Quarterhill Inc T.QTRH

Alternate Symbol(s): T.QTRH.DB | QTRHF

Technology Communication Equipment

Quarterhill Inc. is a Canada-based company, which is engaged in providing tolling and enforcement solutions in the Intelligent Transportation System (ITS) industry. The Company provides end-to-end mobility systems to some of the tolling authorities in the United States, including in Texas, California and Illinois through Electronic Transaction Consultants, LLC (ETC). ETC’s core products comprise the riteSuite platform, a scalable and customizable cloud-based tolling and mobility solution. The platform has applications for the roadside and back office, with strengths in vehicle identification, tracking, dynamic pricing and interoperability amongst agencies. The Company’s wholly owned subsidiary is International Road Dynamics Inc. (IRD), is a multi-discipline, technology company and provider of Intelligent Transportation Systems. It provides integrate ITS technologies into systems designed to solve and challenging transportation problems.

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Quarterhill Inc > Wilan 4 Yr Average Gross Margin Means Sell Wilan subsidiary

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Comment by cabbieJBJon Nov 26, 2021 5:06pm

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Post# 34170904

RE:Wilan 4 Yr Average Gross Margin Means Sell Wilan subsidiary

Shareholders, a deeper analysis indicates that a licensing business fire sale is not warranted.

The licensing segment gross margin fluctuates dramatically, which is not surprising given the lumpiness of revenues. I went back to 2015 which provides 2 full years pre ITS. In addition, since the 2015 - 2018 the finacnials break out the below the line items you talked about in your post, this allows a reasonably estimate of EBITDA for the licensing segment.

Using your 1.25 USD:CAD conversion, Gross profit (and %) by year was reported as follows:

$000's
2015 $40,569 (31.6%)
2016 $35,956  (31.0%)
2017  $88,959  (70.7%)
2018  $-8,410 (-32.3%)
2019  $53,922  (50.8%)
2020  $32,055  (41.0%)
2021 (9 Mos)  $4,973  (23.7%)

Selling/admin/R&D expenses were reported fro 2015 - 2018, as folows:

$000's
2015 $12,365
2016 $12,243
2017 $8,113
2018 $3,245

2017 represents a partial year implementation of cost reductions identified in the strategic review with the full impact realized in 2018. I've asked QTRH for a current range which can be applied to 2019 and forward. For now, I've used $5,000 annual cost for selling/admin/R&D expenses in the licensing segment.

The annual average estimated EBITDA for the licensing segment over the last 7 years is $28,387 (32.6%). By year, as follows:

$000's
2015 $28,204 (31.6%)
2016 $23,713 (31.0%)
2017  $80,846 (70.7%)
2018  $-11,658 (-32.3%)
2019  $48,922 (50.8%)
2020  $27,055 (41.0%)
2021 (9 Mos)  $1,223 (23.7%)

Since most licensed IP is based on the partnership model with contingent legal representaion, opex costs for the licensing are minimized.

Key questions:

Is 2021 an outlier (as was 2018) - and on what, other that retrospective analysis, is that based;
Will the partnership model continue to be the finacnial arranegment of choice for patent holders who wish to monetize their IP; and
Will minimal licensing opex be maintained?

If the answer to these questions is, "Yes" then it is reasonable to assume that the Wilan sub will provide, on average, $25M to $30M per year in funding for ITS.

This is not the dire picture your post presents shareholders. A fire sale is not warranted. As I strongly believe that any divestiture decision pivots on two key factors: