... John and Paul are making the rounds and meeting with investors.
Cannacord released an inside report this morning on the meetings they held with prospective shareholders. Below is what they heard.
Now after you read it, you tell me if this isn't a management team that doesn't expect to fill up the coffers to consummate more ITS transactions.
Also note that Cannacord hints in their report that they may be too conservative and any success on WiLan and will further increase price target on any success there.
Today is the last blackout day. Let the announcements begin!
Investment Highlights
• ETC acquisition increases gearing to expanding infrastructure spend. As expected, much of the focus of investors’ questions was on the recently acquired ETC business. Recall that Quarterhill closed the $150M acquisition of ETC on September 1st. ETC is a US-based provider of tolling and mobility systems expected to contribute $95-120M in revenue and $12.5-15.0M in EBITDA (see our earlier note here). Management noted some synergies between ETC’s tolling business and IRD’s enforcement businesses, though the key benefits for shareholders would be the continuing diversification away from volatile WiLAN earnings, growth from ETC’s existing contracts through change orders, and exposure to accelerating growth in transportation infrastructure spend. On the last point, management spoke to industry growth rates expanding from 5 – 7% historically to 15%+ over the coming years as government stimulus including the US federal infrastructure plan rollout.
• M&A pipeline remains active as management works toward $400M deployment goal. Quarterhill continues to target deploying up to $400M in M&A over the next five years in the intelligent transportation systems market after deploying ~$159M on three acquisitions thus far in 2021. The company maintains an active pipeline of acquisition targets ranging from tuck-ins to ETC-sized deals, with management targeting tuck-in multiples at 5 – 9x EBITDA. Management also noted many ITS businesses are showing a preference for exiting to strategic buyers, and the company has recently seen an uptick in inbound M&A opportunities following the close of ETC. The company has proforma cash of ~$45M proforma the acquisition of ETC and $75M in debt.
• Reiterating expectations for a stronger H2/21. Management has consistently expressed optimism that WiLAN would rebound to higher activity levels after a slow start to the year. Combined with the IRD business’ typically stronger seasonality and conversion of its backlog (we note the recent $4.1M maintenance and optimization contract in Illinois for its statewide Weigh-in-Motion network), our estimates may prove conservative, particularly on the WiLAN side if it returns to delivering at historical rates. We model 2021 revenue of $132M (Street $148M) and EBITDA of $5M (Street $18M).
• Highlighting recent insider purchases. We note CEO Paul Hill’s purchase of 48k Quarterhill shares in the past six months (~$149k) per public filings, including 19k shares reported this week.