PR Newswire | Mar 11, 2021 06:31AM EST

03/11 05:30 CST

Quarterhill Announces Fourth Quarter and Fiscal 2020 Financial Results TORONTO, March 11, 2021

TORONTO, March 11, 2021 /PRNewswire/ - Quarterhill Inc. ("Quarterhill" or the "Company") (TSX: QTRH) (OTCQX: QTRHF), announces its financial results for the three- and twelve-month periods ended December 31, 2020. The Company historically prepared its consolidated financial statements in accordance with U.S. GAAP and in U.S. dollars. Effective January 1, 2020, the Company has adopted IFRS and the Canadian dollar as its reporting currency. The Company has consistently applied the same accounting policies in its opening IFRS statement of financial position at January 1, 2019, and throughout all periods presented as if these policies had always been in effect. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

Fiscal 2020 Financial Highlights

* Revenue was $144.5 million * Adjusted EBITDA1 was $31.2 million * Cash generated from operations was $35.2 million * Cash, cash equivalents, and short-term investments were $141.3 million at December 31, 2020 * Working capital was $159.7 million at December 31, 2020

Fiscal 2020 Operational Highlights

* Appointed Paul Hill as President and CEO, and John Rim as Chief Financial Officer * Launched M&A diversification strategy to acquire businesses in the Intelligent Transportation Systems ("ITS") industry. On January 5, 2021, acquired Sensor Line GmbH ("Sensor Line"), a provider of highly regarded fiber optic traffic sensors for road and rail markets * Appointed Rish Malhotra as President and CEO of International Road Dynamics ("IRD") * A Final Judgment was issued in WiLAN's case against Apple for US$108.98 million * Appointed Paul Hill and Dr. Michel Fattouche to Quarterhill's Board of Directors * Completed the sale of VIZIYA for total cash proceeds of $49.4 million * Repurchased 4.9 million shares via a Substantial Issuer Bid and a Normal Course Issuer Bid, reducing the total number of shares outstanding to 114.3 million

"2020 was a strong year both financially and operationally, despite the challenges posed by the COVID-19 pandemic," said Paul Hill, President and CEO of Quarterhill. "We established new leadership, launched our M&A diversification strategy in the ITS industry, significantly grew our cash balance and returned capital to shareholders via our dividend and share buybacks. Both portfolio companies had solid years with IRD delivering margin expansion and steady revenue, and with WiLAN generating significant Adjusted EBITDA and cash flow."

"The recent acquisition of Sensor Line was the first under our new ITS-focused M&A strategy. As a tuck-in transaction for IRD, Sensor Line expands IRD's geographic footprint in Europe and broadens its product suite in tolling and enforcement, which are two areas of focus. ITS is an ideal market for us to pursue M&A; it is a stable and growing industry that blends technology with infrastructure in order to provide essential services to governments that are looking to improve safety, tackle environmental challenges and generate new revenue opportunities. ITS also stands to benefit from government stimulus plans targeting infrastructure, in particular in the U.S. market. As ITS becomes more inter-connected, we believe this could create opportunities that leverage WiLAN's expertise in 5G, which will be a key enabling technology for the industry in the future."

Approval of Eligible DividendThe Board of Directors has declared an eligible quarterly dividend of $0.0125 per common share payable on April 9, 2021, to shareholders of record on March 19, 2021.

Q4 2020 and Fiscal 2020 Consolidated Financial ReviewFinancial statements for the three- and twelve-month periods ended December 31, 2020 and for the respective comparison periods, have been prepared to reflect continuing operations and therefore exclude results during those periods from VIZIYA, which was sold by Quarterhill on May 15, 2020. The year-to-date operating results from VIZIYA, up to the date of sale on May 15, 2020, are reported as net income (loss) from discontinued operations in accordance with IFRS 5.

Quarterhill's revenue is broadly segmented into Licensing, reflecting the WiLAN business, and Intelligent Transportation Systems, reflecting the IRD business. Quarterhill's Management's Discussion and Analysis and Consolidated Financial Statements for the three- and twelve-month periods ended December 31, 2020 are available on the Company's website and on its profile at SEDAR.

Consolidated revenues for the three-month period ended December 31, 2020 ("Q4 2020") were $18.1 million, compared to $48.3 million in Q4 2019. Consolidated revenues for the twelve-month period ended December 31, 2020 ("Fiscal 2020") were $144.5 million, compared to $172.9 million in Fiscal 2019. The majority of WiLAN's licenses are 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. WiLAN revenue was lower in Q4 2020 and Fiscal 2020 due primarily to the closure of a greater volume, and value, of licensing contracts in the prior year periods. Revenue at IRD for Q4 2020 and Fiscal 2020 was relatively flat when compared with the same periods in 2019.

Gross margin for Q4 2020 and Fiscal 2020 was 9% and 41%, compared to 55% and 44% in the same periods last year. Gross margin for the licensing business in Q4 2020 was impacted by the factors noted above and to a lesser degree for Fiscal 2020. Fiscal 2020 gross margin for the ITS business increased year-over-year reflecting higher profitability on certain projects entered into by IRD during the year.

Operating expenses include selling, general and administrative costs ("SG&A"), research and development costs ("R&D"), depreciation and amortization of intangible assets, impairment loss on intangibles and special charges. Operating expenses for Q4 2020 and Fiscal 2020 were $14.2 million and $51.5 million, compared to $15.4 million and $58.1 million in the same periods last year. Q4 2020 operating expenses were 8% lower compared to Q4 2019. For Fiscal 2020, operating expenses decreased 11%, due primarily to lower amortization of intangibles compared to Fiscal 2019.

Adjusted EBITDA for Q4 2020 and Fiscal 2020 was ($6.1) million and $31.2 million, compared to $18.7 million and $48.5 million in the same periods last year. The licensing business generated $28.8 million of Adjusted EBITDA in Fiscal 2020, reflecting WiLAN's ability to generate significant margin and cash flow on an annual basis. Adjusted EBITDA from the ITS business grew 67.0% to $13.8 million.

Cash generated from (used in) continuing operations for Q4 2020 and Fiscal 2020 was $25.3 million and $35.2 million, compared to ($4.9) million and $8.6 million in the same periods last year. Cash and cash equivalents and short-term investments was $141.3 million at December 31, 2020, compared to $89.4 million at December 31, 2019. Working capital at December 31, 2020, was $159.7 million compared to $112.2 million at December 31, 2019.

Conference Call and WebcastQuarterhill will host a conference call to discuss its financial results today at 10:00 AM Eastern Time.

Webcast InformationThe live audio webcast will be available at: https://produceredition.webcasts.com/starthere.jsp?ei=1425864&tp_key=cbc3a27a62

Dial-in Information

* 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)

Replay InformationWebcast replay will be available for 365 days at: https://produceredition.webcasts.com/starthere.jsp?ei=1425864&tp_key=cbc3a27a62

Telephone replay will be available until 11:59 p.m. Eastern Daylight Time on March 18, 2021 at: 1.855.859.2056 (Toll Free North America) or 1.416.849.0833 (International).The telephone replay requires the passcode 7395359.

1Non-IFRS DisclosureQuarterhill has historically used a set of metrics when evaluating our operational and financial performance. We continually monitor, evaluate and update these metrics as required to ensure they provide information considered most useful, in the opinion of our management, to any decision-making based on Quarterhill's performance. This section defines, quantifies and analyzes the key performance indicators used by our management and referred to elsewhere in this press release, which are not recognized under IFRS and have no standardized meaning prescribed by IFRS. These indicators and measures are therefore unlikely to be comparable to similar measures presented by other issuers.

In this press release, we use the Non-IFRS term "Adjusted EBITDA" to mean net income (loss) from continuing operations before: (i) income taxes; (ii) finance expense or income; (iii) amortization and impairment of intangibles; (iv) special charges and other one-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) equity in earnings and dividends 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 income and cash flows from operations as determined in accordance with IFRS or as a measure of liquidity.

About QuarterhillQuarterhill is a growth-oriented company in the Intelligent Transportation System (ITS) industry as well as a leader in Intellectual Property licensing. Our goal is to execute an investment strategy that capitalizes on attractive growth opportunities within ITS - and its adjacent markets - to become a global leader in that industry. 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

Forward-looking InformationThis news release contains forward-looking statements regarding Quarterhill and its business. 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 and/or its business. Other factors include, without limitation, the risks described in Quarterhill's March 11, 2021 annual information form for the year ended December 31, 2020 (the "AIF"). Copies of the AIF may be obtained at 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.

Quarterhill Inc.

Consolidated Statements of Income and Comprehensive Loss

(in thousands of Canadian dollars, except share and per share amounts)

Three months ended Year ended December 31, December 31,

2020 2019 2020 2019

Revenues

Licensing $ 474 $ 30,591 $ 78,260 $ 106,052

Intelligent Transportation Systems 17,618 17,708 66,266 66,873

18,092 48,299 144,526 172,925

Direct cost of revenues

Licensing 5,338 11,398 46,205 53,130

Intelligent Transportation Systems 11,091 10,539 39,463 42,887

16,429 21,937 85,668 96,017

Gross profit 1,663 26,362 58,858 76,908

Operating expenses

Depreciation of right-of-use assets 241 249 979 1,305

Depreciation of property, plant and equipment 248 210 969 1,296

Amortization of intangible assets 4,539 5,617 18,855 23,305

Selling, general and administrative expenses 8,323 7,491 26,868 26,719

Research and development expenses 468 645 2,282 2,874

Impairment losses on intangible assets - 115 295 115

Special charges 355 1,046 1,227 2,448

14,174 15,373 51,475 58,062

Results from operations (12,511) 10,989 7,383 18,846

Finance income (45) (508) (573) (1,665)

Finance expense 92 131 459 740

Foreign exchange loss (gain) 425 169 (88) 324

Other income (488) (373) (1,680) (869)

(Loss) income before taxes (12,495) 11,570 9,265 20,316

Current income tax expense 368 2,320 2,037 8,117

Deferred income tax (recovery) expense (2,662) 611 2,800 1,106

Income tax (recovery) expense (2,294) 2,931 4,837 9,223

Net (loss) income from continuing operations (10,201) 8,639 4,428 11,093

Net (loss) income from discontinued operations - (2,266) 14,255 1,569

Net (loss) income $ (10,201) $ 6,373 $ 18,683 $ 12,662

Other comprehensive loss that may be reclassified subsequently to net(loss) income:

Foreign currency translation adjustment $ (12,537) $ (3,968) $ (7,355) $ (11,176)

Comprehensive (loss) income $ (22,738) $ 2,405 $ 11,328 $ 1,486

Net (loss) income per share

From continuing operations $ (0.09) $ 0.07 $ 0.04 $ 0.09

From discontinued operations - (0.02) 0.12 0.01

Net (loss) income per share - Basic $ (0.09) $ 0.05 $ 0.16 $ 0.10

From continuing operations $ (0.09) $ 0.07 $ 0.04 $ 0.09

From discontinued operations - (0.02) 0.12 0.01

Net (loss) income per share - Diluted $ (0.09) $ 0.05 $ 0.16 $ 0.10

Quarterhill Inc.

Consolidated Statements of Financial Position

(in thousands of Canadian dollars)

As at December 31, 2020 December 31, 2019 January 1, 2019

Current assets

Cash and cash equivalents $ 135,700 $ 87,870 $ 87,029

Short-term investments 5,550 1,550 1,551

Restricted short-term - - 2,995investments

Accounts receivable 13,747 42,925 14,719

Other current assets - 108 124

Unbilled revenue 13,549 8,965 5,432

Income taxes recoverable 264 137 270

Inventories (net of 9,068 8,570 8,114obsolescence)

Prepaid expenses and 8,264 2,242 2,927deposits

186,142 152,367 123,161

Non-current assets

Accounts receivable 506 3,846 565

Prepaid expenses and 338 - -deposits

Right-of-use assets, net 3,780 4,502 3,972

Property, plant and 2,783 2,826 3,614equipment, net

Intangible assets, net 59,261 89,534 119,015

Investment in joint 6,704 5,233 5,203venture

Deferred income tax assets 28,202 32,737 36,948

Goodwill 16,093 32,977 34,446

117,667 171,655 203,763

TOTAL ASSETS $ 303,809 $ 324,022 $ 326,924

Liabilities

Current liabilities

Bank indebtedness $ - $ 4,026 $ 3,537

Accounts payable and 20,038 26,264 24,644accrued liabilities

Income taxes payable 631 203 -

Current portion of lease 1,012 998 1,120liabilities

Contingent liabilities - - 1,265

Current portion of 4,800 8,638 6,357deferred revenue

Current portion of - 59 407long-term debt

26,481 40,188 37,330

Non-current liabilities

Deferred revenue 2,573 1,513 1,954

Long-term lease 2,747 3,550 2,604liabilities

Long-term debt - 271 236

Deferred income tax 78 3,297 5,905liabilities

5,398 8,631 10,699

TOTAL LIABILITIES 31,879 48,819 48,029

Shareholders' equity

Capital stock 547,537 570,553 570,553

Contributed surplus 46,250 32,011 31,252

Accumulated other 3,581 10,936 22,112comprehensive income

Deficit (325,438) (338,297) (345,022)

271,930 275,203 278,895

TOTAL LIABILITIES AND $ 303,809 $ 324,022 $ 326,924SHAREHOLDERS' EQUITY

Quarterhill Inc.

Consolidated Statements of Cash Flows

(in thousands of Canadian dollars)

Three months ended Year ended December 31, December 31,

2020 2019 2020 2019

Cash generated from (used in) operations

Net income from continuing operations $ (10,203) $ 8,637 $ 4,428 $ 11,093

Non-cash items

Stock-based compensation expense 571 (52) 1,015 693

Depreciation of right-of-use assets 241 249 979 1,305

Interest expense on lease liabilities 52 66 223 231

Depreciation and amortization 4,787 5,828 19,824 24,601

Foreign exchange gain (127) (32) (359) (113)

Equity in earnings from joint venture (488) (381) (1,680) (873)

(Gain) loss on disposal of intangible assets (1) 206 (1) 206

Impairment losses on intangible assets - 115 295 115

Loss on disposal of assets - (13) 4 746

Deferred income tax expense (2,662) 611 2,800 1,106

Long-term accounts receivable - - - (85)

Embedded derivatives 222 (15) 190 11

Contingent consideration adjustment - - - (1,042)

Changes in non-cash working capital balances 32,892 (20,129) 7,478 (29,368)

Cash generated from (used in) continuing operations 25,284 (4,910) 35,196 8,626

Net cash flows attributable to discontinuing operations - 2,817 24 3,247

Net cash generated (used in) from operating activities 25,284 (2,093) 35,220 11,873

Financing

Dividends paid (1,517) (1,489) (4,441) (5,939)

Bank indebtedness (3,042) (876) (3,654) 685

Payment of lease liabilities (243) (315) (1,103) (1,504)

Repayment of long-term debt (393) 60 (521) (265)

Exercise of stock options 816 - 830 -

Repurchase of shares for cancellation (1,300) - (10,622) -

Common shares issued from performance stock units (24) - - -

Cash used in continuing operations (5,703) (2,620) (19,511) (7,023)

Net cash flows attributable to discontinuing operations - (5) 32 (32)

Net cash used in financing activities (5,703) (2,625) (19,479) (7,055)

Investing

Proceeds from disposition of a subsidiary - - 49,400 -

Cash sold on disposition of a subsidiary - - (1,825) -

Purchase of short-term investments - - (4,054) -

Dividends received from joint venture 477 513 477 513

Proceeds from sale of restricted short-term investments - 2,772 - 2,904

Proceeds from sale of property, plant and equipment - 13 32 43

Purchase of property and equipment (59) (490) (1,255) (1,301)

Purchase of intangible assets (1,281) (6) (1,336) (1,890)

Cash (used in) generated from continuing operations (863) 2,802 41,439 269

Net cash flows attributable to discontinuing operations - (12) - (172)

Net cash (used in) generated from investing activities (863) 2,790 41,439 97

Foreign exchange loss on cash held in foreign currency (9,820) (1,352) (9,350) (4,074)

Net increase in cash and cash equivalents 8,898 (3,280) 47,830 841

Cash and cash equivalents, beginning of 126,802 91,150 87,870 87,029

Cash and cash equivalents, end of $ 135,700 $ 87,870 135,700 87,870

Quarterhill Inc.

Consolidated Statements of Shareholders' Equity

(in thousands of Canadian dollars)

Capital Stock Accumulated Total S Contributed Other Deficit hareholders' Surplus Comprehensive Equity Income

January 1, 2019 $ 570,553 $ 31,252 $ 22,112 $ (345,022) $ 278,895

Net income - - - 12,662 12,662

Other comprehensive loss - - (11,176) - (11,176)

Stock-based compensation - 759 - - 759expense

Dividends declared - - - (5,937) (5,937)

December 31, 2019 $ 570,553 $ 32,011 $ 10,936 $ (338,297) $ 275,203

January 1, 2020 $ 570,553 $ 32,011 $ 10,936 $ (338,297) $ 275,203

Net income - - - 18,683 18,683

Repurchase of shares for (24,054) 13,432 - - (10,622)cancellation

Other comprehensive loss - - (7,355) - (7,355)

Stock-based compensation - 1,015 - - 1,015expense

Exercise of options 1,006 (176) - - 830

Common shares issued from 32 (32) - - -performance stock units

Dividends declared - - - (5,824) (5,824)

December 31, 2020 $ 547,537 $ 46,250 $ 3,581 $ (325,438) $ 271,930

Quarterhill Inc.

Reconciliations of Net income to Adjusted EBITDA

(in thousands of Canadian dollars, except share and per share amounts)

Three months ended December 31,

2020 2019

$ Per Share $ Per Share

Net income from continuing $ (10,201) $ (0.09) $ 8,639 $ 0.07operations

Adjusted for:

Income tax expense (recovery) (2,294) (0.02) 2,931 0.02

Foreign exchange loss (gain) 425 - 169 -

Finance expense 92 - 131 -

Finance income (45) - (508) -

Special charges 355 - 1,046 0.01

Impairment losses on intangible - - 115 -assets

Amortization of intangible assets 4,539 0.05 5,617 0.05

Depreciation of property, plant 248 - 210 -and equipment

Depreciation of right-of-use 241 - 249 -assets

Stock based compensation expense 571 0.01 (52) -

Dividend from joint venture 477 - 513 0.01

Other income (488) - (373) -

Adjusted EBITDA $ (6,080) $ (0.05) $ 18,687 $ 0.16

Weighted average number of CommonShares

Basic 114,137,754 118,817,466

Quarterhill Inc.

Reconciliations of Net income to Adjusted EBITDA

(in thousands of Canadian dollars, except share and per share amounts)

Year ended December 31,

2020 2019

$ Per Share $ Per Share

Net income from continuing $ 4,428 $ 0.04 $ 11,093 $ 0.09operations

Adjusted for:

Income tax expense 4,837 0.04 9,223 0.08

Foreign exchange (gain) loss (88) - 324 -

Finance expense 459 - 740 0.01

Finance income (573) - (1,665) (0.01)

Special charges 1,227 0.01 2,448 0.02

Impairment losses on intangible 295 - 115 -assets

Amortization of intangible assets 18,855 0.16 23,305 0.20

Depreciation of property, plant and 969 0.01 1,296 0.01equipment

Depreciation of right-of-use assets 979 0.01 1,305 0.01

Stock based compensation expense 1,015 - 692 0.01

Dividend from joint venture 477 - 513 -

Other income (1,680) (0.01) (869) (0.01)

Adjusted EBITDA $ 31,200 $ 0.27 $ 48,520 $ 0.41

Weighted average number of CommonShares

Basic 116,939,833 118,817,466

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SOURCE Quarterhill Inc.