WASHINGTON — With a new chief executive officer in place and two of their struggling businesses finally sold off at the beginning of 2006, EMS Technologies is sharpening its focus on areas already generating growth, such as satellite communications and defense.
By the end of the first quarter of 2006, Norcross, Ga.-based EMS had closed on the sale of two of its Montreal-based business units: EMS Space & Technologies and EMS SatNet. The move, according to President and Chief Executive Officer (CEO) Paul Domorski, who took the reins in June, has allowed the company to refine its portfolio.
“I think the first thing it did was focus our attention on what we do best,” Domorski said in a phone interview Sept 8. “Providing products and services for on-the-move communications in the harshest environments — those are environments that we have particular expertise in.”
The SatNet business in particular, according to analyst Mark Jordan of St. Louis, Mo.-based AG Edwards and Sons Inc., was a business that failed to live up to expectations.
“I think it was the right decision to pull the plug on a business decision that really hadn’t panned out as management thought it would ,” Jordan said. “When you’re backing out of business lines that are not as productive as you’d necessarily hoped, you’re in the strongest position to get to the point where you’re eliminating the distraction, and freeing up cash” that can be redeployed.
Jordan said the divestitures also helped EMS management focus “100 percent” in growth areas.
Domorski said EMS already has invested the proceeds from those sales, but said he does not rule out an acquisition as a possibility for the company’s future.
The company’s form 10-Q filling with the U.S. Securities and Exchange Commission for the first quarter of 2006 said that the company invested its proceedings from the SatNet sale to help pay down its long-term debt.
However, Domorski said, an acquisition would probably be in a business that EMS already has its hands in, rather than expanding into a new area.
“We’re in great shape so that we have the wherewithal if a significant transaction were to present itself,” Domorski said.
While Jordan could see a defense-related acquisition in the company’s near future, analyst Kevin Dede of San Francisco-based Merriman Curhan Ford & Co. thinks it will be awhile before EMS spreads its wings again.
“I think the new CEO is trying to get his arms around the company and figure out how to grow it,” Dede said. “My impression is that for the time, it will be business as usual.”
And right now, an increased demand for high-speed, satellite-based communications, particularly in the military sector, means that business as usual adds up to plenty of business for the company.
EMS’s satellite communications division, EMS Satcom, and its Defense and Space Systems unit, have seen significant sales increases since the events of Sept. 11, 2001.
EMS SatCom, for example, has boasted a 225-percent growth in sales over the past four years, according to the company’s Web site.
EMS Satcom, based in Ottawa, builds satellite terminals, antennas and aeronautical communications equipment for both government and commercial customers. Neil Mackay, senior vice president and general manager of
EMS Satcom, said the division makes up about 20 percent of EMS Technologies’ total business, and is expected to bring in as much as $70 million in revenue in 2006.
EMS SatCom has found its niche fulfilling what Mackay describes as the “instant gratification” communications needs of its military customers, namely off-the-shelf technologies that the Department of Defense can use immediately in the field.
“We’ve really been filling up the pent-up demand for broadband services that was not available,” Mackay said.
Government customers include the U.S. Customs and Border Protection, for which it provided equipment for transmitting video in real time, and the U.S. Air Force, which has been buying beyond line-of-sight communications capabilities for unmanned aerial vehicles. The division also does work for the French navy and the German army.
EMS Satcom also is expanding its land mobile business, Mackay said. One recent contract required it to provide data terminals for NATO to use in Afghanistan. Frequent commercial clients include the oil and gas industries, Mackay said.
Unfazed by Boeing’s recent decision to close down its satellite-based Connexion Internet service for airline passengers, EMS has high hopes that it will be providing equipment for similar ventures, Mackay said. EMS already is providing components such as amplifiers to airborne broadband equipment suppliers such as Honeywell of Morristown, N.J., and Thales of France.
With upgrades, EMS’s technology is compatible with Inmarsat‘s planned Swift Broadband service for airlines, which will become available in 2007 through providers such as Geneva-based OnAir.
“It’s basically BGAN for airplanes,” Mackay said , referring to London-based Inmarsat’s high-speed Broadband Global Area Network.
EMS’s Defense and Space Systems division, which builds satellite hardware and equipment primarily for the U.S. Department of Defense, also has experienced strong growth over the past five years. Back in 2001, the unit’s revenues were $36.8 million, derived primarily from sales to the commercial satellite market. Sales were up to $51 million in 2005 with Pentagon contracts accounting for most of the total. The company anticipates the division will top that mark in 2006, said Jay Grove, senior vice president and general manager for the Defense and Space Systems division.
Defense and Space Systems, which accounts for about 20 percent of EMS’s total business, has its hands in a variety of high-profile government programs including the Air Force’s Advanced Extremely High Frequency and Transformational Satellite communications systems.
“We’ll be providing a range of solutions, both from the satellite side and the terminal side,” Grove said.
During the past three years, Grove said, the Defense and Space Systems division has shifted its focus more to providing its customers with integrated subsystems and depended less on manufacturing individual components.
“Since we’ve taken on this subsystem role, we’ve been moving up the food chain,” Grove said.
Teams led by Chicago-based Boeing and Lockheed Martin Corp. of Bethesda, Md., are competing to build the multibillion-dollar T-Sat satellite system, and EMS is a member of both teams, albeit in different capacities, Grove said.
Grove also expects more work in the coming years producing data links and antennas for unmanned aerial vehicles, as the Department of Defense’s Future Combat Systems program picks up.
Projections of growth are good news for Domorski, who has pledged to his board that he will aim to grow his business to become a greater than $300 million a year company.
“It won’t happen this year, but it will happen,” he said. The company has brought in $153 million in sales so far this year.
EMS Satcom, based in Ottawa, Ontario, is a division of EMS Technologies Inc. that builds satellite equipment, including terminals, antennas and applications for airplanes for commercial and government customers. EMS Satcom’s sales figures have more than doubled since 2001.
Sales since 2001
Total sales since 2001
2006(1st six months):