Chuck Strauch responds to some questions.
PAIR management is about responsive as any I've seen. Below is my question and Chuck's response.
Chuck,
I am trying to understand the recent trading in PAIR and would
appreciate your comments. Even with the buyback and recent positive
press releases PAIR stock has languished while other similar tech stocks
in the telecommunications equipment industries have surged higher. It is
clear that a fund or some funds are selling PAIR shares even at these
depressed levels. Do you know who is doing this selling and why? Also,
the AXA fund has a very large position in PAIR. Do you know why they
accumulated such a large position and what their investment goals are?
Also, do you know if they are selling since they control more shares
than the total buyback proposed by PAIR?
Thank you in advance. I believe the company is moving in the right
direction and that it will be reflected in the share price before long.
Karl Vogelsang, PAIR shareholder
Hi Karl
Here's my best shot at addressing the issues you raise:
The answer to your first concern is somewhat complex and requires a lengthy answer. The most likely reason our stock price has "languished" while the "similar" companies to which you refer are increasing their shareholder value is because their revenue and/or EPS are growing and ours is not. As you probably know, our revenue flatness is 100% due to 60%+ annualized price cuts in our core business over the last 15 months by our competitor who has minimal market share - has nothing to lose and everything to gain by targeting our key accounts. The good news is unit volume has increased at a 30%+ rate and the new revenue from our new small subscriber product lines have at least offset the price cuts. In addition, we have dramatically reduced product cost thus preserving our gross margins. The bad news is we are experiencing the downside of a heavily focused company in the technology sector - too many eggs in one basket. A start up company's strength - its focus on introducing a new technology - sometimes turns into its weakness. If the new product introductions don't come on line quick enough, the stock temporarily languishes as the new products take hold.
None of the above should be interpreted as an excuse. These are the hard facts. We always have been concerned that commoditization of our first product to market would occur and had planned to have replacement revenue from our two new product lines. This plan did not materialize. None of this is easy for our management team to accept. We are all major shareholders. I now own 470,000 shares - having recently increased my position. The top management and our board has committed to do whatever it takes - including bringing in new management, to get the company growing again. We are now completely restructuring the company from the top down with the goal to even more aggressively reduce product cost in order to encourage market elasticity in our current products and while diversifying our customer base and product lines - both through acquisition and new product development. With $220 million cash on hand and no debt, we believe we are well positioned to re-instate growth. We still are the dominant leader in all of our market segments and intend to keep it that way.
Having said all of the above, we expect to be measured not on our words but on the results. Only time will tell.
We don't know who the sellers are since investors are never forthcoming on their plans or actions to buy or sell. The transactions aren't reported until 30 to 45 days - well after the shares have changed hands. In the meantime, we have to operate on rumor as to owns our stock in a transition period like today.
We believe that any fund who has taken a strong position in our stock in the last few months is probably counting on the company being sold. We don't know if this applies to AXA. Incidentally, we never have turned away legitimate offers to merge.
As to the buyback and reactions to it and with all due respect to those who think that the stock buybacks are important, I continue to be skeptical about their value. Yes, they are an indication of the management's and board's belief in the company's future. However, the fact that the stock did not "pop" after the announcement of our buyback plan is no surprise to me. It is the fundamentals which count - namely growth in EPS and revenue. Again - this is where we are focused.
I hope this helps. Thanks for your patience which we do think will be rewarded.
Good luck.
Chuck
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