Q3 2021 Quarterhill Inc Earnings Call
Yeah.
Good morning, and welcome to quarter Hills, Q3 fiscal 2021 financial results Conference call.
On this morning's call, we have Tom Hill, President and CEO, and John <unk>, Chief Financial Officer.
At this time, all participants are in listen only mode.
Following the managements presentation, we will conduct a question and answer session.
Which analysts are invited to ask questions.
To ask a question simply press star one on your touch on phone to register so.
Should you require assistance during the call. Please press star zero.
Earlier this morning quarter Hill issued a news release announcing its financial results for the three and nine month periods ended September 30th 2021.
This news release, along with the company's MD&A and financial statements will be available on <unk> website and will be filed on SEDAR.
Certain matters discussed during today's conference call or answers that may be given to questions could constitute forward looking statements.
Actual results could differ materially from those anticipated.
Risk factors that could affect results are detailed in the company's annual information form and other public filings that are available on SEDAR.
During this conference call quarter Hill, where we'll refer to adjusted EBITDA adjusted EBITDA does not have any standardized meaning prescribed by I S. R. S.
Please refer to page three on the Companys Q3, 2021 management's discussion and analysts for full cautionary notes regarding the use of forward looking statements and non ifr S measures.
Finally, please note that all financial information provided is in Canadian dollars unless otherwise specified.
I would now like to turn the meeting over to Mr. Hill. Please go ahead Sir.
Thank you good morning, everyone and thanks for joining us on today's call in terms of agenda I'll start with a look at business highlights followed by John who will take a look at our key financial results. Then we'll open it up for questions.
Q3, consolidated revenue was $36 3 million and consolidated adjusted EBITDA was $7 6 million. We ended the quarter was $60 million of working capital and subsequent to quarter end close to $57 $5 million convertible debenture that was oversubscribed and included the full over allotment option.
The key highlight in Q3 was the acquisition of E T C and Ics leader in tolling in the U S market the.
The transaction has transformed quarter hill into a major player in the industry.
And E T C fit perfectly with our M&A strategy for several reasons.
It establishes quarter Hill as a leader in the tolling vertical which has strong market tailwind.
It's a second platform for tuck in acquisitions, and our sister organization to IRB.
E T C. As an experienced management team that is targeting a $4 billion pipeline of sales opportunities.
There are good long term revenue synergy opportunities between E T C and D.
And it transforms the financial profile of quarter Hill, who are predominantly ITE is a company with more visible and predictable financials.
In Q3, just prior to the acquisition E. T. C signed a 10 year contract to provide its back office ERP solution to the Ohio River bridges authorities.
The new system will streamline billing improve ease of self service and facilitate quick issue resolution for their customers.
The 10 year contract is valued at approximately $100 million and include systems design implementation and seven years of toll surface operations too.
Two optional three year renewal period could increase the value of the agreement significantly.
In addition, there is potential for expansion or change orders during the 10 year contract periods, which could further increase the light lifetime contract value.
E. T C continues to make good progress on its pipeline and we hope to be in a position to announce new wins in Q4.
The process for many of these contract awards is that after RFP period, a shortlist of vendors is chosen and then from that list of vendors selected.
A protest period of about two weeks.
Should the protest period past without issue the selected vendor enters a period, where final terms of the contract are negotiated.
As a general practice, we will not make a formal announcement until the final contract is signed.
That being said I can tell you that E. T. C is currently approaching that final contract negotiation phase for three new opportunities that have an average term including option periods of 13 years.
As these deals get close we will announce contract values if it's permitted.
Again, while they are not yet completed agreements. These opportunities are either in the tail end of the protest period or in the contract negotiation phase we expect to have updates on them soon.
That's right and strategy, we continue to build a strong pipeline and we're seeing a number of high quality assets of all sizes and attractive valuation.
We set out with an ambitious target of deploying 400 million over five years on M&A and so far in 2020. One we've deployed approximately $160 million on three deals our intention is to keep the pace of M&A brisk and we continue to believe Theres never been a better time to be an aggregator in the <unk> market.
The convertible debenture financing completed subsequent to year quarter end provides us with additional flexibility and resources to pursue this strategy.
It was a successful $57 5 million dollar financing that involved a syndicate of seven dealers. It was oversubscribed and brought more than a dozen new institutional investors to the quarter Hill story.
Increasing our profile in the investment community and raising the level of institutional ownership remain important objectives for us.
I R. D had a good quarter with new wins in Illinois, Oklahoma and Idaho on.
On a year over year comparison, I already was impacted by FX headwinds and Covid related delays in particular in Latin America, where several projects in the regions were temporarily placed on hold due to lockdowns.
Excluding FX revenue year over year would've been consistent with Q3 last year. Despite the COVID-19 delays in Latin America.
We expect that FX will normalize in the near term and that projects on hold where we're zoom in these markets as they open.
The strong fundamentals remain in place at IR day, It had a record quarter for new bookings.
Significant contracted backlog and the tuck in acquisitions made earlier this year sensor line of V. S are tracking ahead of plan.
As we mentioned on our last call I or D has already had some success, bringing sensor line products to the U S market.
And the companies are working together on other opportunities both in the U S and outside North America.
Finally, IRT has made good progress in appointing ahead of its European operations, and we expect we will have a person in the seat in January.
Establishing this role will help us execute our strategy by strengthening our presence with customers and accelerating both our organic and acquisitive growth in the in the region.
Q3 was wildlands best quarter, thus far in 2021 with several license agreements, resulting in solid adjusted EBITDA.
While and also acquired some patents in the semiconductor space, adding depth in an area of strength for the company.
We remain optimistic for Q4 deals are getting done as we saw in Q3, however, the timing.
We're completing agreements remain variable and Covid is still a hurdle for travel and in person meetings.
As well the courts do continue to experience some COVID-19 related delays as they work through their backlog of cases.
Regarding wildlands litigation with Apple in the U S. The oral hearing a federal Appeals court took place in early October.
A ruling could take anywhere from a few months to six months.
Wildland also has ongoing litigation with Apple in Germany with the first of three hearings having taken place in October 2nd is set for later this month and a third scheduled for March.
Wildlands pipeline and patent portfolio remains solid and we continue to view the business as a reliable generator of cash flow to support its own expansion objectives as well as our broader I T. S M&A strategy.
In closing we've made significant progress on our M&A strategy this year, bringing scale to the <unk> business and enhancing quarter Hills revenue and earnings visibility.
We have been working hard to get our story out to the investment community and we continue to do so in the coming quarters.
We're encouraged to see some of the results of that effort and the strong interest we had it in our convertible debenture offering which was well oversubscribed.
Already we have two institutional investor conferences lined up for January and will share more details on those events in the near future.
With that I'll pass it over to John for a closer look at the numbers.
Thank you Paul and good morning, everyone I'll now walk through the consolidated third quarter results as well as the results from our Ics and licensing segments.
Consolidated revenue in Q3 was $36 3 million.
$74 $5 million year to date.
Revenue was lower than the comparable period prior year periods due to the lower size of agreements completed in the licensing business in 2021.
Versus the comparable periods in 2020.
I guess revenue was higher for both Q3 and the year to date period, primarily due to the inclusion of revenue from the acquisitions, we made in 2021.
Despite the COVID-19 pandemic remaining a challenge, notably in Latin America, where several projects were postponed due to Lockdowns Iot continues to demonstrate resilience and we are very encouraged by the strong underlying fundamentals of its operations.
Alrighty pipeline remains strong as its order book was at record levels. In Q3. It is a significant backlog in future quarters will benefit when those delayed projects resume activity regarding.
Regarding ATC the Ics segment in Q3 only included a month the month of September.
As stated at the time of the acquisition, we estimate the D. T C will generate annualized revenue between $95 million to $120 million and adjusted EBITDA between $12.5 million to $15 million within the next 12 to 18 months with contract cycle Higher River bridge in Q3 and other opportunities.
Going through the pipeline here in Q4, we believe we are well on track to reach those targets.
Licensing revenue was up in Q3 compared to Q1, and Q2 of this year, but down year over year due to the significant licensing activity that we saw in Q3 two.
2020.
Despite the headwinds related to COVID-19, while and continues to show it can complete agreements and challenging environment.
A consistent generator of cash as support quarter Hill's overall M&A strategy.
Consolidated gross margin was 42% in Q3, and 34% year to date, which were lower than the comparable prior year periods.
The Ics segment gross margins were lower in 2021 as they fluctuate depending on the nature of projects underway during the period and their related margin profile.
As well as currency volatility between the U S and Canadian dollar.
A large proportion of our revenue in the Ics segment is denominated in U S dollars and a portion of our cost of sales.
In North America are in Canadian dollars, the depreciation of the U S. Dollar during this period relative to the prior year has impacted our gross margin within this segment.
The prior year, we also had larger projects that we're undertaking with significant profit margins compared to a moderate mix of active projects.
A quarter with a lower margin profile.
Weiland gross margins rose slightly in the quarter and were lower for the year to date period of 2021 period gross margin Weiland will fluctuate.
Depending primarily on the level of mitigation and contingent legal and partner costs incurred in the respective period relative to the revenue that's been generated.
In terms of operating expenses total consolidated operating expenses were higher in both Q3 2021 and the year to date period.
The increase in operating expenses was primarily driven by the special charges and transaction costs, which relate to the acquisitions.
Your line Bds and DTC.
As well as the addition of those operating cost basis of those businesses.
Overall, we continue to keep a close eye on expenses at the corporate level and all of our portfolio companies during the pandemic.
Consolidated adjusted EBITDA in Q3 was $7 $6 million and year to date was $1 million. The decrease in the 2021 periods was primarily due to the significant level of licensing activity in wireline.
In the prior in Q3 in the prior year.
On a segment basis, the Ikea business generated adjusted EBITDA of $4 5 million in Q3, 2021, and $8 6 million.
For the Q.
Q3 year to date period.
Well 2021 periods were impacted year over year by the deterioration of the U S dollar versus the Canadian dollar.
In 2021 versus 2020.
The fixed portion of overheads are denominated in Canadian dollars as well as the fact that they were higher margin projects.
During Q3 2020.
Wireline adjusted EBITDA for Q3, 2021 was $5 4 million and for the year to date 2021 period was $2 $7 million.
Cash used in operations was $10 $9 million in Q3 and cash used in operations for the year to date period was $15 million change.
Changes in noncash working capital balances resulted in cash used in operations in Q3, and a majority of the increase in receivables has been collected post quarter end.
Having used approximately $75 million of cash from the balance sheet on the acquisition of BTC, our tax balance is down from the prior quarter end. However, the balance sheet remains strong with $60 million in working capital and subsequent to quarter end, we completed the $57 5 million.
Convertible.
Debenture offering.
We had a few positive developments regarding our capital structure since our last call. So I'll take a couple of minutes to summarize.
For the acquisition of UTC with approximately $150 million of which $75 million was cash from our balance sheet and the remainder was debt financing provided by a syndicate of banks led by HSBC.
Does that facilities included a $63 million term debt facility.
And a $19 million revolving credit facility for the acquisition. The term debt facility was strong fall and $12 million of the what's drawn on the revolving credit facility.
The debt facility also includes an accordion feature which we can access for future purchases.
In October we filed a preliminary.
Shelf prospectus.
With capacity to raise up to $200 million of about 25 months period.
This will allow us to access capital readily as strong M&A opportunities arise.
Subsequent to quarter end, we raised $57 5 million.
Through our convertible debenture offering.
We raised the financing for several reasons.
We expect to replenish our balance sheet over time.
Our existing portfolio companies, but having the additional capital now it gives us tremendous flexibility to be opportunistic in the near term given the quantity of high quality assets, we're seeing in our pipeline and our desire to maintain the pace of our April.
On the convertible debentures the conversion price is approximately.
A 45% premium.
As of yesterday to the current share price.
So we are able.
To raise capital and benign non dilutive way now at a relatively low cost interest rate.
Finally, it is an opportunity to bring new institutional investors quarter Hill, and that's an area of focus for us that we think over time it is important to driving shareholder value.
So in closing we remain well positioned to continue to execute on our M&A strategy, we have a strong balance sheet today with cash and working capital as well as the ability to support additional leverage and we have three strong operating platforms capable of generating cash to further support the acquisition strategy.
As we've said many times our plan is to deploy up to $400 million on our strategy over the next five years to scale, the Ics business and we've made great progress so far in 2021.
We deployed approximately $160 million of.
40% of the five year target on the three acquisitions.
As we've discussed in the past, we believe that the point is capital could add an incremental $300 million.
Lots of revenue and $50 million plus of adjusted EBITDA were Ikea segment over the next five years on top of our Iot business over that time.
Ics revenue comes with a more consistent and predictable profile, which we believe should result in quarter Hill, receiving a valuation that is more consistent with other public ICF in Iot telematics companies.
<unk> achieved similar scale.
The net result of the strategy is to unlock our growth.
Shareholder value over the next five years.
Finally, we continue to our quarterly dividend payments in Q3 and with this morning in our earnings release, we announced details of our next dividend payment. The board of directors has declared an eligible dividend of 135 per share payable on January 10, two.
2022 for shareholders of record on December 10, 2021.
So this concludes my review of the financial results and I'll now turn the call over to the operator for scale.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.
You will then hear three Tom prompt acknowledging your request and your questions will be pulled in the yogurt FBR received should you wish to decline from the polling process. Please press the star followed by the two.
And if you are using a speaker phone please lift the handset before pressing any Keith one moment. Please for your first question.
Your first question does come from Doug Taylor from Canaccord Genuity. Please go ahead.
Yes, Thank you and good morning.
Good morning.
<unk> done that.
Since our last update the large infrastructure bill Thats been working its way through.
<unk>.
Political arena has certainly progress I wonder if I could just get you to update us on any revised thinking about how and when that might start to manifest.
In terms of bookings for <unk>, and <unk> and whether that has impacted any of your conversations around the pipeline for either of those entities.
<unk>.
Yes.
Good question Doug.
First of all it's great news that the Bill got approved in and.
What we anticipate is that the money will start flowing down students the state levels.
Over the next few quarters, it won't be instantaneous, but we will see incremental.
Yeah.
Funding of program and Theres a lot of momentum, we're seeing in especially in the <unk> pipeline we.
Have a lot of deals in the pipeline over $4 billion of opportunities and we think if.
I mean, this will even secure that pipeline and grow it incrementally over time as well so we're very optimistic about it.
Good quarter for the Ics businesses overall.
We do recognize that there is some seasonality in those businesses.
Im just trying to I mean, now that you've had <unk> kind of under your.
Your umbrella now for I guess, a couple of months.
Can you provide us any update on how we should think about modeling out the seasonality of that combined entity and whether etc's as seasonal as the you know the.
<unk> business should prove to be.
Yes, there is there is some seasonality for sure.
I would say.
What I'm seeing is.
This time of the year sort of Q4 time of the year as you see in a lot of technology companies. There is a bit of a hockey stick.
Which is a little bit different than I or D. Right. So they are the.
Seasonality is kind of Q4, Q1 Q1, especially.
So it's a little bit different in terms of when those things happen and actually one of the things that's happening in terms of synergies between the companies even as we're kind of taking advantage of some of the differences in seasonality of the two businesses by sharing some resources, especially in the <unk> in the U S market. So that's an example of where the.
I can play to our favor.
But we're seeing a really good opportunity in Q4 I mentioned on the call that we have.
Three deals that were getting into the contract negotiation phase so we've essentially been reelected and.
I have made it through the protest period.
And so that's just bodes very well for the quarter as well for the agency business.
That's great to hear.
Just wanted to clarify.
You announced.
License with Motorola and I know, it's hard for us to kind of understand the size and magnitude of these licensing agreements. When you have a press release soon but the timing of it I just want to understand whether that was in fact, all reported in Q3 or is that a Q4 item and whether that was one of the big reasons for the working capital.
Receivables machinations kind of around the quarter end.
I'll, let John answer the second first question is yes. It was a Q3 deal. So it showed up in Q3 okay.
Yes, absolutely.
You hit the nail on the head.
There is a bit of a lag.
There is always a timing difference of when the deals are signed and we recognize revenue and then we eventually collect the cash on it but.
That was post Q3.
Okay, and you maintain a pretty constructive outlook for quarter for a while and I should say for the balance of this year you previously you'd kind of.
Talked about the potential for that business to generate cash flows in the ballpark of what it had done on an annual basis in recent years.
We're now halfway through Q4, I wonder if I could opinion, just maybe a discussion of whether you do think that Q2 thousand 21 for the factors that you mentioned with things getting pushed out may end up being a softer year for the wireline business and then you'll recapture some of that in the years ahead.
Yes, I mean as I've said in the past, we don't provide guidance for wildland just because of the nature of the business as you know a couple of things I would I would say to consider.
First is we do have a strong licensing pipeline up wildland, we've got over 20 licensing programs that are active in multiple opportunities in each of the programs we have litigations on the horizon with.
He is like Tcl and micron AMD and of course, Apple both U S and Germany and Canada.
Other considerations I mean, there was a re.
Recent summary judgment that went against us with Amazon.
On infringement summary judgment that happened a couple of weeks ago.
So thats.
More of a headwind effect.
We're evaluating our options there as it relates to Amazon in that litigation that was scheduled to happen.
And.
And I think the other thing is we don't want to.
Kind of rush. These negotiations just to drive a certain number in a certain quarter, we want to make sure that we're maximizing the return.
These are on these deals, but I would say what I said last time, there's a lot to work with and it's very active.
With that caveat around Covid delays and there is a backlog in the courts led for park and.
And this Amazon really well the effect of the Amazon summary, judgment is that that will delay that.
Certainly out of the quarter for sure.
Yes, Doug.
Yes.
We've mentioned it quite a few times before but you know wildland wildland remains variable, but that's exactly why we're focused on Ics and where.
Diligently working away.
Our M&A execution strategy, so that we have stronger visibility into our revenues on a more consistent basis quarter on quarter, and we made great progress so far this year.
Yeah, I think we can all see that.
It's been a successful strategy so far but do you have to put something in our model for a while and as you know.
I appreciate the color I'll pass the line.
Yes.
Thanks, Doug.
Thank you. Your next question come from Steven Li from Raymond James. Please go ahead.
Hey, Thanks, guys.
Hey, Paul I wanted to clarify a couple of your prepared remarks.
Sure.
Firstly just on M&A in the press release, you say HTC can accelerate M&A can.
Can you give a bit more color on that.
But many more active targets in tolling for example.
Yes, yes, absolutely.
<unk> had its own existing M&A pipeline before we acquired the company. So we essentially inherited a very active M&A pipeline.
And there is lots of opportunities around.
Extending their capability product capabilities and service capabilities.
Through vertical integration of some of their supply chain be it through offering <unk> services for some of their capabilities be it software acquisitions et cetera.
So yes, absolutely so the way to think of it as we had a very active IR D. Tuck in pipeline and now we have a second full tuck in pipeline under <unk> and we're working both in parallel.
Okay. That's great that's helpful and then.
Again on the D C.
The pre contract awards that are in the protest period, although is similar in scope to the Ohio River just one.
Yes, that's a good way of looking at it like Ohio is in that sort of 100 million dollar range, a 10 year contract. If you take the three.
Opportunities that we're working on right now you can kind of just on an average basis assume theyre in the same kind of ballpark in terms of size and contract length.
Okay. That's great. Thank you.
Sure.
Thank you. Your next question comes from Gavin Fairweather from Cormack. Please go ahead.
Hi, there good morning.
Hey, good morning, gentlemen.
Just to turn it on EDC just under three kind of later stage opportunities can you confirm is that a mix of kind of roadside back office or both or.
It's both.
Yes.
Opportunities in both.
Yes.
And then just on kind of that 4 billion pipe.
Being pursued given kind of the sales cycle.
In this type of business would you expect most of that to kind of move through to award kind of over the course of 'twenty, two or could some of that trickle longer I guess I'm just trying to think about.
When that business will be contracted.
Yes, most of that is going to happen.
Decisions made on that pipeline over the next 18 to 24 months, but a lot of it is actually happening in <unk>.
2022, which is great news and of course as I mentioned we.
We have three deals were working on that we're getting very close to the end of the process right now.
So they are kind of evenly spread honestly over that period of time roughly.
Okay, Great and then maybe just on Ics.
Just on the gross margin profile could be a bit.
It's tricky I mean, R&D is gross margins to kind of bump around but <unk>.
Kind of a low to high <unk> and then I think with.
<unk> their margin profile can flux around depending on where they are.
On projects in St Georges and things like that so any kind of help that you can provide us on how we should be thinking about the other.
The gross margin profile of that business might be helpful for us from a modeling perspective.
Yes, I'll make a couple of comments and then I'll ask John to chime in on it as well.
What I would say is <unk> is very much in growth mode, right now where there.
As we just said right where they are pursuing a very large sales pipeline and the nature of that business. The tolling business. These 10 to 13 year contracts is the the margin expands over the life of the contract. So the overall margin profile for ATC is a function of the maturity of your customer base.
So given that we are adding a lot of new customers TTC there'll be a bit of margin compression in the short term, but over the long term.
Margin profile will improve quite.
Quite significantly, especially as we get into change orders and extensions, but so theres a bit of a trade off between growth and margin for <unk> over the next period.
A period of time as we pursue these new deals so that would be my.
And I wouldn't make any changes to your assumptions around our IR day, those margins will continue to probably hover into that kind of 30 range that you described John do you want to comment more on that.
Yes, I think you did a great job.
Encapsulating that sort of at a high level.
So I echo that when you when you get initial contracts.
We're in what's called the implementation phase and it's during that implementation phase that youre looking at between I would say, 12% to 15% growth gross margins.
But it matures overall and I think our average with change orders over the term of the contract is in the 30% to 35% gross margin range.
So it scales up you go implementation then its service and maintenance and then it's change orders, which the margins there.
Hi, <unk>.
50% even in some cases.
So.
Yes.
As we grow I think.
What you should be seeing is topline growth.
With a lower margin profile, but still we have a tremendous amount of capacity.
<unk> business, we're scaling up.
And a positive contribution margin.
And then as the contract matures and progresses and change orders start to come in.
Then.
The margin of those new contract starts to increase on.
On average and then of course, we have our existing customer base, which are already.
Various stages in their life cycle, and some are very mature and some are sort of in the middle.
And so forth.
On the <unk> side.
We mentioned on a couple of other calls.
They have acquired two product businesses I mean, those were tuck ins are smaller, but the product margins are higher.
The others.
Between 50% to 60%.
And so as.
As they grow those businesses that could contribute more to their gross margin if they become a higher proportion of our sales.
And then the final thing and I mentioned this during my prepared remarks is the we report in Canadian dollars we have.
The majority of our sales in U S dollars when that flips.
Also our cost of sales there is some Canadian dollars in there.
30% on our cost of sales for already 70% of the SG&A in Canadian dollars.
And so.
As we see the U S. Canadian dollar start to normalize back to sort of historical levels. You'll also see an improvement from there I believe all the time.
That was very helpful on different moving parts, there and then just.
Lastly for me maybe on wireline, we've been speaking about some of the core plumbing issues in the backlog for some time just curious if you have any visibility on on an improvement to that and then maybe just secondly is that in any way kind of impacting license negotiations.
Hi, good thing if the court.
<unk>.
Yes, I mean, that's been an issue really since Covid started for not just the wireline business, but even parts of the <unk> business as we just talked about with Latin America shutting down last quarter.
With the fourth wave right.
What's changed though is the courts are open generally speaking now, but what has happened is theres a <unk>.
Much larger backlog of cases.
So it has evolved from a situation where the courts were closed at the beginning of Covid essentially for a period of time to now a situation where the courts are working through a backlog that accumulated over the COVID-19 period.
And so yes. It does have an effect for sure and the other effect is as I mentioned in my remarks as well.
Travel and a lot of licensing deals the most effective ways to get those deals done is in person.
Some of that.
It's been more difficult Intel recently, and that's starting to improve as well, but it's still kind of early days of travel improving as well.
Yeah.
Great Thats it from me thank you.
Thank you.
Thank you.
Your last question comes from Todd Coupland from CIBC. Please go ahead.
Good morning, everyone.
Alright.
I had a few questions if I could.
Just wanted to pro forma the cap structure, so the only change.
In all of the acquisitions, including EQT had been funded at the end of this quarter.
But you added the convert and then you add that to the cash is there any other adjustments due to any other items on the balance sheet post the end of the quarter.
No no.
I think you've captured that the two big pieces.
Okay.
And then I was just curious you said you reset your your AR.
Our loan agreements.
Let's see the average interest rate on.
On the long term debt and the term please.
Okay.
So we filed our the actual the credit facility on SEDAR as a material contract.
I believe we've redacted the grid so it depends on our leverage ratio but.
It's based off of live it.
Base rate plus LIBOR.
It's in the low single digits.
Okay.
Three ish percent for the debt that you that it would be reasonable in terms of modeling it.
Yes, I'd say thats pretty reasonable.
Okay.
And then at 6% on the convert.
Okay, yeah. Thanks.
On the convert.
Okay.
Other thing Todd as I did note that.
No.
<unk> million out of the credit facility that was on our revolver.
That's a committed revolver.
As you know as we've outlined in our credit facility document there, we can pay that back and redraw. It again at any time with a day's notice and so.
We manage our working capital and we manage our cost of capital as well too.
So we have we have a lot of cash right now to two.
Manish flex that up and down as we need.
Okay. So.
Just for modeling purposes.
So.
Model out the three ish percent on that $63 million and then.
With the excess cash you've probably pay that revolver down.
And just see how it goes with other M&A et cetera.
That's exactly that's exactly right.
Since we had the khaki pant nonrecurring the interest.
And then when the when we need the capital is M&A comes up and as we've mentioned we have a lot of things in our pipeline.
Good access it immediately.
Alright, okay.
Okay, that's great.
I also wanted to ask you about the the ETP 10 year deals, so youre more or less saying they add $10 million a year in revenue is my takeaway, so $10 million to $30 million. If you win them all so with that.
Effectively the incremental revenue to the 95 to 120 that you called out when you announced the deal.
Well, the Ohio River bridges deal was.
Those before the acquisition.
So that one was already factored in.
The ones I'm, referring to would be incremental.
But we did obviously when we gave you that range we are.
Assumptions around a certain win rates as part of that right. So it's not simple math I would say there is a degree of additive nature to it though.
So just to just to provide a bit more color. When we gave you that range.
Well I think we also mentioned on our calls that.
UTC was at various stages of various rfps that they had been working on and so.
Now the other thing that we mentioned was the 95 was kind of the base business what they what they've already secured so it is incorporated it is incorporated in that range in the short term.
There is other deals that they are working on as well too.
Okay, but I guess I guess, the bigger point I would make is the momentum is very good at ATC and their win rate is higher than we had originally modeled which is great.
But it's going to take time for those to become sort of additive to the model and kind of any kind of material way yet. So I think the range is.
It's looking good.
And we will see more deals come in but these deals I want I just want to put a caveat theyre not signed deals right. They're just they're in the process, we have been selected but not contracted.
And so there's always that possibility that they don't all close right.
Yes.
I mean on that point.
The takeaway is.
95 million is is is pre these deals if you will.
And then they flex to these deals if youre successful somewhere in the range.
Yes, yes.
Not quite that simple, but yes, I mean, that's sort of the way to think of it I would say, yes, yes, yes, okay.
Okay, that's great and then.
Yes, I mean, you put the teaser out there yet the shelf.
Yep and deep M&A pipeline it doesn't sound like there's too much integration that you need to worry about with ETP. So lots of opportunities so that the messages youre still working hard on that pipeline.
<unk>.
Weighted by this last deal was that is that right.
That's right absolutely right very active there is some very attractive assets out there and as I said earlier.
He came with its own M&A pipeline and there's some very attractive opportunities there.
Yes.
Todd.
I would say is with.
Large because it's because it's a separate platform with its own management team and a separate sub segment of road.
The integration is largely.
Sort of back office financial reporting systems that type of thing.
But I think Paul has alluded to a few things with the Ceos of both of our Ats businesses are already talking in bringing each other deals and talking about ways. They can work together long term, it's pretty exciting.
Yes.
Okay.
Okay that sounds good and then just for modeling purposes.
More or less took the $100 million and spread it out over a year.
With these deals having to close still is.
Is that maybe the wrong way to think about.
The rhythm of the business and it will ramp up over time to that $100 million is there is there any granularity you can talk about on that.
Yes, so like just to just to sort of not to pick on a particular deal but just for instance, if we were to close $100 million deal over a 10 year period you can.
Assume that the revenue split is relatively even over that period of time. So you divided by 10 essentially.
There are sometimes a little there's a little bit of front end loading to it sometimes so in other words, you're one might be more like 12 to 13.
And the reason for that is there's a lot of upfront implementation work and then you kind of go into more of a maintenance contract running the operations of the system over the subsequent years.
So it's one of the reasons the revenue at the beginning of the contract can be quite strong, but then the margin is a little bit lower at the beginning of the contract too because you are taking on sort of upfront cost to get the system implemented that's kind of the dynamic of these deals.
No. Paul I was wondering is even if let's say whatever timing you could take a while to sign is it is.
Is it appropriate right now to just.
Take the 100 in 2022 and divide by four or is there is there.
More of a.
A gradual path up to that sort of $25 million a quarter type of revenue.
It's just to make sure that were clear here.
When you say 100 million, that's a 10 year contract sorry, I'm thinking about your original ETT guide, sorry, Oh, sorry quarter over quarter, Yes, I think Paul mentioned earlier.
<unk> is less affected.
Let's say by seasonality than IRT is simply because they have a couple of components right. They do outside will rotate them from systems implementations, which is outside.
But you know there is the back office ERP.
Our systems.
No that is not outside in so.
IRT has a ton of projects and they're all outside.
<unk>.
Okay iron needs a bit more impacted yes, so theres just less seasonality, yes, I didn't I didn't catch what you were saying there Todd yes, John's right, there's less seasonality on it so yes, I think you're onto the right point there.
Okay.
And then just one other question on the M&A.
ETP.
Yes, I would consider that transformational for quarter Hill.
Do you I agree when you look at when you look at the pipeline.
I mean, you filed a big shelf. So I mean do you even see a step function up from that in terms of incrementally transformational in terms of the types of things you could do just talk about like the types of things, you're giving serious consideration to.
I mean, there are a number of conversations happening in parallel on deals of all sizes.
I would say.
What's most probable or.
Mid size too.
Two smaller size in the near term just because we.
We can probably get to those deals.
Get them done.
In a shorter timeframe, so think more in terms of tuck ins I think in the near term.
But tuck ins of more scale, though if you remember the first two deals. We did are we're quite small right. They were basically vertically integrating one was our fiber optics company sensor line and the other ones are pretty exciting company, but a small company in the photo radar area in both German.
Those are small deals though.
So I think I think we're looking at things a little bigger than that John I don't know if you'd add any color to that yeah I mean.
Mike.
Paul and I are our philosophy is first and foremost we want a quality businesses lots of synergy opportunity some of them get a deal done under very actionable right, but that said.
Another consideration is we want to you know its a lot of work so we want to.
If we can.
Move the needle.
And so.
Paul mentioned theirs.
ECC came with a great.
Great pipeline itself, it's in the space that we want to be in there as well too and enhances our capabilities and so.
Very exciting time and a lot of good high quality assets. There that are yeah like Paul mentioned bigger gone very small ones that we did at the beginning of last year.
Sure.
Okay.
Okay great.
Great. Thanks, Thanks for all the color appreciate it.
Anytime thanks Todd.
Thank you there are no further questions at this time Mr Hill you May proceed.
Well I'd like to thank everyone for participating on today's call and we certainly look forward to speaking to you again in the coming months. Thanks Goodbye.
Ladies and gentlemen, this concludes your conference call for today, we thank you very much for participating and ask that you. Please disconnect your lines.
Yeah.
Okay.
Yes.