Quarterhill Inc.

Good morning and welcome to Quarter Hill's Q3 2025 Financial Results Conference Call. On this morning's call, we have Chuck Myers, CEO, and David Cheran, Chief Financial Officer. At this time, all participants are in listen-only mode. Following 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 touch-tone phone to register. Should you require any assistance during the call, please press star zero. Earlier this morning, Quarter Hill issued a news release announcing its financial results for the three and nine months ended September 30, 2025. This news release, along with the company's MD&A and financial statements, are available on ZR Plus. 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 Sutter Plus. During this conference call, Quarterhill will refer to adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed by IFRS. Please refer to the company's Q3 2025 MD&A 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 U.S. dollars, unless otherwise specified. I will now turn the meeting over to Mr. Myers. Please go ahead, sir.

Good morning, everyone, and thank you for joining us on today's call. In terms of agenda, I'll discuss the highlights for the quarter, after which David Cherone will take a look at key financial results. Following David, we'll open it up for questions. Looking at the Q3 results, our performance reflects significant progress on the turnaround and marks an important inflection point for Quarter Hill. Revenue increased year over year. Adjusted EBITDA was positive $1.4 million and more than $4 million swing from Q2. and we generated 6.4 million of positive cash from operations. Importantly, we also grew cash on the balance sheet to more than 24 million, even while reducing debt for the quarter. As a reminder, on our Q2 call, we laid out a four-point plan to strengthen the business, improve margins, and return to consistent positive cash flow. We made significant progress on each element in Q3, which enables us to now largely pivot our focus to growth and higher margin performance. One, during Q3, we took decisive steps to right-size the organization and improve financial performance. We reduced approximately 100 positions, about 15% of our total workforce, across both contract and full-time roles. The financial impact of this restructuring is meaningful. The majority of the changes were within our cost of sales line and should save us approximately $12 million annually. Subsequent to the quarter end, we executed a smaller reduction of approximately 20 positions, focused throughout the business. The benefit of this follow-on action will begin to show up in Q4 and further strengthen our cost structure going into the new year. Throughout this process, our commitment to service delivery has not wavered. These changes are about increasing efficiency, sharpening execution, and positioning the business to scale profitably, not cutting corners that would impact customers. And importantly, these actions have helped create the financial capacity and operational focus required to pivot toward growth. Two, a significant development in Q3 was the successful mediation and renegotiation of an underperforming contract, which we announced on August 31st. Earlier in the year, this contract was generating approximately $1 million in monthly losses. Through the renegotiation, we have restructured the arrangement to be profitable going forward. This was the right decision for the long-term health of the company, and it eliminates the largest source of operating drag we faced over the past year and allows us to redeploy capital and focus towards higher emerging opportunities. The remaining commercial matters on a second, smaller contract have also improved. These are now being managed through a normal course of business channels and don't constrain our outlook. With this successful changes behind us, the financial impact of legacy issues is hardly resolved and we can increasingly focus on growing the business from a stronger foundation. Three, growing the top line with higher margin business. In Q3, we continue to convert pipeline into revenue and are winning work with better economics. Year to date, We've added $137 million in change orders and wins across both business units. Our safety and enforcement unit delivered another quarter of top-line growth and gross margins that were above 40%. The unit secured multiple contracts wins, including a modernization initiative in Arkansas to improve freight movement using advanced AI-enabled inspection technology, and a project in Washington State to enhance truck parking safety along the I-5 corridor. Our Ithea product continues to gain market traction with recent deployments in Pennsylvania, Oklahoma, and New York and Oregon. These wins demonstrate how we are capitalizing on growing demand for non-intrusive AI-driven solutions that provide real-time traffic data while prioritizing safety and privacy. In our tolling business, we were awarded follow-on work with an existing customer to extend capabilities on a major express lane corridor. This work expands and strengthens our longstanding relationship. These wins reinforce the confidence that transportation agencies have in our technology, our teams, and our track record of delivery. Our roughly $2 billion pipeline gives us strong visibility into future growth with active pursuits in both toiling and enforcement. We're also maintaining strict commercial discipline, ensuring every contract we bid is cash positive throughout implementation. It's a meaningful shift that strengthens financial performance as we scale the business. Four, we're investing in next-gen technology. We continue to invest in our next-generation technology platform built on microservices and AI architecture. This platform is designed to increase the mix of recurring higher-margin software revenue, reduce development costs through reuse and scalability, and enable faster expansion into the adjacent segments of the ITS market. The platform brings important enhancements and advancements for our customers, including AI-driven vehicle identification, predictive analytics, and anomaly detection to improve accuracy, reduce revenue leakage, and support faster issue resolution. By unifying data from field to back office with automation and real-time insight, we're helping agencies operate more efficiently while enhancing traveler experience and safety. This work is critical to our long-term strategy, delivering more software-enabled value, expanding margins, and differentiating Quarter Hill as a technology leader in the industry. As evidence of our progress, we recently demonstrated our agentic AI customer service model to a large group of our industry customers at the IBTTA in Denver. Our outlook, as we are entering Q4 with a stronger operational footing, a healthier contract portfolio, and improved profitability. The work to stabilize and simplify the business is largely complete, and we are shifting more of our attention to capturing growth and expanding margins. Our priorities remain straightforward and unchanged. Drive top-line growth in both polling and safety and enforcement, sustain margin improvement through disciplined execution, and maintain positive cash generation on a strong balance sheet. We believe successful delivery against these objectives will lead to a more resilient business and will create increasing value for our shareholders. In conclusion, I would like to thank our teams for their focus and commitment during this transformational period. The results demonstrate that the strategy is working and we are turning the corner towards a more predictable, profitable, growth-oriented future. With that, I'll turn it over to Dave to discuss our financial results in more detail.

Thank you, Chuck, and good morning, everyone. I'll start the financial review with a look at revenue in the quarter and year-to-date period with a reminder that all figures are in U.S. dollars. Q3 revenue was $39.7 million, up 4.5% from Q3 last year. Year-to-date revenue was $116.7 million, up 2%. The Q3 increase was due to the growth in both the safety and enforcement and tolling business units. At quarter end, we continue to have significant backlog of more than $427 million providing good visibility into revenue for the next several years. A large portion of the backlog is higher margins revenue, which we expect will drive higher margins in the future. The gross margin in Q3 increased significantly both year-over-year and sequentially. The gross margin percentage was 26% in Q3 compared to 13% in Q3 last year, and 15% in Q2 of 2025. The increase year-over-year and sequentially is due to the Q3 restructuring, the renegotiation of certain tolling contracts, and continued strong margin performance from the Safety and Enforcement Business Unit. Total operating expenses for Q3 were $13.7 million compared to $11.3 million in Q3 last year. The increase in Q3 and the year-to-date period is primarily due to investments in leadership and resources for our project, bid, and product development teams. While the restructuring we announced in Q3 was focused mainly on the cost of sales line, we see the potential to generate additional OPEX savings through rationalizations in certain third-party IT contracts as those agreements come up for renewal over the next 12 months. In addition, as Chuck mentioned, In Q4, we undertook a smaller REF of about 20 employees and whose savings will be partially reflected in Q4 and fully thereafter. Q3 adjusted EBITDA was $1.4 million compared to negative $2.8 million in Q3 last year and negative $2.7 million in Q2 of 2025. This significant improvement year-over-year and sequentially reflects the actions previously discussed regarding revenue and cost of sales as well as continued strength in the safety and enforcement unit. We expect our margin profile to continue to improve in future periods, though there may be some variability from quarter to quarter, depending on the timing of new contracts and or seasonal factors. Q3 was a strong quarter for cash flow, with the company generating $6.4 million in cash flow operations compared to cash used in operations of $1.7 million in Q3 last year. Cash from operations in Q3 benefited from the restructuring, the contract renegotiation, and the improvement in working capital, specifically the focus on reducing unbilled revenues. Turning now to the balance sheet, our cash balance grew sequentially to $24.1 million at the end of Q3, up from $22.7 million in Q2 of 2025. Both our convertible debentures and bank debt mature in the fall of 2026, are classified as current liabilities. We are looking forward to having discussions with both current and potential lenders regarding the refinancing of our credit facilities, including the long-term debt and converts. These efforts reflect our commitment to optimizing our capital structure and enhancing financial flexibility. And I'll turn the call back over to Chuck for his closing comments.