Quarterhill Inc.

Good morning and welcome to Corder Hill's Q1 Fiscal 2022 Financial Results Conference Call. On this morning's call, we have Mr. Brett Kidd, President and CEO, and Mr. Steve Thompson, Interim Chief Financial Officer. At this time, all participants are in listen-only mode. Following the management's presentation, we will conduct a question-and-answer session, during which analysts are invited to ask questions. To ask a question, please press star 1 on your touchtone phone to register. Should you require any assistance during the call, please press star 0. Earlier this morning, Quarter Hill issued a news release announcing its financial results for the three-month period ended March 31, 2022. This news release, along with the company's MD&A and financial statements, will be available on Quarter Hill's website and will be filed on CDAR. Certain matters discussed During today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's annual information form and other public filings that are available on CDAR. During this conference call, Corder Hill will refer to adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed by the IFRS. Please refer to the company's Q1 2022 management's discussion and analysts for full cautionary notes regarding the use of forward-looking statements and non-IFRS measures. Finally, please note that all financial information provided is in Canadian dollars unless otherwise specified. I will now turn the meeting over to Mr. Kidd. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you all for joining us on today's call. Before we begin with our review and outlook, I want to take a moment to honor the memory of Michael Vladescu, YLAN CEO, who passed away last week. Michael's sudden and untimely passing was a tragic shock to the entire team at Quarter Hill, and in particular to those who worked closely with him at YLAN. Michael was appointed YLAN CEO in 2019, having previously served as COO since joining the company in 2012. Michael was active in the patent licensing industry for more than 25 years, and he was a well-regarded and recognized leader, often sought as a speaker at industry events and ranked prominently in annual rankings of IP dealmakers and influencers. But most importantly, he was a talented, hardworking and kind person who was equally loved and respected by his colleagues and those he came to know in the IP industry. I worked closely with Michael for the past five to six months, And then during that relatively short period of time, he left a big and lasting impression on me. Michael was an outstanding leader and a key driver of YLAND's success over the past 10 years. His presence will be sorely missed, and my thoughts, condolences, and prayers are with his family, friends, and colleagues during this difficult time. So in terms of the agenda for today's call, I start with a look at business highlights for Q1, followed by a discussion on our outlook and priorities. After which, Steve will take a look at the key financial results. Then we'll open it up for questions. Looking at the numbers at a high level, Q1 consolidated revenue was $168.5 million, and adjusted EBITDA was $79.1 million. These were significant increases year over year and were due primarily to the substantial contribution from our licensing business, YLAND. as well as top-line contribution from BDS and ETC ITS businesses acquired in April and September 2021, respectively. Our working capital stood at $176.9 million at quarter end, providing plenty of firepower to execute on our growth plan. YLAN's license activity in the quarter led to our significant outperformance in Q1, and once again reflects the important role that it has played in helping us execute on our ITS mandate. The patent-licensed business model has variability in its near-term quarterly financial performance, but over a longer timeframe, Wyland has consistently shown it can generate significant cash flow. Q1 was no exception. Wyland's success provided the initial capital required to pivot the business back in 2017, and it has been contributing meaningful cash flows to the ITS expansion ever since. We announced this morning that Andrew Parolin has been appointed CEO of Wyland. Andrew has been a senior executive at Wylen for nearly 15 years and represents the amazing leadership talent bench at Wylen. Most recently, Andrew was senior vice president licensing, responsible for the licensing of the company's portfolio of wireless, wireline, digital television, and other technologies. Andrew is an exceptional talent in the patent licensing industry, and during his tenure, his business unit has negotiated license agreements with more than 100 companies, including global technology leaders LG, Cisco, Nokia, Ericsson, Panasonic, and Sony. He provides great continuity with the YLAN team, as well as the Quarter Hill board and executive team, and I look forward to working even more closely with him in the months ahead. In December last year, we announced a strategic review for the YLAN business, and in Q1, we hired Stout, a global investment bank and advisory firm, as lead advisor for the review process. While it was a difficult decision to launch a process for YLAN, it was recognized that there may be better alternatives for that business than as part of a public company hold code structure, especially given Quarter Hill's strategic focus on the ITS business. Now moving to ITS. The ITS segment had contract wins in Q1 totaling approximately $75 million, including Orange County, California and Alameda County, California for ETC and Indiana for IRD. Shortly after quarter end, ETC announced a new contract with EasyPass and IRD announced another with Indiana, combined for an additional $35 million. These dollar amounts, again representing over $110 million total, do not include the option years, nor do they include change or follow-on orders, both of which are commonly associated with contracts at ETC, and both of which can have a materially higher impact on final contract value and on lifetime margins. As I mentioned at our AGM, we are very excited for the E-ZPass opportunity. Essentially, we are building an interoperability hub for 40 tolling agencies spanning 18 U.S. states. This enables seamless billing and transaction processing across all agencies, assuring that drivers from different states are charged accordingly as they travel from one state to another. This contract, combined with ETC's current operation of the central U.S. interoperability hub, effectively make ETC the interoperability provider for all tolling agencies east of the Rockies. Over time, the EZPass Interoperability Hub could become a foundation for mobility as a service transactions, where an account with any of the agencies enables you to pay for tolls, parking, mass transit, and other mobility services. That could create new opportunities for ETC to expand the nature of this relationship to include these or other services and to develop a transaction-based revenue model around them. While we've had a good run of winning new business and our implementation and new sales pipelines remain full, several factors in Q1 impacted our top and bottom lines in the ITS segment, which are largely timing-related. One is that there is seasonality in IRD's Q1 due to regular delays related to winter weather. This can impact project implementation and related billing, and we saw some of that in Q1. We see IRDs picking up in Q2 and into the second half of the year as we enter the stronger seasonal periods. IRD also had a project for which certain costs were recognized in Q1, while related revenue will be recognized in Q2 and Q3. At ETC, certain new project implementations ramped up a bit slower than expected in Q1, but again, nothing that we don't see is picking up during the remainder of the year. We're definitely not talking about any lost opportunities in any way. As an example, in one case, a customer decided to begin implementation on a series of smaller tolling lanes first, rather than starting with a larger portion of their road network, which had been originally planned. It doesn't alter the scope of the project, just the timing of the work and the receipt of the implementation revenue associated with each set of lanes. The third factor relates to the macroeconomic forces that I spoke of on our year-end call in March, which include both availability and cost of labor, and supply chain issues impacting access to certain project materials. Both had an impact in Q1, but we are working to mitigate that impact going forward. To address supply chain impacts, we are working to secure alternative sourcing, adjusting operations, and working with customers to get hardware orders in much earlier in programs. On the labor side, our ITS businesses have strong cultures, and we are doing well retaining staff, which is certainly a competitive advantage these days. To accommodate the significant amount of new business this year, we continue to add resources and are recruiting experienced hires, while also ramping up college recruiting, offshore capabilities, and other sources of technical talent. Finally, to recognize both supply chain and labor costs, we are aligning our proposals and pricing to reflect new realities. As for the outlook for the ITS segment in 2022, we have work to do, but our view has not changed from our year-end call. and we continue to expect growth for the year from the Q4 revenue run rate with an adjusted EBITDA margin in line with that generated in Q4. Looking out two to three years, we are targeting an adjusted EBITDA margin at 15%, and we'll get there through revenue expansion and a greater percentage of higher margin revenue projects as they move into the operations phase, as well as their cost savings at the corporate and segment levels. I'll spend a few minutes now discussing my top priorities for the next 12 to 24 months, which serve to underpin our growth and margin objectives. First is to focus our solutions on the top three mobility challenges today, which in our view really equate to three undeniable trends in the market. First is user-funded infrastructure and revenue generating solutions. As I've mentioned on prior calls, there is a multi-trillion dollar gap between infrastructure funds and needs. As governments struggle to finance infrastructure projects, user-funded infrastructure projects like tolling offer a fair and impactful solution. ETC is strong in this area with its tolling solutions, as is IRD, who offers tolling along with red light and speed cameras and the evolving future of weight-based charging for commercial vehicles. The second area is safety, where there are ever-growing demands for improvement. Safety is an IRD strength. with its leading way-in-motion and tire anomaly solutions for commercial vehicles and growing capabilities in red light and speed enforcement. ETC's tolling solutions also have a role here, as studies have shown that fatalities on toll roads are one-third of that on non-toll roads. Sustainability is the third industry challenge, where governments are making ever-larger commitments and they are in need of technologies to meet those commitments. Both IRD and ETC have solutions that address environmental priorities. including managed lanes and congestion pricing at ETC, and IRD's traffic management, bicycle detection, and way of motion solutions, among others. Sustainability is certainly an area where we will continue to expand in the coming years. We have a great industry reputation to leverage in these areas. For example, ETC has received the highest technical scores in every procurement it has participated in in the last three years. IRD has differentiated differentiated technical capabilities across the commercial vehicle enforcement space, and continues to expand in smart cities. And we will continue to elevate our solutions through internal development and M&A, reinforcing our strengths in sensors and software, while adding data and operational solutions that will help us move towards more transaction processing and recurring revenue models. My second priority is to continue with our strategic consolidation plan. M&A remains a core of our approach going forward, with our focus to add scale, which could be international or North America, add technologies or operational capabilities that reinforce our leadership in our current markets, and diversification via businesses that address usage, charging, safety, and or sustainability challenges in new markets. We have considerable resources to pursue M&A, but we'll continue to be patient and disciplined buyers. Looking to pay reasonable valuations, for opportunities with both good operational and financial profiles. My third priority is to continue to integrate the ITS businesses and the corporate function at Quarter Hill. We do expect to see some modest decline in corporate spend this year, but it will be more of a transition year as we still have three portfolio companies are running the process for the YWAM business and as we carefully optimize cost in the fast-growing ITS businesses. Savings will increase further in 2023 and beyond, A larger portion of savings will take some time as some elements, especially third-party services like insurance and IT contracts, have set expiration dates. The integration between IRD and ETC will focus on revenue, technological, and operational synergies. Cost efficiencies will be realized, but given that we are in growth mode at both businesses, these will require extra care. On our Q2 call, I'll provide some additional detail on our integration plan and the savings we believe can be achieved in 2023. On the personnel front, one of my top priorities is to appoint a full-time CFO. The search is well underway and we have made good progress. We've narrowed down the field of candidates and expect to have an announcement in due course. At the board level, we have added new leadership and expertise geared to the ITS strategy. Rusty Lewis, Pamela Steer, and Kim Stevenson have all joined the board since March. I spoke about Pam and Rusty on our last call, but just today we announced that Kim would be joining the board. Kim has had a distinguished career in the tech industry, having held leadership roles at Intel, Lenovo, HP, EDS, and IBM. And most recently, she was responsible for a $6 billion P&L at NetApp, leading their foundational data service business unit. Of note, during her eight years at Intel, Kim advanced progressively senior roles that included Chief Information Officer and Chief Operating Officer for Intel's Internet of Things unit, which focused on Intel's expansion into automotive technologies. Kim is currently on the board of MyTech Systems and spent five years on the board at Skyworks, both NASDAQ-listed companies, and both with capabilities central to ITS. Skyworks is a $5 billion leader in wireless networking, Internet of Things, and 5G semiconductor technologies, including automotive applications like cellular telematics, LIDAR, radar, and camera technologies, and vehicle-to-everything communication. MyTech is a global leader in mobile capture and digital identity verification solutions built on AI and machine learning, which is also very relevant to our ITS business. We look forward to drawing on Kim's extensive tech background. and our knowledge and experience in emerging fields like AI, mobile capture, IoT, and their applications to the automotive industry to help us broaden our leadership in ITS. In closing, we are very excited with the opportunity in front of us today and are well-positioned to execute on our organic and M&A growth plan. ITS industry tailwinds are significant and remain in place even in tumultuous markets. We have a $4 billion organic sales pipeline in ITS, We have strong M&A deal flow that's being generated internally from both ETC and IRD, as well as from our network of third-party advisors. We have a leadership team and a board experienced in ITS and M&A, and we have a strong balance sheet giving us great flexibility to grow.

With that, at this point, I will hand it over to Steve to talk through the financials. Steve?