RE:RE:RE:RE:Bull Thesis?Capharnaum, I think it is fair to say that most QTRH investors are still getting to understand the ITS business, aprticularily ETC, as it differs night/day from the patent business.
Most of the contracts ETC has been awarded have three phases, with differing margins:
- Implementation - management guides 10% - 15% margin. The implementation window is typically 18 - 30 months;
- Operational - management indicates 25% - 30% margin. The operational phase lasts for the duration of the contract plus optional extensions; and
- Enhancement - management indicates 35% - 40% margin. ETC's experience prior to acquisition by QTRH was that enhancements over the term of a contract averaged 8.7x the original face value of the contract, with a low of ~3.5x. My model uses 5x.
Clearly inflation, labor supply and supply chain issues are current factors that would not have been anticiapted and therefore built into any of the contracts currently on the books. The results reflect this. Future awards, such as the Alameda Express Lanes that is being finalized will build today's market/economy realities into the pricing - we were told that on the Q3/22 call.
Current management has tempered the implementation phase expectations from the impression many took from the initial acquisition announcement and presentation. The communications strategy/style is definitely more conservative now than under prior management.
My post simply stated that scale is an additional route to improved EBITDA. I heard enough clues on recent calls to suggest to me that scale is the primary growth/profitability strategy going into 2023. Scale can come organically, as stated by management or from M&A bolt ons or mergers to augment organic growth - as also stated by management. To me, the strategy to build on what the company is best at is sound. ETC has superior technology in a sector that is increasingly demanding technological solutions. The RFP process has been the scorecard for ETC’s technology. Not only does ETC receive the highest technology evaluations, but its technology is differentiated - this to me points to a sustainable competitive advantage.
I hope this give you more perspective on my post. Cabbie.