Quarterhill Announces First Quarter Fiscal 2021 Financial Results

TORONTO, May 6, 2021 /PRNewswire/ - Quarterhill Inc. ("Quarterhill" or the "Company") (TSX: QTRH) (OTCQX: QTRHF), announces its financial results for the three-month period ended March 31, 2021. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

Q1 Fiscal 2021 Highlights

• Consolidated Revenue was $19.3 million
• Consolidated Adjusted EBITDA¹ was ($0.4) million. IRD generated $1.4 million of positive Adjusted EBITDA and WiLAN generated $1.2 million of positive Adjusted EBITDA
• Cash, cash equivalents, and short-term investments were $132.0 million at March 31, 2021
• Working capital was $150.3 million at March 31, 2021
• Acquired Sensor Line GmbH ("Sensor Line"), a provider of fiber optic traffic sensors for road and rail markets
• Subsequent to quarter-end, on April 28, 2021, acquired VDS GmbH ("VDS"), a German-based Intelligent Transportation Systems ("ITS") provider of high precision traffic monitoring devices

"Our portfolio companies performed well in Q1 with each generating positive Adjusted EBITDA despite the seasonality of our ITS business, a weakening of the U.S. dollar compared to Q1 2020 and the general challenges posed by the ongoing COVID-19 pandemic," said Paul Hill, CEO at Quarterhill. 

"We are also very pleased to have been active in our M&A efforts, having made two acquisitions since the start of the year and we feel that we are just getting started in terms of capital deployment on our M&A strategy. Both Sensor Line and VDS were tuck-ins for IRD, which is an ideal platform for our expansion in ITS. In addition to tuck-ins, we continue to build a pipeline of larger M&A opportunities that could constitute stand-alone entities within Quarterhill and accelerate our growth into ITS."

"The M&A conditions in ITS are compelling and were given a substantial boost with the recent announcement by the Biden Administration in the U.S. regarding their plans to spend more than US$600 billion on transportation infrastructure over the next eight years. We believe that the combination of massive new infrastructure spending and the need for governments to find new sources of revenue to pay down the debt, means there is no better time to be in ITS."

Approval of Eligible Dividend
The Board of Directors has declared an eligible quarterly dividend of $0.0125 per common share payable on July 9, 2021, to shareholders of record on June 18, 2021.

Q1 Fiscal 2021 Financial Review
The Interim Condensed Consolidated Financial Statements for the three-month period ended March 31, 2021 and for the respective comparison period have been prepared to reflect continuing operations and therefore exclude results in 2020 during those periods from VIZIYA, which was sold by Quarterhill on May 15, 2020. The 2020 operating results from VIZIYA, up to the date of sale on May 15, 2020, are reported as net loss from discontinued operations in accordance with IFRS 5.

Quarterhill's revenue is broadly segmented into Licensing, reflecting the WiLAN business, and Intelligent Transportation Systems, reflecting the IRD business. Quarterhill's Management's Discussion and Analysis and Interim Condensed Consolidated Financial Statements for the three-month period ended March 31, 2021 are available on the Company's website www.quarterhill.com and on its profile at SEDAR.

Consolidated revenues for the three-month period ended March 31, 2021 ("Q1 2021") were $19.3 million, compared to $21.6 million in Q1 2020. The majority of WiLAN's licenses are one-time in nature and significant fluctuations in revenue, gross margin, and Adjusted EBITDA can result when the volume or dollar value of licenses changes from one period to the next. WiLAN's revenue was lower in Q1 2021 due primarily to the completion of a greater volume, and value, of licensing contracts in the prior year period. Revenue at IRD for Q1 2021 was flat when compared with the same period in 2020. The IRD and WiLAN businesses have proven to be resilient and consistent during the COVID-19 pandemic; however, some impact has been felt at IRD with certain contract delays primarily in domestic projects and at WiLAN with the inability to hold in-person meetings causing some delays in the licensing negotiation process.

Gross margin for Q1 2021 was 34%, which was flat compared to 34% in Q1 2020. Gross margin for the licensing business in Q1 2021 was impacted by the factors noted above. Q1 2021 gross margin for the ITS business increased year-over-year reflecting higher profitability on certain projects currently under deployment and a higher proportion of product sales in revenue compared to the same prior year period. 

Operating expenses include selling, general and administrative costs ("SG&A"), research and development costs ("R&D"), depreciation and amortization and special charges. Operating expenses for Q1 2021 were $12.5 million compared to $12.6 million in Q1 2020. Operating expenses were lower primarily due to lower R&D and amortization of intangibles.

Consolidated Adjusted EBITDA for Q1 2021 was ($0.4) million compared to $0.2 million in Q1 2020. The licensing business generated $1.2 million of Adjusted EBITDA in Q1 2021, while the ITS business generated $1.4 million.  

Cash generated from (used in) continuing operations for Q1 2021 was ($5.9) million compared to $9.1 million in Q1 2020. Excluding changes in non-cash working capital balances, cash used in operations in Q1 2021 was ($0.9) million. Cash and cash equivalents and short-term investments was $132.0 million at March 31, 2021, compared to $141.3 million at December 31, 2020. Working capital at March 31, 2021, was $150.3 million compared to $159.7 million at December 31, 2020.

Conference Call and Webcast
Quarterhill will host a conference call to discuss its financial results today at 10:00 AM Eastern Time. Slides to accompany the call can be viewed via the webcast.

Webcast Information
The live audio webcast will be available at:
https://produceredition.webcasts.com/starthere.jsp?ei=1454081&tp_key=b73fdb2366   

Dial-in Information

• To access the call from Canada and U.S., dial 1.888.231.8191 (Toll Free)
• To access the call from other locations, dial 1.647.427.7450 (International)

Replay Information
Webcast replay will be available for 365 days at:
https://produceredition.webcasts.com/starthere.jsp?ei=1454081&tp_key=b73fdb2366

Telephone replay will be available until 11:59 p.m. Eastern Daylight Time on May 13, 2021 at: 1.855.859.2056 (Toll Free North America) or 1.416.849.0833 (International). The telephone replay requires the passcode 2367619.

¹Non-IFRS Disclosure
Quarterhill  has  historically  used  a  set  of  metrics  when  evaluating  our  operational  and  financial  performance.  We continually monitor, evaluate and update these metrics as required to ensure they provide information considered most useful, in the opinion of our management, to any decision-making based on Quarterhill's performance. This section defines, quantifies and analyzes the key performance indicators used by our management and referred to elsewhere in this  press release,  which  are  not  recognized  under  IFRS  and  have  no  standardized  meaning  prescribed  by  IFRS.  These indicators and measures are therefore unlikely to be comparable to similar measures presented by other issuers.

In this press release, we use the Non-IFRS term "Adjusted EBITDA" to mean net income (loss) from continuing operations before: (i) income taxes; (ii) finance expense or income; (iii) amortization and impairment of intangibles; (iv) special charges and other one-time items; (v) depreciation of right-of-use assets and property, plant and equipment; (vi)  stock-based  compensation;  (vii)  foreign  exchange  (gain)  loss;  and  (viii)  equity  in earnings and dividends from joint ventures. Adjusted EBITDA is used by our management to assess our normalized cash generated on a consolidated basis and in our operating segments. Adjusted EBITDA is also a performance measure that may be used by investors to analyze the cash generated by Quarterhill and our operating segments. Adjusted EBITDA should not be interpreted as an alternative to net income and cash flows from operations as determined in accordance with IFRS or as a measure of liquidity.

About Quarterhill
Quarterhill is a growth-oriented company in the Intelligent Transportation Systems (ITS) industry as well as a leader in Intellectual Property licensing. Our goal is to execute an investment strategy that capitalizes on attractive growth opportunities within ITS - and its adjacent markets - to become a global leader in that industry. Quarterhill is listed on the TSX under the symbol QTRH and on the OTCQX Best Market under the symbol QTRHF. For more information: www.quarterhill.com

Forward-looking Information
This news release contains forward-looking statements regarding Quarterhill and its business. Forward-looking statements are based on estimates and assumptions made by Quarterhill in light of its experience and its perception of historical trends, current conditions, expected future developments and the expected effects of new business strategies, as well as other factors that Quarterhill believes are appropriate in the circumstances. The forward-looking events and circumstances discussed herein may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting Quarterhill, including: potential risks and uncertainties relating to the ultimate geographic spread of the novel coronavirus ("COVID-19"); the severity of the disease; the duration of the COVID-19 outbreak; actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact; the potential negative impacts of COVID-19 on the global economy and financial markets and any resulting impact on Quarterhill and/or its business. Other factors include, without limitation, the risks described in Quarterhill's March 11, 2021 annual information form for the year ended December 31, 2020 (the "AIF"). Copies of the AIF may be obtained at www.sedar.com. Quarterhill recommends that readers review and consider all of these risk factors and notes that readers should not place undue reliance on any of Quarterhill's forward-looking statements. Quarterhill has no intention, and undertakes no obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Quarterhill Inc.
Interim Condensed Consolidated Statements of Loss and Comprehensive (Loss) Income (Unaudited)
(in thousands of Canadian dollars, except share and per share amounts)
		Three months ended March 31,
		2021				2020
Revenues
Licensing		$	7,848			$	10,183
Intelligent Transportation Systems		11,468				11,406
		19,316				21,589
Direct cost of revenues
Licensing		5,869				5,767
Intelligent Transportation Systems		6,829				8,416
		12,698				14,183
Gross profit		6,618				7,406
Operating expenses
Depreciation of right-of-use assets		279				244
Depreciation of property, plant and equipment		233				224
Amortization of intangible assets		4,487				4,743
Selling, general and administrative expenses		7,056				6,293
Research and development expenses		394				870
Special charges		39				213
		12,488				12,587
Results from operations		(5,870)				(5,181)
Finance income		(21)				(222)
Finance expense		69				96
Foreign exchange gain		(125)				(578)
Other income		(630)				(378)
Loss before taxes		(5,163)				(4,099)
Current income tax expense		544				1,266
Deferred income tax recovery		(1,420)				(433)
Income tax (recovery) expense		(876)				833
Net loss from continuing operations		(4,287)				(4,932)
Net loss from discontinued operations		—				(180)
Net loss		$	(4,287)			$	(5,112)
Other comprehensive (loss) income  that may be reclassified subsequently to net loss:
Foreign currency translation adjustment		$	(3,734)			$	21,094
Comprehensive (loss) income		$	(8,021)			$	15,982
Loss  per share
From continuing operations		$	(0.04)			$	(0.04)
From discontinued operations		—				(0.00)
Loss per share - Basic		$	(0.04)			$	(0.04)
From continuing operations		$	(0.04)			$	(0.04)
From discontinued operations		—				(0.00)
Loss per share - Diluted		$	(0.04)			$	(0.04)

 

Quarterhill Inc.
Interim Condensed Consolidated Statements of Financial Position (Unaudited)
(in thousands of Canadian dollars)
As at		March 31, 2021				December 31, 2020
Current assets
Cash and cash equivalents		$	126,437			$	135,700
Short-term investments		5,550				5,550
Accounts receivable		16,510				13,747
Other assets		1,886				—
Unbilled revenue		10,660				13,549
Income taxes recoverable		58				264
Inventories (net of obsolescence)		10,262				9,068
Prepaid expenses and deposits		2,509				8,264
		173,872				186,142
Non-current assets
Accounts receivable		488				506
Prepaid expenses and deposits		300				338
Right-of-use assets, net		3,332				3,780
Property, plant and equipment, net		2,715				2,783
Intangible assets, net		57,192				59,261
Investment in joint venture		7,192				6,704
Deferred income tax assets		28,408				28,202
Goodwill		18,157				16,093
		117,784				117,667
TOTAL ASSETS		$	291,656			$	303,809
Liabilities
Current liabilities
Accounts payable and accrued liabilities		15,347				20,038
Income taxes payable		786				631
Current portion of lease liabilities		1,002				1,012
Current portion of deferred revenue		6,486				4,800
		23,621				26,481
Non-current liabilities
Deferred revenue		2,779				2,573
Long-term lease liabilities		2,352				2,747
Deferred income tax liabilities		26				78
		5,157				5,398
TOTAL LIABILITIES		28,778				31,879
Shareholders' equity
Capital stock		547,283				547,537
Contributed surplus		46,905				46,250
Accumulated other comprehensive income		(153)				3,581
Deficit		(331,157)				(325,438)
		262,878				271,930
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	291,656			$	303,809

 

Quarterhill Inc.
Interim Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands of Canadian dollars)
		Three months ended March 31,
		2021				2020
Cash used in operations
Net loss from continuing operations		$	(4,287)			$	(4,932)
Non-cash items
Stock-based compensation expense (recovery)		424				(25)
Depreciation of right-of-use assets		279				244
Interest expense on lease liabilities		50				56
Depreciation and amortization		4,720				4,967
Foreign exchange (gain) loss		(96)				284
Equity in earnings from joint venture		(630)				(378)
Loss on disposal of intangible assets		53				—
Gain on disposal of assets		—				(4)
Deferred income tax recovery		(1,420)				(429)
Embedded derivatives		6				(222)
Changes in non-cash working capital balances		(4,973)				10,084
Cash generated from (used in) continuing operations		(5,874)				9,645
Net cash flows attributable to discontinuing operations		—				(597)
Net cash (used in) generated from operating activities		(5,874)				9,048
Financing
Dividends paid		(1,381)				(1,481)
Bank indebtedness		—				(1,812)
Payment of lease liabilities		(293)				(315)
Repayment of long-term debt		—				(107)
Repurchase of shares for cancellation		(324)				—
Common shares issued for cash on the exercise of options		177				—
Cash used in continuing operations		(1,821)				(3,715)
Net cash flows attributable to discontinuing operations		—				—
Net cash used in financing activities		(1,821)				(3,715)
Investing
Proceeds from sale of property, plant and equipment		—				4
Purchase of property and equipment		(37)				(301)
Purchase of intangible assets		—				(17)
Cash used in continuing operations		(37)				(314)
Net cash flows attributable to discontinuing operations		—				(70)
Net cash used in investing activities		(37)				(384)
Foreign exchange on cash held in foreign currency		(1,531)				8,777
Net (decrease) increase in cash and cash equivalents		(9,263)				13,726
Cash and cash equivalents, beginning of		135,700				87,870
Cash and cash equivalents, end of		$	126,437			$	101,596

 

Quarterhill Inc.
Interim Condensed Consolidated Statements of Shareholders' Equity (Unaudited)
(in thousands of Canadian dollars)
		Capital Stock				Contributed Surplus				Accumulated Other Comprehensive Income				Deficit				Total Shareholders' Equity
January 1, 2020		$	570,553			$	32,011			$	10,936			$	(338,297)			$	275,203
Net loss		—				—				—				(5,112)				(5,112)
Other comprehensive loss		—				—				21,094				—				21,094
Stock-based compensation recovery		—				(25)				—				—				(25)
Common shares issued from performance stock units		24				—				—				—				24
Dividends declared		—				—				—				(1,481)				(1,481)
March 31, 2020		$	570,577			$	31,986			$	32,030			$	(344,890)			$	289,703
January 1, 2021		$	547,537			$	46,250			$	3,581			$	(325,438)			$	271,930
Net loss		—				—				—				(4,287)				(4,287)
Repurchase of shares for cancellation		(641)				317				—				—				(324)
Other comprehensive loss		—				—				(3,734)				—				(3,734)
Stock-based compensation expense						424				—				—				424
Exercise of options		251				(74)				—				—				177
Common shares issued from restricted stock units		124				—				—				—				124
Common shares issued from performance stock units		12				(12)				—				—				—
Dividends declared		—				—				—				(1,432)				(1,432)
March 31, 2021		$	547,283			$	46,905			$	(153)			$	(331,157)			$	262,878

 

Quarterhill Inc.
Reconciliation of Net loss  to Adjusted EBITDA (Unaudited)
(in thousands of Canadian dollars, except share and per share amounts)
		Three months ended March 31,
		2021							2020
		$			Per Share				$			Per Share
Net loss from continuing operations		$	(4,287)		$	(0.04)			$	(4,932)		$	(0.04)
Adjusted for:
Income tax expense (recovery)		(876)			(0.01)				833			0.01
Foreign exchange gain		(125)			—				(578)			(0.01)
Finance expense		69			—				96			—
Finance income		(21)			—				(222)			—
Special charges		39			—				213
Amortization of intangible assets		4,487			0.05				4,743			0.05
Depreciation of property, plant and equipment		233			—				224			—
Depreciation of right-of-use assets		279			—				244			—
Stock based compensation expense (recovery)		424			0.01				(25)			—
Other income		(630)			(0.01)				(378)			(0.01)
Adjusted EBITDA		$	(408)		$	(0.00)			$	218		$	0.00
Weighted average number of Common Shares
Basic					114,408,320							118,857,433

 

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SOURCE Quarterhill Inc.