CSI Wireless in Profile

May 13, 2003


The Wall Street Transcript

Cameron Olson is Chief Financial Officer and Vice President of Finance of CSI Wireless Inc., with responsibilities for the company's overall financial management and strategy. Before becoming CFO in 2003, Mr. Olson was Vice President of Finance for CSI's Wireless Business Unit. Prior to joining CSI in 2000, Mr. Olson held senior treasury and finance positions with Encana Corporation (known then as PanCanadian Petroleum Ltd.), and before that he was a senior manager of taxation with PriceWaterhouse. He holds a Chartered Accountant designation, and earned his Bachelor of Commerce degree in Finance from the University of Calgary .

 

TWST: Could you begin with a brief historical sketch of CSI Wireless and a picture of things as they are now?

 

Mr. Olson: CSI Wireless is a technology company with a focus on two key areas, wireless technology and technology related to global positioning systems, more commonly known as GPS. CSI Wireless was first incorporated in 1990 and was listed on the Toronto Stock Exchange in 1997. We are headquartered in Calgary , Alberta , Canada , and we also have offices in Scottsdale , Arizona and Milpitas , California .

 

Our product focus is designing and manufacturing hardware in three key product areas: wireless, GPS, and in telematics - a product line that combines wireless and GPS technologies. I'll quickly run through each of these three product areas.

 

In the wireless product area, we manufacture fixed wireless telephones, including a Motorola-branded version. They look like desktop or wall-mounted telephones, however, they use cellular technology rather than copper lines to communicate. Our key market focus for our fixed wireless telephones is developing countries, where there is a low penetration of copper-line telephone service to the population.

 

In the GPS product area, our key products are focused on the precision agriculture, marine and geographic information systems (GIS) markets. In addition, we sell some of our technology to OEM customers for integration into their products. Generally speaking, our GPS products are designed to provide high accuracy location information to users for use in a variety of applications. Our largest GPS product lines are our guidance systems used in both aerial and ground agriculture applications. For example, our Outback product line is used in farming to guide tractors – including automatic steering - through the fields. This results in improved efficiency for the farming operation.

 

Lastly, in the telematics area, we manufacture asset-tracking products that combine wireless and GPS technologies. Our Asset-Link product is installed in cars, trucks, construction machinery and other vehicles, and enables the user to track the vehicle using the Internet. In addition, the device is designed to interface with the vehicle to monitor and control various systems. For example, the unit can be set to communicate airbag deployments, remotely unlock doors, monitor speed and operating conditions, and a variety of other applications. Our key market segments in this area are fleet management, safety and security applications, trailer tracking, and stolen vehicle recovery.

 

TWST: Among the companies that you're in competition with, are there any that compete with you across the board through the full range of things that you do?

 

Mr. Olson: CSI is unique company in terms of its combination of product areas, and as a result, there are no companies that directly compete with us in all of our areas. The closest competitor would be Trimble Navigation, which competes with us on the GPS and telematics sides of our business. However, Trimble is not in the fixed wireless telephone area. Our primary competitors in that area are Telular Corporation, which is located in the U.S. , and some other players in Asia . In the GPS business, we have competition from NovAtel Inc., a Calgary-based company, and Trimble, as I mentioned. Lastly, in telematics there are a variety of market verticals. Trimble is involved in certain of these markets, plus others such as Aircept and Satronics Corporation, which are private companies located in the United States .

 

TWST: Where do you believe the greatest opportunities lie for your company?

 

Mr. Olson: We're pretty excited about all three of our product areas.

Our fixed wireless telephones have already been enormously successful – generating almost C$60 million of revenue for us since their introduction in late 2002 – and we expect them to be even more successful in the years ahead, as we continue to expand our product offerings.

We currently have two fixed wireless products which incorporate the TDMA technology – one with our brand and another with the Motorola brand.. TDMA is a cellular technology covering about 8% of the world's cellular networks, including most of Latin America .

In the third quarter of this year we will be introducing a fixed wireless telephone that uses the GSM technology. GSM is a cellular technology in use by about 70% of the world's cellular networks, and more than one billion consumers. So as we expand our fixed line of telephone product and include GSM cellular technology, we will dramatically expand the addressable market for our fixed wireless telephone products.

TWST: In which countries will you be the most active?

 

Mr. Olson: Our primary market for our fixed wireless telephones so far has been Latin America , where we're currently selling the majority of our TDMA product. We expect our GSM versions of the phone to do well in the Americas , Asia and Europe .

 

TWST: What about challenges or problems? What will concern the company over the next few years?

 

Mr. Olson: One challenge will be to ensure the company continues to grow and expand its markets globally. We'll meet that challenge by maintaining a strong focus on technological development and innovative products. In addition, as we move to market our products globally, we'll continue to form alliances with companies that have strong marketing and distribution capabilities. For example, in the fixed wireless area, we're partnered with BrightStar Corporation, which handles our product marketing and distribution throughout Latin America . Brightstar is the largest distributor of Motorola products into Latin America today.

 

To market and distribute our GPS products, specifically our precision guidance products for ground agriculture applications, we've developed a partnership with a company called RHS Inc. RHS, which brands our products under its Outback line, has achieved enormous success in North America, and has begun to duplicate that success in other major markets including Europe and Australia.

 

Competition is another significant challenge across the technology world. Our strategy in the past has been to focus on niche markets where our technology and applications knowledge have enabled us to achieve dominant or leading positions. In addition, we focus on the development of proprietary technology that enables us to achieve cost advantages in our product lines that our competitors struggle to match.

 

TWST: What are the company's thoughts on mergers, acquisitions and being acquired?

 

Mr. Olson: In 1999 and 2000, CSI Wireless undertook two significant acquisitions. Since then, we've concentrated on integrating those acquisitions and their technologies, and on expanding our product lines accordingly.

Looking forward, we're very interested in acquisitions that advance our growth and technology strategies. We see the opportunity in a few of our product lines for industry consolidation in the coming years, and that type of acquisition is possible.

 

TWST: What would you reasonably expect the company to look like three years from now, and what will be some of the financial milestones that investors might want to keep their eye open for?

 

Mr. Olson: Our focus has been revenue growth and profitability. Those are important elements we intend to continue pursuing.

 

In three years, I anticipate that CSI Wireless will continue to be a leader in the fixed wireless telephone area. We will have a broader range of product offerings. As I mentioned, today we have TDMA products and have announced the introduction of GSM products. As wireless technologies continue to advance, we would intend to expand our product line further, and some of the options include CDMA cellular technology and other emerging cellular technologies.

 

Our telematics product line will also continue to expand, including a new GSM-based asset-tracking product that we announced recently. In telematics, we are currently focused on North America , but our new products will enable us to gradually adopt a global approach in this product area as well.

 

With respect to financial milestones, our 2003 revenues were C$71 million, after C$54 million in 2002 and C$41 million in 2001. We see $100 million as a major milestone, and one that we expect to achieve in another year or two. However, our key focus from a financial perspective is profitability. Growing our bottom line is our top priority.

 

TWST: How many employees do you have at the present time?

 

Mr. Olson: We have 160 employees. Of those, about 110 are in our Calgary facility, about 30 are in our Scottsdale facility, and about 20 are in our Milpitas , California facility.

 

TWST: Will you be able to grow the top line without having to add too many more people?

 

Mr. Olson: Yes. For example, looking back at 2003, about half of our revenues came from our fixed wireless product line. In this product line, our largest fixed cost is the core engineering team focused on developing products. This team developed our TDMA phone, and is close to completing the development of our GSM phone. Moving forward, that team will also be responsible for the next generations of our fixed wireless products.

 

As the volumes of our fixed wireless product line increase, the key fixed-cost area, which is our engineering area, won't need to grow at a proportionate level. So the business model around our fixed wireless telephone has a fairly high degree of leverage. As a result, as revenues increase in the coming years, there certainly shouldn't be a pro rata increase in our costs. In varying degrees, we see similar efficiencies in our other product lines as well.

 

TWST: Can you tell us something about the background, the expertise and the responsibilities of a couple of the key officers of the company?

 

Mr. Olson: Our President and CEO, Stephen Verhoeff , founded the company in 1990, and continues to lead CSI Wireless today. Stephen has significant visionary knowledge of the GPS and wireless industries, and is adept at positioning CSI Wireless to capitalize on opportunities.

 

Our Chief Operating Officer, Colin McClellen, joined us in 2002 after 16 years Nortel Networks, during which he held a variety of executive positions including Vice-President of Nortel's global wireless operations. Colin brings a level of operational discipline and knowledge that adds real strength to CSI Wireless, and has been very important as we've transitioned from a smaller to a larger company.

 

TWST: How long have you been with the company?

 

Mr. Olson: I joined CSI in 2000 – initially as Vice-President of Finance for our Wireless Business Unit, and as overall VP of Finance and CFO since October of 2003. Before CSI, I held senior positions with Encana Corporation, Canada 's largest oil and gas producer and with Price Waterhouse.

 

TWST: What was it about CSI that made you want to work there as compared with some other companies?

 

Mr. Olson: I was attracted by the fact that CSI Wireless has consistently shown the ability and vision to grow its business. Since its inception, the company has year after year continued to grow its revenues. During the past five years, which were fairly difficult years in the technology and telecommunications industries, CSI has averaged more than 50-per-cent annual revenue growth. As I looked at the company, I saw a strong ability to grow through difficult circumstances and the market opportunities to continue this growth record.

 

Another attribute that attracted me is that it was very clear that CSI was a very employee-focused company. The company clearly understands that its people provide itsvalue, and the company realizes that and treats its employees well. CSI offers a good, encouraging and energized environment in which to work.

 

TWST: Do you see any need now to improve the company's capital structure in any way?

 

Mr. Olson: Until recently, CSI had operated for several years with quite a weak balance sheet. We were carrying term debt, utilizing our operating line, and had completed a number of smaller financings to provide the necessary capital. In the high-tech industry particularly, where the value of a company isn't based on its hard assets, but on its people and ideas, we didn't believe that was the way to operate on a long-term basis. So in March of 2003, we closed an equity financing of just over C$16 million that has enabled us to eliminate all of our debt and leave in excess of C$10 million of cash on the balance sheet. We believe a strong balance sheet is essential as we go forward. It provides us with the credit worthiness to deal successfully with customers and suppliers -- providing them the comfort they need. It also provides us with the financial stability to take advantage of opportunities as they arise, and to deal with growth and working capital needs.

 

TWST: How much emphasis do you place on investor relations?

 

Mr. Olson: We place a high degree of emphasis on the investor relations function. We regularly do road shows and meetings with existing investors and potential investors. We visit on a regular basis the key markets in Canada — Calgary , Toronto , Montreal , and Vancouver .

 

Our investor relations efforts, and our steadily improving financial performance, have paid off in that we have now have six securities analysts tracking us – most have issued “buy” recommendations - and we also have several major institutional investors, including one of Canada's largest pension funds.

 

TWST: You're on the pink sheets right now. What do you feel the investment community is missing about the company?

 

Mr. Olson: As I mentioned, we have three major product lines. As a result, the company's story is a little challenging for us to tell – and for potential investors to understand. However, it is important to understand that the two key technologies in our GPS and wireless product lines, integrate into our third product line – telematics. Expertise in the technologies in these two areas has enabled us to achieve a stronger position in the telematics area.

 

In addition, as we've been investing in the wireless business, our GPS business unit, which has had very strong financial performance during the last three years, has contributed to our ability to invest in our wireless products, which are now entering the profitability stage. So while having three product lines is something of a challenge in telling our investment story, it has been very valuable from a diversification perspective.

 

TWST: What are the two or three best reasons why the long-term investor in particular should take a very close look at CSI?

 

Mr. Olson: First, CSI has continued to significantly grow its revenues and improve its profitability during very difficult periods. We have a history of succeeding in tough circumstances.

 

Secondly, the company is now in a position with all three of its product lines where our opportunities looking forward are stronger than they have ever been in the past. One area we are particularly excited about is the move into the GSM cellular technology, which is the primary cellular technology in almost 200 countries worldwide. We believe that our fixed wireless and telematics opportunities related to this technology are significant and that we are in a very strong position to capitalize on many of them.

 

Also, our fixed wireless telephone's appeal to developing countries is giving us strong exposure to growth in the world's emerging markets. We are intent on addressing these emerging opportunities.

 

TWST: Is there anything you would like to add, particularly with regard to the company's long-term objectives?

 

Mr. Olson: CSI, as I mentioned, has achieved strong revenue growth over many years. As a result, we've been recognized by several sources as one of the fastest-growing tech companies in North America .

 

During the past year, we have also achieved a level of market capitalization that is attracting a broader range of investors in Canada and the US . We are very hopeful this market recognition will continue to improve and strengthen.

 

TWST: Thank you.

 

 

CSI Wireless Web site: www.csi-wireless.com

Cameron Olson email: colson@csi-wireless.com

CSI Investor Relations email: cpala@e-vestorcom.com

 

CSI Wireless

4110 9 th Street S.E.

Calgary , Alberta , Canada

T2G 3C4

(403) 259-3311

(403) 259-8866 (fax)