** PR ** UAT Group Chairman Releases Letter to Shareholders https://www.marketwatch.com/press-release/uat-group-chairman-releases-letter-to-shareholders-2019-02-20?siteid=nbsh
February 20, 2019
Re: Umbra Applied Technologies Group, Inc.
2019 Chairman's Letter
(uatg:PK) Year 2019
Dear fellow shareholders,
Although 2018 brought with it surprises and its own set of unique challenges, it remained a significant year for strategic accomplishments for our company. Behind the scenes, we were quite busy, implementing new inventory management processes, improving product fulfillment operations, enhancing supply chain reliability and finalizing additional product designs to include the expansion of the Hygieia suite of products. All of the above-mentioned focuses added to our company's overall efficiencies and will, in time, add to the net asset value per share.
As importantly, these focuses, in conjunction with the embedded strength of our existing intellectual and physical asset portfolio, will assist in maintaining a ready posture that positions the company and its subsidiaries for sustainable, long-term growth.
A PIVITOL YEAR FOR DEVELOPMENT
From a product development and efficiency management perspective, 2018 was pivotal. In conjunction with operational streamlining, product branding management and competitive differentiation, we gained numerous substantial opportunities across our BioTech vertical markets, including product sales, enhanced technology applications and the scalability of our Hygieia brand. Additionally, we began to explore our newly developed services verticals that will support businesses interested in implementing Hygieia as a value add to their facilities and products
EVOLVING OPPORTUNITIES IN STRATEGIC PARTNERSHIPS
Within our OEM and strategic partnership vertical we expanded our services to include assistance in product development and testing for those needing assistance with further developing or enhancing their products viability. While only part of the growth equation, we anticipate favorable pick-up growth in this segment over the next 18-36 months. There are additional macro growth levers within the strategic partnerships vertical in particular; the horizontal and vertical merger and acquisition activity where there are opportunities to expand our operational footprint and bolster our technological development capabilities. UAT is poised to extend its penetration into the technology sector, not through simple incremental innovation but through enhanced partnerships and strategic acquisitions that will exponentially advance our market position.
EXPANDING OUR ROLE WITH MARKETING SERVICES
The marketing services vertical saw a major technological advance in the development of our AI and sentiment analysis platforms. Through a strategic partnership with Boost Words, a Google Premier Partner at the forefront of developing marketing innovations using complex algorithms, we have been able to leverage our existing intelligence software to perform in alternative sectors that support targeted marketing and data acquisition platforms. Through this newly formed partnership we are exploring various ways to more effectively target potential customer segments in a way that is more cost effective, more efficient and specific to the needs of each client. These programs are being developed to be predictive in nature based on monitored trends, user activities and lifestyle management patterns.
This vertical is expected to bring greater commercial opportunity over the next three to five years because of its private enterprise appeal and its potential to penetrate the security and fraud sector. This new vertical, due to its ability to identify problematic patterns, predict exploitive actions by bad actors and assess vulnerabilities will have the ability to recommend a course of action to not only mitigate online credit card and identity fraud but will do so in real-time, in advance of a potential threat.
With ever expanding capability, AI and Machine Learning techniques are being widely implemented across many major sectors of business including online marketing, payment security, data security and identity protection. These advanced software applications require large amounts of data in order to be "trained" properly, and necessitate the support by well-trained personnel to manage them.
Through this strategic partnership, we will gain insight into how these advanced computations can drive revenue and growth through a multi-channeled effort, designed to bring additional value to all sectors within the UATG suite of companies and its shareholders.
I believe as the primary director of this company that by positioning ourselves in the AI market we will be well positioned to capitalize on identified synergistic acquisitions and opportunities in the coming years.
ADAPTING TO OUR GROWTH
As the President and Chief Executive, I am acutely aware of how my decisions shape the company and its future trajectory. In determining capital deployment decisions, I have to weigh return on capital investment dollars against future and current business executions. While delays and cost over-runs are going to happen regardless of how cogent and researched a plan might be, such unexpected issues persisting carry with them the potential for damage. It is precisely in the spirit of avoiding such persistent patterns that I have begun to consolidate our operational footprint. In January of this year we begun taking the necessary actions to relocate essential personnel to Florida so as to mitigate delays that, at times, can be caused by working across multiple time-zones. It is my expectation that this streamlined chain of command will accelerate decision-making, ameliorate project management protocols and enhance oversight to deliver better products faster. This will serve to make the Company a nimbler and more competitive manufacturer and service provider while delivering top-line growth and improved shareholder value. While many of our competitors are bogged down with bureaucratic inflexibility, we will become even more adaptive and flexible which has always been one of our greatest strengths.
IDENTIFYING ERRORS AND POTENTIAL TRENDS
It is important to recognize that retailing has become more challenging with segment providers such as Amazon, QVC Group and Walmart constantly evolving and vying for increased segment share capture. E-commerce is an ever-expanding portion of this challenge with some retailers adapting and some not. Slow-to-respond traditional retailers that over-expanded in previous years, failing to identifying the growing e-commerce market segment, are now attempting to course correct their bloated and physical location heavy business model to one that is more reliant on e-commerce. This is why you see so many retailers consolidating their portfolio of store fronts and leaving existing retail locations poorly stocked with inventory. Their focus is migrating to e-commerce. This is supported by strong growth earnings reported from ecommerce giants such as Amazon's Q3 & Q4 2018, Walmart's strategic investment into its online sales presence that resulted in record earnings, and a decline in retail sales data across the same period.
UAT correctly identified this trend and as such we have not adopted a physical retail location business model, deciding instead to invest in fulfilment and inventory management to support our on-line first corporate model.
I do not deny that for some well-established retailers a high-quality core portfolio will always retain a benefit to its business model. U.S. Gateway cities such as New York, Chicago, San Francisco, Washington D.C. and Boston offer premium brands an opportunity for flag ship store fronts. Dense live/work/play locations on North Michigan Avenue in Chicago, Tribeca in New York City or Geary Boulevard in San Francisco that present an opportunity to enhance a shopper's connection to a retailer also bring increased capital expenditures and little advantage for a retailer such as UAT.
GROWTH IN 2019 AND BEYOND
Looking ahead, we see strong growth opportunities through strategic acquisitions and investment in expanding the company's human capital interest. Currently, the company is evaluating several M&A opportunities while evaluating locations to house relocated employees as well as our expanding manufacturing and fulfilment operations. These strategies will not only expand our operational capabilities but will bring embedded growth and value-creation opportunities. Over the next five years, the NOI from these executables is projected to increase our market cap incrementally, delivering a favorable compounded annual growth rate that will support this company's business model
The properties/assets we are currently targeting are operationally independent requiring little support, geographically diverse, expand our existing foot-print, maintain existing revenue streams, enhance existing technological capabilities, add talented new team members and increase our core portfolio's downside protection through strong growth.
UAT GROUP BUSINESS MODEL
UAT Groups' structure is designed to pursue and exploit valuable propositions that compliment what will eventually be a suite of companies. Over the next five years UAT Groups' cumulative pre-tax earnings (including investment profits) is expected to grow based on the combination of deliverable products and services as well as its acquisitions.
UAT Group is poised to be a constellation of disparate businesses brought together by a common objective. UAT Group should be thought of as a Smithsonian of businesses where collective contributions are assembled and displayed as enhancements to an already impressive assortment that delivers value.
Under our unique acquisition model, we are able to deliver a permanent home where a business, its headquarters, and its personnel remain in place but are supported and nurtured form the parent company. We are not pursuing "fixer uppers" nor do we wish to execute prototypical acquisitions or managed reorganization of a targeted company. Instead we provide managerial autonomy and the type of support that comes from having a team of like-minded companies with shared resources. Essentially, we are interested in companies and their teams that don't need to be changed but instead need a team to advance their market share and operational capabilities. As the saying goes "if it's not broken, don't fix it". When we acquire a company, it will be run as it was before with the same management in place overseeing its operations.
Ideally an acquisition will be one with an exceptionally well managed business, possessing uncommonly strong economics and acquired under mutually complimentary considerations. Under such synergistic conditions an acquisition becomes part of a collective that it adds, through its own individual success, an innate or embedded value as well as successful management. With the purchase of such companies we continue to build a reputational advantage over other parties interested in an acquisition. The commercial advantage inherent in that reputation is critical to potential and future acquisitions. One of the primary ways for a company's management to assess how we will function in the future is to review how we have conducted ourselves in the past. Previously we have acquired companies and retained their personnel leaving the "company" essentially intact. Moving forward we will continue to do the same with one exception, we will leave the filed company and its brand intact while making it a wholly owned and independently operated subsidiary.
As a publicly traded company, we offer what many business buyers can or do not, the strategic and/or financial advantage of leverage and support. Additionally, while our preference is to acquire a business in its entirety, the stock market can offer, when appropriate, value through strong fractional equity positions. It is because of this, UAT Group, at times, will pursuing strong strategic partnerships through equity investments. When applicable, we will however, pursue companies interested in simply selling and "walking away" due to specific interest in intellectual property. That said, UAT Group is looking to expand its capabilities as well as its team so intellectual property and other assets such as human capital are very much the collective focus.
In an effort to extend the efficacy of capital allocation, we carefully review a broad range of potential acquisition opportunities. The primary economic objective of UAT Group is to augment the intrinsic per-share value. Our operating and capital deployment decisions are weighed heavily against their long-term economic consequences. The amalgam of subsidiary revenues and my capital allocation directives will foster corporate growth and shareholder value. More to the point, it is our belief that this business model will, over time, reflect a net gain in per-share intrinsic value unseen in previous years.
RISING TO THE CHALLENGE
As I mentioned earlier, 2018 brought its fair share of challenges. We planned, executed and maintained a posture of readiness well poised to manage a complicated calendar. As history reflects, we were confronted with a few unforeseen obstacles that did in fact test our operational readiness to manage an extended workload.
Despite such "curve balls" tempering our operational momentum, our conviction remained along with our unrelenting resolve to achieve our objectives. Our team doctrine and corporate ethos remained as guiding tenets that defined a path to success. Ultimately, our short-term challenges were addressed head on and resolved. As a result, we entered 2019 well positioned to execute on multiple verticals and strategic initiatives. We are well positioned to sustain and enhance our competitive advantage and capitalize on growth opportunities.
We enter 2019 well aware of the challenges ahead but confident about how we have adjusted and positioned the company. We have learned quite a bit and are better prepared as a result. This gained experience has made us better and more effective as a company.
In closing, we have built momentum coming into the new year and have a clearly defined series of executables to act on. That said, as the Chief Executive of a firm that has experienced a tempestuous building period, I do not discount nor do I optimistically ignore the potential for the unexpected. This is why I rely on my amazing team to suggest and implement ways we can identify potential issues before they arise. Most recently we have implemented several overlapping protocols to address needed contingencies in our manufacturing and fulfilment processes.
I believe we have a value proposition that resonates strongly across multiple segments with value that will capture opportunities and sustain long-term growth momentum. It is my belief that this is what will unlock exponential value for us as shareholders.
As always, I and my executive team, would like to thank you, our shareholders, strategic partners, customers and team members for your support. It is because of you, that we are privileged to be part of such a truly extraordinary team, do the things that we genuinely enjoy doing and are able share with you the building of a company that will continue to innovate and shape the future.
Chairman & Chief Executive Officer
Umbra Applied Technologies Group, Inc.
About Umbra Applied Technologies, Inc.
Umbra Applied Technologies is a member of the Umbra Applied Technologies Group UATG, +0.00% family of companies. Umbra Applied Technologies, U.S. based Defense and Security Company, is engaged in the research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services for defense, civil, and commercial applications in United States and internationally. It also provides management, engineering, technical, scientific, logistic, and information services.
In support of air, land and naval forces, the company operates in five segments: Aeronautics, Information Systems & Global Solutions, Biotech, Alternative & Renewable Energy, and Intelligence Systems. The Aeronautics segment offers military aircrafts, such as unmanned combat and air mobility aircrafts, and related technologies. The Information Systems & Global Solutions segment provides advanced technology systems and security expertise, integrated information technology solutions, and management services for civil, defense, intelligence, and other government customers. The Biotech segment addresses critical gaps that are absent in defense medical research programs. The Alternative & Renewable Energy segment provides alternative solutions to energy through research in bioelectricity, wind, thermodynamic and solar energy. The Intelligence segment provides computational study of signals, open source and network intelligence through advanced metrics and algorithms to locate and extract sentiment from gathered intelligence.
For more information visit www.uatgroup.com or www.uatgroup.com
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