Mr. Chuck Myers reports

QUARTERHILL ANNOUNCES Q4 AND FISCAL 2023 FINANCIAL RESULTS

Quarterhill Inc. has released its financial results for the three and 12 months ended Dec. 31, 2023.

Q4 2023 highlights:

• Revenue was $58.5-million, up 46 per cent compared with $40.1-million in Q4 2022;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $3.2-million compared with negative $1.5-million in Q4 2022;
• Revenue backlog was more than $520-million (U.S.) at Dec. 31, 2023;
• Working capital was $104.6-million at Dec. 31, 2023;
• Tolling unit launched new service with Central Texas Regional Mobility Authority;
• Tolling unit launched the E-ZPass interoperability hub;
• Enforcement unit signed new contracts in California and North Carolina.

Fiscal 2023 highlights:

• Revenue was $194.3-million, up 22 per cent compared with $159.3-million in 2022;
• Adjusted EBITDA was $3.8-million compared with negative $10.5-million in 2022;
• Appointed Chuck Myers as chief executive officer and member of the board of directors;
• Appointed Kyle Chriest as interim chief financial officer. Effective today, Mr. Chriest is now Quarterhill's permanent CFO;
• Rusty Lewis was appointed board chair and Bill Morris was appointed as a director. Of the board's six current members, four have been appointed or elected within the past two years;
• Sold Wi-LAN Inc. to become a pure-play ITS (intelligent transportation system) company.

"Two thousand twenty-three was a year of transition for Quarterhill, with important changes made to the board and management, which set the stage for a greater focus on operational excellence throughout the company," said Mr. Myers, CEO of Quarterhill. "In 2023, generating strong growth in revenue and adjusted EBITDA to end the year. This was due to steady performance from our enforcement business, improved execution on our tolling implementations and keeping a close eye on expenses.

"We believe we have entered 2024 with a stronger foundation and strategic direction from which to drive top-line growth and margin expansion. We plan to achieve this by remaining focused on growing our world-class ITS franchises in tolling and enforcement, while investing in our higher margin software applications, and seeking expansion opportunities in the European tolling market and in the logistics vertical. Our goal is to achieve growth while generating reliable cash flows in order to build a healthy and sustainable balance sheet capable of supporting both our organic and acquisitive growth strategies."

Definitive agreement to acquire Red Fox I.D. Ltd.

Quarterhill is pleased to announce that it has entered into a definitive agreement to acquire all of the issued and outstanding shares of Red Fox. Based in Haddenham, England, Red Fox is a profitable and growing provider of automatic vehicle detection and classification (AVDC) software to the tolling industry. Subject to customary closing conditions, the acquisition is expected to close on, or about, April 1, 2024.

AVDC is responsible for the detection, classification and tracking of a vehicle as it enters and exits a tolling facility. AVDC is at the front end of any tolling transaction, where accuracy and flexibility are essential. Red Fox's quantum software platform boasts detection accuracy of up to 99.96 per cent, and its ability to process captured data from both lidar (light detection and ranging) and in pavement inductive loops, makes it unique in the market and at the forefront of advanced AVDC solutions.

Mr. Myers added: "As a customer of Red Fox's quantum software, we have first-hand experience with the quality, performance and untapped potential of the product. We look forward to supporting and growing Red Fox's customer base, and to providing them with the high level of innovation and functionality that quantum is known for."

Mr. Myers continued: "Quarterhill is making a bigger push into technology development, with the goal of driving greater growth from software sales. Quantum is the type of solution we have on our technology road map, and with Red Fox, we were presented with a compelling buy versus build opportunity. With attractive financial terms, a recurring revenue model and strong opportunities for growth, we are very excited to welcome Red Fox to the Quarterhill team."

Under the terms of the definitive agreement, Quarterhill will acquire Red Fox for up to $10.2-million (U.S.) through a combination of cash and equity. Red Fox is expected to generate $1.4-million (U.S.) in annualized adjusted EBITDA in 2024, and as such the acquisition is expected to be immediately accretive to both adjusted EBITDA and cash flow.

Q4 and fiscal 2023 financial review

Quarterhill's management's discussion and analysis, and financial statements for the three and 12 months ended Dec. 31, 2023, are available at the company's website and at its profile at SEDAR+. Please note that, beginning with the reporting of its financial results for the three months ended March 31, 2024, Quarterhill will report its results in United States currency going forward.

Financial statements for the three and 12 months ended Dec. 31, 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., 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 (loss) income from discontinued operations.

Revenue for the three and 12 months ended Dec. 31, 2023, was $58.5-million and $194.3-million, compared with $40.1-million and $159.3-million in the prior-year comparative periods, respectively. The increase in revenue was due to increased activity and improved performance in North American project revenue, and growth in both the enforcement and tolling business units.

Gross profit as a value and as a percentage of revenue may be subject to significant variance in each reporting period due to the nature and type of contract and service work currently in process, and currency volatility. Gross profit for the three and 12 months ended Dec. 31, 2023, was $11.5-million and $40.6-million, or 19.7 per cent and 20.9 per cent, as compared with $10.2-million and $37.8-million, or 25.3 per cent and 23.7 per cent, in the prior-year comparative periods, respectively. The decrease in gross profit margin percentage compared with the prior-year periods is primarily attributed to tolling implementation expense overruns. These expense overruns resulted in additional unanticipated costs and a reduced margin profile for the implementation projects. This decrease in gross profit margin was partially offset by continuing strong performance in the company's enforcement operations.

Operating expenses include sales general and administrative (SG&A) expense, research and development (R&D) costs, depreciation and amortization, and other charges. Total operating expenses for the three and 12 months ended Dec. 31, 2023, were $21.5-million and $64.7-million, compared with $21-million and $87.6-million in the prior-year comparative periods, respectively. The increase for the three months ended Dec. 31, 2023, was due to higher impairment and other charges, which was offset by lower SG&A. The decrease for the year ended Dec. 31, 2023, is mainly attributed to the cost-reduction initiatives deployed by the company, and the allocation of certain selling, general and administrative personnel costs into cost of revenue, as well as the absence of a one-time $14.6-million legal settlement that was present in the 2022 12-month comparative period.

SG&A for the three and 12 months ended Dec. 31, 2023, was $9.2-million and $35-million, compared with $11.9-million and $48.6-million in the prior-year comparative periods, respectively. As a percentage of revenue, SG&A in Q4 2023 was 16 per cent compared with 30 per cent in Q4 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 12 months ended Dec. 31, 2023, was $3.2-million and $3.8-million, compared with negative $1.5-million and negative $10.5-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 12 months ended Dec. 31, 2023, was negative 14 cents per diluted share and negative 38 cents per diluted share, compared with a net loss from continuing operations of negative 17 cents per diluted share and negative 47 cents per diluted share, in the comparative prior-year periods, respectively.

Cash used in continuing operations for the three and 12 months ended Dec. 31, 2023, was $1.6-million and $22.6-million, compared with cash generated from continuing operations of $7.8-million and cash used in continuing operations of $43.8-million in the comparative prior-year periods, respectively.

Cash and cash equivalents, and short-term investments, were $56.6-million at Dec. 31, 2023, compared with $60.9-million at Sept. 30, 2023, and $67.9-million at Dec. 31, 2022. Working capital was $104.6-million at Dec. 31, 2023, compared with $111.1-million at Sept. 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 on Friday, March 15, 2024, at 10 a.m. Eastern Time.

Webcast information:

• Live audio webcast will be available on-line;
• Webcast replay will be available on-line.

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).

Rapidconnect

To instantly join the conference call by phone, please register on-line and be connected into the conference call automatically.

Telephone replay

Telephone replay will be available from March 15, 2024, until 11:59 p.m. ET on March 22, 2024, at 1-888-390-0541 (toll-free North America) or 1-416-764-8677.

Conference ID:  14601908

Replay passcode:  601908 followed by the pound key

About Quarterhill Inc.

Quarterhill is a leading provider of tolling and enforcement solutions in the intelligent transportation system industry. Its goal is global leadership in ITS, via organic growth of the Electronic Transaction Consultants LLC (ETC) and International Road Dynamics Inc. (IRD) platforms, and by continuing an acquisition-oriented investment strategy that capitalizes on attractive growth opportunities within ITS and its adjacent markets.

We seek Safe Harbor.