Post of the Day
May 19, 1999
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Subject: Notes from the shareholders' meeting
In the interest of self-preservation, I took time off this morning to attend the Iridium shareholders' meeting in Washington DC. The meeting was just over 2 hours in length, and I must say, I was VERY impressed with the new CEO. Following is a transcription from the Q&A period. Please note that I am working off of my own scribbled notes, and that I in no way claim to be quoting accurately or exactly.
John Richardson, recently elected as a director and Interim CEO, made a presentation based upon where he intends to take Iridium. He has been with the company for two weeks, in which time he has focused upon righting the ship and figuring out what has gone wrong. He is a no-nonsense Australian with a sense of candor I look for in a CEO.
Mr. Richardson called the advertising and marketing efforts of Iridium to date "arrogant, ineffective, and unresponsive to their potential market." The marketing department has done a horrible job in identifying the key potential customers, and has not been able to follow up upon leads.
Mr. Richardson believes that Iridium launched its commercial service "too soon", and that it was a grave mistake to do this before the product was ready. He has had the opportunity now to use Iridium services in such places as Nepal and the Maldives, and says that it works great from a technology standpoint. To this end, Iridium has succeeded in the hard part- they took a untested technological model and implemented it. Where the previous management failed was in the proper marketing. Mr. Richardson refused to implicate Ed Staiano for being "incompetent", but said that he was improperly prepared for the business aspects of the company, and that Iridium failed tunder his management to cultivate their customer base, expecting the technology to do it for them. When a company fails on this level, you have to look at the general, but Mr. Richardson says that he will do everything in his power to ensure that the employees identified as critical to success will be retained. This, IMHO, is a very good sign.
Following are the important questions asked to the Iridium executives, and the answers. Unless otherwise noted, assume the person replying is Mr. Richardson, as he ran the show today.
Q. Defense Departments worldwide want Iridium service. But it has to work. Why did we not heear more about the DoD contract for 200 million dollars?
A. After the technical problems and marketing disaster we have seen, I did not think that trumpeting such news would be received well. I think that Iridium was launched too soon, before it was ready. Now we have products which are not 100% in the market, and we have an image of a company with poor service. The Kyocera phones have had antenna problems, and yet some were shipped last month. I will not have any other Iridium products go to market before it is ready. We and Kyoceraare confident that they will be ready to re-ship their dual mode phone in 1 month. We must also manage peoples expectations for how the phone will work. It is a line of sight product. It will not work well in New York City, and it is not designed to. Iridium's marketing implied that the phones can be used anywhere. This is just not true, but with proper expectations people will see what a valuable service we have to offer. The US Army uses it, and the Navy has lauded the service. We are talking with other military organizations.
Prior marketing of Iridium was arrogant. This company threw its product at the market before it was ready. Clearly this is one such market that has not properly been addressed yet.
However, Iridium has a working service. We have achieved the hard part. Our potential competitors are years behind. This is still a great benefit to this company.
Q. What about the class action suits? If they win what happens?
If they win, they would get money from the company. However, these suits are of nuisance value only. We believe them to be without merit, and thus you see the pack mentality of those bringing about the suits.
Q. The current shareholders are worried about dilution of our value through a conversion of debt to equity in a reorganization.
(Resp. by Leo Mondale, new CFO)- I have most of my net worth in this company, the management, as shareholders are in the same position as you. Fellow equity holders are integral to our constellation and own our distribution as well as operating licenses. Iridium is dependent upon its equityholders, and thus we have the exact same concerns as you.
Q. What happens if company needs to replace satellites? Why have people said that it does not work well.
(Bruce ???, director of Telemetry responded) Iridium's constellation has been stable since inception. It has in fact been more stable than some of the terrestrial networks we interconnect with. We do not intend to allow holes to form in our coverage.
(Mr. Richardson) Although this is the metric that is pointed out most often, I look toward total minutes as the financial potential of the company. If we have an Iridium phone in the hands of bunches of people who do not use it we are no better off. I look to the 1.2 billion potential minutes that the system can handle. Our bringing on these minutes is more important than number of subscribers.
In terms of the press reports, we had a situation where our German marketers went to Albania and said phones worked great. Then they left without properly instructing people on how to use phone, in a region where there is certainly high-frequency jamming by one or both sides, and we have al lof the ingredients for another PR disaster on our hands. This should not have been done.
Q. Why were the handsets not ready at rollout? Iridium had 10 years to get ready. you should focus on what is simple. Everyone I know has pagers, and all of the ones who travel shave problems with them not working. Why doesn't Iridium focus on this market? You are holding the answer to their problem.
I think shareholders should have an opportunity to test these phones in some capacity. Iridium MUST do a better job of educating its market. The company launched too soon, without a common sense approach to marketing. Shoot us if we make these common sense mistakes again. I will not tolerate a defective product. All new products are on hold until we get these right, from all perspectives. I think that the pagers are a perfect complement to the phones, because most people say that their experience with the Iridium phone is much better on the outgoing side than for receiving incoming calls.
Q. Why should I keep my stock?
It is not a pretty situation. The introduction of service was a disaster. I am meeting with the banks this week and Motorola on Friday to lay out my approach. I'd say all of the downside is currently built into the share price, but you must decide for yourself. I would not have come if I thought there was not potential here. I am working for free right now, and I am looking not to improve the service, but to "relaunch" Iridiums core offerings, in a way that is consistent with the capabilities of our product.
Q. It was announced last month the the Kyocera phones were released. Now I hear they won't be out for 1 month. Which is it?
Kyocera phones were shipped, but are defective. I'm telling you as it is. I will not ship Kyocera or any other phones until they are working properly.
Q. What is the status of the Sprint JV? The Claricom acquisition?
These things are in progress. We are 2-3 weeks away of completing the Sprint venture. As for Claricom, it is in progress, but at Iridium's curretn financial standing we are not at the most advantageuos bargaining point. We are discussing terms with AT&T to complete the deal.
Q. If the minutes are the thing, why don't you give the phones away?
I am meeting with Motorola this Friday to see what we can do about the unit price. We are looking also to move to a phone subsidy bases on a minimum minute contract. Easy to do here in US, not so simple overseas.
Q. Most of the old management is still in place. What makes you think that they wont fail again?
When there is a failure in battle you must always first look to the general. Whenever I have seen Iridium employees over the last year, they have always looked haggard. I think they were given unrealistic time frames, and now here we are as a result. But, the system works and that is 90% of the battle. The other 10% was a resounding failure. The previous marketing director was dramatically overpaid for the work product we received. I will do as much as possible to ensure that the critical, good employees stay in place. Their options and incentives are under water as well.
I will not economize by allowing holes in service or holes in our technical team. We are working this week to restructure bank facilities, improve the short term balance sheet, discuss marketing options with the equipment suppliers and prepare for a re-launch of the service. The changes we make will dramatically alter the view of Iridium in the marketplace, and will be responsive to our potential customer base.
NOTE: These comments were made in a very even keeled way, not defensive nor in a cheerleader type of way. I went to this meeting thinking that my impressions would dictate whether I kept the stock or not. I am now going to buy additional shares and wait it out.
Take care all-
"Save the neck for me, Clark"