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Product
PLUS supply chain solutions
Technology
Communication & Equipment
NASD: TESS
TESSCO Technologies, Inc.
11126 McCormick Road
Hunt Valley, MD 21031
Phone: 410-229-1000
Robert B. Barnhill, Jr.
Chairman, President and
Chief Executive Officer
Interview Conducted By:
Diane Reynolds, Co Publisher
CEOCFOinterviews.com
August 2002
Bio
of Chairman/President/Chief Executive Officer
Robert B. Barnhill, Jr.
Robert
B. Barnhill, Jr. is chairman and chief executive officer and founded TESSCO Technologies
in 1982. He holds a Bachelor of Science
degree in electrical engineering from Cornell University and a master’s degree in
business administration fro the Wharton School of Business at the University of
Pennsylvania.
CEOCFOinterviews:
You are in the communications and equipment industry; tell my readers a little bit about
this company as it stands today.
Mr. Barnhill:
TESSCO is a total source provider of the product plus supply chain solutions that are
required to build, run, maintain or use a wireless system.
Our product lines range from the network infrastructure products for the
base antennae sites, going through to the actual mobile devices and accessories, and then
surrounded by the test, maintenance and installation equipment that is required to care
for these systems. We sell to the professionals that are charged with building, or running
or maintaining the system. Our product line
of 25,000 different items is manufactured by 400 plus different world-class manufacturers
throughout the world. With TESSCO’s product plus supply chain solutions, we are
focusing on insuring that our customers can buy what they need when the need it, and
having it shipped directly to the point of use or point of sale. This reduces their
inventories greatly, their inventory carrying costs, their inventory risk and dramatically
reduces the capital investment that they need to make.
CEOCFOinterviews: Because you are getting your supplies from other
suppliers for your customers. How do you
handle the quality?
Mr. Barnhill:
We have a product management and quality engineering team that review the various
products. We also have a complete 100% risk
free purchase with our customers. If for some
reason that the customer is not happy with the product that they have received from us we
accept that back for a complete credit or refund. We
spend a tremendous amount of time analyzing the various manufacturers and their product
lines to ensure that it is a quality product that we are presenting to the customer. We are giving the customer the choice in virtually
every case of a multitude of manufacturers so they can choose between the various choices
that will solve their need.
CEOCFOinterviews: Who are some of your customers?
Mr. Barnhill:
Our customers are a very interesting cross section of the major carriers, the service
providers, the dealers and agents that are serving this market, the federal government,
state and local governments, fire, police and the technicians who are responsible for
maintaining this equipment. In many cases, through our affinity relationships, we are also
selling directly to the end consumers that are using the product.
CEOCFOinterviews: Are you doing this on a global basis?
Mr. Barnhill:
Today, 90% of our sales volume is in the United States.
We are doing business in 70 different countries, but obviously it is still
only 10-15% of our volume. We just expanded;
we are expanding our distribution center in Reno, Nevada so we can better serve the
Mexican and Western Canadian market.
CEOCFOinterviews: Going forward are you going to continue the focus
on the US or do you want to drive more forward to the international market?
Mr. Barnhill:
We are using the export model for the international market, so we are a supplier to the
international community without having local inventories. Today we feel that our
opportunity is so vast in the United States, we are very focused on achieving the
penetration in the United States and expanding and continuing to do international business
with the export model.
CEOCFOinterviews: With everything that is going on in the
telecommunications industry and I’m sure it is effecting the communications industry
as well, how is this all affecting your company?
Mr. Barnhill:
These are very difficult times. We just
announced last week that we showed 15% revenue growth, and we grew our earnings from $.06
per share to $.25 per share over the same quarter last year, so we were very pleased with
our performance, but it is difficult. We have
very little visibility in terms of what is going on in the market and our company because
of the diversity of our business and the value proposition. TESSCO’s value
proposition, allowing customers a dramatically reduced inventory, is extremely important
in this environment. We look forward to
achieving a higher market share because customers are realizing that it is better to buy
from us just what they need rather than buying from the manufacturer on a direct basis
where they might have to buy an inventory that they may or may not use. So, as we go forward in this market, we want to
continue to expand our product offering and the number of customers that we serve while
achieving a higher share of business from each of the customers that we do business with.
CEOCFOinterviews: I think a lot of companies now are trying to get
away from holding their own inventory because it is starting to become too costly for
them. I think that is why companies are
turning to companies like yourselves.
Mr. Barnhill:
This is exactly what we are seeing. Companies
today are starting to realize the total cost rather than just an item cost. We are seeing
many of our customers through this boom period that we enjoyed up until 18 months ago
where they were maintaining over a year of inventory, and were having extremely high
obsolescence and write offs, either because of the shrinkage, the damage or obsolescence.
They are starting to recognize that although they may have achieved a 10% or 15% lower
price by best price shopping, their total cost was in excess of 30 or 40% of what that
item cost was.
CEOCFOinterviews: I think that even in the beginning in the year
that even the revenues had declined then it was just an indication to you that you
increased the market share itself even in a depressed market. So this is a plus for the company knowing that you
can do this even through the shape the market has been in.
Mr. Barnhill:
Yes, and when we look at our entire product offering we enjoy very single digits in market
share, so even if the market is flat, we can grow by achieving a higher market share. It is also important to recognize that there is a
very large embedded base. There are hundreds or thousands of cell sites that need to be
repaired, maintained, and there are millions of subscribers that need replacement parts
for their phones and all of this equipment must be maintained and serviced. So if we just focused on that embedded base,
making sure that our customers know what our value proposition is and where we can serve
them, we will continue to fare well in this market and when the market returns we will
continue to ride that growth as well.
CEOCFOinterviews: You were the original founder of the company in
1982. What has been the biggest challenge
you were faced with then that you feel this company has accomplished?
Mr. Barnhill:
The biggest challenge as I look back over the history is continuing to match marketing
innovation with operational excellence. As
the company grows those things are not always matched. In other words, you can be very
effective in marketing but not have the operational support to fulfill your promise in the
customer’s expectation. We’ve done
that very well. You do that by continuing to
have a strong team that is focused on customer satisfaction, customer service that makes
sure that we deliver on the promises that we make. The challenge has been and will
continue to be execution. We have a very
strong capability, we have a very strong value proposition but we ensure that we deliver
that each and every time we interface with a customer.
CEOCFOinterviews: The wireless industry is changing constantly and
new products are coming out, your sales people need to be aware of this. How are you keeping them updated as to the new
products?
Mr. Barnhill:
We built what we call our KCDC engine, our Knowledge Configuration, Delivery and Control
engine. The first part of this is obviously the knowledge. That knowledge system is the
foundation of giving our technical or our non-technical sales people the information they
need to communicate to a customer. All of our products’ specifications are embedded
in an expert system that allows the questions to be answered as they arise from a given
customer. Let me give you an example of that
using antennas, these are the base antennas that go on a tower or on a building. First, we
were getting a tremendous amount of inquiry regarding the wind load to the antenna. How much wind can that particular antenna
tolerate? So we added that to our spec field
so our sales people can quote that. Three or
four years ago, collocation, where you put several antennas on one site was becoming very
popular, so you needed weight load as a spec. Immediately our technical people added the
weight loads to all of the specifications so our sales people can answer that question
when they are helping to design a solution for a particular customer.
CEOCFOinterviews: Do you want to grow internally or do you see
acquisitions for this company?
Mr. Barnhill:
Our focus is internal growth, but as we announced this past quarter we are exploring
acquisitions. We had a very interesting
acquisition that we got very close to consummating but we decided to put on hold because
of the state of the industry and the state of their particular business. The first and foremost focus is on how do we grow
our existing business today as it relates to adding more customers, by expanding our
product offering, getting the higher share within our given customers. Then we want to
look for an acquisition that leverages our engine, leverages our core competencies and
will fit into our operating platform, adding either a customer base or a product line
rather than venturing into a new business. So
first and foremost our goal is continuing what we are doing but on a faster rate and then
continuing to scan for acquisition opportunities that we feel will be more attractive in
this marketplace than in the past.
CEOCFOinterviews: Are you financially sound right now if an
acquisition were to arise or for additional expansion?
Mr. Barnhill:
The Company’s balance sheet is outstanding. We
generated last quarter cash flow to pay down virtually all of our short-term borrowings. The only debt the company has today is against
some of our real estate and operating platform, so availability to cash advance for an
acquisition is excellent. The company has
never had such a strong balance sheet over its history, which is a real tribute to our
abilities to manage inventories and manage accounts receivable in this very turbulent
marketplace.
CEOCFOinterviews: What makes this company uniquely positioned among
its competitors?
Mr. Barnhill: If you look at the wireless industry as defined by
land over radio, cellular, PCS and paging, it is still a very fragmented industry and most
of the purchases have been going to the manufacturer on a direct basis. We have a few competitors that are regional, that
are not public, and that are enjoying attractive sales but not nearly in the scope that we
have. Our primary challenge is to convince our customers that there is a great advantage
from purchasing from TESSCO rather than purchasing from a manufacturer on a direct basis.
However it’s a different story if you look at the expansion that we are getting into,
the end building systems, the point-to-point wireless, and the point to multi point
conversions that we are seeing where Telecom is converging with Wireless and where
telecommunications is converging with computers. In this space, there are larger
competitors, such as Ingram Micro, Techdata, Anixtere. There TESSCO has the advantage in
that we are the solution provider; we have that product plus supply change solution. The competitors in this particular space are much
more box movers in that they are looking to sell just the individual part, the individual
component and unlike us, they do not wrap delivery and control and or even knowledge
around what they sell. So, from a value add
perspective, TESSCO is much stronger than the competitors that we see in our space.
CEOCFOinterviews: Is there anything that you would do differently
than you have done in the past that you would like to see changed there?
Mr. Barnhill:
Differently is just a faster rate of execution. All
of our initiatives are focused on answering how do you choose the biggest leverage point
of the company and how do you execute on that leverage point faster. This requires a more disciplined way of making the
choice on what to focus on and the discipline to ensure that you get that accomplished
faster than you have ever done before. We are
continually striving to be the best—that is our internal mission statement. You are
never there, you are never the best, so how do you do you spin that fly wheel at a faster
rate to build that momentum that will keep you striving to be the best. That is what we need to do today.
CEOCFOinterviews: What would you say to a potential investor?
Mr. Barnhill:
First we are diversified. We are focused on all of the various technologies from the fire,
police, cellular, homeland, security, and fixed wireless last mile solutions. We are diversified as far as products are
concerned; we are diversified as far as solutions are concerned. Looking at our three main
product group areas: we announced this past quarter that we have seen 30% plus growth in
the mobile device and accessories, which was driven by the expansion of relationships with
some of our key customers. Thirty percent growth in our test and maintenance product
group, which was driven by the component repair parts.
That is all referenced against an 8% contraction of infrastructure. So, number one for investors is TESSCO’s
diversity, the fact that we can move in some areas and out of other areas. Number two strength is the balance sheet, which we
have already touched upon. The company is
extremely financially healthy, we don’t have debt, we can move the right way and at
the right time. Number three is the team; we
are structured as a team of teams. Our
individuals are very passionate when it comes to service.
They are very disciplined when it comes to implementing the product
management. Lastly, we are extraordinarily conservative.
The way we account, I can totally attest for the accounting integrity of the
company. The company has always operated from
what we call a “glasshouse ethical” environment.
Anything that we do, anyone at anytime can query. So we are proud of what we
have in place. We feel that the best of
TESSCO is ahead of us. We have reached
critical mass where we are no longer suspect to a lot of the speed bumps that we have had
as we have been growing the company on brick by brick.
We recognize for an investor that we have
a small market cap. The float is relatively
low but that is the opportunity to the investor as well because we’re at an early
stage if you will in terms of our future growth opportunities.
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