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Jay Coughlan came to Xata Corp. as CEO in October 2006, when it was a sleepy microcap company that next to no one cared about, its stock trading just north of $5 per share.
So Coughlan went to work. Xata bought two companies and revenue grew from $30.7 million his first year to more than $70 million in fiscal 2010.
He shifted the model, too. Xata's business is helping fleet operators manage their big trucks on the road, initially using an on-board computer the company sold. Coughlan switched to selling software licenses and finally, to becoming a mobile-only software developer. That last transition, announced this week, led the Eden Prairie-based company to rename itself XRS.
The stock popped nearly 10 percent on this news -- to 70 cents per share.
The dismal performance of the stock is further confirmation that the job of leading a rebirth of a stalled microcap company is a daunting task. Nearly six years into it, Coughlan said it has been far more challenging than he envisioned.
Now he is betting a 27-year-old electronics company on mobile device software sold as a service. But it's not really that much of a gamble, as on its old course XRS was clearly going nowhere.
The old Xata was an early innovator in the business of making computers screwed onto the dashboards of over-the-road trucks that allowed fleet owners to better manage their big rigs.
Before joining the company, Coughlan was the CEO of Lawson Software in St. Paul, serving in that role as it came public in December 2001. Shortly after Coughlan got to XRS he started talking about someday exiting the hardware segment of the business.
The evolution to all-mobile really began in late 2009 when the company identified its second acquisition of the Coughlan era, a firm called Turnpike Global Technologies, based in Ontario. Turnpike sold its product for use on a handheld device.
Coughlan said he didn't envision when that $20 million deal closed that it would lead to an all-mobile company. Turnpike was intended mostly to help open up sales to small fleet operators and other users not well-served by existing products.
But by the end of 2010 he was in Silicon Valley, explaining to the company's two big institutional investors that the company was going to have to spend heavily on the Turnpike technology to turn it into a broad mobile platform.
He said he saw the legacy systems model as too costly, too inflexible, too hard to support. The truckers all carried smartphones to keep in touch with home, why not the office? And the threats he feared were mobile phone upstarts that kept evolving their software until they offered enough capability to pick off accounts.
As he went to California it was the most anxious he had been at XRS, he said. "I told them I did not need any more money but that I wasn't going to be able to hit the [profitability] target. We had to invest. And I did not know how they were going to react."
Maybe one reason they supported him is that he did not tell them the full scope of changes coming in the organization. That's because he did not know himself. As he put it, "I just did not realize how hard this transition was going to be."
Examples? In product development, they could not find enough mobile application talent. Over in sales, XRS once sold training, and it appeared as a line item on an invoice. Now training is a YouTube video.
Coughlan turned sales on its head, as mobile software services can be sold through wireless carriers such as Verizon Wireless and Sprint rather than through a direct sales force.
And he learned that just because an AT&T executive would agree to sell XRS did not mean any customer sales, at least not until the team figured out how to get an individual AT&T salesman a commission. That's why XRS's services now appear as a line on a wireless bill.
XRS today has about 115,000 trucks with its products, and at a monthly revenue of about $30 to $45 per truck that equates to about $13 million in quarterly revenue at the midpoint, versus XRS software sales in the most recent quarter of $11.8 million. Sales of hardware, still about $3.5 million in the most recent quarter, should quickly fall away.
Coughlan said the plan is to grow with an expansion of the market, as truckers learn they just need to install a small box and then load the software on their own tablet or Droid phone. There is also the potential of new sales from a federal mandate now in the rule-making phase that will require truckers to use an electronic on-board recorder to track things such as hours of service, as driver fatigue is a safety issue.
The Xata hardware -- a screen, a box, a tangle of cabling and a small satellite dome that looks like an overturned white cereal bowl -- was very much on display earlier this week as XRS held its first user conference. It was tossed on the floor in front of presenters like fresh roadkill. There is clearly no going back.
Coughlan's view is that any number of industries will need to transition to mobile devices and that XRS is as good a place to participate in that revolution as any. He also is confident that XRS is ahead of its two main competitors, Minnesota-based PeopleNet Communications, a unit of Trimble Navigation, and Qualcomm Enterprise Services.
After all, he said, "I didn't realize how hard it was going to be. That's why I argue it will be really hard for Qualcomm and PeopleNet to get there."
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