Mr. Doug Parker reports

QUARTERHILL ANNOUNCES THIRD QUARTER 2018 FINANCIAL RESULTS

Quarterhill Inc. has provided its financial results for the three- and nine-month periods ended Sept. 30, 2018. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.

Third quarter 2018 highlights

• Revenue of $19.6-million;
• Recurring revenues of $6.3-million, representing 32 per cent of total revenue;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of negative $2.5-million;
• Net loss of $9.3-million, or eight cents per common share;
• Cash and equivalents were $62.4-million at Sept. 30, 2018;
• International Road Dynamics Inc. (IRD) and Viziya's combined revenue and adjusted EBITDA were up 14 per cent and 125 per cent, respectively, year over year;
• Wi-LAN Inc. (WiLAN) won a $145.1-million jury award in its patent suit against Apple Inc.;
• IRD announced a five-year $8.1-million contract with the State of Hawaii.

"Highlights in Q3 were led by continued strong performance at IRD and WiLAN's significant trial victory versus Apple," said Doug Parker, president and chief executive officer of Quarterhill. "For the second quarter in a row, IRD generated good revenue and adjusted EBITDA performance, and they also signed a key contract with the State of Hawaii for more than $8-million over five years. Year to date, IRD has contributed $32.5-million of profitable revenue to Quarterhill and with a building pipeline of business and new products in the market, we believe their outlook remains promising.

"With WiLAN, we signed several new licences in Q3, but the big news in the quarter was the Aug. 1 jury verdict, which awarded us $145.1-million in our patent trial versus Apple. We are obviously very pleased with the jury's decision and believe that it reflects well on our team, our portfolio and our process, and enhances our already strong reputation in the industry. On the M&A front, building our pipeline remains a top priority and we continue to see real progress in this area, which includes a series of advanced negotiations that are currently under way."

Approval of eligible dividend

The board of directors has declared an eligible quarterly dividend of 1.25 Canadian cents per common share payable on Jan. 9, 2019, to shareholders of record on Dec. 14, 2018.

Business strategy and segments

The company's acquisition strategy focuses primarily on financial metrics while remaining cognizant of broader technology and market trends as it builds 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, the company seeks to enable shareholders to benefit from consolidation and convergence trends in today's technology industry. As of Sept. 30, 2018, the company had investments in three segments: technology (WiLAN); mobility (IRD); and factory (Viziya).

Q3 and year-to-date 2018 consolidated financial review

Quarterhill's consolidated financial results for the three- and nine-month periods ended Sept. 30, 2018, include a full contribution from Wi-LAN Inc., International Road Dynamics Inc. (IRD) and Viziya Corp. The 2017 comparative period information for the nine-month period ended Sept. 30, 2017, includes a full contribution from WiLAN along with IRD's results from operations for the period from June 1 to Sept. 30, 2017, and Viziya's results from operations for the period from May 4 to Sept. 30, 2017.

Consolidated revenues for the three months ended Sept. 30, 2018, were $19.6-million, compared with $85.9-million in Q3 2017. Consolidated revenues for the nine months ended Sept. 30, 2018, were $52.0-million, compared with $112.1-million in the same period last year. Revenue in the comparable periods of 2017 included strong performance from WiLAN, which generated revenue of $72.6-million in Q3 2017 compared with $4.4-million in Q3 2018. Combined, IRD and Viziya grew revenue organically year over year by 14 per cent and accounted for 77 per cent of consolidated revenues in Q3 2018.

Gross margin for Q3 2018 was $5.1-million, or 26 per cent, compared with $67.5-million, or 79 per cent, in Q3 2017. Gross margin for the nine months ended Sept. 30, 2018, was $9.3-million, or 18 per cent, compared with $76.7-million, or 68 per cent, in the same period last year. Gross margin comparisons reflect the variability in the WiLAN business noted above. Gross margin and gross margin percentage increased for both IRD and Viziya in Q3 2018 compared with Q3 2017. On a sequential basis, consolidated gross margin increased to 26.2 per cent from 18.9 per cent last quarter.

Operating expenses include selling, general and administrative costs, research and development costs, depreciation, and amortization of intangible assets. Operating expenses for Q3 2018 were $16.8-million, compared with $31.3-million in Q3 2017. Operating expenses for the nine months ended Sept. 30, 2018, were $46.6-million, compared with $51.5-million in the same period last year. Operating expenses in Q3 2018 included a one-time $2.3-million restructuring charge at IRD related to streamlining their operations, which, going forward, will save IRD approximately $2.2-million annually in expenses.

Adjusted EBITDA for Q3 2018 was negative $2.5-million compared with $60.6-million in Q3 2017. Adjusted EBITDA for the nine months ended Sept. 30, 2018, was negative $13.8-million compared with $63.1-million in the same period last year. The variance in adjusted EBITDA for the Q3 2018 and year-to-date periods reflects the variability in the WiLAN business noted above. Adjusted EBITDA for both IRD and VIZIYA more than doubled in Q3 2018 from Q3 2017.

Net loss for Q3 2018 was $9.3-million, or eight cents per basic and diluted common share, compared with net earnings of $26.2-million, or 22 cents per basic and diluted common share, in Q3 2017. Net loss for the nine months ended Sept. 30, 2018, was $29.2-million, or 25 cents per basic and diluted common share, compared with net earnings of $22.6-million, or 19 cents per basic and diluted common share, in the same period last year. For the Q3 2018 and year-to-date periods, net loss increased due primarily to lower revenue from WiLAN and the restructuring charge at IRD, offset in part by improved overall operational performance at IRD and Viziya.

Cash consumed in operations for Q3 2018 was $9.0-million, compared with $9.3-million of cash generated from operations in Q3 2017. Cash used in operations for the nine months ended Sept. 30, 2018, was $18.0-million, compared with $20.8-million of cash generated from operations in the same period last year. For the Q3 2018 and year-to-date periods, the difference in cash from operations compared with the same periods last year is primarily due to lower revenue in the WiLAN business, offset in part by higher revenue and adjusted EBITDA in the IRD and Viziya businesses.

Cash and cash equivalents and short-term investments amounted to $62.4-million at Sept. 30, 2018, compared with $86.6-million at Dec. 31, 2017.

Conference call and webcast

Quarterhill will host a conference call to discuss its financial results today at 10 a.m. Eastern Time.

Webcast information

The live audio webcast will be available at the On24 website.

Dial-in information

To access the call from Canada and United States, 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 the On24 website.

Telephone replay will be available from 1 p.m. ET on Nov. 8, 2018, until 11:59 p.m. ET on Nov. 15, 2018, at 1-855-859-2056 (toll-free) or 1-416-849-0833 (international). The telephone replay requires the passcode 9560049.

About Quarterhill Inc.

Quarterhill 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.

                     CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
                               (in thousands of United States dollars)            
                                                                                       
                                                   Three months ended          Nine months ended 
                                                             Sept. 30,                  Sept. 30,
                                                    2018         2017        2018           2017

Revenues                                         $19,579      $85,897     $51,985        112,086
Cost of revenues (excluding depreciation and
amortization)                                     14,440       18,425      42,713         35,340
                                                   5,139       67,472       9,272         76,746
Operating expenses
Selling, general and administrative expenses       6,871        6,501      20,960         13,117
Research and development expenses                    902        1,492       2,694          2,160
Depreciation of property, plant and equipment        372          556       1,155            817
Amortization of intangibles                        6,298        7,336      19,491         18,667
Loss on disposal of intangible assets                  -       15,190           -         15,190
Special charges                                    2,320          218       2,320          1,512
                                                  16,763       31,293      46,620         51,463
Results from operations                          (11,624)      36,179    (37,348)         25,283

Finance income                                      (140)        (93)       (522)          (545)
Finance expense                                       78          970         157            984
Foreign exchange loss (gain)                          91          239        (74)          (472)
Other income                                        (247)        (231)     (1,153)          (300)
Income (loss) before taxes                       (11,406)      35,294    (35,756)         25,616

Current income tax expense                           755        5,309         651          6,883
Deferred income tax expense (recovery)            (2,880)       3,774     (7,216)        (3,858)
Income tax expense (recovery)                     (2,125)       9,083     (6,565)          3,025
Net earnings (loss)                              $(9,281)     $26,211   $(29,191)        $22,591

Net earnings (loss) per share
Basic and fully diluted                           $(0.08)       $0.22    $(0.25)$           0.19

We seek Safe Harbor.