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Achieving Microsoft
Gold Certified Partner status has been great for
Systems Evolution
Technology
Information Technology Services
(SEVI-OTC: BB)
Systems Evolution Inc.
10777 Westheimer Road – Suite 810
Houston, TX 77042
Phone: 713-979-1600
Robert C. Rhodes
Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
April 20, 2006
BIO:
Robert C. Rhodes
Chairman and CEO
Robert C. Rhodes has served as Chairman of the Board and Chief Executive Officer since
November 13, 1993. Prior to his employment with SEVI, Mr. Rhodes held positions at the BSG
Alliance/IT from May 1993 till June 1993 and Software Integration Consulting Group from
July 1993 till November 1993. In November 1993 he founded the Texas operating corporation,
which at that time made extensive use of mentoring and training techniques to advance
consulting services for knowledge transfer and the implementation of technical
architecture.
Company Profile:
Systems Evolution Inc. ("SEVI") is a publicly held professional services
organization, founded in 1993, that provides software development solutions, Enterprise
Project Management consulting, and managed network support through its Consulting division
(a Microsoft Gold Certified Partner) and permanent placement through its Next Hire
Consultants division.
Flagship products: Software development, using Microsoft and IBM/Rational products
and technologies; Enterprise Project Management, employing Microsoft Project Enterprise;
Managed Services, employing N-Central from N-Able; Permanent placement, civil engineering
and oil & gas engineering.
CEOCFO: Mr. Rhodes, will you tell us about your background
with the company and how it has changed under your leadership?
Mr. Rhodes: “My background as CEO with Systems Evolution
starts back in 1993, when myself and Karen Stephenson founded Systems Evolution. We were
working in a specialized area of technology called client server, focused on the training
of the oil and gas industry and building very large accounting based applications. From
1993 until 1997 timeframe, we did a lot of training. We averaged about $1.3-$1.7 billion
in revenue; we had a great impact on our clients. Around 1996, our clients basically said
the architectural work that we were doing for them was important, but we value your
project management expertise more than technical work. Therefore, we started doing more
whole project rescue work for projects that had completely failed, so we go in to get them
back on track. The largest one being a $50 million ACU Plant project; we went from being
two-and-a-half years behind to delivering on time within five months and my company led
that project. That was a big success. We jumped into the internet arena like everyone else
and the technology sphere in the 1998 -2000 timeframe. I brought on some partners in 2000.
We were marked as one of the fastest technology growth companies in Houston, Texas in the
2001-2002 period. However, a horrible thing happened in 2002 when a tropical storm came
over Houston and dropped 34 inches of rain within a 24-hour period. The reason that was
horrible for myself and Systems Evolution was because three of our major clients
representing 75% of our business were under water for three months. Therefore, we had to
remake ourselves and in 2003 we went public and brought in $3.25 million dollars in
investment in 2004 and purchased five companies and that brings us current. All of those
companies are integrated. We are profitable, no cash burn and now we have a platform that
we are ready to take to the next level.”
CEOCFO: Please
tell us about that!
Mr. Rhodes: “Counting from today if you look back twelve
months, we are about a $5.2 million dollar company revenue wise, having operationally lost
over a million dollars. Looking forward to the next twelve months, with our current
operations, we will hit somewhere in the area of $7 million in revenue with about a 5%
profit. The foundation that we have in our public structure as well as our operational
structure, lends the ability to basically go out and acquire somewhere between 6 and $15
million in business through either acquisition or the winning of new business on our
own.”
CEOCFO: What is
your current offering and who is your target market?
Mr. Rhodes: “We sell hours, and some of those are
differentiated that is our consulting division where we have three practices that build
software and support it once it is implemented. The undifferentiated hours are permanent
placement and staffing division, Next Hire Consultants. By undifferentiated I mean that we
do not manage those people; they are placed with our clients and our clients manage them.
That keeps it simple; we sell hours!”
CEOCFO: Who is
buying them?
Mr. Rhodes: “For our Next Hire division, the oil and gas
industry is buying them. An interesting thing happened in the oil and gas industry; the
average age is 57 for the engineering staff and within the next seven years, 75% of them
are retiring, so our clients are having us replace their staff. It is a great business to
be in right now and in the consulting business, our largest mine is in the state of
Texas.”
CEOCFO: Why are
companies coming to you for this service as opposed to doing it on their own and what is
the competitive landscape?
Mr. Rhodes: “Our competitive edge is our experience. In
the state of Texas for the last three years, we have not lost a bid of which we have been
a part; now that doesn’t mean that we have any inside track beyond anyone else, but
it shows that our track-record with the state in delivering our products, has really
struck a chord. In the Next Hire division, once again, our experience is paying off
because most other staff in permanent placement companies basically have sales people that
go in and place people on jobs that do not know the business. However, our staff and
recruiters and our account managers come from the oil and gas industry and understand it.
That is a big differentiator and why people are coming to us today.”
CEOCFO: When you
look for your people to place permanently or for temporary assignments, what do you look
for and how do you recruit your people?
Mr. Rhodes: “Our people are chosen based upon their
industry experience, so basically on a project you will have industry, management and
technical expertise. On the technical expertise, we look for people who are experienced
with references that can vouch for their stability on the job. We would much rather have
someone who is stable on the job and knows the technology than a superstar but not be able
to give them a solution for it.”
CEOCFO: What is your strategy for acquisitions?
Mr. Rhodes: “In the acquisition realm, this year is
really focused on stability. Our course looks at being stable from a corporate structure
standpoint, a financial standpoint and from an operational standpoint by being profitable.
The acquisitions we are reviewing are accretive transactions that will be profitable with
no cash burn and that bring with them a management team that will add to the stability of
our corporate structure.”
CEOCFO: What are the structure of those financial
transactions?
Mr. Rhodes: “The majority of any acquisition that we do
will be stock based, which allows us to tie our acquisitions future payout to the payout
for the whole company, thereby tying all of our futures together.”
CEOCFO: Is there a rollup or consolidation in the industry;
why is this a good time to go after acquisitions?
Mr. Rhodes: “We are based in Houston, Texas and Houston
is kind of the rollup capital of the world, so when you ask a question about acquisitions
they kind of ring in my ear. Many people are used to the rollups that go on here in
Houston, but I will try to explain for people not in this area. I think the longer term
for M&A is in the industry if you sell hours or your expertise, if you can get clients
where you can make a bigger impact, you are obviously going to be able to sell more hours
at a larger margin. Therefore, whether we are acquired by a company that sees us as having
the ability to sell more hours at a larger margin or we purchase a company that allows us
to sell more hours at a larger margin, it doesn’t matter as long as the transaction
is accretive to our shareholders.”
CEOCFO: You recently obtained Gold Certified Partner status
with Microsoft; what is the significance of this?
Mr. Rhodes: “Achieving Microsoft Corporation (NASDAQ:
MSFT) Gold Certified Partner status has been great for us. We have been a Microsoft
partner since 1994, and currently there are over 50,000 Microsoft partners around the
world, but we are a member of a very small group of 200 Microsoft Gold Certified Partners.
By achieving that, everyone knows that we have achieved a level of maturity in the IT
market. This is significant because whenever Microsoft makes a large software product
sale, they actually retain about 10 to 15% of the overall purchase price to go in and
deliver consulting services. However, and most importantly, most of the time they do so
through their Gold partners. Therefore, the Gold Partner status number one, says that we
have achieved a level of proficiency and number two it means that Microsoft is going to be
spending money with us.”
CEOCFO: That sounds good to me.
Mr. Rhodes: “It’s a wonderful plan.”
CEOCFO: Address potential investors; why should they be
interested?
Mr. Rhodes: “That is an exciting proposition right
there. If you take our peers in the industry, such as Proficient (NASDAQ:PRFT) or even IBM
(NYSE: IBM) to mention a big one; the multiples that they have on their revenues and
earnings before interest, taxes, depreciation and adjustments, point to the fact that our
market cap is vastly undervalued. For the last year we had registration statements with
the SEC outstanding and we weren’t allowed to basically tell our shareholder base
what was going on. However, having withdrawn those earlier this year, we are able to bring
these out and when the shareholder public knows what kind of great things are happening at
Systems Evolution right now, I believe that our market cap is going to perform at a higher
value.”
CEOCFO: What is generally overlooked that people should pay
attention to?
Mr. Rhodes: “In the overall micro cap universe in which
we find out stock, we are one of very few that are operationally profitable and that do
not have a cash burn. That is the biggest thing that is missed today.”
CEOCFO: In closing, is getting the attention of the
investment community a focus for you?
Mr. Rhodes: “Yes it is and one of the biggest things
that I can do as CEO for the company is to communicate with our shareholder community what
the opportunity is with Systems Evolution. What’s nice right now is communicating
with that community also allows me to communicate well with acquisition candidates. I will
tell you that it is a very good feeling when the companies that we have been talking to
for quite some time, start to see the activity in our stock and they start getting
excited.”
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