AMLJ visit 7/17/10 -- tidbits from my tour with CEO Jacob Inbar
(in no particular order other than going line by line from my notes which were mixed and out of order and I made no attempt to organize this info by I added a brief title to each number below)
(1) VISIT -- This was probably the most fascinating tour I've taken in all of my company visits. I was in simply in awe and felt like I was in a cheesey sci-fi movie only everything I was looking at was for real! Entire sections were "classified" and couldn't be shown much nor talked about. The place is kept extremely cold and sterile to avoid the chips these produce from getting contaminated. Most (all?) of their chips are so small they cannot be seen with the naked eye, and I had to view them with a microscope. There are microscopes everywhere and many areas resemble closer to a biotech lab. The manually-made chips are have to be assembled using the microscopes and extreme dexterity. After producing, each and every chip needs to be put through the most extreme of testing to mimic conditions in the real world far beyond anything possible. For example, some chips may be on an unmanned vehicle that starts in 105 degree heat and 60 seconds later is miles above the Earth in negative 60 degree cold. As such, there are liquid nitrogen tanks everywhere in the plant for the temperature shock machine that takes the chips from extreme heat to extreme cold in 3 seconds to make sure they still function 100% afterwards. This is just one example of the large number of testing stations each chip must go through.
(2) AUTOMATION -- They have two relatively new machines I was shown for automation in two different stages of production. The first one is a "wire bonder" which replaces six (6) people that cost on average $20/hour and runs 14 hours a day currently, steadily rising. Each product must be programmed into the machine which takes time. Jacob expects it will be programmed enough to run 20 hours a day within six (6) months and 24 hours a day three (3) months later. Around six (6) months from now he expects to buy and need a second wire bonder machine. They only cost $100,000 with a 20 year life so they pay for themselves very fast. Also, in addition to cost savings, their military customers absolutely love them as they have less (no?) chance of error and their precision is assured. In short, the machine is helping drive in new business. They are getting new orders daily. There's a big backlog on automated machine demand. They will be buying a painting & marking machine that automates that task. The other type of machine I forget the name of it but it is in a later stage of production and replaces 10 people. There will not be a need to get a second one of these for a while as it I believe works 24 hours a day and is quite efficient.
(3) MARKET & COMPETITION -- As many of you already know, AMLJ operates in a niche market place that's "growing fast" -- to quote Jacob, "We didn't know there was a recession." The unmanned military vehicle market is their biggest market. Only two competitors they have are Miteq, a private company. And a tiny division of Teledine which has around $25 million in sales per year. New competitors emerging = zero threat. Their barriers to entry are extreme. It takes many years to build a company like this and even more time to build the trust and relationships necessary to deal with such high level of classified military applications. Jacob sees zero reasonable competitive threats any time soon even trying to emerge.
(4) NATURE OF THEIR BUSINESS -- Develop for then produce. As such, sales tend to be flat for 1-3 quarters then they see you a boost in a steady stair-step-like fashion. My own comments -- sales been flat the last 3 quarters. This a hint about the upcoming Q report???
(5) CAPACITY -- Capacity of $70 million in the current facility(ies). He showed me how little space the products take up by showing me a case of the "work in progress" inventory. It was the size of a gym bag. He said this is around $50,000 of product for today alone (a Saturday or did he mean a typical business day? dunno). The workers work 8 hours a day Monday to Friday with 1-2 hours over time typical of most of them. And they are open for around 4 hours on Saturdays doing production. I was there after the Saturday shift. There were still a few workers there when I left which was 3 hours after the shift was over. Over time maybe? The automated machines were churning. When I pushed about capacity if he thinks it was possible to reach that and what they would do at that point, he told me he thought it was very possible and as a stockholder what they would do at that point should be the least of my worries because the stock price could be $20 at that point. Please note, this is a casual off-the-cuff remark half-joking as a result of my pushing and not in any way a forecast even remotely. Going forward they are NOT hiring production staff. They will only expand via automation. My own thoughts -- the margins on these must be extreme as most of their COGS is employee expense whereas automation expansion must have almost no expense. I'm going to get gross profit at 90% at the least.
(6) CUSTOMERS -- Sales are 40% orders to their catalog, 60% to "the big guys" (the multi-billion dollar military companies like Northrop Grumman, etc.). International sales are around 25% with a lot of them to France ("believe it or not") and South Korea.
(7) NEW PRODUCT LINE -- New line of product hinted about in the conference call -- it's been in development for 6 months. They expect to announce it with the November conference call and follow it with a detailed press release. It's a very exciting high tech military area for them. They figured they already have all of these huge customers and a high rep with military applications so why not give them new products to buy? It will be an easy sell. The expenses for this area have been quietly absorbed in the last two reports so there's little to no risk. This area will be launched -- not a matter of if but when. They are particularly excited about this. Marketing expenses are CHEAP. Their customers come to them. They do very little selling. Their reputation sells it self though they expect to do some heavy marketing in the first 3 months after this product line is launched he doesn't expect you'll be able to notice it in the financials as the costs will be absorbed by further efficiencies in other areas.
(8) CASH -- Cash position -- it's growing and they don't know what to do with it. They will continue to invest in automation areas and make acquisitions in combination of stock and cash but prefer not all cash because stock keeps the target motivated to do well whereas a cash acquisition could make them lazy. Incentive is important. Their other facility was an acquisition a few years ago and is so self sufficient and producing steady cash for them that they need little management.
(9) JACOB'S BACK ROUND -- Born in Romania, lived in Israel for 15 years. Was in the Israeli army for 3 years. Eventually moved to the USA. Formed CalAmp in 1981. Left in 1986 selling most of his stock to form AMLJ along with two co-founders. My own comments -- Jacob has a bit of a monotone and is boring on the CC, but in person he comes off as an extremely suave, charismatic, confident, and really energetic & enthusiastic businessman.
(10) EXIT STRATEGY -- When I asked about exit strategy he said he's not ready to retire for at least another 10 years as he loves what he does, however, if the right price came along they could be bought out. He said they've had interest before but he demands a large premium for buyout, but he wouldn't be surprised if they do end up getting bought out at some point. In the mean time, he and other management own 30% of the outstanding shares with no plans (by Jacob) to sell any of his shares any time soon.
