RE:RE:RE:RE:Bull Thesis? Socrates, your comments carry weight.
It is important for QTRH investors to remember that Paul Hill guided 15% EBITDA, or greater, from the day the ETC acquisition was announced until his departure. This was the experience at ETC pre acquisition. Post acquisition, management continues to guide 10% to 15% on the implementation phase (reflecting inflation/labor/supply change issues in the market and ecenomy generally). The implementation phase, which I've been told typically falls in an 18 month to 30 month window, has been the bulk of ETC revenue through 2022.
The publically announced contracts reflect this, as all are within the implementation phase window: - May 2020 - Colorado E-470
- Aug. 2020 - Colorado Toll System
- Nov. 2020 - Illinois Longmeadow Bridge Back Office and Operations
- Jul. 2021 - Ohio River Bridges Customer Service Center & Back Office (WSP Partner)
- Dec. 2021 - Central TX Regional Mobility Authority System
- Jan. 2022 - Orange Co. I405 Express Lanes Back Office (Partner with WSP)
- Feb. 2022 - E-Zpass I/O Hub
- Apr. 2022 - Alameda Co. I680 Express Lanes (temporary)
Based on the indicated time frame for implementation, only the two Colorado awards appear poised to move into the operational phase in the near term.
Additional factors to note: - The level of inflation could not have been predicted when ETC was acquired in Q3/21. Inflation, while a factor in the operational phase (est. 25%-35% margin), will be substantially less impactful and all revenue will be well above the guided target. Additionally, the majority of anticipated revenue on these contracts appears to flow from enhancements through the contract's long life. It would be unusual for significant enhancements to come on stream early during the implementation phase. However, it is reasonable to expect high margin (35%-40%) enhancement revenue to appear on the books in 2023.
- Supply chain and staffing issues are pervasive today. These pressure points are lessening. Supply chain has probably been a bigger issue in contracts 3, 4 and 6 noted above, as ETC is subject to prior completion by third parties; imo, these projects are the cause of revenue delays.
- New contracts, such as the Alameda Co. I680 Express Lanes (intent to award announced Aug. 2022), will take the inflation, labor and supply chain factors into consideration. That was communicated on the Q3/22 call.
- The E-Zpass Hub project is a business development investment - I believe that Kidd has said this in the past. ETC's bid was substantially below the other final bidder. While the initial indication was that the project was profitable, it now seems certain to me that inflation and labor issues have undermined the slim margin on this initiative. It probably has produced a loss, but it is still a business development initiative that may yield dividends over the next couple of years.
So, the fumble may, in fact, have been a bobble, except to Russian referees. Just one QTRH investor's opinion.