Hi Ty,
You have asked a variety of questions. I will try to answer them in sequence.
1) The company's future was bright five years ago, but it is considerably moreso today. For example, although ITS was well along the way to development, the first *contract* to produce the product was only signed in 1994. Moreover, it was clear at the time that initial shipments would only start in 1997.
Since that time, two additional contracts have been signed, with initial shipments to begin on the first in 1998, to be incremented by the second in 1999. All of these signings were made prior to NHTSA's rollover and Standard 201 testing, however, so it is only in the last two months that the automotive industry has learned that the use of ITS will qualify those vehicles where it has been installed as having met the "standard." In addition, NHTSA's Federal Register commentary only allowed for a one month commentary period (normally, this would be six months), and their explanation for shortening the "time to market" was the desire to get the technology out into the world so that it would provide the tested benefits to the general population.
The fact that the commentary period ends next week indicates that the Final Regs will come in reasonably short order thereafter. Then, because there is almost a total cost equality between ITS and incremental padding expenses, it is highly likely that the market will gravitate toward Simula's product, which has been thoroughly tested and found to be safer than the original Federal requirements.
For our purposes, this means that there should be significant contract activity over the next six months, though you should note that the engineering time required to implement the new arrangements probably precludes additional significant revenue until at least early 1999.
It is important to note, however, that the three contracts currently signed are likely to ramp to nearly $ 100 million in annual sales by that time, and it is at that level that the incremental sales will be additive to the final revenue totals. Please remember that this product did not contribute *any* revenues until this year's first quarter. It is more than conceivable that it could be running at a $200 - $ 250 million rate by the Millenium.
2) The recent insider "sale" (I presume you are referring to that of the Chairman, who had collateralized some trust obligations with 200,000 common shares) was made so that the trust (which was for his wife and daughter as I understand it) could begin distributing income.
Although the sale looks large by most people's standards, it must be remembered that he retains approximately one third of the remaining shares, so it can't be said that he doesn't have any "motivation" to continue producing additional products for the benefit of the shareholders.
3) Lastly, vis-a-vis shareholder "patience", you have raised a significant and important issue.
There were many holders that acquired their shares some years ago (mostly momentum investors) following the BMW Agreement, with the expectation that there would be instant market penetration and price "gratification." By and large, those early investors (and they were *VERY* early, given the amount of time it takes to get automotive products to market!) are out of the stock, and have been replaced by new investors...myself included...that view the story as finally beginning. What I mean to say by that, Ty, is that the products have finally found their way into the marketplace, and while the early investors have lost patience and departed for other companies and other technologies, that have overlooked the reality that the Simula story has gone from one of a "promising technology to be sold" to one of a "promising technology that is *being* sold".
A similar time sequence has taken place in 16G seating, which has been accepted by a number of major airlines (and Boeing), has added considerably to the company's backlog in the first six months of shipments, and which has ramped its sales from only $ 1 million per quarter to just over $ 10 million quarterly in less than six months.
I fully expect that BABS will show a similar growth path when it finally begins installation in 1998's first quarter.
Collectively, the three technologies (all of which won't be shipping until 1998) will go from *nothing* in sales in 1996 to close to $300-$350 million in sales in 2000. These are virgin markets, Ty, so the P/E ratio on earnings should be very high compared to traditional investment yardsticks.
As you have noted, aside from the building of sales (which to me is "in the can"), for shareholders to reap appropriate rewards from the technologies, management will have to "cleanly" manage the growth. Obviously, there has been a slip this year, but that "hiccup" was principally from growing the 16G line too quickly to institute the necessary efficiencies. When the company rationalizes that operation toward the end of 1998/1, operating margins should escalate dramatically.
I, like you, hope that they decide to hire a top manufacturing person so that the shareholders can reasonably be assured that the other new technologies being brought on stream will not suffer the same dislocations that we have had to live with the past few months. Nevertheless, I remain of the view that generating efficiencies is easier than generating markets, and it is but a short time until they prove to the investment community that they can convert their obvious technological talent to "cash."
Please email me if you need further amplification of any of the above, so that I do not have to "bore" the regular readers of this thread with my well-intentioned repetitions. <S>
Take care of yourself. |
