Q1 2025 Quarterhill Inc Earnings Call
Good morning, and welcome to Cortez Hills, Q1, 'twenty 25 financial results Conference call.
Operator: Good morning and welcome to Quarterhill's Q1 2025 financial results conference call.
Operator: On this morning's call, we have Chuck Myers, CEO, and Morgan Demkey, Interim 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.
Speaker Change: On this morning's call, we have Chuck Myers T O and Morgan Denki interim Chief Financial Officer.
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. He's supposed to star one on your Touchtone phone to register.
Speaker Change: Should you require any assistance during the call. Please press star zero.
Operator: Earlier this morning, Quarterhill issued a news release announcing its financial results for the quarter ended March 31, 2025. This news release along with the company's MDNA and financial statements are available on Quarterhill's website and on TDR Plot.
Speaker Change: Earlier this morning, Barbara Hill issued a news release announcing its financial results for the quarter ended March 31st 2025.
Speaker Change: This news release, along with the company's MD&A and financial statements are available on quarter helix website and on T J plots.
Speaker Change: Certain matters discussed during today's conference call or answers that maybe given to questions could constitute forward looking statements.
Operator: 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 CDERplus.
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 at lunch.
Operator: During this conference call, Quarterhill will refer to adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed by IFRS. These refer to the company's Q1 2025 MD&A for full cautionary notes regarding the use of forward-looking statements and non-IFRS metrics.
Parker Hill: During this conference call Parker Hill will refer to adjusted EBITDA.
Speaker Change: Adjusted EBITDA does not have any standard ice meaning prescribed by EIOPA Brett.
Speaker Change: Please refer to the company's Q1 2025 M. DNA for full cautionary notes regarding the use of forward looking statements and non I affirmed its measures.
Operator: Finally, please note that all financial information provided is in U.S. dollars unless otherwise specified.
Speaker Change: I know you. Please note that all financial information provided is in U S dollars unless I do like this that's fine I'll now turn the meeting over to Mr. Mayer. Please go ahead Sir.
Operator: I will now turn the meeting over to Mr. Myers. Please go ahead. Thank you.
mayer: Thank you.
Charles Myers: Good morning, everyone, and thanks for joining us on today's call.
Speaker Change: Good morning, everyone and thanks for joining us on today's call in terms of the agenda I'd like to discuss highlights for the quarter after which Morgan will take a look at the key financial results falling Morgan will open it up for questions.
Charles Myers: In terms of agenda, I'd like to discuss highlights for the quarter, after which Morgan will take a look at the key financial results. Following Morgan, we'll open it up for questions.
Charles Myers: In summary, our Q1 results reflect our ongoing business transformation and turnaround activities for the past 18 months. As we've discussed previously, Q1 is traditionally our season's slowest quarter, which had an impact on our results. Our results were also affected by the two legacy tolling contracts that remain in renegotiation, which we mentioned during our Q4 call.
Speaker Change: In summary, our Q1 results reflect our ongoing business transformation and turnaround activities over the past 18 months as we've discussed previously Q1 is traditionally our seasons seasonally slowest quarter, which had an impact on our results. Our results were also affected by the two legacy contract tolling contracts that remain.
Speaker Change: Re negotiation, which we mentioned during our Q4 call.
Charles Myers: Despite these challenges, we continue to make progress on our strategic initiatives, such as our new technology architecture, the onboarding of new leadership, and the expansion of our bidding activity and unlocking of new markets. For the quarter, revenue was $33.9 million, and adjusted EBITDA was negative $3.4 million. Regarding the two tolling contracts in renegotiation, they represented $3.6 million in revenue in Q1, but they negatively impacted our adjusted EBITDA by $3.2 million. So excluding those contracts, we would have been close to adjusted EBITDA break even for the quarter.
Speaker Change: Despite these challenges we continue to make progress on our strategic initiatives such as our new technology architecture, the onboarding of new leadership and the expansion of our bidding activity and unlocking new markets for the quarter revenue was $33 9 million and adjusted EBITDA was negative $3 4 million.
Speaker Change: Regarding the two tolling contracts and re negotiation they represented $3 6 million in revenue in Q1, but they negatively impacted our adjusted EBITDA by $3 2 million. So excluding those contracts, we would've been close to adjusted EBITDA breakeven for the quarter. The good news is we remain.
Charles Myers: The good news is we remain actively engaged in these negotiations and working towards resolutions that we expect will improve our financial performance in the coming quarter.
Speaker Change: Actively engaged in these negotiations and working towards resolutions that we expect will improve our financial performance in the coming quarters.
Charles Myers: Finally, our contracted revenue backlog stood at $476 million at quarter end.
Speaker Change: Finally, our contracted revenue backlog stood at 476 million at quarter end.
Speaker Change: Let me turn down to turn now to the performance of our individual business units, our safety and enforcement unit continues to perform well delivering solid top line growth and strong margins in Q1.
Charles Myers: Let me turn down to turn now to the performance of our individual business units. Our safety and enforcement unit continues to perform well, delivering solid top line growth and strong margins in Q1. This consistent performance stems from our long term customer relationships, product innovation, and our team's dedication to addressing client needs effectively. During the quarter, we signed new contracts in several states, including Indiana, Illinois, Oklahoma, and New Hampshire. At the IBTTA conference in March, we featured Ithea, our AI vehicle counting and classification system, which generated significant interest from attendees. These capabilities, along with ongoing technical enhancements to our traffic data collection systems, deliver improvements in accuracy and reliability, creating real value for our customers while strengthening our competitive position.
Speaker Change: This consistent performance stems from our long term customer relationships product innovation, and our team's dedication to addressing client needs effectively.
Speaker Change: During the quarter, we signed new contracts in several states, including Indiana, Illinois, Oklahoma and New Hampshire.
Speaker Change: The I B T T. A conference in March we featured I fear, our AI vehicle counting a classification system, which generated significant interest from attendees.
These capabilities along with ongoing technical enhancements to our traffic data collection systems deliver improvements in accuracy and reliability, creating real value for our customers, while strengthening our competitive positioning.
Charles Myers: I'll speak more to some of our activity at that conference in a moment.
Speaker Change: I'll speak more to some of our activity at that conference in a moment.
Speaker Change: In our tolling unit, we announced a significant new contract in Q1 with a C. T C valued at $40 million with options to extend an additional four years at 15 million implementation on this project has begun and we expect it to contribute more meaningful to our results as we progress through the year.
Charles Myers: In our tolling unit, we announced a significant new contract in Q1 with ACTC, valued at $40 million, with options to extend an additional four years at $15 million. Implementation on this project has begun, and we expect it to contribute more meaningful to our results as we progress through the year. We also won follow-on business with existing clients, which speaks to the strength of our customer relationships and our ability to expand those mandates over time.
Speaker Change: We also won follow on business with existing clients, which speaks to the strength of our customer relationships and our ability to expand those mandates overtime.
Charles Myers: Just this week, we announced the successful completion and full systems acceptance of the U.S. 290 toll road project for the Central Texas Regional Mobility Authority, CTRMA. The U.S. 290 toll road in Austin is a critical six-mile corridor that has been successfully upgraded to an expressway facility. This enhancement has tripled the roadway's capacity and delivered meaningful reductions in travel times for the users of both tolled and non-tolled lanes.
Speaker Change: Just this week, we announced the successful completion and full systems acceptance of the U S to 90 toll road project for the Central Texas Regional Mobility Authority C T RMA.
Speaker Change: The U S $2 90 toll road in Austin is a critical six mile corridor. That's been successfully upgraded to an expressway facility. This enhancement has tripled the roadways capacity and delivered meaningful reductions in travel times for the users of both told at non toward lanes. We also successfully completed.
Charles Myers: We also successfully completed Phase 3 of the 183A toll project for CTRM. This project provides direct access between key transportation points and significantly improves traffic flow in the region. What's noteworthy about this achievement is that the effective collaboration we fostered between TxDOT, which is the Texas Department of Transportation, and the other stakeholders throughout this project, this approach ensured timely completion and it reinforces our standing as a trusted partner for complex multi-agency initiatives. While we continue to win follow-on business with existing customers, we've also intensified our pursuit of competitive bids and remain optimistic in securing meaningful new contracts this year.
Speaker Change: Page three of the 183% oil project for Ctr me.
Speaker Change: This project provides direct access between key transportation points and significantly improved traffic flow in the region.
Speaker Change: What's noteworthy about this achievement is that the effective collaboration we fostered between Txdot and she said, Texas Department of transportation and the other stakeholders throughout this project. This approached insured timely completion and it reinforces our standing as a trusted partner for complex multi agency initiatives.
Speaker Change: While we continue to win follow on business with existing customers. We've also intensified our pursuit of competitive bids and remain optimistic in securing meaningful new contracts this year.
Charles Myers: That said, we are taking a disciplined approach to pricing. We won't pursue business at any cost, as shareholders have witnessed and are witnessing the consequences of that type of strategy.
Speaker Change: That said, we're taking a disciplined approach to pricing we won't pursue business at any cost as shareholders have witnessed and are witnessing the consequences of that type of strategy switched.
Charles Myers: Switching gears, as most of you know, we have a 10% ownership stake in Yland, the IP business that we sold in 2023. Our 10% stake entitles us to 10% of any dividends distributed by the LP that owns it. In Q3 2024, we received a $3.8 million dividend, and in April of 25, we received a second dividend in the amount of $3.2 million.
Speaker Change: Switching gears as most of you know we have a 10% ownership stake in wildland the IP business that we sold in 2023.
Speaker Change: Our 10% stake entitles us to 10% of any dividends distributed by the L. P that owns it.
Speaker Change: In Q3, 'twenty 'twenty four we received a $3 $8 million dividend and then April of 'twenty five we received a second dividend in the amount of $3 2 million.
Charles Myers: This payment will contribute positively to our cash position and will be reflected in our Q2 2025 financial statements.
Speaker Change: This payment will contribute positively to our cash position and will be reflected in our Q2 2025 financial statements.
Speaker Change: Let me take a moment to update you on our strategic priorities with our primary focus remains on growing our core core core tolling and enforcement business units through improved integration ongoing technology innovation increased business development activity in enhancing our customer relationships.
Charles Myers: Let me take a moment to update you on our strategic priorities. Our primary focus remains on growing our core tolling and enforcement business units through improved integration, ongoing technology innovation, increased business development activity, and enhancing our customer relationship. We continue to see growing opportunities to expand in Europe, as well as other regions like the Middle East, and we expect to see some progress on this front in 2025. Regarding our new technology architecture, we have deployed significant time and investment in our next generation offering. In doing so, we're making progress in our transition from being primarily an integrator to becoming a more software focused company.
Speaker Change: We continue to see growing opportunities to expand in Europe.
Speaker Change: As well as other regions like the Middle East and we expect to see some progress on this front in 2025.
Speaker Change: Regarding our new technology architecture, we have deployed significant time and investment in our next generation offering and doing so we're making progress in our transition from being primarily an integrator to becoming a more software focused company.
Charles Myers: Our new platform is built on a microservices architecture that enables us to develop, deploy and scale components independently, enhancing our market responsiveness and improving our ability to maintain solutions over time. This strategic shift is designed to drive higher margins, create defensible proprietary offerings and enable recurring revenue streams. The platform supports both our tolling and enforcement business while facilitating expansion into new verticals like logistics. Artificial intelligence AI is increasingly integral to our operations. Our AI strategy focuses on two key areas, visual technology applications for vehicle ID and classification, and data mining and analytics. Both capabilities have promising applications across all our business units and are aligned with customer demand.
Speaker Change: Our new platform is built on a micro services architecture that enables us to develop deploy and scale components independently enhancing our market responsiveness and are proving our ability to maintain solutions over time.
Speaker Change: This strategic shift is designed to drive higher margins create defensible proprietary offerings and enable recurring revenue streams. The platform supports both our tolling and enforcement business, while facilitating expansion into new verticals like logistics.
Speaker Change: Artificial intelligence say is increasingly integral to our operations. Our AI strategy focuses on two key areas visual technology applications for vehicle idea and classification and data mining and analytics, both capabilities have promising applications across all our business units.
Speaker Change: And are aligned with customer demand.
Charles Myers: Technology development in the ITS industry has been evolutionary in recent decades, but AI now presents revolutionary potential. The most significant innovation opportunity since RFID emerged in the 1980s and 90s. We are among the first companies to explore comprehensive AI capabilities from convolutional neural networks, transformation models to large language models and generative AI built directly into our products. The ITS industry generates substantial data and we're equipping our customers with the tools to transform this data into actionable insights that address critical challenges in operational efficiency, roadway safety and infrastructure management.
Speaker Change: Technology development and the Ips the industry has been evolutionary in recent decades.
Speaker Change: But AI now presents revolutionary potential.
Speaker Change: The most significant innovation opportunity since RFID emerged in 19 eighties and nineties.
Speaker Change: We are among the first companies to explore a comprehensive AI capabilities from Convolutional neural networks transformation models to large language models and generative AI built directly into our products. The I T S industry generate substantial data and we're equipping our customers with it.
Speaker Change: <unk> to transform this data into actionable insights that dress critical challenges and operational efficiency roadway safety and infrastructure management.
Charles Myers: This paradigm shift represents the compelling reason I returned to the industry. As mentioned earlier, the 2025 IBTTA Technology Summit in March was in our backyard in Dallas and was a real success. We had demonstrations of our new software with several customers and the feedback was excellent. Among other things, we showed off our digital video audio system, DBAS for short, which uses AI to classify in real time without needing any prior training. That would be training of the models, by the way. We also gave people a hands-on look at our quantum vehicle detection system, which is an above-ground tolling solution that's generating a lot of attention.
Speaker Change: This paradigm shift represents a compelling reason I returned to the industry.
Speaker Change: As mentioned earlier, the 2025, I B T T. A technology summit in March was in our backyard in Dallas and was a real success.
Speaker Change: We had demonstrations of our new software with several customers and the feedback was excellent.
Speaker Change: Among other things we showed off our digital video audio system D bass for short, which uses AI to classify in real time without needing any prior training.
Speaker Change: That would be training of the models by the way. We also gave people a hands on look at our quantum vehicle detection system, which is an above ground tolling solution, that's generating a lot of attention that by the way is a offshoot of our acquisition of Red Fox last year.
Charles Myers: That, by the way, is a offshoot of our acquisition of Red Fox last year. Overall, it was great exposure for our team and our technology, and an important milestone event for helping us stand out as innovators in the transportation technology area.
Speaker Change: Overall, it was great exposure for our team and our technology and an important milestone event for helping a standout as innovators in the transportation technology area.
Speaker Change: On the logistics side. The pilot project, we launched in the rail sector is serving as a valuable reference account, providing insights and a foundation for replicating our approach with other businesses in this vertical.
Charles Myers: On the logistics side, the pilot project we launched in the rail sector is serving as a valuable reference account, providing insights and a foundation for replicating our approach with other businesses in this vertical. Also, as mentioned, this market stands to benefit from the new technology architecture.
Speaker Change: Also as mentioned this market stands to benefit from the new technology architecture.
Speaker Change: Like to talk about board leadership.
Charles Myers: like to talk about board and leadership. Over the past 12 months, we've added new leadership capabilities to both management and the board. On the executive side, this has helped lead to important changes with our technology development and sales and marketing team.
Speaker Change: Over the past 12 months, we've added new leadership capabilities to both management and the board.
Speaker Change: On the executive side. This has helped lead to important changes with our technology development and sales and marketing teams at the board level, we held our annual AGM earlier. This week and now have six board members four of whom are new within the past six months the changes to our board.
Charles Myers: At the board level, we held our annual AGM earlier this week and now have six board members, four of whom are new within the past six months. The changes to our board reflect the evolution of Quarterhill over the past 18 months, and they align with our focus on core ITS operations and technology in financial management. I discussed the addition of Pat Dion, Sr. and Robin Saunders on our last call, but it's worth stating again that their combined experience in transportation systems, equity and debt financing, business development enhances our ability to capitalize on our growth opportunities.
Speaker Change: Reflect the evolution of quarter Hill over the past 18 months and they align with our focus on core I T S operations and technology and financial management.
Speaker Change: I discussed. The addition of Pat Dion senior and Robin Saunders on our last call, but it's worth stating again that their combined experience in transportation systems equity and debt financing business development enhances our ability to capitalize on our growth opportunities and now I'm pleased to welcome.
Charles Myers: And now I'm pleased to welcome Asha Denier and Steven Smith as our newest members of the board. Following their successful election at our annual meeting earlier this week, Asha and Steven have complementary skills. Asha brings strong legal and governance experience, while Steven brings years of financial expertise. This mix will be key as we look to growing our business and exploring potential acquisitions. They both help guide companies through similar growth phases and bringing them on board shows our commitment to attracting leadership with the right mix of skills to create long-term value for our shareholders.
Speaker Change: I shouldn't ear and Stephen Smith, as our newest members of the board.
Speaker Change: Following their successful election at our annual meeting earlier this week Usher and Steven have complementary skills I should bring strong legal and governance experience while script Stephen brings years of financial expertise. This mix will be key as we look to growing our core business and exploring potential.
Speaker Change: Acquisitions.
Speaker Change: Both help guide companies through similar growth phases, and bringing them on board chose our commitment to attracting leadership with the right mix of skills to create long term value for our shareholders.
Speaker Change: Our outlook looking ahead, we remain laser focused to drive revenue growth and margin improvement as we move towards the second half of the year completing our contract renegotiations executing on our sales pipeline and advancing our technology or our primary goals.
Charles Myers: Our outlook, looking ahead, we remain laser-focused to drive revenue growth and margin improvement as we move towards the second half of the year, completing our contact renegotiations, executing on our sales pipeline, and advancing our technology are our primary goals. On the renegotiation front, we have entered a structured settlement process for one of the two contracts to try to resolve the situation positively. Even though these projects generate some revenue, as you can see, it is unprofitable revenue, and it wouldn't be prudent for us to continue with the status quo. Generating consistent cash flow remains our top priority.
Speaker Change: On the renegotiation front, we've entered a structured settlement process for one of the two contracts to try to resolve the situation positively even though these projects generate some revenue as you can see it is unprofitable revenue and it wouldn't be for prudish prudent for us to continue with the status quo.
Speaker Change: <unk> generated consistent cash flow remains our top priority the dividend received from wildland will strengthen our position in Q2, and we continue to focus on improving operational cash generation across the business. Our bidding approach for new projects now ensures cash flow neutrality through the implementation phase which represent.
Charles Myers: The dividend received from YLAN will strengthen our position in Q2, and we continue to focus on improving operational cash generation across the business. Our bidding approach for new projects now ensures cash flow neutrality through the implementation phase, which represents a significant improvement over our historical approach.
Speaker Change: A significant improvement over our historical approach.
Charles Myers: In conclusion, in closing for this, while Q1 presented expected seasonal challenges along with the ongoing impact of contract negotiations, we remain on track with our turnaround and with business transformation. We're building a stronger, more resilient business with enhanced technology capabilities, improved operational efficiency, and a path to top-line growth, margin expansion, and positive cash flow. I want to thank our team for their continued dedication and hard work during this phase. We're excited about the opportunities ahead and remain committed to delivering long-term value to our shareholders, investors, customers, and employees.
Speaker Change: In conclusion, our in closing for this while Q1 presented expected seasonal challenges along with the ongoing impact of the contract negotiations we remain on track with our turnaround and with business transformation, We're building a stronger more resilient business with enhanced.
Speaker Change: Allergy capabilities improved operational finished should see and a path to top line growth margin expansion and positive cash flows.
Speaker Change: I want to thank our team for their continued dedication and hard work. During this phase. We're excited about the opportunities ahead and remain committed to delivering long term value to our shareholders investors customers and employees with that I'll turn it over to Morgan to discuss our financial results in more detail.
Morgan Demkey: With that, I'll turn it over to Morgan to discuss our financial results in more detail. Thank you, Chuck, and good morning, everyone. I'll start with a look at revenue in the quarter. Q1 revenue was $33.9 million, down $1 million from Q1 last year. The decrease is primarily due to the timing of revenue received from certain ongoing projects, which in general leads to some quarterly fluctuation. As you know, Q1 is our seasonally slower quarter due to the impact of winter weather on implementations, which explains the sequentially quarterly variance. As Chuck mentioned, the two contracts that are in renegotiation contributed $3.6 million to revenue in the quarter.
Morgan Denki: Thank you Chuck and good morning, everyone I'll start with a look at revenue in the quarter.
Morgan Denki: Q1 revenue was $33 9 million down 1 million from Q1 last year. The decrease was primarily due to the timing of revenue received from certain ongoing projects, which in general leads to some quarterly fluctuation.
Morgan Denki: As you know you one is our seasonally slower quarter due to the impact of winter weather on implementations, which explains the sequentially quarterly variance.
Morgan Denki: As Chuck mentioned, the two contracts that are in renegotiation contributed $3 6 million to revenue in the quarter. This revenue generates a significant negative contribution to operating margins, which is why we are pursuing the renegotiations.
Morgan Demkey: This revenue generates a significant negative contribution to operating margins, which is why we are pursuing the renegotiation. That's on their margin impact in a moment. Finally, at quarter end, we continue to have a significant backlog of U.S. $476 million, providing good visibility into revenue for 2025. 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. Gross margin percentage in Q1 was 12% compared to 20% in Q1 last year. The decrease was primarily due to the poor margin on the two noted tolling projects, which was partially offset by continued strong margin performance from our enforcement unit.
Morgan Denki: Their margin impact in a moment.
Morgan Denki: Finally at quarter end, we continue to have a significant backlog of U S $476 million, providing good visibility into revenue for 2025 over the next several years a large portion of the backlog is higher margin contracted maintenance revenue versus implementation revenue, which we expect will drive better margins into 2025 and beyond.
Morgan Denki: Gross margin percentage in Q1 was 12% compared to 20% in Q1 last year. The decrease was primarily due to the poor margin on the two noted torn projects, which was partially offset by continued strong margin performance from our <unk> enforcement unit.
Morgan Denki: Total operating expenses for Q1 were $11 2 million compared to $10 5 million in Q1 last year. The increase was primarily due to investments in leadership and resources for a project bid development teams.
Morgan Demkey: Total operating expenses for Q1 were $11.2 million compared to $10.5 million in Q1 last year. The increase is primarily due to investments in leadership and resources for our project bid development teams, which were offset in part by steps we've taken elsewhere in the organization to optimize the workforce. Q1 adjusted EBITDA was negative $3.4 million compared to positive $0.2 million in Q1 last year. The two tolling contracts that are being renegotiated resulted in a reduction to adjusted EBITDA of $3.2 million in Q1 2025. So excluding those two contracts, Q1 adjusted EBITDA would have been a more modest loss of $0.2 million versus negative $3.4 million.
Morgan Denki: Offset in part by steps, we've taken elsewhere in the organization to optimize the workforce.
Morgan Denki: Q1, adjusted EBITDA was negative $3 $4 million compared to positive $2 million from Q1 last year.
Morgan Denki: The two tolling contracts that are being renegotiated resulted in a reduction to adjusted EBITDA of $3 2 million in Q1 2025.
Morgan Denki: So excluding those two contracts Q1, adjusted EBITDA would have been a more modest loss of $2 2 million versus negative $3 4 million.
Morgan Demkey: As we previously, as we've said previously, driven by continued steady results from the enforcement unit and better expected performance from our tolling unit, we are looking for adjusted EBITDA to grow in 2025 compared to 2024. Completing the two renegotiations will be a big contributing factor for generating that growth.
Morgan Denki: As we previously as we've said previously driven by continued steady results from enforcement and unit and better expected performance from our <unk> unit. We are looking for adjusted EBITDA to grow in 2025 compared to 2024, completing the two renegotiations will be a big contributing factor for generating that growth.
Morgan Demkey: Turning now to the balance sheet. At quarter-end, we had adjusted working capital of $59.8 million compared to $66.2 million at the end of 2024. As stated previously, we used 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 derivative liabilities. We ended the quarter with cash and cash equivalents of $26.1 million compared to $31.9 million at the end of 2024. As Chuck mentioned, subsequent to quarter end, we received a $3.2 million dividend for our 10% ownership in Weiland.
Morgan Denki: Turning now to the balance sheet at quarter end, we had adjusted working capital of $59 50.
Morgan Denki: $59 8 million compared to $66 2 million at the end of 2024.
Morgan Denki: As stated previously we use adjusted working capital and non Iff's measure to highlight the strong working capital position that we have.
Morgan Denki: Adjusted working capital is defined as working capital adjusted for convertible debentures and derivative liability.
Morgan Denki: We ended the quarter with cash and cash equivalents of $26 1 million compared to $31 9 million at the end of 2024 as Chuck mentioned subsequent to quarter end, we received a $3 2 million dividend.
Morgan Denki: For our 10% ownership in wireline and this will be reflected in our Q2 statements.
Morgan Demkey: This will be reflected in our Q2 statement. Also on the cash front, one of the main focuses has been the progress billing and collecting on some of our longer standing unbilled revenue balances. It works still to be done on a sprint that should help our cash balances in future periods. In 2025, we continue to expect positive cash from operations for the year, assuming timely completion of the VRAE negotiation. 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 and payments.
Morgan Denki: So on the cash front one of the main focuses has been the progress billing.
Morgan Denki: I can add some of our longest standing unbilled revenue balances.
Morgan Denki: The work still to be done on this front should help our cash position cash balances and future periods.
Morgan Denki: In 2025, we continue to expect positive cash from operations for the year, assuming timely completion of the very negotiations.
Morgan Denki: Due to the nature of our business operating cash flows may vary significantly between periods due to changes in timing of working capital balances, namely with collections and payments.
Morgan Demkey: This concludes my review of the financial results.
Morgan Denki: This concludes my review of the financial results and I'll now turn the call over to the operator for Q&A.
Operator: I'll turn the call over to the operator. Thank you, and ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star followed by the number two. Once again, please press star one to ask a question.
Morgan Denki: Okay.
Speaker Change: Thank you and ladies and gentlemen, yeah, well begin the question and answer session to ask a question. You May proceed star followed by the number one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing any Keith did withdraw your question. Please press star followed by the number two once again.
Morgan Denki: Please press star one to ask a question.
Gavin Fairweather: And with that, our first question comes from the line of Gavin Fairweather with Cormark. Please go ahead. Oh, hey.
Speaker Change: Our first question comes from the line of Gavin fare better with core Mark. Please go ahead.
Speaker Change: Oh, Hey, good morning, and thanks for taking my questions, maybe just to start on the tolling business I think that that was a new appointment that you brought up Chuck in terms of one other contracts being in our structured settlement maybe.
Charles Myers: Maybe just to start on the tolling business, I think that was a new point that you brought up Chuck, in terms of one of the contracts being in a structured settlement. Unknown Attendee, Gavin Fairweather, Valery Heckel, Andy Nguyen, Kyle Chriest, Graham Smith, Charles Myers, Russell Lewis, Morgan Demkey, Kyle Chriest, Graham Smith, Charles Myers, Yeah, I have to be somewhat careful because it is considered confidential, which is why I use the structured settlement. There is a structured process that we're following with the customer to come to a resolution of the costs associated with the operating of that system.
Speaker Change: Maybe you can just kind of help us understand what that looks like is there a mediator involved is there a timeline that we should think about what does that structured settlement process look like yeah. It's I have to have to be somewhat careful because it is considered confidential.
Speaker Change: Which is why I use the structured settlement. There is a there is a structured process that we're following with the customer to come to a.
Speaker Change: Resolution of the costs associated with the operating of that system.
Charles Myers: I'd like to, I can also reemphasize, both of those contracts are in revenue collection mode. So they're, they're substantially into their implementation.
Speaker Change: I'd like to it can also reemphasize both of the those contracts are in revenue collection mode.
Speaker Change: So they're they're substantially into their implementation phase.
Speaker Change: You might not be able to answer, but I'm going to ask it anyway.
Charles Myers: You might not be able to answer this, but I'm going to ask it anyway. Are you looking to recoup some of the previous losses or are you just looking... It's both are distinctly possible my my soul my my You know primary focus is for this to be cash flow positive as fast as humanly possible Unknown Speaker And. I understand that there's two that have been causing some issues.
Speaker Change: Are you looking to recoup some of the previous losses or are you just fucking affects the margin on a go forward basis.
Speaker Change: It's both are distinctly possible my my my Soul. My My primary focus is for this to be cash flow positive as fast as humanly possible.
Speaker Change: Understood and maybe you can I understand that there are two that have been causing some issues, but what about the one that's kind of not at not structured settlements or are things progressing on that front as well, yes. They are.
Charles Myers: So what about the one that's kind of not a not structured settlement? Are things progressing? Yes, they are. It's just a it's a much different customer relationship and and it's progressing along. that that's it's more of a it's a it's a positive relationship with that customer.
Speaker Change: It's much different customer relationship and.
Speaker Change: And it's progressing along.
Speaker Change: It's more of a it's a.
Speaker Change: It's a positive relationship with that customer.
Speaker Change: Okay.
Speaker Change: I understand.
Gavin Fairweather: And then maybe just on the sales side on tolling, you know, you've had Discuss, though, the size of the pipeline. How many RFPs are hitting the market?
Speaker Change: And then maybe just on the sales side on tooling.
Speaker Change: You've had some decent expansions and new wins recently, maybe you could discuss the size of the pipeline in terms of how many rfps or are hitting the market how many.
Speaker Change: Rfps, we've responded to and are waiting for a response on maybe just give us a sense of the size of that that bid book and pipeline.
Charles Myers: Unknown Attendee, Gavin Fairweather, Valery Heckel, Andy Nguyen, Kyle Chriest, Graham Smith, I knew you were going to ask that question, Gavin. Our current pipeline that we're going after is about $2 billion right now. The weighted, our weighting on the toll side is about $278 million, and on the safety and enforcement side it's about $250 million. We currently have $131 million in proposals out for review right now. to have quite a good backlog proposals at the moment. We have been bidding actively. And, yeah, as you start to get...
Speaker Change: I can say I knew you were going to ask that question Gavin.
Speaker Change: Our current pipeline that we're going after.
Speaker Change: Is about $2 billion right now.
Speaker Change: The weighted are waiting on the toll sides of about $278 million and on the sales and enforce safety enforcement side, it's about $250 million. We currently have $131 million in proposals out for review right now.
Speaker Change: So we have quite a good backlog proposals at the moment, we have been we have been bidding actively.
Speaker Change: And yes, you can start to get a.
Yes decisions on those kind of Rfps like what do you see things that would be ramping up in 'twenty six assuming that you you.
Charles Myers: Unknown Attendee, Gavin Fairweather, Valery Heckel, Andy Nguyen, Kyle Chriest, Graham Smith, I know some of them will be ramping up this year. We had one that we thought we were going to hear about that got pushed until October. We have another one that we should hear on in the next few days. So they're definitely actively, I mean, we're talking about, we expect some awards. very quickly here.
Speaker Change: I know some of them some of them will be ramping up this year.
Speaker Change: We had one that was we should have we thought we're going to hear about that got pushed till October we have another one that we should hear on in the next few days.
Speaker Change: So they're definitely actively I mean, we're talking about we expect some awards very quickly here.
Speaker Change: Okay. That's it's great to hear and then maybe one quickly for Mark and can you remind us of kind of your view of the.
Gavin Fairweather: That's great to hear.
Gavin Fairweather: And then maybe Remind us of kind of your view of the excess working capital in terms of the unbilled revenue tied to some of these tolling contracts. Unknown Attendee, Gavin Fairweather, Valery Heckel, Andy Nguyen, Kyle Chriest, Graham and the second half. Like, assuming, like, I think it was 30... For the two projects, we could see a sizable decrease in that in the second half with successful I don't have exact number Gavin, I can get back Thanks so much, or sounds good, thank you.
Speaker Change: Excess working capital in terms of the Unbilled revenue.
Speaker Change: Tied to some of these tolling contracts what have you.
Speaker Change: Besides that up recently.
Speaker Change: Kevin I don't have an exact number for you on those two projects specifically.
Speaker Change: The balance of the year, we're looking to actively move that unbilled revenue to <unk>.
Speaker Change: In the second half of the year.
Speaker Change: Right.
Speaker Change: I think it was 37 38 million in the quarter.
Speaker Change: Can you help us thoughts about what might be excess.
Speaker Change: For the two projects, we could see a sizable decrease in that in the second half with successful renegotiations I don't have exact number Kevin I can get back to you on that okay.
Speaker Change: Okay.
Speaker Change: That's about or it sounds good. Thank you I'll pass the line.
Speaker Change: Okay.
Todd Coupland: And your next question comes from the line of Todd Coupland with CABC Capital Markets. Please go ahead. Oh, yeah. Good morning, everyone. I was wondering if the run rate in Q1 is the right number to use.
Speaker Change: And your next question comes from the line of Todd Coupland with CIBC capital markets. Please go ahead.
Todd Coupland: Oh, yes, good morning, everyone.
Todd Coupland: I was wondering if oh run rate in Q1.
Speaker Change: Is the right number to use for revenue and loss until these contracts are resolved. If you could just give us a sense on seasonality and.
Charles Myers: Revenue and loss until these contracts are resolved, if you could just give us a sense on seasonality and where Yes, so typically Q1 is our seasonally softest quarter, so we will start to see an improvement in quarterly revenue starting in Q2 and wrapping up in Q3.
Speaker Change: Where the business should be until you are able to adjust those programs.
Speaker Change: Yes. So typically Q1 is our seasonally softest quarter. So we will start to see an improvement in.
Speaker Change: Quarterly revenue starting in Q to.
Speaker Change: Q3 and Q4.
Speaker Change: As we've seen in previous years, we can still see some impact until those two contracts are renegotiated, but we're actively working to limit the exposure on those on it I don't think debate.
Charles Myers: Unknown Attendee, Gavin Fairweather, Valery Heckel, Andy Nguyen, Kyle Chriest, Graham I was just going to say, in the previous year, it was approximately a $7.4 million loss on those projects, on those two projects combined for EBITDA. Unknown Attendee, Kyle Christ, Graham Smith, Charles Myers, Morgan Demkey, Kyle Christ, So and you you got you got hit by point to this quarter, something like that. So. And some of that is... Until it's cleaned up, spread that out over the rest of the year. Yeah, I think it depends. It depends on timing. But I think the reality is that, you know, we expect that we're going to make some positive progress here in the short term on those.
Speaker Change: $7 million.
Speaker Change: Way to think of us sorry.
Speaker Change: I was going to say.
Speaker Change: The previous year, it was approximately $7 $4 million loss on those projects and those two projects combined for EBITDA.
Speaker Change: I see.
Speaker Change: If that helps give some clarity.
Todd Coupland: Todd does that give you some clarity on where we think we will be.
Speaker Change: What's <unk> sorry, what was the total last year's seven four.
Speaker Change: Yes, yes, yes, and you got you got hit by three.
Speaker Change: Three two this quarter something like that so.
Speaker Change: Yeah, Okay. So.
Speaker Change: And some of that is the idea that I mean, just for simplicity do we just assume.
Speaker Change: Until it's cleaned up spread that out over the rest of the year the balance.
Speaker Change: Yes, I think it depends it depends on timing, but I think the reality is that.
Speaker Change: We expect that we're going to make some positive progress here in the short term on those.
Speaker Change: On.
Charles Myers: We sure hoping on that. And then but it gives you an idea, if you were to eliminate those two contracts, where our EBITDA would have been. So we were trying to give clarity to our shareholders and the market on what that was because we've been asked that. So that's why Morgan did that calculation.
Speaker Change: Sure, hoping on that and then but it gives you an idea if you were to eliminate those two contracts where our EBITDA.
Speaker Change: That's fair that's fair, yes, maybe that we were trying to give clarity to our tour to our shareholders.
Speaker Change: In the market on what that was because we've been asked that so thats why Morgan did the calculation, yes, okay that sounds great. Okay.
Speaker Change:
Unknown Attendee: I was wondering, so I see the debenture is, you know, classified as current now. I guess that's October. What's the thinking and for that. How should we, how should we be, We're actively in discussions to refinance those where they are, just to make sure that we're covered. That kind of thing keeps me up at night. So we're actively in discussions with banks on managing that and or converting it next year. with a conversion price of $380. to get that $2 billion of backlog. Awarded to or the pipeline, sorry. Yeah, got it. Yeah, thank you. uh...
Speaker Change: I was wondering so I see the debenture is.
Speaker Change: Classified as current now.
Speaker Change: And I guess, that's October 26 that comes due.
Speaker Change: What's the thinking in.
Speaker Change: Plans for that how should we how should we be.
Speaker Change: Anticipating.
Speaker Change: An update on that.
Speaker Change: We're actively in discussions to to refinance those where they are just to make sure that we're covered that kind of thing keeps me up at night.
Speaker Change: So we're actively in discussions with with banks.
Speaker Change: On managing that and <unk> converting it next year.
Speaker Change: Yes.
Speaker Change: But the conversion price of $3 80, so youre going to need to get that $2 billion of backlog.
Parker Hill: Awarded to quarter Hill.
Speaker Change: Our the pipeline sorry.
Parker Hill: Yes.
Parker Hill: Got it.
Parker Hill: Thank you.
Parker Hill: Yes.
Parker Hill: And just on that.
Unknown Attendee: and just on that.
Parker Hill: Sorry, one follow up on the convert.
Unknown Attendee: Sorry, one follow-up on the convert. Six percent. What's your sense with the turnaround in the business? If you were to refi, do you feel like that's a lower rate? Do you have a sense on that? Don't have a sense on it yet. I obviously the rates have become a little more manageable in that. So I probably have a more positive feeling about it now than I would have, you know, three months ago. Yeah. Okay. Yeah. Fair enough. Yeah. Okay, that sounds good.
Parker Hill: It's 6%, what's your sense with the turnaround in the business.
Parker Hill: If you were to refi you feel like that's a lower rate.
Parker Hill: Do you have a sense on that.
Parker Hill: Don't have a sense on it yet.
Parker Hill: Obviously, the rates have become a little more manageable than that.
Parker Hill: I'd, probably have a more positive feeling about it now than I would have three months ago.
Parker Hill: Okay, Yes fair enough yes.
Parker Hill: Okay that sounds good and then on the pipeline.
Charles Myers: And then on the pipeline, Chuck, what do you mean when you say waiting to 78 and Unknown Attendee, Gavin Fairweather, Valery Heckel, Andy Nguyen, Kyle Chriest, Graham So, you know, right now we have actively open $2 billion of opportunities, but we see about, you know, 575 million of that, you know, we have a higher probability of. So we wait and we look at it. If you think about, so you see 2 billion and then you weight your high probability. What does that look like over Unknown Attendee, Gavin Fairweather, Valery Heckel, Andy Nguyen, Kyle Chriest, Graham Smith, Charles Myers, Russell Lewis, Morgan Demkey, Kyle Chriest, Graham Smith, Charles I think it probably goes up by over a billion dollars a year.
Parker Hill: What do you mean, when you say waiting $2 78, and $2 50 totaling.
Parker Hill: What is what does that actually mean, the high we weighted according to a higher probability of our win.
Parker Hill: Hi.
Parker Hill: Right now we are actively open $2 billion of opportunities, but we see about $575 million of that we have.
Parker Hill: A higher probability of win.
Parker Hill: So we weighed it when we look at it yes, I got you and.
Parker Hill: If you think about <unk>, you see $2 billion and then you wait your high probability what does that look like over.
Parker Hill: The next let's say one to three years is that 2 billion stay steady in the pipeline now are like whats the opportunity set if we just think about it.
Parker Hill: Looking out a little bit longer.
Parker Hill: I think it probably goes up by over $1 billion a year.
Parker Hill: Okay.
Parker Hill: And <unk>.
Charles Myers: Just so you know, just so you know, so what we do is, as you know, at the beginning, at the, you know, beginning of the year, end of last year, I was very careful about making sure we were cleaning up our own house before we focused on opportunities. We brought in a good head of sales that's really driving this product project right now. And so we have we have much more confidence in our bidding and proposal capability today. So we're definitely getting more active, and we're definitely looking at more and bigger opportunities.
Parker Hill: Yes.
Parker Hill: Just so you know so what we do is as you know at the beginning at the beginning of the year end of last year I was very careful about making sure we were cleaning up our own house before we focused on opportunities. We brought in a good head of sales that's really driving this product project right now and.
Parker Hill: So we have we have much more confidence in our bidding and proposal capability today. So we're definitely getting more active and we're definitely looking at more and bigger opportunities.
Parker Hill: Okay.
Charles Myers: and what's the The urgency, would you say? in the market right now you have I guess you have I don't know if you're impacted by DOJ. I mean, a lot of this is state driven. Unknown Attendee, Gavin Fairweather, Valery Heckel, Andy Nguyen, Kyle Chriest, Graham University, leveraging the tech I think what are the factors that are impacting. Right. The biggest factor is, you know, usually the urgency is that these systems are in for a long time. So these contract lives are coming to an end, or the technology is just kind of evolutionarily phasing out. A lot of these systems that are bid, there's new ones, there's new roads, like some of the stuff we look at CTRMA, the ACTC is a new road, or newer road anyway.
Speaker Change: And what's the.
Speaker Change: Urgency would you say.
Speaker Change: In the market right now you have I guess yep sorry.
Speaker Change: I don't know if youre impacted by goes I mean, a lot of this is state driven I suppose.
Speaker Change: Bye.
Speaker Change: What's the urgency I guess from a budget point of view.
Speaker Change: And then maybe leveraging the Tac that you were talking about before.
Speaker Change: Give us a give us a sense on that.
Speaker Change: Or is that are impacting decisions right.
The biggest factor is usually the urgency is that these systems are in for a long time, so which contract lifes are coming to an end or the technology is just.
Speaker Change: Okay evolutionarily phasing out.
Speaker Change: A lot of these systems that are bids, there's new ones Theres new roads like some of the stuff we look at Cte RMA Bact. She is a new road.
Speaker Change: Our newer road anyway, and then we're bidding we're bidding on projects right now that have been in existence for a long time, but the technology is basically past its expiration date, so that's usually where the urgency comes.
Charles Myers: And then we're bidding, we're bidding on projects right now that have been in existence for a long time. But the technology is basically past its expiration date. So that's usually where the urgency comes. You know, you touched on the right point. And it's also got to do with sometimes with these contract renegotiations. I know where they're frustrating for you. And they're frustrating for all of us. But they're state and local contracts, which makes even the federal government look fast.
Speaker Change: You've touched on the right point and it's also got to do with sometimes with these contract renegotiations I know other frustrating for you and they're frustrating for all of us.
Speaker Change: But they are state and local contracts, which makes even the federal government look fast.
Unknown Attendee: So they're painful to get through, but when they get through, they tend to be long-term, you know, steady systems. This, again, is all legacy stuff from before I joined, but we're working very hard to get through these things and hopefully I'll have some good news here in the short And sort of one last question on this, you know, you made the point on trying to have a higher software content in your bid. What is the EBITDA margin look like? Some of these new wins. Unknown Attendee, Right. So if you look at if you look at in the industry, you know, kind of the gold standard is 20% EBITDA corporate wide for this business.
Speaker Change: So they are painful to get through but when they get through they tend to be long term steady systems.
Speaker Change: This again is all legacy stuff from before I joined but we're working very hard to get through these things and hopefully have some good news here in the short term.
Speaker Change: And sorry, one last question on <unk> you made the point on trying to have a higher software content.
Speaker Change: Yes in your business.
Speaker Change: What is the.
Speaker Change: EBITDA margin look like with some of these new wins, given given that software possibility.
Speaker Change: Right. So if you look at if you look at in the industry.
Speaker Change: Kind of the gold standard.
Speaker Change: 20% EBITDA corporate wide for this business I think that others. There is a lot of competition.
Unknown Attendee: I think that there's a there's a lot of competition, you know, it's part of the reason we see a good opportunity in this market. Because the market's a bit fractured, you're probably looking at companies that are around 10 12% EBITDA margin across the corporation. The difference is, if you look at the software, when you look at it from an integration perspective, and you look at yourself as an integrator, you're looking at kind of 35% gross margins to 40%. Whereas if you're looking at the software components, you're more up in the 60 and 70%. And also the maintenance gets significantly better with a modern architecture.
Speaker Change: Part of the reason, we see a good opportunity in this market.
Speaker Change: Because of the market's a bit fractured you're probably looking at companies that are around 10%, 12% EBITDA margin across the corporation. The difference is if you look at the software when you look at it from an integration perspective, and you look at yourself as an integrator youre looking at kind of 35%.
Speaker Change: Gross margins to 40%, whereas if youre looking at the software components Youre more up in the 60% 70%.
Speaker Change: And also the maintenance gets significantly better with a modern architecture.
Chad: So Chad.
Unknown Attendee: Is your point on this that that just builds a case for Unknown Attendee, Gavin Fairweather, Valery Heckel, Andy Nguyen, Kyle Chriest, Graham Smith, Cheryl Seibane, Ross Davis, Patrick Murphy. What may be one of the recurring questions around how this tool works is more specific to the applicant and applications, almost definitely the user at the time.
Chad: On this that that just builds the case for your 20% goal, where the industry is kind of broken down at 10 or is there a possibility above that what what's your point on the 'twenty I think I think in the next two years I think the probability is 20% as a corporate EBITDA.
Chad: But I do think with the new software platform and taking a frankly, a much more modern approach to it.
Chad: Could see those numbers creep above.
Chad: Above 20% in next couple of years as more and more software oriented margins now some of it is it's not completely realistic because youre still going to have implementations, you're still going to have subcontractors and things like that but we still feel pretty good about 20% and you can see if you if you add back the loss on those two contracts were.
Chad: We're definitely keeping to our plan.
Chad: Didn't get them resolved as fast as we wanted to but you can see when we do we will we start to approach those numbers pretty quickly.
Charles Myers: Sorry, Chuck, one last question. So on AI, you know, you talk about how it can be used for Is this just a feature that people are going to want, or does it actually... give you revenue upside, i.e. charge more. The reason you could charge more for that functionality is it eliminates humans. So right now, you know, a lot of the revenue recovery is based around violations and things like that. And a lot of it involves pretty heavily human-involved image review. And when you're putting those violations together, rather and also when you're just identifying the vehicles or we kind of use the loose nomenclature of vehicle fingerprinting, identify kind of a blue Toyota with this license number or if I don't have a license number, find the blue Toyota with these markings that's been through these lanes because it doesn't have a license plate and we wanna identify it.
Speaker Change: Alright, Chuck one last question. So on AI, you talk about how it can be used for.
Speaker Change: Vehicle accounting et cetera is this just a feature that people are going to want or does it actually.
Speaker Change: Give you revenue upside.
Speaker Change: You can actually charge more for that functionality.
Speaker Change: Yes.
Speaker Change: The reason you could charge more for that functionality is eliminate humans. So right now a lot of the revenue recovery is based around violations.
Speaker Change: And things like that.
Speaker Change: A lot of it involves pretty heavily home.
Speaker Change: Human involved imager review.
Speaker Change: And when Youre, putting those violations together, rather and also when youre just identifying the vehicles or we can use that.
Speaker Change: The loose nomenclature of vehicle.
Speaker Change: Fingerprinting identify kind of a blue Toyota with this license number or it but I don't have license number find the blue Toyota with these markings thats been through these lanes because it doesn't have a license plate and we wanted to identify it. So thats one so youre not requiring human intervention to do that and the other side of it is when you get.
Charles Myers: So that's one, so you're not requiring human intervention to do that. And the other side of it is when you get on the, just on the tolling side, it allows you to process, you know, disputes and things much faster because you start to use kind of active learning with transformer models and large language models. It allows the users and the customer service reps to be able to handle the calls and the chats and everything just with much less human intervention, which really drives your operating costs down for the customers. And the software is more reliable because it shows up at work.
Speaker Change: Yet.
Speaker Change: On the just on the tolling side.
Speaker Change: It allows you to process disputes and things much faster because you start to use kind of active learning.
Speaker Change: With transformer.
Speaker Change: Or models and large language models. It allows the users and the customer service reps to be able to handle the calls and the chats and everything just with much less human intervention, which really drives your operating costs down for the customers and and the software is we're more reliable because it shows up at work.
Speaker Change: Yes.
Charles Myers: On the logistics side, you start to look at what you're using for models like in a scene. So typical vision systems where we're just kind of identifying a license plate or the color of a vehicle. Center Around Convolutional Neural Networks. As you look at transformer models, and think of those as almost serial models, and transformer models are more active models. So it's almost like the experience of actually monitoring a scene and identifying things that come up in an active and a parallel kind of processing thought process. So there's a lot more crossover between the convolutional neural networks and large language models, given that we're using these transformer models, which only really kind of started to come about in 2017 and 2018.
Speaker Change: Yes.
Speaker Change: On the logistics side, you start to look at.
Speaker Change: What youre using for models like in a scene. So typical vision systems, where we're just kind of identifying a license plate or the color of the vehicle.
Speaker Change: Centered around Convolutional neural networks as you look at transformer models and think of those as almost serial models and transformer models are more active models.
Speaker Change: So.
Speaker Change: It's almost like the experience of actually monitoring is seen and identifying things that come up and are active in a parallel.
Speaker Change: Processing thought process, so there's a lot more crossover.
Speaker Change: Between the Convolutional neural networks and large language models given that we are using these these transformer models, which only really kind of.
Speaker Change: Or did it come about in 2017 and 2018, so they've only now just gotten very good.
Charles Myers: So they've only now just gotten very good.
Speaker Change: I appreciate you are taking.
Unknown Attendee: Appreciate you. Thank you. Thank You!
Speaker Change: Taking these questions. Thanks very much guys.
Todd Coupland: Absolutely Thanks Todd.
And your next question next question comes from the line of Steven Li with Raymond James. Please go ahead.
Steven Li: And your next question comes from the line of Steven Li with Raymond James. Please go ahead. Thank you. Hey, guys. So on the on the program contract, so I appreciate the quantification of the impact. But I also want to clarify is we say one rate impact. So every quarter drags on it's $3 million on the EBITDA.
Steven Li: Thank you Hey, guys.
Speaker Change: So on the on the problem contracts I appreciate the quantification of the impact but I also wanted to clarify is we say run rate impact so every quarter drags on it.
Steven Li: $3 million on the EBITDA.
Steven Li: Okay.
Steven Li: Think about that for <unk>.
Morgan Demkey: INTERVIEW DATE RAMON RESONANCE Yeah, so we're taking action to bring that down from $3.2 million in the first quarter this year. As we referenced last year was approximately $7.4 million loss in those two projects, so we're actively working to bring that down so that the quarterly rate or run rate is not $3.2 million. Okay. All right. and taking actions with Yeah, okay, that's helpful. Okay.
Steven Li: Steve.
Steven Li: Okay.
Steven Li: Yeah.
Steven Li: Okay.
Steven Li: Thank you.
Speaker Change: Yes, so we're taking action to bring that down from $3 2 million in the first.
Speaker Change: Carter this year as we referenced last year was approximately $7.4 million.
Speaker Change: So most of the projects. So we are actively working to bring that down so that the quarterly rate run rate is not $3 $2 million.
Speaker Change: Okay Alright.
Speaker Change: Okay.
Speaker Change: And take actions within the company.
Speaker Change: Yep, Okay. That's that's helpful. Okay and so.
Steven Li: And so leave aside these contracts. So can I ask if IOD grew year over year for Q1? Yes, it did. Q1 this year over last year was a growth of approximately 28%. Oh, wow. Okay, very good. Thank you. It's a seasonally soft quarter. So we just started the year off very, very strong. But we're looking forward to growing up. And we've grown the margins significantly in that business over the last year or two. Got it. Thanks, guys.
Speaker Change: Leave aside the these contracts so can I ask if <unk> grew year over year for Q1.
Speaker Change: Yes, it did Q1.
This year over last year was a growth of approximately 28% Oh Wow, okay very good. Thank you.
Speaker Change: Its a seasonally soft quarter. So we just started the year off very very strong.
Speaker Change: But we're looking forward to growing that.
Speaker Change: And we've grown the margins significantly in that business over the last year or two.
Speaker Change: Got it thanks guys.
Speaker Change: You bet.
Speaker Change: Okay.
Speaker Change: And that concludes our question and answer session I would like to turn it back to Mr. Myers for closing remarks.
Operator: And that concludes our question and answer session.
Charles Myers: I would like to turn it back to Mr. Myers for closing remarks. I'd like to thank you, the operator, for hosting the call today. I always want to thank the investors and our shareholders for their patience and their support. And we like to view ourselves as fairly transparent and provide as much information as we legally can without doing something we're not supposed to. And again, our employees are working hard.
Speaker Change: Alright.
Speaker Change: I'd like to thank you the operator for hosting the call today.
Speaker Change: I always want to thank the investors in <unk> and.
Speaker Change: And our shareholders for their patients and their support and we'd like to view ourselves as fairly transparent and provide as much information as we legally can.
Speaker Change: Without doing something we're not supposed to and again our employees are working hard I want to thank our new board members.
Charles Myers: I want to thank our new board members. I think everybody's marching in the same direction. So we look forward to a positive outcome.
Speaker Change: I think everybody's marching in the same direction. So we look forward to a positive outcome.
Speaker Change: Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect have a good day everyone.
Operator: Thank you, presenters, and ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect. Have a good day.
Speaker Change: Yeah.