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Historically Focused On The Naval Market, OSI
Geospatial Has Expanded Into The Land And Air Markets And Is Leveraging
Their Military Technology To Move Into The Homeland Security Market
Aerospace and Defense Technology
Geospatial Systems
(OSI-TSX, OSIIF-OTC: BB)
OSI Geospatial Inc.
300-340 March Road
Ottawa ON Canada K2K 2E4
Phone: 613-287-0462
Kenneth H. Kirkpatrick
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published – December 7, 2007
BIO:
Kenneth
Kirkpatrick
President and Chief Executive Officer
Ken Kirkpatrick is President and CEO of OSI Geospatial and has been since
November 2005. Ken joined OSI Geospatial in May 2001 and held the position
of Chief Operating Officer. He has been instrumental in the development and
execution of the company’s growth strategy and has grown OSI Geospatial
through the expansion of the company’s product offering and customer base
and through strategic acquisitions. Prior to OSI Geospatial, Ken held the
position of Chief Operating Officer of Triathlon Limited, a mapping and
imagery subsidiary of MacDonald, Dettwiller and Associates Ltd., where he
played a pivotal role in Triathlon’s aggressive growth. Prior to joining
Triathlon, Ken was Vice President, International Operations of Geotrain
Corporation, at the time the world’s largest independent training
organization for Cisco Systems. Ken has also held several management
positions at MacDonald, Dettwiller and Associates, an information products
and services company.
Company Profile:
OSI
Geospatial Inc. delivers advanced geospatial systems and software that
enable shared real-time situational awareness for military, safety and
security applications. Our products and services enable our customers to
integrate and visualize live data with any combination of sensor data,
imagery, maps and charts. This capability provides our customers with
enhanced operational performance, safety and security through shared
real-time situational awareness. OSI Geospatial systems and software are in
use by military, government and commercial customers around the world. The
company is publicly traded on the Toronto Stock Exchange (OSI) and the Over
the Counter Bulletin Board (OSIIF).
CEOCFO: Mr. Kirkpatrick, how has OSI
Geospatial changed under your leadership?
Mr.
Kirkpatrick: “Over the last
two years, the company has shifted its focus to expand our product offering
into the military and security market space. Historically, we have primarily
focused on the naval market but we are now expanding into the military land
and air and security markets.”
CEOCFO:
Why the shift in focus?
Mr.
Kirkpatrick: “With our
objective to grow the company and expand our business, we have concluded
that we have technologies and capabilities that are applicable outside of
the naval market.”
CEOCFO:
How has that been working for you?
Mr.
Kirkpatrick: “It has been
working well. We have made tremendous progress in developing our army base
business having secured in the range of $20 million of business with the US
army in the last two years from the position of having no contracts. We have
been, in the last year, expanding aggressively into the security market,
with the US Department of Homeland Security. We have established a new
business unit called Layered Security Solutions. That business, which has
ramped up this year, has had some great success and has won a contract with
the Department of Homeland Security to do risk assessment work. We have also
won our first major port region assessment contract on the security side.
The business has grown in the last few years from $11 million in revenues to
this year we will generate revenues greater than $26 million.”
CEOCFO:
How would you describe the competitive landscape?
Mr.
Kirkpatrick: “It is very
much market driven and market dependent. If you look at some of our niche
market sectors, for example, our warship navigation market sector there are
two or three key competitors that we see in that space. One is Sperry Marine
owned by Northrop Grumman based out of the US and the second is a company
owned by Smith Industries in the UK called Calvin Hughes. They are the
companies that we would consider our main competition. However, in the last
six open procurements, we have won all six contracts.”
CEOCFO:
What is the expertise that enables you to do that?
Mr.
Kirkpatrick: “In the naval
navigation market, our success has primarily been driven by our decision six
years ago to focus all of our attention on becoming a leader in the naval
navigation market, while the majority of our competitors were focused on the
commercial shipping navigation market. We have developed world-leading
technology and we have leveraged this to develop the largest customer base
in this market. We own and control the intellectual property that supports
our leadership position and we are leveraging this to further expand our
customer base.”
CEOCFO:
What is your revenue model?
Mr.
Kirkpatrick: “In that
particular market, the navies of the world have been navigating from paper
charts for over 200 years. Our digital navigation technology is completely
changing how they do their job and ultimately enhancing their operational
performance. The naval market has embraced this technology and government
organizations have established clear standards for how this technology must
be utilized. It is just a matter of when and not if anymore. This is an
emerging market and we are the leader. We have eight navies that are
currently using and building their support infrastructure around our
technology. Approximately 20% of the market today has committed to this
technology, so we still see significant growth potential in this market
sector.”
CEOCFO:
What about the other spaces in the landscape?
Mr.
Kirkpatrick: “Our
leadership position in the naval navigation market has opened the doors to
what we consider adjacent markets. Now that our technology is in use, the
operators start to identify new applications for the use our technology in
meeting other operational requirements. Therefore, we are beginning to see
new markets develop where we are able to add functionality to our core
technology to meet different operational requirements. An example is the $29
million UK Royal Navy contract we announced in December 2006. Under this
contract, we will provide Warship Automatic Identification Systems for the
entire U.K. navy fleet. This is a command and control system that is located
in the operations room that uses AIS data to support coastal, harbor and
port security operations. Our system is used to display and analyze AIS
information in support of making good decisions on deploying their assets to
mitigate and respond to potential threats. This provides our company the
opportunity to develop an adjacent market that has potential to be
significant larger than our warship navigation market.”
We are also diversifying into markets that are not naval focused. We are
expanding into the army command and control market and have developed a
Small Unit Situation Awareness system for land-based operations. This
technology is currently in use in Afghanistan and Iraq. One of the key
capabilities of this technology is to provide soldiers that are operating in
extreme environments, such as caves and urban centers that limit the use of
GPS for location positioning; the ability to navigate accurately in GPS
denied environments. We signed a $4 million contract late last year with the
US Army to provide this technology. We see hand-held demountable soldier
type systems actually being a new and growing market for the company. That
is another one of our technologies. The other thing we do is create
situational awareness training products for land, air, and naval
applications. It can support and train people how to use our technology but
also how to execute their operations within a specific environment. Our
systems help to identify exactly where you are, what is around you and to
determine the importance of what is around you. Through that process, our
training systems and capability allow them to use that environment,
understand the situation they are in and plan there missions and support
training on mission execution.”
CEOCFO:
What is your financial picture today?
Mr.
Kirkpatrick: “From a
capital prospective, we continue to make considerable investment in growing
our business aggressively. We have sufficient resources at this point to
execute our organic plan. As we look to grow through acquisition then there
would be the need to bring additional capital to support more aggressive
growth strategy.”
CEOCFO:
How do you grow the company aside from acquisitions?
Mr. Kirkpatrick: “The strategy behind
our growth is market access, specifically the US defense and security
market. The US market is a high priority for us and over the last two years,
we have been very successful in establishing our US base: 60% of our
employee base is now in the US and more than 60% of our revenues come out of
the US. We have offices in Philadelphia, San Diego, Orlando, Norfolk and
Salt Lake City. We have been very successful in penetrating that market and
establishing our operations and showing significant progress in growing our
company. We recently established our corporate office in Ottawa. We have
built our senior business development team here. For the first time in many
years, we are seeing the Canadian government spend more money than they have
in the last 25 years in military programs. Our presence in Ottawa will
position us to access and become a key player in some of these large
programs. In the U.K. we see very similar opportunities and we continue to
make excellent progress in developing that market.”
CEOCFO:
Is the investment community paying attention?
Mr.
Kirkpatrick: “No. Our size
and scale as a publicly traded company comes with some challenges; one is
the investment that we have to make in being a publicly traded company
limits the investment we can put into the business. That is one factor for
us, being very small. The costs of being public are very high and that makes
it challenging to balance the investment that we can put into growing the
business. The second factor is our size and scale: we do not show up on the
radar screen of some of the investors that could actually make a difference
in bringing our stock price to where the analysts assess as being a fair
value for our company. So at this point, I believe, we are significantly
undervalued primarily for those two key reasons.”
CEOCFO:
Why should potential investors be interested?
Mr.
Kirkpatrick: “If you look
at the growth potential of the company, we are significantly under valued
and this presents a great opportunity for investors. Secondly, there is the
positioning of the company over the last two years and the progress we have
made in opening some of the largest markets in the world that have not been
available to us in the past. In addition, investors should consider that our
technology leadership position in our market sectors are opening the doors
to adjacent markets that are, in some cases, much larger. We also made a
move into the security market, which is new to our company and the power of
being able to leverage our military technology to repackage and reposition
us in the security market. All those things together in my view have
positioned us to grow this company very aggressively. If there is a time to
get into this company, this is it.”
CEOCFO:
In closing, what might people overlook that should be acknowledged?
Mr. Kirkpatrick: “The key thing
is our core intellectual property, our technology and the progress we have
made at becoming the best at something, maintaining the control of that
technology and the power of that model. A good example is the UK, which has
standardized on our Warship Navigation technology. It will be deployed on 77
of their major combatants. They are building their entire infrastructure
around our product. They are building training facilities, developing safety
cases; they spend in the range of three to five times the amount of money on
the training and infrastructure around our system. Therefore, for anything
that they do in the future, building new destroyers, new aircraft carriers
and submarines; we have become the standard. There are three programs in the
UK right now: a new aircraft carrier program, a new destroyer program, and a
new nuclear submarine program. In all three of those programs, the tender
process requires that the major defense contractors use of our technology
and, most importantly, integrate our technology into theirs. This creates a
massive sales channel for our company. They do not have the choice of using
someone else’s product or their own in some cases; it is a requirement that
they use ours. Once you are integrated into their systems, you have
companies like Raytheon that are selling their Integrated Bridge systems of
which our technology is a part, around the world, so it creates a powerful
sales channel. Therefore, our market leadership position opens the door to
leverage those relationships to expand our company.
These types of contract announcements are something the market should pay
attention to because our strategy is finally starting to take form. As we
start announcing these types of contracts, it is much more than the
contracts themselves that we are signing; it is creating a relationship: to
be actually integrated into a very large company’s technology that they are
marketing and selling around the world. We need to focus on the markets that
we can cover and manage effectively, but this opens the door to many other
markets. That is the key. Another key area is the market to be aware and
watch as we transition our military focused technology into the security
space. We implemented our strategy to build our security division, Layered
Security Systems, in Norfolk, Virginia and our group is focused on doing
what they call integrated vulnerability assessment for critical
infrastructure protection. This is our entry to move into the security space
from a technology perspective very aggressively. We are going to continue to
announce contracts in that space but I think it is important to watch the
selling of technology into areas such as port security.”
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