Quarterhill Announces Fourth Quarter and Fiscal 2020 Financial Results

TORONTO, March 11, 2021 /PRNewswire/ - Quarterhill Inc. ("Quarterhill" or the "Company") (TSX: QTRH) (OTCQX: QTRHF), announces its financial results for the three- and twelve-month periods ended December 31, 2020. The Company historically prepared its consolidated financial statements in accordance with U.S. GAAP and in U.S. dollars. Effective January 1, 2020, the Company has adopted IFRS and the Canadian dollar as its reporting currency. The Company has consistently applied the same accounting policies in its opening IFRS statement of financial position at January 1, 2019, and throughout all periods presented as if these policies had always been in effect. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

Fiscal 2020 Financial Highlights

• Revenue was $144.5 million
• Adjusted EBITDA¹ was $31.2 million
• Cash generated from operations was $35.2 million
• Cash, cash equivalents, and short-term investments were $141.3 million at December 31, 2020
• Working capital was $159.7 million at December 31, 2020

Fiscal 2020 Operational Highlights

• Appointed Paul Hill as President and CEO, and John Rim as Chief Financial Officer
• Launched M&A diversification strategy to acquire businesses in the Intelligent Transportation Systems ("ITS") industry. On January 5, 2021, acquired Sensor Line GmbH ("Sensor Line"), a provider of highly regarded fiber optic traffic sensors for road and rail markets
• Appointed Rish Malhotra as President and CEO of International Road Dynamics ("IRD")
• A Final Judgment was issued in WiLAN's case against Apple for US$108.98 million
• Appointed Paul Hill and Dr. Michel Fattouche to Quarterhill's Board of Directors
• Completed the sale of VIZIYA for total cash proceeds of $49.4 million
• Repurchased 4.9 million shares via a Substantial Issuer Bid and a Normal Course Issuer Bid, reducing the total number of shares outstanding to 114.3 million

"2020 was a strong year both financially and operationally, despite the challenges posed by the COVID-19 pandemic," said Paul Hill, President and CEO of Quarterhill. "We established new leadership, launched our  M&A diversification strategy in the ITS industry, significantly grew our cash balance and returned capital to shareholders via our dividend and share buybacks. Both portfolio companies had solid years with IRD delivering margin expansion and steady revenue, and with WiLAN generating significant Adjusted EBITDA and cash flow."

"The recent acquisition of Sensor Line was the first under our new ITS-focused M&A strategy. As a tuck-in transaction for IRD, Sensor Line expands IRD's geographic footprint in Europe and broadens its product suite in tolling and enforcement, which are two areas of focus. ITS is an ideal market for us to pursue M&A; it is a stable and growing industry that blends technology with infrastructure in order to provide essential services to governments that are looking to improve safety, tackle environmental challenges and generate new revenue opportunities. ITS also stands to benefit from government stimulus plans targeting infrastructure, in particular in the U.S. market. As ITS becomes more inter-connected, we believe this could create opportunities that leverage WiLAN's expertise in 5G, which will be a key enabling technology for the industry in the future."

Approval of Eligible Dividend
The Board of Directors has declared an eligible quarterly dividend of $0.0125 per common share payable on April 9, 2021, to shareholders of record on March 19, 2021.

Q4 2020 and Fiscal 2020 Consolidated Financial Review
Financial statements for the three- and twelve-month periods ended December 31, 2020 and for the respective comparison periods, have been prepared to reflect continuing operations and therefore exclude results during those periods from VIZIYA, which was sold by Quarterhill on May 15, 2020. The year-to-date operating results from VIZIYA, up to the date of sale on May 15, 2020, are reported as net income (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 Consolidated Financial Statements for the three- and twelve-month periods ended December 31, 2020 are available on the Company's website and on its profile at SEDAR.

Consolidated revenues for the three-month period ended December 31, 2020 ("Q4 2020") were $18.1 million, compared to $48.3 million in Q4 2019. Consolidated revenues for the twelve-month period ended December 31, 2020 ("Fiscal 2020") were $144.5 million, compared to $172.9 million in Fiscal 2019. 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 revenue was lower in Q4 2020 and Fiscal 2020 due primarily to the closure of a greater volume, and value, of licensing contracts in the prior year periods. Revenue at IRD for Q4 2020 and Fiscal 2020 was relatively flat when compared with the same periods in 2019.

Gross margin for Q4 2020 and Fiscal 2020 was 9% and 41%, compared to 55% and 44% in the same periods last year. Gross margin for the licensing business in Q4 2020 was impacted by the factors noted above and to a lesser degree for Fiscal 2020. Fiscal 2020 gross margin for the ITS business increased year-over-year reflecting higher profitability on certain projects entered into by IRD during the year. 

Operating expenses include selling, general and administrative costs ("SG&A"), research and development costs ("R&D"), depreciation and amortization of intangible assets, impairment loss on intangibles and special charges. Operating expenses for Q4 2020 and Fiscal 2020 were $14.2 million and $51.5 million, compared to $15.4 million and $58.1 million in the same periods last year. Q4 2020 operating expenses were 8% lower compared to Q4 2019. For Fiscal 2020, operating expenses decreased 11%, due primarily to lower amortization of intangibles compared to Fiscal 2019.

Adjusted EBITDA for Q4 2020 and Fiscal 2020 was ($6.1) million and $31.2 million, compared to $18.7 million and $48.5 million in the same periods last year. The licensing business generated $28.8 million of Adjusted EBITDA in Fiscal 2020, reflecting WiLAN's ability to generate significant margin and cash flow on an annual basis. Adjusted EBITDA from the ITS business grew 67.0% to $13.8 million.  

Cash generated from (used in) continuing operations for Q4 2020 and Fiscal 2020 was $25.3 million and $35.2 million, compared to ($4.9) million and $8.6 million in the same periods last year. Cash and cash equivalents and short-term investments was $141.3 million at December 31, 2020, compared to $89.4 million at December 31, 2019. Working capital at December 31, 2020, was $159.7 million compared to $112.2 million at December 31, 2019.

Conference Call and Webcast
Quarterhill will host a conference call to discuss its financial results today at 10:00 AM Eastern Time.

Webcast Information
The live audio webcast will be available at:
https://produceredition.webcasts.com/starthere.jsp?ei=1425864&tp_key=cbc3a27a62    

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=1425864&tp_key=cbc3a27a62   

Telephone replay will be available until 11:59 p.m. Eastern Daylight Time on March 18, 2021 at: 1.855.859.2056 (Toll Free North America) or 1.416.849.0833 (International).The telephone replay requires the passcode 7395359.

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 System (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.
Consolidated Statements of Income and Comprehensive Loss
(in thousands of Canadian dollars, except share and per share amounts)
	Three months ended December 31,						Year ended December 31,
	2020			2019			2020			2019
Revenues
Licensing	$	474		$	30,591		$	78,260		$	106,052
Intelligent Transportation Systems	17,618			17,708			66,266			66,873
	18,092			48,299			144,526			172,925
Direct cost of revenues
Licensing	5,338			11,398			46,205			53,130
Intelligent Transportation Systems	11,091			10,539			39,463			42,887
	16,429			21,937			85,668			96,017
Gross profit	1,663			26,362			58,858			76,908
Operating expenses
Depreciation of right-of-use assets	241			249			979			1,305
Depreciation of property, plant and equipment	248			210			969			1,296
Amortization of intangible assets	4,539			5,617			18,855			23,305
Selling, general and administrative expenses	8,323			7,491			26,868			26,719
Research and development expenses	468			645			2,282			2,874
Impairment losses on intangible assets	—			115			295			115
Special charges	355			1,046			1,227			2,448
	14,174			15,373			51,475			58,062
Results from operations	(12,511)			10,989			7,383			18,846
Finance income	(45)			(508)			(573)			(1,665)
Finance expense	92			131			459			740
Foreign exchange loss (gain)	425			169			(88)			324
Other income	(488)			(373)			(1,680)			(869)
(Loss) income before taxes	(12,495)			11,570			9,265			20,316
Current income tax expense	368			2,320			2,037			8,117
Deferred income tax (recovery) expense	(2,662)			611			2,800			1,106
Income tax (recovery) expense	(2,294)			2,931			4,837			9,223
Net (loss) income from continuing operations	(10,201)			8,639			4,428			11,093
Net (loss) income from discontinued operations	—			(2,266)			14,255			1,569
Net (loss) income	$	(10,201)		$	6,373		$	18,683		$	12,662
Other comprehensive loss that may be reclassified subsequently to net (loss) income:
Foreign currency translation adjustment	$	(12,537)		$	(3,968)		$	(7,355)		$	(11,176)
Comprehensive (loss) income	$	(22,738)		$	2,405		$	11,328		$	1,486
Net (loss) income per share
From continuing operations	$	(0.09)		$	0.07		$	0.04		$	0.09
From discontinued operations		—			(0.02)			0.12			0.01
Net (loss) income per share - Basic	$	(0.09)		$	0.05		$	0.16		$	0.10
From continuing operations	$	(0.09)		$	0.07		$	0.04		$	0.09
From discontinued operations		—			(0.02)			0.12			0.01
Net (loss) income per share - Diluted	$	(0.09)		$	0.05		$	0.16		$	0.10

 

Quarterhill Inc.
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
As at	December 31, 2020		December 31, 2019		January 1, 2019
Current assets
Cash and cash equivalents	$	135,700	$	87,870	$	87,029
Short-term investments	5,550		1,550		1,551
Restricted short-term investments	—		—		2,995
Accounts receivable	13,747		42,925		14,719
Other current assets	—		108		124
Unbilled revenue	13,549		8,965		5,432
Income taxes recoverable	264		137		270
Inventories (net of obsolescence)	9,068		8,570		8,114
Prepaid expenses and deposits	8,264		2,242		2,927
	186,142		152,367		123,161
Non-current assets
Accounts receivable	506		3,846		565
Prepaid expenses and deposits	338		—		—
Right-of-use assets, net	3,780		4,502		3,972
Property, plant and equipment, net	2,783		2,826		3,614
Intangible assets, net	59,261		89,534		119,015
Investment in joint venture	6,704		5,233		5,203
Deferred income tax assets	28,202		32,737		36,948
Goodwill	16,093		32,977		34,446
	117,667		171,655		203,763
TOTAL ASSETS	$	303,809	$	324,022	$	326,924
Liabilities
Current liabilities
Bank indebtedness	$	—	$	4,026	$	3,537
Accounts payable and accrued liabilities	20,038		26,264		24,644
Income taxes payable	631		203		—
Current portion of lease liabilities	1,012		998		1,120
Contingent liabilities	—		—		1,265
Current portion of deferred revenue	4,800		8,638		6,357
Current portion of long-term debt	—		59		407
	26,481		40,188		37,330
Non-current liabilities
Deferred revenue	2,573		1,513		1,954
Long-term lease liabilities	2,747		3,550		2,604
Long-term debt	—		271		236
Deferred income tax liabilities	78		3,297		5,905
	5,398		8,631		10,699
TOTAL LIABILITIES	31,879		48,819		48,029
Shareholders' equity
Capital stock	547,537		570,553		570,553
Contributed surplus	46,250		32,011		31,252
Accumulated other comprehensive income	3,581		10,936		22,112
Deficit	(325,438)		(338,297)		(345,022)
	271,930		275,203		278,895
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	303,809	$	324,022	$	326,924

 

Quarterhill Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
	Three months ended December 31,				Year ended December 31,
	2020		2019		2020		2019
Cash generated from (used in) operations
Net income from continuing operations	$	(10,203)	$	8,637	$	4,428	$	11,093
Non-cash items
Stock-based compensation expense	571		(52)		1,015		693
Depreciation of right-of-use assets	241		249		979		1,305
Interest expense on lease liabilities	52		66		223		231
Depreciation and amortization	4,787		5,828		19,824		24,601
Foreign exchange gain	(127)		(32)		(359)		(113)
Equity in earnings from joint venture	(488)		(381)		(1,680)		(873)
(Gain) loss on disposal of intangible assets	(1)		206		(1)		206
Impairment losses on intangible assets	—		115		295		115
Loss on disposal of assets	—		(13)		4		746
Deferred income tax expense	(2,662)		611		2,800		1,106
Long-term accounts receivable	—		—		—		(85)
Embedded derivatives	222		(15)		190		11
Contingent consideration adjustment	—		—		—		(1,042)
Changes in non-cash working capital balances	32,892		(20,129)		7,478		(29,368)
Cash generated from (used in) continuing operations	25,284		(4,910)		35,196		8,626
Net cash flows attributable to discontinuing operations	—		2,817		24		3,247
Net cash generated (used in) from operating activities	25,284		(2,093)		35,220		11,873
Financing
Dividends paid	(1,517)		(1,489)		(4,441)		(5,939)
Bank indebtedness	(3,042)		(876)		(3,654)		685
Payment of lease liabilities	(243)		(315)		(1,103)		(1,504)
Repayment of long-term debt	(393)		60		(521)		(265)
Exercise of stock options	816		—		830		—
Repurchase of shares for cancellation	(1,300)		—		(10,622)		—
Common shares issued from performance stock units	(24)		—		—		—
Cash used in continuing operations	(5,703)		(2,620)		(19,511)		(7,023)
Net cash flows attributable to discontinuing operations	—		(5)		32		(32)
Net cash used in financing activities	(5,703)		(2,625)		(19,479)		(7,055)
Investing
Proceeds from disposition of a subsidiary	—		—		49,400		—
Cash sold on disposition of a subsidiary	—		—		(1,825)		—
Purchase of short-term investments	—		—		(4,054)		—
Dividends received from joint venture	477		513		477		513
Proceeds from sale of restricted short-term investments	—		2,772		—		2,904
Proceeds from sale of property, plant and equipment	—		13		32		43
Purchase of property and equipment	(59)		(490)		(1,255)		(1,301)
Purchase of intangible assets	(1,281)		(6)		(1,336)		(1,890)
Cash (used in) generated from continuing operations	(863)		2,802		41,439		269
Net cash flows attributable to discontinuing operations	—		(12)		—		(172)
Net cash (used in) generated from investing activities	(863)		2,790		41,439		97
Foreign exchange loss on cash held in foreign currency	(9,820)		(1,352)		(9,350)		(4,074)
Net increase in cash and cash equivalents	8,898		(3,280)		47,830		841
Cash and cash equivalents, beginning of	126,802		91,150		87,870		87,029
Cash and cash equivalents, end of	$	135,700	$	87,870	135,700		87,870

 

Quarterhill Inc.
Consolidated Statements of Shareholders' Equity
(in thousands of Canadian dollars)
		Capital Stock		Contributed Surplus			Accumulated Other Comprehensive Income			Deficit			Total S hareholders' Equity
January 1, 2019	$	570,553		$	31,252		$	22,112		$	(345,022)		$	278,895
Net income	—			—			—			12,662			12,662
Other comprehensive loss	—			—			(11,176)			—			(11,176)
Stock-based compensation expense	—			759			—			—			759
Dividends declared	—			—			—			(5,937)			(5,937)
December 31, 2019	$	570,553		$	32,011		$	10,936		$	(338,297)		$	275,203
January 1, 2020	$	570,553		$	32,011		$	10,936		$	(338,297)		$	275,203
Net income	—			—			—			18,683			18,683
Repurchase of shares for cancellation	(24,054)			13,432			—			—			(10,622)
Other comprehensive loss	—			—			(7,355)			—			(7,355)
Stock-based compensation expense	—			1,015			—			—			1,015
Exercise of options	1,006			(176)			—			—			830
Common shares issued from performance stock units	32			(32)			—			—			—
Dividends declared	—			—			—			(5,824)			(5,824)
December 31, 2020	$	547,537		$	46,250		$	3,581		$	(325,438)		$	271,930

 

Quarterhill Inc.
Reconciliations of Net income to Adjusted EBITDA
(in thousands of Canadian dollars, except share and per share amounts)
	Three months ended December 31,
	2020					2019
	$		Per Share			$		Per Share
Net income from continuing operations	$	(10,201)	$	(0.09)		$	8,639	$	0.07
Adjusted for:
Income tax expense (recovery)	(2,294)		(0.02)			2,931		0.02
Foreign exchange loss (gain)	425		—			169		—
Finance expense	92		—			131		—
Finance income	(45)		—			(508)		—
Special charges	355		—			1,046		0.01
Impairment losses on intangible assets	—		—			115		—
Amortization of intangible assets	4,539		0.05			5,617		0.05
Depreciation of property, plant and equipment	248		—			210		—
Depreciation of right-of-use assets	241		—			249		—
Stock based compensation expense	571		0.01			(52)		—
Dividend from joint venture	477		—			513		0.01
Other income	(488)		—			(373)		—
Adjusted EBITDA	$	(6,080)	$	(0.05)		$	18,687	$	0.16
Weighted average number of Common Shares
Basic			114,137,754					118,817,466

 

Quarterhill Inc.
Reconciliations of Net income to Adjusted EBITDA
(in thousands of Canadian dollars, except share and per share amounts)
	Year ended December 31,
	2020					2019
	$		Per Share			$		Per Share
Net income from continuing operations	$	4,428	$	0.04		$	11,093	$	0.09
Adjusted for:
Income tax expense	4,837		0.04			9,223		0.08
Foreign exchange (gain) loss	(88)		—			324		—
Finance expense	459		—			740		0.01
Finance income	(573)		—			(1,665)		(0.01)
Special charges	1,227		0.01			2,448		0.02
Impairment losses on intangible assets	295		—			115		—
Amortization of intangible assets	18,855		0.16			23,305		0.20
Depreciation of property, plant and equipment	969		0.01			1,296		0.01
Depreciation of right-of-use assets	979		0.01			1,305		0.01
Stock based compensation expense	1,015		—			692		0.01
Dividend from joint venture	477		—			513		—
Other income	(1,680)		(0.01)			(869)		(0.01)
Adjusted EBITDA	$	31,200	$	0.27		$	48,520	$	0.41
Weighted average number of Common Shares
Basic			116,939,833					118,817,466

 

View original content:http://www.prnewswire.com/news-releases/quarterhill-announces-fourth-quarter-and-fiscal-2020-financial-results-301245206.html

SOURCE Quarterhill Inc.