Quarterhill Inc. Navigates Challenges with Strategic Growth

Quarterhill Inc. ((TSE:QTRH)) has held its Q1 earnings call. Read on for the main highlights of the call.

Quarterhill Inc.’s recent earnings call painted a picture of both challenges and optimism. The company is navigating through a period of negative adjusted EBITDA, primarily due to two unprofitable contracts. However, there is a clear sense of optimism as the company focuses on strategic initiatives and new contracts, particularly in its Safety and Enforcement Unit and tolling contracts, which are expected to drive future growth. Despite a decrease in revenue and gross margin, the company remains hopeful in leveraging a growing project pipeline to overcome these hurdles.

Safety and Enforcement Unit Growth

The Safety and Enforcement Unit was a bright spot in Quarterhill’s earnings call, delivering solid top-line growth with strong margins. The company has signed new contracts across several states, and its innovative product, the iTHEIA AI system, has generated significant interest, positioning the unit for continued success.

Significant New Tolling Contract

Quarterhill announced a major new tolling contract with ACTC, valued at $40 million. This contract includes options to extend for an additional four years at $15 million, marking a significant boost to the company’s tolling operations and future revenue streams.

Dividend from Wi-LAN

The company received a $3.2 million dividend from its 10% ownership stake in Wi-LAN, which positively contributed to its cash position. This dividend provides additional financial flexibility for Quarterhill as it navigates its current challenges.

Strategic Board and Leadership Changes

Quarterhill has made strategic additions to its management and board, including the appointments of Asha Daniere and Stephen Smith. These changes are aimed at enhancing the company’s growth opportunities and steering it towards a more prosperous future.

Growing Pipeline and Opportunities

The company’s project pipeline is robust, valued at approximately $2 billion, with $278 million in high-probability tolling projects and $250 million in enforcement. This growing pipeline is a testament to Quarterhill’s potential for future growth and expansion.

Strong Performance in IOD

The IOD business segment reported a remarkable 28% year-over-year growth in Q1, contributing significantly to the overall strength of Quarterhill’s business operations.

Negative Adjusted EBITDA

Quarterhill reported a negative adjusted EBITDA of $3.4 million for Q1, primarily impacted by two unprofitable tolling contracts. These contracts are currently under renegotiation, and the company is optimistic about reaching a resolution that will improve its financial performance.

Decrease in Revenue

Revenue for Q1 2025 was $33.9 million, a decrease of $1 million from Q1 2024. This decline was mainly attributed to the timing of revenue recognition from ongoing projects, which the company is working to address.

Decline in Gross Margin

Gross margin percentage fell to 12% from 20% year-over-year, largely due to poor margins on two tolling projects. Quarterhill is actively working to improve these margins through renegotiations and operational efficiencies.

Increased Operating Expenses

Operating expenses rose from $10.5 million to $11.2 million year-over-year, driven by investments in leadership and resources. These investments are part of the company’s strategy to position itself for future growth.

Cash and Cash Equivalents Decline

Cash and cash equivalents decreased to $26.1 million from $31.9 million at the end of 2024. This decline reflects the company’s ongoing investments and operational challenges, which it aims to address through strategic initiatives.

Forward-Looking Guidance

Looking ahead, Quarterhill is focused on driving revenue growth and improving margins by completing contract renegotiations and executing its sales pipeline. The company is also advancing its technology initiatives, including a shift toward a more software-focused business model. With a contracted revenue backlog of $476 million, Quarterhill is poised to capitalize on its strategic efforts and enhance its financial performance.

In summary, Quarterhill Inc.’s earnings call highlighted a mix of challenges and opportunities. While the company faces hurdles with negative adjusted EBITDA and declining revenue, it is actively pursuing strategic initiatives and new contracts to drive future growth. The sentiment expressed during the call was one of cautious optimism, with a focus on leveraging a robust project pipeline and advancing technology initiatives to overcome current challenges and achieve long-term success.