Interview: David Lucatch, CEO of Intertainment Media

While some, including The Globe and Mail, implied earlier this year that their numbers might be a trick, (a statement that was subsequently retracted), Intertainment Media (TSXV:INT) has been mostly a treat for Canadian tech investors this year.

On the strength of Ortsbo, software that translates, in real time, more than fifty different languages across a dozen social media platforms, Intertainment rocketed from pennies in January to a high of $3.35 before coming back to earth. With the controversial stock that has traded billions of shares this year once again showing signs of life, Cantech Letter’s Nick Waddell caught up with CEO David Lucatch at The Stocks 2011 Conference at The Vancouver Hyatt on October 30th.

David, we last caught talked with you in May, can you catch us up on Intertainment?

Since May? Wow. Let’s see. Ortsbo has grown at a fantastic rate and it continues to grow. We reached 32 million unique visitors last month and just over a quarter of a billion minutes. Ad Taffy has added some really great clients to the stable such as The Red Cross and ScotiaBank. And Knctr has grown to over three million users. So things are going very well. Magnum, our traditional business is doing very well. The big mainstay of our growth over the past few months has, of course, been Ortsbo.

In your presentation here earlier you described Intertainment Media as an “incubator”. Can you talk a little bit about that idea?

Sure, Intertainment was always built to grow independent business units. That model is traditionally known as an incubator. We believe that Ortsbo has grown in valuation potential, especially in the US, to be larger than the company itself. So we feel we now have to unlock the value of Ortsbo. To do that we might require it might require a mechanism outside of Intertainment.

So are you talking about the possibility of spinning off Ortsbo, or spinning off every company that you incubate?

I don’t think spinning off everything is the right way to go. I think you have to assess each individual opportunity. Ortsbo itself has created such an individual brand identity that its now more important that we individualize it further and prepare to monetize it further. And to do that we have to think about what’s in the best interest of the shareholders and the company. Shareholders want maximum value, and if Ortsbo is being hampered by being inside another corporation and its identity being clouded then we have to look at that. As other business units grow we might have the same challenges with those.

One of the things you have managed to do this year is put a lot of cash in the bank. How does that change the way you approach the future? Does the money allow you to look at opportunities that you might not have been able to before?

It certainly does do that, but what it allows us to do is allow us to set out our operating plan to grow. We been very fortunate this year we changed the fortunes and the balance sheet of the company dramatically. We went from as fledgling company that at the end of 2010 was receiving its cash injections from myself and other directors writing cheques, to one that is stable and stands alone and is ready to grow. And we’ve still stuck with it; management invested something in the neighborhood of $1.25 million in our last round. But at the end of the day its really about execution, and if you are hampered trying to raise money all the time its really hard to execute because it becomes a big part of your business.

So I guess there’s that big block of time that you had to put aside to raise money that you can use to focus on the business…

Absolutely, without a doubt. The vision that we have can be executed without external forces. And its not just the time to raise the money, but there’s the old golden rule “He who has the gold rules”. This gives us the opportunity to take the vision and plan and put it into execution mode.

Ortsbo has gotten to a point right now where it’s almost synonymous with Intertainment. But there are these other divisions. Can you tell us where Ad Taffy is at?

We have a great team that operates Ad Taffy, led by our CMO Brad Parry. The success of Knctr and Ad Taffy has a lot to do with Brad’s execution and the corporate visions combined. So I want to give a hat’s off to Brad in that respect. We’ve never lost sight of all our divisions. It’s just that, you know one of your children might become an Olympic swimmer, it doesn’t mean the other children are lost, it just means that at that point in time one has taken the forefront and Ortsbo has. Ad Taffy and Knctr we think have great life, so we’re spending a little more time and resources on those.

I learned from today’s panel that you have a bit of a contrary view of tech investors in Canada..

There are so many smaller investors these days. We had one private investment group in our last private placement put eight figures into the deal, in Canada. This is just private investors. A lot of people tend to believe that there aren’t a lot of tech investors in this country, but I think you just have to spend the time cultivating the relationships. In our last private placement there was high volatility in the markets and the time and a lot of brokerage firms chose not to participate because of that. We were oversubscribed and it was, I think the largest non-brokered tech financing in Canada this year. People will tell you what you can’t do all the time. That’s where I become very contrarian. I don’t like people telling me what I can’t do.

You feel that maybe we can’t scale up to billion dollar businesses, but that there is an opportunity for smaller, internet based businesses in Canada?

Yeah, We’re kind of fortunate at Intertainment in that right now, we’re kind of the leader of the pack. But I suspect that other companies such as Poynt, Selectcore, iSign Media etc. could become the leader. In fact I’m doing as much as I can to encourage other companies to do what Intertainment has done well and to not make the mistakes we have made.

What have you done well?

I think what we have done well is communicated well. One would argue that could have been to our detriment when there was volatility on the market and there was a lot of open shorting. The shorters at that time I think were taking advantage of how communicative we were. But I don’t think it can be argued that we’re not a great communications stock. Some people might argue that we have too many press releases, but part of our mission statement is to educate the market. And you can’t educate the market once a week or once a month. We’re a company that has great marketers, but are also great technologists. Many companies just have one or the other. You have to be cognizant that you are on show.

You mentioned to me one real tangible benefit of close communication with your shareholders; Ortsbo actually came from one of your investors.

Yeah, one of our shareholders came to me and said “I want you to look at this technology”. I was so busy with something else it actually took me six months to look at it, and when I looked at it, it was a good kernel of technology, but it was really rough around the edges. Also, at the time people didn’t believe we were technologists, they thought we were just a marketing company. They believe we are now. This software is brilliant. We made a deal that was favorable to the developers, and as it grew out the team that we bought the underpinning technology from have been wonderful to deal with all the way through. It’s been an honorable and open relationships because we didn’t go in as “vulture capitalists” we went in there as partners. We want to treat everyone around us as partners. Nobody works for us, everyone works with us. And it’s a philosophy that we have carried forward through almost thirty years of business. We still have a small company atmosphere even though we’re now located in two countries, soon to be three or four.

Are you looking at acquiring other businesses?

Yeah there are some things we are looking at that may have a huge impact for Magnum. We look at core values, core strategy, we look at partnership we think we can get into and grow. We’re not a funding organization, we’re a partnership organization. So when we work with people the philosophies have to align. But to answer your question, we are actively looking.