Good morning, ladies and gentlemen. Welcome to the 18th Annual Wall Street Analysts Conference. Again, my name is Amy and I am your room hostess for today's industry program.
Before I introduce our next company, I would just like to welcome those investors who are attending via the webcast. The webcast is live and retrievable for 30 days. And also each company in today's conference will conduct a 40-minute presentation, followed by a Q A session included in that 40-minute presentation.
And at this time, I would like to introduce GVI Security Solutions. GVI provides the video surveillance and security solutions products incorporating the complete line of video surveillance and detection systems to the homeland security, professional and business-to-business market segments.
Here today on behalf of GVI is Mr.
Steven Walin, CEO. Welcome.
Thank you and good morning.
I appreciate everybody coming today. While, we are here to tell you about our fantastic investment opportunity, and I will start off by just telling you, this morning, we announced a contact awarded for the Chesterfield County Public School District in Virginia. And this is indicative that we are trying this and taking place for some time.
And quite frankly speaking fueled by recent events, the Virginia Tech in particular, where school systems and colleges and universities are getting more and more tuned up to installing video surveillance, the space we play.
And this contract is a six-figure-plus contract, low six figures. But what's interesting, it's less than 10% of the total school systems.
So, we are going to install video surveillance in couple of schools, out of the 56 or so, that they have in the district. And what will happen is, assuming we do a good job, which we will, it will just grow and eventually the whole school district, all the schools in the system will be outfitted with our video surveillance systems.
So, that's one of the reasons why our company and this space is such an exciting one.
We are in the security surveillance business, in the electronic security segment. It’s a double digit growth market. Video surveillance is really the key part of that electronic security systems market.
We have a company that has been geared up for this business. We have an infrastructure that's ready to do more and an experienced industry management team in place that's running it.
So, let me tell you a little bit about our company, GVI.
We are headquartered in Dallas. We are most widely known as Samsung Electronics' master distributor for their video surveillance products in Latin America and North America. 70% of our products we provide are Samsung branded, 30% are GVI branded, that we use to fill the gaps in the Samsung product ones.
So, we have a mix of both GVI brand and Samsung brand. We sell our products primarily to distributors and security dealers and installers that then sell them on to end-user customers.
We have Joe Restivo, who is our CFO, who is sitting in the first row here with us today.
And I joined the company about a little over a year ago, March. We both come from the security business. This will be our third turnaround in the security industry together.
Joe and I met in 1990, the company called CASI-RUSCO, which is now part of GE Security. CASI was a company that does access control in the enterprise space. When we got together as part of the new management team, it was doing $70 million in sales and losing $7 million.
We turned the company around. But in 1994, our parent company got in trouble. It was Figgie International.
We did a management buyout with the help of Patricof Ventures and Chemical Bank. And we held the company for 22 months and sold it for about three times that what we bought it for.
So, that company was eventually rolled up into GE later in early 2000.
After that, we went to a company called STG, which was a smaller company. It was actually a guard company. We quickly did an acquisition of a group out of Sensormatic Electronics.
It was their direct sales service division. It was on the block for nine months, leading badly. We bought the company very quickly, turned it around, integrated in with a couple of other smaller acquisitions that we did after that.
And we sold that business to Siemens Building Technologies in July '01.
It was a great win for everybody, our shareholders. It was a private company, but our investors did very well.
We did very well as well.
I stayed on for a while to help them integrate that into the overall Siemens operations, as did Joe for a shorter period of time. And then we had the opportunity to join GVI.
One of our shareholders and Board members from STG was also a shareholder of GVI. The company needed management and they asked us, if we would be willing to come in and run the business. So, to make the long story, in short, we did.
We then sorted out the management team and kept some of the good, added some new folks. We really have a fantastic management team. Our two sales leaders, one for North America and South America, do a fantastic job, both industry guys, very, very experienced.
They know what they are doing. We have a good marketing team as well in the product management, from background in Tyco Fire Security products. And we just have an outstanding management team.
We have a new Chairman, David Weiner. He's got a background in finance from the Deloitte and Touche. And he's done many public reverse mergers and other activities in the public space.
He is a great guy to work with and teach us how to really help us grow this business, from a public perspective.
So, when we got here, this company was in bad shape. The company lost about $14 million last year and the year before, basically, losing about a million dollars a month from the last couple of years.
In December of '04, the company did a pipe raising $34 million. And when Joe and I showed up about 18-19 months later, it was basically all gone. So, people say, why did you join this company?
I had been at GE after I had sold the business to Siemens. I went back and ran the business that Joe and I met at. And thus spent three fantastic years there and went through all the training programs that you read about.
So, I always get the question, why did you join this company that was losing all this money. And the answer is that I saw a gem of a company with a public platform in the space that’s growing at double digits with the strong core business that just really needed to have some strong leadership that knew what they were doing. And the company was actually very defocused in doing lots of things that it should not have been doing and executing and in poorly compounding the problem.
The largest of which was in the retail consumer space, selling, doing yourself, video surveillance kits through Costco's and Sam's Clubs to consumers, which was totally different from the marketplace that the core business played and which was the commercial marketplace. The business was not profitable, was a big distraction and we formally discontinued the operations that you had seen on our financials shortly after we arrived.
So, the business really had no control.
The finance department was neutered. It was run strictly from a pure sales standpoint. As I mentioned, there was a strong core business there.
So, we quickly eliminated all of the unproductive businesses. We screwed the cost structure down to meet where the revenue was. We drove a cash culture.
There was none. So, we focused on receivables and inventory. We negotiated a new contract with Samsung that was not only longer in length, but had better terms and conditions for us.
We restructured our debt with Laurus, eliminating some of the owners terms that we had, all the owners terms that were on the original note. And we raised $6 million quite frankly just in time.
So, about 70% of our business comes from North America, 30% from Latin America.
Part of the turnaround was to restructure the entire sales team, which we did. Our field sales force is all of new people that we picked. We strengthened our independent direct organization.
We sell our products in addition to our own GVI sales force. We do have independent companies that represent us. And we strengthened back a team of people that in fact are in process of doing more and adding more of now, that we have actually turned the company around and have some creditability with some of the even better firms.
In Latin America, we have three offices. We have a strong presence there. Samsung Electronics is either the number two.
We are the number three brand in Latin America. We are in Mexico City, Bogota, Columbia and Sao Paulo, Brazil.
If you follow our press releases, you'll see many of our exciting projects actually emanate from the South America marketplace where we do a great deal with government work.
And the other thing that we are doing in the company is really driving an international culture within GVI. And I am sure many of you've had experience with US-based companies run by Americans, but that operate internationally. There's always a challenge around that.
So, we are driving a real international culture within the company.
We are really fortunate to have fantastic end-user customers, some of which are represented here. We are really been focusing in North America in three vertical markets, retail, banking and schools.
And you could see here, we have represented a list of some of them. The retailer in the US is a very, very large retailer that everybody knows. We have a contract with them, where we have just signed this past February for two years to provide our loss prevention products for their parking lots, buildings and internal use in all their stores in North America.
We also do all their stores in Mexico as well.
So, we are strong there and we have great relationships with these customers. And as I mentioned, when we started out with the school district, typically it’s the razor in razor blade scenario, where if you sell the razor first and they install your system.
There is no continue add on business. So, you have a nice base of business. It's almost the factor of recurring revenue.
In Latin America, we do a good deal of business in the government space. We secure ports, airports, customs, facilities. We also do a bunch of casinos and banks as well.
We have a project business there. About a third of our business is coming out of Latin America, primarily in larger systems solutions projects.
So, we have this really strong business now that's been turned around and we'll show you the financials in a bit.
But we are, kind of, at this tipping point. We can do a lot more. And we are planning our next step to leverage our core competencies and profitably grow the business.
If you look at the marketplace itself, we've got a very, very robust market growing at double digits with wind at our back. You can see the drivers on the slide after 9/11, and the change in the technology is really another big driver. The technology shift that I would relate to you as similar to what's you have at home.
I mean, you used to watch a VCR and now you watch DVDs and now you are uploading movies over the internet. And the same technology trend is taking place in the video surveillance space.
And what it's doing, it's creating opportunities for companies like ourselves to not only have more opportunities with customers, because they are able to deploy systems over wider areas, because of the IP connectivity, the use of communications.
But it's creating a whole new channel of resellers force, of customers in the IT space.
And that we've already began to capitalize on by forming relationships with several IT VARs and IT distributors, who today are looking for ways to expand their business beyond some of the stuff they have been doing all along, like, installing IP phone systems, network support, desktop support, and what not. That business is starting to mature and peak.
They are looking at new ways to get into growing their business and security systems that connect over IP is away for them. Because they connect cameras now, starting in DVRs, recorders are connecting much like they connect printers and computers over the network. So, the technology is the same and it's an easy shift for them.
You can see that the market is still primary analog. This chart shows analog cameras. You could see it peeking around now in terms of the mainstream of the market is still very much analog.
But the trend is moving very quickly and we are right on top of that. And we are taking advantage of it that we'll talk about.
So, if you look at what our strategy is, it has really got three key components to it.
First is, we are strengthening the core business and we are doing that by continuing to focus on sales, by driving NPI, new product introductions, both from Samsung and from GVI. GVI branded products and Samsung has actually really stepped up their product development in terms of rolling out new products. Because, number one, they are committed to the market.
Number two, they have a specialized focused company in the North American Latin American market, who is giving them very detailed and specific market requirements that they can see return on investment. So, we continue to focus that core business.
The next step is to acquire some complimentary applications or products that fit well with video surveillance.
For example, when I was at GE, and we were providing these types of products, more than 50% of the time you sold video surveillance tied into access control. Access control being card access you all probably have them to get into your buildings or your parking lots, the card that lets you in the door.
Well, what's going on in the marketplace is that customers now want to have the access control transaction that’s being done and the system tied to a video clip of that same transaction.
So, they can positively identify somebody entering the space or attempting to enter the space. Not only by the fact that we have a record in the computer of their card opened or attempted to open the door but we actually have a video of that transaction.
So, access control and video surveillance go together very, very nicely and now more than 50% of the time.
So, that would be an example of one of the products that we could acquire that we could provide as part of our video products to our existing channels.
And then the third leg of the stool that our strategy is really to combine with a product manufacturer of some sort from one of the low cost regions, China in particular, where we today source our GVI products from. And have some bi-lateral relationship where we can bring some of these packaged solutions that we are talking about, access and video, that IP back over to China and have them sold in the market.
And I'll show you that in a minute. And then by return, of course, have the margins on sourcing directly from a company that we have some stronger relationship with other than just being a customer of.
So, if you look at our technology roadmap briefly, you could see the access control.
Video management system is another important application that we would need to acquire. We have some of it today. But we could step further into that and you could see our technology roadmap.
But it's important to know, that we are very, very focused. Our strategy is focused clearly on the mid-market.
So, our end-user customers are typically small to medium size businesses.
And the reason is that, we like to take advantage of the fact that if you look at the typical triangle of the market, which this slide displays, at the very bottom which is big wide part, the fat part is, kind of, what you would normally see at the consumer level, either in home security system, alarm system or do-it-yourself video surveillance system.
A very big market but very, very price sensitive, decisions made very, very quickly and not much margin. All the way up on the top at the tip of the triangle are very high security, very complex system solutions for places like DoD, nuclear sites and military.
And that’s a very, very small market, but the systems are very large, very sophisticated. Margins are better than they are at all the way at the bottom, because there are less players there. But sales cycles are very, very slow.
So, our strategy is really to be in the mid market, to try and get the best of both worlds, to gain some margin, but also to have the ability to turn business more quickly through our existing channels.
So, if you look at where we are today, we are pretty much in the mainstream with cameras, recorders and switched CCTV. We have a target identified for access control, and as we move forward, you will see us do that and then be able to package together in what we call simple packaged solutions for the mid market.
And the way I would equate this to you, is that if you buy a high-end stereo system, you typically buy it in components. An amp from one person, a tuner from another company, a DVD player or turn table from another and you piece it together. And that's basically the way the upper part of the market, the enterprise space typically are trying out today, puts together these integrated security systems.
But if you want to make it simpler and easy, you look at what today is called the BoomBox, which is everything is really in one easy-to-use simple system that you just turn on and it works. And that's our strategy with the packaged solutions. We see the opportunity to take the various components of an integrated security solution, access control, video surveillance, intercom and others as we move forward.
And put those together into a package BoomBox, sell it through our existing channels into the mid-market. It's a gap in the marketplace today, and it's where we see a strong opportunity not only with our first strategy to strengthen our core business. But also to take some of that IP and that technology and ship it back over on a bilateral basis to one of our Asian partners that we would hopefully combine with.
And then as a future, the future really moves to IP and software and web-based access control, and as we move up the food chain and get into more software and IP you see our margins increase as you get up the food chain with these types of more integrated solutions.
So, lets talk about that third leg of the stool the strategy of combining with a, an Asian or a Chinese player of some sort. If you look at what's going on in China, obviously we all read about the marketplace is booming and growing like crazy, but what's happening in the security and surveillance space is very, very interesting.
The government has mandated that over 600 cities must be video surveilled as well as entertainment centers, such as cyber cafes and karaoke bars.
So this is all being mandated by the Chinese government to reduce crime and specific drugs and prostitution. So there is a huge opportunity taking place for now in China, where companies have a huge opportunity to install these security systems, both video and some access control.
So we see the opportunity to synergize with some of the product manufactures that today we are acquiring products from, who really want to go down the value chain to not only just manufacture, but to install and maintain products as well but do in the mid market. And we have the expertise, the industry knowledge on that business as well as some of the IP that we would be putting together in these package solutions, manufactured by them on a very close competitor basis to go, to be able to provide that.
Conversely, they see the US market as a very important market to have access to and if you really look at what GVI is today, we are portal for Asian products to be sold in North America and Latin America.
We do it primarily for Samsung coming out of Korea, but we also do it for the GVI products that are coming out of China. So we seen an opportunity to partner up there and have this kind of back and forth relationship with the company from one of these regions.
Okay.
So if you look at really where this thing is going to go, I can tell you that, we are not going to be an installation company. We are not going to have guys in trucks with ladders running around installing security systems. We are going to leverage our core business and know how.
We are going focus on the mid market and we are going to catch this IP wave of the technology moving from analog to digital to IP and we are going to do it as I mentioned in the mid market.
We are going to move up the food chain to capture more margin with products that are more integrated and more unique in the marketplace that add more value to customers and then we are going to do something with someone over in Asia who has interest in taking advantage of our marketplace here and our existing channels and we take advantage of some of their capabilities for manufacturing in the larger market opportunities that they have there.
So, if you look at the numbers, the company is now, I always hate to declare victory too soon but the company has now turned around.
As I mentioned earlier if you look at the last two full years of operation '05 and '06 the company basically lost about a million bucks a month on average over the last two years. In the first quarter of '07 we announced earnings and we actually made a profit of $160,000 in the first quarter, our gross margins significantly increased from prior periods up to almost 27% a couple of points ahead of even our plan for the year.
We generated about $700,000 in cash in continuing operations and we basically are very pleased with the result.
We took about a million dollars of SG A cost out of the business for the quarter over the last year's same period and we basically brought the run rate the breakeven run rate down significantly from when we walked in the door. So now we are focusing our attentions on growing sales as we make the turnout that we have the operation running well and the cost structure in place.
On the balance sheet, we paid down some debt we disposed off non productive assets and as I mentioned earlier we raised some money if you look at the equity snapshot we're at about 60% of sales.
Our challenge is really to increase volume and the stock.
Now, here are some of the comparables one of interesting note is the third one down, International Electronics IEI. This is a company that did about $15 million bucks in sales, one that we were very, very interested in.
This would be a typical company, this will be company that we would be in one of our acquisition candidates during the access control, marketplace. They were just sold this past week to Linear for $6.65 a share in cash.
They have been trading at $2 for quite a while, they had a hostile TO at $3.50 and then $4, when this chart was made it was trading at $4 which was a couple weeks ago, and obviously they were in play and they signed a definitive agreement for $6.65 per share.
China Security and Surveillance is one of the players in China, US-based listed company, I think the revenues were about $60 million to $70 million. If you look at the market cap $458 million market cap, so they are a company that is taking advantage of the fact that there is this huge market in China for surveillance and other security applications. They are a manufacturer and they are coming down the value chain and becoming an installer and maintainer as well.
Okay, Richardson Electronics, it's a big electronics distributor. They had a security division that did about $100 million in sales nationwide and through Canada. They just sold that business about four weeks ago to Honeywell, their distribution division ADI for $80 million.
So they carved out a piece of this Richardson Electronics which was just the security play and did that deal was just recently announced.
So turnarounds complete, always more work to do though we hate to declare victory too soon, but we really think we have it now.
The team and the strategy is in place, we got a great market with lot of wind at our back, and a lot of runway.
And now we are really looking at our next steps in creating real profitable growth and value for our shareholders. The thing about security industry and I've been in for 24 years is when bad stuff happens in our world it fuels our business. I've seen the waves ever since it all started with the first Trade Center bombing here in the early 90s through Oklahoma city and all the way up through.
So I think we have a great opportunity I appreciate your attention this morning. And I am open for any questions or comments anybody has.
Yes sir.
Joe, keep me honest here, 28 million shares fully diluted 36.
36 fully diluted.
All right.
Debt structure and the line of credit and they term up in the [rewards], and that's adequate for us to fuel the growth.
Okay. And warrants?
Okay, yes good.
How many employees do you have? How many are in the sales department or marketing department?
Yeah, okay. There are a total of about 65 employees right now about 20 of them are in Latin America, 45 in the US Majority of the US sales people are independent rep organizations. So we have close to 60 people in North America alone that are representing our product along with four GVI's sales managers' positions regionally in the country and in Canada.
In Latin America there is roughly about, we don't sell through independent reps in the countries we operate in or in the countries we don not such as parts of Central America, Chile and Ecuador. But there is generally about 12 to 15 feet on the street in Latin America.
Can you touch on the IP opportunity as well as, you talked about market variables, can you talk about those?
What's been happening in the whole markets vertical side. If you take retail for instance, one of the benefits of these surveillance systems, this is not only for safety and security but it's also for productivity. Because our systems can be installed in a silhouette of, let's say retail stores, with recorders in them and they are accessed over the internet.
So a regional manager of a chain of stores rather than having to go in and visit each store to see what's going on, how are shelves are stocked, what does people look like.
He is actually able to look in from any computer that he has internet access to. So what they use it for primarily is to see, how many people come in the store, which direction they go when they walk in.
How are they greeted by the personnel in the store, even to some extend using some of our Pan-Tilt-Zoom products, they can actually zip around the store and look at the shelves and see if they are stocked properly in and neatly.
So all this whole idea of being able to access anywhere from one central location using the internet has really changed the whole dynamics of the industry and created the growth that we are seeing.
So, it sounds like the customers can improve their profitability by these tools?
No, though many times security, you know back, when this was started in and security realized that, they go to the marketing and operating departments to help justify the system to get the money, the budget to put them in, based on an ROI being able to save feet on the street of having a run around and check all these stores out just through the internet over electronically.
Okay looks like I got to hook. Thank you.
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