Quarterhill Announces Financial Results for 2018

• Year ends on a strong note with solid revenue, Adjusted EBITDA and cash from operations
• Momentum continues into Q1 2019 with revenue for the quarter expected to be in a range of $33-36 million
• Restructurings initiated in second half of 2018 at IRD and WiLAN, expected to save $6.0 million per year in expenses
• As part of its restructuring, Michael Vladescu named President & CEO at WiLAN

OTTAWA, Feb. 28, 2019 /PRNewswire/ - Quarterhill Inc. ("Quarterhill" or the "Company") QTRH QTRH, announces its financial results for the three- and twelve-month periods ended December 31, 2018. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.

Q4 and Fiscal 2018 Highlights:

• Q4 revenue was $25.4 million; Fiscal 2018 revenue was $77.4 million
• Q4 recurring revenue was $4.7 million (18% of total revenue); Fiscal 2018 recurring revenue was $22.0 million (28% of total revenue)
• Q4 Adjusted EBITDA* was $3.2 million; Fiscal 2018 Adjusted EBITDA was ($10.6) million
• Q4 cash generated by operations was $9.6 million; Fiscal 2018 cash used in operations was ($8.4) million
• Cash balance at year-end was $67.3 million, compared to $62.4 million at the end of Q3 2018 and $86.6 million at the end of 2017
• IRD and VIZIYA's combined revenue and Adjusted EBITDA in Fiscal 2018 was $56.6 million and $5.8 million, respectively
• Won a trial victory versus Apple Inc in Q3 2018 in the U.S. District Court for the Southern District of California regarding patents in WiLAN's wireless portfolio
• Initiated restructurings in Q3 2018 at IRD and in Q4 2018 at WiLAN, which combined are expected to save the Company approximately $6.0 million per year in operating expenses

"While 2018 was challenging in certain respects, we ended the year on a positive note in Q4 with strong revenue, Adjusted EBITDA and cash from operations," said Doug Parker, President & CEO of Quarterhill. "Overall, tangible progress was made in a year that I would characterize as one of operational stabilization while continuing to make advancements on our diversification strategy. Adding new companies to our portfolio remains a primary objective of the strategy but ensuring that our existing portfolio companies are optimizing their performance is equally important. The restructurings we have undertaken at WiLAN and IRD are expected to save approximately $6.0 million per year in expenses and we believe the changes made will help those businesses to drive superior performance for years to come."

"As part of our WiLAN restructuring, we have streamlined its operational structure. As a result, we have appointed Michael Vladescu, an industry veteran and long time WiLAN senior executive, to the position of President and Chief Executive Officer of the business, replacing Keaton Parekh. Mike was instrumental in building WiLAN's very successful partnership program and has a proven track record of delivering tangible multi-year results for the organization. I look forward to working closely with Mike and the team as they continue to enhance our business opportunity in the evolving technology innovation and licensing marketplace. I want to thank Keaton for his contribution to our organization during his short tenure with WiLAN."

"On the M&A side, the 2018 environment reflected somewhat of a seller's market, but we still made good progress assembling our deal team, evolving our target focus and building our M&A ecosystem, which helped to generate strong deal flow and a growing pipeline of opportunities. With the strength and progress at both IRD and VIZIYA in 2018, we are seeing a number of smaller tuck-in opportunities suitable for enhancing those businesses, while also continuing to aggressively pursue other acquisition targets that meet our disciplined financial and operational criteria. Throughout 2019 we will remain focused on cash flow and expenses throughout all our businesses, in order to maintain a strong and sustainable balance sheet capable of supporting both our organic and acquisitive growth opportunities."

"Finally, as we look to next quarter, we anticipate continued momentum from our operations, reflected in license deals such as SK hynix, and while we do not anticipate providing regular guidance on a quarterly basis, we do expect Quarterhill's consolidated revenue for Q1 2019 to be in the range of $33-$36 million."

Approval of Eligible Dividend
The Board of Directors has declared an eligible quarterly dividend of CDN $0.0125 per common share payable on April 5, 2019, to shareholders of record on March 22, 2019.

Business Strategy and Segments
Our acquisition strategy focuses primarily on financial metrics while remaining cognizant of broader technology and market trends as we build 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, we seek to enable shareholders to benefit from consolidation and convergence trends in today's technology industry. As of December 31, 2018, the Company had investments in three segments: Licensing (WiLAN); Intelligent Systems (IRD); and Enterprise Software (VIZIYA).

Q4 and Fiscal 2018 Consolidated Financial Review
Quarterhill's consolidated financial results for the three- and twelve-month periods ended December 31, 2018 include a full contribution from Wi LAN Inc. ("WiLAN"), International Road Dynamics Inc. ("IRD") and VIZIYA Corp. ("VIZIYA"). The 2017 comparative period information for the twelve-month period ended December 31, 2017, includes a full contribution from WiLAN along with IRD's results from operations for the period from June 1, 2017 to December 31, 2017 and VIZIYA's results from operations for the period from May 4, 2017 to December 31, 2017.

Consolidated revenues for the three months ended December 31, 2018 were $25.4 million, compared to $22.6 million in the same period last year. The quarter-over-quarter increase was due to stronger performance at IRD and WiLAN. Consolidated revenues for Fiscal 2018 were $77.4 million, compared to $134.7 million in Fiscal 2017. The year-over-year decrease was primarily due to strong performance from WiLAN in Q3 2017 when it generated revenue of $72.6 million. IRD and VIZIYA's combined revenue in Fiscal 2018 was $56.6 million compared to $34.1 million which they generated in Fiscal 2017 following their respective acquisitions by the Company.

Gross margin for the three months ended December 31, 2018 was $9.6 million, or 38%, compared to $8.7 million, or 38%, in the same period last year. Gross margin for Fiscal 2018 was $18.8 million, or 24%, compared to $85.4 million, or 63%, in Fiscal 2017. The year-over-year decrease in gross margin reflects the variability in WiLAN's revenue noted above. Gross margin and gross margin percentage increased for both IRD and VIZIYA in Fiscal 2018 compared to Fiscal 2017.

Operating expenses for the three months ended December 31, 2018 were $30.7 million, compared to $23.7 million in the same period last year. Operating expenses for Fiscal 2018 were $77.3 million compared to $75.2 million in Fiscal 2017. Operating expenses increased in Fiscal 2018 due primarily to a full-year of operations from IRD and VIZIYA, $6.2 million of one-time restructuring charges and $16.6 million of non-cash charges related to an impairment loss on goodwill and an impairment loss on intangibles, offset in part by $26.3 million in non-cash charges related to a loss on disposal of intangible assets and impairment losses on intangibles in Fiscal 2017.

Adjusted EBITDA for the three months ended December 31, 2018 was $3.2 million, or $0.02 per basic Common Share, compared to $1.5 million, or $0.01 per basic Common Share, in the same period last year. The quarter-over-quarter increase in Adjusted EBITDA is primarily due to stronger performance from WiLAN and IRD. For Fiscal 2018, Adjusted EBITDA was ($10.6) million, or ($0.11) per basic Common Share, compared to $64.6 million, or $0.53 per basic Common Share, in Fiscal 2017. The year-over-year decrease in Adjusted EBITDA reflects the variability in the WiLAN business and the $72.6 million in revenue it generated in Q3 2017. For Fiscal 2018, Adjusted EBITDA combined for IRD and VIZIYA was $5.8 million compared to $3.8 million which they generated in Fiscal 2017 following their respective acquisitions by the Company.

Net loss for the three months ended December 31, 2018 was ($19.9) million, or ($0.17) per basic and diluted Common Share, compared to net loss of ($12.4) million, or ($0.10) per basic and diluted Common Share, in the same period last year. The quarter-over-quarter increase in net loss was due primarily to the $16.6 million of non-cash charges related to an impairment loss on goodwill and an impairment loss on intangibles in Q4 2018, offset in part by stronger performance from WiLAN and IRD in Q4 2018 and the $11.1 million of non-cash charges related to loss on disposal of intangibles and impairment loss on intangibles in Q4 2017. For Fiscal 2018, net loss was ($49.2) million, or ($0.41) per basic and diluted Common Share, compared to net income of $10.2 million, or $0.09 per basic and diluted Common Share, in Fiscal 2017. For Fiscal 2018, net loss increased due primarily to lower revenue from WiLAN, offset in part by improved overall operational performance at IRD and VIZIYA.

Cash generated from operations for the three months ended December 31, 2018 was $9.6 million, compared to $49.2 million in the same period last year. Cash generated from operations for Fiscal 2018 was ($8.4) million compared to $70.0 million in Fiscal 2017. The quarter-over-quarter and year-over-year decreases in cash from operations are primarily due to lower revenue from WiLAN in 2018, offset in part by improved overall operational performance at IRD and VIZIYA in Fiscal 2018. 

Cash and cash equivalents and short-term investments amounted to $67.3 million at December 31, 2018, compared to $62.4 million at the end of Q3 2018 and $86.6 million at December 31, 2017. The sequential quarterly increase is due to stronger performance from WiLAN and IRD in Q4 2018, while the decrease from the end of Fiscal 2017 is primarily due to lower overall revenue from WiLAN in Fiscal 2018.

The table below highlights financial performance for the Company's Licensing, Intelligent Systems and Enterprise Software segments. For detailed results and discussion related to these segments, please refer to the Management's Discussion and Analysis document, which will be filed on SEDAR and at www.quarterhill.com in the investor section.

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://event.on24.com/wcc/r/1933492/07CD54500990DF0B84400CBDE7F150C1.

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 90 days at:
https://event.on24.com/wcc/r/1933492/07CD54500990DF0B84400CBDE7F150C1.

Telephone replay will be available from 1:00 PM ET on February 28, 2019 until 11:59 PM ET on March 7, 2019 at: 1.855.859.2056 (Toll Free) or 1.416.849.0833 (International).

Non-GAAP Disclosure*

Quarterhill follows U.S. GAAP in preparing its interim and annual financial statements. We use the 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 property, plant and equipment; (vi) effects of deleted deferred revenue; (vii) the effects of fair value step up in inventory acquired; (viii) stock based compensation; (ix) foreign exchange (gain) loss; and * equity in earnings and dividends from joint ventures. Adjusted EBITDA is used by Quarterhill 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 IS NOT A MEASURE OF FINANCIAL PERFORMANCE UNDER U.S. GAAP. IT DOES NOT HAVE ANY STANDARDIZED MEANING PRESCRIBED BY U.S. GAAP AND IS THEREFORE UNLIKELY TO BE COMPARABLE TO SIMILARLY TITLED MEASURES USED BY OTHER COMPANIES. ADJUSTED EBITDA SHOULD NOT BE INTERPRETED AS AN ALTERNATIVE TO NET EARNINGS AND CASH FLOWS FROM OPERATIONS AS DETERMINED IN ACCORDANCE WITH U.S. GAAP OR AS A MEASURE OF LIQUIDITY.

About Quarterhill
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.  Quarterhill is listed on the TSX and NASDAQ under the symbol QTRH. For more information: www.quarterhill.com.

Forward-looking Information
This news release contains forward-looking statements and forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and other United States and Canadian securities laws.  Forward-looking statements and forward-looking information 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. Many factors could cause Quarterhill's actual performance or achievements to differ materially from those expressed or implied by the forward-looking statements or forward-looking information. Such factors include, without limitation, the risks described in Quarterhill's February 28, 2019 annual information form for the year ended December 31, 2018 (the "AIF"). Copies of the AIF may be obtained at www.sedar.com and as part of Quarterhill's Form 40-F for the year ended December 31, 2018 filed with the U.S. Securities and Exchange Commission and available at www.sec.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 or forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

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