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Q Comm International is in a market
segment that is growing with an electronic solution for merchants selling prepaid products
(QMM - AMEX)
Q Comm International Inc.
510 East Technology Avenue Building C
Orem, UT 84097
Chief Executive Officer
Interview conducted by:
Terry Kramer CEO, President & Board Member - In the previous few years prior to
joining Q Comm on a permanent basis in 2004, Mr. Kramer worked as president of AirTouch
Paging, vice president and general manager of the Southwest market for AirTouch Cellular,
vice president of business development for AirTouch Europe, vice president of corporate
strategy, development and human resources for AirTouch Communications, executive director
over investor relations and corporate communications for AirTouch Communications, and
executive director over applications and operations for AirTouch International. In
addition, Mr. Kramer has served as an advisor or board member of several wireless
telecommunications companies including 724 Solutions, FiberTower, and Sonim Technologies.
He also has more than 12 years of experience working with Vodafone/AirTouch and PacTel
Corporation in various executive positions from 1988 through 2000. His experience includes
Mr. Kramer earned an MBA from Harvard University in 1986 and a BA in Economics from UCLA
Established in 1992, Q Comm International provides proprietary prepaid transaction
processing and information management systems that facilitate electronic recharge or
distribution of prepaid products from service providers or their distributors to retail
points of sale. Q Comm's solutions replace traditional hard cards (also known as scratch
cards or vouchers) that are costly to distribute, and provide more comprehensive reporting
and inventory management among other benefits. In concert with its proprietary data center
platform, Q Comm's point-of-sale terminal, Qxpress 200(TM), is currently used by wireless
carriers or mobile operators, telecom distributors, and various retailers to sell a wide
range of prepaid products and services including prepaid wireless or prepaid mobile,
prepaid phone cards, prepaid dial tone and prepaid bank cards, such as prepaid MasterCard.
CEOCFOinterviews: Mr. Kramer, how has Q Comm changed since
you became CEO?
Weve focused a lot on expanding our growth efforts here, got more sales people
that are set-up geographically across the U.S. and Canada, launched new products, taken
our application and put on a new device, a Verifone Omni 3750 credit card processing
terminal that appeals to new customers. Weve also changed the corporate logo the
corporate look and enhanced a lot of our communications with our merchants, especially as
we start them up in selling activities. All of those things have combined to help
accelerate the growth of the company.
CEOCFOinterviews: Please tell us about your basic product and
Mr. Kramer: We provide transaction processing and
electronic distribution of prepaid products. Our primary product is prepaid wireless. For
people that are on a prepaid plan with Verizon Communications (NYSE: VZ), Cingular
Wireless, AT&T (NYSE: T), etc, and need to get their service replenished or topped up,
we have a terminal that goes into a retail store location that allows that store to sell a
prepaid card on the spot to that person, any carriers product, any denomination. The
big benefit of our product is that the retail merchant doesnt have to stock what
were called prepaid hard cards; these were cards that had actual value to them
in dollars, $20.00, $30.00, $50.00. Those cards historically have been subject to theft by
customers and even employees. They also represented a large inventory carrying cost for
the merchant. With our electronic distributions solution we are able to take our terminal,
put it in a retail store, have that connect to a data center that we run and allow the
whole sales process to be done electronically. Once that merchant sells the product, after
the fact we debit their bank account and only after the fact does that happen.
CEOCFOinterviews: Do you need to have contracts with the
Mr. Kramer: Thats a good question. Most of the
carriers want the broadest possible distribution, because they want to make it easy for
their customers to replenish their service, otherwise they would have a potential customer
that would disconnect. They are fairly anxious to broaden the distribution, so we go and
buy pin supplies from the carriers or from other distributors depending on where the
pricing and the margins seem most attractive. We then inventory those and make them
available to all of our brokers and merchants.
CEOCFOinterviews: How do you reach the merchants?
Mr. Kramer: Our distribution model today is about 75%
indirect and about 25% direct. On the indirect side we identify brokers or distributors,
people that then contact individual retailers or merchants. These brokers can be people
that supply convenience stores, they can be long distance companies that are already
selling long distance hard cards and want an electronic distribution solution. They can be
wireless agents; anybody that is calling on retail stores direct. That has been roughly
75% of our business and it has worked well overall in that those brokers have local
relationships with merchants. These merchants are convenience stores, gas stations,
wireless shops and grocery stores. We also maintain some direct relationships with larger
retailers. One of our larger accounts is Iowa Wireless Services (now named i
wireless), which is a large regional wireless carrier with many of their own retail
stores. In this case we have a direct relationship with them because of their size.
CEOCFOinterviews: What are you actually selling and what is
your sales model?
Mr. Kramer: We sell a couple of things; one is
primarily the application. This application goes onto a device and that device can either
be one of our own, what we call a Qxpress 200(TM) terminal, or it can be a credit card
processing terminal, such as what you would see in a restaurant or grocery store. We load
our application onto those terminals and the way the model works for most of our customers
depending on volume is that there is a lease fee for the terminal, roughly $20.00 per
month and then we will keep a certain percentage of the retail sales of what they sell and
that can be 2, 3 or 4%. If there is a broker involved they will also keep 2, 3 or 4% and
then the retail merchants will keep the rest. If you think of this from top to bottom,
when we buy from the carriers well get anywhere from a 15 to 25% discount off of
their retail rates; well keep 2, 3 or 4% ourselves and our brokers will keep roughly
the same; the remaining piece which can be 10, 15 or even 20% can go down to the retail
CEOCFOinterviews: Tell us about your competition and what
Mr. Kramer: If you look at just electronic
distribution, it hasnt been out that long; marketed in earnest for only about 3
years. If you look at the retail stores and how many have an electronic distribution
solution for pre-paid, what we see today is that only half have got electronic
distribution; the other half are still selling hard cards. So that leaves a lot of growth
potential to take electronic solutuions into those stores. On top of it you have prepaid
being one of the fastest growth categories for the wireless carriers, with most of the
carriers reporting anywhere from 20 to 30% annual growth in their prepaid revenues. So
that is growing by itself. There are competitors for us in this space, a couple are InComm
and PRE Solutions Inc., but overall in the marketplace, number one there are a lot of
underserved markets, under penetrated markets, similar to what happened to the wireless
carriers years ago and that represents opportunity for all players. The second thing I
would say is that the market is somewhat segmented. InComm and PRE Solutions Inc. tend to
market to the large chains, the big retail chains. We tend to be positioned more to the
small and medium size merchants. So if you look on a day-in and day-out how much direct
competition there is, it is not as much as you would think.
CEOCFOinterviews: Tell us about your new Canadian partner?
Mr. Kramer: The model that Ive been talking about
so far has been a U.S. model, sell through brokers or direct; we run our own sales force
and network operations. Internationally weve traditionally licensed our technology
to other players like ourselves that have their own technical capabilities and sales
force. Weve used that model mostly for the international markets. We recently had an
opportunity to buy one of our partners in Canada. Canada is a market that has potential
much like the United States. It is an under penetrated market and one where prepaid is
popular. We negotiated with our partner to buy his business, so now in essence we market
direct as well in Canada, just like we do in the United States. The attractiveness of the
Canadian business is that they have several direct relationships with the carriers; buying
pins at what we feel are attractive rates, which aids us in our distribution and marketing
CEOCFOinterviews: Are there applications other than wireless?
Mr. Kramer: Today 90% of our business is wireless, but
the remaining piece is made up of a variety of products; there is prepaid long distance
services, where there are people that want to make calls from another country, have family
in another country and want to get a prepaid card to all other countries; that is roughly
5% of our business. We also sell prepaid Master Cards, for people who want a credit card
for gift purposes or buying online. We offer that in many of our merchant locations. We
also have prepaid dial tone service, if someone wants to get regular local phone service
and hasnt been able to get it direct in their area, we offer that in many of our
markets. We have prepaid internet services and in some markets we even have prepaid
traffic school and prepaid floral arrangements. The exciting thing is that there are more
and more prepaid products coming out as time goes on. One of the areas that we are looking
at more aggressively now are gift and loyalty cards. The statistics that Ive was
really anxious to see is from the last holiday season is that merchants and retailers were
reporting globally that 10% of holiday sales were through gift cards. So gift cards for
the Gap, Sears or Safeway is a new area and that is an area that we are looking to expand
CEOCFOinterviews: Can you tell us about the need for prepaid
Thats another great question. The demographics in the U.S. are shifting such
that there are a fair number of people in the U.S. that are either credit challenged,
unbanked or just dont want a credit card and would have to establish an ongoing
relationship. For example, these could be young people that dont yet have credit
established and want to have a cell phone, people that have moved here from another
country that are to new here, or lower income people that may have had credit problems in
the past. All of those segments are growing rapidly in the United States and that fuels a
lot of the demand, which is why the wireless carriers more and more are offering prepaid
CEOCFOinterviews: Does concern about security and identity
theft affect the market?
Mr. Kramer: There are some people that want to remain
totally confidential; they dont want any address information made available and
prepaid is probably the best way to do that from a wireless carrier standpoint. We also
get a lot of people such as parents with their kids or people planning a vacation who
dont want to commit $100.00 a month or $50.00 a month. They just want to pay as they
go; that is also a large and growing segment.
CEOCFOinterviews: Could you tell us about the financial
position of Q Comm?
Mr. Kramer: The company did a secondary offering last
summer, August of 2003, and that yielded about $10 million net in proceeds to the company.
We also recently have done two or three equity rounds, we did two equity rounds that
amounted to $3 million and an equipment lease financing that was worth $800 thousand. All
of the capital raising is being used for the growth of the company. The statistics and
nature of our business is that as we grow faster we need more capital available because we
buy terminals and then place them out in the field. Right now I feel that we are in a good
CEOCFOinterviews: In closing, please address potential
investors. First, why should they be interested and also what should they know that may
not jump out when taking a quick look at the company?
Mr. Kramer: First, we operate in a market segment that
is growing and that to me is the first and fundament thing that you look at in a business.
The prepaid market that we are in is growing in many areas at a rate of 20 to 30% a year.
Number two, we have an electronic solution that takes all of the risks that a merchant
would have for lost or stolen products and inventory carrying costs and removes that. So I
think thats a very attractive piece. A third thing is that we are a recurring
revenue business; once we get a merchant set-up there are ongoing lease fees for the
terminal, ongoing margins that we get from product sales, which is also an attractive
piece. The final thing I would say is the background of the management team, the full
focus here, the team that we have. We are very focused on the details of the business.
Because we are in a recurring revenue business, we need to make sure that our customers
are well in formed and know how to use the terminal and are excited about it. We need to
make sure that there arent any customer service issues; we run our own call center
six days a week for any questions that come up. We have our own in house engineering group
so that any customization work thats required, IT development work is done in house
and not contracted out. All of those things contribute to Q Comm providing a good quality
service. We also measure the business in a very granular fashion, we look at the revenue
that we get every week; we look at the margins that we are getting every week, the
detailed costs and sales activity. This is an exciting, fast moving industry.
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