PR Newswire | Nov 10, 2021 06:31AM EST

11/10 05:30 CST

Quarterhill Announces Third Quarter Fiscal 2021 Financial Results TORONTO, Nov. 10, 2021

TORONTO, Nov. 10, 2021 /PRNewswire/ - Quarterhill Inc. ("Quarterhill" or the "Company") (TSX: QTRH) (OTCQX: QTRHF), announces its financial results for the three and nine months ended September 30, 2021. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

Q3 Fiscal 2021 Highlights

* Consolidated Revenue was $36.3 million * Consolidated Adjusted EBITDA1 was $7.6 million * Cash, cash equivalents, and short-term investments were $37.0 million at September 30, 2021 * Working capital of $60.0 million at September 30, 2021 * Completed acquisition of Electronic Transaction Consultants, LLC ("ETC") a leading provider of tolling and mobility systems to some of the largest tolling authorities in the U.S. * Subsequent to quarter-end, completed a $57.5 million bought-deal public offering of convertible debentures, which included the exercise of the full over-allotment option

"In Q3, we acquired ETC, an ITS leader in tolling, which represents significant progress on two fundamental objectives of our M&A growth strategy," said Paul Hill, President and CEO of Quarterhill. "First, it brings scale to our ITS business which enhances the overall financial profile of Quarterhill with more visible and consistent revenue and Adjusted EBITDA. Second, it positions us in a vertical - tolling - that we think has significant tailwinds behind it and it also provides us with a second platform in the ITS industry from which we can further accelerate growth via tuck-in acquisitions. So far in 2021 we have deployed approximately $160.0 million on three acquisitions and with our recently completed convertible debenture financing, we look forward to building on our M&A track record in the coming quarters."

"Q3 was a good quarter operationally with both WiLAN, our licensing business, and our ITS segment generating positive Adjusted EBITDA. WiLAN signed multiple licensing agreements and made a patent portfolio acquisition during the quarter, while IRD signed new agreements in Oklahoma, Illinois and Idaho. With ETC, its Q3 contribution reflects only a one-month period post-closing of the acquisition, however, during the quarter the company signed a contract with the Louisville-Southern Indiana Ohio River Bridges Joint Board to provide back-office technology for services such as billing and account management for a ten-year period. So far the integration of ETC is going well and already here in Q4 they are making good progress advancing opportunities in their pipeline."

Approval of Eligible Dividend

The Board of Directors has declared an eligible quarterly dividend of $0.0125 per common share payable on January 10, 2022, to shareholders of record on December 10, 2021.

Q3 Fiscal 2021 Financial Review

The Interim Condensed Consolidated Financial Statements ("financial statements") for the three and nine months ended September 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 income 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 and ETC businesses. ETC was acquired September 1, 2021 and as a result, the financial statements for the three and nine months ended September 30, 2021 include approximately one-month of ETC's financial results.

Quarterhill's Management's Discussion and Analysis and financial statements for the three and nine months ended September 30, 2021 are available at the Company's website and at its profile at SEDAR.

Consolidated revenues for the three months ended September 30, 2021 ("Q3 2021") were $36.3 million, compared to $88.0 million in Q3 2020. Consolidated revenues for the nine months ended September 30, 2021 ("YTD 2021") were $74.5 million, compared to $126.4 million in the same period last year. ITS revenue increased in Q3 2021 and YTD 2021 due primarily to the three acquisitions completed in 2021. With the close of the recent quarter, the ITS segment has reported revenue growth quarter over quarter this year to date. WiLAN's revenue decreased in Q3 2021 and in the YTD 2021 period compared to the respective periods in the prior year as the majority of its 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. Despite headwinds related to the COVID-19 pandemic, WiLAN continues to show it can complete licensing agreements in a challenging environment with Q3 2021 being its strongest quarter of the year so far.

Gross margin for Q3 2021 was 42% compared to 52% in Q3 2020. Gross margin for the YTD 2021 period was 34% compared to 45% in the same period last year. Gross margin in the ITS segment was 37% in Q3 2021 compared to 50% in Q3 2020, and for the YTD 2021 period was 38%, compared to 42% in the same period last year. ITS 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 rose slightly in the quarter and decreased for the YTD 2021 period. Gross margin at WiLAN 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 special charges. Operating expenses for Q3 2021 were $19.1 million compared to $12.1 million in Q3 2020. Operating expenses for the YTD 2021 period were $43.8 million compared to $37.3 million in the same period last year. Operating expenses for Q3 2021 and YTD 2021 included special charges of $3.7 million and $4.0 million, respectively. Overall, operating expenses have increased in 2021 due primarily to special charges and the addition of expenses from the acquired ITS companies.

Consolidated Adjusted EBITDA for Q3 2021 was $7.6 million compared to $39.0 million in Q3 2020. Consolidated Adjusted EBITDA for the YTD 2021 period was $4.2 million compared to $37.3 million in the same period last year. Consolidated Adjusted EBITDA decreased in the 2021 periods due to the significant level of licensing activity at WiLAN in Q3 2020. On a segment basis, the ITS business generated Adjusted EBITDA of $4.5 million in Q3 2021 and $8.6 million for the YTD 2021 period. WiLAN's Adjusted EBITDA for Q3 2021 was $5.4 million and for the YTD 2021 period was $2.7 million.

Cash (used in) generated from continuing operations for Q3 2021 was ($10.9) million compared to $4.5 million in Q3 2020. Cash (used in) generated from continuing operations for the YTD 2021 period was ($15.0) million compared to $9.9 million in the same period last year. Cash and cash equivalents and short-term investments were $37.0 million at September 30, 2021, compared to $141.3 million at December 31, 2020, with the decrease reflecting cash deployed on the acquisitions made so far in 2021. Working capital at September 30, 2021, was $60.0 million compared to $159.7 million at December 31, 2020. Subsequent to quarter-end, on October 27, 2021, Quarterhill completed a $57.5 million bought-deal public offering of unsecured subordinated convertible debentures which will be reflected in the balance sheet as at December 31, 2021.

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=1503336&tp_key=62b180068b

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=1503336&tp_key=62b180068b

Telephone replay will be available until 11:59 p.m. Eastern Daylight Time on November 17, 2021 at: 1.888.390.0541 (Toll Free North America) or 1.416.764.8677 (International).The telephone replay requires the passcode 671670.

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 a growth-oriented company 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 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"). In addition, readers are also urged to review the additional risk factors disclosed in our Management's Discussion and Analysis for our three and nine months ended September 30, 2021 and 2020 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.

Quarterhill Inc.

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

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



Three months ended Nine months ended September 30, September 30,

CONTINUING OPERATIONS 2021 2020 2021 2020

Revenues

Licensing $11,416 $67,263$21,014 $77,783

Intelligent Transportation 24,927 20,734 53,520 48,651 Systems

36,343 87,997 74,534 126,434

Direct cost of revenues

Licensing 5,318 32,118 16,041 40,949

Intelligent Transportation 15,612 10,278 33,133 28,290 Systems

20,930 42,396 49,174 69,239

Gross profit 15,413 45,601 25,360 57,195

Operating expenses

Depreciation of right-of-use 418 257 1,001 738 assets

Depreciation of property, 323 250 812 721 plant and equipment

Amortization of intangible 5,156 4,726 13,994 14,316 assets

Selling, general and 8,831 6,424 22,242 18,545 administrative expenses

Research and development 728 390 1,701 1,814 expenses

Impairment losses on - 62 - 295 intangible assets

Special charges 3,666 - 4,048 872

19,122 12,109 43,798 37,301

Results from operations (3,709) 33,492 (18,438) 19,894

Finance income (56) (146) (110) (528)

Finance expense 343 153 524 367

Foreign exchange (gain) loss (637) 72 (655) (513)

Other income (661) (383) (1,847) (1,192)

(Loss) income before taxes (2,698) 33,796 (16,350) 21,760



Current income tax expense 270 325 1,044 1,669

Deferred income tax (recovery)(965) 8,943 (4,728) 5,462 expense

Income tax (recovery) expense (695) 9,268 (3,684) 7,131



Net (loss) income from (2,003) 24,528 (12,666) 14,629 continuing operations

Net income from discontinued - - - 14,255 operations

Net (loss) income $(2,003)$24,528$(12,666)$28,884



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

Foreign currency translation 4,439 (4,693) (2,407) 5,182 adjustment

Comprehensive income (loss) $2,436 $19,835$(15,073)$34,066



(Loss) income per share

From continuing operations $(0.02) $0.21 $(0.11) $0.13

From discontinued operations - - - 0.12

(Loss) income per share - $(0.02) $0.21 $(0.11) $0.25 Basic

From continuing operations $(0.02) $0.21 $(0.11) $0.12

From discontinued operations - - - 0.12

(Loss) income per share - $(0.02) $0.21 $(0.11) $0.24 Diluted

Quarterhill Inc.

Interim Condensed Consolidated Statements of Financial Position (Unaudited)

(in thousands and in Canadian dollars)



As at September 30,December 31, 2021 2020

Current assets

Cash and cash equivalents $ 33,925 $135,700

Short-term investments 3,124 5,550

Restricted short-term investments 3,095 -

Accounts receivable 27,745 13,747

Unbilled revenue 26,254 13,549

Income taxes recoverable 425 264

Inventories (net of obsolescence) 12,317 9,068

Prepaid expenses and deposits 6,033 8,264

112,918 186,142

Non-current assets

Accounts and other long-term receivables 2,696 844

Right-of-use assets, net 8,371 3,780

Property, plant and equipment, net 5,753 2,783

Intangible assets, net 152,787 59,261

Investment in joint venture 7,173 6,704

Deferred income tax assets 30,921 28,124

Goodwill 53,542 16,093

261,243 117,589

TOTAL ASSETS $ 374,161$303,731



Liabilities

Current liabilities

Bank indebtedness $ 12,727 $-

Accounts payable and accrued liabilities 26,571 20,038

Income taxes payable 747 631

Current portion of lease liabilities 2,135 1,012

Current portion of deferred revenue 7,519 4,800

Current portion of long-term debt 3,182 -

52,881 26,481

Non-current liabilities

Deferred revenue 1,735 2,573

Long-term lease liabilities 6,234 2,747

Long-term debt 59,744 -

Other long-term liabilities 1,241 -

68,954 5,320

TOTAL LIABILITIES 121,835 31,801



Shareholders' equity

Capital stock 544,065 547,537

Contributed surplus 49,465 46,250

Accumulated other comprehensive income 1,174 3,581

Deficit (342,378) (325,438)

252,326 271,930

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 374,161$303,731

Quarterhill Inc.

Interim Condensed Consolidated Statement of Cash Flows (Unaudited)

(in thousands and in Canadian Dollars)



Three months ended Nine months ended September 30, September 30,

2021 2020 2021 2020

Cash generated from (used in) operations

Net (loss) income from $(2,003)$24,528 $(12,666)$14,629 continuing operations

Non-cash items

Stock-based compensation 374 248 1,384 444 expense

Depreciation of right-of-use418 257 1,001 738 assets

Interest expense on lease 66 59 150 171 liabilities

Depreciation and 5,479 4,976 14,806 15,037 amortization

Foreign exchange gain (637) (38) (655) (232)

Equity in earnings from (587) (383) (1,774) (1,192) joint venture

Impairment losses on - 62 - 295 intangible assets

Loss on disposal of assets - 14 - 4

Deferred income tax (965) 8,943 (4,728) 5,462 (recovery) expense

Accounts and other long-term(573) - (561) - receivables

Other long-term liabilities 158 - 158 -

Embedded derivatives 49 69 54 (32)

Changes in non-cash working (12,693) (34,231) (12,212) (25,414) capital balances

Cash (used in) generated (10,914) 4,504 (15,043) 9,910 from continuing operations

Net cash flows attributable - - - (4,349) to discontinuing operations

Net cash (used in) generated(10,914) 4,504 (15,043) 5,561 from operating activities

Financing

Dividends paid (1,420) (1,443) (4,274) (2,924)

Advances from (repayment of)12,727 (3,596) 12,727 (612) revolving credit facility

Net proceeds from long-term 62,926 - 62,926 - debt

Payment of lease liabilities(523) (274) (1,085) (860)

Repayment of long-term debt - (8) - (128)

Repurchase of shares for - (9,322) (2,065) (9,322) cancellation

Common shares issued for cash on the exercise of 46 - 280 14 options

Common shares issued from - - - 24 performance stock units

Net cash generated from (used in) financing 73,756 (14,643) 68,509 (13,808) activities

Investing

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

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

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

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

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

Proceeds from sale of property, plant and - 16 - 32 equipment

Purchase of property, plant (331) (309) (419) (1,196) and equipment

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

Acquisition of business, ETC(151,469)- (151,469) - - net of cash acquired

Dividends received from 1,348 - 1,348 - joint venture

Purchase of intangible (252) (30) (252) (55) assets

Cash (used in) generated from continuing operations (150,704)(4,377) (153,597) 42,302 investing activities

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

Net cash (used in) generated(150,704)(4,377) (153,597) 42,221 from investing activities

Foreign exchange on cash 1,924 (2,869) (1,644) 2,286 held in foreign currencies

Net (decrease) increase in (85,938) (17,385) (101,775) 36,260 cash and cash equivalents

Cash and cash equivalents, 119,863 141,515 135,700 87,870 beginning of

Cash and cash equivalents, $33,925 $124,130$33,925 $124,130end of

Quarterhill Inc.

Interim Condensed Consolidated Statement of Equity (Unaudited)

(in thousands and in Canadian dollars)



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

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



Net income - - - 28,884 28,884

Repurchase of shares for (9,322) - - - (9,322) cancellation

Other comprehensive - - 5,182 - 5,182 income

Stock-based compensation - 444 - - 444 expense

Exercise of 14 - - - 14 options

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

Dividends - - - (4,441) (4,441) declared

September 30, $561,269$32,455 $ 16,118 $(313,854)$295,988 2020



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



Net loss - - - (12,666) (12,666)

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

Other comprehensive - - (2,407) - (2,407) loss

Stock-based compensation - 1,384 - - 1,384 expense

Exercise of 387 (107) - - 280 options

Common shares issued from 156 (12) - - 144 restricted stock units

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

Dividends - - - (4,274) (4,274) declared

September 30, $544,065$49,465 $ 1,174 $(342,378)$252,326 2021

Quarterhill Inc.

Reconciliation of Net loss to Adjusted EBITDA (Unaudited)

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



Three months ended September 30,

2021 2020

$ Per Share $ Per Share

Net (loss) income from $(2,003)$(0.02) $24,528$ 0.21 continuing operations

Adjusted for:

Income tax (recovery) expense(695) (0.01) 9,268 0.08

Foreign exchange (gain) loss (637) (0.01) 72 -

Finance expense, net 287 - 7 -

Special charges 3,666 0.04 - -

Impairment losses on - - 62 - intangible assets

Depreciation and amortization5,897 0.06 5,233 0.05

Stock based compensation 374 - 248 - expense

Dividends received from joint1,348 0.01 - - venture

Other income (661) (0.01) (383) -

Adjusted EBITDA $7,576 $0.06 $39,035$ 0.34



Weighted average number of Common Shares

Basic 113,756,329 115,990,313

Nine months ended September 30,

2021 2020

$ Per Share $ Per Share

Net (loss) income from $(12,666)$(0.11) $14,629$ 0.13 continuing operations

Adjusted for:

Income tax (recovery) expense(3,684) (0.03) 7,131 0.06

Foreign exchange gain (655) - (513) -

Finance expense (income), net414 - (161) -

Special charges 4,048 0.04 872 0.01

Impairment losses on - - 295 - intangible assets

Depreciation and amortization15,807 0.15 15,775 0.13

Stock based compensation 1,384 0.01 444 - expense

Dividends received from joint1,348 0.01 - - venture

Other income (1,847) (0.02) (1,192) (0.01)

Adjusted EBITDA $4,149 $0.05 $37,280$ 0.32



Weighted average number of Common Shares

Basic 114,109,298 117,884,124

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SOURCE Quarterhill Inc.