Quarterhill Announces Record Financial Results for 2017

Launches diversification strategy and achieves record revenue and Adjusted EBITDA

OTTAWA, March 1, 2018 /PRNewswire/ - Quarterhill Inc. ("Quarterhill" or the "Company") (TSX: QTRH) (NASDAQ: QTRH), announces its financial results for the three and twelve month periods ended December 31, 2017. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.

Fiscal 2017 Highlights

• Revenue of $134.7 million representing 45% growth over last year
• Recurring revenues of $13.4 million representing 10% of total revenue
• Adjusted EBITDA* of $64.6 million
• Net income of $10.2 million, or $0.09 per share
• Operating cash flow was $70.0 million, with an ending cash and cash equivalents and short-term investments balance of $86.6 million
• Launched diversification strategy; deployed $67.4 million to acquire International Road Dynamics, VIZIYA Corporation and iCOMS Detections S.A.
• Announced the appointment of Douglas (Doug) Parker as President and Chief Executive Officer
• Subsequent to year-end, appointed Russ Stuebing as SVP, Corporate Development, and Neil Urquhart as SVP, Human Resources, to enhance acquisition capabilities

"Quarterhill delivered record financial results in 2017 while making tangible progress on its diversification strategy with three strategic acquisitions and improved recurring revenue streams," said Doug Parker, President & CEO of Quarterhill. "In 2018, we will look to build-on and maintain this momentum. Already this year we have enhanced our acquisition capabilities by broadening the target set of companies we are looking at and by adding experienced technology M&A veterans to our acquisition team."

"Our acquisition focus is to capitalize on market consolidation and convergence trends in the following three markets: vertical market software, intelligent industrial systems, and innovation and licensing. While remaining committed to growing the businesses we have acquired and their strategic visions, including related IIoT elements, we also see good acquisition opportunities in other target-rich technology niches such as vertical market software, with its attractive recurring revenue, cash flow and margin profiles."

"To execute on our plan, we have also recently added two senior members to our team and established an office in Waterloo, Ontario. Talent is a key component to building our diversified portfolio and we are focused on attracting execution-oriented M&A professionals with proven industry track records of identifying, acquiring and integrating value enhancing technology acquisitions. Both Russ and Neil fit this profile admirably and I am delighted that they have joined Quarterhill."

"With a presence in both of Canada's premier technology hubs, Ottawa and Waterloo, we are well positioned to continue to attract the top talent needed to execute on, and expand, our growth potential. I look forward to the busy year ahead of us and I remain excited about our long-term ability to provide investors with a profitable growth-oriented investment opportunity that follows a proven strategy."

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, 2018, to shareholders of record on March 23, 2018.

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, 2017, the Company had investments in three segments: Technology (WiLAN); Mobility (IRD); and Factory (VIZIYA).

Q4 and Fiscal 2017 Consolidated Financial Review
Quarterhill's consolidated financial results for Fiscal 2017 include a full year contribution from Wi‑LAN Inc. ("WiLAN"), a full quarter contribution from International Road Dynamics Inc. ("IRD") and VIZIYA Corp ("VIZIYA") in Q3 2017 and Q4 2017, and a partial contribution from IRD and VIZIYA in Q2 2017. The 2016 comparative period information presented represents solely WiLAN's results for the specified period. Certain comparative information has been restated to conform to the new basis of presentation.

Consolidated revenues for the three months ended December 31, 2017 were $22.6 million, compared to $30.2 million in the same period last year. Consolidated revenues for Fiscal 2017 were $134.7 million, an increase of 45% compared to $92.9 million in Fiscal 2016. The year-over-year increase was primarily due to strong patent licensing results from WiLAN and the inclusion of the operations of IRD and VIZIYA, which were acquired in Q2 2017.

Gross margin for the three months ended December 31, 2017 was $8.7 million, or 38%, compared to $19.3 million, or 64%, in the same period last year. Gross margin for Fiscal 2017 was $85.4 million, or 63%, compared to $63.0 million, or 67%, in Fiscal 2016. Gross margins for the three and twelve month periods ended December 31, 2017 reflect contribution from all three businesses, compared to the same periods last year, which reflect only the operations of WiLAN.

Operating expenses include selling, general and administrative costs, research and development costs, depreciation, amortization of intangible assets, loss on disposal of intangible asset, impairment of intangible assets and special charges. Operating expenses for the three months ended December 31, 2017 were $23.7 million, compared to $9.4 million in the same period last year. Operating expenses for Fiscal 2017 were $75.2 million compared to $44.0 million in Fiscal 2016. Operating expenses increased in Fiscal 2017 due to the addition of the IRD and VIZIYA operations, acquisition-related costs associated with the purchases of IRD and VIZIYA, and a combined $26.3 million in non-cash charges related to a loss on disposal of intangible assets and impairment loss on intangibles.

Adjusted EBITDA for the three months ended December 31, 2017 was $1.5 million, or $0.01 per basic Common Share, compared to $17.6 million, or $0.14 per basic Common Share, in the same period last year. For Fiscal 2017, Adjusted EBITDA was $64.6 million, or $0.56 per basic Common Share, compared to $53.8 million, or $0.45 per basic Common Share, in Fiscal 2016. The year-over-year increase in Adjusted EBITDA is primarily due to strong performance in the patent license business and the inclusion of operations from the businesses acquired during 2017.

Net loss for the three months ended December 31, 2017 was ($12.4) million, or ($0.10) per basic and diluted Common Share, compared to net income of $8.6 million, or $0.07 per basic and diluted Common Share, in the same period last year. For Fiscal 2017, net income was $10.2 million, or $0.09 per basic and diluted Common Share, compared to net income of $11.1 million, or $0.09 per basic and diluted Common Share, in Fiscal 2016. Net income for Fiscal 2017 compared to Fiscal 2016, was primarily impacted by the combined $26.3 million in non-cash charges related to a loss on disposal of intangible assets and impairment loss on intangibles.

Cash generated from operations for the three months ended December 31, 2017 was $49.2 million, compared to $7.6 million in the same period last year. Cash generated from operations for Fiscal 2017 was $70.0 million compared to $36.8 million in Fiscal 2016. Cash from operations was positively impacted in Q4 2017 due to the collection of a significant level of accounts receivable which were outstanding at the end of Q3 2017. 

Cash and cash equivalents and short-term investments amounted to $86.6 million at December 31, 2017, compared to $107.7 million at December 31, 2016. The decrease is primarily attributable to $67.4 million spent on the acquisitions of IRD, VIZIYA and iCOMS, and $19.6 million spent on the repayment of patent finance obligations, which were partially offset by cash generated from operations of $70.0 million in the twelve month period.

The table below highlights financial performance for the Company's Technology, Mobility and Factory 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: http://event.on24.com/wcc/r/1600077-1/A298E603919911BC7B8CF45B231A3984.

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: http://event.on24.com/wcc/r/1600077-1/A298E603919911BC7B8CF45B231A3984.

Telephone replay will be available from 1:00 PM ET on March 1, 2018 until 11:59 PM ET on March 8, 2018 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 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 each of its February 10, 2017 annual information form for the year ended December 31, 2016 (the "AIF") and its November 8, 2017 Management's Discussion and Analysis of Financial Condition and Results of Operations for the 3 and 9 months ended September 30, 2017 and 2016 (the "Q3 MD&A"). Copies of the AIF and the Q3 MD&A may be obtained at www.sedar.com or www.sec.gov. 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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