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Copyright © 1999 Wall Street Interviews, Inc. All Rights ReservedImportant Notice
Notice!!!, The following transcript has been altered by Advanced Systems International, Inc. to reflect comments and statements on its current position.
Gerald A. Pesut, President and CEO
Advanced Systems International, Inc.
(NASD OTCBB: ADSN)
WSI: Good morning, my guest today is Gerald Pesut, President and CEO of Advanced Systems International. First of all, thank you very much for taking the time out of your busy morning to speak to our investment group about your company.
ADSN: Good morning - it's my pleasure.
WSI: Gerry, please begin by giving us a biographical overview of Advanced Systems' operating history, from its early days and founding to where we are today. Also, perhaps you can tell us a little bit about your background, in terms of how you became President and CEO of ADSN.
ADSN: Before we talk about the history of this company, I need to mention that Advanced Systems International is a software company in Southfield, Michigan that has entered its growth and profitability stage with proven products in two growth markets. ASI has a strong base of customers, partners and a strong management team. We believe, as a company, that we have the different ingredients that it takes to succeed, and to take a big piece of the business in these growth markets.
The company was founded in 1991 by a group of entrepreneurs that had strong experience implementing time and attendance systems. Their experience included the installation at Canada Post for 65,000 employees, which at the time was the largest time and attendance labor management system installed in the world. The group formed a company to develop time and attendance products with advanced functionality for large corporations.
The core product functionality was initially demonstrated to Chrysler in 1994. The following year Chrysler formally decided that it was the best product in the marketplace. However, Chrysler had certain enhancements they needed to be built into the system to meet their needs. As a result, Chrysler and Advanced Systems formed a partnership to develop an advanced time and attendance labor distribution product. With Chrysler's funding, ASI's core product and Perot Systems assistance on coding, the final product took approximately 75 man-years to develop. Fortunately for us, that although we were small, we had the resources and direction of a very large corporation to develop a world-class product.
The product was released to the marketplace in 1997 following the installation of the first plant at Chrysler. During 1997, the company began expanding its database of customers and today we have a world-class customer base including DaimlerChrysler, Sara Lee and Dana Corp and Volvo. During 1998, ASI began installing initial plants and pilot plants within several major corporations.
During that period, we recognized the evolution of information and data requirements that was occurring in the marketplace. Packaged enterprise-wide applications such as SAP, BAAN and Oracle had been installing financial, inventory and manufacturing systems. Once installed, customers were recognizing that the enterprise-wide systems had various weaknesses. Primary weaknesses of the ERP systems were their inability to interface with Legacy systems, and also in their inability to get at key data throughout the organization that were in several formats. As a result, there's an opportunity industry that has evolved, which is the Middleware marketplace, which I'll be happy to talk about later in our discussion.
By recognizing this need in the marketplace, we developed (if I can use the industry standard term) a leading edge Middleware product, which allows us to collect data, move information and access it throughout the whole enterprise. By the end of 1998, our company not only has a leading edge time and attendance labor management product, but we also have a leading edge Middleware product. I believe you would have seen our first quarter release, which showed a significant quarter with profitability. We're ahead of plan and are very anxious to take on the marketplace.
WSI: Gerry, your core customer is primarily a manufacturing customer?
ADSN: We began with automotive manufacturers, which was followed by the automotive suppliers. We have spread out to new vertical markets. Today, we're in food processing, furniture manufacturing, entertainment, paper, appliances and industrial components. We have moved out from the Michigan region to include customers like Volvo. We have customers in Canada as well. We just announced our relationship with Imperial Tobacco, a Middleware customer.
WSI: What would you say the core competencies of your company are? Obviously, we would think that it is your product. What are the things about these proprietary products that you have developed that are really unique to your organization? What are your customers most attracted to?
ADSN: Let's start with the time and attendance labor management product, ATSever®. What it does is reduce the cost of collecting and managing labor information. This labor information includes payroll, HR, manufacturing and engineering costs. Our system is differentiated there because of the fact that it efficiently handles very large companies. The Fortune 1000 and 2000 companies we focus on have special requirements for high performance and activity. For example, if you have a plant of 5000 employees who arrive at the same time each morning, there are a significant number of transactions within a short period that our system handles. That makes us a clear leader in this marketplace. In addition our product is built on modular and open architecture that allows the customer to select the hardware or server platforms or utilize legacy systems.
The Middleware product, ATLink™ has itself a strong engine, which was just recently built utilizing the most recent non-proprietary software. The engine has modular components that allow us to hook up to SAP, into Oracle, and into different systems that our customer base uses. Here again, we can reduce the cost of Enterprise implementations, which are millions of dollars that companies are investing in. It will bring our customers to system ownership quicker and for less money. In summary, we are reducing the installation cycle and cost while ensuring the quickest return on investment for our customers.
What is our strength? Our strengths are products that reduce costs, improve labor productivity and improve product implementation of our customers. We have a very strong management team that knows how to manage growth companies and start-up companies. We have executives who possess significant experience in the Time & Attendance industry, like Howard Tarnoff, who is our VP of Marketing. Howard worked for Kronos and Simplex, who are our two largest competitors in the time and attendance sector. We have a strong group of technology managers, as well as sales managers.
Our current customer base also differentiates us from the competitors. We have a customer base that we mentioned earlier, a few of which I would be happy to comment on. One of our major customers has 160 plants that are qualified to install our products. We have an order for the first 17. The point is that we have a customer base from which we can grow a significant business with our current products. In other words, there is already a ready-made market that we control with our products.
Also we're well funded. We have investors that have stuck with us throughout the growth stage, and have been very supportive of our company. We plan to become a NASDAQ Small-Cap Company in the second half of the year, and at that point, we'll be going for a second round of financing. We already have prospective a investor base lined up.
WSI: Gerry, I want to focus in on the recent first quarter EPS announcement of $.03 vs. a loss of $.04 per share in the same period the prior year. Basically, we're looking at a nice turnaround situation that I'm sure you're very excited about. Maybe you can tell us what, in your mind, were the key growth drivers behind these results, and whether in the future you feel it will be the same set of drivers that will help you to grow your company in the future?
ADSN: To start with, we're executing our business plan. 1998 was a year where we had to prove that the products were effective while completing the final stages of development of the products. We also had to develop a customer base, and strengthen our implementation as well as our sales arm. We did all of those. We had to earn and gain credibility in the market. We have improved our communications to the industry. We hired a very strong PR and marketing communications firm to polish our image and position in the market place.
An important strength is the various partnerships that we currently have. These include companies like EDS, SAP and Microsoft. You are going to continue seeing announcements from us in this area. Companies like EDS have brought significant business into our organization, and that's one of the other elements I did not mention previously. That's what's helping to drive our growth.
In 1999 we have entered our growth stage as demonstrated by our first quarter results. In growth companies, they are usually not profitable in the early stages. In our case, our net income was 18% of revenues in the first quarter, and our business plan calls for continued strengthening of our net income line.
WSI: To sum up these financial results that we are speaking of, you would say that this shows that the company is on target.
ADSN: We are on target, with a sound business plan and strong profits.
WSI: Gerry, in terms of goals and initiatives for the future, let's drill down and understand the specific objectives that you've laid out for the company as being some key goals to shoot for. Maybe you can share with us some of the things you would like to see happen for the company, as we move a little bit further out into the new year. What specific initiatives have you laid out for the organization that you would like to see achieved here in the New Year on the business side?
ADSN: On the business side, our business plan from a revenue standpoint calls for $11.5 million of revenue in 1999, with a profit of $2.4 million. Numerically, that is the plan. Our strategy is to expand our sales organization. We're in seven different cities and we are expecting to drive our revenue through these centers. With the two product lines, and the demand in the market place, we have to go to the next level of expanding our partnerships. Currently we have software, hardware and integration partnerships around North America. We are also working with one of the major software companies towards a tight relationship. We need to continue to deliver the pull from our partners, and continue to work on our customer base.
WSI: In terms of helping us understand from an operational perspective exactly how the product works, please give our investors a picture in their mind's eye as to what the product is all about. Typically, do you design customized products for your customer, or is it kind of an out of the box solution?
ADSN: One of the strengths of Advanced Systems International is that our customer base includes some of the largest companies. They always look for systems and solutions that fit their current business needs. Our products lead in this environment as they are designed with an engine and modularity, so that in fact we can tailor the system rather than customize. Our solutions fit the specific needs of the customers in terms of function and performance with minimum new development and reprogramming.
We draw from a series of tables to tailor the application, which allows us to improve our margins, and to differentiate ourselves. We are a new company that has a larger client/server base in the time and attendance marketplace than our major competitors.
Now we are in a position to take advantage of the large window of opportunity in the electronic commerce business-to-business and in the time & attendance marketplaces. It is also worth looking at what our company is focusing on. The world has a need for improved productivity, improved corporate profitability and improved competitiveness. What we focus on is improving labor productivity, and I can give you examples. At Chrysler, when they install a plant, the payback is six to nine months on just reducing the administrative costs of labor management. Improved information allows them to manage their labor force more effectively as an add-on bonus. Our focus is to improve the productivity of labor forces in the competitive environment of Corporate America.
The other area of our business is the electronic commerce world. This sector is growing at 100% year to year. We provide the interfaces to make the value ring communication possible while reducing costs of such implementations.
WSI: In terms of understanding the time that is involved, take us along the curve from the point at which you bid on a particular project to the winning of that contract. Take us through the "ramping up" of production on a particular project, from delivery to installation and finally revenue recognition from that project. What are the time frames involved here?
ADSN: If we can identify and reach clients that have a need, our sales cycle is short.
In the sales cycle, you have to prove your product has the right function, the right features, and that you provide the minimum risk to your clients. In these cases, like Allison Rolls Royce or Johnson Controls, the sales cycle becomes two to three months from the time we are in the door to the time in which we receive contracts.
Once we have the contracts, we go into the company to understand their process and business needs, and then we develop a functional specification for what the customer needs. That can generally take between two to four weeks, and from that point it can take roughly two months to complete all of the configurations and tailoring of the systems. The whole process should not be any longer than six months. We have projects that have taken less time than that and some that have taken longer depending on customer availability and the amount of integration required.
WSI: In conclusion, could you please wrap up this discussion by summarizing for us the things that excite you about the future of Advanced Systems International?
ADSN: ADSN is an exciting growth company that offers current solutions to current industry needs. We also offer an excellent short term and long term opportunity to the investment community, as we have a business plan and the ability to deliver on both counts.
Any statements contained in this release that relate to future plans, events or performance are forward-looking statements that involve risks and uncertainties, including but not limited to, risks of product non-approval or product development and market acceptance risks, the impact of competitive products and pricing, the results of current and future licensing and other collaborative relationships, the results of financing efforts, developments regarding intellectual property rights and litigation, and other risks identified in the Company's reports filed with the Securities and Exchange Commission. Actual results, events or performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to release publicly the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. |
