DealNet Capital Corp. (CSE: DLS) President and CEO Robert Cariglia describes the appeal of investing in a recurring revenue business and why the Heating, Ventilation, and Air Conditioning (HVAC) industry represents an “exciting opportunity” for his company.
He also explains how the DealNet concept is scalable geographically and within other industries and talks about how the company’s recent acquisitions should power its growth this year and into the future.
The SmallCapPower CEO interview transcription:
Mark Thorburn: Welcome Bob; please tell us about DealNet, its various divisions and the respective business models.
Robert Cariglia: DealNet Capital was established two years ago and it was established for a couple of reasons. One is we’re very interested in the recurring revenue business and we’re also very interested in finding underserved markets that can use our services and capabilities. We really break down into two divisions, one is our OC Communications Group, which is a business process outsourcer, and we provide call center services and business process outsourcing through three locations, one located in Toronto, one located in Reno, Nevada, and the third one in Fort Meyers, Florida. Last year we also established a second division called One Dealer Group and One Dealer Group was established to provide services and financing to the Heating, Ventilation and Air Conditioning industry, or the HVAC industry. And what we really love about that industry is that it’s truly an underserved market because there’s 84,000 dealers across North America who really can use our services. So as we look at both of these, both divisions are working in underserved markets, they’re both growing markets, plus both are recurring revenue opportunities, when you sign an agreement on the call center side, they’re typically three to five year contracts and once logged in you perform, you see that revenue month over month and of course on the dealer side you have the opportunity to sign long term contracts, which are recurring revenue month after month as well. We bundle all of this together in a parent company, which is a public company. We trade on the CSE as DLS and we see exciting things, we’ve got a great supportive group of shareholders and we see great things happening with the company overall.
Mark Thorburn: Why did you choose to provide services to the Heating, Ventilation and Air Conditioning industry?
Robert Cariglia: The HVAC industry is really an exciting opportunity for us, there are about 84,000 independent dealers across North America and these tend to be small companies who are very capable when it comes to quoting, installing and servicing equipment but where they lack skills and time frankly is their back office. So what we do is we provide to them a whole suite of services. Marketing services, call center services, and all the way through to finance services so they can go to their customers and they can provide them with rental opportunities, they can provide them with financing opportunities, it’s all turnkey, we make is very easy for them. One of the aspects that we really like about the rental programs in the HVAC industry, these are long term secure contracts that are signed, normally ten years, and the beauty of that is we’re able to receive, once a contract is signed we’re able to receive a recurring revenue stream over ten years or more and very typically these contracts continue past their contract date and go for twelve to fifteen years. So once they’re in place they really become a fantastic opportunity to build a recurring revenue base.
Mark Thorburn: What is the value proposition for an independent dealer to join your network?
Robert Cariglia: We think we’ve got an amazing value proposition for these independent dealers. Number one, as we just discussed, they’re independent and we respect their independence, we make sure that those dealers always are in front of the customers and that they own the customer relationship, number one. Number two, these dealers are very familiar with the space so we allow them to set their prices and based how they set prices we can provide them with a finance rate or rental rate that meets those prices. Number three, we always give that dealer the first right, the first option to go in and service that customer. Whether its service or whether it’s a resale opportunity, those dealers always get the first option to go in, look out for that company and over time that’s very important because that’s a huge revenue generator for those dealers. And then number four because of that fact that we’ve got recurring revenue we realize that that is an important aspect, not only in our business but the dealers business as well. So every time we do a collection from a customer, we actually provide a small commission for the dealer on a monthly basis, and as you can imagine as they add more contracts and as the years go on, that monthly commission becomes very significant for them. One thing the dealers love about it is they look at us and they say thank you, now I understand I’ve got a pension plan or now I understand that I’ve got a succession plan.
Mark Thorburn: Does your company have any plans to expand into other industries?
Robert Cariglia: The beauty of this particular model is that it’s optimal to more than just the HVAC industry. In fact if you take a look at the whole homes services industry, and I’m talking about roofing, windows, asphalt, driveway guys, this model really fits any of those home service industries where the owner and the operators are very good at what they do but they really could use some assistance in providing all of the back office services. So once we perfect this, our opportunity here is to expand across Canada, expand into the US with the HVAC industry and then from there we’re going to take it and look at other industries where this is applicable and we think there’s many.
Mark Thorburn: Can you elaborate on Synergies between OC Communications Group and the One Dealer network?
Robert Cariglia: OC Communications Group is really our platform, it’s a business process outsource company so we do a lot of contact center work, call center work, we do a lot of business processes on behalf of some terrific blue chip companies and we’ve really honed our skills over the last eight years in providing those services. The synergies between the two divisions is that we can create all the service that are required for the HVAC industry within OC communications and so the beauty of that is we’re using existing expertise, we’re using existing resources, we’re able to scale across all three of our locations, again being Toronto, Reno and Fort Meyers, so as we expand in the HVAC industry across North America, we’ve already got our platform and we’ve already got our footprint. The other beauty of it is we didn’t have to replicate those resources in the One Dealer organization and we’re able, we really are an internal customer to the OC Communications Group so it’s the perfect way to grow a business.
Mark Thorburn: Can you discuss your recent news regarding the pending accusation of a mobile message company?
Robert Cariglia: That is very exciting news and we’re really excited about this. This mobile messaging company will really fill out our offering with OC Communications. The two together, obviously OC Communications, we’ve got a group of customers who utilize us for our business processing outsourcing skills and our customer support skills but that’s been primarily using either technology or using voice solutions. What the mobile messaging company does is it really provides us with a greater solution base and that means, if you think about it, today smart phones are really the center of our universe, they’re really with us all the time, they do everything from emails to text messaging and they’ve become marketing tools for industries and this really allows us the opportunity to provide our clients with one solution, providing voice solutions and mobile marketing solutions and by mobile marketing solutions means we can push information to those customers who opt in for that information and so when they go to a retailer, when they are out looking to make a purchase, we can be pushing really good information to them in way that they want to receive it. So we see this as a fantastic opportunity, we’re very excited about this company and we’ll have more news on this in the very near future.
Mark Thorburn: What investment catalyst do investors have to look forward to over the course of the next twelve months?
Robert Cariglia: Well when I take a look at the next twelve months it’s all about execution and execution across all of our divisions. When I look at OC Communications, we’ve got an amazing pipeline right now, last year we closed almost $30 million dollars of business that we will perform over the next four and five years, and this year our pipeline is still very strong. So when you take a look at OC Communications as a division, it’s going to keep performing, its going to keep growing and we’re very excited about the prospects there. When you take a look at the mobile messaging company and the synergies that we will create between those two, we think that there’s even additional opportunity as we go out to our clients and provide them with a full solution, one stop shopping if you wish, and when we take a look at the One Dealer division, it’s just a huge opportunity and we’re spent a lot of time last year putting together our processes, making sure that we’ve got the appropriate people, growing our dealer network and we now have dealers in place who are using our services and it’s all about execution. And what we will do over the balance of this year is roll out that program, we expect to deploy somewhere in the range of 25 to 30 million dollars of underwriting capital this year and as we do that and as we take hold in this industry we see big things happening for not only this year but next year as well.
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