recent analyst opinion at RJ QUARTERHILL INC. (QTRH-TSX)Software/IT ServicesSteven Li, CFA raymondjames.
Margins Looking Up In 2H & F2025
RECOMMENDATION
Improved results with a small revenue and A-EBITDA beat. Margin trends look positive andencouraging for 2H and F2025.ANALYSIS(+) Solid 2Q. Revenue came in at $41.5 mln, better than consensus of $40mln. A-EBITDA was at$1.7 mln, vs RJ of $1.1 mln.
The positive result was driven by the strength in the enforcementsegment, as well as the improved performance from the tolling segment, which had previously experienced delays and cost overrun. Gross margin came in at 21%, a step up from 18% in1Q.
Management expects margin trends to maintain positive momentum throughout the year —exiting close to double-digit A-EBITDA margin (vs 2Q just reported 4.3% A-EBITDA margin).
Pipeline remains robust for F2024. Backlog came in at ~US$500 mln, providing good visibility for F2024 and F2025. Mgmt noted that a large portion of the backlog is higher-margin maintenance revenues, vs lower-margin implementation. This would help uplift QTRH’s margin profile in the near term.
Management also expects to have a decision on a couple RFPs by the end of the year in its tolling segment. Ramping up sale hires — both EMEA and NA.
QTRH is bolstering headcount in Europe, to reinforce its footprint in both the enforcement and tolling businesses.
In NA, the firm has made several strategic recruits recently, notably the addition of Vineet Khosla- Chief Technology Officer of the Washington Post to the board. Previously, Vineet served asSenior Engineering Manager at Uber, where he was responsible for the development of their maprouting engine, which optimizes routes and timing. Before his tenure at Uber, he was the first engineering hire for Siri's natural language engine at Apple, where he spent over eight years in senior engineering roles, developing and managing Siri's AI engine.
Balance sheet.
Cash stood at $24.0 mln (vs. debt at $56.3 mln). Net debt at $32.2 mln.
VALUATION
Our target remains unchanged at C$2.25, based on 12x F2025E EBITDA (unchanged), in-line withcomps in Ex. 1.AUGUST 9, 2024 |
Outperform 2 Target Price C$2.25