Quarterhill: Buy, Sell or Hold?

Quarterhill’s (Quarterhill Stock Quote, Chart, News, Analysts, Financials TSX:QTRH) pending acquisition of Conduent Business Services’ tolling operations will be a key focus when the Toronto-based transportation technology company reports third-quarter results Nov. 10, according to Beacon Securities analyst Gabriel Leung.

In his Nov. 3 report, Leung said investors will be looking for confirmation that the transaction remains on schedule to close before year-end, along with any changes to the expected financial contribution from the acquired business.

“In our opinion, the key thing to watch for will be updated timelines around the closing of the tolling solutions business of Conduent Business Services,” Leung said.

Quarterhill develops intelligent transportation systems, including toll collection technology, traffic monitoring equipment and road infrastructure management solutions.

The acquisition would substantially expand its tolling operations, with management previously forecasting combined annual revenue exceeding US$400-million and an Adjusted EBITDA margin of 10% to 15%, after anticipated synergies.

Leung said stronger-than-expected financial guidance for the combined operations could support a higher valuation for Quarterhill. “In our opinion, any upside to this pro-forma guidance could be viewed a positive valuation lever,” he said.

The analyst has maintained his “Buy” rating and $5.50 target, which assumes the acquisition closes around the end of 2026. Ahead of the quarterly results, Leung forecasts revenue of US$41.7-million and Adjusted EBITDA of US$4.1-million, compared with consensus estimates of US$42.9-million and US$4.4-million, respectively.

Quarterhill also secured several transportation technology contracts during the third quarter that could support revenue growth independently of the Conduent acquisition. These include a US$28.2-million contract to support the Los Angeles County Metropolitan Transportation Authority’s ExpressLanes back-office system. The contract has an initial eight-year term and two optional three-year extensions, providing a potential source of recurring revenue from tolling operations and maintenance.

The company then nailed down  a US$4.6-million contract with the Pennsylvania Department of Transportation to provide maintenance, calibration and support services for its weigh-in-motion program. That agreement has an initial three-year term, with options to extend for another two years.

In the United Kingdom, the company’s TMB-13X multilane intersection radar received TOPAS 2505B registration, a requirement for traffic signal detection technology used in the country. The certification could allow Quarterhill to pursue additional sales opportunities in the British traffic management market.

Quarterhill also completed a $51.75-million equity financing during the quarter and repaid $57.5-million in principal on a 6% convertible debenture that matured Oct. 30.

Leung’s forecasts incorporate the Conduent acquisition and the company’s recent financing.

He expects Quarterhill to generate Adjusted EBITDA of US$14.9-million on revenue of US$163.2-million in fiscal 2026. For fiscal 2027, he forecasts revenue of US$401-million and Adjusted EBITDA of US$41-million, reflecting the anticipated contribution from the acquired tolling business. He expects those figures to increase to revenue of US$433.1-million and Adjusted EBITDA of US$62.7-million in fiscal 2028.

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