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Quarterhill Announces Fourth Quarter and Fiscal 2020 Financial Results

03 11 21

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 Dividend
The 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 Review
Financial 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 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=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 Information
Webcast 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.

1 Non-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 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"). 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
December 31,


Year ended 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 investments

2,995

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 obsolescence)

9,068

8,570

8,114

Prepaid expenses and deposits

8,264

2,242

2,927


186,142

152,367

123,161

Non-current assets




Accounts receivable

506

3,846

565

Prepaid expenses and deposits

338

Right-of-use assets, net

3,780

4,502

3,972

Property, plant and equipment, net

2,783

2,826

3,614

Intangible assets, net

59,261

89,534

119,015

Investment in joint venture

6,704

5,233

5,203

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 accrued liabilities

20,038

26,264

24,644

Income taxes payable

631

203

Current portion of lease liabilities

1,012

998

1,120

Contingent liabilities

1,265

Current portion of deferred revenue

4,800

8,638

6,357

Current portion of long-term debt

59

407


26,481

40,188

37,330

Non-current liabilities




Deferred revenue

2,573

1,513

1,954

Long-term lease liabilities

2,747

3,550

2,604

Long-term debt

271

236

Deferred income tax liabilities

78

3,297

5,905


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 comprehensive income

3,581

10,936

22,112

Deficit

(325,438)

(338,297)

(345,022)


271,930

275,203

278,895

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

303,809

$

324,022

$

326,924

 

Quarterhill Inc.





Consolidated Statements of Cash Flows





(in thousands of Canadian dollars)






Three months ended
December 31,

Year ended 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


 

Contributed
Surplus


 

Accumulated
Other
Comprehensive
Income


 

Deficit


 

Total S
hareholders'
Equity

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
expense


759




759

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 cancellation

(24,054)


13,432




(10,622)

Other comprehensive loss



(7,355)



(7,355)

Stock-based compensation expense


1,015




1,015

Exercise of options

1,006


(176)




830

Common shares issued from
performance stock units

32


(32)




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 operations

$

(10,201)

$

(0.09)


$

8,639

$

0.07

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 assets


115

Amortization of intangible assets

4,539

0.05


5,617

0.05

Depreciation of property, plant and equipment

248


210

Depreciation of right-of-use assets

241


249

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 Common Shares






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 operations

$

4,428

$

0.04


$

11,093

$

0.09

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 assets

295


115

Amortization of intangible assets

18,855

0.16


23,305

0.20

Depreciation of property, plant and equipment

969

0.01


1,296

0.01

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 Common Shares






Basic


116,939,833



118,817,466

 

Cision View original content:http://www.prnewswire.com/news-releases/quarterhill-announces-fourth-quarter-and-fiscal-2020-financial-results-301245206.html

SOURCE Quarterhill Inc.

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