PR Newswire | Aug 5, 2021 06:31AM EDT

08/05 05:30 CDT

Quarterhill Announces Second Quarter Fiscal 2021 Financial Results TORONTO, Aug. 5, 2021

TORONTO, Aug. 5, 2021 /PRNewswire/ - Quarterhill Inc. ("Quarterhill" or the "Company") (TSX: QTRH) (OTCQX: QTRHF), announces its financial results for the three and six months ended June 30, 2021. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

Q2 Fiscal 2021 Highlights

* Consolidated Revenue was $18.9 million * Consolidated Adjusted EBITDA1 was ($3.0) million. The Intelligent Transportation Systems ("ITS") segment generated $2.7 million of positive Adjusted EBITDA * Consolidated cash generated from operations was $1.7 million * Cash, cash equivalents, and short-term investments were $122.7 million at June 30, 2021 * Working capital was $138.5 million at June 30, 2021 * Acquired VDS GmbH ("VDS"), a German Intelligent Transportation Systems ("ITS") provider of high precision traffic monitoring devices * Ongoing integration of Sensor Line (acquired in January 2021) and VDS, which has already led to revenue and cost synergies

"In Q2, we continued to make progress on our M&A strategy acquiring VDS, which was our second acquisition of the year," said Paul Hill, President and CEO of Quarterhill. "The two acquisitions were tuck-ins for our wholly-owned subsidiary International Road Dynamics Inc. ("IRD") and the integration of both companies is going very well. Already, we are generating new revenue opportunities, realizing cost synergies and laying the groundwork for IRD's further expansion into Europe. Looking out through the remainder of the year, we have a robust pipeline of M&A opportunities of all sizes and are intent on completing more transactions, with a particular focus right now on larger sized deals."

"On the operational front, IRD delivered solid revenue and Adjusted EBITDA in Q2 and the two tuck-in acquisitions demonstrate the global platform potential of the business and their ability to identify, acquire, integrate and grow acquired companies. Our other wholly-owned subsidiary, WiLAN Inc. ("WiLAN"), has generated licensing activity year-to-date despite challenges posed by the COVID-19 pandemic, but overall, its financial results so far in 2021 reflect the episodic nature of the IP industry business model. On an annual basis, WiLAN has historically delivered significant cash flows and we continue to expect that for 2021. This means we are looking for a strong second half from the business and we remain encouraged by the pipeline of opportunities the team is working on."

Approval of Eligible Dividend

The Board of Directors has declared an eligible quarterly dividend of $0.0125 per common share payable on October 8, 2021, to shareholders of record on September 10, 2021.

Q2 Fiscal 2021 Financial Review

The Interim Condensed Consolidated Financial Statements for the three and six months ended June 30, 2021 and for the respective comparison periods have been prepared to reflect continuing operations and therefore exclude results in 2020 during those periods from VIZIYA, which was sold by Quarterhill on May 15, 2020. The 2020 operating results from VIZIYA, up to the date of sale on May 15, 2020, are reported as net loss from discontinued operations in accordance with IFRS 5.

Quarterhill's revenue is broadly segmented into Licensing, reflecting the WiLAN business, and ITS, reflecting the IRD business. Quarterhill's Management's Discussion and Analysis and Interim Condensed Consolidated Financial Statements for the three and six months ended June 30, 2021 are available at the Company's website and at its profile at SEDAR.

Consolidated revenues for the three months ended June 30, 2021 ("Q2 2021") were $18.9 million, compared to $16.8 million in Q2 2020. Consolidated revenues for the six months ended June 30, 2021 ("YTD 2021") were $38.2 million, compared to $38.4 million in the same period last year. Revenue at IRD increased in Q2 2021 and YTD 2021 due primarily to the two acquisitions completed in 2021 as well as resilience in its core business, which has performed well throughout the COVID-19 pandemic. WiLAN's revenue increased in Q2 2021 and was lower in the YTD 2021 period compared to the respective periods in the prior year. 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. Despite headwinds related to the COVID-19 pandemic, WiLAN continues to show it can complete licensing agreements in a challenging environment and a stronger second half to 2021 is expected as pandemic-related restrictions ease.

Gross margin for Q2 2021 was 18% compared to 25% in Q2 2020. Gross margin for the YTD 2021 period was 26% compared to 30% in the same period last year. Gross margin at IRD was 37% in Q2 2021 compared to 42% in Q2 2020, and for the YTD 2021 period was 39%, compared to 35% in the same period last year. IRD margins may fluctuate on a quarterly basis depending primarily on the nature of projects underway during the period and the related margin profile. WiLAN gross margins decreased in the quarter and YTD period primarily due to higher litigation and contingent legal and partner costs compared to the same periods last year.

Operating expenses include selling, general and administrative costs ("SG&A"), research and development costs ("R&D"), depreciation and amortization and special charges. Operating expenses for Q2 2021 were $12.2 million compared to $12.6 million in Q2 2020. Operating expenses for the YTD 2021 period were $24.7 million compared to $25.2 million in the same period last year. Operating expenses were lower for the quarterly and YTD 2021 periods primarily due to lower amortization of intangibles and special charges, which were offset, in part, by the addition of expenses from the acquired ITS companies.

Consolidated Adjusted EBITDA for Q2 2021 was ($3.0) million compared to ($2.0) million in Q2 2020. Consolidated Adjusted EBITDA for the YTD 2021 period was ($3.4) million compared to ($1.8) million in the same period last year. IRD generated Adjusted EBITDA of $2.7 million in Q2 2021 and $4.1 million for the YTD 2021 period. WiLAN's Adjusted EBITDA for Q2 2021 was ($3.9) million and for the YTD 2021 period was ($2.7) million.

Cash generated from (used in) continuing operations for Q2 2021 was $1.7 million compared to ($4.3) million in Q2 2020. Cash generated from (used in) continuing operations for the YTD 2021 period was ($4.1) million compared to $5.4 million in the same period last year. Cash and cash equivalents and short-term investments were $122.7 million at June 30, 2021, compared to $141.3 million at December 31, 2020. Working capital at June 30, 2021, was $138.5 million compared to $159.7 million at December 31, 2020.

Conference Call and Webcast

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://produceredition.webcasts.com/starthere.jsp?ei=1479850&tp_key=3c86cac3c6

Dial-in Information

* To access the call from Canada and U.S., dial 1.888.664.6392 (Toll Free) * To access the call from other locations, dial 1.416.764.8659 (International)

Replay Information

Webcast replay will be available for 365 days at:

https://produceredition.webcasts.com/starthere.jsp?ei=1479850&tp_key=3c86cac3c6

Telephone replay will be available until 11:59 p.m. Eastern Daylight Time on May 13, 2021 at: 1.888.390.0541 (Toll Free North America) or 1.416.764.8677 (International).The telephone replay requires the passcode 353765.

1Non-IFRS Disclosure

Quarterhill 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 Quarterhill

Quarterhill is focused on acquisition, management and growth of companies in the intelligent transportation systems ("ITS") and innovation and licensing industries. 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 Information

This 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.

Interim Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income (Unaudited)

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



Three months ended Six months ended June 30, June 30,

CONTINUING OPERATIONS 2021 2020 2021 2020

Revenues

Licensing $1,750 $320 $9,598 $10,520

Intelligent Transportation 17,125 16,504 28,593 27,917 Systems

18,875 16,824 38,191 38,437

Direct cost of revenues

Licensing 4,854 3,062 10,723 8,830

Intelligent Transportation 10,711 9,594 17,521 18,013 Systems

15,565 12,656 28,244 26,843

Gross profit 3,310 4,168 9,947 11,594

Operating expenses

Depreciation of right-of-use 304 237 583 481 assets

Depreciation of property, 256 247 489 471 plant and equipment

Amortization of intangible 4,351 4,848 8,838 9,590 assets

Selling, general and 6,336 5,826 13,411 12,121 administrative expenses

Research and development 579 555 973 1,424 expenses

Impairment losses on - 233 - 233 intangible assets

Special charges 343 659 382 872

12,169 12,605 24,676 25,192

Results from operations (8,859) (8,437) (14,729) (13,598)

Finance income (33) (160) (54) (382)

Finance expense 112 118 181 214

Foreign exchange loss (gain) 107 (3) (18) (585)

Other income (556) (431) (1,186) (809)

Loss before taxes (8,489) (7,961) (13,652) (12,036)



Current income tax expense 230 78 774 1,344

Deferred income tax recovery (2,343) (3,052) (3,763) (3,481)

Income tax recovery (2,113) (2,974) (2,989) (2,137)



Net loss from continuing (6,376) (4,987) (10,663) (9,899) operations

Net income from discontinued - 14,455 - 14,255 operations

Net (loss) income $(6,376)$9,468 $(10,663)$4,356



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

Foreign currency translation (3,112) (11,188) (6,846) 9,875 adjustment

Comprehensive (loss) income $(9,488)$(1,720)$(17,509)$14,231



(Loss) income per share

From continuing operations $(0.06) $(0.04) $(0.09) $(0.08)

From discontinued operations - 0.12 - 0.12

(Loss) income per share - $(0.06) $0.08 $(0.09) $0.04 Basic

From continuing operations $(0.06) $(0.04) $(0.09) $(0.08)

From discontinued operations - 0.12 - 0.12

(Loss) income per share - $(0.06) $0.08 $(0.09) $0.04 Diluted

Quarterhill Inc.

Interim Condensed Consolidated Statements of Financial Position (Unaudited)

(in thousands of Canadian dollars)



As at June 30, December 31, 2021 2020

Current assets

Cash and cash equivalents $119,863$ 135,700

Short-term investments 2,848 5,550

Restricted short-term investments 3,025 -

Accounts receivable 12,298 13,747

Unbilled revenue 10,922 13,549

Income taxes recoverable 239 264

Inventories (net of obsolescence) 10,971 9,068

Prepaid expenses and deposits 3,537 8,264

163,703 186,142

Non-current assets

Accounts receivable 494 506

Prepaid expenses and deposits 534 338

Right-of-use assets, net 4,484 3,780

Property, plant and equipment, net 2,844 2,783

Intangible assets, net 53,405 59,261

Investment in joint venture 7,776 6,704

Deferred income tax assets 30,045 28,202

Goodwill 19,096 16,093

118,678 117,667

TOTAL ASSETS $282,381$ 303,809



Liabilities

Current liabilities

Accounts payable and accrued liabilities $17,105 $ 20,038

Income taxes payable 892 631

Current portion of lease liabilities 1,332 1,012

Current portion of deferred revenue 5,909 4,800

25,238 26,481

Non-current liabilities

Deferred revenue 3,096 2,573

Long-term lease liabilities 3,157 2,747

Deferred income tax liabilities - 78

6,253 5,398

TOTAL LIABILITIES 31,491 31,879



Shareholders' equity

Capital stock 543,977 547,537

Contributed surplus 49,133 46,250

Accumulated other comprehensive (loss) income (3,265) 3,581

Deficit (338,955)(325,438)

250,890 271,930

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $282,381$ 303,809

Quarterhill Inc.

Interim Condensed Consolidated Statement of Cash Flows (Unaudited)

(in thousands of Canadian Dollars)



Three months ended Six months ended June 30, June 30,

2021 2020 2021 2020

Cash generated from (used in) operations

Net loss from continuing $(6,376)$(4,987)$(10,663)$(9,899)operations

Non-cash items

Stock-based compensation 586 221 1,010 196 expense

Depreciation of right-of-use 304 237 583 481 assets

Interest expense on lease 34 56 84 112 liabilities

Depreciation and amortization4,607 5,095 9,327 10,061

Foreign exchange gain (loss) 78 (478) (18) (194)

Equity in earnings from joint(557) (431) (1,187) (809) venture

Gain on disposal of (53) - - - intangible assets

Impairment losses on - 233 - 233 intangible assets

Gain on disposal of assets - (6) - (10)

Deferred income tax recovery (2,343) (3,052) (3,763) (3,481)

Long-term accounts receivable12 - 12 -

Embedded derivatives (1) 121 5 (101)

Changes in non-cash working 5,454 (1,267) 481 8,817 capital balances

Cash generated from (used in)1,745 (4,258) (4,129) 5,406 continuing operations

Net cash flows attributable - (2,478) - (3,075) to discontinuing operations

Net cash generated from (used1,745 (6,736) (4,129) 2,331 in) operating activities

Financing

Dividends paid (1,473) - (2,854) (1,481)

Bank indebtedness - 4,796 - 2,984

Payment of lease liabilities (269) (271) (562) (586)

Repayment of long-term debt - (13) - (120)

Exercise of stock options - 14 - 14

Repurchase of shares for (1,741) - (2,065) - cancellation

Common shares issued for cash on the exercise of 57 - 234 - options

Common shares issued from - - - 24 performance stock units

Cash (used in) generated from continuing (3,426) 4,526 (5,247) 835 operations financing activities

Net cash (used in) generated (3,426) 4,526 (5,247) 835 from financing activities

Investing

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

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

Proceeds from short-term 3,000 - 3,000 - investments

Purchase of restricted (3,025) - (3,025) - short-term investments

Proceeds from sale of - 12 - 16 property, plant and equipment

Purchase of property, plant (51) (586) (88) (887) and equipment

Acquisition of business, VDS(2,780) - (2,780) -

Purchase of intangibles - (8) - (25)

Cash (used in) generated from continuing (2,856) 46,993 (2,893) 46,679 operations investing activities

Net cash flows attributable - (11) - (81) to discontinuing operations

Net cash (used in) generated from (2,856) 46,982 (2,893) 46,598 investing activities

Foreign exchange on cash held(2,037) (4,853) (3,568) 3,881 in foreign currency

Net (decrease) increase in (6,574) 39,919 (15,837) 53,645 cash and cash equivalents

Cash and cash equivalents, 126,437 101,596 135,700 87,870 beginning of

Cash and cash equivalents, $119,863$141,515$119,863 $141,515end of

Quarterhill Inc.

Interim Condensed Consolidated Statement of Equity (Unaudited)

(in thousands of Canadian dollars)



Accumulated Total Capital ContributedOther Deficit Shareholders' Stock Surplus Comprehensive Equity (Loss) Income

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



Net income - - - 4,356 4,356

Other comprehensive- - 9,875 - 9,875 income

Stock-based compensation - 196 - - 196 expense

Exercise of 14 - - - 14 options

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

Dividends - - - (2,943) (2,943) declared

June 30, 2020$570,591$ 32,207 $ 20,811 $(336,884)$286,725



January 1, $547,537$ 46,250 $ 3,581 $(325,438)$271,930 2021



Net loss - - - (10,663) (10,663)

Repurchase of shares for (4,027) 1,962 - - (2,065) cancellation

Other comprehensive- - (6,846) - (6,846) loss

Stock-based compensation 1,010 - - 1,010 expense

Exercise of 331 (97) - - 234 options

Common shares issued from 124 20 - - 144 restricted stock units

Common shares issued from 12 (12) - - - performance stock units

Dividends - - - (2,854) (2,854) declared

June 30, 2021$543,977$ 49,133 $ (3,265) $(338,955)$250,890

Quarterhill Inc.

Reconciliation of Net loss to Adjusted EBITDA (Unaudited)

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



Three months ended June 30,

2021 2020

$ Per Share $ Per Share

Net loss from continuing $(6,376)$(0.06) $(4,987)$(0.04) operations

Adjusted for:

Income tax expense (2,113) (0.01) (2,974) (0.03) (recovery)

Foreign exchange gain 107 - (3) -

Finance expense (income), 79 - -(42) - net

Special charges 343 - 659 0.01

Impairment losses on - - 233 - intangible assets

Depreciation and 4,911 0.04 -5,332 0.04 amortization

Stock based compensation 586 - 221 - expense (recovery)

Other income (556) - (431) -

Adjusted EBITDA $(3,019)$(0.03) $(1,992)$(0.02)



Weighted average number of Common Shares

Basic 114,054,045 118,861,166

Six months ended June 30,

2021 2020

$ Per Share $ Per Share

Net loss from continuing $(10,663)$(0.09) $(9,899)$(0.08) operations

Adjusted for:

Income tax recovery (2,989) (0.03) (2,137) (0.02)

Foreign exchange gain (18) - (585) -

Finance expense (income), net127 - (168) -

Special charges 382 - 872 0.01

Impairment losses on - - 233 - intangible assets

Depreciation and amortization9,910 0.09 10,542 0.08

Stock based compensation 1,010 0.01 196 - expense

Other income (1,186) (0.01) (809) (0.01)

Adjusted EBITDA $(3,427) $(0.03) $(1,755)(0.02)



Weighted average number of Common Shares

Basic 114,230,204 118,846,724

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SOURCE Quarterhill Inc.