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Interview
conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published –
January 7, 2011
CEOCFO: Mr. Anderson,
what was the original vision for The LGL Group, and what is the vision
today?
Mr.
Anderson:
The original vision of The LGL Group was to become a leading supplier into
the frequency control and timing device markets that services major OEMs
around the world. It was our challenge in 2009 to turn the company during
the recession into a viable, financially robust enterprise that can grow
with our blue-chip customers. With a great deal of effort and modest market
recovery, the management team successfully met that challenge with strong
results in 2010.
We have returned to robust
growth and strong profitability, and have greatly improved our customer
service. In addition, we have launched two new technical platforms that were
well received in the market. Again, 2010 has been a wonderful turn-around
year for the LGL Group.
CEOCFO:
What are you actually providing?
Mr.
Anderson:
We provide what are called frequency control products – “smart” devices that
are used in electronic systems to help synchronize communications. These
types of components are found in both low-end applications like cell phones,
telephone handsets or PDAs. However, our products are highly-engineered and
would more typically be found in the backbone communications infrastructure
or in high reliability applications. Demand for our products is driven by
the need for more bandwidth; when more bandwidth is needed for consumer and
commercial level products, it has to go through our types of devices to
coordinate and control that sort of inter-connectivity and higher level of
information flow.
CEOCFO:
Why are companies choosing LGL products?
Mr.
Anderson:
First, we are a critical supplier to a number of major OEMs in both the
telecommunications and military sectors. For example, our blue-chip customer
base includes telecommunications infrastructure companies like Cisco and
Ericsson, among others, and military communications companies like Harris RF
Communications and Rockwell Collins. We are often a preferred supplier
because of our long-standing customer relationships, and because of our
ability to provide a broad product offering.
Second, customers choose LGL
products because we are known for our ability to build high reliability
precision devices. As more frequencies and greater amounts of information
are moved through the communication networks, the need for more precise
devices that are extremely reliable grows. Customers come to us because of
our ability to engineer precision devices and provide solutions to their
technical roadblocks.
CEOCFO:
Are these customized products or do you maintain an inventory of a certain
type of products?
Mr.
Anderson:
Our products are engineered for specific applications for our
major OEM customers. We enable their systems. We ourselves are not market
makers, but we do provide highly-engineered components that are critical to
the proper functioning of these systems.
CEOCFO:
What is the competitive landscape?
Mr.
Anderson:
There is a fairly large number of competitors in this industry, but it is
fragmented in terms of size – some smaller, some larger, some the same size.
There are several large Japanese national
companies that participate across the whole field of the frequency control
market, companies like Epson-Toyocom, and Kyocera. All three of those are
large market players and provide both consumer-level devices as well as
precision instrumentation. In the North American market, one of our largest
competitors is Vectron International, which is a division of Dover
Corporation. Vectron is bigger than us, but head-to-head we often have an
edge. Then there are a number of smaller players. Frankly, we are probably
one of the larger suppliers in the precision device sector of the North
American market.
CEOCFO:
How did you take up that challenge; how did you accomplish the increase in
revenue?
Mr. Anderson: Frankly, we had a couple
of new product offerings. I mentioned those earlier and they were two new
leading edge technology programs. One is a very precise timing device used
in a positioning application for a military program. The other one is an
advanced filtering technology used in the public safety sector. In both
cases, OEM customers approached us with a problem: they needed a frequency
control solution to enable some technology for new platforms they were
developing. Our engineering and operational teams went to work on that and
we successfully brought those products to market, which provided substantial
revenue and helped us gain market share in 2010.
CEOCFO:
Do you typically develop new products based on customer requests or are you
working on innovative products as well on the other end?
Mr.
Anderson:
Our product development is primarily driven by our customer needs. We engage
them on product and technology roadmaps, and oftentimes there has been an
overlap between what we see as leading-edge technology and their needs. From
that point, they approach us, and we approach them saying that we have the
potential for that technology and essentially we work together to develop
it.
CEOCFO:
Are there particular trends in the industry?
Mr.
Anderson:
Everything is going to higher frequency with more precise communication and
that is all about providing more bandwidth, so that is the trend. It does
not really matter if it is in a commercial, military or avionics
applications.
CEOCFO:
Where do you manufacture?
Mr.
Anderson:
We have a fairly broad and worldwide platform to work from. We have U.S.
manufacturing locations in Orlando, Florida, which is also has our largest
engineering center; and a small manufacturing facility and engineering
center in South Dakota. We have our own manufacturing facility in New Delhi,
India, and we use contract factories in Asia as well to produce some of our
products. The relationships with our contract factories are long-standing
relationships, some of which we have had for more than twenty years.
CEOCFO:
You opened a Shanghai office recently; what is the geographic reach for your
customers?
Mr.
Anderson:
We need to be worldwide, because many of our customers are. The Asian market
is certainly blooming. The Shanghai sales office has applications, engineers
and sales engineers who service the OEMs and the Asian market. As those OEMs
are building equipment, they need timing devices and we approach them. In
addition, our existing customer base has established sales, research,
engineering and manufacturing operations in mainland China: some in
Shanghai, some in Beijing, and other places
CEOCFO:
Do you do much investor outreach?
Mr.
Anderson:
We are now getting that agenda in full gear. It has been a big turnaround
story in 2010. We have had revenue growth, we have had new products, good
profits, and as we look to grow the platform and go forward, we recognize
the need to put more focus on investor relations and have more contact with
our investors. Therefore, we are beginning to take steps in that direction.
We are considering speaking at some conferences, and we have certainly
reached out, gotten to know some of our primary investors more closely and
shared the vision of the company with them. Last week, we had our annual
stockholder meeting in New York City, which was well attended. We had the
chance to answer a wide number of questions from the audience. Many
investors showed up and many of them brought very good questions.
CEOCFO:
Is the investment community in general starting to pay attention?
Mr.
Anderson:
I believe so, judging by the number of phone calls and contacts. Certainly
we are in the micro-cap space within the tech market, and with the company’s
performance the stock price has followed. As a result, it has caught the eye
of a number of investors, and investment banking firms and analysts. We are
beginning to do a number of short interviews with those folks to help them
come along in the LGL story and understand the real strengths of the
platform.
CEOCFO:
What should we expect in the next year or so from The LGL Group?
Mr.
Anderson:
Growth. Now that the company has turned around, returned to profitability,
gotten its base platform functioning, and introduced some new products, we
intend to invest in the platform and fuel more growth. We have a great
technical base, and we have a wide number of very solid customers, so we
would like to bring them more products. In addition, we are looking at a
number of strategic options for The LGL platform. Certainly, we are going to
reinvest organically into the business because we think we can extend our
lines with some organic engineering investments. We will take a look at some
strategic items as well, things like joint ventures or mergers and
acquisitions that we feel have the synergy and the growing potential that we
have achieved this year to really keep the growth curve moving ahead.
CEOCFO:
You mentioned earlier that the market was fragmented; are there a number of
small players that you might want to acquire?
Mr.
Anderson:
The answer to that is yes. There are a number of frequency control companies
that are our size, or smaller, that lend themselves to some consolidation in
the industry. That is certainly an opportunistic view from our perspective.
If we think there are good candidates, and we do, then that will certainly
be under consideration.
CEOCFO:
In closing, why should potential investors pick The LGL Group out of the
crowd?
Mr.
Anderson:
Wonderful platform, good technology, strong brand in the marketplace, solid
cash-generating business and positioned for continued growth.
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