Quarterhill Inc T.QTRH

Did anyone read the auditor report?

[v_guerriero]

Highlighted the two key issues of the company. 

1. Recognize revenue upfront but then make estimates on how much things will cost in the future.  Oops, inflation happened.  

2. Only $49 million of value for the ETC acquisition on the books.  $102 million for (ummm, gulp) "intangible" assets

Key Audit Matter
 

Revenue recognition – Intelligent Transportation Systems

The Company’s Intelligent Transportation Systems segment sells integrated systems with distinct performance obligations which involve the design, manufacturing and installation, maintenance and warranty of long-term projects that can span over periods beyond one year. Revenues for these fixed price integrated systems contracts are recognized over the progress towards completion of the performance obligations of the contract using a percentage-of-completion method. This method is measured by reference to costs incurred relative to the total estimated costs. The Company’s policy for revenue recognition together with the related significant accounting estimates and assumptions is described in note 2 of the consolidated financial statements. For the year ended December 31, 2021, the Company’s Intelligent Systems segment recognized $100 million of revenue which includes revenues earned from fixed price integrated systems contracts.

The determination of the estimated costs to complete for each integrated system fixed price contract that is open as at the reporting date requires significant judgment in order to determine the amount of revenue to be recognized.

We determined that revenue recognition for open contracts for the Intelligent Transportation Systems segment is a matter of significance to the audit due to the significant judgment made by management in determining the estimated costs to complete for fixed priced contracts and, where applicable, the estimation of any loss on a project. Remaining costs to complete including material, labor and subcontracting costs, among others, are unique to each project, resulting in a high degree of auditor judgement, subjectivity and effort in performing procedures related to testing these estimates as of the reporting date.

Business Combination – valuation of acquired intangible assets

As disclosed in note 4 of the consolidated financial statements, the Company acquired all of the issued and outstanding shares of Electronic Transaction Consultant (“ETC") for cash consideration of $151 million.

The acquisition is accounted for as a business combination in accordance with IFRS 3, the estimates of which are subjective in nature in determining the fair values of identified intangible assets.

The primary element of the valuation and purchase price allocation process was to assess the fair value of intangible assets of $102 million in the form of customer relationships, technology and trade name.

Business combinations is a key audit matter in the audit due to significant management judgement in evaluating the inputs and assumptions used in the determination of fair value. The key inputs and assumptions include revenue growth, customer attrition, earnings margin and discount rate. Changes to these significant assumptions could have a significant impact on the fair value of acquired intangible assets.

[whaler83]

i wonder what the $ value for  intangible assets is at Amazon or shopify? probably very significant relative to their market cap. building a business, relationships etc is a long expensive process that takes years. Its not given away for free.

[Buyreallow]

Funny you should ask.  Amazon assets $321 billion   Goodwill  $15 billion  4.7% of assets Quarterhill   Assets $161 million  Goodwill  $53 million or 33% of assets

[v_guerriero]

Write down just goodwill and book value falls below $1.50. But as mentioned by the auditors part of the value in the intangibles is expected margins on the contracts.  So if margins are impaired over time there is a write down on the customer relationships as well. Otherwise management has to hack at costs to avoid the impairment.  

[Joey67]

This post has been removed in accordance with Community Policy

[IPGutcsi]

I agree with Joey! @VG's trying hard to make something (negative) out of nothing...

[DIYGuy]

VG is a fraud. People who come to this board should be aware of his agenda He has claimed to own 800k shares less than 2 months ago in what he now calls an uninvestable company. He was calling for it to go to $15. He is now one of the only posters multiple times a day on a company he owns no shares and claims he is not short. He puts a negative spin on everything and is very misleading and

[v_guerriero]

These key audit issues are only specific to ITS.   There were no issues related to the patents.  They've been very depreciated and aren't worth much on the books.  

[cabbieJBJ]

vg, it is very important to include all the information.  You have left some out.  The auditors are not raising a red flag, but are being prudent in identifying variables that most investors already know about but that require monitoring by both management and investors.  There is a discussion of these variables on https://groups.google.com/g/quarterhill First, while you raise

[v_guerriero]

I directed people to read the whole report.   It is very important to understand what they highlight as the biggest issues in the financials.  They are very careful to highlight the significant amount of subjectivity and judgement.   They are also very clear that this is as of December 31. Prices and supply chain issues are really compounding at the moment.  ITS isn't

[Capharnaum]

There is no issue with the the key audit matter. Regarding revenue recognition, there is a basic principle which is that you recognize revenue as it happens (not upfront, which was mistakenly inferred it seems) and then you recognize the costs associated with that revenue. What the key audit matter says is that each ITS project has its specifities and the auditor needs to partly rely on the

[buckon]

thanks Capharnaum.  a knowledgeable voice of reason.