Buy Quest Solution: Voice Recognition, Beacon Marketing Tech Makes Company In-Person SEO Advertiser

24 comments  |  About: Quest Solution, Inc. (QUES), Includes: NCR

Disclosure: The author is long QUES. (More...)

Summary

• QUES has been busy as of late, scaling its core revenues up to a pro forma $84 million, but it's its most recent tech license that has me excited.
• QUES just licensed from NCR a voice recognition beacon marketing technology that brings SEO/adwords to in-person shopping.
• QUES is taking beacon marketing to the next level with a low PP&E, high margin, completely unique revenue driver that has excellent economics.
• Already having a huge customer base that is dependent on it for optimization should place QUES' new technology front and center to growth opportunities.
• Valued at just $10 million I think QUES is a huge opportunity for microcap investors looking at a longer term multiple return.

Guys, let me walk you through Quest Solution (OTCQB:QUES) and what's been happening at the company as of late. This name, a once difficult read and semi-loose strategic model, is now what I believe to be a prime acquisition candidate and a company that should be able to execute on several levels for shareholders going forward. The story has a couple moving pieces, so if you're unclear on any, reach out to me in the comment section below.

Also, you should know up front that I'm treating QUES like I treat all microcaps - as if it were a private company that would need a monetization event (upround, IPO, outright sale, etc.) for me to make any money. QUES is illiquid and has seen its stock price pummeled as a result of pricing in an aggressive growth strategy centered on acquisitions.

I'll have a full risk section at the end of the article but just know that if you buy into QUES you should consider yourself taking a "venture" investment of sorts. But, I think one that pays off big longer term.

The Old QUES and the New QEUS …

So Old QUES wasn't a bad company by any means, but it did have a few issues that I think kept it from being a microcap story that told well. First, QUES' core competency isn't sexy and that matters in the micro space. If somebody is going to take a risk on a micro they generally want it to be sexy.

QUES' core competency is what I would describe as end to end optimizing and consulting services with a focus on supply chain management, inventory management, and logistics management. VERY important functions for all businesses but definitely back of the room, warehouse type activities that don't get CFOs and CIOs kudos unless they're solving a massive and obvious problem. Still, it's a necessary business and the companies that do this have real revenues - big revenues, and real customers. QUES calls names like Fiat, Oakley, AmerisourceBergen, Foot Locker, Cardinal Healthy, etc., its customers.

QUES realized this, and under former CEO/current EVP of Strategy and Acquisitions Jason Griffith, put together several stock based acquisitions that have grown the pro forma company, inclusive of its LOI to merge with Canadian company ViascanQData, to $84 million in revenues. Guys, that's real revenue and that's real scale. Think about that later in the article.

By the way, Griffith stepped to the side to focus on growth via M&A and QUES brought in 30-year niche veteran Tom Miller to run the show. Miller was a member of acquired Bar Code Specialties, Inc.'s Board and sitting QUES Board member. Frankly, and this is no indictment on Griffith, I think this is better for QUES in that at the pace of M&A driven growth Griffith shouldn't be tasked with the day to day at QUES and the transactional responsibilities. This was a good move for the company that I bet works out for Griffith in the end as well as it works out for shareholders.

Now, as exciting as the scale-up has been, its QUES' most recent "acquisition" that has me really excited.

A Beacon of Hope …

To be clear, QUES didn't complete recent acquisition of a company but it didacquire a license to some very interesting technology.

QUES just recently licensed (via a patent license) a quasi-beacon marketing technology from NCR Corporation (NYSE:NCR), yes $5 billion market cap NCR, that works using voice recognition technology to generate custom marketing messages to in-store customers. In its PR (linked above) QUES describes this as, "similar to keywords generating specific advertisements during an Internet search, or the suggestive marketing of products based on past orders utilized by almost every large web retailer". Only, this is putting the ad directly in front of a customer in buying mode - not theoretically in buying mode which is the case when a customer is online. When the customer is actually in-store, well, they're in-store. The old saying "well I'm already here" really beings to play into the potential efficacy of the technology.

Now, QUES hasn't decided yet if it's going to deploy a licensing or revenue share model but does that even matter? With endless use cases, and really that isn't hyperbole here - think about shopping malls, hotels, casinos, grocery stores, really any watering hole, is there any question as to the TAM? I don't think there is.

What's better is the low PP&E nature of the technology, comprised of a monitor, some microphones, and software that QUES has already licensed, should allow for even a small company like QUES to pilot test the launch (think 1000 or so monitors), generate some revenues, and further roll out the overall strategy.

QUES described the grocery store use case in its PR:

"An easy way to describe Quest Solution's offering as part of a real-world scenario is as follows: if you are walking through the grocery store and say to your spouse, "We need to pick up something for the birthday party," the voice recognition software will hear the keyword "birthday party" and the advertisers who have marketed for that key phrase will have their specific advertisement displayed at the end of the aisle for their product"

That's compelling, definitely.

But I'll do Seeking Alpha readers one better. The following is the return analysis of QUES' new licensing deal from an industry consultant that my company paid to break out the economics of the prospect launch:

"If you google "NCR" "LCD" tablet you will see some sites referencing cost on low end of $150 to $499. If you look at average cost of cost per click and discount it by 75% you get about $0.25 per advertisement.

Example on capital outlay: If you budget $100 install per monitor, on the high end would be $600 / $0.25 = 2,400 advertisements for break even at 4 per hour (presuming 10 hour day) that's 60 days for recoup of cost. An install of 1,000 units would cost $600,000 (using the same model) and 60 days later would be generating $10,000 per day in advertising revenue (1,000 units * 4 per hour $ 0.25 each * 10 hour day = $10,000 per day). There will be some cost of monitoring, data mining, overhead, downtime, breakage, possible revenue share, royalty etc, but under that model would be what 1,000 units could generate with those #.

Over time it's likely there would be increase in the per-advertisement cost and/or exclusivity for specific words (i.e. Budweiser could buy a block of words in a land grab). If you look at the rational for why people pay for adwords (scalable, measurable, flexible, faster than SEO, targeted marketing for the people you want to see it)www.wordstream.com/blog/ws/2012/12/03/wh... that just makes this model the same.

Living / real time billboard / living website. Just as the marketing for bill boards has moved to digital, this is the initial phases of the industry moving to real time advertising updates to even in store promotions "Hot French Bread coming out the oven, visit bakery now".

Latest in voice recognition software.

Different from beacon technology as no requirement on the part of the user to whip out their phone / have the app running etc. That being said, could be in conjunction with it with advertisements advertising apps based on what people have said."

Those economics are stunning when you compare just the revenue creation from a simple 1,000 unit launch to QUES' market cap of ~$10 million. That's right, QUES trades today at $10 million.

Buying Inefficiency …

Just from a 1,000 unit launch QUES will be generating pure profit from this technology of ~$3 million/year. That would mean that if QUES had no other business, no other revenue streams, no other anything-that-contributes-to-market-cap other than these 1,000 launched monitors it would be trading at 3X sales. For a now quasi-tech company that has a pro forma non-tech $84 million in revenues that market cap is a joke.

QUES now, inclusive of the voice beacon marketing tech, has what I call back of the store to in-store access to its customers. How easy is the conversation about the voice beacon marketing tech going to be with say a customer like Foot Locker. QUES is already optimizing its non-customer facing business - you don't think that the exec in charge is going to hear it out about something as ear catching as "voice recognition advertising like you guys advertise online but in person".

I think folks aren't just going to be willing to listen. I think folks, by folks I should just say companies with huge ad-spend budgets on the buyside and companies with synergistic verticals on the sell side, are going to be quite a bit more accommodative. I'm thinking along the lines of helping pay for launches, joint ventures, or outright acquisition considering QUES' already "inside" selling positioning with its core business.

I could spend a few more thousand words on just how big this is for QUES and how this materially changes its value-prop and marketability, but I'll conclude by saying simply that the story at QUES now makes a great deal of sense and now has a high margins driver that can scale up very quickly and very cheaply.

I think QUES is ready to go and I would expect big things from it going forward. I look forward to providing continuing coverage of QUES and now recommend a long position for investors that can afford to have funds tied up for the mid and long term.

RISKS:

• QUES is a micro-cap with shares traded over the counter, where liquidity is often light. This is one of the reasons the stock is so cheap. You can buy the stock well below fair value, but that also means you may have a problem selling at fair value, or at all, in the future. Because of the illiquidity in QUES shares, you should only enter a position if you won't need the money in the near term.
• Also, there is competition. The sector niche in which QUES participates is incredibly competitive and while actual pure-play competition in QUES' space is limited, its closest comparable peers are much better funded, have longer track records of operations, and are in what could be conceived as a better position to access the credit markets.
• There is also execution risk. If management does try to significantly grow the business and increase market share organically by increasing expenses, the plan could suffer setbacks and the company could be forced to raise capital at inferior terms if it can raise capital at all. Simply because QUES is participating in a space with attractive historic economics and highly limited competition, this does not guarantee that QUES can or will have execution successes.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Dallas Salazar

Source: http://seekingalpha.com/article/3218876-buy-quest-solution-voice-recognition-beacon-marketing-tech-makes-company-in-person-seo-advertiser#comments_header