market. Companies such as TI (Texas Instruments - NYSE: TXN),
Vitrola and Gear, these huge companies if you go on our website, as a key partner you will
see that we are number one and number two. Most of our customers were referred to us by
our partners; we announced a $4.5 million deal not to long ago with Neural Audio and they
were recommended by TI who told them to go see Lyrtech; they will help you out. The
Japanese government wants to build a new wireless array antenna network over the island of
Japan, so they came to us and we were also approached by to Los Alamos Research Lab here
in the United States. This is one of the most secretive laboratories in the world, it is
where they invented the nuclear bomb and they came to us; why, because we have the
expertise. We have also announced a deal where we have to build a product for a South
Korean customer and if the product fits the specification, they will buy $14 million worth
of this product from us. This is one of the biggest military companies in South Korea."
CEOCFOinterviews: You indicated that this is a milestone
contract for you according to your release; why is that?
Mr. Caron: "That contract is really important because it
links us with one of the ten biggest companies in the world and it is the first time that
this company agrees to work with a small cap like Lyrtech. The only reason that they
agreed to do business with us is because we are the only one that has that expertise and
if we can deliver the solution to them, and I know we can, we will get that $14 million
contract and a lot of other big players will start taking us seriously. When I arrived,
Lyrtech was a $2.8 million company; we will end 2004 between 5 and $5.5 million, which is
only one year after I came on board. Already booked for 2005 is $8 million in sales and
that doesn't count that $14 million contract, so you can see that we are more than
doubling our sales every year. Plus, we are more than tripling our gross profit every
year. We have just need two or three deals like that, so the big players will take us
seriously and will go from a 10 or $15 million company to a $100 million company. That is
where I want to take this company in the next few years. In Asia, which is a big part of
our market people are very loyal. They are really difficult to build a relationship with,
but once you're their partner, then you will be their partner forever."
CEOCFOinterviews: It seems like you've been focusing on Asia.
Mr. Caron: "Yes we have! Close to 60% of our sales is in
Asia."
CEOCFOinterviews: Can you tell us about the sales and design
process; is there any customizing for customers?
Mr. Caron: "We basically have three offerings. The first
one is our line kind of product; we have off-the-shelf product, which we call the single
master line of product. These are basically product that help engineers design their
turnkey project or their total solution; someone that wants to build a new cell phone or
base station or wants to do some prototypes. Our DSP board allows them to actually test
this design on real hardware, so the board simulates an application. We call that our
Business Card product; it is the product that helps us get into key accounts. Once our
engineers work with them to design a product, they can say, 'now we are ready with the
perfect idea of, we know what the final product will look like, we need to make the final
design and manufacture it'. That gives us the opportunity to introduce them to the second
offering that we have, which is a turnkey engineering solution; it will allow the customer
to go back to their drawing table and work on the next product generation because we will
do the engineering of the last version of their product. We will do the engineering
schematic, the computer assisted design, the manufacturing, the software, the mechanics
the software and even package and shipping it to your end-customer. Our SignalMaster line
of product is 20% and 60 to 70% is turnkey engineering solutions and the important aspect
is that in most of the contracts that we do at least 7 contracts out of 10: we keep the
intellectual property of the product. Therefore, over the SignalMaster line of product and
the turnkey engineering solution, we have kept a lot of IP, a lot of internal intellectual
property and a lot of product that we have built for the customers, but we are allowed to
resell it to other customers for different applications in a different line of business.
This helps us to be highly profitable; if you look at Q1 last year, we were running at 81%
gross margin, which with the acquisition of our manufacturing facility that we did in
August; it went down, but we are still running at around 60 to 65% gross margin. For a
hardware electronic engineering company that is a really high margin."
CEOCFOinterviews: What do you have to be careful of as you
grow and how do you manage the growth?
Mr. Caron: "The first thing is short term liquidity; it
is the nightmare of every company that went up from a few million to 15 or $20 million in
sales. Doubling puts a lot of pressure on our liquidity, but that's just the name of the
game. The only role of the CEO is to increase shareholder value, so you have to be careful
the way you do this, because if you do this by dilution it is not a good thing. We also
have to be careful that we are able to deliver what we sell. We put a lot of focus on the
quality of our deliveries, because selling is not a problem. The only time we lost
business to a competitor was because of pricing, because we are not willing to give away
our technology and the few times that we refused to go down on price. At least half of
those times after a few months the customer came back to us, because our competitor wasn't
able to develop a solution. So competition so far is not something that has scared us,
maybe it will be different when we are a threat to bigger companies. It is important to
stay focused because our knowledge and technology allows us to participate in many
different kinds of projects; all with signal processing, but in different markets. So far
what we are focused is on is wireless, military and aerospace and audio and video, but
more and more there are deals coming our way regarding medical or automotive and it is of
interest to us. However, we do have limited resources, so we have to be careful not to
spread out too wide."
CEOCFOinterviews: Address potential investors, why is this a
good time to be interested in Lyrtech and what should they know that they may miss at
first glance?
Mr. Caron: "This is not a Club Med ad where you just see
the water or the sea for one minute and then the ad says this is one minute, can you
imagine two weeks. Basically, that is what I tell investors. If you look at what we've
done over the past 12 months; it's rarely seen a turnaround like this; we have no debt,
our sales are doubling every quarter and we've tripled the gross profit. We've also
increased the market cap value of the company over 1,000% and we are one of the most
traded stock on TSX Venture. We have now nineteen distributors all over the world, so we
are in a strong growing phase. I mentioned that my dream is to bring this company to $100
million in sales within next five years and I have one year down so far, with another four
years to bring it there. For an investor to get into Lyrtech right now we are evaluated at
about 2 to 3 times our sales and most of our competitors are evaluated at 6 to 7 times
their sales. So Lyrtech is a company that is guaranteed to be profitable this year based
on our booking for this year, bringing in $25 million, already booked this year is $8
million in sales. To us managing the growth is the biggest challenge, but the growth is
going to be there."
CEOCFOinterviews: I see that you were busy with some
acquisitions.
Mr. Caron: "We did three acquisitions in the past year
and all of these acquisitions we did with zero dilution; so we've kept the dilution to the
minimum for the past two years and that's important to our shareholders."
CEOCFOinterviews: In closing, could you tell us about your
board of directors?
Mr. Caron: "My board of directors. When I joined the
company there was no board of directors, so I had to build it within the year and a half
that I've been here and I choose as a chairman Mr. Pierre Lortie, who was CEO of
Bombardier Transportation, they make airplanes and before that, he was president of The
Montreal Stock Market. We have J. Murray Souter, on our board as well and he was president
of Sprint Canada, and now is president of Fujii Canada. We have Richard Rumpf, who is an
American, Mr. Rumpfwas former Navy acquisition executive in the Pentagon. He worked at the
Pentagon for 14 years and he is another on our board of directors. His is also the
president of a company called Rumpf and Associates; there are about ten U.S. generals
partnering with him to help sell the technology to the U.S. military. We have Alain C.
Houle ing., Ph.D., who was the Counselor for Cisco System’s Optical Networking Group,
CTO for many years and he is now dean at a high-tech university in Canada. Our CFO,
Vincent Belanger worked at Ernst & Young for twelve years. I am also on the board, so
we have a pretty powerful board for a small company and it has been helping us grow
tremendously."
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