Quarterhill Announces Q2 Fiscal 2022 Financial Results

TORONTO, Aug. 11, 2022 /PRNewswire/ - Quarterhill Inc. ("Quarterhill" or the "Company") (TSX: QTRH) (OTCQX: QTRHF) a leading provider of tolling and enforcement solutions in the Intelligent Transportation System ("ITS") industry, as well as, through its Wi-LAN Inc. ("WiLAN") subsidiary, a leader in Intellectual Property licensing, announces its financial results for the three- and six-month periods ended June 30, 2022. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

• Consolidated Revenue was $43.9 million
• Consolidated Adjusted EBITDA1 was ($9.0) million
• Cash, cash equivalents, and short-term investments were $122.9 million at June 30, 2022
• Working capital2 was $138.1 million at June 30, 2022
• Appointed Kim Stevenson to the board
• Appointed John Karnes as Quarterhill's Chief Financial Officer
• Appointed Andrew Parolin as WiLAN's Chief Executive Officer

"Q2 was a mixed quarter with revenue more than doubling, expected revenue backlog3 in the ITS segment reaching a record level of US$573.0 million and our cash on the balance sheet growing to more than $120.0 million. At the same time, the slower ramp with certain ITS project implementations and delays in new contract awards continued to persist, which impacted the quarter's overall level of revenue growth and margin performance," said Bret Kidd, CEO at Quarterhill. "The factors impacting project implementations were primarily shifts in customer priorities and preferences that can occur in the early stages of a large infrastructure project, labour scarcity and supply-chain disruptions. Fortunately, we saw some of these factors begin to abate towards the end of the quarter with resultant progress seen with certain key implementations."

"Including Q3, our ITS business has signed contracts totaling more than US$345.0 million in value in the past 18 months and what we've seen here so far in 2022 are some of the challenges of launching a significant level of activity in an economic environment characterized by tight access to materials and labour and rising prices in general."

"We expect our top-line and margin performance to improve in the future. These are long-term infrastructure projects with stable customers and important public policy objectives, designed to deliver a valuable set of services and outcomes for decades to come. Further, these are projects that would continue to move forward should the economy enter a prolonged recession. In summary, with the significant contract wins we have completed in the past 18 months, the liftoff we are now seeing in certain of our implementation-stage projects and the new project awards that we expect to be made in the next several quarters, we believe that our ITS model for revenue growth and margin expansion remains firmly in place."

Mr. Kidd added: "WiLAN, our licensing business, completed several license agreements in Q2, building on its strong Q1 results. On a year-to-date basis, WiLAN's results reflect its cash flow generating potential and build on its long-term track record for doing so. The strategic review process for WiLAN remains ongoing and we will announce material developments in due course."

The Board of Directors has declared an eligible quarterly dividend of $0.0125 per common share payable on October 7, 2022, to shareholders of record on September 9, 2022.

Quarterhill's revenue is broadly segmented into ITS, reflecting the IRD and ETC businesses, and Licensing, reflecting the WiLAN business. ETC was acquired September 1, 2021 and as a result, the comparative financial statements for the three and six months ended June 30, 2021 do not include results from ETC.

Quarterhill's Management's Discussion and Analysis and financial statements for the three and six months ended June 30, 2022 ("Q2 2022" and "2022 year-to-date") are available at the Company's website and at its profile at SEDAR.

Consolidated revenues for the three and six months ended June 30, 2022 were $43.9 million and $212.4 million, compared to $18.9 million and $38.2 million in the same periods of the prior year. ITS revenue has increased in 2022 due primarily to the acquisition of ETC in September 2021. WiLAN's revenue increased in Q2 2022 and the 2022 year-to-date period due to stronger license activity than in the prior year periods. The majority of WiLAN's licenses are generally one-time in nature and significant fluctuations in revenue, gross margin, and Adjusted EBITDA can result when the volume or dollar value of licenses changes from one period to the next.

Gross margin percent2 for the three and six months ended June 30, 2022 was 13% and 46%, compared to 18% and 26% in the same periods of the prior year. Gross margin in the ITS segment was 15% in Q2 2022 compared to 37% in Q2 2021. ITS margins reflect the addition of the ETC business and may fluctuate on a quarterly basis depending primarily on the nature, and stage, of projects underway during the period, their related margin profile and the timing for which associated costs and revenue are recognized. Licensing gross margin in the quarter was negative 3% compared to negative 177% in Q2 2021. For the 2022 year-to-date period, licensing gross margin was 60% compared to negative 12% in the same period last year. Licensing gross margin will fluctuate depending primarily on the level of litigation and contingent legal and partner costs incurred in a respective period relative to revenue generated.

Operating expenses include selling, general and administrative costs ("SG&A"), research and development costs ("R&D"), depreciation and amortization and other charges. Operating expenses for the three and six months ended June 30, 2022 were $37.4 million and $59.2 million, compared to $12.2 million and $24.7 million in the same periods of the prior year. Operating expenses for Q2 2022 and the 2022 year-to-date period included a one-time $14.6 million charge to settle litigation and arbitration disputes with the former owners of VIZIYA. Operating expenses have increased in 2022 due primarily to the addition of expenses from the acquisition of ETC in September 2021 as well as inflationary pressures on materials and personnel experienced in 2022.

Consolidated Adjusted EBITDA1 for the three and six months ended June 30, 2022 was negative $9.0 million and $70.1 million, compared to negative $3.2 million and negative $3.4 million in the same periods of the prior year. Q2 2022 consolidated Adjusted EBITDA decreased year-over-year due primarily to a greater portion of ITS revenue coming from implementation-stage projects as lower gross margin is generated at that phase of the project, lower revenue due to implementation delays on certain ITS projects and the higher cost of materials and personnel in the current inflationary environment. Consolidated Adjusted EBITDA1 for the 2022 year-to-date period increased year-over-year due to the strong performance in Q1 2022 from the licensing business.

Net income (loss) for the three and six months ended June 30, 2022 was ($23.8) million, or ($0.21) per diluted share, and $33.1 million, or $0.25 per diluted share, compared to ($6.4) million, or ($0.06) per diluted share, and ($10.7) million, or ($0.09) per diluted share, in the same periods of the prior year.

Cash generated from (used in) operations for the three and six months ended June 30, 2022 was $77.8 million and $68.6 million, compared to $1.7 million and ($4.1) million in the same periods of the prior year. Cash and cash equivalents and short-term investments were $122.9 million at June 30, 2022, compared to $72.6 million at December 31, 2021. Working capital at June 30, 2022, was $138.1 million compared to $105.1 million at December 31, 2021.

Quarterhill will host a conference call to discuss its financial results today at 10:00 AM Eastern Time.
Webcast Information
The live audio webcast will be available at:
https://app.webinar.net/38vZ7ERG16j

Dial-in Information

• To access the call from Canada and U.S., dial 1.888.220.8474 (Toll Free)
• To access the call from other locations, dial 1.647.484.0475 (International)

Replay Information
Webcast replay will be available for 365 days at:
https://app.webinar.net/38vZ7ERG16j

Telephone replay will be available until 11:59 p.m. Eastern Daylight Time on August 18, 2022 at: 1.888.203.1112 (Toll Free North America) or 1.647.436.0148 (International).The telephone replay requires the passcode 7443681.

Quarterhill uses both IFRS and certain non-IFRS financial measures to assess performance. Non-IFRS financial measures are financial measures disclosed by a company that (a) depict historical or expected future financial performance, financial position or cash flow of a company, (b) with respect to their composition, exclude amounts that are included in, or include amounts that are excluded from the composition of the most directly comparable financial measure disclosed in the primary financial statements of the company, (c) are not disclosed in the financial statements of the company and (d) are not a ratio, fraction, percentage or similar representation. Non-IFRS ratios are financial measures disclosed by a company that are in the form of a ratio, fraction, percentage or similar representation that has a non-IFRS financial measure as one or more of its components, and that are not disclosed in the financial statements of the company.

These non-IFRS financial measures and non-IFRS ratios are not standardized financial measures under IFRS, and, therefore, are unlikely to be comparable to similar financial measures presented by other companies. Management believes these non-IFRS financial measures and non-IFRS ratios provide transparent and useful supplemental information to help investors evaluate our financial performance, financial condition, and liquidity using the same measures as management. These non-IFRS financial measures and non-IFRS ratios should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS.

Adjusted EBITDA - Non-IFRS Financial Measures
We use the non-IFRS financial measure "Adjusted EBITDA" to mean net (loss) income adjusted for (i) income taxes, (ii) finance expense or income; (iii) amortization and impairment of intangibles; (iv) other charges and other on-time items; (v) depreciation of right-of-use assets and property, plant and equipment; (vi) stock-based compensation; (vii) foreign exchange (gain) loss; and (viii) other income which includes equity in earnings from joint ventures, and (ix) dividends received from joint ventures. Adjusted EBITDA is used by our management to assess our normalized cash generated on a consolidated basis and in our operating segments. Adjusted EBITDA is also a performance measure that may be used by investors to analyze the cash generated by Quarterhill and our operating segments. Adjusted EBITDA should not be interpreted as an alternative to net loss and cash flows from operations as determined in accordance with IFRS or as measure of liquidity. The most directly comparable IFRS financial measure is Net (loss) income.

Adjusted EBITDA per share – Non-IFRS ratio
Adjusted EBITDA per share is calculated as Adjusted EBITDA divided by the basic weighted average of common shares. Adjusted EBITDA per share is used by our management and investors to analyze cash generated by Quarterhill on a per share basis. The most comparable IFRS measure is earnings per share.

Backlog - Non-IFRS Financial Measures
We use the non-IFRS measure "backlog" to mean the total value of work that has not yet been completed but that in management's experience of similar situations has: (a) a high certainty of being performed pursuant to existing contracts or work orders specifying job scope, value and timing; (b) an expectation of expansion of existing contracts due to expected extensions; and/or (c) been awarded to one or more of our ITS operating subsidiaries as evidenced by a binding contract or where the finalization of a binding contract is reasonably assured. Activities under such contracts may cover a period of up to 15 years. We do not include in "backlog", the value of any expected but unsigned change orders that management considers may apply to such contracts.

Supplementary financial measures are financial measures disclosed by a company that (a) are, or are intended to be, disclosed on a periodic basis to depict the historical or expected future financial performance, financial position or cash flow of a company (b) are not disclosed in the financial statement of the company, (c) are not non-IFRS financial measures, and (d) are not non-IFRS ratios.

Key supplementary measures disclosed are as follows:

Gross margin %
Calculated as gross profit as a percentage of revenue.

Working capital
Calculated as total current assets minus total current liabilities.

Quarterhill is a leading provider of tolling and enforcement solutions in the Intelligent Transportation System (ITS) industry, as well as, through its Wi-LAN Inc. subsidiary, a leader in Intellectual Property licensing. Our goal is global leadership in ITS, via organic growth of the Electronic Transaction Consultants, LLC (ETC) and International Road Dynamics, Inc. (IRD) platforms, and by continuing an acquisition-oriented investment strategy that capitalizes on attractive growth opportunities within ITS and its adjacent markets. Quarterhill is listed on the TSX under the symbol QTRH and on the OTCQX Best Market under the symbol QTRHF. For more information: www.quarterhill.com

This news release contains forward-looking statements regarding Quarterhill, its operating subsidiaries and their respective businesses. Forward-looking statements are based on estimates and assumptions made by Quarterhill in light of its experience and its perception of historical trends, current conditions, expected future developments and the expected effects of new business strategies, as well as other factors that Quarterhill believes are appropriate in the circumstances. The forward-looking events and circumstances discussed herein may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting Quarterhill, including: potential risks and uncertainties relating to the ultimate geographic spread of the novel coronavirus ("COVID-19"); the severity of the disease; the duration of the COVID-19 outbreak; actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact; the potential negative impacts of COVID-19 on the global economy and financial markets and any resulting impact on Quarterhill, its operating subsidiaries and/or their respective businesses. Other factors include, without limitation, the risks described in Quarterhill's March 20, 2022 annual information form for the year ended December 31, 2021 (the "AIF"). In addition, readers are also urged to review the additional risk factors disclosed in our Management's Discussion and Analysis for our three months ended June 30, 2022 filed today on www.sedar.com. Quarterhill recommends that readers review and consider all of these risk factors and notes that readers should not place undue reliance on any of Quarterhill's forward-looking statements. Quarterhill has no intention, and undertakes no obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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SOURCE Quarterhill Inc.