Tech Firm Eyes Profitability with 60% Margins on Cybersecurity Products

• Nerds On Site is a publicly traded Canadian technology services company with a subsidiary in the U.S., focusing on small-to-medium enterprises (SMEs) and providing tech and cybersecurity services.
• The company has approximately 12 million CAD in revenue, with 150 contract players (consultants) and only about 7-8 employees, operating on a markup-based model.
• Their primary product is a cybersecurity solution that has prevented ransomware and malware incidents for 13 years, with a 60% markup margin.
• They recently launched Noos Technical Services, targeting state governments and pharmaceutical companies with specialized talent placement and technical services.
• The company aims to increase gross profit to 32.5% (currently about 3 points away), achieve profitability by the end of 2025, and complete at least one acquisition this year.

Nerds On Site is a publicly traded technology services company based in Canada with a wholly owned subsidiary operating in the United States. Led by Charlie Regan (CEO), the company focuses on providing comprehensive technology support and cybersecurity services to the small and medium enterprise (SME) market, defined as businesses with 5-500 seats. The company currently generates approximately CAD $11-12 million in annual revenue.

Charlie Regan's involvement with the company began around 30 years ago when he invested in what was then a startup. After six years as a passive investor, Regan became more actively involved in the business, helping to expand it across Canada within 18 months and eventually into three countries. Today, Nerds On Site trades on the Canadian Securities Exchange (CSE) and is also listed over-the-counter in the U.S.

Business Model and Client Base

Nerds On Site operates with a lean corporate structure, maintaining only about 7-8 employees on the payroll while utilizing approximately 150 contract players (independent technical consultants) who deliver services to clients. These contractors are paid on markup, which helps the company minimize accounts receivable exposure.

The company serves approximately 13,000 clients annually across more than 117 different industry verticals. Their client base is segmented into three main categories: small office/home office (SOHO) with 2-5 seats (20% of revenue), SMEs (50% of revenue), and enterprise clients (close to 20% of revenue). Notable enterprise clients include Canadian Tire, Canada's largest retailer with 550 locations, and a Florida-based bank chain with 24-28 branches.

The contract consultants operate under the Nerds On Site brand, utilizing branded vehicles ("Nerd mobiles") to create a visible market presence. These contractors not only deliver services but also act as the company's sales force, presenting and selling the company's offerings while building their own businesses under the umbrella of the Nerds On Site brand.

Cybersecurity Focus and Differentiation

Cybersecurity has become the company's primary lead-generation product. Unlike competitors who focus on removing threats after breaches occur, Nerds On Site's approach focuses on preventing breaches altogether. Their cybersecurity solution, developed by a related party company, has been deployed for 13 years across millions of devices globally without a single successful ransomware attack or email-based malware infection.

"Our approach has always been different. We fortify the house so that nobody can get in and even when you do get in, you can no longer communicate with your bosses, those criminal control boards in whatever nation they happen to be... All of our clients that go on our system, on our network, they appear dead, completely unplugged from the internet when our cybersecurity is in place."

The company sells this solution with approximately 60% markup, providing strong gross margins. They have developed specialized "Edge devices" tailored to specific industry verticals, including manufacturing, retail, hospitality, and legal/accounting sectors, which can be integrated with existing systems like Cisco.

Growth Strategy and New Ventures

A significant recent development is the launch of NOS Technical Services, a new division focused on providing specialized contract technical talent to state governments and pharmaceutical companies. This division is 100% U.S.-based and has been operational for about six months, with revenue generation beginning very recently.

"We expect that [NOS Technical Services is] going to be the fastest growing division by a good measure. Our targeting for NOS Technical is to be even with our Nerds On Site technical—just our regular business—within two and a half years."

The company believes current political and economic uncertainty in the U.S. could actually benefit this business model, as government agencies may become more hesitant to make long-term hiring commitments and instead turn to contractors. NOS Technical Services places highly specialized talent, including doctorate-level professionals, providing a clean gross profit stream for the business.

Interview with CEO Charlie Regan

Client Acquisition and Sales Approach

While sales cycles for cybersecurity products can be lengthy, Nerds On Site receives approximately 30-50 new applications daily through their online channels and international call center. The company also recently launched "Nerds Online," a 24/7 call center support service priced at CAD $39.99 per month, which they're marketing to both existing clients and approximately 9,000 prospects who previously could not afford their higher-priced offerings.

A particularly effective sales technique for their cybersecurity products involves real-time demonstrations of security vulnerabilities. Regan described their approach: 

"We hook into a company's network while they're all sitting around the boardroom table and we show them how many data drips are taking place right now... Here's a bunch that are going to North Korea, here's a bunch that are going to Russia... and of course eyebrows rise and people look agog at the actual real-time data."

Financial Performance and Targets

The company reports being up 7.5% over the previous year's revenue and is targeting 10% growth for the current year. Management aims to achieve a gross profit margin of 32.5%, which they believe will make the company "comfortably profitable." They are currently approximately 2.5-3 percentage points away from this target but expect to close the gap by the end of calendar year 2025.

"By the end of 2025, we're targeting about four to five million American [dollars from NOS Technical], and it's going to turn our bottom line into profit by the end of this calendar year." 

Mergers and Acquisitions Strategy

Nerds On Site is actively pursuing acquisition opportunities, particularly targeting managed service providers (MSPs) in the U.S. whose owners are approaching retirement age. The company's strategy is to acquire these businesses and upgrade their clients to a higher-level managed security service provider (MSSP) model by implementing Nerds On Site's cybersecurity offerings.

Regan indicated a preference for keeping acquired company owners on board for 2-3 years to ensure smooth cultural transitions. The company is working to improve its share price to make equity-based acquisitions more attractive and plans to complete at least one acquisition before the end of 2025.

Competitive Landscape and Challenges

In the cybersecurity space, Nerds On Site faces competition from established players with significant market presence and high margins. When competing against these entrenched providers, the company often encounters aggressive price reductions from competitors seeking to protect their market position. Regan acknowledged this challenge, noting that 

"The margins that these other cybersecurity space players [have] are gargantuan... 60% for them is a joke. They're operating on much higher margins than that."

Another significant challenge is overcoming client inertia, particularly the "but we've always done it this way" mentality. The company's strategy to address this includes educational outreach and real-time demonstrations of security vulnerabilities. The company has also had success converting clients after security incidents at similar organizations, with Regan mentioning municipalities that declined their services only to suffer ransomware attacks costing taxpayers "sizable sums of money" shortly thereafter.

As Nerds On Site continues to develop its service offerings and expand its market presence, the company appears positioned to capitalize on growing cybersecurity concerns and the trend toward specialized technical contracting in both the private and public sectors.

Investment Thesis for Nerds On Site

• Track Record: Cybersecurity provider with proven preventative solution and 13-year history of zero breaches across millions of devices
• Lean Structure: Capital-light model with 150 contractors vs only 7-8 employees minimizes overhead costs
• Profitability Path: 60% markup on cybersecurity products driving toward 32.5% overall gross margin
• Growth Engine: New technical services division targeting 100% growth within 2.5 years
• Consolidation Play: Acquisition strategy focused on retiring MSP owners in fragmented U.S. market
• Client Diversity: Recurring revenue model with 13,000 clients across 117+ industry verticals
• Market Differentiation: Unique preventative approach in crowded cybersecurity market with proprietary "Edge devices"
• Financial Target: Management projecting bottom-line profitability by end of 2025

Macro Thematic Analysis

The cybersecurity landscape continues to evolve rapidly, with SMEs increasingly becoming targets for sophisticated attacks. This sector represents not just a defensive necessity but a strategic growth opportunity for companies like Nerds On Site that can provide comprehensive protection.

The market dynamics clearly favor a shift from reactive to preventative security approaches. As Charlie Regan highlighted with the municipal examples, organizations often only appreciate cybersecurity value after experiencing costly breaches. According to Regan, municipalities that declined their services were "hit with huge ransomware that costs every taxpayer in their community sizable sums of money" within months. This reactive mindset creates a significant education opportunity for providers with proven preventative solutions.

Political and economic uncertainty is creating additional tailwinds for flexible technical service providers. As government agencies and corporations hesitate to make long-term hiring commitments, contract-based technical services become increasingly attractive. This trend particularly benefits Nerds On Site's new NOS Technical Services division, which places specialized technical talent with state governments and pharmaceutical companies.

The demographic shift among managed service provider owners who are approaching retirement age creates a consolidation opportunity, allowing acquirers to upgrade clients to more comprehensive security offerings. This acquisition strategy leverages multiple macro trends: aging technical business owners, increasing cybersecurity requirements, and the evolution from basic managed services to more sophisticated managed security service provider models.