Mr. Chuck Myers reports

QUARTERHILL ANNOUNCES Q3 FISCAL 2023 FINANCIAL RESULTS

Quarterhill Inc. has released its financial results for the three and nine months ended Sept. 30, 2023. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

Q3 fiscal 2023 highlights:

• Revenue was $45.7-million compared with $42.2-million in Q3 2022.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $1.9-million compared with $1-million in Q3 2022.
• Revenue backlog was more than $500-million (U.S.) at Sept. 30, 2023.
• Working capital was $111.1-million at Sept. 30, 2023.
• Appointed intelligent transportation system (ITS) industry veteran Charles (Chuck) Myers as chief executive officer.
• Electronic Transaction Consultants LLC (ETC) went live with its back-office toll operations for the Ohio River Bridges toll service.
• International Road Dynamics Inc. (IRD) won a five-year $13.7-million contract with the Hawaii Department of Transportation.

"Revenue and adjusted EBITDA growth in Q3 reflected progress at both our tolling and enforcement businesses as well as the positive impact from the integration actions we have made this year," said Mr. Myers, CEO of Quarterhill. "Of note in the quarter, certain revenue from two of our tolling projects was pushed from Q3 into subsequent periods due to scheduling adjustments in the quarter. This is expected to result in a stronger Q4 and finish to the year.

"Since joining Quarterhill as CEO in September, I have done a deep dive on the company's operations, spending the majority of my time with employees, customers and partners on the ground in North America, Europe and Asia. Two thousand twenty-three has been a year of transition for Quarterhill and I believe further integration opportunities exist to improve our operational efficiency and effectiveness. I look to complete this assessment and to implement any changes by year-end.

"Strategically we remain focused on growing our world-class ITS franchises in tolling and enforcement and on capitalizing on the favourable growth trends in the ITS industry. This is an exciting time to be in ITS and I am honoured to lead the company at this stage of its evolution. My ultimate goal for the business is to generate robust cash flows and to manage expenses throughout all our businesses in order to build a healthy and sustainable balance sheet capable of supporting both our organic and acquisitive strategies."

Q3 and year-to-date fiscal 2023 financial review

Quarterhill's management's discussion and analysis and financial statements for the three and nine months ended Sept. 30, 2023, are available at the company's website and on its profile on SEDAR+.

Financial statements for the three and nine months ended Sept. 30, 2023, and for the respective comparison periods, have been prepared to reflect continuing operations and therefore exclude results during those periods from Wi-LAN Inc. (Wi-Lan), which was sold by Quarterhill on June 15, 2023. Operating results from Wi-Lan in 2022 and up to the date of sale on June 15, 2023, are reported as net income (loss) from discontinued operations.

Revenue for the three and nine months ended Sept. 30, 2023, was $45.7-million and $135.9-million compared with $42.2-million and $119.2 in the prior-year comparative periods, respectively. The increase in revenue was due to growth in both the enforcement and tolling business units.

Gross profit as a value and as a percentage of revenues may be subject to significant variance in each reporting period due to the nature and type of contract and service work currently in process, currency volatility, and competitive factors, among other things. Gross profit for the three and nine months ended Sept. 30, 2023, was $10.6-million and $29.1-million, or 23 per cent and 21 per cent, as compared with $11.5-million and $27.6-million, or 27 per cent and 23 per cent in the prior-year comparative periods, respectively. The decrease in gross profit margin percentage compared with the prior-year periods is primarily due to an implementation delay with one tolling project. The delay has resulted in additional anticipated costs and a reduced margin profile for the project. This decrease in gross profit margin was partially offset by continuing strong performance in our enforcement operations.

Operating expenses include sales general and administrative (SG&A) expense, research and development costs (R&D), depreciation and amortization, and other charges. Total operating expenses for the three and nine months ended Sept. 30, 2023, were $13.3-million and $43.2-million compared with $17-million and $66.6-million in the prior-year comparative periods, respectively. The decreases are primarily due to the cost reduction initiatives deployed by the company and the allocation of certain selling, general and administrative personnel costs into cost of revenues as well as the absence of a one-time $14.6-million legal settlement that was present in the 2022 nine-month comparative period.

SG&A for the three and nine months ended Sept. 30, 2023, was $8.2-million and $25.9-million compared with $11.2-million and $36.7-million in the prior-year comparative periods, respectively. As a percentage of revenue, SG&A in Q3 2023 was 18 per cent compared with 27 per cent in Q3 2022. The company has worked to drive efficiencies in the business through its restructuring and integration efforts, which are reflected in the year-over-year decrease in SG&A.

Adjusted EBITDA for the three and nine months ended Sept. 30, 2023, was $1.9-million and $600,000 compared with $1-million and ($9-million) for the comparative prior-year periods, respectively. The increase in adjusted EBITDA compared with the prior-year periods is due to the favourable changes to revenue and operating expenses as previously explained.

Net loss from continuing operations for the three and nine months ended Sept. 30, 2023, was (two cents) per diluted share and (25 cents) per diluted share, compared with a net loss from continuing operations of (four cents) per diluted share and (31 cents) per diluted share, in the comparative prior-year periods, respectively.

Cash used in continuing operations for the three and nine months ended Sept. 30, 2023, was $2.3-million and $21-million, compared with cash used in continuing operations of $23.5-million and $75-million in the comparative prior-year periods, respectively.

Cash and cash equivalents and short-term investments were $60.9-million at Sept. 30, 2023, compared with $61-million at June 30, 2023, and $67.9-million at Dec. 31, 2022. Working capital was $111.1-million at Sept. 30, 2023, compared with $109.5-million at June 30, 2023, and $71.5-million at Dec. 31, 2022. Due to the nature of the company's business activities, operating cash flows may vary significantly between periods due to changes and timing in working capital balances.

Conference call and webcast

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

Traditional dial-in information:

• To access the call from Canada and the United States, dial 1-888-664-6383 (toll-free).
• To access the call from other locations, dial 1-416-764-8650 (international).

Telephone replay

Telephone replay will be available from 1 p.m. ET on Nov. 8, 2023, until 11:59 p.m. ET on Aug. 15, 2023, at 1-888-390-0541 (toll-free North America) or 1-416-764-8677.

Conference ID: 21772343

Replay passcode: 772343 followed by pound key

About Quarterhill Inc.

Quarterhill is a leading provider of tolling and enforcement solutions in the intelligent transportation system (ITS) industry. Quarterhill's goal is global leadership in ITS, via organic growth of the ETC and IRD platforms, and by continuing an acquisition-oriented investment strategy that capitalizes on attractive growth opportunities within ITS and its adjacent markets. Quarterhill is listed on the Toronto Stock Exchange under the symbol QTRH and on the OTCQX Best Market under the symbol QTRHF.

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