View all news

Quarterhill Announces Q2 2017 Financial Results

08 10 17

Shift in strategy driving revenue growth

OTTAWA, Aug. 10, 2017 /CNW/ - Quarterhill Inc. ("Quarterhill" or the "Company") (TSX:QTRH) (NASDAQ:QTRH), announces its financial results for the three- and six-month periods ended June 30, 2017. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.

Second Quarter Highlights

  • Revenue of $18.6 million
  • Adjusted EBITDA* of $4.8 million
  • Net income of $3.6 million, or $0.03 per share
  • Cash from operations of $3.1 million
  • Announced a new acquisition-oriented growth strategy and changed the name of the public company to Quarterhill
  • Acquired International Road Dynamics ("IRD"), a highway traffic management technology company specializing in supplying products and systems to the global Intelligent Transportation Systems industry, on June 1, 2017
  • Acquired VIZIYA Corp ("VIZIYA"), a software and services provider that helps companies optimize their asset performance, on May 4, 2017
  • Completed the first tuck-in acquisition – iCOMS Detections S.A

"Q2 was a significant period for the Company as we launched a major shift in our growth strategy by transitioning our public parent company into a diversified investment holding firm focused on acquiring companies in the Industrial Internet of Things market," said Shaun McEwan, Interim CEO of Quarterhill. "We quickly began executing on our new plan and completed the acquisitions of IRD and VIZIYA in the quarter. As part of the new strategy, we renamed the public company Quarterhill, and kept the WiLAN name with our patent license business, which will continue to operate as one of the Company's investments."

"Our new strategy reflects our belief that the best path to grow the business and shareholder value is to acquire promising growth companies and support them while they build their businesses. This diversification strategy will add additional lines of business to the overall public Company, which will open-up new revenue and cash flow streams, and mitigate the lumpiness that we had experienced in the past. This is evident already; even though the acquired businesses had only a partial contribution to our Q2 financials, we are already seeing the positive impact they can have on our revenue and margins."

Approval of Eligible Dividend
The Board of Directors has declared an eligible quarterly dividend of CDN $0.0125 per common share payable on October 5, 2017, to shareholders of record on September 15, 2017.

Business Strategy and Segments
Quarterhill is developing a portfolio of established businesses having histories of generating cash flows from their operations in the "Technology", "Mobility", "Factory" and "City" vertical segments of the Industrial "Internet of Things" market. As of June 30, 2017, the Company had investments in three of its four targeted vertical segments: Technology (WiLAN), Mobility (IRD), and Factory (VIZIYA).

Quarterhill's goal is to build a consistently profitable company with a diversified investment base and global market presence within its vertical segments to increase shareholder value by emphasizing the importance of recurring revenue streams and the predictability of operating results. The Company intends to achieve these objectives through a combination of organic growth and acquisitions.

Q2 and Year-to-Date 2017 Consolidated Financial Review
Quarterhill's consolidated financial results for Q2 2017 include contributions from its wholly owned subsidiaries; WiLAN, IRD and VIZIYA. Included in these consolidated financial results are IRD's results from operations for the period from June 1 to June 30, 2017, VIZIYA's results from operations for the period from May 4 to June 30, 2017, and WiLAN's results from operations for the entire quarter. The 2016 comparative period information presented represents solely WiLAN's results for the specified period.  Certain comparative information has been restated to conform to the new basis of presentation.

Consolidated revenues for the three-months ended June 30, 2017 were $18.6 million, compared to $16.0 million in the same period last year, which represents an increase of $2.6 million or 16%. The increase was due to the partial contribution in Q2 2017 from the acquired IRD and VIZIYA businesses. Consolidated revenues for the six-months ended June 30, 2017 were $26.2 million, compared to $46.1 million in the same period last year.

Gross margin for the three-months ended June 30, 2017 was $9.0 million, or 48.8%, compared to $9.8 million, or 61%, in the same period last year. Gross margin for the six-months ended June 30, 2017 was $9.3 million, or 35%, compared to $31.9 million, or 69%, in the same period last year. Gross margin for the three- and six-month periods ended June 30, 2017 reflects contribution across all three vertical segments, compared to the same periods last year, which reflect only the operations of what is now the Company's Technology segment.

Operating expenses for the three-months ended June 30, 2017 were $12.4 million, compared to $12.6 million in the same period last year. Operating expenses include selling, general and administrative costs, research and development costs, and depreciation and amortization. The acquisitions this quarter resulted in an incremental $1.3 million in acquisition related expenses ad and an incremental $0.7 million in amortization related to acquired intangible assets.  Operating expenses for the six-months ended June 30, 2017 were $20.2 million compared to $25.3 million in the same period last year.

Adjusted EBITDA for the three-months ended June 30, 2017 was $4.8 million, or $0.04 per basic Common Share, compared to $7.0 million, or $0.06 per basic Common Share, in the same period last year. The difference primarily reflects the lower adjusted EBITDA performance of our Technology segment due to its lower revenues, which was partially offset by the addition of adjusted EBITDA from each of our acquired businesses. For the six-months ended June 30, 2017, adjusted EBITDA was $2.6 million, or $0.02 per basic Common Share, compared to $26.7 million, or $0.22 per basic Common Share, in the same period last year, which reflects the significantly lower revenues generated in our Technology segment year-over-year.

Net income for three-months ended June 30, 2017 was $3.6 million, or $0.03 per basic and diluted Common Share, compared to a net loss of ($3.2) million or ($0.03) per basic and diluted Common Share in the same period last year. For the six-months ended June 30, 2017, net loss was ($3.6) million, or ($0.03) per basic and diluted Common Share, compared to net income of $1.8 million, or $0.01 per basic and diluted Common Share, in the same period last year.

Cash generated from operations for three-months ended June 30, 2017 was $3.1 million, compared to $8.3 million in the same period last year. Cash generated from operations for six-months ended June 30, 2017 was $11.5 million compared to $23.1 million in the same period last year.

Cash and cash equivalents and short-term investments amounted to $49.0 million at June 30, 2017, compared to $107.7 million at December 31, 2016. The decrease is primarily attributable to $66.3 million spent on the acquisitions of IRD and VIZIYA, which was partially offset by cash generated from operations of $11.5 million in the six-month period.

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 ("MD&A") document, which will be filed on Sedar and at www.quarterhill.com in the investor section.


For the three months ended June 30, 2017


Technology

Mobility

Factory

Corporate

Total

Revenues

$

12,048

$

4,648

$

1,915

$

-

$

18,611

Cost of revenues (excluding depreciation and amortization)


6,368


2,752


401


-


9,521



5,680


1,896


1,514


-


9,090

Selling, general and administrative


1,772


972


876


594


4,214

Research and development


-


308


360


-


668

Depreciation of property, plant and equipment


88


48


34


-


170

Amortization of intangibles


5,321


236


471


-


6,028

Special charges


-


-


-


1,294


1,294

Results from operations


(1,501)


332


(227)


(1,888)


(3,284)

Finance income


(173)


-


-


(61)


(234)

Finance expense


-


11


3


-


14

Foreign exchange loss (gain)


(100)


286


41


(653)


(426)

Other expense (income)


-


(69)


-


-


(69)

Income before taxes


(1,228)


104


(271)


(1,174)


(2,569)

Current income tax expense (recovery)


691


101


39


-


831

Deferred income tax expense (recovery)


(1,877)


(62)


(194)


(4,876)


(7,009)

Income tax expense (recovery)


(1,186)


39


(155)


(4,876)


(6,178)

Net income (loss)

$

(42)

$

65

$

(116)

$

3,702

$

3,609












Adjusted EBITDA


3,934


810


520


(504)


4,760












Other reconciling items:











Effect of deleted deferred revenue


-


25


242


-


267

Increased costs from inventory step-up


-


137


-


-


137

Stock based compensation


26


32


-


90


148

 

 


For the six months ended June 30, 2017


Technology

Mobility

Factory

Corporate

Total

Revenues

$

19,626

$

4,648

$

1,915

$

-

$

26,189

Cost of revenues (excluding depreciation and amortization)


13,762


2,752


401


-


16,915



5,864


1,896


1,514


-


9,274

Selling, general and administrative


4,174


972


876


594


6,616

Research and development


-


308


360


-


668

Depreciation of property, plant and equipment


179


48


34


-


261

Amortization of intangibles


10,624


236


471


-


11,331

Special charges


-


-


-


1,294


1,294

Results from operations


(9,113)


332


(227)


(1,888)


(10,896)

Finance income


(391)


-


-


(61)


(452)

Finance expense


-


11


3


-


14

Foreign exchange loss (gain)


(385)


286


41


(653)


(711)

Other expense (income)


-


(69)


-


-


(69)

Income before taxes


(8,337)


104


(271)


(1,174)


(9,678)

Current income tax expense (recovery)


1,434


101


39


-


1,574

Deferred income tax expense (recovery)


(2,500)


(62)


(194)


(4,876)


(7,632)

Income tax expense (recovery)


(1,066)


39


(155)


(4,876)


(6,058)

Net income (loss)

$

(7,271)

$

65

$

(116)

$

3,702

$

(3,620)












Adjusted EBITDA


1,747


810


520


(504)


2,573












Other reconciling items:











Effect of deleted deferred revenue


-


25


242


-


267

Increased costs from inventory step-up


-


137


-


-


137

Stock based compensation


57


32


-


90


179

 

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

Call Information
The live audio webcast will be available at http://event.on24.com/wcc/r/1465983-1/476A2A33D8B4F83D6332197F41AF0594

  • 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
A webcast of the call will be available at http://event.on24.com/wcc/r/1465983-1/476A2A33D8B4F83D6332197F41AF0594
A telephone replay will be available from 1:00 PM ET on August 10, 2017 until 11:59 PM ET on August 17, 2017 at: 1.855.859.2056 (Toll Free) or 1.416.849.0833 (International).
Conference ID #: 54032419

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 income from continuing operations before: (i) income taxes; (ii) finance expense or income; (iii) amortization of intangibles; (iv) special charges; (v) depreciation of property, plant and equipment; (vi) effects of deleted deferred revenue; (vii) the effects of fair value step up in inventory acquired, and (viii) stock based compensation. 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. 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 Quarterhill
Quarterhill is a diversified investment holding company focused on growing its business by acquiring technology companies in the Industrial Internet of Things ("IIoT") segment across multiple verticals. Quarterhill targets companies with a broad range of products and services that capture, analyze and interpret data, and that have strong financial performance, excellent management teams, strong intellectual property underpinnings and significant opportunities to develop long-term recurring and growing revenue streams. Quarterhill is listed on the TSX and NASDAQ under the symbol QTRH. For more information: www.quarterhill.com.

Forward-looking Information
This 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 its February 10, 2017 annual information form for the year ended December 31, 2016 (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.

Quarterhill Inc.
Condensed Consolidated Interim Statements of Operations
(in thousands of United States dollars, except share and per share amounts) (unaudited)


For the three months ended,


For the six months ended,



June 30,
2017


June 30,
2016


June 30,
2017


June 30,
2016













Revenues

$

18,611


$

15,961


$

26,189


$

46,121

Cost of revenues (excluding depreciation and amortization)


9,521



6,293



16,915



14,263



9,090



9,668



9,274



31,858

Operating expenses












Selling, general and administrative


4,214



2,646



6,616



5,186

Research and development


668



-



668



-

Depreciation of property, plant and equipment


170



106



261



213

Amortization of intangibles


6,028



9,850



11,331



19,872

Special charges


1,294



-



1,294



-



12,374



12,602



20,170



25,271

Results from operations


(3,284)



(2,934)



(10,896)



6,587













Foreign exchange (gain) loss


(426)



(114)



(711)



(277)

Finance (income)


(234)



(120)



(452)



(238)

Finance expenses


14



-



14



-

Other expense (income)


(69)



-



(69)



-

Income before taxes


(2,569)



(2,700)



(9,678)



7,102













Current income tax expense (recovery)


831



837



1,574



3,860

Deferred income tax expense (recovery)


(7,009)



(385)



(7,632)



1,474

Income tax expense (recovery)


(6,178)



452



(6,058)



5,334

Net income (loss)

$

3,609


$

(3,152)


$

(3,620)


$

1,768













Net Income (loss) per share













Basic and fully diluted                                               

$

0.03


$

(0.03)


$

(0.03)


$

0.01













Weighted average number of common shares













Basic and fully diluted

118,587,106


119,255,090


118,579,684


119,768,540

 

Quarterhill Inc.
Supplemental Condensed Consolidated Interim Statement of Operations Information
(in thousands of United States dollars, except share and per share amounts) (unaudited)


For the three months
ended,


For the six months
ended,


June 30,
2017


June 30,
2016


June 30,
2017


June 30,
2016

Revenues













Licenses

$

12,842


$

15,961


$

20,420


$

46,121


Systems


3,067



-



3,067



-


Services


714



-



714



-


Recurring


1,988



-



1,988



-

Total Revenues

$

18,611


$

15,961


$

26,189


$

46,121













Cost of revenues (excluding depreciation and amortization)













License

$

6,448


$

6,293


$

13,842


$

14,263


Systems                                                                  


1,898



-



1,898



-


Services


321



-



321



-


Recurring


854



-



854



-

Total cost of revenues

$

9,521


$

6,293


$

16,915


$

14,263

 

Quarterhill Inc.
Condensed Consolidated Interim Statements of Comprehensive Income
(in thousands of United States dollars, except share and per share amounts) (unaudited)


For the three months
ended,


For the six months
ended,


June 30,
2017


June 30,
2016


June 30,
2017


June 30,
2016













 Net income (loss)

$

3,609


$

(3,152)


$

(3,620)


$

1,768













 Other comprehensive income (loss):













Foreign currency translation adjustment


533



-



533



-

Comprehensive income

$

4,142


$

(3,152)


$

(3,087)


$

1,768

 

Quarterhill Inc.
Condensed Consolidated Interim Balance Sheets
(in thousands of United States dollars, except share and per share amounts) (unaudited)

As at

June 30, 2017

December 31,
2016

Current assets






Cash and cash equivalents

$

44,315

$

106,553


Short-term investments


1,194


1,154


Restricted Short-term investments


3,500


-


Accounts receivable


13,001


20,357


Other current assets


45


-


Unbilled revenue


4,011


-


Income taxes receivable


171


-


Inventories


5,391


-


Loans receivable


1,918


1,766


Prepaid expenses and deposits


4,013


1,293



77,559


131,123

Non-current assets






Property Plant and Equipment


4,153


1,240


Intangible assets


152,126


123,351


Investment in joint venture


3,179


-


Deferred income tax assets


22,591


14,646


Goodwill


41,123


12,623

TOTAL ASSETS

$

300,731

$

282,983






Liabilities





Current liabilities






Bank indebtedness

$

3,827

$

-


Accounts payable and accrued liabilities


13,297


15,645


Income taxes payable


646


-


Current portion of patent finance obligation


5,362


10,372


Current portion of deferred revenue


6,722


-


Current portion of long-term debt


99


-



29,953


26,017

Non-current liabilities






Acquisition notes payable


6,450


-


Patent finance obligation


15,195


12,775


Success fee obligation


-


47


Deferred revenue


475


-


Long-term debt


383


-


Deferred income tax liabilities


9,124


-

TOTAL LIABILITIES


61,580


38,839

Shareholders' equity






Capital stock


418,838


419,485


Additional paid-in capital


22,005


21,036


Accumulated other comprehensive income


16,758


16,225


Deficit


(218,450)


(212,602)



239,151


244,144

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

300,731

$

282,983

 

 

Quarterhill Inc.
Condensed Consolidated Interim Statements of Cash Flows
(in thousands of United States dollars, except share and per share amounts) (unaudited)



For the six months ended,



June 30, 2017


June 30, 2016

Cash generate from (used in):






Operations







Net earnings (loss)

$

(3,620)


$

1,768


Non-cash items








Stock-based compensation


179



154



Depreciation and amortization


11,592



20,086



Foreign exchange (gain) loss


(146)


(390)



Earnings from joint venture


(69)


-



Gain (Loss) on disposal of assets


-


13



Deferred income tax expense (recovery)


(7,632)


1,474



Accrued investment income


(150)


(128)



Embedded Derivatives


10


-


Changes in non-cash working capital balances








Accounts receivable


18,818


824



Unbilled revenue


862


-



Inventories


686


-



Prepaid expenses and deposits


(436)


140



Deferred Revenue


591


-



Payments associated with success fee obligation


(492)


(1,732)



Accounts payable and accrued liabilities


(9,236)


853



Income taxes payable


525


-

Cash generated from operations


11,482



23,062

Financing







Dividends paid


(2,228)



(2,242)


Bank indebtedness


1,523



-


Long Term debt


(24)



-


Common shares repurchased under normal course issuer bid


(552)



(3,123)


Common shares issued for cash on the exercise of options


-



11


Common shares issued for cash from Employee Share Purchase Plan


33



35

Cash used in financing


(1,248)



(5,319)

Investing







Acquisition of Viziya, net of cash acquired


(18,521)



-


Acquisition of IRD, net of cash acquired


(47,782)



-


Pruchase of short-term investment


(3,500)



-


Purchase of property and equipment


(114)



(39)


Repayment of patent finance obligations


(2,778)



(2,777)


Purchase of intangibles


(4)



(6,150)

Cash used in investing


(72,699)



(8,966)

Foreign exchange loss (gain) on cash held in foreign currency


227



310

Net increase (decrease) in cash and cash equivalents


(62,238)



9,087

Cash and cash equivalents, beginning of period


106,553



93,431

Cash and cash equivalents, end of period

$

44,315


$

102,518


 

Quarterhill Inc.
Condensed Consolidated Statements of Shareholders' Equity
(in thousands of United States dollars, except share and per share amounts) (unaudited)


Capital
Stock

Additional
paid in
Capital

Accumulated
Other
Comprehensive
Income

Deficit

Equity












Balance - December 31, 2015

$

427,781

$

16,549

$

16,225

$

(219,177)

$

241,378












Comprehensive earnings:












Net income


-


-


-


1,768


1,768


Other Comprehensive Income


-


-


-


-


-

Shares and options issued:












Stock-based compensation expense


-


154


-


-


154


Conversion of deferred stock units to common shares


116


-


-


-


116


Exercise of stock options


17


(6)


-


-


11


Sale of shares under Employee Share Purchase Plan


35


-


-


-


35

Shares repurchased under normal course issuer bid


(6,274)


3,151


-


-


(3,123)

Dividends declared


-


-


-


(2,245)


(2,245)

Balance - June 30, 2016

$

421,675

$

19,848

$

16,225

$

(219,654)

$

238,094












Balance - December 31, 2016


419,485


21,036


16,225


(212,602)


244,144












Comprehensive earnings:












Net loss


-


-


-


(3,620)


(3,620)


Other Comprehensive Income


-


-


533


-


533

Shares and options issued:












Stock-based compensation expense


-


179


-


-


179


Shares issued upon acquisition


662


-


-


-


662


Sale of shares under Employee Share Purchase Plan


33


-


-


-


33


Shares repurchased under normal course issuer bid


(1,342)


790


-


-


(552)

Dividends declared


-


-


-


(2,228)


(2,228)

Balance - June 30, 2017

$

418,838

$

22,005

$

16,758

$

(218,450)

$

239,151


 

Quarterhill Inc.
Reconciliations of GAAP Net Income (Loss) to Adjusted EBITDA
(in thousands of United States dollars, except share and per share amounts) (unaudited)



For the three months ended,


For the six months ended,

Adjusted EBITDA


June 30, 2017


June 30, 2016


June 30, 2017


June 30, 2016













Net Income (Loss)

$

3,609


$

(3,152)


$

(3,620)


$

1,768













Adjusted for:













Income tax expense


(6,178)



452



(6,058)



5,334


Foreign exchange (gain) loss


(426)



(114)



(711)



(277)


Finance expense


14



-



14



-


Finance (income)


(234)



(120)



(452)



(238)


Special charges


1,294



-



1,294



-


Amortization of intangibles


6,028



9,850



11,331



19,872


Depreciation of property, plant and equipment


170



106



261



213


Effect of deleted deferred revenue


267



-



267



-


Increased costs from inventory step-up


137



-



137



-


Stock based compensation


148



-



179



-


Other expense (income)


(69)



-



(69)



-

Adjusted EBITDA

$

4,760


$

7,022


$

2,573


$

26,672















For the three months ended,


For the six months ended,

Adjusted EBITDA per share


June 30, 2017


June 30, 2016


June 30, 2017


June 30, 2016













Net Income (Loss)

$

0.03


$

(0.03)


$

(0.03)


$

0.01













Adjusted for:













Income tax expense


(0.05)



-



(0.05)



0.04


Foreign exchange


-



-



(0.01)



-


Finance expense


-



-



-



-


Finance income


-



-



-



-


Special charges


0.01



-



0.01



-


Amortization of intangibles


0.05



0.08



0.10



0.17


Depreciation of property, plant and equipment


-



-



-



-


Effect of deleted deferred revenue


-



-



-



-


Increased costs from inventory step-up


-



-



-



-


Stock based compensation


-



-



-



-


Other expense (income)


-



-



-



-

Adjusted EBITDA per share

$

0.04


$

0.06


$

0.02


$

0.22













Weighted average number of Common Shares













Basic


118,587,106



119,255,090



118,579,684



119,768,540

 

SOURCE Quarterhill Inc.

For media and investor inquiries, please contact: Shaun McEwan, Interim CEO, T: 613.688.4898, E: smcewan@quarterhill.com; Dave Mason, Investor Relations, T: 613.688.1693, E: ir@quarterhill.com
Categories: Press Releases
View all news