Ottawa’s Quarterhill fails to impress investors with record Q3 revenues

IoT
For illustrative purposes only.

Quarterhill’s share price dove more than nine per cent this morning as investors remained unconvinced that the company can sustain its uneven growth.

Ottawa-based Quarterhill (TSX:QTRH)(NASDAQ:QTRH) said Thursday that its revenues for the three-month period ending Sept. 30 were $85.9 million, exceeding the high end of its own guidance of $82.5 million. Its revenues a year ago, when it was a slimmer company with a narrower market focus, was $16.6 million.

Similarly, Quarterhill’s net income for the quarter was $26.2 million as compared to $700,000 last year.

The substantial year-over-year change in revenues stems from the volatile nature of the patent licensing industry that Quarterhill subsidiary WiLAN operates in. Revenues can fluctuate substantially from one quarter to another based on the timing of out-of-court license settlements and legal rulings.

During the firm’s quarterly earnings call, interim CEO Shaun McEwan urged investors to look at the firm’s “long-term value rather than quarter-by-quarter numbers.”

Acquisitions impact

Quarterhill is a holding company with a portfolio that currently includes three companies: Patent licensing firm WiLAN, transportation technology company International Road Dynamics and Viziya, which develops software to enhance ERP-based asset maintenance systems such as Oracle products.

IRD and Viziya were both acquired by Quarterhill earlier this year as it shifted its market focus to the industrial Internet of Things.

IRD and Viziya contributed $11.6 million and $1.8 million to third quarter revenues, respectively.

Mr. McEwan expressed his continued confidence in both acquisitions, but said the two divisions underperformed in part due to inclement weather in the United States. Damaging hurricanes in the south hampered IRD’s ability to deliver on contracts, for example, which was reflected in its revenues on the quarter.

Shaun
Interim Quarterhill CEO Shaun McEwan

Regulatory filings also indicates Viziya’s division is struggling to find sales traction within a depressed oil and gas sector.

Mr. McEwan also noted during the call that a backlog in its accounts receivables near the quarter’s close have meant a layover in revenue, expected to be reported in Q4.

When asked why Quarterhill had underestimated its anticipated quarterly revenue in an update last month, Mr. McEwan said the firm was still adjusting to the revenue reporting processes for its two new acquisitions.

“It’s a combination of all three businesses finally coming together and having slightly different performances than we expected in our guidance,” he said.

Quarterhill continues to execute on the acquisitions strategy it adopted earlier this year. Mr. McEwan told investors and analysts on the earnings call that the firm is currently in discussions with roughly a dozen firms in the industrial internet of things market.

This past quarter, the firm closed a “tuck-in” acquisition with IRD, purchasing a Belgian radar microwaves manufacturing firm.

Quarterhill shares were down 9.1 per cent, or 24 cents, to $2.41 on the Toronto Stock Exchange in early afternoon trading.