Call Beckoned by Public And Private Investors

By Bob Starzynski, Staff Writer



Call Technologies Inc. plans to ring up an initial public offering in the next year or so, now that the company has refocused its business on telecommunications products and secured more than $10 million in venture capital.

The little-known telecom equipment developer in Reston, Va., launched its first product at the end of 1996 ? a software system that allows telecom companies to provide customers with enhanced services, such as voice mail, call waiting and card calling.

From its founding in 1990, Call had grown slowly to $2.1 million of revenue in 1996. But with the new product business taking the spotlight from its less flashy software engineering business, Call started on the fast track, tripling sales last year to more than $6 million. At its current pace, the company will be ready to go public in another 12 to 18 months, company officials said.

Joe Enrico, Call's president and chief operating officer, said the 95-person company could continue on the same growth curve and post sales of $9 million to $12 million this year. The company's high-end products can run $500,000 or more, however, producing "lumpy" revenues that fluctuate greatly from quarter to quarter, he said.

Because Call is investing heavily for such growth, the company lost money last year and expects to do so again this year, Enrico said. "We should return to profitability next year," he said, declining to state the sizes of the losses.

In its transition to product offerings, Call has held its engineering services work at a fairly steady level. Products ? not a source of revenue at all two years ago ? now account for 65 percent of the company's sales.

Product sales will continue to grow faster than engineering services sales, further diluting that line of work for the company, said Glen Hellman, vice president of marketing and business development for Call.

Since the initial product release, the company has taken several steps to prepare for the public market.

A month ago, Call hired Harry D'Andrea as chief financial officer. He is a seasoned pro with technology companies and the public market.

D'Andrea previously served as CFO for Yurie Systems and e.spire Communications, both young public companies based in Maryland.

Several other steps preceded D'Andrea's arrival in preparation for the Wall Street debut. In April 1997, four months after the first product release, Call landed $4.5 million in venture capital from reputable industry names like New Enterprise Associates of Baltimore and Columbia Capital of Alexandria, Va.

Then, this past June, Call added another $6 million to its pockets from the same group of backers plus the venture capital branch of Friedman, Billing, Ramsey & Co. of Arlington, Va.

The company used the first round of financing to expand its product offerings, according to Hellman. The company now offers several products in both the operational support systems (OSS) and the enhanced service systems (ESS) portions of the telecommunications market. The second round of financing was to boost sales and marketing support for the company, he said.

OSS providers supply telecom companies with major network components for customer care and services management. ESS providers give telecom companies the services that are passed along to customers, such as messaging and voice navigation.

"We are an arms provider in the telecommunications war," Hellman said.

The company's list of customers includes most of the regional Bell companies, as well as Frontier Corp., GTE, Sprint and WorldCom's Brooks Fiber.

As the telephony industry continues to deregulate, companies as large as Lucent Technologies or BellCore and as small as Call or Architel Systems of Toronto are getting a piece of the action in both markets. While the ESS market is filled with large players like Lucent and Comverse Technology Inc., the OSS market is more fragmented.

"With the exception of BellCore, no OSS provider has more than $30 million in sales," Hellman said.

Considering the outsourced OSS market was valued by Furman Selz of New York at $3.6 billion last year and is expected to grow to $8.8 billion in 2000, there is tremendous room for growth, according to analysts.

"The opportunity in front of companies like Call is very large," said Edward Jackson, a telecommunications equipment analyst at Piper Jaffray Company in Minneapolis. "If they succeed, they could be a significant player in telecom circles."

Even though Call is a private company, Jackson met with the company's officials two weeks ago to familiarize himself with their business.

One small player that has a lead on Call in the OSS market is Architel Systems, a Toronto company that was started in 1984 and posted $22 million in revenue last year, almost four times the size of Call.

Architel, which is profitable, has been sustaining impressive growth in its market, boosting revenue by 84 percent last year and another 39 percent through the first three quarters of this year. Architel is traded publicly in Canada and on the Nasdaq National Market.

"It depends on what market you want to serve as to whether you can compete with the entrenched providers," said Gene Riechers, managing director of Friedman, Billings' venture capital group and a director on Call's board. "Fortunately, that market for Call does not have competitors who are that deeply entrenched."