For most of its 60-plus years, Duluth-based Ikonics has operated as a supplier of screen-printing equipment and services to industries including electronics and textiles. It also produces sand-carving equipment for mostly small shops supplying trophies and awards. These capabilities have made for a quietly prosperous business.
Revenue (2013): $17.5 million
Net Income: $682,100
But this year, Ikonics hopes to make some noise—and set itself up for big growth. Ikonics chairman, CEO and president Bill Ulland calls 2015 a “pivotal year” for his company. That’s because a few years ago Ikonics began attracting some remarkable new customers—Ford and GM, as well as components suppliers to Bell Helicopter and airplane manufacturers Airbus and Bombardier. While building up this new business, Ikonics has been consistently posting record-sales quarters. It also has totted up some major expenses as it adds new equipment and breaks ground on a new facility.
Even with its new markets, Ikonics remains—so far—a small business, with 75 employees and 2013 revenue of $17.5 million. But it’s a business that is using its established base of technologies to innovatively create new opportunities. Ikonics thinks it has little choice. One reason: It bears the burden of being publicly traded.
Chatting from his corner office in the historic Empress Coffee building in West Duluth, where Ikonics (Nasdaq: IKNX) has its headquarters, the casually dressed Ulland is frank about the challenges his company faces, as well as its successes. When Ikonics was founded in 1952, Ulland says, it was “cool to be a public company.” It was a simpler time, before Sarbanes-Oxley and other regulations made public reporting a more complicated and expensive undertaking.
“It’s hard to comply with the rules when you’re a $17 million company,” Ulland notes. Ikonics looked into going private, but “we could never make the numbers work,” he says. “Insiders own about 50 percent of the company, and many are at a stage in their lives where taking on a major investment probably wouldn’t be a wise strategy.”
What to do? Pursue “some new businesses that had more upside,” Ulland says. “Not only to have more appeal to the investment community, but just to get our sales up so that we could justify being a public company.”
For most of its history, Ikonics’ core competencies have revolved around film coating, abrasive etching and industrial inkjet printing. Its complex customer base includes textile manufacturers in Turkey and India, East Asia electronics makers and small Main Street shops selling trophies and awards. About a third of its sales comes from customers outside the United States. While this has made for a steady, profitable company, those capabilities, Ulland acknowledges, are “not very sexy” for investors.
About six or seven years ago, an aircraft company designer contacted Ikonics to ask whether the company’s acid-etching technology could be used for creating perforation patterns that would deaden sound inside aircraft. That aircraft project didn’t come to fruition, but it did flick a switch at Ikonics, which began to attend aviation trade shows and make contacts among aircraft manufacturer suppliers.
This spadework has resulted in promising opportunities: new commercial aircraft with fuselages made primarily of carbon-fiber composites. Airplane manufacturers are introducing composite materials because they are strong and lightweight, resulting in lower fuel costs. Two of the new planes are variants of the Airbus A350 family of wide-body airliners; the other is Bombardier’s CS100 narrow-body plane. All three types of planes are expected to be delivered to customers this year—the first Airbus A350s were delivered to Qatar Airlines in January.
Ikonics’ contributions to these new craft are modest and behind the scenes, but still crucial. The company machines patterns of perforations in carbon-fiber composites that deaden sound and reduce weight. The process, according to the company, results in cleaner perforations compared to mechanical drilling and water jets that currently dominate this aspect of the industry. It’s also less damaging to composite material.
Despite these selling points, Ulland says that building an aerospace business has been “a long slog.” It’s a conservative industry, and displacing existing vendors is difficult. Ikonics has been pursuing a different strategy—“get into the front end” of new aircraft development with the hope that “we’re difficult to displace,” he adds.
The new Airbus and Bombardier planes that Ikonics has been working on have spent a lengthy and often bumpy time on the runway. Bombardier first contemplated entering the narrow-body market more than 17 years ago, and has reportedly spent more than $4 billion developing its CSeries planes, which will go head to head with the Airbus A320 and Boeing 737, both well-established narrow-body planes. The Airbus A350 planes, meanwhile, have been designed to compete in the wide-body market with Boeing’s 787 Dreamliner.
Ikonics appears to be entering the aircraft market at the right time. Global demand for new planes is booming.
Ulland says that Ikonics has “firm and verbal assurances” that it will continue to be a supplier to major aircraft companies during the 2015-16 ramp-up period. While there are no guarantees, he believes his company is well positioned to participate in long-term programs of 10 years or more.
The Airbus and Bombardier manufacturers aren’t the only aviation users of Ikonics’ technology. The Duluth company also is machining composite components for a new helicopter being manufactured by Texas-based Bell Helicopter. The technology here is similar to what Ikonics is using for the Airbus and Bombardier airplanes—robot-driven machining of sound-deadening perforation patterns on compound-curved surfaces. “This is a unique ability that we have—to machine large composite pieces,” Ulland says.
While aircraft have been the main driver of the company’s new business, Ikonics also has pursued a niche application for its technology in the automotive field. Here, Ikonics has translated its digital imaging technology, patented films and acid-resistant inks to the creation of transfer films that allow automakers to more easily make the molds that create texture patterns on dashboards and other components. Ikonics also supplies a prototyping technology that creates the texture patterns right off the inkjet printer. This allows the auto companies to see the final product in real time.
This product also is used in the interior of the concept cars seen at auto shows. Ikonics sells a complete system, with a division of Illinois-based manufacturing equipment maker ITW providing the printer, and Ikonics providing the “consumables”—the ink and film. For some automaker customers, Ikonics will print transfer films and prototype parts in Duluth and ship them worldwide.
Another small but notable business line for Ikonics is machining electronic wafers for military and biomedical applications. One of its major customers is Honeywell Aerospace, which uses Ikonics wafers in projects for the U.S. Defense Advanced Research Projects Agency.
At this stage, Ulland says, aerospace and automotive jointly make up about 10 to 15 percent of Ikonics’ business, with the majority of revenue coming from the company’s traditional businesses. But Ulland projects that Ikonics will see substantial revenue growth from its work for aerospace and automotive customers.
All this intriguing business activity has had a mixed effect on Ikonics’ stock price. IKNS remains lightly traded, with a little more than 2 million shares outstanding. While sales have increased, expenses also have been high, as the company adds equipment for its newer businesses.
And Ikonics continues to gear up. In August, it hired a new operations manager, Sue Boudrie, who had worked as a manager at Boeing. “She’s been a real help to us in streamlining our processes and making those processes conform to the expectations of the aerospace industry,” Ulland says. The company also expects to add a few more employees this year.
In 2008, sensing it would need more room, Ikonics built a second facility on the former Atlas Cement factory site adjacent to now-empty land in West Duluth, where the U.S. Steel plant once loomed. Originally intending the new 30,000-square-foot building to serve as a warehouse, Ikonics found it needed to use some of the new space for manufacturing. Now that it needs to expand that manufacturing space even more, it will break ground soon on a 20,000-square-foot building nearby.
The Duluth Economic Development Authority (DEDA) plans to develop the entire Atlas site into an industrial park. Heidi Timm-Bijold, business resource manager for the City of Duluth, calls the Ikonics building “a great project to have as a flagship on a site we have to tackle incrementally” due to environmental remediation issues.
DEDA views the Ikonics’ expansion as translating into new jobs. “These would be really good jobs, from production to engineering,” she says. Ikonics, she adds, “has an exemplary leadership team—very strategic. They take very measured business risks.”
Ulland notes that Ikonics’ western Duluth operations provide a facility that’s presentable to visiting aerospace executives. “There’s a bit of a ‘build-it-and-they-will-come’ aspect to this,” he adds. “But we think we have a winning ticket.”
Gene Rebeck is a Duluth-based freelance journalist who writes monthly for Twin Cities Business.