Quarterhill Announces Second Quarter 2018 Financial Results

OTTAWA, Aug. 9, 2018 /PRNewswire/ - Quarterhill Inc. ("Quarterhill" or the "Company") (TSX: QTRH) (NASDAQ: QTRH), announces its financial results for the three- and six-month periods ended June 30, 2018. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.

Second Quarter 2018 Highlights

• Revenue of $20.4 million
• Recurring revenues of $6.8 million, representing 34% of total revenue
• Adjusted EBITDA* of ($4.0) million
• Net loss of ($7.9) million, or ($0.07) per common share
• Cash and equivalents were $73.1 million at June 30, 2018
• Announced Mr. James (Jim) Skippen will retire from his positions as Executive Chairman of Quarterhill and interim CEO of WiLAN in August 2018; Mr. Skippen will continue as an outside director and Chair of the Quarterhill Board
• Appointed Mr. Keaton Parekh as President and Chief Executive Officer of Wi-LAN
• Subsequent to quarter-end, on August 1, 2018, a jury awarded WiLAN $145.1 million in damages in its patent suit against Apple Inc.

"We are very pleased with the financial and operational performance in Q2 from IRD and VIZIYA," said Doug Parker, President and CEO of Quarterhill. "Both portfolio companies generated strong total revenue, recurring revenue and Adjusted EBITDA, which is indicative of what we believe the businesses are capable of delivering on a more regular basis. With WiLAN, we continue to experience the variability in performance inherent in the patent license industry as reflected in both the Q2 numbers, but as well, in our announcement on August 1, 2018, that a jury awarded WiLAN $145.1 million in damages in its patent suit against Apple Inc. WiLAN has more than 40 litigations ongoing in multiple jurisdictions and we continue to add patent portfolios via our partner program to build our pipeline for future license activity. As we've said in the past, WiLAN's track record suggests that it can deliver significant cash flows and its performance needs to be measured over a longer period due to the underlying dynamics that exist in the patent license industry.

Our M&A pipeline continues to build behind the efforts of our experienced deal team and our revised target focus on verticalized software companies. These efforts have led to ongoing late-stage discussions with certain targets, but we will remain patient in negotiation and disciplined in our investment criteria to ensure that we are acquiring businesses with the right characteristics at the right valuations. While it can be challenging to wait for the next transaction to occur, it is important to note that as our pipeline grows, a strategy such as ours gains momentum over time and the periods in-between transactions tend to shrink over the long term."

Approval of Eligible DividendThe Board of Directors has declared an eligible quarterly dividend of CDN $0.0125 per common share payable on October 5, 2018, to shareholders of record on September 14, 2018.

Business Strategy and SegmentsOur acquisition strategy focuses primarily on financial metrics while remaining cognizant of broader technology and market trends as we build a portfolio of businesses that are characterized as having recurring revenue, free cash flow and profitable growth potential. Driven by the execution of a proven and disciplined acquisition strategy, we seek to enable shareholders to benefit from consolidation and convergence trends in today's technology industry. As of June 30, 2018, the Company had investments in three segments: Technology (WiLAN); Mobility (IRD); and Factory (VIZIYA).

Q2 and Year-to-Date 2018 Consolidated Financial ReviewQuarterhill's consolidated financial results for the three- and six-months ended June 30, 2018 include a full contribution from Wi‑LAN Inc. ("WiLAN"), International Road Dynamics Inc. ("IRD") and VIZIYA Corp ("VIZIYA"). The 2017 comparative period information presented represents a full contribution from WiLAN along with IRD's results from operations for the period from June 1 to June 30, 2017 and VIZIYA's results from operations for the period from May 4 to June 30, 2017.

Consolidated revenues for the three months ended June 30, 2018 ("Q2 2018") were $20.4 million, compared to $18.6 million in Q2 2017, representing growth of 10%. Consolidated revenues for the six months ended June 30, 2018 ("Year-to-Date") were $32.4 million, compared to $26.2 million in the same period last year, representing growth of 24%. The year-over-year increases were due to the Company's diversification strategy and the inclusion of the operations of IRD and VIZIYA, which were acquired in Q2 2017.

Gross margin for Q2 2018 was $3.9 million, or 19%, compared to $9.1 million, or 49%, in Q2 2017. Gross margin for the six months ended June 30, 2018 was $4.1 million, or 13%, compared to $9.3 million, or 35%, in the same period last year. For both Q2 2018 and the Year-to-Date period, positive and increased gross margin from IRD and VIZIYA was mostly offset by negative gross margin at WiLAN.

Operating expenses include selling, general and administrative costs, research and development costs, depreciation and amortization of intangible assets. Operating expenses for Q2 2018 were $14.7 million, compared to $12.4 million in Q2 2017. Operating expenses for the six months ended June 30, 2018 were $29.9 million, compared to $20.2 million in the same period last year. Operating expenses increased year-over-year due to the addition of the IRD and VIZIYA operations for the full reporting period in 2018.

Adjusted EBITDA for Q2 2018 was ($4.0) million compared to $4.8 million in Q2 2017. Adjusted EBITDA for the six months ended June 30, 2018 was ($11.3) million compared to $2.6 million in the same period last year. Adjusted EBITDA for the three- and six-month periods ended June 30, 2018 reflects lower revenue and negative Adjusted EBITDA from WiLAN, which offset positive Adjusted EBITDA from both the IRD and VIZIYA operations.

Net loss for Q2 2018 was ($7.9) million, or ($0.07) per basic and diluted Common Share, compared to net earnings of $3.6 million, or $0.03 per basic and diluted Common Share, in Q2 2017. For Q2 2018, net loss increased due primarily to lower revenue and a greater net loss from WiLAN, offset in part by positive net income from IRD and VIZIYA. Net loss for the six months ended June 30, 2018 was ($19.9) million, or ($0.17) per basic and diluted Common Share, compared to a net loss of ($3.6) million, or ($0.03) per basic and diluted Common Share, in the same period last year. For the Year-to-Date period, net loss increased due to lower revenue and a greater net loss from WiLAN and a loss from IRD in Q1 2018, offset in part by positive net income from IRD in Q2 2018 and from VIZIYA in both Q1 and Q2 of 2018.

Cash used from operations for Q2 2018 was ($2.4) million, compared to $3.1 million in cash generated in Q2 2017. Cash used from operations for the six months ended June 30, 2018 was ($9.0) million, compared to $11.5 million of cash generated in the same period last year. For Q2 2018, the difference in cash from operations compared to Q2 2017 is primarily due to lower revenue in the WiLAN business, offset in part by higher revenue in the IRD and VIZIYA businesses. For the Year-to-Date period, the difference in cash from operations was primarily impacted by the timing of collections for certain receivables in Q1 2017, which led to a significant change in non-cash working capital balances in that period compared to Q1 2018.

Cash and cash equivalents and short-term investments amounted to $73.1 million at June 30, 2018, compared to $86.6 million at December 31, 2017.

Subsequent EventIn a trial verdict rendered on August 1, 2018 in the United States District Court for the Southern District of California a jury awarded WiLAN $145.1 million in damages against Apple Inc. for infringement of WiLAN's US patent Nos 8,457,145 and 8,537,757.

The table below highlights financial performance for the Company's Technology, Mobility and Factory segments. For detailed results and discussion related to these segments, please refer to the Management's Discussion and Analysis document, which will be filed on SEDAR and at www.quarterhill.com in the investor section.

 

 

 

 

Conference Call and WebcastQuarterhill 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://event.on24.com/wcc/r/1798009/38336DD85E0DB116C040273B8E599958

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 Information Webcast replay will be available for 90 days at: https://event.on24.com/wcc/r/1798009/38336DD85E0DB116C040273B8E599958

Telephone replay will be available from 1:00 PM ET on August 9, 2018 until 11:59 PM ET on August 16, 2018 at: 1.855.859.2056 (Toll Free) or 1.416.849.0833 (International). The telephone replay requires the passcode 9748019.

Non-GAAP Disclosure*Quarterhill follows U.S. GAAP in preparing its interim and annual financial statements. We use the term "Adjusted EBITDA" to mean net earnings (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 property, plant and equipment; (vi) effects of deleted deferred revenue; (vii) the effects of fair value step up in inventory acquired; (viii) stock based compensation; (ix) foreign exchange (gain) loss; and * equity in earnings and dividends from joint ventures. Adjusted EBITDA is used by Quarterhill 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 IS NOT A MEASURE OF FINANCIAL PERFORMANCE UNDER U.S. GAAP. IT DOES NOT HAVE ANY STANDARDIZED MEANING PRESCRIBED BY U.S. GAAP AND IS THEREFORE UNLIKELY TO BE COMPARABLE TO SIMILARLY TITLED MEASURES USED BY OTHER COMPANIES. ADJUSTED EBITDA SHOULD NOT BE INTERPRETED AS AN ALTERNATIVE TO NET EARNINGS AND CASH FLOWS FROM OPERATIONS AS DETERMINED IN ACCORDANCE WITH U.S. GAAP OR AS A MEASURE OF LIQUIDITY.

About QuarterhillQuarterhill is focused on the disciplined acquisition, management and growth of companies in dedicated technology areas including, vertical market software and solutions, intelligent industrial systems, and innovation and licensing. Quarterhill's emphasis is on seeking out acquisition opportunities at reasonable valuations that provide a foundation for recurring revenues, predictable cash flows and margins, profitable growth, intimate customer relationships and dedicated management teams.  Quarterhill is listed on the TSX and NASDAQ under the symbol QTRH. For more information: www.quarterhill.com.

Forward-looking InformationThis news release contains forward-looking statements and forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and other United States and Canadian securities laws.  Forward-looking statements and forward-looking information 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. Many factors could cause Quarterhill's actual performance or achievements to differ materially from those expressed or implied by the forward-looking statements or forward-looking information. Such factors include, without limitation, the risks described in Quarterhill's March 1, 2018 annual information form for the year ended December 31, 2017 (the "AIF"). Copies of the AIF may be obtained at www.sedar.com or www.sec.gov. 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 or forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

All trademarks and brands mentioned in this release are the property of their respective owners.

 

 

 

 

 

 

 

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SOURCE Quarterhill Inc.