Quarterhill Announces Second Quarter 2020 Financial Results

News provided by

Aug 06, 2020, 06:32 ET

KITCHENER, ON, Aug. 6, 2020 /PRNewswire/ - Quarterhill Inc. ("Quarterhill" or the "Company") (TSX: QTRH) (OTCQX: QTRHF), announces its financial results for the three- and six-month periods ended June 30, 2020. The Company historically prepared its consolidated financial statements in accordance with U.S. GAAP and in U.S. dollars. Effective January 1, 2020, the Company has adopted IFRS and the Canadian dollar as its reporting currency. The Company has consistently applied the same accounting policies in its opening IFRS statement of financial position at January 1, 2019, and throughout all periods presented as if these policies had always been in effect. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

Second Quarter 2020 Financial Highlights

Revenue was $16.8 million, including recurring revenue of $5.6 million
Adjusted EBITDA* was ($2.0) million
Net income was $9.5 million, or $0.08 per basic and diluted common share, which included a $17.7 million gain on the sale of VIZIYA
Cash used in continuing operations was ($4.3) million
Cash and equivalents were $143.1 million at June 30, 2020

Second Quarter 2020 Operational Highlights

Appointed Mr. Paul Hill as President and CEO of Quarterhill, effective June 1st
Completed the sale of VIZIYA for total cash proceeds of $49.4 million
A Final Judgment was issued in WiLAN's case against Apple for US$108.98 million
Announced a Substantial Issuer Bid and subsequently completed it on July 7th, returning $5.8 million to shareholders via the purchase of 2.7 million common shares
Appointed Mr. Paul Hill and Dr. Michel Fattouche to Quarterhill's Board of Directors
Appointed Mr. Rish Malhotra as President and CEO of International Road Dynamics ("IRD"), effective June 1st
Announced today a Normal Course Issuer Bid to acquire up to 10%, or 11.3 million, of the Company's common shares in the public float for a twelve-month period ending August 9, 2021

"Q2 had several positive operational developments including the previously announced sale of VIZIYA for a significant gain, the Final Judgment in WiLAN's case versus Apple for US$108.98 million, and the return of $5.8 million to shareholders via the Substantial Issuer Bid that was completed in mid-July," said Paul Hill, President & CEO of Quarterhill. "Today we announced the next step in our 'return of capital' commitment to shareholders with the launch of a Normal Course Issuer Bid to purchase up to 11.3 million of our shares over the next twelve months."

"Financial results in the quarter reflect both the steady performance at IRD and the variability in the business model at WiLAN, as well as the impact of COVID-19 on both businesses. At WiLAN, the COVID-19 impact was related to certain court closures in the U.S. as well as the inability to hold face-to-face meetings to conclude agreements. WiLAN's fundamentals remain in place and it continues to advance its pipeline despite the pandemic, although some deals may be delayed as was the case with certain opportunities we had expected to close in Q2 that were pushed out. These are not lost opportunities and they remain in our plan for completion. As we've said in the past, at WiLAN, performance over a longer time frame is a more accurate gauge of its potential compared to its quarterly business results. Case in point, while WiLAN had negative Adjusted EBITDA in Q2, it has had positive Adjusted EBITDA in five of the past seven quarters."

"At IRD, some impact from COVID-19 was felt in the quarter, but overall, the business continues to generate solid margins and results, and its prospects remain strong with both order backlog and order intake high and near record levels. On June 1, we announced Rish Malholtra would be taking over as CEO at IRD in a planned succession. Rish has deep knowledge of the Intelligent Transportation Systems, or ITS, industry and he has led many of the key functions at IRD during his tenure. These are exciting times at IRD and it is expected to play a significant role in our strategy going forward."

"While not a radical departure from Quarterhill's strategy of recent years, our go-forward strategy has a sharper focus. Foremost, the strategy involves executing on a M&A plan. While the M&A strategy was previously on hold, when I joined in June, we began discussions around how we could leverage the strong cash position of the business and the cash flow generating potential of our portfolio companies to drive long-term shareholder value. Ultimately that discussion coalesced around a strategy intended to drive organic growth from our existing businesses and M&A-related growth focused on the IRD business and the opportunities in the ITS market."

"The ITS market has attractive growth and market dynamics with reasonable valuations and IRD is an established and well-respected player in this market, which helps differentiate us as an acquirer. IRD serves as a well-run growth-oriented platform that acquisitions can be integrated into, which also opens up the prospect of greater revenue and cost synergies. As the broader ITS industry becomes more connected, we also believe there is an opportunity to leverage WiLAN's deep technological expertise; in particular in 5G, which may become a critical enabling technology for ITS in the future."

Mr. Hill concluded: "I will discuss our strategy in more detail on our conference call this morning at 10:00 a.m. EDT. The discussion will include accompanying slides that can be viewed via the webcast."

Subsequent Event - Normal Course Issuer Bid
In a separate press release issued today, Quarterhill announced that the Toronto Stock Exchange has accepted a notice filed by the Company of its intention to make a new Normal Course Issuer Bid. The notice provides that Quarterhill may, during the 12-month period commencing August 10, 2020 and ending August 9, 2021, purchase on the Toronto Stock Exchange up to 11.3 million common shares in total, being approximately 10% of the outstanding common shares in the public float. For full details regarding the Normal Course Issuer Bid, please see Quarterhill's related press release also issued today.

Approval of Eligible Dividend
The Board of Directors has declared an eligible quarterly dividend of $0.0125 per common share payable on October 9, 2020, to shareholders of record on September 11, 2020.

Q2 2020 and Year-to-date Consolidated Financial Review
Financial statements for the three- and six-month periods ended June 30, 2020 and for the respective comparison periods, have been prepared to reflect continuing operations and therefore exclude results during those periods from VIZIYA, which was sold by Quarterhill on May 15, 2020. The current quarter and year-to-date operating results from VIZIYA, up to the date of sale on May 15, 2020, are reported as net income (loss) from discontinued operations in accordance with IFRS 5.

Consolidated revenues for the three months ended June 30, 2020 ("Q2 2020") were $16.8 million, compared to $52.9 million in Q2 2019. Consolidated revenues for the six-month period ended June 30, 2020 ("YTD 2020") were $38.4 million, compared to $102.7 million in the same period last year. The majority of WiLAN's licenses are one-time in nature and significant fluctuations in revenue, gross margin, and Adjusted EBITDA can result when the volume or dollar value of licenses changes from one period to the next. Revenue was lower in the Q2 2020 and YTD 2020 periods due primarily to the closure of a greater volume, and value, of licensing contracts in the prior year periods.

Recurring revenue for the Q2 2020 and YTD 2020 periods was $5.6 million and $9.5 million, compared to $6.0 million and $11.7 million in the same periods last year. Certain revenues characterized as recurring have a timing component to them and are recognized when the related work is completed. As such, the decrease in recurring revenue in 2020 is primarily a timing-based issue and does not reflect lower renewal or retention rates.

Gross margin for the Q2 2020 and YTD 2020 periods was 25% and 30%, compared to 46% and 47% in the same periods last year. Gross margin was lower in the Q2 2020 and YTD 2020 periods due primarily to lower revenue at WiLAN as described above, offset in part by higher gross margin at IRD. IRD and WiLAN's cost of sales benefited by $0.6 million and $0.3 million, respectively, via the Government of Canada's Canadian Emergency Wage Subsidy ("CEWS") program.

Operating expenses include selling, general and administrative costs ("SG&A"), research and development costs ("R&D"), depreciation and amortization of intangible assets and special charges. For Q2 2020, Quarterhill had special charges of $0.7 million compared to $15.0 million in Q2 2019. YTD 2020, special charges were $0.9 million compared to $16.7 million in the same period last year.

Excluding special charges, operating expenses for the Q2 2020 and YTD 2020 periods were $11.9 million and $24.3 million, compared to $14.0 million and $27.9 million in the same periods last year. Operating expenses were lower in 2020 due primarily to lower SG&A and R&D and a CEWS benefit at IRD of $0.7 million.

Adjusted EBITDA for the Q2 2020 and YTD 2020 periods was ($2.0) million and ($1.8) million, compared to $17.1 million and $34.2 million in the same periods last year. The decrease in Adjusted EBITDA reflects the lower revenue at WiLAN, offset in part, by higher Adjusted EBITDA at IRD and lower corporate expenses.

Net income for Q2 2020 was $9.5 million, or $0.08 per basic and diluted common share, compared to net loss of ($5.9) million, or ($0.05) per basic and diluted common share, in Q2 2019. Net income for the YTD 2020 period was $4.4 million, or $0.04 per basic and diluted common share, compared to net loss of ($6.0) million, or ($0.05) per basic and diluted common share, in the same period last year. Net income in the Q2 2020 and YTD 2020 periods was driven primarily by net income from discontinued operations of $14.5 million and $14.3 million, respectively, which included a $17.7 million gain on the sale of VIZIYA in Q2 2020.

Cash generated from (used in) continuing operations for the Q2 2020 and YTD 2020 periods was ($4.3) million and $5.4 million, compared to $45.0 million and $29.2 million in the same periods last year. Cash and cash equivalents and short-term investments increased to $143.1 million at June 30, 2020, compared to $89.4 million at December 31, 2019. The Company had debt of $7.4 million at June 30, 2020, compared to $4.4 million at December 31, 2019.

Conference Call and Webcast
Quarterhill will host a conference call to discuss its financial results today at 10:00 AM Eastern Time. Management slides that accompany the conference call can be viewed via the webcast.

Webcast Information
Live webcast: https://produceredition.webcasts.com/starthere.jsp?ei=1348487&tp_key=00592de315

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://produceredition.webcasts.com/starthere.jsp?ei=1348487&tp_key=00592de315

Telephone replay will be available from 1:00 p.m. Eastern Time on August 6, 2020 until 11:59 p.m. Eastern Time on August 20, 2020 at: 1.855.859.2056 (Toll Free) or 1.416.849.0833 (International). The telephone replay requires the passcode 4283448.

The table below highlights financial performance for the Company's Licensing and Intelligent Systems 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.

Segmented statements of (loss) income for the three- and six-month periods ended June 30, 2020 and 2019 are included below:

	For the Three months ended June 30, 2020
CONTINUING OPERATIONS	Licensing		Intelligent Systems		Corporate		Total
Revenues
License	$	68	$	—	$	—	$	68
Systems	—		11,138		—		11,138
Recurring	252		5,366		—		5,618
	320		16,504		—		16,824
Direct cost of revenues	3,062		9,594		—		12,656
Gross profit	(2,742)		6,910		—		4,168
Depreciation of right-of-use assets	63		159		15		237
Depreciation of property, plant and equipment	16		225		6		247
Amortization of intangibles	3,588		1,260		—		4,848
Selling, general and administrative expenses	746		2,333		2,747		5,826
Research and development expenses	—		555		—		555
Impairment losses of intangible assets	233		—		—		233
Special charges	—		659		—		659
Results from operations	(7,388)		1,719		(2,768)		(8,437)
Finance income	(22)		(6)		(132)		(160)
Finance expense	38		74		6		118
Foreign exchange loss (gain)	342		(235)		(110)		(3)
Other income	—		(431)		—		(431)
(Loss) income before taxes	(7,746)		2,317		(2,532)		(7,961)
Current income tax expense	56		22		—		78
Deferred income tax (recovery) expense	(4,582)		167		1,363		(3,052)
Income tax (recovery) expense	(4,526)		189		1,363		(2,974)
Net (loss) income from continuing operations	$	(3,220)	$	2,128	$	(3,895)	$	(4,987)

Adjusted EBITDA	$	(3,419)	$	4,041	$	(2,614)	$	(1,992)


	For the Six months ended June 30, 2020
CONTINUING OPERATIONS	Licensing		Intelligent Systems		Corporate		Total
Revenues
License	$	9,817	$	—	$	—	$	9,817
Systems	—		19,141		—		19,141
Recurring	703		8,776		—		9,479
	10,520		27,917		—		38,437
Direct cost of revenues	8,831		18,012		—		26,843
Gross profit	1,689		9,905		—		11,594
Depreciation of right-of-use assets	124		327		30		481
Depreciation of property, plant and equipment	32		428		11		471
Amortization of intangibles	7,071		2,519		—		9,590
Selling, general and administrative expenses	1,724		5,817		4,580		12,121
Research and development expenses	—		1,424		—		1,424
Impairment losses of intangible assets	233		—		—		233
Special charges	—		659		213		872
Results from operations	(7,495)		(1,269)		(4,834)		(13,598)
Finance income	(122)		(7)		(253)		(382)
Finance expense	78		125		11		214
Foreign exchange loss (gain)	1,596		(929)		(1,252)		(585)
Other income	—		(809)		—		(809)
(Loss) income before taxes	(9,047)		351		(3,340)		(12,036)
Current income tax expense	1,242		102		—		1,344
Deferred income tax (recovery) expense	(5,971)		(608)		3,098		(3,481)
Income tax (recovery) expense	(4,729)		(506)		3,098		(2,137)
Net (loss) income from continuing operations	$	(4,318)	$	857	$	(6,438)	$	(9,899)

Adjusted EBITDA	$	64	$	2,709	$	(4,528)	$	(1,755)


	For the Three months ended June 30, 2019
CONTINUING OPERATIONS	Licensing		Intelligent Systems		Corporate		Total
Revenues
License	$	32,807	$	—	$	—	$	32,807
Systems	—		14,035		—		14,035
Recurring	292		5,744		—		6,036
	$	33,099	$	19,779	$	—	$	52,878
Direct cost of revenues	16,035		12,692		—		28,727
Gross profit	17,064		7,087		—		24,151
Depreciation of right-of-use assets	82		182		15		279
Depreciation of property, plant and equipment	40		391		5		436
Amortization of intangibles	4,703		1,257		—		5,960
Selling, general and administrative expenses	451		3,255		2,869		6,575
Research and development expenses	—		779		—		779
Special charges	711		—		14,244		14,955
Results from operations	11,077		1,223		(17,133)		(4,833)
Finance income	(52)		(5)		(332)		(389)
Finance expense	10		349		5		364
Foreign exchange (gain) loss	(236)		74		249		87
Other income	(4)		(237)		—		(241)
Income (loss) before taxes	11,359		1,042		(17,055)		(4,654)
Current income tax expense (recovery)	54		(19)		—		35
Deferred income tax expense (recovery)	2,564		(489)		(1,132)		943
Income tax expense (recovery)	2,618		(508)		(1,132)		978
Net income (loss) from continuing operations	$	8,741	$	1,550	$	(15,923)	$	(5,632)

Adjusted EBITDA	16,628		3,089		(2,635)		17,082


	For the Six months ended June 30, 2019
CONTINUING OPERATIONS	Licensing		Intelligent Systems		Corporate		Total
Revenues
License	$	69,527	$	—	$	—	$	69,527
Systems	—		21,483		—		21,483
Recurring	963		10,711		—		11,674
	$	70,490	$	32,194	$	—	$	102,684
Direct cost of revenues	33,038		21,596		—		54,634
Gross profit	37,452		10,598		—		48,050
Depreciation of right-of-use assets	381		355		30		766
Depreciation of property, plant and equipment	95		793		10		898
Amortization of intangibles	9,394		2,515		—		11,909
Selling, general and administrative expenses	983		6,395		5,441		12,819
Research and development expenses	—		1,517		—		1,517
Special charges	2,435		—		14,244		16,679
Results from operations	24,164		(977)		(19,725)		3,462
Finance income	(76)		(8)		(574)		(658)
Finance expense	14		443		8		465
Foreign exchange (gain) loss	(491)		329		527		365
Other income	(4)		(335)		—		(339)
Income (loss) before taxes	24,721		(1,406)		(19,686)		3,629
Current income tax expense	5,248		207		—		5,455
Deferred income tax expense (recovery)	5,129		(1,285)		(777)		3,067
Income tax expense (recovery)	10,377		(1,078)		(777)		8,522
Net income (loss) from continuing operations	$	14,344	$	(328)	$	(18,909)	$	(4,893)

Adjusted EBITDA	$	36,456	$	2,761	$	(4,996)	$	34,221

Non-IFRS Disclosure
Quarterhill has historically used a set of metrics when evaluating our operational and financial performance. We continually monitor, evaluate and update these metrics as required to ensure they provide information considered most useful, in the opinion of our management, to any decision-making based on Quarterhill's performance. This section defines, quantifies and analyzes the key performance indicators used by our management and referred to elsewhere in this press release, which are not recognized under IFRS and have no standardized meaning prescribed by IFRS. These indicators and measures are therefore unlikely to be comparable to similar measures presented by other issuers.

In this press release, we use the Non-IFRS 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 right-of-use assets and property, plant and equipment; (vi) effects of deleted deferred revenue; (vii) stock-based compensation; (viii) foreign exchange (gain) loss; and (ix) equity in earnings and dividends from joint ventures. Adjusted EBITDA is used by our 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 should not be interpreted as an alternative to net income and cash flows from operations as determined in accordance with IFRS or as a measure of liquidity.

About Quarterhill
Quarterhill is a growth-oriented company in the Intellectual Property and Intelligent Transportation System (ITS) industries. Our goal is to pursue an investment strategy that capitalizes on attractive market trends in both ITS and its adjacent markets. Quarterhill is listed on the TSX under the symbol QTRH and on the OTCQX Best Market under the symbol QTRHF. 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 27, 2020 annual information form for the year ended December 31, 2019 (the "AIF"). Copies of the AIF may be obtained at www.sedar.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.

All trademarks and brands mentioned in this release are the property of their respective owners.

Quarterhill Inc.
Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income and (Loss)
(Unaudited)
(in thousands of Canadian dollars, except share and per share amounts)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Revenues
License	$	68	$	32,807	$	9,817	$	69,527
Systems	11,138		14,035		19,141		21,483
Recurring	5,618		6,036		9,479		11,674
	16,824		52,878		38,437		102,684
Direct cost of revenues
License	3,063		16,035		8,803		33,038
Systems	6,594		9,181		12,574		14,224
Recurring	2,999		3,511		5,466		7,372
	12,656		28,727		26,843		54,634
Gross profit	4,168		24,151		11,594		48,050
Operating expenses
Depreciation of right-of-use assets	237		279		481		766
Depreciation of property, plant and equipment	247		436		471		898
Amortization of intangibles	4,848		5,960		9,590		11,909
Selling, general and administrative expenses	5,826		6,575		12,121		12,819
Research and development expenses	555		779		1,424		1,517
Impairment losses on intangibles	233		—		233		—
Special charges	659		14,955		872		16,679
	12,605		28,984		25,192		44,588
Results from operations	(8,437)		(4,833)		(13,598)		3,462
Finance income	(160)		(389)		(382)		(658)
Finance expense	118		364		214		465
Foreign exchange (gain) loss	(3)		87		(585)		365
Other income	(431)		(241)		(809)		(339)
(Loss) income before taxes	(7,961)		(4,654)		(12,036)		3,629
Current income tax expense	78		35		1,344		5,455
Deferred income tax (recovery) expense	(3,052)		943		(3,481)		3,067
Income tax (recovery) expense	(2,974)		978		(2,137)		8,522

Net loss from continuing operations	$	(4,987)	$	(5,632)	(9,899)		(4,893)
Net income (loss) from discontinued operations	$	14,455	$	(306)	14,255		(1,092)
Net income (loss)	$	9,468	$	(5,938)	4,356		(5,985)
Other comprehensive income (loss) that may be reclassified subsequently to net income (loss):
Foreign currency translation adjustment	$(11,188)		$(4,290)		9,875		(8,869)
Comprehensive (loss) income	$(1,720)		$(10,228)		14,231		(14,854)

Net income (loss) per share
From continuing operations	$(0.04)		$(0.05)		(0.08)		(0.04)
From discontinued operations	$0.12		$0.00		0.12		(0.01)
Net income (loss) per share - Basic	$0.08		$(0.05)		0.04		(0.05)

From continuing operations	$(0.04)		$(0.05)		(0.08)		(0.04)
From discontinued operations	$0.12		$0.00		0.12		(0.01)
Net income (loss) per share - Diluted	$0.08		$(0.05)		0.04		(0.05)

Quarterhill Inc.
Condensed Consolidated Interim Statements of Financial Position
(Unaudited)
(in thousands of Canadian dollars)

As at	June 30, 2020		December 31, 2019		January 1, 2019
Current assets
Cash and cash equivalents	$	141,515	$	87,870	$	87,029
Short-term investments	1,551		1,550		1,551
Restricted short-term investments	—		—		2,995
Accounts receivable (net of allowance for doubtful accounts)	11,858		42,925		14,719
Other current assets	218		108		124
Unbilled revenue	11,260		8,965		5,432
Income taxes receivable	353		137		270
Inventories (net of obsolescence)	10,242		8,570		8,114
Prepaid expenses and deposits	3,287		2,242		2,927
	180,284		152,367		123,161
Non-current assets
Accounts receivable	682		3,846		565
Right-of-use assets	3,906		4,502		3,972
Property, plant and equipment	2,941		2,826		3,614
Intangible assets	70,760		89,534		119,015
Investment in joint venture	6,210		5,233		5,203
Deferred income tax assets	36,877		33,270		36,948
Goodwill	17,274		32,977		34,446
	138,650		172,188		203,763
TOTAL ASSETS	$	318,934	$	324,555	$	326,924

Liabilities
Current liabilities
Bank indebtedness	$	7,036	$	4,026	$	3,537
Accounts payable and accrued liabilities	12,106		25,755		24,644
Dividends payable	1,462		—		—
Income taxes payable	285		203		—
Current portion of lease liabilities	884		998		1,120
Contingent liabilities	—		—		1,265
Current portion of deferred revenue	4,544		8,638		6,357
Current portion of long-term debt	41		59		407
	26,358		39,679		37,330
Non-current liabilities
Deferred revenue	1,522		1,513		1,954
Long-term lease liabilities	3,002		3,550		2,604
Long-term debt	285		271		236
Deferred income tax liabilities	—		3,297		5,905
	4,809		8,631		10,699
TOTAL LIABILITIES	$	31,167	$	48,310	$	48,029

Shareholders' equity
Capital stock	$	570,591	$	570,553	$	570,553
Contributed surplus	32,207		32,011		31,252
Accumulated other comprehensive income	20,811		10,936		22,112
Deficit	(335,842)		(337,255)		(345,022)
	287,767		276,245		278,895
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	318,934	$	324,555	$	326,924

Quarterhill Inc.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited)
(in thousands of Canadian dollars)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Cash generated from (used in) Operations
Net loss from continuing operations	$	(4,987)	$	(5,632)	$	(9,899)	$	(4,893)
Non-cash items
Stock-based compensation expense	221		285		196		507
Depreciation of right-of-use assets	237		279		481		766
Interest expense on lease liabilities	56		54		112		103
Depreciation and amortization	5,095		6,396		10,061		12,807
Foreign exchange (gain) loss	(478)		(45)		(194)		(127)
Equity in earnings from joint venture	(431)		(241)		(809)		(339)
Impairment losses on intangibles	233		—		233		—
(Gain) loss on disposal of assets	(6)		785		(10)		785
Deferred income tax (recovery) expense	(3,052)		943		(3,481)		3,067
Long-term accounts receivable	—		—		—		(85)
Embedded derivatives	121		39		(101)		132
Contingent consideration adjustment	—		14,244		—		14,244
Changes in non-cash working capital balances
Accounts receivable	5,949		36,744		26,559		1,697
Unbilled revenue	(2,762)		(3,027)		(2,026)		(3,504)
Income taxes receivable	(252)		(72)		(209)		195
Inventories	(1,952)		(213)		(1,340)		(185)
Prepaid expenses and deposits	(1,474)		(278)		(1,296)		(4)
Deferred revenue	(539)		(771)		(52)		(331)
Accounts payable and accrued liabilities	(282)		(4,423)		(12,911)		4,269
Income taxes payable	45		(35)		92		49
Cash (used in) generated from continuing operations	(4,258)		45,032		5,406		29,153
Net cash flows attributable to discontinuing operations	(2,478)		928		(3,075)		869
Net cash (used in) generated from operating activities	(6,736)		45,960		2,331		30,022
Financing
Dividends paid	—		(1,473)		(1,481)		(2,975)
Bank indebtedness	4,796		2,467		2,984		2,566
Payment of lease liabilities	(271)		(420)		(586)		(871)
Repayment of long-term debt	(13)		(276)		(120)		(300)
Exercise of stock options	14		—		14		—
Common shares issued from Performance Stock Units	—		—		24		—
Cash generated from (used in) continuing operations	4,526		298		835		(1,580)
Net cash flows attributable to discontinuing operations	—		(8)		—		(19)
Net cash generated from (used in) financing activities	4,526		290		835		(1,599)
Investing
Proceeds from disposition of a subsidiary	49,400		—		49,400		—
Cash sold on disposition of a subsidiary	(1,825)		—		(1,825)		—
Proceeds from sale of property, plant and equipment	12		—		16		—
Purchase of property and equipment	(586)		(381)		(887)		(499)
Purchase of intangibles	(8)		(98)		(25)		(125)
Cash generated from (used in) continuing operations	46,993		(479)		46,679		(624)
Net cash flows attributable to discontinuing operations	(11)		(31)		(81)		(123)
Net cash generated from (used in) investing activities	46,982		(510)		46,598		(747)
Foreign exchange gain (loss) on cash held in foreign currency	(4,853)		(1,951)		3,881		(3,622)
Net increase in cash and cash equivalents	39,919		43,789		53,645		24,054
Cash and cash equivalents, beginning of period	101,596		67,294		87,870		87,029
Cash and cash equivalents, end of period	$	141,515	$	111,083	141,515		111,083

Quarterhill Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
For the six months ended June 30, 2020 and 2019
(In thousands of Canadian dollars)
	Capital Stock		Contributed Surplus		Accumulated Other Comprehensive Income		Deficit		Total Equity
January 1, 2019	$	570,553	$	31,252	$	22,112	$	(345,022)	$	278,895

Net loss	—		—		—		(5,985)		(5,985)
Other comprehensive loss	—		—		(8,869)		—		(8,869)
Stock-based compensation expense	—		507		—		—		507
Dividends declared	—		—		—		(2,975)		(2,975)
June 30, 2019	570,553		31,759		13,243		(353,982)		261,573



January 1, 2020	$	570,553	$	32,011	$	10,936	$	(337,255)	$	276,245

Net income							$	4,356	$	4,356
Other comprehensive income					$	9,875			$	9,875
Stock-based compensation expense			196						196
Exercise of options	14								14
Common shares issued from performance stock units	24								24
Dividends declared							(2,943)		(2,943)
June 30, 2020	570,591		32,207		20,811		(335,842)		287,767

Quarterhill Inc.
Reconciliations of Net loss to Adjusted EBITDA
(Unaudited)
(in thousands of Canadian dollars, except share and per share amounts)

	Three months ended June 30,
	2020				2019
	$		Per Share		$		Per Share
Net loss from continuing operations	$	(4,987)	$	(0.04)	$	(5,632)	$	(0.05)

Adjusted for:
Income tax (recovery) expense	(2,974)		(0.03)		978		0.01
Foreign exchange (gain) loss	(3)		—		87		—
Finance expense	118		—		364		—
Finance income	(160)		—		(389)		—
Special charges	659		0.01		14,955		0.13
Impairment losses on intangible assets	233		—		—		—
Amortization of intangibles	4,848		0.04		5,960		0.05
Depreciation of property, plant and equipment	247		—		436		—
Depreciation of right-of-use assets	237		—		279		—
Stock based compensation expense	221		—		285		—
Other income	(431)		—		(241)		—
Adjusted EBITDA	$	(1,992)	$	(0.02)	$	17,082	$	0.14

Weighted average number of Common Shares
Basic			118,861,166				11,817,466

Quarterhill Inc.
Reconciliations of Net loss to Adjusted EBITDA
(Unaudited)
(in thousands of Canadian dollars, except share and per share amounts)

	Six months ended June 30,
	2020				2019
	$		Per Share		$		Per Share
Net loss from continuing operations	$	(9,899)	$	(0.08)	$	(4,893)	$	(0.04)

Adjusted for:
Income tax (recovery) expense	(2,137)		(0.02)		8,522		0.07
Foreign exchange (gain) loss	(585)		—		365		—
Finance expense	214		—		465		—
Finance income	(382)		—		(658)		(0.01)
Special charges	872		0.01		16,679		0.14
Impairment losses on intangible assets	233		—		—		—
Amortization of intangibles	9,590		0.08		11,909		0.10
Depreciation of property, plant and equipment	471		—		898		0.01
Depreciation of right-of-use assets	481		—		766		0.01
Stock based compensation expense	196		—		507		—
Other income	(809)		(0.01)		(339)		—
Adjusted EBITDA	$	(1,755)	$	(0.02)	$	34,221	$	0.28

Weighted average number of Common Shares
Basic			118,861,166				11,817,466