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Welcome to the October edition of Endeavoring!
Fall is here, the presidential election is imminent, and the holiday season is right around the corner!
This month's edition features a Q&A with Endeavor's CEO which covers a range of topics including the forthcoming election, the economy's impact on the telecommunications industry, and the background of Endeavor's illustrious logo.
We also wanted to wish our readers a Happy Halloween! The Endeavor team is celebrating by having a company-wide costume contest. Look forward to pictures in next month's edition!
Thanks for reading. Until next month!
Your Team at Endeavor Telecom
editor@endeavortelecom.com
 Employees, Customers, and Vendors have all been curious about how current economic issues and the election would impact Endeavor's business. This month, Endeavor staff members were given the opportunity to email any questions they wanted to ask of the CEO's office. As you might expect, many centered on the economy and election. There were also many questions related to other aspects of Endeavor. Justin McLain, Endeavor's CEO, personally provided answers to each question. Five questions that are of most interest to the world outside of Endeavor compose this month's Spotlight.
Staff: People often ask me "what does your company do", or "what do you do", and I then go into a lengthy explanation trying to explain it in lay terms. How would you describe what Endeavor does in non-industry terms if someone outside the industry asked what Endeavor does so that they could get a quick understanding?
Justin: I agree that this can be a tough question to quickly answer in an elevator or at a bar. It was only recently that I was able to explain it to my own family in a way that they understood and didn't get bored of hearing me talk. This is my canned answer to that question: "In the world of telecom and IT, the act of sending a technician to a customer site is called a 'Truck Roll.' We are known as 'The Telecom Truck Roll Company' because we are the leading wholesale provider of these services for telecom in North America, including all of the U.S, Canada, Mexico, and Caribbean. Our customers are telephone companies, service providers, equipment manufacturers, and IT companies who hire us to pretend that we are them when we are at their customers' locations to perform cabling, equipment installations, and repair services. Our customers need us because they do not have field techs themselves, do not have the coverage that we have, do not have capacity, or do not have the expertise for certain specialized work and projects. The fact that we are wholesale means that we only sell our services to companies who will either resell them to their customers (we call them end-users) or will rebrand our techs as theirs. Endeavor never sells direct to the end-user, so that is how we have gotten to be as big as we are without being a household name or competing with our customers. Our customers are, however, household names and we touch thousands of their end-users a day without them ever knowing it is another company onsite."
Staff: How was the Endeavor logo conceptualized?
Justin: I get this question more than you might think. Most of the time, I just casually pass over it as the real answer is somewhat counter-intuitive and a little bit of a sick joke. In Greek Mythology, Sisyphus was the first King of Corinth and a very crafty fellow who got out of more than a few sticky situations using his wit. He was known to steal the secrets of the gods, occasionally extort and blackmail them, and maintain the hubristic belief that he was their equal. This aggravated the gods (especially Zeus) who constantly tried to kill or incarcerate him. Ultimately, his final offense was cheating death by tricking the Gods to let him go back to the world of the living to resolve some unfinished business with his wife. In the end, Sisyphus was condemned to a life in hell where he was required to continuously roll an enormous boulder up a hill only to see it roll back down again before reaching the top…a constant Sisyphean endeavor. When Endeavor was first divested from SSI in 2002, most of our customers were competitive local exchange carriers (CLECs), companies who did not maintain their own copper lines, but rather provided telecom services over their incumbent competitor's facilities. I liken the CLEC industry to our friend Sisyphus. Using their wit (and a fair amount of lobbying), they were able to elevate themselves on a similar competitive plane as the Regional Bell Operating Companies (the Baby Bells or RBOCs), the indisputable gods of telecom. Since the Telecom Act of 1996 (a major win for CLECs, much like Sisyphus cheating death or forcing Zeus to do his bidding), the incumbent carriers have relentlessly been pushing the CLECs' boulder back down the hill whenever they get a chance. Both CLECs and the major incumbent carriers are customers of Endeavor, so I love them equally. Sometimes I feel a bit like Sisyphus myself in that competitive pressures, regulatory changes, and market demands constantly move the top of the mountain and force us to revise the way we operate and provide services.
Staff: Does Endeavor feel either candidate's policies are more or less favorable for Endeavor's business agenda?
Justin: Many people are emotionally charged about their political views, so I'll handle this question carefully and keep it strictly confined to impact on Endeavor as a business. I'm not publically advocating either candidate and feel guilty for giving you such a "political" answer, but 'tis the season. The outcome of the 2008 election presents a mixed bag for telecom and Endeavor either way. Traditionally, a Democratic administration is more pro-competitive carrier and a Republican administration is more pro-incumbent carrier. An Obama Whitehouse would no doubt lead to a competitive friendlier FCC which would assist the competitive carriers and service providers, but his position on capital gains tax and increased investment regulation would further restrict funding to the already capital embattled telecom space. A McCain Whitehouse would be more of the same pro-ILEC and pro-consolidation legislation with a new zeal of at least four more years of job security. However, Endeavor and its investors would appreciate the lower capital gains tax and business tax environment proposed by McCain. With either candidate, there are both pros and cons for us as a business. On a personal note, I encourage you to vote with both your heart and your head – just so long as you cast a vote on Tuesday;it's your right and responsibility.
Staff: In general, I am wondering how the economic situation/bailout plan will affect Endeavor and its customers. Will volume decrease because customers are not expanding their network infrastructures, or will it increase as businesses look for more cost effective options?
Justin: This is a complex question which deserves a complex answer. In terms of accrued revenue, the past four months have been Endeavor's best in the history of the company. In terms of actual collections, we are starting to see the impact of our Customers not having ready access to their working capital. Luckily, we have cash-on-hand to operate for years without taking in any cash. Despite our cash position, we are vigilantly stepping up our collections procedures to avoid certain customers from having chronic payment problems which would jeopardize their service and our relationship. Present aggregate volume has not been adversely impacted so far. That being said, there is a natural surge before Thanksgiving as many of our customers' retail end-users gear-up for the shopping season. Typically, there is a lull in commercial work between Thanksgiving and the first of the year as retail end-users don't want to risk any disruption in their business by having new telecom service installed.
Dividing the work into two types, product-based and project-based, is a helpful way of looking at the potential impact on our business. Product based work is the incorporation of Endeavor services into the delivery of a Customer's standard service product (i.e. Integrated Voice and Data T1, NxT1, Dedicated Internet Access SDSL, residential VoIP line, etc.). Most of our product based work is sold by our Customers into the small and medium business (SMB) segment of the market. There has been some nominal increase in volume as SMBs look for more cost effective means of connectivity, but by-and-large, that business is down as end-users are not opening new offices, are reluctant to pay the non-reoccurring charges (NRC), or are not confident in committing to new service contracts. Our project-based work is migration work, new major network deployments, hardware upgrades, and new installation initiatives that our customers sell into multi-location end-users. Right now, that work is up, in part due to our adding new customers and in part due to the deals we are installing now being sold earlier in 2008 when the economy was not as big of an issue. If the economy does not pick-up, I expect to see current customer project-based work slow in 6 – 9 months. New capital investment in retail IT infrastructure could be hit especially hard.
In consideration of the present economy, we are now focusing on variable cost transition opportunities which will allow our customers to operate more efficiently by outsourcing more of their cost centers on a strict "as-needed" basis. Additionally, Endeavor is focusing on bringing in more hedge customers who require the installation of a variety of divergent technologies and solutions. It is important to remember that Endeavor is well insulated in both a down and an up economy. During an up economy, customers have more demand which places more demand on our services. During a down economy, outsourcing becomes a major means of cost reduction which generates demand for Endeavor's services. Additionally, higher unemployment allows Endeavor to capitalize on available qualified labor at a competitive cost structure. We're doing well and will continue to do well; we just need to be aware of what is going on in the macro-economy and tune our business accordingly.
Staff: Will Endeavor ever go public?
Justin: Not in the foreseeable future. It is for this reason that Endeavor incentivizes staff on a bonus system that provides real cash versus employee stock options which may never pay off. As entry-level employees advance, bonuses become a more significant percentage of overall compensation. Being a public company in the current regulatory environment is both expensive and a pain. Considering we are an asset-light service business, Endeavor doesn't need big capital raises in order to grow its business – we just need people and customers. The next phase of our business, which was planned for April 2009, would be kicked-off with a recapitalization event. This would allow our current shareholders to enjoy the success of their investment as well as establish a capital structure to allow us to further expand our business into other technologies and theatres outside of North America. The new investors may set their sights on an IPO as a means to realize their investment or there may be a subsequent recap. Considering the lack of leverage available in the market right now, we may elect to delay that recap event and change our strategy a bit. I can let you know more on that front after our November board meeting as this is a primary discussion item. Most of that meeting will center on company valuation and opportunity. There are a variety of buy-side opportunities now, if you have the liquidity. If the right deal comes along, we may elect to use our own cash to grow by acquisition and then do the recap when the capital markets allow for a better valuation.
NRF 98th Annual Convention & Expo
January 11-14, 2009
Jacob K. Javits Convention Center; New York, NY; Booth 3139
Click here to register for the show
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