CEO/CFO INTERVIEW WITH Dr. LESLIE KLEIN P.Eng. PRESIDENT AND CEO

Ka-band satellite antennas and New In-Motion Satellite Antennas for Vehicles, Trains and Busses to Receive and Transmit at Broadband Speed

Klein

Leslie Klein, Ph.D., P.Eng.

 

Interview conducted by:
Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – September 14, 2015

Original Article (http://www.ceocfointerviews.com/interviews/C-COMSatellite15.htm)

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CEOCFO: Dr. Klein, it has been a couple of years since we last spoke. Would you bring us up to date on C-COM Satellite Systems?
IMG_2423Dr. Klein: We are still here and profitable. The company has had 10 consecutive profitable years back-to-back. We are providing dividends (5 cents per year which represents about 4.4% interest). In addition, the company continues to develop new technologies and new products. We have launched a number of Ka-band satellite antennas that two years ago were not on the horizon yet. Ka-band is the new high-throughput satellite service that delivers 100x more bandwidth capability than existing Ku-band satellites. Therefore, many things have changed for the better over the past two years and the company continues to chart new frontiers, find new customers and new applications as we continue to develop new products for the worldwide market.


CEOCFO:
What are the advantages of Ka-band satellites?

Ka-75V on a Land Rover Doors OpenDr. Klein: The Ka-band satellites offer a much higher frequency range than Ku-band satellites, which have been around for quite a number of years. This would be the next quantum leap in the satellite, internet, broadband delivery. The Ka-band satellites are 100x more powerful, so they can deliver tremendously more bandwidth on a much smaller antenna, much more economically than Ku-band satellites. They also have spot beams, which make it possible to iluminate certain parts of the world where most of the users are, so as not to waste the bandwidth in areas where nobody lives or no one uses the satellite. Therefore, there are many advantages. For example, last year the total number of Ka-band satellites that were launched was about three, but this year there are going to be over 30 and next year there will be many more. Some of the latest news releases mention the deployment of large constellations (658+) satellites to be placed into orbit to deliver Internet connectivity worldwide. The companies putting up the funding are very large and include Hughes, Coca Cola, Virgin Airlines and others. The Internet will hopefully one day be everywhere and accessible to everyone.

CEOCFO: How does that translates into what your customers are ordering from you?
Dr. Klein: What it provides for C-COM is a new band of satellite antennas, which are different from the existing geo stationary Ku-band satellites. They are similar in their look, but they essentially are more powerful, less expensive and deliver more bandwidth. In addition, the ground terminals for these Ka-band satellites are less expensive to manufacture and the bandwidth cost is less than the Ku-band. Therefore, we are attracting a new vertical market with these products that we manufacture. For example, satellite news gathering organizations, television stations and radio stations have become Ka-band customers of C-COM. This is because they can now deploy very rapidly with a small antenna in a smaller vehicle and deliver the same type of video transmission from remote locations back to the studio that they used to do with a very large satellite newsgathering truck, at a fraction of the cost.


CEOCFO:
Are people coming to you because they were looking for something better, smaller and cheaper or are you reaching out to a new level of customers?

WorldGreyMapInetVu_AnimatedDr. Klein: Most of the business that we do is pull business. In other words, we are pulling customers in; we are not pushing. The one push that we do is through trade shows that we attend. We go to a number of trade shows around the world, where we display our antennas, but we sell through resellers. Therefore, we remain very small, with 32 people in the company. Everything that we manufacture is outsourced, so we do not make anything ourselves. In addition, we do not have any presence in any of the 103 countries where our resellers are located. We have over 700 resellers who are actually selling the antennas to their customers, providing them with technical support and also providing first level support for them, as well as connectivity. We are really strictly a hardware manufacturer who operates from Canada and reaches out to the world through their reseller network.


CEOCFO:
Does the end customer care that it is a C-COM product?

Softbank980 UnitsDr. Klein: They do care because of reliability and cost. The biggest factor is really reliability. We have close to 1,000 antennas with Haliburton the large Oil & Gas Exploration Company and more with the other major Oil and Gas exploration companies worldwide. They use our antennas in production, so you can imagine that reliability is extremely high on their radar. If an antenna fails or does not perform to specifications for a number of hours or days, their production loss could be significant. Therefore, the people who have bought our 7000 antennas over the last many years that we have been selling them, appreciate the reliability and the affordability of our products. In addition, we are probably one of the only ones in the world who can ship large quantities of antennas from stock, because we have a very large inventory of equipment that we are able to ship very rapidly. In 2011, we sold over 340 antennas to Softbank, which is the second largest telephone company in Japan. During the tsunami in 2011, they lost all of their cell towers and we were able to replace these lost cell towers with our antennas in record time, which is not something that most antenna manufacturers who we compete with would have been able to do.

CEOCFO: How do you deal with inventory, when technology is always changing? Do you still have many Ku-band antennas?
Ka-75V_Primetech_orderDr. Klein: We have a very sophisticated forecasting system that tries to meet a certain level of preparedness. We adjust that based on the demand but it is not a simple thing to do and it can be very tricky. Therefore, yes we do have a great deal of Ku-band antennas, but that is because 90% of the world is still operating in Ku-band. The only Ka-band satellites are over Europe and North America, as well as some parts of the Middle East. However, as the deployment of Ka is changing and increasing rapidly, so will our inventory levels. It is a difficult process to keep juggling, but at the same time, antennas that we manufacture are not like meat or cheese that go bad. We can sit on them for three or four years and they are still going to be sellable, because we can easily update the firmware on them, to make them up to date in terms of what we have developed over that period, and still sell them as brand new. We are not selling iPads or iPhones that have a six-month shelf life and after that, nobody wants them. If that were the case it would be very difficult to forecast our inventory levels. So far, we have been fortunate and right in judging the inventory and building it. Our resellers appreciate this, because in this business people spend eight to nine months vacillating about a product, but once they decide that they want it, they want to be able to drive it off of the lot. They do not want to wait another eight to ten weeks for it to be manufactured. This is where we come in. If you have finally made up your mind and you want twenty units we can ship it to you in a week; no problem.

CEOCFO: Is there much servicing involved?
Dr. Klein: These are mechanical production units that are exposed to extremely harsh climates, as they may be operating from the Siberia and Northern Canadian wilderness, down to the Sahara and Australian desert for example. Therefore, they tend to get abused. They are used daily in production, so there is always a likelihood that something will fail, such as a motor or sensor, but these parts are easily field upgradable and the resellers either store some spare parts on the location of the customer sites or they are within driving distance to go up there and quickly replace a defective part. The units are designed to be easily field repairable. The C-COM iNetVu antennas have been designed to be very rugged and many are still working 6 to 8 years after they have been deployed.

CEOCFO: One of the industries that you provide products to is banking. Where does that come into play?
Mobile_banking_SouthAfrica_older picDr. Klein:
We actually have hundreds of ATM machines around the world, in places like Hawaii, Barcelona, Madrid and Africa. These are ATM machines that are on wheels. They are identical to what you see on the street corners, except that the can be moved from place –to-place. Banks use them to offer banking services. In South Africa they are used to fill up cell phones that people use there to make payments with. These ATMs do not carry cash, but they have the ability to refill a cell phone and update it to X number of dollars, so that you can pay for your daily needs with your cell phone. Other banks use the Mobile ATM machines to test market permanent ATM machine locations. They would leave a vehicle at a particular location for a week to see how much traffic would be utilized there, then decide if this is a location where they would want to build a permanent ATM. In other instances they are deployed during fairs and rock concert or big outdoor events where people will need cash.

CEOCFO: Where would your satellite antennas be utilized that people may not generally think would come into play?
Breastscreen NZDr. Klein: For the telemedicine applications, we have mobile ambulances, mobile surgery units, mobile neonatal units in Africa. Mobile cancer screening units in New Zealand. We also have mobile labs, mobile forensic units, mobile disaster management units, and some are used in Africa to monitor poachers in conjunction with drones. The drone streams video while it flies over a terrain and the video is transferred through our antenna on the Internet and allows for monitoring of very large areas of the African parks where rhino’s and elephants are illegally hunted. Therefore, you could be downtown Johannesburg and be watching an entire 30 to 40 kilometers radius of a wildlife park and see where the poachers are. In Indonesia, we have a Palm tree plantations being watched in a similar manner.

CEOCFO: What is the competitive landscape?
Dr. Klein: There is really very few people in the marketplace similar to C-COM. There are companies in different vertical markets, such as some in the marine, some in the aerospace sector, and some in the land mobile. However, they are very small operators or they are very large companies that have a very small divisions manufacturing this type of product. There are others who do a great deal of business with the military in a similar vein. We do not do business with the military. We are a commercial operator, with a commercial product for commercial markets. We also design new and advanced products and lead this market. There are very few companies like ours in the world. Some we compete with and some we do not because they are very expensive and others we do not compete with because they are very cheap. We are somewhere in the middle and it is a very good marketplace to be in.

CEOCFO: What business decision lead the company in its current direction?
VAN Passengers SideDr. Klein: In 1997, when we started, the satellite industry was in a totally different space than it is today because satellite airtime was very expensive, also satellite hardware and modems were very expensive. In addition, the satellite operators were more focused on the basics of satellite transmission, which were in those days’ television and satellite newsgathering. It was not the type of industry that it is today, but I expected that it would change, and fortunately within three to four years, it did, because by the time that we developed the technology that we are selling today the satellite industry has totally reformed itself. Modems have become much less expensive and bandwidth has become much less expensive, so the satellite opened itself to commercial markets other than television to include Internet. In 1997, the Internet was still in its infancy, but as I suspected, and turned out to be correct that it would change, and just as radios are ubiquitous in cars, one day Internet will be something that you will see delivered into cars. This is how we decided to be in this business, which was really new and from many perspectives nobody was in it or even thinking about it. We were one of the first and fortunately the satellite industry has followed the trend that I expected it would follow and we were able take advantage of these changes.

CEOCFO: What are some of the challenges that you face as a business?
Dr. Klein: There are many things technologically that can change the industry, just as the iPhone stock-photo-technology-background-from-series-best-concept-of-global-business-106666622has changed the Blackberry situation, it could also happen in the satellite industry and someone could come out with a revolutionary product that will change everything from the way things are being done today. However, we are trying to stay ahead of the game by being at the leading edge of the technology and trying to follow the new trends and ideas, working with large satellite operators like Hughes, ViaSat, Intelsat and many others around the world who have a vested interest to stay in the business. Therefore, they want make sure that nobody surprises them with anything. It is not very easy to turn on a dime in this business, which is a business that is totally different from the consumer market that can change very rapidly with one fad. We are in the technology business, which is very similar to the airline business. Arlines tend to settle on a particular aircraft and will not likely change unless the aircraft manufacturer goes out of business. We are pretty much in the same way. We follow the trends and as long as we manage the business properly we should be here for a long time. I really do not worry because the company is very healthy and is sitting on over $20 million of working capital. We have no debt and have had 10 consecutive profitable years.

CEOCFO: Put it all together for our reader. Why pay attention to C-COM Satellite Systems?
inMotion_1200_V2_logos_RacksDr. Klein: We are going to be doing some very interesting things. We will be releasing an in-motion satellite antenna this year which will allow a vehicle, train or bus to drive at speeds over 100 miles per hour and be able to receive and transmit at broadband speeds while in motion. This will be a technological breakthrough. It will be aimed at the commercial market, not at the military market, and it will be priced very cost effectively. This will lead to many other new technology products and developments that will change the satellite market. In addition, we are developing some interesting technologies along the same line with the University of Waterloo, from where I graduated. They are designing and developing new materials for us, which we have already patented. These material could potentially revolutionize the antenna business and change the way that antennas are manufactured and produced. I think C-COM will benefit from these technologies, resulting in our stock becoming more valuable than it is today. Our stock is undervalued currently, so it has a great deal of room to grow. Therefore, those who see it as a good deal, may want to jump on the bandwagon and buy some shares. They will also get dividends, which at 4.5% are better than putting your money in a bank.