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One on one Interview with AGT CEO Mike Valletutti

January 12, 2011 | Chris Payatagool
Mike_valletutti.jpgBy Andrew Davis via Wainhouse Research Bulletin

WRB. I see you've just inked an investment deal with Rock Hill
Capital. Briefly, what is this about.
MV: AGT had been led by engineers with link-minded employees, which has served us very well during the past 18 years as we grew along with the videoconferencing industry. We've always kept R&D
and Client Care as investment priorities, with more of a focus on keeping our customers happy and renewed. At the same time, we've built a strong leadership team that has managed to increase

EBITDA to 12% over the past 3 years.
But we also recognize our weaknesses, which was lack of Sales & Marketing which leads
to low growth. AGT has been $24 - $32M over the past 5 years, but our renewal rates
were extremely high. So, I found a team that can help us leverage our base, add a few key
hires, and bring the capital needed to grow a privately-held business.

Our new partners at Rock Hill have worked in start-ups, held executive positions, and led
companies through acquisition. They have already been successful in the A/V Integration
business, and saw videoconferencing as maturing. I spent over 6 months with these guys,
and it was great to have a conversation with professionals outside our industry. They are
bringing the know-how to scale AGT's early success, and we're very excited about it.

WRB: The conferencing and collaboration industry seems to be going through a roll-up
phase, with companies beefing up for scale, financial strength, and reach. Is this part of
the AGT story?
MV: I agree that consolidation is happening in the manufacturing sector of conferencing,
but service providers like AGT are still independent. As the collaboration market matures,
I think you'll see the next phase include companies that are building services dedicated to
videoconferencing become more valuable. Our part in the story is that we've been
investing for 5 years and have built an impressive resume of managed services clients that
tell us our solution leads to usage growth. We're just focused now on getting our model in
front of more customers.

WRB: What is your definition of managed services and how important is the video
managed service space to AGT now and in the future.
MV: I became a personal believer in video managed services after we completed our first
year with Navy Distance Learning in 2001. Up to that point, AGT resold the infrastructure
and endpoints to customers who provided their own internal bridging and help desk
service. On one side, I had customers with very little video utilization and general disgust
for videoconferencing. On the other, I had a successful Navy program with the same
hardware. The only difference was that the Navy hired AGT personnel to run the program.
My definition of managed services is that 1) it includes dedicated hardware for their own
secure data centers - not hosted by us; 2) active support by a service provider - AGT; and
3) overlay of management tools and proactive monitoring. Unfortunately, the Navy solution
was labor intensive, and therefore very expensive. These accounts don't grow either
because of high incremental costs. In 2005, we decided that our R&D investments would
be towards developing software and management tools that would take the manual labor
costs out of the equation. When you take labor costs out of the equation, and then add
scalable software tools, you end up with a very attractive pricing model for both sides. Our
recent clients are spending less than $8K per month for a managed service for 500
conference rooms and 10,000 desktop minutes.

In the past, the labor-intensive model was expensive enough to make the purchase / selfmaintain option viable. Today, however, the cost savings between managed services vs.
buy infrastructure and operate / maintain internally is tremendous. Aside from Federal /
DOD, many corporations are still hesitant to invest $1M for infrastructure, and then assign
support resources. So, my guess for the future is that the monthly service pricing model
will prevail as the economics are now too favorable for managed services.

WRB: You are also an equipment reseller, is that right? How does that fit into your plans
for the future?
MV: Engineering and integration is as much AGT's roots as is our software R&D. Having
our own in-house integration team helps us build a better managed service for our clients.
And we have a 15-year customer base of video design & integration, control programming,
and network infrastructure that return to AGT during upgrade cycles. Most importantly,
we've developed teaming agreements with many large system integrators where AGT is
the video expertise on a larger Federal IT contract.

Polycom has been our #1 supplier since 1999 in Federal / DOD, and I believe we might be
#1 or #2 VAR for them. It is a partnership that has worked well, and we added some more
sales resources to help grow our business. I'll admit that margins in the integration world
are tough, and so we tend to be more selective in our project choices. Also, our managed
service clients grow, and need more video rooms or classrooms, we prefer to perform the
work with an AGT integration team.

WRB: A lot of people are talking about Unified Communications when they talk about their
video future. How does UC fit into the AGT future and your managed services.
MV: We definitely support video within the UC strategy, and our R&D is designed for
connectivity between many different formats. We can currently host a video conference
between H.323 room systems, Apple laptops, handhelds, and desktop PCs. Our OCS
interoperability release is set for Q1 and we are getting certified for the recent Polycom /
Microsoft announcement. AGT has all the resources already in-house to assist companies
in completing their UC solution.

Another distinction of our managed video services is that a high majority of our customers
are running video converged over their IP network. Unbelievably, most videoconferencing
networks are separate - ISDN or IP overlay. The first best step to getting to UC should be
convergence, and we're helping our customers leverage their own IP networks with our
video managed service.

WRB: AGT is different from the other video managed service providers we talk to ... You
have your own R&D and have developed FATHOM and ENCORE. How and why are
these important to you.
MV: We develop out of necessity as we find gaps in the end-to-end solution. In 2002,
there weren't tools to help customers get video across their IP networks, so we developed
software to test H.323. In 2005, our distance learning university customer wanted to
connect desktop video students to their classroom, yet the desktop video solution at the
time couldn't get through firewalls. So, we developed a JAVA desktop client that works
everywhere, but is also H.323 compatible. At the end of 2010, we developed a product that
conferences military HF radios with Apple handhelds and PCs - a first. In each case, these
ideas matured into products like FATHOM and ENCORE.

WRB: How do these products - FATHOM and ENCORE - get to market - strictly through
AGT or do you have channel partners. How do you reach and sell to your customers.
MV: AGT has our own GSA contract for direct Federal / DOD purchases, and generate
about $1M per year in direct product sales to US Defense and Agencies, as well as
international service providers. But a majority of our growth, and our focus for 2011, is
utilizing these products within our PerfectMeetings Managed Video (PMV) service. Since
our push has been to eliminate up-front capex costs, we recover our investment over the
months of the service. PMV can also be delivered in a smaller footprint, allowing us to
reach SMBs that want a dedicated, secure video service.

My personal objective for 2011 is to find some key channel partners to resell our managed
service, particularly a service provider that already has an established voice / data solution.
Our pricing model is very complementary to voice and web services.

WRB: Back to Rock Hill. How does this investment change your day-to-day operations.
And what keeps you and Rock Hill up at night.
MV: AGT is now led by four directors (AGT founders, Rock Hill founders), but is still
managed by me (CEO) and Ben (CTO). Georgia Tech Research Corporation, our original
minority partner, sold their stake along with AGT option holders. No changes in AGT
personnel, except for some additions in Finance and Sales.

With the video market evolving so rapidly, we've all got a lot on our minds. After all these
years in the video business, it is personally exciting to feel like we're on the verge of
breaking out. But clearly our biggest challenge is getting heard amongst all the brand
names. The crowded nature of today's video conferencing market provides challenges, but
also provides a tremendous opportunity for a service provider. I think the best thing our new partners will be remembered for is their great investment timing.

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