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Globecomm Systems Vision Is To Keep
Reinventing The Company To Supply Innovative Products And Services That Have
IP And Satellite Components
Technology
(GCOM-NASDAQ)
Globecomm Systems Inc.
45 Oser Avenue
Hauppauge, NY 11788
Phone: 631-231-9800
David E. Hershberg
Founder, Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - September 14, 2007
BIO:
David E. Hershberg
Founder, Chairman and CEO
David E. Hershberg founded Globecomm Systems Inc. in 1994 and has served as
Chief Executive Officer and Chairman of the Board of Directors since its
inception.
Mr. Hershberg has been a pioneer in satellite
communications since 1959 where he helped develop the ground stations for
the first active satellite systems at ITT. He has been active in the
satellite communications field since then. From 1976 to 1994, Mr. Hershberg
was the President of Satellite Transmission Systems, Inc., (STS) a provider
of satellite ground segment systems and networks, which he founded and which
became a subsidiary of California Microwave, Inc. Mr. Hershberg is a
Director of Primus Telecommunications Group, Inc., a telecommunications
company providing long distance services.
In 1998, Mr. Hershberg was given the award of
Long Island Entrepreneur of the Year for Emerging Technology and in 2006 he
was named Long Island Business Man of the Year by the Long Island Capital
Alliance.
He holds a B.S.E.E. from Rensselaer Polytechnic
Institute, an M.S.E.E. from Columbia University and an M.S. in Management
Science from Stevens Institute of Technology. He is a member of the Society
of Satellite Professionals Hall of Fame and has numerous patents in the
satellite communications field.
Company Profile:
Globecomm Systems Inc. provides end-to-end value-added satellite-based
communication products, services and solutions by leveraging its core
satellite ground segment systems and network capabilities, with its
satellite communication services capabilities. The products and services
Globecomm offers include pre-engineered systems, systems design and
integration services, managed network services and life cycle support
services. Globecomm's customers include communications service providers,
commercial enterprises, broadcast and other media and content providers and
government and government-related entities.
Based in Hauppauge, New York, Globecomm Systems also maintains offices in
Washington, DC, Hong Kong, the United Kingdom, the United Arab Emirates and
Afghanistan.
CEOCFO: Mr. Hershberg, what was your vision
when you started Globecomm and how has that transpired?
Mr. Hershberg:
“When we started Globecomm back in 1994, we were suppliers of satellite
communications earth stations. These earth stations were provided mainly to
service providers, common carriers, people that needed networks. It was a
relatively small universe of customers that we had and a relatively small
universe of products that we had. As time went on, we concluded that
satellite earth stations would not be a major business going forward mainly
because fiber was coming in at a lot of locations and satellites were
getting a smaller part of the equation. Satellites were getting bigger and
the satellite terminals were getting smaller. We had to go and reinvent
ourselves on a regular basis and we have been doing so ever since.
Therefore, now we are in a lot of different projects; we build broadcast
centers for IP television, we have a service company that provides
direct-to-home service, provides video services, voice over IP and data
services, we do logistic support for our customers. We build complete
networks for customers that include a project that we finished in
Afghanistan for our nationwide network there. We have a Voice over IP
service we provide. We work on cellular back haul, so we do a lot of
different things rather than just provide satellite earth stations. Our
vision is to keep reinventing ourselves and supplying products and networks
that has some sort of satellite component in them. Our advantage in
providing them is that we are experts in IP via satellite. IP via satellite
is becoming the method of choice of delivering every kind of media and
telecommunications services by satellite.”
CEOCFO:
Why is that?
Mr. Hershberg:
“Because IP is a very universal protocol that has been embraced by
everybody. If you can envision different government agencies in different
parts of the military that want to talk to one another, you now have a
single transparent protocol that allows them to do that. Also on a single
platform, you could deliver a voice over the internet and TV without having
different types of technologies to do it. Therefore, it makes our life a lot
easier to try to do a lot of different things using this single platform. It
is also the choice of the internet and internet is getting more important
delivering all types of media and communications and networking virtual
networking. IP is a very important part of the future of telecommunications.
I think nowadays that people are starting to realize that and you can see it
from things like IP TV where the telephone companies are going to compete
with the cable companies by delivering television to the home on the same
platform that they deliver internet.”
CEOCFO:
So you are on the right spot to take advantage of the trend!
Mr. Hershberg:
“We think so mainly because in 1996 we started an internet company to
deliver internet to the developing companies of the world. We felt this was
a very important project and one that was needed. As a result, we have been
doing this for over eleven years, so we have a lot of intellectual property
that helps us deliver very efficiently. I think the world now is
understanding how powerful internet protocol and specifically internet
protocol by satellite is. Yes, we are very well positioned to take advantage
of that.”
CEOCFO:
How much of your business is foreign and how much is government?
Mr. Hershberg: “In early 2000, we were
probably 70 to 75% foreign. However, we are now about 70% US and about 30%
foreign. Our US business is mainly US government.”
CEOCFO:
Please give us an example of what you are doing for the US government.
Mr. Hershberg:
“We build satellite earth stations for different government agencies,
different civilian portions of the government. We build tactical terminals
that provide broadband services in the field for the GIs. We build mobile
terminals that are very rugged and allows military to go anywhere with these
terminals and be able to stop and get broadband connections anywhere. We
also provide services for the government; we have a network operations
center here where we provide network management for people like the FAA, the
National Weather Service, and different government agencies.”
CEOCFO:
When you do a project, do you have to send your workforce there, or what is
a typical project?
Mr. Hershberg:
“We do - as part of our vision and planning and being successful we build
systems and networks for people but then also maintain and operate it for
them. Afghanistan is a good example; we won a contract from World Bank to
build a network that connected 31 provincial capitals to Kabul and connected
all the ministries for the government. We won another contract funded by
USAID to build a V-Sat network for up to 350 locations for small villages
that provide voice and internet services. We also as part of that won a
contract to provide maintenance services and operational service for a
couple of years; because when we got to Afghanistan, there were very few
engineers there. Under the previous regime, there were no real engineering
schools; they did not graduate any engineers, just mainly religious
students. Part of our job over there was to train the locals to take over
for us in these networks when we leave. We have about nine people over there
and engineers from Turkey, Philippines, India, and more importantly about
120 local Afghan engineers or technicians that had graduated from a two-year
school there. We are training them to take over the operation and
maintenance of the network when we finish our job in April of 2008. In
addition to building the networks for them, we got contracts later to supply
services including satellite space segment, two different transponders,
Voice over IP services and internet connectivity. We connect them to the
rest of the world through a teleport in Hong Kong.”
CEOCFO:
You are really working on a lot of different levels.
Mr. Hershberg:
“That is the whole point, we do not want to just build a bunch of equipment,
build a bunch of systems and then leave because what happens when you do
that is you have to go out and get another contract to replace it if you
want to keep growing and we certainly want to keep growing. If we can get a
continuing contract to provide service later on, it is very important for
us.”
CEOCFO:
What is the financial picture of the company?
Mr. Hershberg:
“We have done well. We have been profitable for the last three years and
have been growing at about 22% on the top line and about 65% on the bottom
line. We recently gave guidance to the street for fiscal 2008 (starting July
1st 2007) of about $190 to $200 million in revenue at about .75
cents a share.”
CEOCFO; Are you limited in the number of
projects that you can take on by your staff or are you able to expand as
needed?Mr.
Hershberg: “I have been
doing this for about forty-eight years and we always have been able to
expand our capability as the jobs have come in. We just recently leased a
second building here. We have a 122,000 square foot building that we are in
now. We just leased another 24,000 square feet across our parking lot to
give us more capability in the company. Typically over the years I found
that if we could book the jobs and win the jobs we could do them.”
CEOCFO:
What is ahead?
Mr. Hershberg:
“We have to keep growing as a public company. We just did our first
acquisition in May; we acquired a property in Maryland. Our goal is to
increase our service revenue. Last year, which ended June 30th,
we did about $30 million in service revenue, this year we hope to do close
to $60 million with our acquisition and we would like to get that up to $100
million. The reason being is that the service business is a lot more
predictable. A lot more of our contracts are five-year contracts where our
customers sign up for five years and if we can keep doing a good job, even
the one or two-year contracts, they usually re-up on them. Therefore, we can
have a lot of predictability going forward and there is a lot more smoothing
of our business as far as revenue goes. We hope to keep growing in that
business and the infrastructure business. One of our goals that we are
looking for is to increase our service business.
The second one is we want to do a lot more government business; we have
grown from 10% to about 50% of our business US government and we are going
to try to continue to increase that. Two other areas that we are working on
is our IP TV; we recently won a couple of contracts to build in the $20
million range, IP broadcast centers, and we think that is going to be a big
future in that area. We also have a very good product for delivering
cellular to small rural areas that is very efficient. It is an IP network,
which won the GSM Association Network of The Year Award a few years ago. We
are looking to grow in the cellular area which we think is going to be a
major growth area; it is a small to medium sized properties because most of
the two-and-a-half billion subscribers now really are in the cities and the
next growth area is going to be in the smaller cities. We have a very good
product for that. We also feel that the IP TV business is going to grow
substantially. We know there is a requirement in the military for increased
connectivity worldwide. Those are three areas we are looking to for growth.”
CEOCFO:
What is the competitive landscape and why are people choosing Globecomm?
Mr. Hershberg:
“The competitive landscape is varied depending on which product line and
which customers we deal with. In the government area, there are a number of
very large companies that are very good and we compete with occasionally,
and there are a few small ones. It is a difficult environment. The
government has what they call indefinite delivery, indefinite quantity
contracts, they call them basic ordering agreements. One thing we have been
able to do over the last two years is get picked for five of those so that
we are in the deal stream along with these other companies. It is a tough
environment in the government area. In the TV area there are some foreign
manufacturers and integrators that we compete with, the largest being Thales
in France. There are also a number in the US. In the cellular area, there
are many cellular providers. Our advantage is we do have a very good
capability in the IP by satellite that we do not think the other people
have. The two broadcast centers we are doing are based on work we have been
doing on IP TV and other new technologies for six to eight years, so when it
finally came and people were starting to use IP TV we had a definite
advantage and we won those contracts based on the technology. We also had
developed this cellular system about 2002-2003, and we just won a contract
in Alaska for 200 villages, about a $21 million contract to provide service
there and we won it based on the fact that we got a working system that is
very efficient for small properties and small villages. We also came up with
a number of products for the military and the government and these products
are tactical type terminals. They are what they call COTS (commercial off
the shelf), however I think we are unique in the fact that we take these
commercial products and we subject it to full military spec environmental
testing, which is unusual and I think we are the only people that do that. I
think we have some competitive advantages to what we do.”
CEOCFO:
In closing, why should potential investors be interested and what might
people miss when they first look at Globecomm?
Mr. Hershberg:
“We are a relatively small company. If there are any shortcomings now it is
that we really need to improve on our sales and marketing and get our
message out to a lot more customers, and I think there is a good opportunity
there. We have relatively small market share, almost no exposure related to
the Iraq conflict, so I think our customers in the military and the
government are different types of customers. We have a growing marketplace
obviously. We are growing our margins, our revenue, and our bottom line.
From the standpoint of the capability this company has, in our field, it is
really second to none. If you look at our performance, it has been a very
good growth scenario. We made a very good acquisition, which was our first
one. Everything up to now we have been growing internally. We are looking
for another acquisition to keep growing in the service area. I think there
is a lot of potential in the company and not just from the standpoint of how
we are running our business from a financial standpoint, but also the fact
that we have very good products. We are very efficient in how we do business
and we have three good years of growth behind us and three good years of
profitability and we expect a fourth one now. People can look at what we do,
our financial performance, and they will find something that is very
interesting. Our symbol is GCOM.”
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