Mr. Chuck Myers reports

QUARTERHILL ANNOUNCES Q3 2024 FINANCIAL RESULTS

Quarterhill Inc. has released its financial results for the three and nine months ended Sept. 30, 2024. All financial information in this news release is reported in U.S. dollars, unless otherwise indicated.

Quarterhill has changed the presentation currency of its financial statements to U.S. dollars, its functional currency. A significant proportion of the company's sales, expenses, assets and liabilities are denominated in U.S. dollars. This change in presentation currency aims to enhance external stakeholders' ability to assess Quarterhill's financial performance and to reduce the impact of foreign exchange volatility.

Q3 (third quarter) 2024 highlights:

• Revenues were $38.0-million, compared with $34.1-million in Q3 2023;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was negative $2.8-million, compared with $1.4-million in Q3 2023;
• Revenue backlog was $475-million at Sept. 30, 2024;
• Announced new enforcement unit contracts in Thailand, South Korea, South Dakota, Minnesota and North Carolina;
• Received a $3.8-million dividend resulting from ownership stake in Wi-LAN Inc.;
• Established technical advisory committee with Bobby Parikh and Vineet Khosla, two AI (artificial intelligence) and machine learning innovators experienced in transportation-related technologies;
• Subsequent to the quarter-end, signed a share purchase agreement to sell its 50-per-cent interest in the Chinese joint venture, Xuzhou-PAT Control Technologies Ltd. (XPCT), for gross proceeds of approximately $4.9-million.

"Our enforcement unit had another strong quarter with multiple new contracts, top-line growth and solid margins, while in our tolling unit, we increased our bid activity and expanded mandates with several existing customers," said Chuck Myers, chief executive officer at Quarterhill. "In Q3, we received our first dividend from our ownership position in Wi-LAN and, after quarter-end, we signed a share purchase agreement to sell our position in the Chinese joint venture, XPCT. Combined, these two developments will generate approximately $8-million in cash, thus strengthening our balance sheet as we head towards 2025.

"Over the past 12 months, we have worked hard to turn around the company by integrating our ITS businesses, selling non-core assets, optimizing our cost base, adding new leadership, enhancing our technical capabilities and addressing select legacy contract challenges. We believe we are near the end of this process and are well positioned to capitalize on the benefits from these changes in 2025 and beyond.

"We have two tolling contracts for which we took reserves in Q3, impacting margins by approximately $4-million. We believe these reserves will be sufficient for both projects to reach operations phase acceptance and become steady and profitable long-term contracts for the business. For the business as a whole, we expect to return to positive adjusted EBITDA in Q4 2024 and to then grow our top line and margins into 2025.

"The future of the ITS industry will be shaped by advanced technology solutions, with AI and machine learning playing pivotal roles in delivering enhanced outcomes for customers. We are committed to being at the forefront of this shift as we invest in our software solutions and next-generation architecture. We have recently added new leadership to our technical team and at quarter-end, we established a technical advisory board, bringing on two renowned experts in AI and modern software architecture to guide the development of our technology road map to meet our customers' desires. With our team, assets and strategic direction, we are well positioned to capitalize on the opportunities ahead, emerge as an industry leader and deliver improved financial results."

Q3 2024 financial review

Quarterhill's management's discussion and analysis and financial statements for the three and nine months ended Sept. 30, 2024, are available at the company's website and at its profile on SEDAR+.

Financial statements for the three and nine months ended Sept. 30, 2023, have been prepared to reflect continuing operations and therefore exclude results during that period from Wi-LAN, which was sold by Quarterhill on June 15, 2023.

Revenues for the three and nine months ended Sept. 30, 2024, were $38.0-million and $114.4-million, up 12 per cent and 13 per cent, respectively, compared with $34.1-million and $101.0-million in the three and nine months ended Sept. 30, 2023. The increase in revenues was primarily due to continued strong performance from the enforcement operations, which was offset in part by reserves taken relative to cost overruns on two tolling projects that had a $3-million impact on revenue.

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 performed. Gross profit for the three and nine months ended Sept. 30, 2024, was $5.1-million and $20.0-million, or 13 per cent and 17 per cent, as compared with $7.9-million and $21.6-million, or 23 per cent and 21 per cent, in the three and nine months ended Sept. 30, 2023. The year-over-year decreases compared with the prior-year periods were primarily due to the $4-million of reserves taken in Q3 2024 related to cost overruns on the two tolling projects as previously noted. The year-over-year decreases in gross profit margin were partially offset by continued strong margin performance from the enforcement operations.

Total operating expenses comprise selling, general and administrative (SG&A) costs, research and development (R&D) costs, depreciation, amortization of intangible assets, and other charges. Total operating expenses for the three and nine months ended Sept. 30, 2024, were $11.3-million and $32.5-million, compared with $9.9-million and $32.1-million in the three and nine months ended Sept. 30, 2023. The year-over-year increases were primarily due to higher SG&A, offset in part by lower R&D expenses. SG&A increased year over year, driven by the company's investments in leadership and resources for its project, bid and development teams. For the year-to-date period, this increase was partially offset by a reduction in force in other business areas.

Adjusted EBITDA for the three and nine months ended Sept. 30, 2024, was negative $2.8-million and negative $900,000, compared with $1.4-million and $500,000 for the three and nine months ended Sept. 30, 2023. The decrease in adjusted EBITDA for the three and nine months ended Sept. 30, 2024, compared with the prior-year periods, was due to the $4-million impact of the cost overruns on revenues and gross profit as previously explained, and offset, in part, by higher overall revenue.

Net loss from continuing operations for the three and nine months ended Sept. 30, 2024, was $4.1-million and $11.3-million, or four cents and 10 cents per diluted share, compared with a net loss from continuing operations of $1.7-million and $20.9-million, or one cent and 18 cents per diluted share, for the three and nine months ended Sept. 30, 2023.

Cash used in continuing operations for the three and nine months ended Sept. 30, 2024, was $1.7-million and $11.0-million, compared with cash used in continuing operations of $700,000 and $14.1-million for the three and nine months ended Sept. 30, 2023.

Cash and cash equivalents were $23.1-million at Sept. 30, 2024, compared with $42.7-million at Dec. 31, 2023. 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. Adjusted working capital was $64.9-million at Sept. 30, 2024, compared with $78.9-million at Dec. 31, 2023.

Conference call and webcast

Quarterhill will host a conference call to discuss its financial results on Friday, Nov. 8, 2024, at 10 a.m. Eastern Time.

Webcast information

A live audio webcast will be available.

A webcast replay will be available.

Traditional dial-in information

To access the call from the United States and Canada, dial 1-888-699-1199 (toll-free).

To access the call from other locations, dial 1-416-945-7677 (international).

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

Telephone replay

A telephone replay will be available from Nov. 8, 2024, until Nov. 15, 2024, at 1-888-660-6345 (toll-free in North America) or 1-289-819-1450.

Conference ID No.:  17855

Replay passcode:  17855 followed by the pound key

About Quarterhill Inc.

Quarterhill is a leading provider of tolling and enforcement solutions in the intelligent transportation system (ITS) industry. Its goal is technology-driven global leadership in ITS, via organic growth of its tolling and enforcement businesses, 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.

We seek Safe Harbor.