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Computers from Hell
So you think you're rough on your equipment? The kids use your laptop for a football? The puppy eats your powercord? Your wife blows out the hard-drive downloading lasagna recipes from her sister in Jersey? Forget about it!
Picture this. It's summer '94. The Kuwaiti desert: dust, dirt, rocks--115 degrees in the shade (if you can find any). You're doing time on the front line of Desert Storm on a forward Hawk anti-aircraft missile crew. That means if you screw up, 1,000 of your closest friends get crisped by incoming fire. You get the word. Time to move out for the big end run around the Iraqi line.
You toss all your gear in the Humvee and bust tail out of there. Ten miles of hard riding across butt-killing, teeth-rattling terrain later, you turn to your buddy and ask the question that's been niggling at the back of your mind. Did you pack the fire-control computer? He gives you one of those looks. "I thought you packed it!"
You look behind the Hummer to discover that you have just dragged your Paravant RLT88 laptop by its feed cable across 10 miles of hell. WHAT DO YOU DO! Answer: You plug it in, turn it on and shoot down Iraqis. No problem.
To Heck and back
True story, folks. Everyone has horror stories about busted computers, trashed hard-drives and otherwise screwed peripherals. And yet, we can't hold a candle to the truly hostile environments that battlefield and medical electronics must function perfectly in.
When your laptop goes down, you can curse and whine. When a mission specialist's handheld fails on an aircraft carrier deck, planes crash and missiles fall where they really ought not to. When Marines get cut off from the information network so crucial to today's fast moving military, soldiers get killed and battles are lost.
That's where Paravant (NASDAQ: PVAT) comes into the picture. They specialize in "ruggedized" electronics for harsh environments. Paravant equipment has served on the front lines of the new army in every conflict since Desert Storm. Paravant's specialized rack systems, handhelds and battlefield-laptops have downloaded missions into F-117 Nighthawk stealth fighters, analyzed Trident submarine systems from stem to stern (in real time: under water, underway and under the enemy) and told cruise missiles exactly where to hit to do the maximum damage.
Seasoned Vets
These guys are no Johnny-come-latelys. They've racked up some amazing kudos since opening their doors in 1982, including:
- the first MS-DOS compatible handheld computer
- the first laptop to use expansion memory cards
- the first portable computer qualified by the U.S. Navy for deck-top use
- and the first laptop used to fire a missile (imagine that next time you're playing Quake).
Paravant's toys for big boys can withstand whatever you can throw at them--literally: water, salt, sand, mud, dust, temperature extremes and violent impact. (I asked them how they do it. You know the story: they could tell me, but then they'd have to kill me. I guess that rules out free samples.)
Their list of strategic partners is equally impressive. They were Lockheed Martin's supplier of the year in '92 and are currently providing key components for some of the biggest names and hottest programs in defense contracting:
- Lockheed Sander's EDNA program, in which a modified Paravant RLT 410F is used to diagnose problems and to provide mission loading for the F-16, B-2 and F-117A aircrafts.
- Harris RF provides the Saudi National Guard with modified RLT-410D systems used as a controller and input device for the mobile command and control system.
- Raytheon T.I. Systems' HARM program, where the RLT-410 is used as the controller for the missile's Operational Test Set.
- Honeywell's Initial Upper Stage solid fuel rocket, where the RLT-410D is used as a test and reprogramming device.
- Lockheed Martin's U-2 program, where a version of the RHC-88SE is used as a bus tester and mission loader.
- Allied Signal's Taiwanese fighter program, in which the RLT-310 is used as an engine diagnostic and loader.
- In Lockheed Martin's PIMS program, the RLT-410D is used as an integrated test and maintenance system for the Phalanx Gun System.
Other programs served or under contract to Paravant include: the M1A2 Tank, Hellfire Missile, C-17, MAIS training system and the JPATS trainer. Paravant also provides the score-keeping systems for all four of the worldwide suppliers of laser-based military artillery and infantry training systems (talk about your ultimate laser tag game).
Feeling no pain
Paravant could easily sit on its laurels, providing high-tech mayhem for the modern military. But nooo. In '86, they hit the medical market as an FDA-approved contract manufacturer providing hospitals with sophisticated portable electronics for the operating theatre. Now they're deep into design and production of portable micropump control units.
Let's say you've got long-term back pain (for me, this isn't theoretical: two bad disks can make a day at the word-processor a living hell). Paravant has come up with a subdermal micropump monitoring system that has patients and insurance companies kvelling.
Positioned semi-permanently under your skin, it doles out precisely scheduled microdoses of medication. In plain English: less drugs at the right time means less pain and fewer dollars. The system can be monitored and adjusted in the field by a nurse with a Paravant datawand. Major insurance companies are already lining up to fund the program. At US$5 million per annum, medical technology already represents 5% of Paravant's sales and it's growing monthly.
Last May, one of Paravant's largest medical tech customers agreed to expand their purchase order from US$3.1 million to US$5 million in 2000 and 2001. The orders will cover engineering, development and production of programming computers for cardiac defibrillation and pacemaking devices.
Growth and profits
Paravant is a small company with big plans. With a market cap of US$42.3 million, it's already well on its way to its goal of becoming a US$100 million company by the beginning of the next century. Let's take a look at the numbers:
Quarterly sales are up 203.65% over a year ago, while net income increased 525% same. Meanwhile, Paravant's maintained a healthy gross margin over the past 12 months of 57.83%
(This is no flash in the pan either. Their average margin for the last five years is 46.72%). Their P/E is12.96, miniscule compared to the 31.45 enjoyed by the bloated big boys of the sector, while price to sales is only 1.71 and price to book is a paltry 2.64.
But despite the attractiveness Paravant's healthy present, it's their future that gets me hot. In 1998, Paravant acquired Engineering Development Laboratories and Signal Technology Laboratories, affiliated engineering companies with complementary technologies to Paravant's, as well as healthy sales of their own. These acquisitions move Paravant much closer to its growth goals.
Army of the next century
President Clinton has proposed major increases in military spending, with the lion's share of that money going to modern high-tech programs like the battlefield Internet, stealth and theatre-defense, and Paravant has placed itself squarely in the center of this arena.
Paravant has the best of all worlds. It's at the cutting edge of both military and medical technology. Government contract officers love Paravant because of its on-time delivery, incredible production control, reliable products and top-grade field support. Insurance companies and hospitals love them because their innovations increase patient comfort and safety while reducing cost.
Paravant is plowing money into product development and acquisitions, but still deliver investors a reliable dividend (show that to your buddies next time they're pitching some profitless, debt-ridden Internet start-up). Cash in the bank, growth and profits. What's not to like? Buy Paravant (NASDAQ: PVAT) below US$5 and get fat on the profits.
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