Third Quarter Highlights
- Revenue of $85.9 million, exceeding the high-end of the expected $72.5 to $82.5 million range previously provided
- Adjusted EBITDA* of $60.6 million, exceeding the high-end of the expected $50.0 to $56.0 million range previously provided
- Net income of $26.2 million, or $0.22 per share
- Announced a new comprehensive license agreement with Samsung, in the Technology segment
- Acquired a portfolio of patents in the Technology segment using the partner model; patents are related to Content Delivery Network technology
- Announced three contracts collectively valued at more than $10.0 million, in the Mobility segment
- Acquired iCOMS Detections S.A. ("iCOMS"), based in Belgium, in the Mobility segment
"Our strong performance in Q3 reflects a significant contribution from WiLAN, our patent license business," said Shaun McEwan, Interim CEO of Quarterhill. "Patent licensing tends to generate variable quarterly performance and Q3 clearly demonstrates the upside that can occur from that type of business model. The significant cash flow that will be generated from our Q3 performance will help to support Quarterhill's growth initiatives."
Approval of Eligible Dividend
The Board of Directors has declared an eligible quarterly dividend of CDN $0.0125 per common share payable on January 5, 2018, to shareholders of record on December 15, 2017.
Business Strategy and Segments
Quarterhill is developing a portfolio of established businesses that have histories of generating cash flows from their operations in the "Technology", "Mobility", "Factory" and "City" segments of the Industrial "Internet-of-Things" market. As of September 30, 2017, the Company had investments in three of its four targeted segments: Technology (WiLAN); Mobility (IRD); and Factory (VIZIYA).
Quarterhill is working to build a consistently profitable company with a diversified investment base and global market presence within its segments, and to increase shareholder value by emphasizing the importance of recurring revenue streams and the predictability of operating results. The Company intends to achieve these objectives through a combination of organic growth and acquisitions.
Q3 and Year-to-Date 2017 Consolidated Financial Review
Quarterhill's consolidated financial results for Q3 2017 include full quarter contributions from each of its wholly owned subsidiaries; Wi-LAN Inc. ("WiLAN"), International Road Dynamics Inc. ("IRD") and VIZIYA Corp ("VIZIYA"). The 2016 comparative period information presented represents solely WiLAN's results for the specified period. Certain comparative information has been restated to conform to the new basis of presentation.
Consolidated revenues for the three months ended September 30, 2017 were $85.9 million, compared to $16.6 million in the same period last year, which represents an increase of 417%. The increase was primarily due to strong patent licensing results from WiLAN and the inclusion of a full quarter of operations from IRD and VIZIYA. Consolidated revenues for the nine months ended September 30, 2017 were $112.1 million, compared to $62.7 million in the same period last year.
Gross margin for the three months ended September 30, 2017 was $67.5 million, or 78.6%, compared to $11.2 million, or 67.5%, in the same period last year. Gross margin for the nine months ended September 30, 2017 was $76.7 million, or 68.5%, compared to $43.0 million, or 68.6%, in the same period last year. Gross margins for the three and nine month periods ended September 30, 2017 reflect contribution across all three segments, compared to the same periods last year, which reflect only the operations of what is now the Company's Technology segment.
Operating expenses include selling, general and administrative costs, research and development costs, depreciation, amortization, loss on disposal of intangible asset, and special charges. Operating expenses for the three months ended September 30, 2017 were $31.3 million, compared to $8.7 million in the same period last year. Operating expenses for the nine months ended September 30, 2017 were $51.5 million compared to $33.9 million in the same period last year. Operating expenses increased in the year-over year periods due to the addition of the IRD and VIZIYA operations, acquisition-related costs associated with the purchases of IRD and VIZIYA, and a $15.2 million non-cash charge in Q3 2017 related to a loss on disposal of an intangible asset.
Adjusted EBITDA for the three months ended September 30, 2017 was $60.6 million, or $0.50 per basic Common Share, compared to $9.4 million, or $0.09 per basic Common Share, in the same period last year. For the nine months ended September 30, 2017, Adjusted EBITDA was $63.1 million, or $0.55 per basic Common Share, compared to $36.2 million, or $0.30 per basic Common Share, in the same period last year. The year-over-year increase in Adjusted EBITDA is primarily due to strong performance in the patent license business in Q3 2017 and the inclusion of operations from the businesses acquired earlier in 2017.
Net income for the three months ended September 30, 2017 was $26.2 million, or $0.22 per basic and diluted Common Share, compared to net income of $0.7 million, or $0.01 per basic and diluted Common Share, in the same period last year. For the nine months ended September 30, 2017, net income was $22.6 million, or $0.19 per basic and diluted Common Share, compared to net income of $2.4 million, or $0.02 per basic and diluted Common Share, in the same period last year. As described above, the year-over-year increase in net income is primarily due to strong performance in the patent license business in Q3 2017 and the inclusion of operations from the businesses acquired in 2017.
Cash generated from operations for the three months ended September 30, 2017 was $9.3 million, compared to $6.2 million in the same period last year. Cash generated from operations for the nine months ended September 30, 2017 was $20.8 million compared to $29.3 million in the same period last year. Cash from operations was negatively impacted in Q3 2017 due to a significant increase in accounts receivable, of which the related amount was collected in full subsequent to quarter-end.
Cash and cash equivalents and short-term investments amounted to $40.6 million at September 30, 2017, compared to $107.7 million at December 31, 2016. The decrease is primarily attributable to $67.4 million spent on the acquisitions of IRD, VIZIYA and iCOMS, and $18.2 million spent on the repayment of patent finance obligations, which were partially offset by cash generated from operations of $20.8 million in the nine month period.
The table below highlights financial performance for the Company's Technology, Mobility and Factory segments. For detailed results and discussion related to these segments, please refer to the Management's Discussion and Analysis document, which will be filed on SEDAR and at www.quarterhill.com in the investor section.
| | For the three months ended September 30, 2017 |
| | Technology | Mobility | Factory | Corporate | Total |
| Revenues | $ | 72,592 | $ | 11,555 | $ | 1,750 | $ | - | $ | 85,897 |
| Cost of revenues (excluding depreciation and amortization) | | 9,882 | | 8,048 | | 495 | | - | | 18,425 |
| | | 62,710 | | 3,507 | | 1,255 | | - | | 67,472 |
| Selling, general and administrative | | 1,310 | | 2,530 | | 905 | | 1,756 | | 6,501 |
| Research and development | | - | | 853 | | 639 | | - | | 1,492 |
| Depreciation of property, plant and equipment | | 82 | | 445 | | 28 | | 1 | | 556 |
| Amortization of intangibles | | 5,473 | | 1,072 | | 791 | | - | | 7,336 |
| Loss on disposal of intangibles | | 15,190 | | - | | - | | - | | 15,190 |
| Special charges | | - | | - | | - | | 218 | | 218 |
| Results from operations | | 40,655 | | (1,393) | | (1,108) | | (1,975) | | 36,179 |
| Finance income | | (76) | | (1) | | - | | (16) | | (93) |
| Finance expense | | 926 | | 43 | | 3 | | (2) | | 970 |
| Foreign exchange loss (gain) | | (131) | | 409 | | 2 | | (41) | | 239 |
| Other expense (income) | | - | | (231) | | - | | - | | (231) |
| Income (loss) before taxes | | 39,936 | | (1,613) | | (1,113) | | (1,916) | | 35,294 |
| Current income tax expense (recovery) | | 5,082 | | 232 | | (5) | | - | | 5,309 |
| Deferred income tax expense (recovery) | | (5,369) | | (858) | | (291) | | 10,292 | | 3,774 |
| Income tax expense (recovery) | | (287) | | (626) | | (296) | | 10,292 | | 9,083 |
| Net income (loss) | $ | 40,223 | $ | (987) | $ | (817) | $ | (12,208) | $ | 26,211 |
| | | | | | | | | | | |
| Adjusted EBITDA | | 61,400 | | 707 | | 3 | | (1,550) | | 60,560 |
| | | | | | | | | | | |
| Other reconciling items: | | | | | | | | | | |
| Effect of deleted deferred revenue | | - | | 82 | | 292 | | - | | 374 |
| Increased costs from inventory step-up | | - | | 444 | | - | | - | | 444 |
| Stock based compensation | | - | | 67 | | - | | 206 | | 273 |
| Effect of deleted prepaid expense | | - | | (10) | | - | | - | | (10) |
| | For the nine months ended September 30, 2017 |
| | Technology | Mobility | Factory | Corporate | Total |
| Revenues | $ | 92,218 | $ | 16,203 | $ | 3,665 | $ | - | $ | 112,086 |
| Cost of revenues (excluding depreciation and amortization) | | 23,644 | | 10,800 | | 896 | | - | | 35,340 |
| | | 68,574 | | 5,403 | | 2,769 | | - | | 76,746 |
| Selling, general and administrative | | 5,484 | | 3,502 | | 1,781 | | 2,350 | | 13,117 |
| Research and development | | - | | 1,161 | | 999 | | - | | 2,160 |
| Depreciation of property, plant and equipment | | 261 | | 493 | | 62 | | 1 | | 817 |
| Amortization of intangibles | | 16,097 | | 1,308 | | 1,262 | | - | | 18,667 |
| Loss on disposal of intangibles | | 15,190 | | - | | - | | - | | 15,190 |
| Special charges | | - | | - | | - | | 1,512 | | 1,512 |
| Results from operations | | 31,542 | | (1,061) | | (1,335) | | (3,863) | | 25,283 |
| Finance income | | (467) | | (1) | | - | | (77) | | (545) |
| Finance expense | | 926 | | 54 | | 6 | | (2) | | 984 |
| Foreign exchange loss (gain) | | (516) | | 695 | | 43 | | (694) | | (472) |
| Other expense (income) | | - | | (300) | | - | | - | | (300) |
| Income (loss) before taxes | | 31,599 | | (1,509) | | (1,384) | | (3,090) | | 25,616 |
| Current income tax expense | | 6,516 | | 333 | | 34 | | - | | 6,883 |
| Deferred income tax expense (recovery) | | (7,869) | | (920) | | (485) | | 5,416 | | (3,858) |
| Income tax expense (recovery) | | (1,353) | | (587) | | (451) | | 5,416 | | 3,025 |
| Net income (loss) | $ | 32,952 | $ | (922) | $ | (933) | $ | (8,506) | $ | 22,591 |
| | | | | | | | | | | |
| Adjusted EBITDA | | 63,147 | | 1,517 | | 523 | | (2,054) | | 63,133 |
| | | | | | | | | | | |
| Other reconciling items: | | | | | | | | | | |
| Effect of deleted deferred revenue | | - | | 107 | | 534 | | - | | 641 |
| Increased costs from inventory step-up | | - | | 581 | | - | | - | | 581 |
| Stock based compensation | | 57 | | 99 | | - | | 296 | | 452 |
| Effect of deleted prepaid expense | | - | | (10) | | - | | - | | (10) |
Conference Call and Webcast
Quarterhill will host a conference call to discuss its financial results today at 10:00 AM Eastern Time.
Call Information
The live audio webcast will be available at https://event.on24.com/wcc/r/1527032-1/438BD0AD28382873CEDA2B344C7CFB3C
- 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)
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