March 29, 2024

Speed Dialing for Dollars

Linda Gibson | 6/1/1996
Just 15 years ago, when Russell I. Pillar was a high school student headed for a career in telecommunications, millions of working adults managed to do without fax machines or phone-message machines or electronic mail. Most mail was handled by the Postal Service. People used telephones to talk to other people, not to computers. Secretaries still scribbled notes on "While You Were Out" forms.

Now chief executive officer of Precision Systems Inc. of St. Petersburg, a telecommunications software company, Pillar, 30, dials numbers simply by telling the telephone on his desk to do it for him.

"It's easy, it's intuitive, it's natural," he enthuses. Indeed, Pillar's penchant for high-tech conveniences like voice-activated dialing seems to be part of a broader mission: eliminating what he deems unnecessary obstacles in the workplace.

Belying the breakneck pace of change in telecommunications, the atmosphere at the St. Pete headquarters of Precision Systems is California-casual. Workers dress for comfort, not formality; Pillar sometimes shows up in a Bullwinkle T-shirt. He moved himself and other top executives into highly visible, glass-walled offices in the middle of the building to promote what his executive assistant Helene Buckley calls "open-door" management.

Let your fingers do the walking? Forget it. In Pillar's business world, the pace of change is so rapid even manual dialing can seem a waste of time. Competing with a league of software firms pitching similar products, Precision is in a perpetual scramble to be first to market with the latest in phone-service innovations.

"The challenge," Pillar says, "is to run as hard as you can and lead markets." But in recent years, market leadership has been little more than an aspiration at Precision.

Founded in 1981, Precision was sold in 1987 to Home Shopping Network (HSN), the St. Petersburg-based television retailer. As a subsidiary of HSN, Precision developed and maintained computer systems that handle huge volumes of phone calls from customers ordering merchandise. Precision was spun off by HSN as a publicly held company in 1992.

Independence hasn't been kind to the software company. It has accumulated net losses of $30.1 million in its last four fiscal years. It has struggled through four major layoffs since 1992, cutting its work force at one point to just 85 employees, well below the peak of 325. But a financial turnaround may be underway at Precision, where employment has bounced back to 140.

Though the company reported a net loss of about $464,000 for the six months ended Feb. 28, it was much smaller than the $2.8 million loss Precision suffered during the same period a year earlier. Richard West, an analyst with the New York securities firm of Gaines Berland, says Precision is now making money and should report earnings of 25 cents per share in the current fiscal year, which ends in August, and 55 cents per share next year.

Unfortunately, there are no comparable earnings estimates because West is the only analyst following Precision. "People know about it," West says, "but it's a relatively small company with a past history under former management that was quite checkered. It's taken a long time to get credibility. At some point, other analysts are going to pick it up."

When it was spun off from Home Shopping Network four years ago, Precision had just one product - a computer system called TCP, short for Total Call Processor - and not many more customers. TCP, originally developed for HSN, was a $2 million system capable of handling 20,000 phone calls at once. But Precision couldn't sell the product to anyone except HSN and long-distance carrier MCI, and failed to quickly develop a smaller, more adaptable version of TCP for smaller customers. As a result, by the end of 1993, Precision was losing more than a million dollars a month.

Ready for new leadership, the company's board of directors turned to one of its own: Pillar, who was serving as a director, took on the additional duties of president and chief executive officer in December 1993. A Phi Beta Kappa graduate in East Asian studies from Brown University, Pillar began his career by helping to seal deals between Asian businesses and U.S. technology companies. He later co-founded a now-defunct private investment venture, Critical Mass of Woodside, Calif., which provided strategic advice and capital to high-tech companies.

As CEO of Precision, Pillar hit the ground running and hasn't stopped yet. One of his first moves was to speed development on a new product by acquiring a California company - the Renaissance Group of San Jose - which had been working on something similar to what Precision wanted.

Their combined efforts produced Uniport, a software platform that supports an array of enhanced telephone services and works with hardware from a variety of vendors, including IBM, Sun Microsystems, Tandem and Hewlett-Packard.

Uniport is smaller and easier to expand than Precision's old TCP product, and its beneficial impact on the company's bottom line is starting to show. After enduring losses of $6.2 million in fiscal 1993 and $18.6 million in fiscal 1994, the company cut the flow of red ink to $2.6 million in fiscal 1995, when Uniport sales accounted for 28% of revenue.

Precision has managed to broaden its customer base by marketing Uniport and other new products. Northern Telecom and Sprint Cellular are some of the big names in telecommunications services that use Precision software. In one recent deal, GTE Telecommunications Services announced that it will purchase Precision programming in order to offer voice-activated dialing and "single-number service" for cellular customers, which allows callers to easily track down people with phones at multiple locations.

Precision's latest product, unveiled in March at a Dallas trade show, is a personal telecommunications "assistant" that delivers voice and electronic mail, sends and receives faxes, schedules wake-up and reminder calls, screens calls and arranges conference calls.

Takeovers have given Precision access to new technology and new customers. "We look for companies that have technology, distribution or add other value to our current product offering," Pillar says. Under Pillar's direction, Precision prefers acquisition over in-house development as its primary method of growth. "Often, when you do the make-versus-buy decision," Pillar says, "buying is the easiest, fastest, cheapest way to go."

A key acquisition was announced April 2: Precision said it bought Vicorp N.V., a European software company based in Brussels, Belgium, and formerly one of Precision's biggest competitors. Precision and Vicorp had combined revenue of $57 million last year, compared with just $21.5 million for Precision alone. Says Pillar: "Every piece of business we failed to win in the last year and a half, we lost to Vicorp."

The rising price of Precision stock has made it a valuable currency in takeovers. Both Vicorp and another telecommunications company, BFD Productions of Las Vegas, recently agreed to be acquired in exchange for Precision stock, which traded near $14 a share in late April, up from about $4 one year earlier.

How did the stock price rise more than 200% in 12 months? In addition to cutting its losses, Precision attracted a high-profile investor: Paul Allen, who together with billionaire Bill Gates founded the world's largest software company, Microsoft Corp.

Through Allen's personal investment vehicle Vulcan Ventures - with equity holdings that include pieces of Ticketmaster Corp., software retailer Egghead Corp. and the Seattle Sonics professional basketball team - he acquired 24% of Precision's stock in early 1995.

Allen's involvement gives Precision a credibility not easily won by small companies. "Why did Vicorp go with Precision? My opinion is it's because of Paul Allen and that connection," says West.

"When I heard Paul Allen bought into the company, I was very excited," says Bruce Dyer, president of BFD Productions. "He does things right and he knows technology companies. It makes me feel comfortable about their stability and where they're going."

Another major shareholder potentially could have a big impact on Precision's future. Roy Speer, one of the co-founders of Home Shopping Network, is Precision's largest shareholder with 60% of its stock. But Pillar calls Speer a passive investor, neither an officer nor a director, who is spending his retirement years traveling.

By contrast, Allen is a more active investor. For example, his representative on Precision's board of directors, Bert Kolde, supports the introduction of more Precision software activated by voice commands.

"From an overall market perspective, we view intelligent, voice-based applications as being an area of huge growth," Kolde says. "The surface has just been scratched."

Allen's involvement also could prove vital to Precision's plan to do more stock-swap takeovers - Pillar's preferred mode of acquisition. "The beauty of using stock for acquisitions is that it makes our target become a vital part of what we're doing and causes them to have a continued interest in our company's success," Pillar says. "No one takes cash and walks away."

There are still plenty of takeover candidates in the telecommunications software business. In a recent report on Precision's niche in the software business, West identifies a half dozen formidable competitors - Brite Voice Systems, Boston Technology, Comverse Technology, Intervoice, Periphonics and Wildfire Communications.

Precision has demonstrated it can move fast - but whether it becomes top dog in its territory depends on how long it runs with the pack as an independent company. "This industry is going to consolidate," predicts Michael Felix, Precision's senior vice president for strategic planning. "It's a matter of when, not if."

Whether Precision wins or loses from the consolidation trend, Paul Allen's experience in helping to build the world's largest software company clearly serves as a model to be emulated.

Says Felix: "We want to be the Microsoft of the telecommunications industry."

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