Venture Returns Interviews John Jenkins, CEO, TAVA Technologies
Corvallis. August 16, 1998. Venture Returns E-Mail Network.
Statements made in this document that are not historical or
current facts are "forward-looking statements" made pursuant to the safe
harbor provisions of federal securities laws. Forward-looking
statements represent management's best judgment as to what may occur in
the future, but are subject to certain risks and uncertainties that
could cause actual results and events to differ materially from those
presently anticipated or projected. Such factors include adverse
economic conditions, entry of new and stronger competitors, inadequate
capital, unexpected costs, and failure to capitalize upon access to new
clientele. Additional risks and uncertainties which may affect
forward-looking statements about the Company's Plant Y2K OneJ business
and prospects include the possibility that a competitor will develop a
more comprehensive or less expensive Y2K solution, and delays in market
awareness of TAVA and its product and service solutions. These factors
and others are discussed in the "Management's Discussion and Analysis"
section of the Company's most recent Annual Report and Quarterly Report
filed with the Securities and Exchange Commission, to which reference
should be made.
Venture Returns Interviews John Jenkins, CEO, TAVA Technologies
Venture Returns (VR):
John, I'll get right to the point. I've written about hundreds
of growth companies, but I've never seen a growth company release so
much bona-fide good news and get so punished in the stock market. Are
there misperceptions about what TAVA is and does?
John Jenkins (JJ):
We are naturally very frustrated by the sharp decline in TAVA's
share price at a time when management believes the prospects for the
company are better than ever. Of course, over the past few weeks we and
many of the Russell 2000 have suffered from the severe general pressure
on small cap stocks. In addition, a number of Y2K only companies,
particularly tool vendors, operating at the business system level have
reported disappointing results.
VR: But TAVA is not a "Y2K-only" company is it?
JJ: No, of course not Karl as you well know from your early
coverage of the company.
It is interesting to think back to TAVA's early leadership role
in exposing the Y2K embedded system risk in process control and factory
automation. TAVA was then and is now considered credible by clients
because we approached the Y2K issue from the base of an established and
respected core business practice of systems integration in plant
operations management systems. Many of our investors made their
decision to invest in TAVA for this reason as well.
VR: So there was a well-established TAVA before Y2K happened?
JJ: When TAVA launched its Y2K program in July of 1997, the
company was in the process of expanding its core business on the
platform of our acquisition strategy that had taken us to a consolidated
run-rate of more than $40,000,000 in revenue and established our planned
national presence. At the time that we launched our Y2K initiative,
we were heavily engaged in the process of making one organization out of
five, molding standard methodologies, creating a national sales and
marketing organization, deploying old product to new markets and on and
on. The demands of the market for Y2K actually accelerated these
organization changes planned for our core business.
VR: Tell us a bit about prospects for the core business.
JJ: According to AMR (Advanced Manufacturing Research), absent
the effect of the Y2K event, TAVA's traditional market of Plant
Operations Management Systems is growing at an annual rate in excess of
20%. In addition, the company is now addressing the market for Advanced
Planning and Scheduling Systems that is growing at, according again to
AMR, a pace of 70% per year. Somehow this seems to have been forgotten
or pushed aside in the current atmosphere. We hear repeated questions
about whether TAVA will have a business after Y2K. Management believes
that these market conditions combined with our unique national presence
and demonstrated product capability, provide major growth opportunity
for the organization even without the Y2K accelerator.
VR: Y2K accelerator?
JJ: It is clear to our organization that the Y2K event is an
unparalleled opportunity for TAVA to accelerate the growth and increase
the quality of our core business. In fact, TAVA management took the
decision to support our significant investment in our Y2K program
specifically because we see it as an opportunity to strengthen our core
business environment. Frankly, we cannot imagine how we could have,
through conventional strategies, created the kind of expanded long term
business opportunities that Y2K has opened for us.
Let's talk specifically for a moment about how TAVA's Y2K
activity drives its core business strategies. First, consider the
addition of new clients. Generally one of the most difficult growth
elements to accomplish for an IT service company or systems integrator
is the addition of new clients. This is still largely a service
industry and the penetration of new accounts is typically a long,
multi-month cycle.
Y2K has changed that model for TAVA. We have publicly stated
elsewhere that we have added more than 100 new Fortune 1000 accounts.
This has all occurred in the past nine months. We clearly expect that
we will enjoy core business opportunities with many of these accounts as
we support them through all stages of their Y2K efforts.
VR: That's a lot of acceleration. Anything else?
JJ: Some have asked whether we have yet begun to enjoy core
business from these new clients.. The answer is yes, but on a limited
scale so far. With many of our clients we are still in the inventory
and assessment phase of the program. When initiating a Y2K program,
clients typically freeze spending on other plant operations management
systems projects for two reasons. One, clients do not at that stage
know how much their Y2K project is going to cost and are worried about
funding sources. Two, until the Y2K conversion plan is complete, they
do not want to take the risk that a currently planned project will
result in redundant spending if its objectives can be satisfied by a
comprehensive Y2K remediation program.
VR: But aren't some clients further along the cycle by now?
JJ: As with any generality there are exceptions. In spite of
what I said above, TAVA has already secured non-Y2K business from a
number of its new Y2K client base.
Also consider that with its Y2K clients TAVA generally is
providing its services across all divisions or subsidiary operations.
This contrasts with the prior operating model where generally we did
business with each unit separately. This new client relationship
position gives TAVA a much improved platform from which to sell company
wide factory level information technology strategies, what we call
"sensor to boardroom IT integration". We are already making
presentations to CIOs of our Y2K clients on this topic.
VR: What advantage for the future does the Y2K work give TAVA?
JJ: The client specific experience gained in addressing Y2K
solutions, system blueprints if you will, gives TAVA significant
leverage in developing sophisticated, long term information technology
programs that will provide clients clear operating improvement. In
short summary, management is highly confident that TAVA will emerge on
the other side of the Y2K event with a significant improvement in
quantity and quality of its core business. We have said publicly that
our goal is to move beyond our year 2000 business event with a staff of
more than 600 engineers/consultants. This is an increase over where we
are presently at approximately 400 which itself is up from 223 at
December 31.
VR: A little over a year ago, TAVA had a one-man senior
executive corps - you. What's it meant to TAVA to recruit seasoned
veterans to the front office?
JJ: So much has happened here so quickly that it takes a
question like this to make me stop and consider the scope of what we
have done in building the management talent pool in the organization in
only the past nine months.
We have not only added senior, seasoned personnel from highly
regarded organizations such as Fluor Daniel, Honeywell, Total Petroleum,
Rohm & Haas, ABB, Elsag-Bailey, Raytheon, Coors, ICS,
Emerson/Fisher-Rosemount, PID and others but we have continued to build
the talent base of our project management and engineering ranks. This
has been done through addition of new personnel and replacement of staff
unable to operate in the new TAVA environment. Of equal importance,
many of our long-term staff have risen to the challenge of operating in
a new environment and grown dramatically in contribution. As one
specific example, our first acquisition, MDCS in Atlanta has grown
fourfold in less than three years and continued to generate very strong
margins along the way.
VR: You've come a long way in nine months.
JJ: I am truly very excited about the depth and breadth of
talent we have been able to build in all levels in the organization in
all direct and indirect disciplines. From my desk, our ability to
attract this talent says more about the validity of the TAVA vision of
the future than any other indicator.
At the immediate level, the change in management talent has made
the difference in our ability to capture and execute our Y2K
opportunity. On an indirect level, the fresh ideas and cultural mix
these professionals bring is helping right now to design and build our
business for the next five years.
VR: When you and I first crossed paths, in April, 1996, TAVA
had a complex capitalization. There were warrants, convertible debt
instruments, and a lot of 144 stock issued to the selling owners of the
companies you were acquiring. That tangle has pretty much disappeared.
How does TAVA's enormously improved capitalization, here in 1998, affect
your vision for TAVA's future growth?
JJ: While we continue to work to upgrade our overall capital
structure we have made huge strides from our early days. Not only has
the "tangle" been dramatically reduced but we have at the same time made
huge improvements in the financial strength of the company as measured
by working capital and debt to equity ratios. This foundation provides
the ability to support our growth opportunities from our current capital
base and internally generated funds.
Without the consolidation and expansion of our debt facility, we
would not have been able to fund the dramatic growth of our Y2K
business. Of equal importance is the fact that the recently completed
debt consolidation allows us finally to move easily to a centralized
financial reporting system that will yield both cost economies and
dramatic improvement in timely support of operations. We launched a
program to convert company wide to Oracle Financials only two months
ago.
VR: You've been hiring a lot of new employees in 1998, and
TAVA's backlog looks like it's soaring. Could you comment on the time
and dollars it takes to hire and train someone, and compare that to how
fast you deploy a new hire into billable work? Are you keeping up with
the acceleration in backlog you've announced this summer?
JJ: As we have noted elsewhere, we continue to be able to hire
experienced staff with good success. Our outright recruiting costs are
generally very low for engineering staff, less than $2000 per person.
For program and project managers we sometimes incur market level
recruiting fees.
VR: How much training do you have to do?
JJ: Our training time on our methodology and use of our tools is
short with experienced staff. This is testimony to the quality of the
product development effort that went into our PlantY2kOne package. New
hires can be deployed within days - sometimes hours - of sign-on.
Remember that we hold regularly scheduled training courses for our
clients.
VR: Given the barrage of new contracts, engagements and
agreements announced in July, how can you get the Y2K work done in time?
Won't it take more than new hires?
JJ: We recognized early on that we could not field a large
enough staff to support all the opportunities that we would encounter.
As a result, we launched the development of our Solution Provider
Partner Program, particularly to address the international activity
required to support our multi-national clients. Solution Provider
Partners are control system integrators that are trained in application
of TAVA's PlantY2kOne Tools and provide both staff augmentation support
for TAVA projects and local market product distribution.
VR: How many are there so far?
JJ: We have signed on approximately 20 qualified Partners
covering eastern and western Europe, South America, the Pacific Rim and
Africa.
VR: There are some armchair analysts on the internet that
interpret declining revenues in TAVA's base business as a sign that TAVA
has no future. I know you've addressed this in conference calls, but
would you explain again how declining revenues in the base business
means higher profits for TAVA?
JJ: I covered part of that in your earlier questions where I
addressed what is going on with our Y2K client spending patterns. As to
the question concerning "declining revenues in base business": We have
consciously been guiding our business to lower material content. When
doing quarter on quarter comparisons, this can result in a decrease in
revenues as pass through material content declines. Should this occur,
we should enjoy a corresponding increase in Gross Margin measured as a
percent of revenue. When our projects include a significant amount of
purchased material or even sub-contract services, we cannot get the same
mark-up on those elements that we enjoy on our own value-added labor and
software product, and the working capital requirements are exaggerated.
That said, many of our customers will continue to require that
TAVA supply material as part of an overall package. Our ability to
support this requirement provides a competitive advantage that we will
continue to exploit.
VR: You've got a lot of loyal individual investors who are
feeling pretty beat up these last few weeks. Any message for them,
John?
JJ: We sincerely appreciate the loyalty of our investors.
Many of your readers were among the first to recognize the value of TAVA
and our strategy even before the Y2K event. As said above, management
believes that the prospects for the company are better than ever.
That said, I would like to address an issue which I believe is
of great interest to a number of your readers. Over the past six to
eight weeks our company has received numerous inquiries from its
shareholders concerning certain internet chat room postings by a few
individuals.
While management fully supports and understands the value of
free exchange of information or opinions on the internet or in any other
forum, it appears that certain individuals have abused this by mounting
a calculated campaign of slander against the Company and management by
posting inaccurate and inflammatory statements.
One individual in particular has been posting information that
is absolutely false and adding statements that management believes
should be prosecuted as libelous. As a result we have taken the decision
to pursue all available remedies which include: requesting that select
internet providers prohibit identified individuals from publishing
libelous statements, per the licensing terms of the chat rooms, filing a
complaint with the SEC's Division of Enforcement, and pursuing other
direct legal action.
This is an unfortunate development but necessary given the
circumstances.
VR: Thanks, John. |
