Sierra Monitor Corporation
CEO: Varun Nagaraj
WSA: Good day from Wall Street. This is Juan Costello, senior analyst of the Wall Street Analyzer. Joining us today is Varun Nagaraj, the CEO of Sierra Monitor Corporation. The company trades on the OTCQB. Ticker symbol is SRMC. Thanks for joining us today Varun.
Varun Nagaraj: Thank you for having me on the show, Juan.
WSA: Anytime. Now, starting off please give us a history and overview of the company for some of our listeners that are new to your story.
Varun Nagaraj: Okay. Thank you for the opportunity. The way I look at it, Sierra Monitor Corporation is an undiscovered diamond in the rough. We have been around long enough to establish a good track record of innovation and high quality. The company is actually more than 30 years old. It got its start focusing on semiconductor-based gas detection out of Silicon Valley as a venture backed company many, many years ago. It ended up going public on the OTC market. And over the last several years, we have repositioned the company, and we really have it going on a nice growth and profitability trajectory curve.
So, let me tell you a little bit about the business that we’re in. We are working in the Industrial Internet of Things or IIoT market space.. In the old days, this would have been called control networking, or industrial automation, or measurement control and automation. However, I think the right way to look at this in the context of the 21st century is in the context of the Internet of Things (IoT) trend and more specifically, the application of IoT to the industrial segment, which we call the industrial internet of things.
Now, specifically within this context of the industrial internet of things, our company has a couple of different solutions that are targeted at facilities management issues. Facilities management is about setting up and managing the assets within a facility and providing a safe, efficient, and productive environment to those that work within the facility. We have two product lines targeted at facilities management. One is focused on connectivity and one is focused on protection.
Our connectivity product line is used either by facilities managers or by large OEMs to connect together different kinds of systems and equipment that you would find in a commercial or an industrial facility. So, maybe connecting together a building automation system to a lighting control system or connecting a buildings security system to the cloud for remote monitoring. These are examples of systems that generally are closed or proprietary being connected to systems from other vendors that might be using other protocols and other languages so that you can essentially get an interconnected internet of things in a commercial or industrial context. Specifically, our connectivity products are protocol gateways that enable this type of translation between one type of protocols or languages to a different kind of protocol or languages. So, we are sort of a translating hub that binds all these systems together. Or if you prefer, think of this product as Google Translate so that systems that speak different languages can understand each other. And either system integrators use our product to tie these systems together or one of the system makers themselves, you know, like Johnson Control that might be doing building management systems, might use our products in order to integrate their systems with other vendors’ products such as a Siemens fire alarm and control system that might exist in that complex.
The second product line we have is around the protection value proposition. What we have here is a full solution that facility managers use in order to protect their people or their assets. Now, “protection” is a broad term and so let me specify what we do. We make sure we protect facilities from hazardous gases and hazardous flames that might exist in those facilities. Now, obviously, not every facility is subject to these particular hazards but there are many, many facilities that face these hazards, for example, waste water treatment plants that produce a lot of toxic gases and potentially combustible gases during the course of operation. And these gases can be harmful to the people who work there or to the facility itself.
So, facilities like these need gas protection systems that are capable of, at an industrial grade, measuring the production or the presence of these kinds of gasses and taking actions like creating alarms or opening vents or doors in order to let fresh air in, and then connecting to other systems that might be interested in using the data generated by the gas detection system. .
Putting up a fire and gas system to protect the people or the infrastructure in gas-rich environments is applicable not only to waste water treatment plants, but also to bus depots that have transitioned their fleet from using gasoline to using compressed natural gas, or in oil and gas refineries, oil and gas extraction, oil and gas transportation, and so on.
So, that’s really what the company’s business is about. We provide industrial internet of things solutions that connect and protect assets within high-value facilities. Over the last couple of years we have leveraged our core technology assets to develop both product lines, positioned them in an appropriate way, and are now pointing the ship in the right direction here, taking advantage of this mega trend called the internet of things that is happening right now.
WSA: Great. And what are some of the key drivers there behind the recently announced quarterly results?
Varun Nagaraj: This quarter’s results, I’d like to say, are a continuation of many, many quarters of hard work. You know, if investors go back and take a look at how the company has done over the last several years, I think what they will see is a continued steady growth quarter-on-quarter which hopefully begins to accelerate as the internet of things and the industrial internet of things trends become stronger. Since the start of 2013, our trailing twelve month revenues are up by 19%, our trailing twelve months Non GAAP Net Income is up by 27%, and our cash is up by more than 70%. We are debt free, and we have issued dividends for 11 consecutive quarters while increasing the cash on our balance sheet, which for an OTC company, I think is quite remarkable.
We’ve been very consistent in terms of growing our revenue. We have consciously managed the profits. During the course of last year, we did add to the operating expense of the company while remaining profitable because we felt that it was necessary to add some cost in terms of new management, new sales, and new R&D in order to setup for the growth that is to come. However, we are a disciplined management team, and have balanced investing for growth with running the company in a fiscally prudent manner.
In summary, we are a well-managed company with good growth potential because we are aligned with a big technology and business trend that I believe is happening, which is the industrial internet of things. But at the same time, I think our company has a lot of the financial attributes of more disciplined industrial companies that investors should appreciate such as good cost management, dividend payout, and a pragmatic management team.
WSA: Great. And can you talk about the recent distribution partnership with Kele and can we look forward to similar types of deals?
Varun Nagaraj: Absolutely. Companies need to make sure that their products are not well kept secrets. That’s where a distribution channel like Kele comes in. We are considered a leader in the connectivity business with our world-class protocol gateways. We truly are the world’s most flexible protocol gateway. We position it as the Swiss Army Knife of integration, you know, don’t leave home without it if you’re in an integrator. But sometimes some of this great flexibility shows up as complexity because in order to have a product that can pretty much do anything, you end up exposing all the power of the product to the users. And that’s great for power users, but I also want to attract users that may be less sophisticated.
And so, what we’re trying to do is to first make our products simpler and then make them available more broadly on channels like Kele. So prior to this distribution agreement with Kele, we developed and introduced a new class of products from us which are easy-to-use, single button, and press and forget about it types of products. Now, that’s the kind of product you want to make available on broad distribution channels like Kele. You know, Kele is a fantastic platform for distributing easy-to-use products to a large community of integrators and building contractors, but the right kind of simple product needs to be there on that platform.
And so, we worked on getting the product right a few months ago. And then, more recently, we signed the distribution agreement with Kele to make that product available to hopefully a much broader set of people and customers than we have had in the past.
WSA: And what are some of the key goals and milestones that you’re hoping to accomplish over the course of the next 6 to 12 months?
Varun Nagaraj: I cannot obviously give guidance over and beyond what we have publicly talked about, but I’d like to point out a few points to you and to investors who are looking at us. I’d like to talk about the overall market, the products and where they go, and what the big trends are. When we talk about the internet of things, we are talking about technology innovations such as remote access from the cloud, doing proactive diagnostics or predictive maintenance or deep analytics about the operations of the facility.
Now, to be sure, the industrial segment is generally not the leading adopter of new technologies like big data, analytics, and so forth. And in fact such technologies are currently being adopted and pushed forward by more cutting-edge companies in the financial services sector or the consumer sectors. But the industrial sector is currently studying ways of using these cloud and big data-oriented technologies in their operations. And therefore, suppliers like us who provide equipment, and software, and products into this segment have an opportunity to actually be at the frontend or the cutting-edge of this particular trend, which is the adaptation and adoption of internet of things technologies by industrial customers.
So, you should expect to see us announcing capabilities and products over the next 12 months that demonstrate, and provide to our customers new technologies, but in a consumable fashion for the industrial sector. That’s something that as a technologist at heart, I’m pretty excited about. There are also specific verticals that I’m excited about. On the protection side of our business where we do the gas protection, there is a big movement underway to convert large bus fleets, and vehicle fleets to natural gas. Fueling stations and maintenance stations have to deal with vehicles that use CNG or LNG and such environments need high quality gas detection systems. This is a great trend for us because we are the market leader in this growth segment.
If you look at the journals and the publications that cover this segment, you will see us mentioned often and well. Another growth segment is waste water treatment. After years of underinvestment in the space, there is an increasing amount of spending going in by the municipalities to upgrade old facilities for purifying water. And as we know, water or the lack of water and the need to recycle water and purify water are going to be dominant themes around the world for decades to come.
So, these are some of the individual sectors or segments that I’m interested in, in addition to the overall broad theme of how IoT technologies can be deployed in our marketplace.
WSA: And perhaps you can walk us through your background and experience there and talk a little bit about the management team there.
Varun Nagaraj: Sure thing. On the management team, we have a couple of new executives that have joined the company since 2014, and I am one of them. Our VP of Marketing and Sales came to this company with me as part of this transition. It is important to recognize that the company has been well established and well run by a core management team since its founding 30 years ago. However, as in any other business there is a time and a place for an orderly management transition, which is what we started executing n 2014. The former CEO of the company moved to the board as the chairman, and so we continue to enjoy the benefits of his guidance where necessary. Our CFO and VP of Operations have served the company with distinction for many years and as valuable members of the management team, they continue to provide leadership and continuity.
So, I think what you see is a blend of a couple of new executives and a couple of executives responsible for bringing this company to this good position we’re in today.
Now for my personal background. I’m basically a tech and Silicon Valley guy, but with relevant experience in industrial automation and control, based on my last position as Senior Vice President and the General Manager of the Internet of Things Division at Echelon Corporation which is the company that invented LonWorks which is a leading industrial and automation control protocol
Prior to that, my background was primarily in data networking, systems, software, and security – the kinds of things that I think are relevant to the industrial sector going forward. So, hopefully I’m bringing the right kind of mix technology-wise and background-wise to the party here. And personally, in addition to having been CEO for a startup earlier that we sold to a successful and well known company here in the Bay Area and having been of general manager at Echelon, I do have exposure and experience across all of the functions relevant to a company. But that said, I would say my personal expertise and passion is really around product strategy and technology in terms of figuring out how technology trends or new capabilities can be transformed into things that customers find useful. I think the company is at the right spot and the industry is in the right stage for me to apply those skills to deliver success for the company and success for our investors.
WSA: Right. And in terms of that, what do you wish investors better understood about the company and what are you doing on your end as far as management to get the story and message out?
Varun Nagaraj: You know, everybody feels that their company is undervalued and I’m no exception. So what do I wish the investors understood better? I wish they understood that this company really should be looked at in the context of a hot new trend that is emerging. And if an investor is looking to play the internet of things, and the industrial internet of things in particular, we are a relatively pure play
I think we are pointed towards this growth market, and that’s how investors should look at it. Not as “Hey, these guys are some old school industrial automation company.” I think investors should also recognize just how well run the company is in terms of steady and consistent growth and profitability. This is a company that has demonstrated great discipline and is one of a select set of companies that has the ability to both generate cash, some of which is shared back with the investors, while still investing and growing the business
In 2013 and in 2014, we issued four cents per share of dividend per year. The stock trades at a buck 50. I mean, that is a 2.5% yield based on the dividend alone. And this is in a company with growth prospects because the company is focused on a new exciting sector called the internet of things.
So, that’s the mix of revenue growth and cash growth that I wish investors would understand. We have not focused much on trying to get our message across to investors. And frankly I’d like to focus on running the business. And while I get frustrated from time to time that investors don’t see the value of what we’re building here, I want to focus more on building the value other than just talking about it. So, I’d say over the next year, I’m going to have my head down exploiting those trends that I talked to you about. It’s easy to use those words, but it’s much harder to actually go develop the products, position the products, and communicate the products to the customer. And I think that is the work ahead of us for the next year.
So, I hope that our message gets out during the next year. But I am not going to be going overboard trying to communicate to investors.. I’m going to be focusing on running the business and good things should happen to those that do well. That’s the way I look at it.
WSA: Great. And once again joining us today is Varun Nagaraj, the CEO of Sierra Monitor Corporation, which trades on the OTCQB. Ticker symbol is SRMC. Currently trading at a buck 50 a share as mentioned. Market cap is north of 15 million. And before we conclude here, Varun, to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?
Varun Nagaraj: I’ll recap the points. I think investors that are looking for a growth story around a big new trend combined with a profitable cash flow story should be looking at us because I don’t think that there are too many companies out there with these attributes.
WSA: Well, we certainly look forward to continue to track the company’s growth and report on your upcoming progress. And we’d like to thank you for taking the time to join us today, Varun, and update our investor audience on Sierra Monitor.
Varun Nagaraj: Thank you very much Juan for the opportunity. I appreciate it.