Chat with Elcotel CEO Michael Boyle
Jun 8 2000 12:00AM
by A. Sahoo
Although I normally cover Internet telephony companies - service providers who route
voice and data calls over the Web - over the past few months, several readers have
emailed me about Elcotel (ECTL: news, msgs), a company that is expanding its
traditional payphone business into wireless, Internet-enabled calling stations. It
certainly sounded like an interesting venture, so I called the company and had a chat
with CEO Michael Boyle.
Mr. Boyle explained that, ?Elcotel is a company with two product strategies - a
traditional payphone manufacturing business, and a new, emerging non-PC based
Internet appliance business. Over the past 18 months, we have invested more than
$15 million in R&D to develop Grapevine, the first in a family of terminals using a
Windows thin client operating system that allows us to produce a pay telephone that
fits in the same footprint as a traditional payphone. Plus, it has the ability to run
advertisements and deliver content like email, stock prices and restaurant listings -
information that is valuable to the on-the-go business traveler?.
?In the US, there are presently 2 million installed payphones,? continued Mr. Boyle,
?30% of which are in highly trafficked locations like airports, convention centers and
hotel lobbies. These are the installations we are targeting with Grapevine. Also, we
have recently introduced a tabletop version of Grapevine for top-tier hotels in the
lodging industry. It has the same functionality and Windows CE operating system as
the Grapevine public communications terminals, and was designed to sit on a desktop
in hotel rooms or airport lounges. It can act as an ?electronic concierge?, with both
email and e-commerce capabilities, since it can accept payment via debit cards?. The
terminals will be manufactured by Genesis Manufacturing, Inc., the OEM that
produces ECTL?s existing line of conventional payphones.
In its own twist on the razor/blade model, ECTL plans to sell terminals to public
communications providers and lodging institutions, then charge a monthly fee to
manage the back office content delivery and telephony through its own managed IP
network. ?We currently have a contract with Canada Payphone Corp. (CPY: news,
msgs), the AT&T (T: news, msgs) franchise holder for Canada, to deliver 45,000
terminals over the next five years?, stated Mr. Boyle. ?We are also completing lab trials
in the US with one of the Regional Bell Operating Companies and an Interexchange
Carrier. By the end of our third fiscal quarter, we expect technical and marketing trials
to be finished, and will begin deploying equipment with them during our fourth quarter?.
He indicated that initial quantities will probably be on the order of the Canadian
contract.
Although Grapevine is designed for international use, initial deployment will occur
close to home, in the US and Canada. Two of ECTL?s current distributors, BekTel, Inc.
and TU, LLC, have recently signed agreements to represent the new Grapevine units.
A quick look at ECTL?s financials reveals a company that is shifting gears from a
historically more profitable business, and incurring losses to launch a new product.
Revenues for the nine months ended December 31, 1999 were $38.8 million with a
gross profit of $10.1 million. After deducting R&D expenses for Grapevine, ECTL
recorded a loss of $0.25 per share. This is contrasted with performance exactly one
year ago, in which revenues for the 9 months ended December 31, 1998 were $51.3
million, gross profit was $17.6 million and the company earned $0.14 per share. Mr.
Boyle explained that, ?for the next two quarters, we will continue to operate our
payphone business as a profitable business, while we continue development of
Grapevine. We expect to see positive cash flow in our third quarter, and profitability of
the new unit in our fourth?.
Because ECTL has few - if any - direct competitors angling to offer similar products to
upgrade payphones, it has not benefited from the hype surrounding companies in more
populated sectors - like voice over IP. So, its stock price has registered somewhat
ho-hum performance despite the company?s announcements of an exciting new
product. ECTL also seems to be lacking in ability to generate PR, thus making it
relatively unknown in the investment community. Over the past year, ECTL?s shares
have fluctuated between $2 - 8, spending far more time near the bottom of that range.
The Nasdaq?s infamous March crash has settled its price firmly in the low $2?s for
now. This is contrasted with the company?s public history of trading in the $5 - 10
range since its IPO in mid 1995.
In a time of increased investor focus on earnings and overall performance, my opinion
is that ECTL offers an interesting new product with large upside, combined with solid
management in a company that knows how to make money. This is one to keep your
own eye on.
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