My memory was confirmed reading the transcript.
John Gillberry
Thank you, and good morning, everyone, and thank you for joining us on today's call. In terms of the agenda for today's call, I'll start with a look at Q2 and recent highlights, after which Kyle will take a look at the financial results. Then we'll open it up for questions. Please note that all discussions on quarterly and year-to-date financial numbers reflect just the results for our ITS business. WiLAN's financial results for Q2 and year-to-date periods are reflected in the discontinued operations line under -- on our P&L as that business was sold in the quarter.
Looking now at our headline numbers. Quarterhill revenue in Q2 was $51.9 million. Adjusted EBITDA was $3.9 million. Cash and equivalents were $61 million. And at quarter end, working capital was $109.5 million, Kyle will discuss each of these in some detail in his section. Quarterly revenue and adjusted EBITDA were up significantly both year-over-year and sequentially due to IRD's progress and ongoing tolling projects and integration and cost control initiatives. While there is still work to do on the integration front and on our tolling projects, on both fronts, we have made great strides and our Q2 reflects this progress.
IRD, our enforcement and commercial vehicle operation unit, had another strong quarter, exceeding top line and margin expectations. IRD achieved the highest Q2 revenue in its history and generated strong adjusted EBITDA margins. IRD has an excellent first half of the year, adding new customers, expanding relationships with existing customers and gaining traction with some of the newer solutions like TACS is tire safety screening service. Customer wins in Q2 included contracts in Washington D.C., Indiana and Minnesota.
Broadly speaking, the ITS industry is a healthy one with a strong profile, driven by increased government funding, pent-up demand for infrastructure upgrades and expansion and advancements in technology. IRD's enforcement systems, improve road safety and vehicle mobility are a source of revenue for cash strap governments and are well positioned to prosper in environment with these favorable conditions.
With the strong first half behind us, we look for our IRD to maintain this momentum into Q3 and Q4, subject to some of the typical seasonal factors in Q4 when weather can make implementations more difficult. At ETC, our tolling operations, we made tough decisions in the first half of the year to lay the foundation for improved financial performance through the remainder of 2023, and we saw evidence of that progress in Q2.
As mentioned on our Q1 call, since assuming the Interim CEO role in late March, we've done a deep dive on the business, its ongoing projects and sales pipeline and have made progress identifying and implementing solutions on some of the legacy contracts challenging -- that challenged us in the first half of the year. We have seven tolling projects in the implementation stage right now, and all of these projects are moving forward in a constructive way, and our customer relationships are solid. We still expect two of our seven projects in the implementation stage to transition to the operational phase this year with the remainder doing so in 2024.
As we have discussed in the past, the shift to operations phase from implementation phase generally has a positive impact on margins as revenue generated during the operations has a gross margin percentage better than that of the implementation phase. These are long-term infrastructure projects with stable and reliable customers that are just in their early stages. These projects have the potential for expansion over their lifespan and we expect it will continue to the -- contribute to the health of the business for many years to come.
As far as our 2023 financial outlook is concerned, we said previously that we expect the ITS segment to generate positive adjusted EBITDA in 2023, and we believe we are still on track to achieve this, having made great progress in Q2.
Integrating the ITS businesses remains a focus of ours and an important part of improving our financial profile. In Q2, we completed a series of cost saving initiatives that followed on the heels of the restructuring we did in Q4 last year. You can see the positive impact of these efforts reflected in the lower SG&A cost we reported in the quarter.
Our goals are to reduce expenses without impacting our ability to sell and deliver and to better integrate the teams in order to generate more cross-selling and to align the technology road map in R&D processes. One project that is underway now is a rebranding of the organization to reflect that we are now a pure-play ITS business and one family with both distinct and complementary business lines.
Regarding WiLAN. We completed the strategic review in Q2 with the sale of the business while retaining a minority 10% ownership position. The transaction was valued at up to $71.4 million, which included cash upfront of $48 million, plus two potential earn-out components that make up the remainder. As mentioned, we also retained a 10% ownership stake which entitles us to our pro rata share of any dividends that may -- that stake may be -- and that stake may be acquired at a later date.
The transaction provides an excellent home for WiLAN to prosper in a private company structure, enables Quarterhill now to focus 100% of its attention and resources on the ITS growth opportunity.
We continue to make changes at the Board level to reflect the evolution of the business. In Q2, we announced the appointment of Chuck Myers to the Board of Directors. Chuck was Co-Founder of Transcore and is a great fit for Quarterhill given his experience in ITS as well as his leadership and operational experience. He has been a CEO, a Board member of several public companies and has a track record for having delivered growth in several companies in the tech sector.
In addition, today, we announced the appointment of Bill Morris to the Board, along with the retirement of Michel Fattouche. Bill is a seasoned leader with extensive managerial and board experience. He spent nearly 40 years at Accenture, where he was twice the CEO -- twice in the CEO role for 13 years in total. Bill retired from Accenture in 2019 and currently provides advisory service and sits on the boards of several tech companies, both private and public. Bill brings strength and leadership, operational execution and governance, and we are pleased to welcome him to the company.
At the same time, I'd like to thank Michel for his commitment, guidance and support as a long-standing Board member at Quarterhill. Michel Co-Founded WiLAN in 1992 and helped to develop the patented wireless inventions that became the cornerstone of some of the most important wireless technology used today.
Michel saw Quarterhill through its three phases of existence from 1992 until 2005, WiLAN focused on wireless products based on its patented inventions. Then in 2006, WiLAN changed its focus to licensing and its patented technologies. Finally, in 2017, WiLAN changed its name to Quarterhill and embarked on a diversification strategy that has led us to the pure-play ITS company that we are today. Michel will have board observer status until the next AGM. And on behalf of the entire Quarterhill team, I wish him the best in all his future pursuits.
In closing, this is a very exciting time for Quarterhill. The industry is growing at a CAGR north of 10%, and the two verticals we focus on tolling and enforcement are forecast to grow above the sector average. In this favorable environment, we have two strong and increasingly integrated ITS platform businesses in ETC and IRD, both have talented teams, great reputations and solid prospects for new business.
Our near-term priorities to capitalize on the opportunity are: one, to drive towards go-live dates on our tolling projects with two expected this year, the remaining next year; two, continue our focus on improved financial performance and in 2023 achieve positive adjusted EBITDA; three, maintain progress on ITS integration; and four, hire a new CEO, this search is well underway and we're making good progress with it.
With that, I will pass it over to Kyle for a closer look at Q2 numbers. Kyle?
Kyle Chriest
Thank you, John, and good morning, everyone. As John mentioned, WiLAN was sold on June 15, and its financial results in Q2 and for the year-to-date period are reflected in the discontinued operations line item in our P&L and statement of cash flows. With that, I'll start by taking a look at revenue in the quarter.
Q2 revenue was $51.9 million, up significantly year-over-year and sequentially by 32% and 35%, respectively. The increase was due to strong performance from IRD as discussed earlier by John as well as improved performance from ETC. In particular, we did not have the impacts in Q2 from tolling project overruns that we had experienced in the comparable periods, which had a significant positive effects on reported revenue. At the end of Q2, we had backlog of more than USD$500 million, which is a good indicator of revenue visibility going forward.
Gross margin for Q2 was 26% compared to 14% in Q2 2022. Similar to revenue, the primary reasons for the improvements were higher revenue at IRD, including higher margin revenue, as well as the limited impact of any tolling project overruns, which had significantly impacted gross margins in Q2 of 2022.
Sales, general and administrative, SG&A expenses in Q2 were $8.2 million compared to $13 million in Q2 of 2022. Put another way, SG&A as a percentage of revenue in Q2 was 16% compared to 33% in Q2 last year. The decrease in SG&A largely reflects savings from our restructuring and integration activity in 2023 along with our ongoing focus on driving efficiencies and controlling costs.
Q2 adjusted EBITDA was $3.9 million or 7.5% revenue, up significantly from negative $8.1 million in Q2 of last year. The improvement was due primarily to revenue growth and the decrease in SG&A year-over-year as well as the limited impact from tolling project overruns in Q2 compared to Q2 last year.
As John mentioned, looking forward, we are targeting to achieve positive adjusted EBITDA in 2023 and based on our strong Q2 results, we have made good progress towards this goal. Cash used in continuing operations in Q2 was $10.2 million, and we ended Q2 with cash, cash equivalents and short-term investments of $61 million compared to $67.9 million at the end of 2022 and $51.7 million at the end of Q1 2023.
At June 30th, 2023, we had working capital of $109.5 million. Due to the nature of our business activities, operating cash flows may vary significantly between periods due to changes in timing and working capital balances and this is something we've experienced in Q2.
I'll just spend a minute here to walk you through the major sources and uses of cash in Q2 as compared to the end of Q1. We started off the second quarter with $50.1 million in cash. We received gross proceeds of $48 million from the sale of WiLAN, which resulted in $32 million of net proceeds. That $16 million differential is due to four factors: number one, cash retained within WiLAN as a term of the deal; number two, working capital adjustments; number three, funds to be received from escrow; and number four, transaction costs related to the sale.
WiLAN also had an operational cash burn in Q2 before the sale of $3 million. Excluding WiLAN, other factors impacting the change in cash from the end of Q1 included the $3 million for debt repayment and final dividend repayment, capital expenditures of $2 million and a cash increase from operations of $2 million less the working capital increase of $12 million.
The working capital increase is a function of both increased revenues during the period and the back-end weighted nature of tolling implementation project billings. The last consideration is FX fluctuations, which had a $3.5 million impact on cash in Q2, and which resulted from a strengthening of the Canadian dollar against the USD.
To recap, we started the quarter with $50.1 million, added net cash proceeds from the sale of WiLAN of $32 million, spent $3 million in WiLAN presale operating costs and consumed a combined $50 million of cash and financing, investing, operational and working capital activity. Including the $3.5 million impact from FX, we get to the ending cash balance of $61 million for the quarter. Our outlook for cash over the remainder of the year is that it will stabilize and slightly decline during Q3 with an anticipated uptick in Q4 as we reach milestones and collect cash on tolling implementation projects.
Finally, in Q2, we completed constructive discussions with our lead lender HSBC and announced amended credit agreement. The amended agreement gives us covenant relief through the end of the year and additional flexibilities as we execute on our ITS growth plan.
In closing, I'll echo John's comments by saying that we have made strong progress over the past several months in setting the business on a clear path towards growth, stability and margin expansion. We have built momentum this quarter, and we look to sustain it as we move through the remainder of 2023 and into 2024, which we believe will result in improved cash flow and a strengthened balance sheet.
This concludes my review of the financial results, and I'll now turn the call over to the operator for Q&A.
Question-and-Answer Session
Graham Smith
Hi, there. I just wanted to ask a quick question on the revenue growth. The revenue growth in ITS was very impressive this quarter. What was the primary driver of that? I know you cited some changes in the cost overruns, but could we expect a similar cadence in future quarters? If you could just give a bit more color on that?
John Gillberry
Yes, good morning. Thank you for the question. The -- a lot of the revenue growth in the quarter was driven by, I would say, some pent-up demand and backlog in the IRD business in particular as well as us trying to move ahead some of the tolling projects that we were struggling with Q4, Q1. So it's a good question to ask about the cadence for the future. I do think that you're seeing sort of a more normalized type of revenue number for 2023. We will have some seasonal activity without question in Q4 when we start to hit bad weather and implementations. But generally speaking, I think we've turned the corner on that revenue line, Graham.
Graham Smith
That's great. That's all for me for now. Actually, one more quick question. If we can expect sort of that increased revenue being driven, and we're seeing that there's improvements in margins on the adjusted EBITDA line. Are you guys thinking that you could expect quite a significant adjusted EBITDA beat in coming out of 2023 versus just being breakeven?
John Gillberry
Sorry, Graham, you kind of broke up on me there. Could you please repeat the question?
Graham Smith
Yes. So I know you guys were targeting the adjusted EBITDA breakeven coming out of a positive adjusted EBITDA in 2023 just with the way that revenue is growing and our margins are progressing, and you've made a lot of cost improvements. Could you guys see yourselves making -- having significant adjusted EBITDA beat as opposed to the sort of positive adjusted EBITDA guidance that you've given?
John Gillberry
Yes. I mean that's sort of a funny question whether it's going to be significant or positive. I think we're going to stick to our storyline here and saying that we will -- we're committing to trying to be positive EBITDA -- adjusted EBITDA by the end of the year, and we're still tracking towards that goal. You got to remember that we're digging -- we have dug ourselves out of a fairly significant hole. So the trend is good. But we're not giving any kind of significant guidance on the bottom line yet.
Graham Smith
That's fair. That's all for me. Thank you.
Operator
Thank you. As we have no further questions at this time, I will now turn the call over to Mr. Gillberry for closing comments.
John Gillberry
Thank you, operator. I'd just like to thank everybody for participating and listening in on today's call. And that's it. We'll see you next quarter. Goodbye.