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JOHN THODE - ISCO INTERNATIONAL, INC. (ISO)
CEO Interview - published 10/16/2006
JOHN THODE, President and Chief Executive Officer of ISCO International, Inc.,
received his BSEE from the University of Illinois, his MSEE from Illinois
Institute of Technology, and his Master of Management from J.L. Kellogg School
of Management at Northwestern University. He joined Motorola in 1979, and for
the next 25 years held numerous titles throughout its wireless industry
businesses, including the Wireless Network Systems Group and the CDMA Systems
Group. He has broad experiences in wireless network infrastructure and handsets.
He has led large product development and engineering teams. He has also
negotiated substantial supplier and customer contracts and structured numerous
strategic relationships. Most recently he served as Vice President and General
Manager, 3G Consumer Products, Personal Communications Sector, where he created
Motorola's UMTS product lines. Before that, he was Senior Director and General
Manager, Wireless Access Systems Division.
SECTOR WIRELESS
TWST: Would you give us a brief historical sketch of the company and a picture
of the things you are doing at the present time?
Mr. Thode: The Company has historically been in the RF infrastructure
aftermarket segment and has worked on a number of core technologies, including
superconducting and in-band interference management. Today, we are really
excelling in and focusing on customized aftermarket infrastructure RF
components, subsystems, and systems. We also have a major strategic investment
in in-band interference products, an area that allows us significant
differentiation.
TWST: What are your principal products?
Mr. Thode: We have a whole line of RF aftermarket products, including duplexers,
filters, and active and passive components of all sorts, including tower mounted
and ground mounted amps in the system area and, in the subsystem area, any
number of filters and filtering components. Our core flagship product, and the
focus of much of our investment these days, is our adaptive in-band interference
management system. Today, we have developed our third-generation platform and
have just started shipping it in some quantity. It is called the digital ANF.
TWST: What makes your flagship products distinctive within the competitive
landscape?
Mr. Thode: Probably the most important thing is that we have some good
intellectual property protection around it. Probably as important as our
intellectual property protection, we have developed and shipped commercial
product for a number of years now. The current focus of our strategy is that we
can now take this portfolio and significantly cost reduce it, so that rather
than being a solution of last resort, if you will, it now becomes cost effective
to be used in a ubiquitous deployment to solve problems before they actually
occur. This is quite critical in our business, particularly as the industry
continues to consolidate and more broadband services begin to get deployed and
adopted by the consumer. The bottom line is that interference becomes a more
prolific problem and one that is very difficult to deal with on a planning basis
as opposed to being able to real-time adaptively manage it through software
control.
TWST: What are the other key elements in your strategy as you look out over the
next couple of years?
Mr. Thode: From a financial perspective, as a public company, I think that it's
very important that we continue to focus on that aspect - the critical key here
is to continue to improve our performance quarter over quarter. And as we
continue to do that, we'll have the resources to continue to invest in our
strategy and ultimately become a several hundred million dollar company over the
next 18-24 months.
TWST: What is your own feeling about M&A activity as it applies to you?
Mr. Thode: I think that consolidation, just from an industry perspective, is
interesting because it presents both opportunities and challenges. From an
opportunity perspective, since there are fewer participants that aren't part of
the one or two of the top big boys, it really creates an opportunity to
differentiate for ISCO. The number one and number two players in the market are
really competing based on costs and based on volumes. When a customer comes in
and says, "I want something unique or something a little bit different," they
say, "Well, you can have anything you want as long as its hamburger and it's got
pickles and onions on it." So that creates a lot of opportunities for a small
company like ours, which is flexible and nimble and can do things relatively
quickly.
However, it also presents some challenges in terms of trying to compete head-to-
head against some of the larger companies that have the benefits and the
advantages of volume to control their cost basis. But, at the end of the day, we
like our chances.
The bottom line in terms of acquisitions, joint ventures or partnerships is that
we understand, are flexible, and open to all forms of value-added partnerships.
We continue to evaluate those on an ongoing basis to decide what makes sense.
Whether that be at a marketing level (where we have done some relationships to
address international markets), whether that be at a joint development level,
whether that be something more at a channel level, or whether that be something
more definitive, we continue to look at all of those options.
TWST: Are there any other challenges or things to worry about?
Mr. Thode: There are a lot of things to worry about. Frankly, it's always easier
to grow a business if the industry that you participate in is growing. And
that's been a little bit of an uneven success story through the beginning of
this century, for a number of related and unrelated industry reasons. But,
today, the wireless market is growing.
However, to a great extent, what's going to continue to keep the infrastructure
market growing, which is highly correlated to our business growth, is the
adoption of broadband services, driven by consumer adoption of those services,
and application development for those services. To the greatest extent, if this
can continue to move in the direction it has been doing so over the last year or
two, we feel that's a factor that would be very positive on our growth as well.
TWST: Who are some of your principal customers?
Mr. Thode: Our principal customers are the big wireless carriers. They are
principally North American based right now, but as we have announced previously,
we have several initiatives in place and have developed some distribution
agreements to address markets in Latin America, Asia, and shortly Europe as
well. We believe that there are opportunities there, but we want to address them
in a measured way to make sure that we clearly see benefits before we make huge
investments in the SG&A for those markets.
TWST: Do you give a great deal of attention to R&D?
Mr. Thode: By and large, R&D, intellectual property and our product development
is our core bread and butter. At the end of the day, the thing that makes us
novel and unique from everybody else is our ability to respond very quickly,
very adaptively, and be able to highly integrate our systems and subsystems.
These are things that the big guys can't do on a case-by-case basis. So, yes,
our R&D is the most important part of our business. In general, our overall
intellectual assets and people are the key pieces of our business.
We continue to invest here, particularly in the adaptive in-band interference
area where, by and large, to our knowledge, we are the only competitor in this
space. We have existing customers, existing products, and have aggregated know-
how over several years now that we have been able to leverage into our next-
generation products. We believe that we are a little bit ahead of the curve here
both from a competitive view certainly, and also, frankly, from a market view.
This is one of those things where the market is coming to us just when we are
getting in full stride in terms of our competitiveness. Our architecture is able
to support it on a very cost-effective basis.
TWST: Since you mentioned next-generation products, how rapid is the pace of
change?
Mr. Thode: For the industry, it changes very quickly, but with all humbleness,
we are able to move pretty fast ourselves just simply because we are a fairly
small company and we have a very good relationship with customers. We are able
to leverage this to get in early and to make changes or develop things quickly.
So, yes, it absolutely impacts our business, but to a great extent, what's
happening in the industry really serves our strength more than it serves our
weaknesses.
TWST: Looking ahead, over the next two to three years, what would be the
milestones you might pass that investors should be looking for?
Mr. Thode: I think that the most important thing, obviously, is top line growth.
We have committed to incremental top line growth quarter over quarter, with the
caveat that we obviously risk a bit of an inconsistency from industry specific
factors. Investors should continue to look for top line growth.
They should also continue to focus on our margins. If you look at our business
in terms of margins relative to any peers in our industry, we are easily at
least 1.5 or 2 times the margins of our peers. I think that's a pretty good
indication of how we focus and customize to find a differentiated niche for
ourselves. Clearly, as I mentioned a moment ago, we continue to invest in our
in-band interference strategy and I think that's another bright spot for us,
because it means that we are not - as the saying goes - "Robbing Peter to pay
Paul" in terms of our long-term future potential.
TWST: What would you expect the company to look like in about three years in a
broad sort of way?
Mr. Thode: In a very broad way, we feel that our software-based adaptive in-band
interference management solutions (which is really a single strategy that we're
evolving platforms off of) will principally be our core business in two to three
years. Fundamentally, the risk side of any business venture really comes from
technology risk, implementation risk, market risk, personnel risk, and financial
risk. Out of those five things, we believe that we have a pretty good handle on
all of them simply because we are an ongoing entity. We have been improving our
financials. We have the right people in place. And just simply from our
strategic perspective, we have more than a set of slides; we have hundreds of
units out in the field from which we're gaining collective know-how and building
our reputation with our customers.
Frankly, the industry complexity is creating more of a need for our solution. As
that need increases and as our platform costs decrease, it's going to be
something that we believe to be a very successful and a highly differentiated
position relative to our other peers in our current segment.
TWST: Would you tell us your own background and expertise, as well at that of
two or three of your key colleagues?
Mr. Thode: I have been in the wireless industry for almost 30 years now. I have
spent a good deal of my career at Motorola, where I had a number of operational
roles and ran a number of businesses. In fact, I was in every single business
that Motorola had at one point or another, including the semiconductor, handset,
infrastructure, and fixed-access businesses. I came to ISCO International about
a year and three quarters ago; it will be my second-year anniversary here just
as the year wraps up. I came here because I felt that there was a lot of good
technology and strong people here, and just a couple of things that needed to be
put in place in terms of strategy and key resources in order to significantly
improve the performance of the company, which by the way, I think we have done a
pretty good job at.
In 2004, we were $2 million plus in sales and burned up a bunch of cash. Last
year, we were $10.3 million or so in sales and nearly broke even. This year,
while we again don't give too much guidance, we had a very good first half of
the year and have made some announcements on the third quarter, which just
continues to improve. I think that people will be pleased when we come out with
the final numbers.
Beyond that, we have recruited a couple of very key people and retained a couple
of very key people. Our CTO, Amr Abdelmonem, and our CFO, Frank Cesario, are
outstanding resources and contributors to the company and bring the historical
perspective. They bring a very strong understanding of the industry and our
position relative to some of our peers.
There are a couple of new adds, including Neal Campbell, who is our EVP of
Marketing and a key resource, working on our adaptive in-band interference
management strategy and implementation, as well as Steve Wetterling, who just
recently joined the company two or three quarters ago, in the role of EVP of
Global Sales. He has been doing absolutely a bang-up job. Anybody who was able
to come to our annual meeting or was able meet some of these folks in some of
the forums we have had over the last couple of quarters would have been quite
impressed with these individuals.
TWST: You went from $2 million to $10 million in two years. Among the several
things you've talked about, what would you say was the single most important
reason for that growth?
Mr. Thode: It's really $2 million to $10 million in one year. The most important
reason for that growth is recognizing that we need to be customer focused and
not technology focused. In other words, you have to make sure the horse is
leading the cart, not the reverse. As we went out and talked to all of our
customers and listened to what their needs were and figured out how to match our
technology to their needs, it became a very synergistic process and created a
lot of opportunities for us. I think that was principally the most important
thing we did.
TWST: What occupies your own attention most on a day-by-day basis?
Mr. Thode: Anybody in my role knows that it's important to continue to focus on
the numbers all the time, but the most important thing that the CEO can do is
really worry about customers and worry about people. While I like to think of
myself as being fairly talented, the people who work in this company are far
more talented than I, and it's important to make sure that I am setting the
vision. I set the vision, and then I want to make sure that I get the best
people and get them the tools that they need to do their jobs. Then I get the
heck out of the way, and that's kind of the way I view my role.
TWST: Do you see any need to improve the company's capital structure?
Mr. Thode: We have made some improvements in that area here. We have done some
re-capitalization in the last year or so. From a cash flow capital perspective,
I think we are in a pretty good position where we are at right now. Certainly
from an investor viewpoint, yes, we continue to look to get more interest in the
company. While we certainly feel satisfied with our valuation relative to our
peers, clearly, I would be less than frank if I didn't say that we are somewhat
disappointed in our valuation relative to our improvement in performance over
the last couple of years. But, ultimately, we understand that all of those types
of things work themselves out as long as we continue to do what we are supposed
to do, which is continuing to improve our performance on a sequential basis.
TWST: Are you very active regarding investor relations?
Mr. Thode: We try and do what we can. You can always do more, but like
everything else in a small company, the number one thing our investors expect is
improving financials and continuing to grow the company - essentially growing
top and bottom line. To do that, you need to be hawkish that every dollar you
spend is going to value. So we are active in those areas, but we want to make
sure that we are doing it in the right way and really getting the right message
out at the right time.
TWST: What would be the two or three best reasons for the long-term investor to
look closely at ISCO?
Mr. Thode: Number one, we have demonstrated, by any measure relative to our
peers, that we can excel in an industry that there are others struggling in,
whether that's from top line growth, whether that's from a gross margin
perspective, or whether that's from a strategy perspective. So I would look at
us from that view.
The second view is in terms of customers. We have good customers. We are
continuing to grow our customer base. And we continue to improve our brand. I
think that has borne out in the financials year-over-year. As we move through
this year, I think that it will be borne out through our results, especially as
we wrap up this year.
Probably most important, relative to our peers or relative to any company our
size (whether that's in the aftermarket space or whether that's any company our
size in telecom in general), if you carefully look at our technology and our
strategy in terms of software-based adaptive in-band interference, you'll find
that's a niche that's emerging from a "needs" view into a very large market
opportunity. We are the best at being able to leverage this and to capture that
need, just simply because of the accumulated knowledge we've built over the last
several years. All of our competitors in that space - and we can find very few,
but any that would tangentially fall close to us - are really startups that face
a whole different series of challenges versus where we are at with our business.
One last point I would emphasize is that relative to our peers, I think our
valuation has done very well the last year or two. Certainly, relative to our
performance, it hasn't uniformly been reflected in our valuation, at least from
what we can see. So take that with a grain of salt, but take it is as a matter
of fact that might present opportunities.
TWST: I believe that a few years ago, there was a patent infringement problem,
with somebody causing some trouble for you. What is the picture regarding those
things? How much do you have to worry about somebody infringing something that
you have?
Mr. Thode: With regard to IP strategy and how you use it in terms of a
competitive weapon, this company has had some history there. However, my
perspective is that we are going to grow this business because of great customer
relationships and great products. We are not going to grow the business because
we develop a lot of patents that we can go assert. Frankly, I think a good
patent portfolio is absolutely essential from a defensive perspective to make
sure we have something to defend ourselves if necessary, but at the end of the
day, what wins the day in any business is time to market - speed. Speed has
always been the critical key component and the faster you are and the faster you
are able to recognize opportunities and the faster you are able to capture those
opportunities, that's really what wins. It's great to have good intellectual
property, but it's better to have that intellectual property embodied in great
products that customers want.
TWST: Would you talk about opportunities overseas?
Mr. Thode: As I said, a lot of the same dynamics and a lot of the same
opportunities that are created here for our company, we see overseas, whether
that's industry consolidation, whether that's a need for in-band interference
management, or whether that's the ability to be able to leverage current
invested capital infrastructure to the best of its abilities to deliver
broadband services. All of the same types of dynamics that are afoot here in the
US are afoot in other places of the world. The important part for us is to try
to make sure that we see line of sight to value for our business before we make
a ton of investments in these areas. As we've announced previously, we do have
several distributor relationships and we continue to look for partners in some
of those areas, and we continue to look for different strategies and targeted
portfolios for these areas.
TWST: Thank you. (MC)
JOHN THODE
President & CEO
ISCO International, Inc.
1001 Cambridge Drive
Elkgrove Village, IL 60007
(847) 391-9400
(847) 299-9609 FAX
www.iscointl.com
e-mail: iscoir@iscointl.com
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