When Tom Burnet was brought in as chief executive of queue-busting technology company LO-Q (LON:LOQ) last summer he quickly realised that there was more than one reason to drive the company forwards. As the father of two young children, Burnet shares the dread of many parents when it comes to tortuously long waits for rides at theme parks. He is now behind big plans to capitalise on Lo-Q’s achievements in recent years and spread the use of technology that can help users literally jump the queue. But while new sales and new clients are a top priority for the ex-MD of Serco’s (LON:SRP) defence operations, he is also eyeing the potential to expand into new markets.
Lo-Q started life in the mid-1990s when founder Leonard Sim conceived an answer to the perennial misery of theme park queuing – click here for more details about the company’s past developments. Hand-held devices known as Q-bots offer the chance for visitors to reserve a seat on a ride and while away the hours elsewhere before jumping the queue at their allotted time. The company’s product range now boasts Q-Bots, Q-txt and Q-credits and new updates and initiatives are in the pipeline. Those products are backed up by a team of more than 500 service staff at the company’s customer parks around the world – among them including Six Flags (NYSE:SXFL) and Dollywood in the US, Mirabilandia in Spain and Legoland in the UK.
Lo-Q has been turning a profit since 2007 with revenues growing every year since. In 2010, sales were up 16% to £20.3m and pre-tax profits were up 18.4% at £2.3m. However, the arrival of Burnet was a statement of intent by the company’s board that the company could be achieving more. He is now keen to ratchet up new sales and explore the prospect of applying Lo-Q technology in new markets – and the initial signs are promising. The Lo-Q share price is trading at a new high of 155p.
Tom, you joined Lo-Q in October last year. What was the attraction and what potential did you see in it?
Good question – lots of things. First of all the attraction was that it wasn’t in the FTSE 100 (UKX) and having worked for a couple of big companies for the last seven or eight years I can’t tell you what a pleasure it is to come back into small cap world where the pace is quicker and you can get things done. Secondly, I was just incredibly intrigued by Lo-Q’s technology and by the opportunity that I thought it had to take its solution to its core market, perhaps with more effectiveness than it was already doing at that point, and perhaps even to some new markets. Queuing is a global issue, a global problem, and it struck me that there was an opportunity to think a bit bigger.
Numbers wise the company performed reasonably well last year but clearly you think there is a lot of room to improve. Talk to me about the market opportunity as you see it.
Well there are a number of markets for a start. Concentrating on our core leisure market, our home market if you like, right now I think we are dealing with somewhere just short of 10% of the available market in terms of the numbers of theme park guests that have the opportunity to use our product. So within that market, with our core product, the Q-bot, clearly there is room to sell it to more people, so that’s No. 1.
No. 2, we have got a really exciting new product, which I think is going to be great for us in the future, called Q-credits. This is effectively a water park product which is broadly a multi-function device which helps parks manage their visitors so they don’t have to stand in queues to go on rides. It allows them to spend cash, which means that they will probably spend more because they don’t have to spend time getting their wallet out of their locker, and gives them access to places that an RFID card can give them. We’ve had some really nice interest in that product and we’ve got a couple of big trials planned for the summer in two very well known parks in North America just to work out how to operationalise the technology. We know the technology works but now we need to work out how to give out 5,000 bands at the beginning of the day and how to get them back at the end of the day. We need to know how to put the cash on them and how to take the cash off, all that kind of operational stuff. But if we get that right there’s a whole new, fast growing market for us and the water park market is growing at about twice the pace of the theme park market at the moment. Water parks are terrifically popular right now and they’re popping up all over the place and my sense is that this is a real revolution for that market.
Finally, there are queues of people all over the place and there are people who would prefer not to stand in those queues. There are also, frankly, retailers who would prefer people not to be standing in queues. I think there is some value in us thinking more broadly about where our know-how and IP, and patents are applicable to different markets. That’s something that we’re doing right now. We are beginning to crystallise some thoughts about where we might be able to partner sensibly and where we might be able to use the technology that’s sitting in everybody’s pockets and is changing dramatically. I’m talking really about the emergence of smart phone type technology, how we can harness that in a sensible way to help people deliver better customer service for their customers or, indeed, to monetise queues which they can’t today.
So which other markets do you think could benefit from this technology?
Well I think some areas of retail, maybe not food retail, but there are other areas where it would be nice to be able to book a slot to see a customer service agent or a sales person on a shop floor. That could well be something you might want to do. If you were attending a rock festival or a sporting event or you’re travelling, there are times in those processes where maybe people want to offer particular access or privilege to a sub-set of their customers and for whom the customers would be prepared to spend a little bit more. Or, people might simply choose to spend money to step out of the queue rather than stay in the queue.
I think there are multiple potential markets here and I think if you start bundling our technology with adjacent technologies, and I’m particularly thinking about ticketing, and I’m particularly thinking about certain cashless payment systems, I think you potentially have quite a potent bundle of capability which you can give to people.
What we are doing right now is having a good think about that, talking to as many people as possible who might be interested in helping us go to market with something. We are having some great conversations but it is early days. Just a few weeks after I arrived I thought this was something which might well be part of our future so we had better go and have a look. There have been some encouraging first conversations but I’ll go back to where I started and that is that we have great product in a market where we’re only just touching the sides, I think.
Clearly building sales and winning new customers is a priority for you so where do you focus your attention in terms of geography?
I think if you look at attendance levels in parks around the world it’s quite interesting to see where the majority of people go to theme parks because clearly what we want is queues in theme parks. So if you go looking for queues in theme parks and you go looking for attendance, I think North America is in the lead in terms of numbers of theme park visitors. That is followed by emerging markets in Asia, which is a fast growing market. There are lots of parks being built all over Asia at the moment and I think in time to come China will be a really amazing market for us potentially. I think Europe is also a really interesting market; we have recently achieved a few sales to parks in Europe, which is fantastic, building on a couple of relationships we already have. I think that is really promising and hopefully we can continue to mature those relationships. I think in Asia it is a completely green field for us at the moment, we haven’t put any energy into selling to Asia so far and I think that’s something that we really need to think about, likewise North America. There are lots of people we should be talking to in a more structured way and we certainly intend to do that.
Lo-Q doesn’t face a huge amount of competition but the company has always been keen on maintaining product development. How much effort is going into that and how much pressure do you feel to keep the products changing?
There are a number of strands to answer that. First of all, we have some terrific patents around our technology which, certainly in the major geographies where we operate, give us at least a degree of protection from me-too or copycat type products, so that’s No. 1.
No. 2, we have a product that really works and customers really like. We’ve done the work and in our engineering centres in the UK we now have the Q-bot functionality working on Apple’s (Nasdaq:AAPL) iPhone and Google’s (Nasdaq:GOOG) Android so that will be something we’re introducing to our customers as soon as it is productised.
In terms of the Q-credit product, we have some super patents around that which, again, give us a degree of protection. But you know the best protection is being in the market and having the business and having customer acceptance for what you do and I think that’s where we’re going to continue to focus – getting the sales up. We know that when people use our product they love it and they are very highly predisposed to use it again if they have used it once before, particularly if the park is busy. For us the trick is to get the product into people’s hands, let them see the benefits that it brings. We believe it completely transforms a stay in a theme park and so do the customers that use it and so that remains the overarching challenge.
You have talked about the potential for acquiring new IP and perhaps moving into new verticals inside that theme park market. How much scope do you see in that?
I think what’s really driving my thinking here, and the thinking of the Board here, is it came as a bit of a shock to me that we have a 500 person service organisation in our business. We’re a technology company on one hand but on the other hand we’re a service company and we have a big footprint across North America of teams of people who are delivering services in theme parks. I just wonder about the opportunity to leverage that investment and leverage that group of people to the advantage of us and our customers. That infrastructure is already there, what else could we bolt into that which would be useful for our customers? Maybe we could help drive cost and expense out of our customers’ budgets and grow our revenues. So that’s the starting point for that thinking and I’ve been talking to our customers about that as an opportunity. I think generally, where they’ve seen us and worked with us and they have a degree of confidence and trust in what we’re doing, they are very receptive to the idea of us bringing them other things.
Obviously it has been quite a period of change for Lo-Q. From an investment perspective can you sum up the reasons why an investor should take a closer look at the company now?
I would go back to the reasons that I joined in the first place. I am a father of a young family and the idea of standing in a theme park queue with my 8 and 10 year old for maybe two or three hours for a single ride, which is the reality for some parks in busy days in the summer, I have to say it sends shivers down my spine. There is something just intuitively great about a product which means that you don’t have to do that. It won’t be for everybody and there will always be a price associated with the privilege of stepping outside of a line. For those people that can afford to do it, it is a fantastic thing. Likewise, understanding that there is a big market out there which we have still to address properly, that’s got to be an interesting starting point.
Then you surround that with the know-how that we have developed around queues and how people behave in queues, because people do the most random of things, let me tell you, and we understand it. We have put a lot of time and energy and money, millions and millions of pounds worth of software development has happened here to solve how you manage these environments effectively and professionally and how you actually monetise them. When you start thinking about the global opportunity on that sort of scale, how much of that do we need to address in terms of a fraction of a percent of the available market to make a really, really interesting business? The answer is not much. So that is where we are going to shoot.
Thank you very much indeed.
It’s a pleasure, thanks very much.
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