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BQE: Q3 Largely Surpasses Expectations; Increasing Target Price

What you need to know:
• BQE posted excellent Q3 financials that beat our expectations across the board as operations services continued its growth trajectory and the technical services and China JV segments reverted to historical levels.
• Proportional revenue came in at $10.2M (+28% YoY) vs. our estimate of $8.6M and Adj. EBITDA came in at $4.6M (+67% YoY) vs. our $2.7M.
• Management expects continued strong performance from the technical services segment through Q4/24 and Q1/25.

Yesterday after market close, BQE Water (BQE:TSXV, BTQNF:OTC) reported Q3 financials that largely beat our estimates. The standout of the quarter was the 67% YoY increase in Adj. EBITDA, translating to a record 45% margin. All three segments performed exceptionally well, with the prominent operation services revenue up 22% YoY. As management guided last quarter, technical services rebounded to historical levels. BQE remains one of our highest conviction names due to its consistent growth and profitability. We are maintaining our BUY rating and increasing our target to $80.00/share (previously $77.00/share).

Key Highlights
• Prop. revenue came in at $10.2M (+28% YoY) vs. our estimate of $8.6M. This was comprised of operations services revenue of $3.9M (+22% YoY, 38% of revenue), technical services revenue of $2.9M (+244% QoQ, -4% YoY), and BQE’s share of JV revenue of $3.4M (+96% YoY).
• The recurring segment was driven by all North American and Chinese plants being operational while the technical services segment benefitted from several large projects initiated in the quarter.
• Gross margin of 57% vs. our expectation of 54% and 53% in Q3/23 (note that this is reported as operating margin before depreciation).
• Adjusted EBITDA of $4.6M vs. our estimate of $2.7M and $2.7M in Q3/23. This equates to a 45% EBITDA margin, reaching a record high.
• BQE’s share of JV net income was $1.6M compared to our estimate of $0.4M and $0.4M last year. The JV with JCC contributed largely to the growth as copper production returned to normalized levels.
• Net income of $3.7M or $2.91/share vs. our estimate of $2.2M or $1.71/share and $2.1M or $1.71/share in Q3/23.
• BQE ended the quarter with $11.0M in cash and $2.0M in debt.

Outlook
Management outlined that despite the technical services growth, its team was not fully utilized in projects and operations during Q3 and that they expect improvements in the coming quarters. BQE’s outlook remains positive, mainly due to growth in technical services. The team expects a lower proportion of revenue from the operations segment during this period due to the revenue mix, seasonality, and annual maintenance. The long-term outlook remains unchanged, with consistent growth and profitability driven by BQE’s unique positioning within the industry.