Herley Chairman Addresses Shareholders at its Annual Meeting of Stockholders
LANCASTER, Pa., March 23 /PRNewswire-FirstCall/ -- Herley Industries, Inc. (Nasdaq: HRLY) held its Annual Meeting with Shareholders today at the New York Yacht Club. John A. Thonet, Chairman of the Board, addressed shareholders at the meeting, where Herley CEO and President, Richard F. Poirier, delivered an overview of the company. Following Mr. Poirier's presentation, Mr. Thonet addressed stockholders. His comments follow:
"The PowerPoint presentation by Mr. Poirier provides us with a good introduction to Herley. It explains -- very concisely -- what we do, why we do it, and why we believe that Herley's future is bright. This presentation will be available on Herley's web site at www.herley.com for anyone who would like to refer to it again, and it is my understanding that the entire webcast will be available through the link on our press release for a week.
In the coming months, Herley looks forward to making additional such presentations as we seek more opportunities to tell the investors who we are and what we are doing. Herley is currently scheduled to participate in the Stephens Spring Conference on May 25th at the New York Palace. In addition, Herley is considering hosting an on-site investor conference at either our Herley NE plant in Woburn, MA, or our Lancaster Plant in Lancaster, PA, or maybe both. Rich and I will keep you posted on that.
In fact, our plan is to use an on-site investor conference in the near future as an opportunity to celebrate a big birthday for Herley…In that regard, I'm pleased to announce that on August 9, 2010, Herley Industries will be 45 years old, making it one of the longest operating independent microwave technology companies in the world.
Herley Industries was founded in 1965 by Lee Blatt and Herman Kagan. Today, it has over 1,000 employees with four manufacturing facilities located domestically in Lancaster, PA; Woburn, MA; Fort Walton Beach, FL; and Whippany, NJ, in addition to three facilities located abroad – one in the UK and two facilities in Israel.
Herley now provides its microwave products and systems worldwide to over 50 countries for use in some of the world's most advanced defense systems. The founders of this company should be very proud of what this company has become. I recognize that one of the founders – Lee Blatt – is in attendance today. Mr. Blatt, I salute you.
In Roman mythology, Janus is the god of doorways and beginnings. The month of January gets its name from this god. As you can see in the image presented, Janus is depicted as a god having two heads or faces, one looking backward to the past, the other looking forward to the future. So too it is with Herley. This year, Herley is making a new beginning and we, too, will be looking both backward and forward as we formulate our plans for the future.
Let's start by looking back. As some of you know, I've been a member of Herley's Board of Directors for 20 years. When I first joined this Board, Herley had only one manufacturing facility, that being our "flagship," the Lancaster plant. The company's revenues that year were about $12 million -- only 6 or 7 percent of Herley's revenues today. That was a different company and a different time. But it is nonetheless worthwhile to look back to that time.
The year that I joined the Board was the year that Herley embarked on a plan to grow the company, principally by identifying and acquiring companies that could improve Herley's competitive edge in technology and/or marketing.
From 1992 to 2005, a period of 13 years, Herley methodically executed its plan for "growth by acquisition" -- acquiring about a dozen companies, both domestically and abroad. By 2006, Herley's revenues had achieved a record high of over $176 million, almost 15 times the revenues in 1991 when I had first joined the Board.
Recent years have not been so productive due, in no small part, to what I would characterize as "a legal speed bump" that has proved to be more than a little distracting.
I am pleased to report, however, that the "record revenues" that Herley experienced in 2006 will be challenged in this fiscal year. With revenues for the first half of FY 2010 at over $94 million, Herley looks to be on track to reach its highest annual revenue level of all time. Indeed, in my 20 years with Herley Industries, I cannot recall two back-to-back quarters with revenues of this magnitude.
To our shareholders, I am pleased to announce that Herley is back -- and it is now time to look to the future.
One year after I joined Herley's Board, we acquired our first company -- Micro-Dynamics of Woburn, MA -- a microwave subsystem designer and manufacturer. Today, that company is what we call Herley New England. When we bought that company, we also acquired a bright young engineer -- his name is Richard Poirier -- now Herley's Chief Executive Officer.
The decision to choose one of our own was intended. In selecting Mr. Poirier to run this company, the Board of Directors made a conscious decision to select a young, but experienced and proven leader from within, one who thoroughly understands Herley's business and its operations. This change in management is "Step 1" in the Board of Directors' "plans for the future."
"Step 2" in Herley's plan is to end our legal entanglements so that we can focus on what we do best -- providing microwave products and systems to defense and aerospace entities worldwide.
In the first half of FY 2010, several lingering litigation matters were successfully resolved, resulting not only in a significant reduction in the number of legal entanglements, but also resulting in better customer relations and better opportunities for increased bookings going forward. This effort is ongoing and today the Securities Class Action and Derivative litigation remain the only significant litigation matters to be resolved.
With regard to those cases, I am pleased to report that trial dates have been set, with the Derivative Case scheduled for May and the Securities Class Action case scheduled for July. Thus, the resolution of these cases will be accomplished, quite possibly in the near term. We look forward to finally ending these matters and will keep you informed as to the outcomes.
"Step 3" of Herley's plan for the future involves "identifying opportunities for growth." To this end, I have tasked Rozalie Schachter, Herley's VP for Strategic Initiatives, to assemble a team of technology specialists, a Technology Council if you will, to review all of Herley's products -- division-by-division, company wide, in order to identify opportunities for leveraging the combination of our existing products into new defense markets and new products. Rozalie has tremendous knowledge of technologies and companies in our industry. Indeed, many of Herley's past acquisitions began at Rozalie Schachter's suggestion.
Another member of the Council will be Dr. Edward Bogucz, a member of our Board of Directors and the Executive Director of the Syracuse Center of Excellence. The Syracuse Center of Excellence is an organization that engages collaborators at some 200 companies and institutions to address global challenges through targeted research, demonstration of new technologies, and commercialization of innovations.
Gerry Klein, deputy division manager of Herley Lancaster, will also serve on Herley's Technology Council. Gerry not only has played a major role in Herley's recently improved operational performance, but also served Herley for many years as its principal technology officer – Herley's "go-to" guy for technological problem solving. We look forward to engaging Mr. Klein in this capacity once again.
Finally, Herley will invite others, from outside the company, to participate in its efforts to identify technologies strategic to Herley going forward. Most recently, I have invited a well-respected college professor of electrical engineering and computer science from Lehigh University, with whom Herley has previously collaborated, to once again work with us. In this regard, we have already identified opportunities for adapting some existing and successful microwave technologies for new, developing markets, notable the Unmanned Vehicle area, both airborne and seaborne.
For many years our Lancaster facility has produced test instrumentation for the AAMRAM and TRIDENT missile programs. This equipment is used to test missile effectiveness and quality in live firing exercises. During the same time, our MSI facility in Fort Walton Beach has produced ground control stations and avionics products for high-speed airborne targets that are used for training and simulation of enemy aircraft.
Now we are initiating a combining of these efforts to seek business opportunities for tactical UAVs to be used both for surveillance and combat. The higher volume use of these unmanned airborne vehicles is a foregone conclusion as irregular warfare receives greater funding from the Pentagon.
Also included in Herley's growth strategy would be the identification of acquisition "targets" that might provide good strategic "fits" in terms of technology, customers and programs, both domestically and internationally. For example, networked communications radio links are in great demand for UAVs as well as other manned and unmanned platforms. These need to operate at ever increasing transmission data rates, which push the operating frequencies to the higher microwave frequencies. Herley has found that small, innovative companies do exist that have the capability to develop these desired radios and are indeed doing so.
Teaming with such companies or, alternatively, acquiring a company with this radio technology, combined with Herley's existing skills in microwave devices and its extensive manufacturing capabilities, could create significant marketing opportunities for communications products for military platforms. Herley's Technology Council will be exploring such opportunities.
This is also a good example of how today, commercial technology is leading to military applications, a reversal of trends seen in past decades when military technology led to commercial uses. No longer are point-to-point military style communications going to be sufficient. In the future, networked communications will be the standard. Herley plans to play an active role in the future application of commercial technologies to military communication applications.
The upgrade market is another source of interest for Herley. Herley now produces an array of complex microwave products at its operations in Herley NE, CTI and Herley General Microwave Israel. These products meet the microwave needs of most modern Radar, Electronic Counter Measures (ECM) and Electronic Surveillance Systems (ELINT).
Due to funding limitations and changing warfare and strategies, maintenance and upgrades of electronic systems on deployed platforms are providing new significant business opportunities. Herley is exploring the possibilities. Our Lancaster General Manager, Howard Eckstein, is leaving shortly for the Far East on one such program.
As another example, while US forces are upgrading electronic systems on platforms like the F15 and EA-6B, international customers have a need to maintain and upgrade systems that are no longer even supported by the prime contractors. There are literally thousands of F15s, F16s and F18s being flown by domestic and international defense forces. Herley is currently examining the best way of targeting such opportunities.
So where will all this strategic thinking get us? Well, we have an incredible team of professional advisors here at Herley that lead me to believe that following what could turn out to be a record breaking year in revenues, Herley could realistically grow organically to be a $200 million company by the end of 2011, and with acquisitions, perhaps a $250 million company by 2012. That's the challenge to Herley's Board and management team.
As most of you who follow the company know, Herley is primarily owned by investment funds. Over 80 percent of the company is owned by 75 funds. As I look around the room, I can safely say that over one-half of Herley's shares are owned or represented by people here today. Having had the opportunity to speak with many of you, I and all members of Herley's Board of Directors understand the desire on the part of our shareholders to capitalize on and/or realize strong growth in those investments. Be assured that this Board has every intention of seeing to it that you are not disappointed.
The Board also recognizes only too well that in today's litigious and complex regulatory environment, it can be difficult and expensive to be a public company. What is even worse is being a small public company, which is what Herley is today. Other small electronics defense companies undoubtedly feel the same way and, in fact, Herley recently met with one such company. The bottom line is that Herley needs to get bigger, either through acquisition, or by merger with a similarly sized or larger defense company.
Herley recognizes that the defense industry is continuing to consolidate. As you've already heard me state quite clearly, Herley plans to be part of that consolidation process by actively seeking to identify appropriate acquisition targets. But, while Herley is actively seeking companies to acquire, it will be equally cognizant of the fact that other, larger companies might be interested in buying Herley.
David Baxt of Jefferies & Company serves as Herley's investment banker. I have recently met with David and have instructed him to begin advising Herley regarding potential opportunities for Herley to increase its value through participation in the continuing consolidation in the defense industry, and like Janus, to look in both directions. In the coming months, I plan to meet regularly with Jefferies to ensure that Herley misses no opportunities.
Thus, like the Roman God, Janus, with two heads facing in opposite directions, Herley will continue to look back to its past successes in operations and acquisitions and will try to emulate those successes. But Herley will also look forward to identify and capitalize on whatever opportunities the future may hold. Thank you."
Interested parties may access a replay of the meeting and slide presentation via the web at: http://www.videonewswire.com/event.asp?id=66686. The replay will be available through March 30, 2010. The presentation will also be available on Herley's web site at www.herley.com.
Herley Industries, Inc. is a leader in the design, development and manufacture of microwave technology solutions for the defense, aerospace and medical industries worldwide. Based in Lancaster, PA, Herley has seven manufacturing locations and approximately 1,000 employees. Additional information about the Company can be found on the Internet at www.herley.com.
Safe Harbor Statement - Except for the historical information contained herein, this release may contain forward-looking statements. Such statements are inherently subject to risks and uncertainties. Forward-looking statements involve various important assumptions, risks, uncertainties and other factors which could cause our actual results to differ materially from those expressed in such forward-looking statements. Forward-looking statements in this discussion can be identified by words such as "anticipate," "believe," "could," "estimate," "expect," "plan," "intend," "may," "should" or the negative of these terms or similar expressions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievement. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including but not limited to, competitive factors and pricing pressures, changes in legal and regulatory requirements, cancellation or deferral of customer orders, technological change or difficulties, difficulties in the timely development of new products, difficulties in manufacturing, the outcome of pending litigation, commercialization and trade difficulties and current economic conditions, including the potential for significant changes in US defense spending under the current Administration which could affect future funding of programs and allocations within the budget to various programs as well as the factors set forth in this release and in our public filings with the Securities and Exchange Commission.
For information at Herley contact: www.herley.com
Peg Guzzetti Tel: (717) 397-2777
Investor Relations
SOURCE Herley Industries, Inc.
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