Categories Interviews, Technology
Kontrol Technologies CEO Paul Ghezzi: Our focus is on reinvesting for growth
Head of the Canadian smart energy solutions company speaks about its new product BioCloud, its partnerships, and growth outlook for the next couple of years
Tell us about BioCloud, how it’s different from any alternate existing products, and your distribution model.
BioCloud exists as a part of Kontrol Technologies and is an innovation within our air quality group. At Kontrol Technologies, we tackle energy efficiency, emissions and BioCloud is the latest innovation. BioCloud is our quality monitor that is looking for viruses and pathogens in real-time.
We understand that the technology already exists at a lab level. For example, if we went to a lab and said, ‘we are looking for a virus or a pathogen’, there is a technique called the Modified Western Blot, which is a well-established scientific technique. We have taken that process, automated it, and patented that automation into what we call BioCloud. So BioCloud will exist in a room or space as a defined area, and constantly sample the air, looking for early detection. To be clear, it’s not a medical device. It’s an air quality technology and we’ve taken the approach initially that we were going to build our entire distribution network.
We’ve since pivoted to targeting large established global organizations that already have those networks. For example, we have approximately 20 direct distributors. We’ve just brought on Steelcase through an exclusive partnership. They have 800 distributors. We’re also targeting other organizations of that size and scale.
And we think that allows us to focus on the technology, the software, the hardware, and our partners focus on the larger distribution.
What is BioCloud’s relevance once we move past the Covid crisis?
Prior to Covid, no one was really thinking about this. In comes the pandemic, and initially, we don’t know how this spreads. Now the science around spread is much better.
Now we know indoors it can spread 18 times faster than outdoors, especially if it’s poorly ventilated or in a poor air quality area. The principle behind BioCloud is it’s built to have approximately a 15-year life through the hardware and the software and we have what we call a replaceable detection chamber.
And that detection chamber is specific to a certain virus or pathogen. So that detection chamber can be switched to something else. Of course, right now, Covid is the primary concern, but what is the next concern? So never did we take the position that this was a COVID analyzer.
We see many applications and we don’t know what the next pandemic is going to be. So I think it’s kind of a future-proof technology for air quality, early viral detection, and pathogen monitoring.
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How does the acquisition of Global HVAC sync with your existing technology?
When we started our journey in August 2016, as a public company, we had a million dollars of revenue. We’ve put an outlook into the market this year that says we’re going to do about $38 million of revenue. So our growth has been fantastic. Global adds to that growth and it helps us accelerate to that hundred million of revenue run rate, which we are really working hard to get to.
When we look at the overall platform, really what defines a customer is any building over 40,000 square feet. All those buildings have the same challenges, maybe in different forms. But energy consumption, sustainability, emissions, and air quality are big challenges. So we look for any company that fits into our portfolio, which can help us solve those challenges.
We do acquisitions a little differently here. We are value buyers. So when we look at an acquisition, we’re typically buying it four to five times EBITDA. And we’re looking to see if we can scale the business and create synergies within our operating platform.
Global is a project business with high revenue and a very low service business model. And we can interject our service business into Global to create those cross energies. And I think it’s a very exciting opportunity to scale the revenue and also add new revenues as we grow.
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How do you plan to fund these acquisitions?
We’ve been very strategic in the way we raise capital. Every public company has to raise capital or else why go public. But we’ve been very careful to use a good combination of debt and equity. Right now we have 47 million basic shares outstanding. It’s a very tight structure. The management owns slightly around 30%. We have about seven million of debt. Relative to our equity, it’s a low debt position. So we have a lot of levers we can pull.
But what we have essentially determined to be the case is we don’t buy technology. We buy cash flows and customers. We innovate technology in-house. It allows us to keep the valuations down when we make an acquisition. It also allows us to properly capitalize and fund the business because if you can raise capital that’s accretive, put a great acquisition on the books, over time the valuation of common shares should respond to that. That approach, I think has been good for us.
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You are generating consistent revenues; importantly you are starting to see recurring revenues. What’s your timeline to hit consistent annual profits?
When you are scaling a small cap, we don’t look at net income as the measure of success.
What we look at is fundamentally can we grow the business aggressively? Can we remain EBITDA positive? And can we operate as cash flow positive but not be a huge cash flow generator because we’re reinvesting in our business? I think we’re very comfortable with that model.
We like to have financial discipline in the business. Focus on revenue growth, EBITDA-positive, manage your cash flow, and net income will come over time. When you’re a public company, things that can go against you on income are when you’re using stock options to reward employees for performance.
Those are all things that create negative net income. It’s not really where we focus. I think EBITDA is a good measure of health if you’re generating a cash flow from the business and we are today. So we’re very comfortable with that position.
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What’s on the cards for Kontrol management over the next two years?
We are super bullish on the business. I think the industry we operate in is really interesting on many levels. Buildings are going to consume half the world’s energy in the next 10 years. If you think about that, it’s an amazing statistic. The other part of that is buildings contribute 40% of greenhouse gas emissions. And buildings aren’t going away. When we think about buildings as an ecosystem, what we’re essentially providing is a solution to all the challenges that buildings face.
We have recently announced that we are developing a carbon credit platform for building owners. We’ll be announcing that shortly.
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