After a few rough years, Tollgrade seems to have turned the corner
Making the grade -- with its first profit since fiscal '08
Thursday, August 26, 2010
By Erich Schwartzel, Pittsburgh Post-Gazette
Earlier this month, Tollgrade Communications reported second-quarter earnings and the news was good: The Cheswick telecommunications company showed its first profit since the third quarter of fiscal 2008.
How did the company celebrate?
"We bought a coffee machine," said Michael Bornak, the company's new chief financial officer and treasurer.
Mr. Bornak and two other new executives seem to be putting the coffee pot to good use since taking the reins at the troubled company. All hired in the past 10 months, they're focusing on expanding investments outside the 22-year-old company's traditional telecommunications portfolio.
Edward Kennedy became chief executive and president in June after being elected to the board in the middle of a proxy fight. Greg Nulty, who worked at Tollgrade in 1995 when the company became one of the region's few public tech firms, returned last month as vice president of marketing and business development.
The three inherited Tollgrade at a low point in the company's history, a time when it was making headlines for drama in the boardroom.
Over several months in 2009, Tollgrade's largest shareholder, a New York City hedge fund called Ramius LLC, waged a proxy fight over the company's poor performance. That lead to three Ramius-backed candidates being elected to the nine-person board.
Mr. Kennedy joined the board while Ramius and Tollgrade were still playing tit for tat with proxy documents. He had most recently served as the CEO and president of video networking equipment company Rivulet Communications Inc. of Herndon, Va., and eventually replaced former Tollgrade CEO Joseph Ferrara.
But all's well that ends well, and Mr. Kennedy had only compliments for the current board members, who he called "interactive," "focused," chock-full of "business acumen" and intent on keeping the company at a "new pace."
Nearly three months into the job, he keeps a "kinetic" personal pace that he hopes translates to a sense of urgency in company culture.
The trio's most urgent priority since coming on board has been making money again.
Last quarter, the company reported a net income of $1.2 million, or 10 cents per share, up from the $1.5 million, or 12 cent per share, losses reported that quarter one year ago.
The success came with some cost-cutting sacrifice: During the first quarter of this fiscal year, Tollgrade laid off 48 full-time employees. The company now has 200 workers.
Mr. Kennedy said there were no plans to hire more workers to accommodate the improved balance sheet but any future expansion would occur in Tollgrade's three main locations -- Cheswick; Piscataway, N.J.; and Bracknell, United Kingdom.
Though a majority of its revenue continues to come from its "staid, organized, methodical" telecommunications contracts, Mr. Kennedy said the executives decided to try other large-scale infrastructure projects.
He expects expansion in smart grid technology to become a bigger player on the third-quarter balance sheet. Smart grid products provide digital ways for utility companies to control electricity and have been used to cut wasteful energy practices.
One trumpeted Tollgrade product, LightHouse, sends "wavelength signatures" to system administrators that diagnose the cause of a power outage without having to send field crews out to physically look for a fire or downed tree. LightHouse also analyzes electric wire performance to make sure extra currents aren't being sent to compensate for one weak portion of the line.
"A lot of electricity is lost due to inefficient cable," said Mr. Nulty. "We want to make the smart grid smarter."
A national push toward green energy practices helped Tollgrade "bet on the right racehorse" with the smart grid investments, said Mr. Kennedy. That put them in a position to seize some contracts backed by federal stimulus funding allocated for environmentally friendly projects.
The caffeinated executives are also looking to expand into other technology markets like high-speed data services that deliver television via the Internet.
"We want people to think, 'These guys are fleet of feet,'" he said.
