Q3 2024 Quarterhill Inc Earnings Call
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Speaker Change: Good morning, and welcome to Cortez Hills, Q3, 2020 financial results Conference call.
Operator: Good morning and welcome to Quarterhill's Q3 2024 Financial Results conference call.
Operator: On this morning's call, we have Chuck Myers, CEO, and Kyle Chriest, Chief Financial Officer. At this time, all participants are in a listen-only mode. Following management's presentation, we will conduct a question and answer session during which analysts are invited to ask questions. To ask a question, please press star 1 on your touchtone phone to register. Should you require any assistance during the call, please press star zero.
On this morning's call we have Chuck Myers.
Speaker Change: Oh, and Kyle Chris <unk>, Chief Financial Officer.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: Following managements presentation, we will conduct a question and answer session during which analysts are invited to ask questions.
To ask a question. Please press star one on your attached on phone to register.
Speaker Change: Should you require any assistance during the call. Please press star zero.
Speaker Change: Earlier this morning quarter Hill issued a news release announcing its financial results for the three and nine months ended September 30, 'twenty 'twenty four.
Operator: Earlier this morning, Quarterhill issued a news release announcing its financial results for the three and nine months ended September 30, 2024. This news release, along with the company's MD&A and financial statements, are available on Quarterhill's website and on CedarPlus.
Speaker Change: This news release, along with the company's MD&A and financial statements are available on Cortez Hills website and on SEDAR plus.
Speaker Change: Certain matters discussed during today's conference call or answers that may be given to questions could institute forward looking statements.
Operator: Certain matters discussed during today's conference call or answers that may be given to questions could institute 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 CDAR Plus.
Speaker Change: Actual results could differ materially from those anticipated.
Speaker Change: Risk factors that could affect results are detailed in the company's annual information form and other public filings that are available on SEDAR plus.
Speaker Change: During this conference call a quarter here, where if referred to adjusted EBITDA.
Operator: During this conference call, Quarterhill Weiriff referred to adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed by IFRS.
Speaker Change: Adjusted EBITDA does not have any standardized meaning prescribed by I F. R. S.
Speaker Change: Please refer to the company's Skus III 'twenty 'twenty four M. DNA for full cautionary notes regarding the use of forward looking statements and non ifr as measures.
Operator: Please refer to the company's Q3 2024 MDNA for full cautionary notes regarding the use of forward-looking statements and non-IFRS measures. Finally, please note that all financial information provided is now in U.S. dollars unless otherwise specified.
Speaker Change: Finally, please note that all financial information provided is now in U S dollars unless otherwise specified.
Operator: I'll now turn the meeting over to Mr. Myers, please go ahead, sir.
Speaker Change: I'll now turn the meeting over to Mr. Myers. Please go ahead Sir.
Mr. Myers: Good morning, everyone and thank you for joining us on today's call in terms of today's agenda I'll discuss results for the quarter after which Kyle will take a look at key financial results. Following Tayo, we'll open it up for questions.
Charles Myers: Good morning, everyone, and thank you for joining us on today's call. In terms of today's agenda, I'll discuss results for the quarter, after which Kyle will take a look at key financial results.
Charles Myers: Following Kyle, we'll open it up for questions. In Q3, our enforcement unit had another strong quarter with multiple new contracts, top line growth, and solid margins. While in our tolling unit, we increased our bid activity and expanded mandates with several existing customers. We also added several key hires for enhancing our project bid and development. We received a dividend in the quarter from our ownership position in YLIN, and then after quarter end, we entered into a share purchase agreement to sell our position in our Chinese joint venture. Combined, these two developments will generate approximately $8 million net cash, strengthening our balance.
In Q3, our enforcement unit had another strong quarter with multiple new contracts topline growth and solid margins, while in our tolling unit, we increased our bid activity and expanded mandates with several existing customers. We also added several key hires for enhancing our project bid and development teams.
Mr. Myers: We received the dividend in the quarter from our ownership position of Wilen and then after quarter end, we entered into a share purchase agreement to sell our position and our Chinese joint venture combined these two developments will generate approximately $8 million net net cash strengthen our balance sheet and 'twenty 'twenty four we have worked hard to turnaround the company by.
Charles Myers: In 2024, we have worked hard to turn around the company by integrating our ITS business, selling non-core assets, optimizing our cost base, adding new leadership, and enhancing our technical capability. With the reserves we have taken for the quarter, we believe we are at the end of the process of working through our problem contracts, and we're well positioned to capitalize on the benefits from the changes we have made in 2024. Importantly, we have overhauled our bid process so we don't expect a repeat in the future of the situations we've encountered on certain of our legacy contracts.
Mr. Myers: Our I T S business, selling noncore assets to optimizing our cost base, adding new leadership and enhancing our technical capabilities.
With the reserves, we have taken for the quarter. We believe we are at the end of the process of working through our problem contracts and we are well positioned to capitalize on the benefits from the changes we have made in 2024 importantly, we have overhauled our bid process. So we don't expect to repeat in the future of the situations we've encountered on certain of our leg.
Mr. Myers: See contracts the two tolling contracts for which we took reserves in Q3 impacted revenue and margins by approximately $4 million. We believe these reserves will be sufficient for both projects to reach the acceptance milestones in the operations phase and it becomes steady and profitable long term business.
Charles Myers: The two tolling contracts for which we took reserves in Q3 impacted revenue and margins by approximately $4 million. We believe these reserves will be sufficient for both projects to reach the acceptance milestones in the operations phase and to become steady and profitable long-term business.
Charles Myers: For the business as a whole, we expect to return to positive adjusted EBITDA in Q4 of 2024 and to grow our top line and margins into 2020. At a glance, Q3 financial highlights consisted of revenue of $38 million, up 12% of $34.1 last year, and adjusted EBITDA of negative $2.8 million compared to a positive $1.4 million last year. Both revenue and adjusted EBITDA were impacted by the reserves taken in the quarter.
Mr. Myers: For the business as a whole we expect to return to positive adjusted EBITDA in Q4, 2024 and to grow our topline and margins into 2025.
Mr. Myers: At a glance Q3 financial highlights consisted of revenue of $38 million up 12%.
Speaker Change: Of 34.1 last year, and adjusted EBITDA was negative $2 8 million compared to a positive $1 4 million last year, both revenue and adjusted EBITDA were impacted by the reserve taken in the quarter tell will detail that impact in his section we ended the quarter with substantial revenue backlog.
Charles Myers: Kyle will detail that impact in his second. We ended the quarter with substantial revenue backlog of $475 million. We have been more active on the bid side with our tolling unit and expect the backlog to increase into the year end based on positive indications from customers.
$475 million, we've been more active on the bid side, where their tolling units and expect the backlog to increase into the year and based on positive indications from customers are.
Charles Myers: Our Q3 Business Unit Review. Looking more closely at our business units, our enforcement business continues to drive steady and reliable performance. We leveraged our global footprint to win new contracts in Thailand and South Korea, and announced several new deals with state agencies in South Dakota, Minnesota, and North Carolina. Our AI vehicle classification system used for traffic monitoring was again selected in the quarter, this time in Minnesota. This involves the use of AI video automatic traffic recorders or ATRs that count and classify the vehicles, which is essential for highway planning, design, maintenance, and management. For context, we have sold over 50 systems to multiple customers to date.
Q3 business unit review looking more closely at our business units our enforcement business continues to drive steady and reliable performance, we leveraged our global footprint to win new contracts in Thailand, South Korea, and announced several new deals with state agencies in South Dakota, Minnesota, and North Carolina.
Speaker Change: Our AI vehicle classification system used for traffic monitoring was again selected in the quarter. This time in Minnesota. This involves the use of AI video automatic traffic a quarter.
Speaker Change: Or a T ours, they count and classify the vehicles, which is essential for highway planning design maintenance and management for context, we have sold over 50 systems to multiple customers to date as you know AI and machine learning applications. In Ips are an area of great interest for us and a core component of our technology roadmap.
Charles Myers: As you know, AI and machine learning applications in IPS are an area of great interest for us and a core component of our technology roadmap. I mentioned that we had signed a share purchase agreement to divest of our ownership stake in a Chinese joint venture. In keeping with our strategy to focus resources on the most promising growth areas of the business, this was deemed a non-core holding for us. Our ability to monetize the asset will strengthen our balance sheet and enable us to invest in higher growth opportunities. On the tolling side, key highlights in the quarter involved advancing opportunities in our bid pipeline and expanding mandates with certain existing customers, including a $10 million expansion of our existing contract with CTR.
Speaker Change: I mentioned that we had signed a share purchase agreement to divest of our ownership stake in a Chinese joint venture and keeping with our strategy to focus resources on the most promising growth areas of the business. This was deemed a non core holding for us our ability to monetize the asset will strengthen our balance sheet and enable us to invest in higher.
Speaker Change: Growth opportunities on the tolling side key highlights in the quarter involved advancing opportunities in our bid pipeline and expanding mandates with certain existing customers, including a $10 million expansion of our existing contract with Ctr Mei.
Charles Myers: Unknown Speaker 05. The strategy. For Quarterhill, 2025 is about leveraging our changes to take the technologies to the next level and drive growth by further aligning technical and operational services. This includes further development of our common core architecture, as well as we deploy our next generation systems to meet our customers' desires. Ultimately, this gives way to growth through product innovation, upgrades and expanded AI capabilities, delivering a more robust system for data mining, analytics, and entry into new markets such as tolling in Europe and logistics. The growth of our software architecture is a key factor underpinning this development, and I have spoken of the shift to a greater software focus in the past.
Speaker Change: Our strategy for.
Speaker Change: For quarter Hill, 2025 is about leveraging our changes to take the technologies to the next level and drive growth by further aligning technical and operational services. This includes further development of our common core architecture as well as we deploy our next generation systems to meet our customers' desires.
Speaker Change: Ultimately this gives way to growth through product innovation upgrades and expanded AI capabilities, delivering a more robust system for data mining analytics and entry into new markets, such as tolling in Europe and logistics.
Speaker Change: The growth of our software architecture is a key factor underpinning this development and I have spoken of the shift to a greater software focus in the past to support the build out of our advanced architecture at quarter end, we announced the formation of a technical Advisory Committee. Our first two members are world class and highly respected technologists.
Charles Myers: To support the build out of our advanced architecture at Quarter End, we announced the formation of a technical advisory Our first two members are world class and highly respected technologists, Bobby Parikh and Vinit Khosla. I spoke about Vinit on our prior call in his significant contributions to transportation applications using AI machine learning and cloud computing at Uber and Apple. Joining Vinit on the committee is Bobby. Bobby will also be a special advisor to the business, working with me. Bobby is an engineering executive, product and business advisor with a long track record in technology and transportation.
Speaker Change: Bobby Perique and delete costless.
Speaker Change: I spoke about on our prior call and his significant contributions to transportation applications, using AI machine learning and cloud computing and Uber and Apple.
Speaker Change: Joining vineet on the committee as Bobby Bobby will also be a special advisor to the business working with me Bobby as an engineering executives product and business adviser with a long track record in technology in transportation is experience includes senior roles at Uber, where he overlapped with the knee Bobby.
Charles Myers: His experience includes senior roles at Uber, where he overlapped with Vinit. Bobby also spent time at Google and Descartes, where he developed some of the most popular and advanced mapping platforms and applications in use today. Bobby brings strength in execution, scalable product development and team management. His expertise in strategy and innovation will be invaluable as we build out our AI capabilities and new tolling and enforcement software systems. to support our advisors.
Speaker Change: Also spend time at Google and they call that where he developed some of the most popular and advanced mapping platforms and applications in use today, Bobby brings strengthen execution scalable product development team management has expertise in strategy and innovation will be invaluable as we build out our AI capabilities in new tolling and enforcement.
Speaker Change: Software system.
Speaker Change: To support our advisers.
Charles Myers: We have also added senior software technologist Todd Denhouse as our VP of software joining us from several years at Microsoft. Finally, our opportunities and logistics dovetail nicely with the previously mentioned 50 deployed AI Integration and rightsizing. Integration and rightsizing have been important themes in the past 12 months as we work to transition the business. Our integration work continues, especially on the technology side, as I just discussed, but we also continue to take steps to ensure our operations are optimized. Earlier in the year, we undertook a restructuring, and after the end of Q3, we have again taken steps to rightsize both business units.
Speaker Change: We have also added senior software technologies, Todd Daniels, because our V. P of software joining us from several years at Microsoft.
Speaker Change: Our opportunities in logistics dovetail nicely with the previously mentioned 50 deployed AI systems.
Speaker Change: Integration and right sizing integration of right sizing and been important themes in the past 12 months, if we work to transition the business. Our integration work continues, especially on the technology side as I just discussed, but we also continued to take steps to ensure our operations are optimized earlier.
Earlier in the year, we undertook a restructuring and after the end of Q3, we have again taken steps to rightsize both business units, while we have reduced head count some parts of the business, where we believe growth will not be impacted we also continue to add strategically to the teams as I mentioned earlier, we have expanded our project bid.
Charles Myers: While we have reduced headcounts in parts of the business where we believe growth will not be impacted, we also continue to add strategically to the team. As I mentioned earlier, we have expanded our project bid technical and strategy teams and added other select senior resources to help drive the execution on our growth plan.
Speaker Change: Technical and strategy teams and added other select senior resources to help drive the execution on our growth plans. However, we do anticipate strategically right sizing the business in the fourth quarter to minimize our costs.
Charles Myers: However, we do anticipate strategically rightsizing the business in the fourth quarter to minimize our costs. Looking forward, we believe the reserves we have taken in Q3 are enough to get us over the hump with the two projects, and we expect to return to positive adjusted EBITDA in Q4. Looking further to next year, our goal for 2025 is to generate revenue growth, expand adjusted EBITDA margin and drive positive cash flows. We look to achieve this by delivering on our large tolling projects, continuing the steadily growth from our enforcement business and expanding our technology software footprint and pursuing expansion to new markets and verticals.
Speaker Change: Looking forward, we believe the reserves we have taken in Q3 are enough to get us over the hump with the two projects and we expect to return to positive adjusted EBITDA in Q4 looking further to the next year. Our goal for 2025 is to generate revenue growth expanded adjusted EBITDA margin and drive positive cash flows.
Speaker Change: We look to achieve this by delivering on our large tolling projects continuing to steadily growth from our enforcement business and expanding our technology software footprint and pursuing expansion to new markets and verticals overtime. We believe this will result in the company generating reliable cash and building a strong balance.
Charles Myers: Over time, we believe this will result in the company generating reliable cash and building a strong balance sheet capable of supporting both our organic and acquisitive growth opportunities. We have a great team at Quarterhill, excellent ITS assets, strong customer relationships, and significant revenue backlog. We continue to believe we are very well set up to be a number one or number two player in the industry. As I previously said, that is our goal.
Speaker Change: <unk> capable of supporting both our organic and acquisitive growth opportunities.
Speaker Change: We have a great team at quarter Hill excellent I T S assets strong customer relationships and significant revenue backlog. We continue to believe we're very well set up to be a number one or number two player in the industry as I previously said that is our goal.
Kyle Chris: With that I'll turn it over to Kyle Kyle.
Charles Myers: With that, I'll turn it over to Kyle.
Kyle Chriest: Kyle? Thank you, Chuck, and good morning, everyone. Before we get into the financials, please note that discussion pertaining to the 2023 financials reflect only the results of our ITS YLAN's financial results for the three and nine months ended September 30, 2023 are reflected in the discontinued operations line items on our P&L and cash flow statement as that business was sold in June 2020. With that, I'll take a look at revenue in the Q3 revenue was $38 million, up 12% from Q3 of last year. Year-to-date revenue was $114.4 million, up $13.5 million. The increase for the two periods was due to growth in both our enforcement and tolling As Chuck mentioned, in Q3, we took reserves totaling $4 million dollars related to cost overruns on two trolling projects.
Kyle Chris: Thank you Chuck and good morning, everyone before we get into the financials. Please note that discussion pertaining to the 2023 financials reflect only the results of our Ats business.
Kyle Chris: <unk> financial results for the three and nine months ended September 32023 are reflected in the discontinued operations line items on our P&L and cash flow statement as that business was sold in June 2023, with that I'll take a look at revenue in the quarter.
Kyle Chris: Q3 revenue with $38 million up 12% from Q3 of last year year to date revenue was $114 $4 million up 13% the.
Kyle Chris: The increase for the two periods was due to growth in both our enforcement and tolling business.
Speaker Change: As Chuck mentioned in Q3, we took reserves totaling $4 million related to cost overruns on two tooling projects.
Kyle Chriest: Of the $4 million in reserves taken, $1 million resulted in a cost-of-goods-sold increase, and the remaining $3 million resulted in reduced revenue in the third quarter. Excluding the reserve impact, revenue in Q3 would have been $41 million. As Chuck touched on in his section, at the end of the quarter we had significant backlog of $475 million. This provides good visibility into revenue for the rest of 2024 and the next several years. Of note, a large portion of the backlog is higher margin contracted maintenance revenue versus implementation revenue, which we expect will drive better margins in 2025.
Speaker Change: Of the $4 million in reserves taken $1 million resulted in the cost of goods sold to increase and the remaining $3 million resulted in reduced revenue in the third quarter. Excluding the reserve impact revenue in Q3 would have been $41 million.
Speaker Change: Chuck touched on in his section at the end of the quarter, we had significant backlog of $475 million.
Speaker Change: This provides good visibility into revenue for the rest of 2024 in the next several years.
Speaker Change: Of note a large portion of the backlog is higher margin contracted maintenance revenue versus implementation revenue, which we expect will drive better margins in 2025 and beyond.
Speaker Change: Okay.
Kyle Chriest: Gross margin percentage in Q3 was 13% compared to 23% in Q3 last year, and 17% year-to-date compared to 21% in the year-to-date comparative. The year over year decreases are primarily due to the reserves taken for two tolling projects as discussed, and are partially offset by the continued strong performance from our enforcement. The reserves taken in Q3 2024 resulted in a reduction to gross margin of $4 million. Excluding the reserves gross profit in Q3 would have been approximately $9.1 million or 24% gross Total operating expenses for Q3 2024 were $11.3 million compared to $9.9 million in Q3 2021.
Speaker Change: Gross margin percentage in Q3 was 13% compared to 23% in Q3 last year and 17% year to date compared to 21% in the year to date comparative period a.
The year over year decreases are primarily due to the reserves taken for two tooling projects as discussed and are partially offset by the continued strong performance from our enforcement unit.
Speaker Change: The reserve taken in Q3 2024 resulted in a reduction to gross margin of $4 million.
Excluding reserves gross profit in Q3 would have been approximately $9 1 million or 24% gross margin.
Speaker Change: Total operating expenses for Q3, 2024 were $11 3 million compared to $9 9 million in Q3 2023.
Kyle Chriest: Year-to-date, OPEX was $32.5 million, compared to $32.1 million in the same period last year. The year-over-year increases were primarily due to higher SG&A, offset in part by lower RNP. SG&A increased year over year driven by our investments in leadership and resources for our project, bid and development. As I said on prior calls, we continue to expect to hold SG&A cost increases for the year to under $10,000. As Chuck mentioned earlier, we took steps to further optimize the workforce and reduce expenses subsequent to the end of Q3 adjusted EBITDA was negative $2.8 million, and for the year-to-date period was negative $0.9 million.
Speaker Change: Year to date Opex was $32 5 million.
Compared to $32 1 million in the same period last year.
Speaker Change: The year over year increases were primarily due to higher SG&A offset in part by lower R&D expenses.
Speaker Change: SG&A increased year over year, driven by our investments in leadership and resources for our project and development team.
Speaker Change: As I have said on prior calls we continue to expect to hold SG&A cost increases for the year to under 10%.
As Chuck mentioned earlier, we took steps to further optimize their workforce and reduce expenses subsequent to the end of Q3.
Speaker Change: Q3, adjusted EBITDA was negative $2 8 million and for the year to date period was negative <unk> 9 million. This compares to positive $1 $4 million and zero point $5 million in the same periods last year.
Kyle Chriest: This compares to positive $1.4 million and $0.5 million in the same period last year. Adjusted EBITDA for Q3 and the year to date period were impacted by the reserves taken Excluding the $4 million impact of those reserves, adjusted EBITDA for the Q3 2024 and year-to-date periods would have been $1.2 million and $3.1 million. As Chuck mentioned, we expected Justin Ibadat's rebound in Q4 to be positive, as driven by steady results from the enforcement unit and stronger revenue performance from the total.
Speaker Change: Adjusted EBITDA for Q3, and the year to date period were impacted by the reserves taken in the quarter.
Speaker Change: Excluding the $4 million impact of those reserves adjusted EBITDA for the Q3 2024 and year to date periods would have been $1 2 million and $3 $1 million respectively.
Speaker Change: As Chuck mentioned, we expect adjusted EBITDA to rebound in Q4 and to be positive as driven by steady results from the enforcement unit and stronger revenue performance from the tooling unit.
Looking ahead to 2025, we expect adjusted EBITDA to be positive and for margins to improve as we move throughout the year.
Kyle Chriest: Looking ahead to 2025, we expect adjusted EBITDA to be positive and for margins to improve as we move throughout Turning now to the bell. At quarter end, we had adjusted working capital of $64.9 million, compared to $78.9 million at the end of 2020. As we spoke about on our last call, following the IFRS amendment to IAS 1, we are now using adjusted working capital, a non-IFRS measure, to highlight the strong working capital position that we have. Adjusted working capital is defined as working capital adjusted for convertible debentures and the derivative liability. As a reminder, our convertible debentures don't mature until October 30, 2020.
Speaker Change: Turning now to the balance sheet.
Speaker Change: At quarter end, we had adjusted working capital of $64 9 million compared.
Speaker Change: Compared to $78 9 million at the end of 2023.
Speaker Change: As we spoke about on our last call. Following the amendment to Ias. One we are now using adjusted working capital a non <unk> measure to highlight the strong working capital position that we have.
Adjusted working capital is defined as working capital adjusted for convertible debentures and the derivative liability.
As a reminder, our convertible debentures don't mature until October 32026.
Kyle Chriest: We ended the quarter with cash and cash equivalents of $23.1 million compared to $42.7 million at the end of 2020. As Chuck mentioned, we received a $3.8 million dividend in Q3 from our Ownership Division in Wyoming. and subsequent to quarter end, we signed a share purchase agreement to sell our share of our Chinese joint The sale of that non-core asset will generate growth proceeds of approximately $4.9 million that we expect to be reflected on the balance sheet. Improving our cash position is a top priority and key to our strategy. One of our main focuses has been the progress billing and collecting on some of our longer standing unbilled revenue balances, with work still to be done on this front that should help with our cash balances in future periods.
Speaker Change: We ended the quarter with cash and cash equivalents of $23 1 million compared to $42 7 million at the end of 2023.
As Chuck mentioned, we received a $3 8 million dividend in Q3 from our ownership position in wireline and subsequent to quarter end, we signed a share purchase agreement to sell our share of our Chinese joint venture.
Speaker Change: The fields that noncore asset will generate growth proceeds of approximately $4 $9 million that we expect to be reflected on the balance sheet in Q4.
Improving our cash position as a top priority and key to our strategy.
Speaker Change: One of our main focuses has been the progress billing and collecting on some of our longer standing unbilled revenue balances with work still to be done on this front that should help with our cash balances and future periods.
Kyle Chriest: Our outlook for cash in Q4 2024 is that we expect to generate positive cash from operation. and for cash on the balance sheet to grow at year-end from Q3 level.
Speaker Change: Our outlook for cash in Q4 2024 is that we expect to generate positive cash from operations and free cash on the balance sheet to grow at year end from Q3 levels.
Operator: Due to the nature of our business, operating cash flows may vary significantly between periods due to changes in timing and working capital balances, namely with collections This concludes my review of the financial results and I'll now turn the call over to the operator.
Speaker Change: Due to the nature of their business operating cash flows may vary significantly between periods due to changes in timing and working capital balances, namely with collections and payments.
Speaker Change: This concludes my review of the financial results and I'll now turn the call over to the operator for Q&A.
Speaker Change: Ladies and gentlemen.
Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the 2. If you're using a speakerphone, please lift up the handset before pressing any key.
Speaker Change: Now begin the question and answer session should you have a question. Please press star followed by one and you touched on phone you'll hear a prompt at your hand has been raised.
Speaker Change: Should you wish to decline from the polling process. Please press star followed by the two.
Speaker Change: If you're using a speaker phone please lift up the handset before pressing any keys.
First question comes from Gavin Fairweather with core Mark. Please go ahead.
Gavin Fairweather: First question comes from Gavin Fairweather with Cormark, please go ahead. Oh, hey, good morning, guys wanted to start out on a couple of your and further challenges. I can...
Oh, Hey, good morning, guys wanted to start out on a couple of your tolling implementation.
Speaker Change: It caused some further challenges I guess I'm curious for a bit more detail in terms of what in particular is kind of off track on those implementations, you know where where those projects are differing from your expectations and what most of them do you have and flight to to fix that.
Unknown Speaker: I'm curious for a bit more detail on... off track. differing from your Okay.
Speaker Change: Okay, Hey, Kevin Thanks.
Charles Myers: Hey, Gavin. Thanks for the question. Very reasonable question.
Speaker Change: Thanks for the question and very reasonable question.
Charles Myers: So we have two contracts there that have been in place long before I arrived, so I get to blame them on the last guy, I guess. But the reality is, those contracts, we've gotten them both into implementation. They're both in revenue collecting mode. So they're successful from that standpoint. There's still KPIs and some next phases of... Project development needs to be done for integration to other systems for the agencies and things like that They are going on track One of them and we're in the middle of renegotiation on right now to actually get pretty significant operating increase So that's those are all positive.
Speaker Change: So we have two contracts there.
Speaker Change: That had been in place long before I arrived site blame on Alaska I guess.
But the reality is those contracts those contracts, we've gotten them both into implementation there both in revenues rabbit.
Speaker Change: Revenue collecting mode. So there are successful from that standpoint, there's still kpis and some next.
Speaker Change: Phases of.
Speaker Change: The project development needs to be done for integration to other systems for the agencies and things like that.
Speaker Change: They are going on track one of them and we're in the middle of renegotiation on right now to actually get pretty significant operating increase.
Speaker Change: So that's those are all positive the reality is it.
Charles Myers: The reality is it was it's these are government agencies and they take a long time To move so out of prudence. I mean the projects are going much better than they were for sure We're not worried about the implementation at this point, which is big positive But the renegotiation is just taking a while. And so we thought it's just prudent We want to go into the new year without you guys asking these same questions every year So we felt it was prudent and and you know from an accounting perspective Was the correct thing to do to just take the reserves this quarter so you don't have to ask me those questions anymore We were actually bullish on the contracts But the reality is, you know, there's there's a couple million dollars there that you know We that we worried we're going to take for implementation if we didn't get the contract renegotiated.
Speaker Change: These are government agencies and they take a long time to move so out of Prudence I mean, the projects are going much better than they were for sure.
Speaker Change: Worried about the implementation at this point, which is a big positive.
Speaker Change: But the renegotiation is just taking a while and so we thought it's just prudent.
Speaker Change: We want to go into the new year without you guys asking the same questions every year. So we felt it was prudent and.
Speaker Change: From an accounting perspective was the correct thing to do to just take the reserves. This quarter. So you don't have to ask me those questions anymore.
Speaker Change: We're actually bullish on the contracts.
Speaker Change: But the reality is there's there's a couple of million dollars. There that we that we worried we're going to pay for implementation. If we didn't get the contract renegotiated so.
Gavin Fairweather: So You know, there may be a there may be ability for recovery But you know, we said look let's get the worst-case scenario on the table here be done with it and and move on So we're working on the quarter That's helpful color. I appreciate that.
Speaker Change: There may be there may be ability for recovery, but we said look lets get the worst case scenario on the table here be done with it and move on so we're working on the core business.
Speaker Change: Okay. That's helpful color I appreciate that and just in terms of getting the margins on those projects back to towards where you're targeting is is a lot of that tied to moving them into the acceptance process versus implementation.
Charles Myers: And just in terms of There's a lot of that tied to moving. Unknown Speaker, Unknown Speaker, Unknown Speaker, No, I think it's both. One is there were, you know, there's been, since these contracts were signed, obviously, we have this little thing called inflation that dramatically affected the cost of implementing them. So those are in the process of, at least one of them is a process of being renegotiated. As part of the contract, mind you, we have the ability to do that. And we expect to have that done by the end of the year. Both of these are already in implementation.
Speaker Change: Mostly tied to the contract renegotiation.
Speaker Change: No I think it's both.
Speaker Change: One is there were there has been since these contracts were signed obviously, we have the slow thing called inflation.
Speaker Change: Dramatically affected the cost of implementing them.
Speaker Change: So those are in the process of at least one of them is a process of being.
Speaker Change: Renegotiated as part of the contract mind, you, we have the ability to do that.
And we expect to have that done by the end of the year.
Speaker Change: Both of these.
Speaker Change: We're already in implementation.
Charles Myers: Consultants get heavily involved in these projects and they always see a lot of a lot of nits and nats and make things pretty difficult as we go through KPIs. So it's really negotiating KPIs, making sure the systems, you know, is it 99.96 or is it 99.98? And, you know, those are the kind of things you go through after implementation. And these things, they get to be a little bit iterative. I mean, I've been doing this part of it a long time. They all tend to have this just before acceptance, but they're all in operational and beneficial use for the customer at this time.
Speaker Change: Consultants get heavily involved in these projects and.
Speaker Change: They always see a lot of a lot of nits and gnats and make things pretty difficult as we go through kpis. So it's really negotiating kpis, making sure the systems.
Speaker Change: Is it 90 996, whereas at 99.98.
Speaker Change: And those are the kinds of things you go through after implementation these things they get to be a little bit iterative, but I mean I've been doing this part of it a long time. They all tend to have this just before acceptance, but they're all in operational and beneficial use for the customer at this time.
Speaker Change: Okay. That's that's helpful color and just maybe on on margins I mean, it sounds like you've taken a lot of the lumps upfront here in the Q3 and the contract negotiations.
Unknown Speaker: Okay. Up front here in the Q3 and and we're kind of pretty. I'm trying to think about for more importantly, 25. And you know, to what a Yeah, well, that's why we took it now.
Speaker Change: Likely coming through in Q4, and we're kind of pretty close to getting to acceptance. So I guess I'm trying to think about the margins for Q4, but more importantly, 25, and you know to what extent, we can expect margins to kind of bounce back because you kind of move forward and I've kind of taken the lumps here upfront.
Speaker Change: Yeah, well, that's why we took it now but didn't really want to I wanted to go in the in the new year. I mean, we maybe we could have pushed us to the fourth quarter, but I think they are accounting rules.
Charles Myers: I didn't really want to, I wanted to go in the, in the new year. I mean, we maybe we could have pushed us to the fourth quarter, but I think there's, you know, accounting rules and, and other things that we want to just get this out of the way. So we don't, none of us have to look at this again.
Speaker Change: Other things that we wanted to just get this out of way. So we don't none of us have to look at this again.
Unknown Speaker: Kyle, you want to talk about margins a little bit?
Speaker Change: How do you want to talk about margins a little bit.
For Q4 Q4 and beyond.
Kyle Chriest: for Q4 and beyond. Right. Thanks, Kevin. I would say gross margins should increase as the implementations transfer and transition into maintenance.
Kevin: Right. Thanks, Kevin.
Speaker Change: I would say gross margin should increase as the implementations transfer and transition into maintenance.
Kyle Chriest: On the two contracts we're discussing right now, there's a hybrid phase of where we are working to finish the implementation off while there is beneficial use of those systems. And those systems are in operations and maintenance at the same time, but not running at optimal margins. While there's still development issues and implementation items to complete. So transitioning in from implementation to acceptance and then operating at a greater clip and getting to kind of a normal run rate on maintenance would improve margins as well as the contract negotiations we're speaking of. And of course, taking the four mil hit in the quarter is a drain on margins in Q3.
Speaker Change: The two contracts we are discussing right now there is a hybrid phase of where we are working to finish the implementation off whether it's beneficial use of those systems and those systems are in operations and maintenance at the same time, but not running at optimal margins well theres still a development issues and implementation items to complete.
So transitioning in from implementation to acceptance and then operating at a greater clip than getting to kind of a normal run rate on maintenance would improve margins as well as the contract negotiations we're speaking of.
Speaker Change: And of course, taking the formula hit in the quarter as a is it drain on margins in Q3.
Unknown Speaker: Kyle, I think, Gavin, were you asking a different question, not on those particular projects, but as on EBITDA margin?
Speaker Change: Looking at.
Speaker Change: GAAP Gavin when were you asking a different question not on those particular projects, but as yet.
Speaker Change: On EBITDA margin.
Unknown Speaker: Yeah, on EBITDA, Kyle, going forward in the fourth quarter margin, and EBITDA margins going forward. Right.
Speaker Change: Yeah.
Speaker Change: E <unk>.
Speaker Change: EBITDA Kyle going forward in the fourth quarter margin.
Speaker Change: And EBITDA margins going forward I think it's with some questions.
Kyle Chriest: So normalizing for those the EBITDA on the fourth quarter and margins moving forward, we would expect to increase and see an improvement in gross margin percentage in Q4 and in 2025, especially Talk about that. Did that answer your question, Gavin? I mean, I was, I was referring more. Yes, okay. So even though we're looking, yeah, let's, okay, you want to answer that? Go for it, Kyle. Yeah, so we we do expect to improve EBITDA margins in the fourth quarter and come in with positive margin. We're hoping to come in somewhere in the mid to high single digit.
Speaker Change: Right. So normalizing for those the EBITDA in the fourth quarter and margins moving forward, we would expect to increase and see an improvement in gross margin percentage in Q4 and in 2025, especially from Q3 with the reserves here.
Speaker Change: Let's talk about it.
Speaker Change: Yeah.
I mean, maybe that answer your question Gavin.
Speaker Change: I mean, I was I was referring more to EBITDA margins, but yes, okay. So.
Speaker Change: Yes.
Speaker Change: Do you want to answer that that go forward path.
Speaker Change: Yeah. So we do expect to improve EBITDA margins in the fourth quarter and come in with positive margin.
Speaker Change: We're hoping to come in somewhere in the mid to high single digits and next year, our goal for EBITDA margin would be getting to the 10% or above.
Charles Myers: And next year, our goal for EBITDA margin would be getting to the 10% or above. We don't see this, Gavin, we don't see this as a, we see this as a one-quarter setback from the plan that we've discussed. We don't see it as a significant shift from our, from the plan that we've talked about for three years going forward.
Speaker Change: Okay. That's that's we don't see this Gavin we don't see this as a.
Speaker Change: We see this as a one quarter setback from the plans that we discussed we don't see it as a significant shift from our from the plan that we've talked about for three years going forward.
Speaker Change: Good to hear.
Unknown Speaker: Let's talk about growth a little bit.
Speaker Change: Let's talk about growth Lotto bet.
Speaker Change: Can we discuss the tolling bid book for North America now my sense is that it's been getting increasingly active this year can you just help us understand like how many rfps you're waiting to hear back from <unk> and then any update on a on your efforts to expand into Europe with the tolling.
Unknown Speaker: I'm here to discuss the tolling bid book for North America. My sense is that it's been getting increasingly active this year.
Charles Myers: Can you just help us understand, like, ��Graham Smith, Gavin Fairweather, Andy Nguyen, This Yes, absolutely. So we are actively looking and following and kind of participating in the in the buildup process for some opportunities in Europe right now where we hope to announce a partnership also for a project in the Middle East that's an active project that's going on. So we'll be talking about some of those things hopefully in the future. We are waiting. I think we talked about this. We're waiting for what we anticipate to be a pretty sizable award hopefully before the end of the year.
Speaker Change: Yes.
Speaker Change: Yes, absolutely. So we are actively looking and.
Speaker Change: Following and participating in the in the buildup process for some opportunities in Europe, right now, where we hope to announce a partnership also for a project in the Middle East.
Speaker Change: <unk> an active project.
That's going out so we'll be talking about some of those things hopefully in the future.
Speaker Change: We are waiting I think we've talked about this we're waiting for what we anticipate to be a pretty sizeable award hopefully before the end of the year, we kind of expected it now but we.
Charles Myers: We kind of expected it now but we feel very we've had very positive indications from the customer. And then we've already put two bids in this year and we have another sizable one that is being will be submitted actually before the end of the year. And then I suspect that we'll probably in the sizable there'll be probably a lot of small jobs but on the sizable polling jobs I would expect that we'll have opportunities for seven next year and you know hopefully we can get a pretty good win rate out of those. I would not expect we'd win seven but you know if we could get kind of the 25% of those or 30% I would start to feel pretty good about ourselves.
Speaker Change: We feel very we've had very positive indications from the customer.
Speaker Change: And then we've already put two bids in this year and.
Speaker Change: We have another sizable.
Speaker Change: One that has been will be submitted actually before the end of the year and then I suspect that will probably.
Speaker Change: And the sizable there'll be probably a lot of small jobs, but on the sizeable pulling jobs I would expect that we will have opportunities for seven next year.
Speaker Change: Hopefully, we can get a pretty good win rate out of those so I would not expect we'd win seven but.
Speaker Change: If we could get kind of that 25% of those who were at 30% I would start to feel pretty good about ourselves.
Speaker Change: Okay. So bidding activity seems like that the volume of Rfps in the market seems to be ramping up or is that more of a function of you're just getting more active on bidding.
Unknown Speaker: Okay, so bidding act. Unknown Speaker, Coming up, or is that more of a I would say, for some reason, towards the end of this year, it has, it did seem to be slow. You know, I've only been here 12 months. It did seem to be, even though we weren't bidding when we were getting our house in order, I would say it was slower. And I would say it is, it's ramping up, maybe not significantly. But I think it's, you know, people are, it's just cycle time, you know, a lot of these projects have been out there 10, 12 years, some of its cycle, some of its changeover.
Speaker Change: I would say.
Speaker Change: For some reason towards the end of this year. It has it did seem to be slow I've only been here 12 months says it did seem to be even though we werent bidding where we were getting our house in order I would say it was slower and I would say it is it's ramping up maybe not significantly.
But I think it's people.
Speaker Change: People are.
Speaker Change: Cycle time, you know a lot of these projects have been out there 10 12 years some of its cycle some of its changeover and.
Charles Myers: And so maybe a little, maybe a little more active next year. I think there's been some uncertainty in the market, obviously coming out of COVID, and I think that now that there's going to be kind of a little more certainty in the market, I think it'll be a positive thing for these projects.
Speaker Change: And maybe a little maybe a little more active next year.
Speaker Change: I think there's still some uncertainty in the market, obviously coming out of Covid and I think that now that there's going to be kind of a little more certainty in the market I think it'll be a positive thing for these projects.
Speaker Change: Got it and then it sounds like you took a few cost actions then I guess subsequent to the quarter or is that a yes kind of context around that was that.
Charles Myers: And then it sounds like you took a few calls to action. Is that a context around that? Was that fairly major? Or was it more kind of tactical? No, I mean, I'll share some numbers. We have a pretty high number of FTEs. And a lot of these have a number of more employees, but but a lot of them are offshore contractors. And, you know, what I what I noticed in the company is a lot of it kind of grew by I think people tend to bring things in and then maybe not clean the closet so much.
Speaker Change: Or was it more kind of tactical smaller pieces any color on that no I mean I'll share. Some numbers, we have a pretty high number of Ftes and a lot of these <unk>.
Speaker Change: A number of more employees, but but a lot of them are offshore contractors.
Speaker Change: And what I, what I noticed in the company is a lot of it kind of grew.
Speaker Change: Yes.
Speaker Change: Bye.
Speaker Change: Nature, I think people tend to.
Speaker Change: Bring things in and then maybe not clean the closet. So much so I think there.
Charles Myers: So I think there, you know, we kind of really strive to focus ourselves on a, on as being a software company and a little bit less of a, of an implementation side of it. We do, we do have a lot of contractors and we've also kind of reorganized the company.
Speaker Change: Really strived to focus ourselves on a on as being a software company.
Speaker Change: And a little bit less of that implementation side of it. We do we do have a lot of contractors and we've also kind of reorganized the company we took.
Charles Myers: We took, I know you don't really see it in these numbers, but we've made dramatic changes in the company this year. It's been a very infrastructure based where the projects would buy their services from the infrastructure. We got rid of that. We broke that up and we put all of the development people for the most part, other than the R&D folks, directly attributable to the program. So we've seen uptick in the performance on delivery of the programs. And with that, we've been able to identify, you know, a lot of kind of, let's call them underutilized assets that we'll, we'll either redeploy or make some changes.
Speaker Change: I know you don't really see it in these numbers, but we've made dramatic changes in the company. This year, it's been very infrastructure based.
Speaker Change: The projects with buy their services from the infrastructure.
Speaker Change: We got rid of that we broke that up and we put all of the development people for the most part other than the R&D folks directly or tripled attributable to the program. So we've seen uptick in the performance of delivery of the programs and with that.
We've been able to identify.
Speaker Change: A lot of kind of let's call them underutilized.
Speaker Change: Assets.
Speaker Change: We'll we'll either redeploy or make some changes.
Speaker Change: Yeah.
Unknown Speaker: Got it. And then we anticipate that some of that in the fourth quarter.
Speaker Change: Got it and then we had.
Speaker Change: Dissipate that some of that in the fourth quarter as well.
Speaker Change: Okay and then.
Unknown Speaker: And then, I mean, you referenced Co-hosting, some of the work more towards software. Pass. We've talked about some pilots around Logistics. Some additional work. provide a bit more detail on. where you're at. Society.
Speaker Change: I mean, you referenced are shifting.
Shifting some of the work more towards software and logistics.
Speaker Change: In the past you've talked about the pilots around logistics also with these.
<unk> deployed AI system is there.
Speaker Change: Likely.
Speaker Change: Some additional work that you can do so maybe you can provide a bit more detail on kind of where you're at and starting to commercialize out are you building up.
Charles Myers: You build Sales Team, they start. Customers. a bit more color. Yeah. Yeah, absolutely. So we brought in, you know, new human resources that are kind of with more of an AI and logistics bent. Our team up in Saskatoon, that's been kind of really taking the lead on what we're doing when I described the traffic counting systems and what we're using the AI there, as well as our tire anomaly detection systems that we're doing with some of the other logistics companies. As we move into that market. So those will be the early phases and the early kernels of the product as we develop it.
Speaker Change: New sales team that are you starting to have more and more discussions with customers, maybe a bit more color on where exactly we're out on a on that yet.
Speaker Change: Yeah absolutely.
Speaker Change: Saluting so we've brought in.
Speaker Change: New human resources that are kind of with a more of an AI and logistics spend.
Speaker Change: Our team up in Saskatoon.
Speaker Change: That's been.
Speaker Change: Kind of really taking the lead on what we're doing when I describe that.
Speaker Change: The traffic counting systems and what we're using the AI there as well as our tire anomaly detection systems that we're doing.
Speaker Change: With some of the other logistics companies just as we move into that market.
Speaker Change: So.
Speaker Change: Those will be the early phases in the early kernels of the product as we develop it and part of what we're doing in our development.
Charles Myers: And part of what we're doing in our development as we go forward is we have our software today is, you know, it's been in the architecture, it's been in existence, I think, since 2013. And then there's really been three iterations of that. And as we move forward in kind of a microservices based concept where everything's much more modular. So whatever is in a lane for a logistics system is the same that may be in the cloud for a back office system. So that's part of the whole re-architecture we're talking about with our technical, with our new technical advisory team, and we're working with our customers.
Speaker Change: <unk> as we go forward is we have our software today is.
Speaker Change: And the architecture has been in existence I think since 2013, and then there's really been three iterations of that and as we move forward and kind of a.
Speaker Change: Micro services.
Speaker Change: <unk> concept, where everything is much more modular so whatever is in a lane for it for the for our logistics system is the same that may be it in the cloud for our back office system. So that's part of the whole re architecture, we're talking about with our technical with.
Speaker Change: With our new technical advisory team and we're working with our customers. So the idea is as we build out this new architecture and there's really been no new architecture in this industry for a long time, we work through this with our customers as part of that process. So we're not building something that we don't know the market's there, but it will be it will be fundamental.
Charles Myers: So the idea is, as we build out this new architecture, and there's really been no new architecture in this industry for a long time, we work through this with our customers as part of that process. So we're not building something that we don't know the market's there, but it will be fundamental shift to how our customers are able to use the system. It truly will be a next generation system.
Speaker Change: Shifting to how our customers are able to use a system that truly will be a next generation system for them.
Speaker Change: That's it for me thanks, a lots of pipeline.
Unknown Speaker: for me. Thanks a lot. Thanks, Gavin.
Speaker Change: Alright, Thanks, Kevin.
Speaker Change: Next question comes from and dealing with Raymond James.
Andy Nguyen: Next question comes from Andy Nguyen with Raymond James. Please go ahead. Hi, thanks for taking my questions.
Speaker Change: Please go ahead.
Speaker Change: Hi, Thanks for taking my questions.
Andy Nguyen: My first question about the revenue backlog for me, could you guys give me a more somewhat color on the roadmap to when these revenues to be collected on an annual basis?
Speaker Change: My first question about the revenue backlog.
Speaker Change: Could you guys give me a more.
Most of them with color on the roadmap through one of these revenues to be collected on an annual basis.
Speaker Change: Sure Kyle you want to you want to take that kind of talk about what we're doing with our burned down and unbilled and billed and things like that.
Kyle Chriest: Sure, Kyle, you want to you want to take that and kind of talk about what we're doing with our burn down on build and build Absolutely. Thanks for the question. Cash flow is a, of course, a major, a major item that we're watching. And we had hoped to collect on a couple on build that have pushed out a bit with some of the delays we mentioned today. And the nature of the projects we've been discussing is that a lot of the milestones are back end weighted, we do expect to improve cash and to be generating positive cash flow from operations in the fourth quarter.
Kyle Chris: Absolutely thanks for the question.
Speaker Change: Cash flow is a of course the major a major item that we're watching and we would hope to collect on a couple of unbilled that have pushed out a bit with some of the delays we mentioned today.
Speaker Change: The nature of the projects we've been discussing is that a lot of the milestones that are back end weighted we do expect to improve cash and to be generating positive cash flow from operations in the fourth quarter and a part of that of course comes from working down our accounts receivable and Unbilled revenue, which we've seen some progress on subsequent.
Kyle Chriest: And a part of that, of course, comes from working down our accounts receivable and unbilled revenue, which we've seen some progress on subsequent to Q3 and going into the next year, certainly in Q1. Yeah, so $475 million.
Into Q3 and going into the next year certainly in Q1 as well.
Speaker Change: Yeah, so for the $475 million.
Andy Nguyen: How much is that to be realized next year fiscal year, Kyle?
Speaker Change: How much of that to be realized next year fiscal year Cai.
Kyle Chriest: Oh, so on the on the backlog? Yeah, on the backlog. Oh, of the of the unbilled, a significant portion of that does come through next year. We feel good.
Cai: Both are on the on the backlog.
And the backlog at the end of.
Cai: Oh, it would be of the Unbilled AR a significant portion of that does come through next year. We feel good we have a good line of sight on revenue to come that debt.
Kyle Chriest: We have a good line of sight on revenue to come that that allows us to say that we would expect revenue to grow. And I would say high single digits, low double digits with a good portion of backlog coming through next year and already being signed up. And the backlog does, I'd say the average life cycle. Gotcha. Okay.
Cai: Just to say that we would expect revenue to grow and.
Cai: I would say high single digits low double digits with a good portion of backlog coming through next year and already being signed up.
Cai: And the backlog, though does the I'd say the average life cycle of the projects and there are seven years.
Speaker Change: Gotcha Okay.
Andy Nguyen: And my last question would be about why would you guys expect to receive the money from the asset sale? 4.9 million? We're expecting that to come through in the fourth. Gotcha. Okay. Yeah. Thank you.
Speaker Change: And my last question would be about why would you guys expect to receive the money from the asset sale.
Speaker Change: $4 9 million.
Speaker Change: We're expecting that to come through in the fourth quarter.
Speaker Change: Gotcha, Okay. Thank you I'll pass it along.
Speaker Change: No. It's just part of that is dealing with our partner over there is actually owned by the Chinese government and so theres, a big process to get cash.
Charles Myers: That's just part of that is dealing with the our partner over there is actually owned by the Chinese. And so there's a big process to get cash out of the government over there. And that's the process and taxes and things to do with treaties. And so that's what we're waiting on right now, just for clarity.
Speaker Change: Out of the kind of the the government over there and thats, the process and taxes and things to do with <unk>.
Speaker Change: That's what we're waiting on right now just for just for clarity.
Speaker Change: Got you. Thank you.
Speaker Change: Next question comes from Todd Copeland with CIBC capital markets. Please go ahead.
Todd Coupland: Next question comes from Todd Coupland with CIBC Capital Markets. Please go ahead. Yeah, good morning, guys.
Todd Copeland: Yes, good morning, guys.
Todd Coupland: Um, I, I wanted to talk about The Wyland Dividend of $3.8 million, you talked about that being the first. How should we think about the rhythm of that as we look forward? Is that a quarterly occurrence, annual occurrence? What's the potential in 25?
Aye.
Todd Copeland: I wanted to talk about.
Speaker Change: The wildland dividend of $3 8 million you talked about that being the first how should we think about the rhythm of that as we look forward.
Speaker Change: Is that a quarterly occurrence annual occurrence, what's the potential in 'twenty five for example, I'll start there.
Charles Myers: I'll take a crack at that one.
Speaker Change: I'll take a crack at that one.
Charles Myers: Well, it's the same reason that Y-Land kind of got out of the business of being a public company. It's very lumpy and we have no control over that and we have very little visibility into it. I think they continue to perform well from what knowledge we have, and so we expect to see some continued things, probably in that size, but we really have no control as to even when they release the data.
Speaker Change: Well, it's the same reason that Hawaii land kind of got out of the business of being a public company, it's very lumpy and we have no control over that and we have very little visibility to it Todd.
Speaker Change: Yeah.
Speaker Change: They continue to perform well from what knowledge we have.
Speaker Change: And so we expect to see some continued things probably in that size.
Speaker Change: But we really have no control as to even when they released the dividend.
Speaker Change: Yeah, Okay yeah.
Kyle Chriest: I would say, Todd, it is ad hoc. It is not certainly anything we would count on or have visibility to say would be regular.
Todd Copeland: Hey, Todd It is AD hoc it is not certainly anything we would count on or have visibility to say it would be regular.
Speaker Change: I see okay and then.
Charles Myers: and is this Have you done any assessment on what that Royalty TAM could be over a few years with a patent life etc. Do you have any ranges on that? I think that the only the only thing I could hearken back to, you know, and without my involvement, there was the value that they sold the company. So there is some upside. We still don't we still own 10% of the company. So we will, you know, we continue to get, you know, expect pro rata, pro rata shares, a lot of it's just got to do with what the private equity owner of it does.
Speaker Change: Is it.
Speaker Change: Have you done any assessment on <unk>.
Speaker Change: Like what that.
Speaker Change: I guess royalty Tam could be over a few years with a patent life et cetera. Do you have any do you have any ranges on that.
Speaker Change: I think that the only the only thing I could harken back to.
Speaker Change: My involvement there was the value that they sold the company for.
Speaker Change: So there is some upside we still don't we still own 10% of the company.
Speaker Change: So will we.
Speaker Change: We continue to get expect pro rata <unk>.
Speaker Change: <unk> shares a lot of it's just got to do with what the private equity owner of it does it would be a tough question for us to assess.
Charles Myers: It would be a tough question for us to assess. I mean, clearly the company a year ago made that made the determination that they sold it for a fair value. I mean, that's a that's a that's a nice one time payment is that is that like, you know, one big licensing deal? So you're getting your share of that? Or is it just that the program is up and running now?
Speaker Change: The company a year ago made that it made the determination that they sold it for a fair value. So yes, okay.
That's a nice one time payment is that.
Speaker Change: Is that like one big licensing deals that you are getting your share of that or is it just that that program is up and running now and they are starting to harvest it.
Kyle Chriest: University of Colorado Boulder, University of Colorado Boulder, University of Colorado Yeah, I, I would say that the program has always been in existence. I mean, they really just took the private equity owner took the company kind of as is, and they just continued to do their harvesting. I think that was, it was actually two different dividends, wasn't it, Kyros? It was two, yes.
Speaker Change: Yes.
Speaker Change: I would say that the program has always been in existence and they really just took.
Speaker Change: Private equity owner took the company kind of as is and they just continued to do their harvesting I think it was it was actually two different dividends was in a car or is it one big one I can't remember.
Speaker Change: It was too yes.
Kyle Chriest: We're not really able to comment, Todd, on the cumulative total and number of items YLAN has won. I would say for those who follow YLAN, you've seen some public comments that this business is doing well. and as a result of that, when they do issue a dividend out, we do receive our 10% fee.
Speaker Change: We're not really able to comment on the on the accumulative total.
A number of items wireline has one I would say for those who follow wireline you'd seen some public comments the business is doing well.
Speaker Change: And as a result of that when when they do issue a dividend out we do receive about 10%.
Speaker Change: Okay. Okay.
Speaker Change: <unk>.
Todd Coupland: Second question for me is, you talked about the bid activity, you know, the backlog slipped quarter on quarter, $25 million to $4.75. Sounds like you're expecting that to move back up. What's a good annual, I guess, addition? Pace to the backlog. Did that actually be growing from the, you know, roughly 500 million mark with all this activity as you get into 2025? Just talk a little bit about the potential in the pipeline. I know you talked about number of deals, but maybe characterize I mean, if if what we expect to happen, we actually expect by the end of the year, that number will grow back over where But, you know, it's a pretty high number.
Speaker Change: Second.
Speaker Change: Question for me is you talked about the bid activity the backlog slipped quarter on quarter 25 million to $4 75.
Speaker Change: Sounds like Youre expecting that to move back up what's the what's a good annual I guess addition.
Speaker Change: Pace to the backlog should that actually be growing from the roughly $500 million market with all this activity as you get into 2025, just just talk a little bit about the potential in the pipeline I know you talked about number number of deals, but maybe maybe we maybe characterize that yet.
Speaker Change: If what we expect to happen, we actually expect by the end of the year that number will grow back over where it was yes.
Speaker Change: But it's a pretty high number I mean, it's more than two times our annual revenue.
Charles Myers: I mean, it's more than two times our annual revenue rate. So, but we continue, you know, we would expect it to continue to grow. I mean, it's still a very large number. I mean, 25 million of that is, you know, a pretty trivial shift. But yeah, we would continue to expect to see that grow. It can get a little lumpy between bits, but not substantially. So we actually expect that number to grow even before the end of the year, provided the expectation that we have in the fourth quarter occurs.
Speaker Change: So, but we continue.
Speaker Change: We would expect it to continue to grow I mean, it's still a very large number I mean $25 million of that is.
A pretty trivial shift.
Speaker Change: But yes, we would continue to expect to see that grow it can get a little lumpy between bids but not substantially.
Speaker Change: So we actually expect that number to grow even before the end of the year provided the expectation that we have in the fourth quarter occurs.
Kyle Chriest: Kyle, you have a comment on that? No, I think that is all very well said, I guess in the in the businesses in the safety and enforcement side, it's a faster sign and burn. And we've been refilling that bucket and feel good about the targets next year. On the tolling side, there's larger programs that are one as you know, Todd and the backlog on those goes out a number of years. So you will see the ebbs and flows. Large Contracts and then as the large contract signed the work bringing down And then on the tolling side, that's where the larger deals are.
Comment on that.
Speaker Change: No I think that is a very well said I guess in the businesses and the safety and enforcement side, it's a faster signing burn and we've been refilling that buckets and feel good about the targets next year on the tooling side Theres larger programs that are one as you know Todd and the backlog on those it goes out to a number of years. So you will see.
The ebbs and flows between the signing those large contracts and then yeah.
Speaker Change: The large contract signed though the work bringing down the backlog that's we're executing on those contracts.
Speaker Change: And then on the tolling side, that's where the larger deals are.
Charles Myers: You know, Chuck, you talk about, you know, one, number one or number two in the market, got a lot of deals that you're hoping to close.
Speaker Change: Chuck you talked about.
Speaker Change: One <unk>.
Speaker Change: Number one or number two in the market got a lot of deals that you're hoping to close.
Charles Myers: What is the strongest differentiator of the Revitalized Quarter. maybe call some. Yeah, I think the it's the choppiness in the market of our competition. You know, when, when, even before about the time we started Transcore, we saw this phenomenon exist in this industry. It's actually one of the reasons I came back to the where there was a there was a good opportunity for consolidation. And there were a lot of customers, there were a lot of vendors, and there's a lot of non US vendors playing in the US market that struggle with some of their deliveries.
What is the strongest differentiator of the sort of revitalized quarter Hill now maybe call some of those out.
Yeah I think.
Speaker Change: It's a.
Speaker Change: Choppiness in the market of our competition.
Speaker Change: You know when when you even before we're about the time, we started transport. We saw this phenomenon exists in this industry. It's actually one of the reasons I came back to the industry, where there was a there was a good opportunity for consolidation and there were a lot of cost there were a lot of vendors and there's a lot of <unk>.
Non U S vendors plane in the U S market.
Speaker Change: That struggle with some of their deliveries and so we think that if we can get as we move forward and they are making the progress we're making on.
Charles Myers: And so we think that if we can get as we move forward, and you're making the progress we're making on, on, you know, improving our reputation and building our market, we think there's a, there's definitely the opportunity to, to knock off some of the little guys and start to play with the big boys in this, in this market. It's a, it's a, it's a fairly fragmented group of teams. And we just think of the quality, if we can offer the right quality service, the right, the right software package, we can integrate the proper, you know, vision algorithms into our system to remove some of the hardware dynamics.
Speaker Change: Improving our reputation of building our market, we think there is there.
Speaker Change: It's definitely the opportunity to to knock off some of the little guys and.
Speaker Change: Start to play with the Big Boys in this in this market.
Speaker Change: It's a it's a fairly fragmented.
Speaker Change: A group of teams and we just think of the quality. If we can offer the right quality service the right. The right software package, we can integrate the proper <unk>.
Speaker Change: <unk> algorithms into our system to remove some of the hardware dynamics.
Charles Myers: We just think that in, you know, in the next couple years, we just think we can move up to be, you know, up at the top of our market for sure, in the US. And on the commercial enforcement side, I would say We're probably already in the top three or four world. I mean, we know Buy American has been a much bigger factor the last several years. Is that a big point in your favor? I think so. Yes. Yeah. Sure.
We just think that.
Speaker Change: And the next couple of years, we think we can move up to be.
Up at the top of our market for sure.
Speaker Change: In the U S and now on the commercial the enforcement side I would say.
We're probably already in the top three or four worldwide.
Speaker Change: Yes, yes.
Speaker Change: Okay.
Speaker Change: And he is.
Speaker Change: We know by American has been.
A much bigger factor the last several years.
Speaker Change: Is that a is that a big point in your favor.
Speaker Change: I think so yes, yes.
Speaker Change: Sure sure.
Speaker Change: And.
Charles Myers: and I suspect with some administration change that might be coming up. Do you anticipate any of the competitors, we've heard this on the trade side that international companies are looking now with the Presidential Election decided direct investment in the U.S. Do you expect any of those foreign players? to do that. Could it lead to M&A in the sector or? I think it could definitely lead to M&A and sector, I expect. C, M&A, and D. definitely there's going to be some consolidation. Now, foreign investment, you have to remember there's like, there's a couple big Spanish players in particular that they actually invest in building roads and do provide some of the systems on their own.
Speaker Change: And I sit and I suspect with the with the <unk>.
Speaker Change: With some administration change it might become a bigger point, yes, yes.
Yes.
Speaker Change: Do you anticipate any of the competitors. We've heard this on the trade side that international companies are looking now with that.
Speaker Change: The presidential election decided direct investment in the U S. Do you need to expect any of those foreign players to.
Speaker Change: To do do that could it lead to M&A in the sector or.
Speaker Change: Setting up our lives there.
Speaker Change: I think it could definitely to M&A and sector.
Speaker Change: Expect to see.
Speaker Change: See M&A in the sector for sure.
Speaker Change: But definitely there's going to be some consolidation now foreign investment you have to remember there's like there's a couple of big Spanish players in particular.
Speaker Change: That they actually invest in building the roads and do provide some of the systems on their own and those systems technically I guess would be competitors to us but these are folks that are investing billions of dollars.
Charles Myers: And those systems technically, I guess would be competitors to us. But these are folks that are investing billions of dollars of actually building the roads themselves. and sometimes they provide their own back end and sometimes they don't. And then, you know, same type of questioning in Europe, you know, you're teasing out sort of a couple, I guess, one offs at this point. Is that the way to think about Europe in the next year? Like you'll You'll you'll get a little bit of experience with a deal or two and see how it goes and then make adjustments.
Speaker Change: Actually building the roads themselves and sometimes they provide their own backend and sometimes they don't.
Speaker Change: Yes, okay.
Speaker Change: And then same type of questioning in Europe.
Speaker Change: Key thing out sort of a couple I guess one offs at this point is that the way to think about Europe in the next year like Youll.
Speaker Change: Youll get a little bit of experience with a deal or two and see how it goes and then make adjustments.
Charles Myers: 100% we are actually evaluating some partnerships. I think I mentioned we're evaluating a partnership right now in the Middle East with a with a with a current operator that we have some some real world experience with and have a good some past good past personal relationships that we're trying to harvest because there is a lot of activity in the in the Middle East as well right.
Speaker Change: 100%.
Speaker Change: We are actually evaluating some partnerships I think I mentioned, we're evaluating a partnership right now in the middle East with a with it who are the current operator that we have some some real world experience with <unk>.
Speaker Change: And have been good some past good past personal relationships that we're trying to harvest because there is a lot of activity in that in the middle East as well right now.
Speaker Change: Okay.
Charles Myers: Last question on this, this, this cost overrun. So like, you know, you've talked about inflation a few times since you've come on, on board at Quarterhill CEO. Do you feel now that the backlog contracts have been fully cleansed? Unknown Speaker, Gary Vance, Unknown Speaker, Gary Vance, Gary Vance, Gary Vance, Gary Vance, So we expect that to be cleansed. And when you get into those renegotiations, do they open that up to other competitors to like potentially keep you honest in pricing or is it is it simply just dealing with inflation? Not really, because the risk of these contracts, believe it or not, I mean, we're in a really interesting business because our customers, it's not like if I had to compare it, for instance, to a transit system.
Speaker Change: And Sir last question on this this this cost overrun so like you've talked about inflation a few times since you've come on onboard at quarter Hill.
Speaker Change: <unk> CEO.
You'll know that the backlog contracts have been fully cleansed of this inflation problem.
Speaker Change: Maybe just maybe maybe tie that up.
Speaker Change: I would say have they been fully cleansed, yet I would say we've identified the cleansing that needs to be done and as I as I reiterated before.
Speaker Change: One of them.
Speaker Change: It's more the most problematic when going forward, we are actually in the cost of living increase negotiation on the maintenance of that contract today.
Speaker Change: So we expect that to be cleansed, yes.
Speaker Change: Okay.
Speaker Change: And when you get into those renegotiations do they open that up to other competitors to like potentially keep you honest and pricing or is it is it simply just dealing with inflation.
Speaker Change: Not really because the risk of these contracts is believe it or not I mean, we're in a really interesting business because our customers. It's not like if I had the compared for instance to a transit system and if I'm talking too much you can tell me to stop and say I was selling equipment to manage buses.
Charles Myers: And if I'm talking too much, you can tell me to stop. But say I was selling equipment to manage buses or things like that. Those programs tend to be revenue losers and they're fundamentally funded by general funds, whereas toll roads generate a lot of cash. And so when you look at the scheme of things, say you have a road that generates $300 million a year in revenue, you know, their ongoing maintenance may only be $15 million or $20 million a year. To move that number up to 22 or $23 million a year on $300 million when there's very little other costs associated with it, you would never want to, you would never replace the system because replacing the system is a three-year process.
Speaker Change: Or things like that those those programs tend to be.
Speaker Change: Revenue losers in there and Theyre fundamentally funded by general funds, whereas toll roads generate a lot of cash.
Speaker Change: And so when you look at the scheme of things seem to have a road that generates $300 million a year in revenue.
Speaker Change: Their ongoing maintenance may only be.
Speaker Change: $15 million or $20 million, a year to move that number up to 22 or $23 million a year on $300 million.
Speaker Change: When there is very little other costs associated with it.
Speaker Change: You would never want you would never replace the system because replacing the system has a three year process.
Unknown Speaker: they would rather see the improvements. And most customers don't want you to change, they just want you to meet their needs. And that's what we've been doing since I came. is building those relationships to make sure we can get that. And I would say that. 75% of what we've accomplished so far has been actually a very positive experience. All right.
Speaker Change: They would rather see the improvements in most customers don't want you to change. They just want you to meet their needs and that's what we've been doing since I came onboard is building those relationships to make sure we can get that and I would say that <unk>.
75% of what we've accomplished so far has been actually a very positive experience.
Speaker Change: Yes, yes, okay.
Speaker Change: Alright, I appreciate that color guys.
Charles Myers: Appreciate that color, guys. Good luck in Q4. Thanks a lot. Thanks, Todd.
Speaker Change: Good luck in Q4, thanks a lot.
Thanks Todd.
Speaker Change: There are no further questions. Please continue Mr Myers.
Charles Myers: There are no further questions. Please continue, Mr. Myers. Okay, just like to thank everybody, our analysts, our investors, who we love and, you know, appreciate you, you listening to what we're doing here and can't thank my employees enough.
Mr Myers: Just like.
Mr Myers: Like to thank everybody, our analyst or investors, who we love and appreciate.
Mr Myers: Listening to what we're doing here and can't thank my employees enough.
Operator: They've been doing great board, you know, everybody's been supportive, as you know, it's a slog, but I think so far we stayed on target where we, where we were a little hiccup here. But we want to make sure that we're going into new year looking things with bright and shiny. So appreciate everybody taking the time. Greatly appreciated to have you on board with us.
They've been doing great Board.
Mr Myers: Everybody has been supportive as you know, it's a slog, but.
Mr Myers: I think so far we stayed on target, where we where we were a little hiccup here, but.
Mr Myers: We want to make sure that we're going into new year, looking things with bright and shiny. So I appreciate everybody taking the time greatly appreciated to have you onboard with us.
Mr Myers: Yeah.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Thanks, Chris.
Speaker Change: Thanks, guys.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].