Quarterhill Inc T.QTRH

How much to trust? Or not?

[mrmoribund]

The endless back and forth here between the Quarterhill pumpers and dumpers, the believers and the cynics, is interesting in that it highlights one of the most fundamental issues in investing--one which doesn't get addressed much, if at all, in business school or CFA school. It also gets almost no attention in the business media, in part because raising it could get you sued.

The issue is . . . if, how much, and/or when should you trust a company whose shares you're thinking of buying, selling, or holding?

Since the picture an investor will have of the inside of a company is ALWAYS incomplete, there is very good reason to be suspicious of any or all of a company's representations. There's also a long history of insiders falling for the temptations that go with this incomplete picture to commit all manner of fraud--or simply to hang onto their positions (and maybe also overpay themselves) by manipulating or controlling the situation in not-quite outright fraudulent ways.

The need for some distrust of public companies is actually built into the system. They're required to be audited. Some company leaders are no doubt so honest that they could just give us the year-end numbers and they would be spot on. Nope. Not allowed.

As I've already suggested, the challenge (for investors) with Quarterhill right now is that although there are lots of positive signs in terms of what's going on, they're not the kinds of things that can be confirmed by an auditor (or anyone else for that matter). No auditor is going to confirm that the board is made up of smart people or that, say, the ITS business is currently as good as Bret Kidd says it is. Or that the plan is actually going entirely according to plan. Or, say, that there aren't problems going on in the company that Bret Kidd can't fix.

On a very different note--and for context--I've had insider experience with two public company CEOs who were so bad that their services were (in my opinion) worth less than nothing. It would have been worth it for the company to pay them to stay home and let other people in the company run things. And there was no way to get rid of them.

(BTW, this has much to do with the fact that I view it in a more positive--or less negative--light than v_g that the company has had a fair bit of CEO turnover. My experience tells me that while you don't want a CEO revolving door, it's a good sign that a company CAN make a CEO change.)

Until an audited turnaround really happens, Quarterhill will continue to have what you might call shareholder challenges. Because of a history of not-entirely-great performance (and maybe some missteps) there are a non-trivial number of shareholders who are pre-disposed to distrust board and management.

There are interesting questions of human psychology here. If someone made mistakes in the past you might conclude that they're fools and you should never invest in them. Alternatively, you might take the view that people learn from their mistakes and they'll be better for having lived through them. There's no formula for this one. Every case is different and investors will judge as best as they can.

Where am I going with this? While my gut feel is that Bret Kidd is 100% the guy, I also don't want to be too quick in dismissing v_g's cynicism. It would be naive to disregard the possibility that there are some things going on in Richardson, Texas or Saskatoon or Belgium that would make an investor cringe.

Of course it's the job of Bret and the other senior executives (and, ultimately, the board) to make sure the right people are there doing the right things.

I know this post may be apt to come across as a little preachy but I think it's important to think about this stuff.

We pumpers tend to see the dumpers as mired in delusional degrees of negativity. And I think they are. But we should also turn the spotlight on ourselves. I know I have a history of trusting a little too easily and I suspect the other Quarterhill believers here have tended toward that disposition also.

[Capharnaum]

Just my opinion... obviously... Imo, most investors on stockhouse are a bit too concerned about "trust". What is "trust"? It's a gut feeling. I do believe in Pareto, basically that 80% of the info regarding a stock is relatively meaningless (which, imo, includes insider transactions) and that 20% of the info is what will really drive the performance over the long term. I

[mrmoribund]

I think you're missing some key reasons why it was necessary that Bret Kidd take the helm from Paul Hill. No disrespect to IRD but when ETC was bought it immediately became Quarterhill's dominant operation. (Wilan was important too but it was on the way out.) It's asking for trouble in the form of corporate disfunction to have the ITS centre of gravity in Richardson, Texas and the

[Capharnaum]

Alright, so if they buy a bigger company than ETC, then they should fire Brett Kidd and put the new guy from the company they bought at the helm? Also, Brett Kidd hasn't been that long with ETC, if I remember correctly, he was put at the helm of ETC by the previous buyer and prior to ETC, he didn't have experience in the ITS sector. While I agree that having a separate head office with

[mrmoribund]

Quarterhill doesn't have enough resources to buy something big enough that Bret Kidd would (or should) suddenly become the 2nd-in-command but, yes, if somehow Quarterhill could magically buy Apple then, yes, Tim Cook would inevitably become the new CEO and Bret Kidd would become the head of Apple / Quarterhill's new ITS division. And we could only hope that Bret would be okay with that

[Lagger95]

When QTRH bought ETC in effect ETC took over  QTRH. 

[mrmoribund]

Yes!! Sort of. But because Quarterhill handed over the $150 million ownership ended up with the Quarterhill shareholders. I've seen somewhat comparable situations arise in other merger / acquisitions. Suppose Company A buys Company B. Company B's CEO retires but Company B comes with a truly fantastic CFO. By all reasonable measures B's CFO is better than A's CFO. What should the

[cabbieJBJ]

The CEO decision was unexpected, in terms of timing, but was not unexpected once QTRH settled on where in the ITS space it would focus.  Paul Hill was a deal maker who set clear, measurable goals, and achieved them.  As long as QTRH was an asset aggregator in the ITS space generally plus the operator of a patent monetization unit, he was the man.  The ITS/patent licensing

[mrmoribund]

Actually, this is relevant to Quarterhill's current search for a permanent CFO. I'm sure Stephen Thompson is doing an excellent job but he is, officially, the interim CFO. Where should Quarterhill find their eventual permanent CFO? The answer should be: wherever they can. Maybe ST himself? I'm not sure if his skill set is ultimately the right fit. Maybe Quarterhill's next

[Lagger95]

Depends on Kidd's vision. What will the aquistion strategy, if any, be like.  Looking for new and different opportunities. (investing in the intelligent Transportation Systems sector to become a global leader)   Too early to tell (again).

[Capharnaum]

With the Wilan sale, they'll have around $250 USD to make purchases on the ITS side. They could possibly make a larger purchase than ETC with that kind of money. I still think that Paul Hill's exit looked premature. If Brett Kidd couldn't wait a year to become CEO, then it doesn't ring a nice bell to me. It felt rushed and the explanation that shareholders got was weak regarding

[mrmoribund]

More experience in ITS than Bret Kidd?? He joined ETC in March 2019 and at that time had roughly 25 years in travel-technology businesses. They may not have been all ITS in the purect sense but it was close enough that ETC was fine hiring him as their CEO. I liked Paul too but I wouldn't say all aspects of his performance were flawless. My sense is that he relentlessly overstated the

[Capharnaum]

They had $70M at the end of last quarter. Add another $70M for next quarter. That's $140M. Add $100M from the sale of Wilan (I expect higher... but let's go with that). We're at $240M CAD in cash to make acquisitions. To get to $250M USD, you'd need to finance around $77M CAD in debt. If the acquisition is done at 12x EBITDA, then the debt to ebitda ratio of the acquisition would

[Joey67]

This post has been removed in accordance with Community Policy

[cabbieJBJ]

Joey, do you expect an announcement from BB regarding Catapult's financing/confirming the deal closure?

[Joey67]

This post has been removed in accordance with Community Policy

[cabbieJBJ]

Mrmoribund, two pieces of info: Both Sensor Line and VDS were part of IRD Europe's supply chain; and ETC was presented to QTRH prior to the Align purchase, but the timing was not right (read that however you wish).

[cabbieJBJ]

If we listen to Kidd's recent comments, he has twice indcated that he favors acquisitions where the overlay of ETC's technology is synergistic.  Looking for 1+1=3

[Capharnaum]

Yeah, he's unlikely to want to acquire a company where he would get pushed off like Paul Hill was?

[cabbieJBJ]

Paul Hill, on exit, got 2 years salary of ~$880K, $363K in short term incentive, 140,386 PRSUs  (total value $1,363,600) and held on to 1,400,000 options at $1.99 of which 466,667 had vested as of 31-Dec-2021. He was handsomely rewarded for 18 months of work at QTRH, during which time he was paid salary of ~$736K. That was his reward for kick starting the transformation of QTRH to an ITS