[OTC Journal] So Geoff now that we’ve got our thoughts out of the way can you give us a brief description of Envoy’s business model and what Envoy does?

[Geoff Genovese] Envoy is a communications company in the sense that we provide marketing services and technology services to a blue chip customer base.  The three services that we operate in are design, which is about 50% of our business, advertising, which is about 25% of our business, and technology, which is the last 25% of our business.  Now the technology group is split into both infrastructure and front-end usability web design.  So those are the areas that we operate in.  We also operate in Canada, we have about 27% of our revenue in the Canadian marketplace, 50% in the U.S., and 23% in the U.K.  So we are very diversified from marketing, design, technology and by country.  So it has really rounded out our organization and it’s really helped us to consistently grow our revenue and our profitability with the exception of this last quarter.

[OTC Journal] Geoff, I want to go to the design issue a little bit, you said that 50% of your revenues come from the design side of your business.  Can you give people some specific examples of the kind of design work you do for large multinational companies?

[Geoff Genovese] Sure, we do I guess three really different kinds of, well we do all design whether it be product design, but its broken down into package design, which is a large part of our business in the design side, it also is store design and corporate identity design.  So to give you an example, we pretty much do Wal-Marts package design globally.  We also have done the logo work and identity work for Wal-Mart.  We put the star in the Wal-Mart brand.  And we’ve done store design for them as well.

[OTC Journal] So Wal-Mart is the largest single customer in the design end of it?

[Geoff Genovese] Yeah, we’ve been working with them for seventeen years now and our design group actually dealt with and sold to Sam Walton before he passed away.

[OTC Journal] Well let’s move on to looking at some of the financial history of the company, I want to go back to this specifically Geoff because we get a lot of questions on this from our subscribers.  In Volume 4, Issue 36 of the OTC Journal, which we published on April 20th, we predicted the following financial performance for your company for this fiscal year, which ends at the end of September.  We predicted that you would do about $90 million in sales, these are Canadian dollars because the company is based in Toronto so they report in Canadian dollars.  $90 million in sales in Canadian dollars, $16 million in Canadian EBITDA profits, after subtracting the non cash side of it we figured you would do about $10 million in actual cash profits and that would translate because we like to look at the stock in the U.S. market because the vast majority of our members trade in the U.S. market, that would translate to roughly $6 million in cash profits in U.S. dollars or about $0.32 a share in real cash profits.  So being as we are six weeks away from the end of the fiscal year, what’s your feeling as to whether or not you could actually achieve this result?  Do you feel you’re on track or are we going to fall a little behind or what’s your feeling on it Geoff?

[Geoff Genovese] Well, why don’t I run through the numbers as you listed them?  Well the $90 million dollars in Canadian sales or revenue, as we call it, it is clear that we will not achieve this, we will achieve revenue in the low $80’s, but that’s up significantly, 50% to 60% over our previous year.  We felt that we had a very aggressive growth target for the year and we are outperforming our peer group, but we are personally disappointed we didn’t hit the $90 million.  It’s a tough business climate and also we’ve had some timing issues with some of our big projects with some of our customers.

[OTC Journal] So as I remember wasn’t it roughly $57 million in fiscal 2000?

[Geoff Genovese] That’s right.  We actually did $58.6 million and we’ll end up this year somewhere in the low $80’s.

[OTC Journal] Well still that’s a substantial increase over $58 million in 2000.

[Geoff Genovese] Now in terms of EBITDA, last year we finished the year with about $10.2 million in EBITDA profits and this year we believe that we will beat that number, but it will probably end up in terms of EBITDA per share between $0.51 and $0.53 in EBITDA.  So our profitability and our margin are lower than we obviously expected it to be.  And that’s largely due to a few things, one our technology group is not performing as profitable as we had hoped for the year and that’s a big part of it.  And secondly I mentioned timing before, we had a lot of customers, some of our biggest customers, postpone some of their big projects.  The good news is that during that last part of our third quarter the big projects that we anticipated were finally confirmed, we got our PO’s for them, and are now working diligently to get that revenue in for this fiscal, we won’t get it all in and we won’t get all the profits that we wanted in, so it will result in us missing our target.

[OTC Journal] So it would be fair to say you’ve had a hiccup in terms of the business flow that you anticipated, but it’s already righting itself, so to speak?

It is not back to what we had hoped to, but we are still outperforming our peer group on an average quite significantly.  Most of our peer group is only receiving a 2% to 6% increase in profitability year after year.  Most of them are down and will end up the year up.

[OTC Journal] So can you make any kind of prognostication or give us some kind of idea of where you might be at the end of the year in terms of EBITDA?

[Geoff Genovese] Yeah, I think I just did Larry, I said somewhere between $0.51 and $0.53.

[OTC Journal] $0.53 a share?

[Geoff Genovese] Yes.  Now it’s been a difficult environment, but we have seen some signs of it improving forth.  There was a recent article, I think out in the Globe, which I think is a pickup from the Wall Street Journal, that two of the prominent analysts, Lauren Fine from Merrill Lynch and Robert Kohne from Universal McKahn, all are predicting that the business in 2002 is going to rebound and they are looking for a better year than this year.

[OTC Journal] So moving forward to evaluation of your company, if we are looking at as a function of sales, which is the easy way to look at it, you are looking at your market capitalization, in other words the stock market is saying your company is worth about $40 million U.S., yet your on track to do $50 million in revenues and I’m sure there is some other comparatives.  How does your value relative to your financial performance compare to other companies in your peer group that are publicly traded?

[Geoff Genovese] Let’s just take Omnicom, because that was just written up in the Wall Street Journal and they are saying it is going to outperform one of the indexes.  But Omnicom for example right now is trading at 24 times cash flow or 29 times their 2001 estimate.  And if you looked at and compared apples to apples, our cash, EPS, or our net earnings before goodwill, because as you know Larry, come this following fiscal year, in Canada and the U.S. you will not be writing off goodwill anymore.  And we’ve been a bit handicapped in Canada because we have had to write off our goodwill.  So if you took our numbers, Omnicom is trading at about 29 times and I believe we are trading at about 12 times.  So well below 50% a company like Omnicom.

[OTC Journal] So would it be a fair statement to say, Geoff, that even though as the CEO of the company it is not your position to toggle a price on the stock that it should be trading at if it got the same multiple as Omnicom.  It would be fair to say that compared to your peer group, Envoy is ridiculously undervalued?

[Geoff Genovese] Yeah, there is no question.  Another way to look at it is we are 5 times our EBITDA number.  Omnicom is trading on next years EBITDA numbers of about 12 times.

[OTC Journal] Omnicom is not experiencing growth that takes them from a percentage growth that takes them from $58 million to $80 million on an annual basis, right?

[Geoff Genovese] That is correct.

[OTC Journal] So you are growing at a much faster rate with a much lower multiple to your profits.

[Geoff Genovese] That’s right.  So we are outperforming them in terms of growth and our stock is lagging way behind.  That is partly because we have no coverage in the U.S. marketplace.

[OTC Journal] Yeah we are going to talk about that a little bit later.  Let’s plow through the number stuff before we get onto what you have planned in the future.  I just wanted to go over the third quarter numbers real quickly mostly because you announced you actually had a paper loss for the June quarter after 21 consecutive quarters of both growth and sales and earnings.  So could you talk to our members a little bit about how you actually logged a non cash loss even though your revenue growth was up 60% the same quarter the previous year?

[Geoff Genovese] And you’re asking about just the quarter?

[OTC Journal] Yes, just your fiscal third quarter.

[Geoff Genovese] Because for our 9 month we made about $9.2 million before that unusual item.  The unusual item or the charge that we took in the third quarter was approximately $2.1 million, which was the cost that we incurred on the Legas Delaney acquisition that we did not complete.

[OTC Journal] So the reason that you reported a loss was because you wrote down $2.1 million that was associated with a one-time event that didn’t come around for you?

[Geoff Genovese] That’s correct.

[OTC Journal] So it’s not part of your normal day-to-day operation?

[Geoff Genovese] That’s correct.

[OTC Journal] Geoff, one more quick question about that.  If you did not have the $2.1 million loss, how would the numbers have looked for that quarter?  Do you have that information handy?

[Geoff Genovese] Well I think we reported that in our press release.  We did earnings per share before goodwill or cash EPS, we did $0.17 before that charge and about $9.2 million of EBITDA profit before that one time charge.

[OTC Journal] So let’s move on to a little bit of a discussion about the stock itself.  Now a year ago I know there was institutional participation in the stock.  Can you describe what happened to your institutional participation over the past year, where are we today as opposed to a year ago?

[Geoff Genovese] Well, I don’t know of a fund that holds it any longer.  As you know we did a couple financings last year, to mostly institutions.  And pretty well all of those institutions have traded out of us, partly because of our own success in our last calendar year.  Because we have a fair amount of liquidity for a small cap stock, and its only small cap money managers that would be buying us, they received a lot of redemptions and they looked at companies that they could actually trade.  Because a lot of their investment, they couldn’t sell their stock.  So we are a bit of a victim of our own success, in terms that we trade some pretty good volumes for a small cap company.  So a lot of the institutions traded out of us because they had cash redemptions.

[OTC Journal] So you feel like the stock had a fairly decent institutional participation, for the most part from Canadian institutions, a year ago, now you have none and you feel it’s because money managers have been forced to sell because of redemptions?

[Geoff Genovese] Well yes, or their mandates have changed.  We had one money manager in the Canadian marketplace where he left the company and the new guy comes on and cleans out his portfolio.  So that happens as well, but what we are finding is there really isn’t a lot of long-term money.  There usually in for six months or a year, which is a real disappointment to us because we had hoped that they would be three to five year money.  But I think the good news is Larry, at least as far as I’m concerned, is right now there isn’t any institutions of any consequence that hold any positions in our stock and I think that our stock has really held its own with the retail investors, its in these large institutional blocks that come up for sale that really put the downward pressure on our stock.

[OTC Journal] So the reason you are saying that is good news is because institutions can no longer hurt the stock and new institutions that come in at this point can only help it.

[Geoff Genovese] Absolutely.  So I think that because the stock market is just supply and demand, I think that those large blocks that create that oversupply have traded out of our stock.  So consequentially I hope that there will be more demand than supply and our stock will start to firm up.

[OTC Journal] Geoff, at the OTC Journal we have always viewed it as a little bit of a weakness, we have always known that you had Canadian institutional supporting your stock, but you basically never had any U.S. support in your stock, your based in Toronto, you trade on the Toronto Stock Exchange, you’re a Canadian company, yet more than 50% of your business is done in the U.S.

[Geoff Genovese] Yes and I would think that right now in terms of share ownership or from a shareholder base, I would say that at least 50% if not 60% U.S. based.

[OTC Journal] Well can you talk to us a little bit about any plans you have in store for exposing your company to a U.S. institutional audience.

[Geoff Genovese] Well you know about two months ago we hired a firm called MWW out of New York, which is a fairly large U.S. or New York based media relations or investor relations firm.  So what we’ve been doing over the last 60 to 90 days with them is developing our communications strategy and our presentation.  Because what we plan to do mid to late September, is we are planning to do a road show in the U.S. to institutions and retail brokers.  So we hope to crank up our presence in the United States.

[OTC Journal] So you are planning an institutional road show for mid to late September.

[Geoff Genovese] Not only an institutional road show, but to retail brokers as well through MWW.

[OTC Journal] Geoff can you talk to us about the stock buy back program that you announced on July 24th, where are you with that and how is that going to progress?

[Geoff Genovese] Well as you know we did announce it and in our first month of trading I think we purchased about 330,000 or 340,000 shares of Envoy.  We think it is a tremendous value here and we are going to continue to purchase our stock at this level.

[OTC Journal] So you were able to purchase about 350,000 shares, is there a limit as to how many shares you are going to buy back?

[Geoff Genovese] Yes, we can buy back roughly 2 million shares in a given year.

[OTC Journal] And do you intend to buy them all back?

[Geoff Genovese]As I said we think it’s a tremendous value here and our focus is to continue to do strategic acquisitions, but we think the best use of our proceeds right now is to buy our own stock because its so cheap.

[OTC Journal] Can you talk a little bit about where the cash comes from to buy your shares back?

[Geoff Genovese] Well as you know Envoy has a strong balance sheet.  We have some where in the neighborhood of about $12 million of cash on our balance sheet and we have very little debt as you know.  We also just finished a meeting today approving on a director’s level our $40 million acquisition line.  So we hope to have that in place by the end of the week and its obviously been all approved and the bank is just doing their final documentation.  So this line of credit will allow us to continue our buy back and to do strategic acquisitions.

[OTC Journal] So what your saying is you’ve had a $40 million line of credit approved by banks and you intend to use that as a source of capital for both buy backs and acquisitions?

[Geoff Genovese] Yes, absolutely.

[OTC Journal] Now I’m going to throw some questions at you that were e-mailed to us directly by some of our members.  Geoff, people want to know if you, in light of the fact the stock has traded so poorly over the last 6 to 9 months, would you ever consider providing shareholders with a dividend as a way of creating a return on their investment as opposed to reinvesting all the money in the company?

[Geoff Genovese]No, no we wouldn’t.  We are, and we’ve said this since the onset, a growth company.  We feel that we can continue to grow the company, our 60% growth is pretty good, we are very unhappy with our share price and I’m sure the shareholders are as well, but we think that if we keep taking care of the business the share price will come back and that we do the right things in terms of the road show.

[OTC Journal] Here’s another question, you have quite an impressive list of Canadian customers with large multinational names.  One of our members wants to know if you can leverage that Canadian customer base into customers in the U.S., specifically they mentioned Sprint and Lexus?

[Geoff Genovese] Well I cant really talk specifics in terms of leveraging our customers, but certainly that is one of our goals and we are leveraging both our U.S. customer base, because 50% of our business is in the U.S., into the Canadian marketplace and we have been very successful with Wal-Mart, we’re doing their work now really globally.  So we’ve had some very good successes at leveraging our customer base.

[OTC Journal] Now here’s an interesting question for you, I would think that with a $40 million market cap and the kinds of numbers you’ve been able to generate you would be an attractive acquisition candidate.  In other words instead of you acquiring smaller companies, someone acquiring you.  Has anybody expressed any interest in acquiring Envoy?

[Geoff Genovese] Well I can’t really comment on that, but there is a lot of value in our share price right now, we are trading at a very low EBITDA multiple.  Much lower than some of the companies that we have purchased in the past.  So we are certainly attractive at this price.

[OTC Journal] Another question relates to your corporate website, I haven’t looked at it personally in a little while, but our members are reporting that it is not functioning very well.  Are you guys working on that?

[Geoff Genovese] I think what they could be referring to Larry, is that we had up at the top right hand corner of the site, the latest stock price and that was not functioning at one point.  I think that has been corrected and we are in the process of redesigning the entire site.

[OTC Journal] Just let me mention, as long as we came to that issue that if your looking for a quote on the stock the scrolling ticker on your OTC Journal has it live all the time for people that need it.  Okay Geoff, let’s wrap this up.  I think that it would be appropriate for you to make a comment for us on where you see Envoy’s future.  Just in general terms, what do you see happening in fiscal 2002 and then can you talk to us a little about where you hope to take the company in terms of where you hope to take the stock in the next five years?

[Geoff Genovese] Well I really can’t project out that kind of distance, but I really feel there is a tremendous amount of potential at Envoy.  If you take a look at our design group for example, it is a world leader in design, it is probably the leader in retail design and the design business really is an area of business that has not been consolidated to the degree that any of the other, the technology or the advertising sectors have.  So there is a tremendous opportunity for us to grow that business.  And the company that I am referring to is WATT, and we bought the WATT Group about two and a half years ago doing about $10 million in revenue or sales and this year we will do about $45 million.  So we’ve had a tremendous amount of growth and I think we can continue that kind of growth.  I think that it is a great business; it is a business that really hasn’t been effected by the recession or the slow economy if you don’t want to use the “R-word.”  So I think there is a tremendous amount of potential for us to keep growing that business.  We’ve got a very strong marketing and advertising group and there’s a lot of potential there still.  We’ve launched John Street, which I think is really exciting and a real talented group and they are going to go out and win business and I think our organic growth rate is really going to pick up, it was 14% for the year, 60% overall growth, but 14% came from organic growth and I think that we can really turn that number up.

[OTC Journal] I think that would be a good point to wrap it up, the 14% organic growth has to be way ahead of the industry average.  So obviously you guys are doing some things right and lets hope it eventually gets reflected in the price of the stock.  Ladies and gentlemen this concludes our four part series of audio interviews for August.  We hope this spiced up your August a little bit.  We saved Envoy for last because we feel in terms of value Envoy is by far the most undervalued company that we represent currently.  People who invest at these levels, we believe are going to see excellent returns over the next six months or so.  As Geoff told you institutions have been forced to sell shares maybe against their will, maybe for redemptions, maybe because fund managers have changed due to market conditions and it’s just an opportunity.  So thanks again for joining us, have a great day, and we’ll be back.