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Virtek Vision
International dominates several key markets with their strong portfolio of industrial
laser systems and achieves growth and profitability through continued product development
and dedicated customer service
Technology
Laser Manufacturing Systems
(VRK-TSX)
Virtek Vision International Inc.
785 Bridge Street
Waterloo, ON Canada N2V 2K1
Phone: 519-746-7190
Robert G. Sandness
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
June 1, 2006
BIO:
Bob Sandness, P.Eng. - President and CEO
Prior to his appointment of President and CEO of Virtek in 2002, Mr. Bob Sandness led
Virtek's Laser Systems business where his roles included Vice President, Aerospace, Vice
President, Engineering and Business Development. While serving as Vice President,
Aerospace, he successfully managed the Company's acquisition of GSI Lumonics' laser
projector business. Under his supervision, revenues for the aerospace business unit
climbed four-fold from $2 million to over $8 million.
Before joining Virtek in 1999, Mr. Sandness managed Hewlett-Packard’s Canadian
Networks Operation that successfully developed groundbreaking Fibre Channel switching
products. He also served as vice-president and general manager at Alcatel – Canada
Wire, and vice-president, Systems Integration Division at Canada Systems Group Ltd.
Mr. Sandness holds a Bachelors Degree in Engineering Science from the University of
Toronto and a Masters Degree in Electrical Engineering from the University of Toronto.
Company Profile:
Virtek Vision International Inc., is a leading provider of precision laser-based
templating, inspection, marking and engraving solutions for industrial material
processing. Virtek’s solutions enable customers to produce their products faster,
better and at a lower cost.
Virtek is committed to
creating value for our shareholders by providing unparalleled products, service and
customer support through the development, manufacture and sale of innovative market-driven
systems that meet our customers’ challenging requirements.
CEOCFO: Mr. Sandness, what was your vision when you became
CEO, and where is the company today?
Mr. Sandness: “My vision when I became CEO was fairly
clear because the company, which was a laser company back in the late 90’s, had
transformed itself into a mixture of laser and biotechnology. My vision was to turn it
back into a pure laser processing company and to grow its size. At that point Virtek was
only earning about $22 million Canadian and with a publicly traded company, $22 million in
size did not make any sense. Therefore the vision was to take it from being a small,
non-profitable mixed-mode type of company to being a pure play laser processing company a
little more significant in size.”
CEOCFO: Where are you
with the process?
Mr. Sandness: “We have made quite a bit of progress. We
just announced our results and we have declared a profit for last year. We have also been
able to get the size up to about $ 51.7 million and we want to get it up to over a $100
million if possible. We got rid of all the biotech components of a few years ago, so we
have been focusing on building the laser side of the business and have made a lot of
progress in that direction.”
CEOCFO: Will you tell us
a bit about the laser industry and the competitive landscape?
Mr. Sandness: “The laser industry that we are in is
broken up into two parts. One part is the marking and engraving side and that is where we
use relatively high-powered lasers, something between 10 and 100 watts of power to put
marks on metal and plastics. We also have an engraving machine that will do more than just
put marks; it will carve out the metal, just like a LaserCNC machine. It is for doing fine
detail work. That is one side of the business where we have competition like Trumpf and
Rofin from Europe and Baublys Control Laser from the United States. The market sizes are
measured in the billions of dollars, they are very large markets. The other side of our
business uses low-powered lasers, which are eye safe. Here we have something called
imaging and templating where we use lasers to project patterns of light onto a surface
primarily for the purposes of alignment. If you are building a roof or parts for aircraft,
then you need something to align the parts very precisely and that is what our lasers do.
We also have one component that uses the same technology for measuring. You use laser
light to measure flat metal parts to an accuracy of about a thousandth of an inch or so.
The markets for this side of the business are smaller, approximately $20 million U.S.
dollars each, but we have a very dominant share of each of those markets, which means that
we can demand a premium price as a result. That is how the business is structured; it has
been broken up into those two major segments and we service each one in a different
way.”
CEOCFO: Why do your
customers want a Virtek product; what sets you apart?Mr. Sandness:
“Two things set us apart. First is that we provide technology, which in turn allows
them to make more money. By that I mean we put into our software the required smarts so
they do not have to go hire Ph.D.s to build aircraft parts. If you are building an
aircraft part today, chances are you’re using composite materials and complex 3D
surfaces, which require a lot of skills. In essence, we put those skills inside our laser
projectors so the customers do not have to hire very sophisticated staff and spend a lot
of time training people on sophisticated technology. That allows them to make more money
and that is the key thing. The other thing Virtek does to differentiate us from the
competition is provide a superior level of customer support and service. Our people go the
extra mile to make sure the customer is satisfied before we leave; we do not simply shift
the equipment, we make sure the end users are trained, they have the results they want and
they are happy customers. We rely on repeat business—it’s the lifeblood of
Virtek. Our customer list is a ‘Who’s Who’ of the aircraft and
manufacturing worlds; we value this achievement and in order to retain this caliber of
client, we have to provide superior customer service. Those are the two key things we
provide.”
CEOCFO: Are your
solutions customized for each sale?
Mr. Sandness: “Our products are about 95-99% standard
off-the-shelf systems. What we do in our installation process is help the customer make
sure that they can use that standard-off-the-shelf product in their environment. Every
customer does things just a little differently and we want to make sure we adapt a little
bit towards that. We help the customer use our product in the most effective way for their
environment. A long time ago, Virtek realized that in order to be profitable and have good
margins, we had to have a very high percentage of standard off-the-shelf products rather
than reinventing the laser system for every customer. However, there are some customers
who are prepared to pay for that customization, most notably in the aerospace field and in
some of the US government applications where they require a highly specialized
technology.”
CEOCFO: Are there
industries that are just coming into the laser area?
Mr. Sandness: “Yes. If you look at our high-powered
lasers for marking and engraving, the vast majority of that business is very concentrated
in Germany. We acquired that business about three years ago and although we have made
strides to expand it beyond Germany, there is still a tremendous opportunity to expand it
in Europe. In addition, there is even more of an opportunity in North America and Asia, so
we have a special effort underway to expand it within the North American region. Our
Boston office is focusing on that. In Asia, where we have an office in Japan, there is a
huge opportunity for that technology on a much broader basis. Laser templating in general
has broader applications as well; we are just now getting involved in building
construction and ship building, two areas that previously we had not been focusing our
energies on.”
CEOCFO: You do a
significant amount of R&D; what are you working on now?Mr.
Sandness: “We are working on a number of things; one is a big push for
revitalization of our software. Much of our software was originally developed in the
90’s and Virtek has always had a reputation for having very robust and reliable
software. In the 7 years that I have been at Virtek, I do not think I have ever received a
call from a customer complaining about our software. We have gone through a renaissance
over the last 4 years to rebuild our software to bring it up to the latest standard, to
use the latest development methodology and to provide us more of a competitive advantage.
At the same time, we are also bringing out new hardware technologies. On the marking and
engraving side, we introduced our G5 deep engraving system, which is an entry-level
machine; previously you would have to spend from $150,000 to $200,000 US dollars to get a
laser engraving system. The G5 has brought that threshold down to $100,000 for the first
time. We are a great believer in using R&D as a competitive advantage as we grow our
business.”
CEOCFO: Will you tell us
about the financial picture of the company?
Mr. Sandness: “The financial picture is solid. We just
announced our Q-4 annual results for the last year, which showed we had working capital of
several million dollars in the bank, as well as other resources. It also showed that we
had healthy growth of about 10% year-over-year. In addition, our backlog has almost
doubled on a year-to-year basis. We reported a profit of about $900 thousand Canadian on
the $51 million worth of sales. It is a little lower than what we would like but we are
going to continue to strive to improve that profit margin. Given the R&D investments
we are making and the market expansions we have underway, over all we are pleased with the
results and we continue to head in the right direction.”
CEOCFO: What is ahead in
the next few years and how do you keep from going in too many directions with all the
opportunities that are out there?
Mr. Sandness: “Over the next couple of years, we see the
opportunity to do more private label types of deals like the one we recently completed
with MetalSoft Inc., a subsidiary of Amada Group of Kanagawa, Japan. We had been competing
with them for a number of years with our laser LaserQC product and their FabriVISION Laser
product. In February 2006, we announced that they had decided to use our product on a
private label basis, rather than bring out a new version of their own product. That to us
is a win-win opportunity—they save themselves a lot of R&D dollars and we in turn
get an opportunity to provide services to a major billion-dollar customer on world-wide
basis. We are excited about that and see that as an opportunity and a mechanism to further
expand Virtek’s business going forward. We evaluate each opportunity to see how it
helps us reach our long-term goal of getting our company up to $100 million plus with
profitability. Each opportunity is not evaluated from the point of view of simple growth
but also profit contribution; we are very sensitive about that. We learned a long time ago
that profit makes all things possible.”
CEOCFO: Why should
potential investors be interested and what should they know about Virtek that may not jump
off the page?
Mr. Sandness: “It might not be obvious that we are
dominant in a lot of markets; that is very powerful and gives us a continuous revenue
stream and a solid position in those markets. We also have a good portfolio of
intellectual property; Virtek is fortunate to have about 17 patents now and more patents
pending. This intellectual property is something that differentiates us from our
competitors. In our PCI (prefabricated construction industry) division, we have an
exclusive distributorship with one other company for the next 3 or 4 years for that
particular product area, which prevents other companies from entering. Most investors are
not aware of this when they look at Virtek. The other thing they are not aware of when
they first look at the company is the large number of blue chip customers we deal with and
the listed aerospace customers. These are companies like Lockheed Martin Corporation
(NYSE: LMT), Airbus, an EADS joint Company with BAE Systems, and The Boeing Company (NYSE:
BA). Just about every aerospace company uses Virtek products, along with other large
companies such as John Deere (Deere & Company – NYSE: DE) and Sub-Zero. U.S.
government departments, such as the Bureau of Engraving, the US Mint and the Department of
Energy, all use Virtek products. This is a very broad range of customers. Our customers
have all chosen Virtek because we offer a superior product with superior value and
superior customer service over the long haul. We have been in this business in a very
serious way for 20 years. In the last 10 years, we have focused on a number of product
lines and have successfully serviced a number of different markets. I think investors will
realize that there has been significant growth over that period of time and certainly with
our recent year’s result of profitability, that they can have confidence in terms of
investment.”
CEOCFO: In closing, do
you have any other technologies that investors should be aware of?
Mr. Sandness: “Our aerospace division has another area
of technology, our intelligent laser systems integration group (iLS). It combines our
laser projectors with indoor metrology, much like an indoor GPS type of system, to provide
very advanced laser positioning and technology, primarily to aircraft manufacturers. This
is a very rapidly growing area of Virtek. What began as one contract from Lockheed Martin
Corporation a couple of years ago is quickly becoming a significant part of the company.
We recently added another major contract from Airbus and a number of smaller
contracts from various customers. This is a high-growth area with probably the most
advanced technology that Virtek has, so it is another exciting dimension of the
company.”
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