Abatix Corp.

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Abatix Corp.

8201 Eastpoint Drive, Suite 500
Dallas, Texas 75227
U.S.A.
Telephone: (214) 381-1146
Toll Free: (800) 426-3983
Fax: (214) 388-0443
Web site: http://www.abatix.com

Public Company
Incorporated: 1984 as T&T Supply Company
Employees: 130
Sales: $59.8 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: ABIX
NAIC: 421450 Medical, Dental, and Hospital Equipment and Supplies Wholesalers

Dallas, Texas-based Abatix Corp. is a publicly traded, regional supplier of more than 30,000 personal protection and safety products to some 6,000 customers involved in the environmental, industrial safety, and construction industries. The company’s wholly owned subsidiary International Enviroguard Systems, Inc. (IESI) also sells disposable protective clothing. Abatix operates seven distribution centers located in the states of Arizona, California, Nevada, Texas, and Washington. Chief Executive Officer and founder Terry W. Shaver owns nearly one-third of the company.

Launching the Company in 1983

Shaver founded the predecessor to Abatix, T&T Supply Company, Inc., in May 1983. He gained previous experience in the industrial safety equipment and supply business by working as a sales representative for Dallas distributor Global Safety Resources, Inc. from 1979 to 1983. Before that he worked as a sales rep for Continental Industrial Supply Corp., a Texas company, which distributed industrial equipment and supplies. Shaver also spent a year and a half representing Dallas-based Briggs-Weaver, Inc., another industrial equipment and supply distributor. Shaver enjoyed a successful start with T&T, turning a profit in his first year. The business was officially incorporated in Texas in March 1984. In February 1985 Shaver hired Gary L. Cox, who would become the chief operating officer and an instrumental player in the growth of Abatix. Before coming to T&T Cox served as a vice-president for a Dallas real estate and construction firm, Diamond Built, Inc. Prior to that position, he spent ten years at W.R. Cox Electric, Inc., a Dallas electrical contracting company, where he ultimately served as president from 1980 until 1984.

In 1986, T&T generated revenues in excess of $1 million. At this time the company also became a supplier to the fast-growing asbestos abatement industry. For the first several decades of the 20th century asbestos had been a common fireproof-ing material used in about 20 percent of all residential, industrial, commercial, and governmental buildings in the United States. Researchers came to realize, however, that the asbestos was brittle, creating a dust that could be breathed in and potentially lead to such diseases as mesothelioma, asbestosis, and lung cancer. As public concern mounted with the release of corroborating studies, Congress in 1984 made $800 million available to the Environmental Protection Agency to launch an asbestos abatement program for schools. Congress then passed further legislation in 1986, the Asbestos School Hazard Abatement Act, while local and state governments enacted similar legislation. For asbestos removal contractors, and suppliers like T&T, the asbestos abatement business held great potential. By some estimates, the asbestos abatement was a $3.5 billion industry by the end of the 1980s, of which the kind of equipment and supplies sold by Abatix accounted for nearly $400 million. By 1988 T&T was well established in its new line of endeavor, prompting management to rename the company Abatix Environmental Corp., which was more in keeping with its new focus, as it worked to become a one-stop supplier for asbestos abatement companies. The company sold one-time purchase items, such as machines that circulated the air in an asbestos containment area, as well as disposable items such as suits and gloves, and polyethylene sheets. In order to better serve its customers, who were often pressed for time, Abatix also carried general hardware items: flashlights, hammers, stapleguns, mops, buckets, and even shampoo and soap for workers who needed to shower after a shift in an asbestos containment area. Another service provided to contractors was a 24-hour hotline.

In December 1988 Abatix opened its second office, located in Hayward, California, a community near Oakland that management believed was underserviced and ripe for its contractor-friendly approach. In March 1989 Abatix went public, selling 300,000 shares in an initial offering that netted $1.1 million. Abatix stock then began trading on the NASDAQ exchange. It was a small cap company that for the year topped $8 million in revenues. Much of the money was earmarked for expanding inventories and the launching of new distribution centers. The company shied away from major markets, leary of cutthroat competition that would trim even closer the industry’s small margins. Overall, Abatix was content to grow at a steady, sustainable rate.

Seeking Diversification in the 1990s

By 1990, asbestos abatement accounted for 85 percent of Abatix’s annual revenues. Management, worried that it was too committed to this sector, initiated a diversification effort, with the intent of lowering that number to the 50 percent range. Much of this caution was the result of recent debates in academic circles and within the industry about the effects of asbestos cleanup, with many suggesting that cleanup activity might actually cause more contamination than simply leaving the sites alone. Although Abatix and other industry voices were highly critical of this view, the company took steps to beef up its involvement in supplying companies that handled other hazardous materials. At the same time, however, Abatix continued to expand its asbestos operations. In February 1990 it opened an office and distribution operation in Houston and also doubled the size of its Hayward facility to keep up with strong asbestos abatement activity in California, which had been one of the most aggressive states in pursuing removal programs. To better serve this key territory, in 1991 Abatix opened a southern California office in Santa Fe Springs.

Abatix continued to expand in the early 1990s, becoming involved in the construction supply industry in 1992. It also grew via external means for the first time. In October of that year it acquired International Enviroguard Systems, Inc. for 250,000 shares of stock. The Corpus Christi, Texas-based company manufactured sorbents, hydrocarbon-cleanup products, which were mostly used in the hazardous materials industry. Expansion efforts on the asbestos side of the business continued in early 1993 with the opening of distribution centers in Phoenix and Denver. As a result of these moves, Abatix saw its sales grow from $11.4 million in 1992 to more than $19 million in 1993. The company opened an asbestos abatement supply center in Seattle in January 1994 and several months later launched an operation in Corpus Christi, in order to better take advantage of its IESI facilities. It was also during 1994 that IESI began to import products that Abatix and other companies distributed in the U.S. market. IESFs original sorbent business, on the other hand, was losing money, and in December 1994 management, believing that there was little chance for recovery, opted to sell these manufacturing assets. Several months later, the Corpus Christi site was sold because the market was simply too small to support the business and all operations were integrated with the Houston office, which served the central and south Texas region. IESI, in the meantime, continued its import business.

In 1994 Abatix recorded revenues of nearly $26 million and posted net income of $217,000. The company took steps the following year to grow its distribution services to the construction tools supply industry. It expanded its Phoenix operation to serve that sector and in December 1995 launched a Las Vegas, Nevada, operation, which concentrated on the construction tool business although it also carried the entire Abatix product line. Revenues grew at a modest rate in 1995, totaling $27.6 million, but the company enjoyed its most profitable year, netting $813,000.

In addition to the asbestos abatement sector Abatix also served contractors involved in lead abatement. Lead-based paints had been known for many years to be hazardous to health, but legal requirements for cleanup had been scant, resulting in modest growth in this area for companies like Abatix. In 1996, however, both the EPA and the Department of Housing and Urban Development instituted new rules concerning lead-based paint in residential properties, whereby home buyers had the right to test for lead-based paint before signing a contract and sellers were required to disclose any known lead hazards. As a consequence the lead abatement business picked up and more asbestos cleanup companies began to enter the field. Abatix also looked to take advantage of this potentially high-growth area.

Abatix in 1996 aggressively pursued the construction and industrial supply industries, as the company topped $33 million in revenues. That number grew to nearly $35 million in 1997, with profits reaching $841,000. A year later, as Abatix focused on growing the construction supply side of the business, it topped 100 in headcount. The company also exceeded $1 million in profits for the first time, $1.17 million on revenues of nearly $38 million.

Company Perspectives

Our full resources will be committed toward our customers, vendors, communities, stockholders, and ourselves. This commitment will be achieved through excellence, equality and integrity.

Acquisitions Due to 1998 Strategy Shift

Also in 1998 the company hired Banc One Capital Corporation to serve as a strategic advisor, to assist management in determining the best way to maintain growth. By November an analysis was complete and the board of directors agreed to pursue a plan to expand via merger and acquisition. Only a few weeks later, in January 1999, this strategy was implemented when Abatix completed the acquisition of Keliher Hardware Company in a $975,000 transaction. The Los Angeles-based industrial supply distributor was well established in the southern California market, with 80 years in business. For Abatix the deal bolstered its presence in this important market and also broadened its product lines. The merged businesses now operated out of Santa Fe Springs, Los Angeles, and Long Beach.

In early 1999 Abatix completed a comprehensive marketing study that led it to restructure its management team to take advantage of the company’s strengths and focus on three strategic areas in order to expand both its range of products and its customer base. Abatix planned, first, to take advantage of the Internet and e-commerce technologies to help customers procure products in a timely and cost-effective manner. In keeping with its approach from the outset of the business, Abatix also was dedicated to creating the first comprehensive supply-chain model in the construction industry, thus bringing the “one-stop shopping” idea to a new level. Finally, Abatix sought to take better advantage of its knowledgeable personnel. More than just selling a broad range of products and providing solid service to customers, Abatix wanted to offer its industry expertise to further assist customers in growing their own businesses.

Abatix also was committed to achieving diversification in its business mix and thus become less dependent on the asbestos abatement industry. In April 1999 the company closed its Denver asbestos operation, which had been experiencing declining sales. Abatix also took further steps to achieve diversification through external means. In May 1999 Abatix announced the $2.8 million acquisition of Phoenix-based North State Supply Company. Abatix paid $2.1 million in cash and assumed $785,000 in debt. North State was an eight-year-old construction tool supply distributor with two locations in the Phoenix market. The business was founded by Dan Birnley, who had more than 20 years of experience in the contractor/industrial supply business. Birnley agreed to stay on to run the Phoenix operation for Abatix. As with the Keliher acquisition, this deal helped Abatix to lessen its dependence on the asbestos abatement supply market. By the end of 1999 asbestos would account for just 35 percent of total sales, a significant decrease from the 48 percent share the previous year. In keeping with its shift in focus, the company also decided at this time to shorten its name from Abatix Environmental Corp. to the more neutral-sounding Abatix Corp. In 1999, revenues grew to $44.6 million, although profits receded somewhat, totaling $461,000.

Abatix devoted much of 2000 to absorbing its acquisitions. It incorporated the new product lines into the company’s previous operations. It also devoted time and resources to develop its e-commerce site, in keeping with management’s new strategic vision. The company’s business was impacted by a black mold scare that occurred late in 2000, which spurred business in 2001. When Tropical Storm Allison struck Houston in June 2001 and caused widespread water damage that could have led to mold problems, Abatix sold an even greater volume of cleanup products. Revenues that improved modestly in 2000 over the previous year, totaling $48 million, soared in 2001, reaching more than $54.7 million. In addition, net income grew from $598,000 in 2000 to a record $1.2 million in 2001. These results were especially impressive given the poor state of the national economy.

In 2001 Abatix launched its e-commerce initiative, but perhaps of more importance to the future growth of the company were the terrorist attacks that took place on September 11,2001. Government agencies at all levels began to prepare for future attacks. In 2002 Abatix took steps to enter the domestic preparedness industry. Supplies needed by first responders were identified and a special catalog was assembled to sell the line. In 2002 Abatix posted sales of nearly $60 million. Of that amount, about 55 percent came from environmental contractors, 17 percent from the construction industry, 16 percent from industrial safety companies, and 13 percent from other firms. Although the company expected that most of its sales would continue to come from environmental contractors, with the domestic preparedness market expected to grow in coming years, Abatix was likely to achieve a more balanced slate of customers than it had ever achieved in the past.

Principal Subsidiaries

International Enviroguard Systems, Inc.

Principal Competitors

Specialty Products & Insulation Co; Strategic Distribution, Inc.; Vallen Corporation.

Key Dates

1983:: Terry Shaver launches T&T Supply.
1986:: The company begins to supply the asbestos abatement industry.
1988:: The company name changes to Abatix Environmental Corp.
1989:: The company goes public.
1999:: Keliher Hardware Company and North State Supply Co. are acquired; the company’s name is changed to Abatix Corp.
2002:: The company supplies the domestic preparedness industry.