QANTM Intellectual Property (ASX:QIP) expanding into Asia

QANTM Intellectual Property Limited (ASX:QIP) CEO and Managing Director Craig Dower discusses drivers of revenue, competitors and market share, and the company's ambitions to expand into Asia.

Abby Phillipps: We're talking today with Craig Dower, the CEO of Quantum Intellectual Property, ASX Code QIP. The company has a market cap of around $132 million.
Craig, welcome to the network.

Craig Dower: Hi, Abby. Nice to meet you.

Abby Phillipps: Just to start, what have you done to yourself?

Craig Dower: Well, I'd like to say it was something heroic like heli-skiing or something like that. But I was walking in a national park near my home in the Northern Beaches just over a week ago, and I slipped on a rock and put my hand out to break my fall. And my body kept moving and my arm didn't so I've got a dislocated shoulder. I'm having a surgery next week.

Abby Phillipps: Well, we're wishing you a very speedy recovery.

Craig Dower: Thank you. Me, too.

Abby Phillipps: So to kick things off, can you give us an overview of the Quantum business?

Craig Dower: Sure. We're an intellectual property firm and we have a number of businesses within our portfolio. We've been listed for six or seven years now; I think seven years, come September. The three firms are Davies Collison Cave, which is a very longstanding, well-known IP firm in Australia, arguably one of the preeminent IP firms in the industry. Freehills Patent Attorneys came out of the former law firm Freehills, which is now known as Herbert Smith Freehills, big global firm. They spun out of Freehills about a decade or so ago and joined DCC in the float. And about two years ago, we acquired a business in New Zealand called Sortify, which is a trademark filing business set up and founded by trademark experts. But it's really a technology play with a platform-based approach to filing trademarks for small businesses anywhere in the world. And that's a high-growth business, a relatively small part of our business today, but very high growth.

We're about 370 people across five countries; Australia, New Zealand, Singapore, Malaysia, Hong Kong, We're very well-known in the IP sector, but not particularly well-known in the broader Australian market, unless you've been in the business for IP services.

Abby Phillipps: Craig, your recent financial results point to strong and consistent growth, both in revenue and EBITDA. What's been driving this?

Craig Dower: A few things. Mostly organic growth. DCC and FPA both had very good years in terms of servicing clients and growing market share. We've grown our market share in Australia from about 13 or 14%, four or five years ago, to 16.5% now. So all of that growth has been or most of that growth has been organic. And then Sortify last year as well coming on board. They're not a material part of our business today in terms of overall financials, but they're a high-growth business, and so they grew very rapidly over the last year. When we acquired them, they had a platform operating in New Zealand and Australia and a small presence in the UK. Since then, they've expanded into Singapore, Malaysia, and more recently, Hong Kong and Benelux. They're now the 20th largest filer of trademarks in the world, number one in Australia, number two in New Zealand and, as I said, a very high-growth business.

So revenue was grown in that fashion and our earnings have grown faster than revenue because of a number of investments we've been making over the last couple of years that are now starting to deliver to the bottom line. So we're seeing margin improvement as well, sorry, as that's happening as a result.

Abby Phillipps: Craig, you have also commented that the company is growing filings faster than the market itself. How are you delivering on this performance?

Craig Dower: Really an obsession about client service. Our people are experts in their field. We're a very technical firm. Patent attorneys tend to be chemists, engineers, physicists, scientists before they become a patent attorney, are really good at what they do. We have about 150 professional staff across the whole of the business. Many of those are PhD's, and so they're deeply expert in the fields in which operate.

We have a very high-touch business that focuses very heavily on delivering great client service. So that organic growth is really coming on the back of doing a great job for clients day after day, week after week, and has helped us grow our market share over the last several years.

Abby Phillipps: How important is technology in driving growth and performance?

Craig Dower: Yeah, technology is important on a couple of fronts. It's important to our core businesses in the sense that we're upgrading and modernising our technology, moving to a new generation; cloud wherever we can, and that's a long-term investment. We've been making many investments over the last three or four years and that continues. We're probably about three-quarters of the way through that and we've said in our most recent market report that we're expecting to see the gains that we're getting from those investments continue to flow through. We had about a million dollars in earnings improvement last year as a result of that. We'll see another $1 million to $2 million this year and then we've said by FY25 and beyond, it's $4 million plus a year. So it's important in that sense of just supporting our overall core business.

The technology is also really at the heart of what the Sortify business is all about. They are a group of trademark experts, but backed up with a software development team who are experts in machine-learning and artificial intelligence. At the core of the Sortify platform is an AI engine around trademarks that continues to get better as they continue to scale. So it's as important in a normal business context, but we have a go-to-market strategy around technology with the Sortify business as well.

Abby Phillipps: So Craig, who are your key competitors?

Craig Dower: IPH would be our biggest competitor in Australia. IPH is a market leader in terms of size. They paved the way for firms to list in Australia and inside IPH are a number of firms, Spruson and Ferguson, Griffith Hack. There's a number of unlisted firms, professional services, partnerships with whom we compete and then in foreign countries, a number of firms that we compete with in Singapore and Malaysia and so on as well.

But our competitors tend to be traditional IP firms that are partnership structures, and part of what we do to try and differentiate is really focus on that high-touch excellence in client service. The fact that we're fairly large and we have scale means that we have pretty much every discipline that a client could need covered, able to be covered by our team , and that multidisciplinary capability really gives us a competitive edge against a lot of firms in the market.

Abby Phillipps: What is the distribution of your market share across the different markets? And looking ahead, where do you see your greatest growth coming from?

Craig Dower: Well, Australia has been our home, and so both FPA and DCC have their roots in Sydney and Melbourne, but we're rapidly moving beyond that. New Zealand has been an important market for a long time. It's a relatively small market, but that's the genesis of Sortify. They're headquartered and domiciled in New Zealand; they're taking their services to the world.

Where growth is going to come from in the next five, 10, 15 years is largely outside of Australia. It's really Southeast Asia and then into Asia more broadly. We operate today in Singapore, Malaysia. We recently opened an office in Hong Kong, and if we're sitting here in five years' time, we would expect to be in a number of other jurisdictions in Southeast Asia as well.

IP industry growth tends to track GDP growth and so if you're looking for where do you want to invest, it's usually around countries that have got high GDP growth and have developing economies that are taking intellectual property and R&D seriously, and it's seen by governments and industry in those countries as being an important part of underpinning economic growth.

Abby Phillipps: How important is recruitment and staff retention to the company, and what strategies do you employ to drive both key requirements?

Craig Dower: Yeah. Well, recruitment is important so hiring really good people continues to be a big part of what we do. But retention is probably the area that we focus on the most. A lot of our people have been with us for 5, 10, 15, 20 years. We have some people that have been with us for 25 years. I think we have one or two people that have been with us for over 30 years and so retention obviously is important.

We've done a lot over the last few years, like many companies have through COVID, to make sure that we're doing everything we possibly can to support our people in this new hybrid way of working. But we have a lot of people and cultural initiatives. We're constantly looking for new ways to make sure that we are the best place to work. A lot of that happens ground up, rather than top down and so we're constantly listening to our people about what can we be doing better, to make their workdays better and their work life more flexible and so on, investments on a number of fronts.

We recently implemented a nine-day fortnight inside FPA, which has been a trial and has gone very well, and we're considering now whether we roll that up across the whole of the group. So, always looking for progressive policies to make us the best place to work and really an employer of choice for IP industry professionals.

Abby Phillipps: Finally, Craig, in addition to organic growth, are you looking to grow through acquisitions?

Craig Dower: We are. M&A has been an important part of our strategic focus for the last few years so Sortify was our most recent acquisition. We're continuing to look, as I said, to further expand our geographic footprint into Southeast Asia and beyond, and we have a number of conversations underway there as well.

We would hope to be able to do something in the next year or so, but we're also very careful and very selective about who we would bring into the fold. Culture's really important. We want to make sure that anyone that's joining the business fits in with our team. That obsession with client service that I talked about before is a critical factor as well.

We also want people who would be joining us because they want to be part of the vision for expansion into Asia and becoming a preeminent firm across Asia Pacific. We're not looking for someone who just wants to sell their business and retire. So becoming part of the firm is a big part of that. Then finally, I guess probably really importantly, is making sure that we can fund any acquisitions from within our existing balance sheet and debt facilities as well.

Abby Phillipps: Craig, thanks for your time today. Wishing you a very speedy recovery.

Craig Dower: Great. Thank you, Abby.

Abby Phillipps: Thank you.