Though its headquarters have now shifted from the National Capital Region to southern Ontario, Quarterhill’s (TSX:QTRH) first quarter earnings released Thursday demonstrate the value of its ongoing Ottawa operations to the evolving business.
Quarterhill chief financial officer Shaun McEwan confirmed to OBJ Thursday that the company has officially changed its corporate headquarters from Ottawa, where its WiLAN patent licensing division is based, to Kitchener. He said the recent executive hires of CEO Doug Parker, as well as new senior vice-presidents of human resources and corporate development, are all based in southern Ontario, so the HQ relocation just made logistical sense. McEwan said Quarterhill expects to add a few new hires to the Kitchener office in the near future.
“We're building out that office as part of building out Quarterhill,” he said.
Quarterhill was born in 2017 when Ottawa’s WiLAN pivoted beyond its traditional patent licensing business to acquire companies in the industrial Internet of Things sector. With the acquisitions of Saskatoon’s International Road Dynamics and Hamilton-based Viziya, the resultant company diversified its revenue streams with software and services verticals – an attempt to balance out the “lumpiness” of WiLAN’s business, which depends heavily on legal judgments, out-of-court settlements and large licensing deals.
That variability can be both a blessing and a curse for Quarterhill, as illustrated in its most recent quarter. Quarterhill brought in revenues of $40 million for the three-month period ending March 31, up from $12 million a year previous. That spike in revenue, largely attributed to a $25-million increase in the WiLAN business, swung Quarterhill to a $29,000 quarterly profit from a $12-million loss a year ago. (All figures in USD.)
The WiLAN highs can mean strong cash flow for the company if it strings together a few strong months or lands a landmark patent win, but the lows can hurt Quarterhill’s bottom line and make predicting the quarter-to-quarter performance difficult. The addition of IIoT and enterprise software verticals add some much-needed predictability to the publicly traded company’s balance sheets, McEwan says.
“That variability is something that we're trying to mitigate against with the creation of Quarterhill.”
Quarterhill’s WiLAN division recently underwent restructuring that saw job cuts and lease facilities reduced at its Kanata offices. Roughly 25 people work at WiLAN in Ottawa today.
The WiLAN business will remain a significant part of the operation going forward, McEwan said Thursday. While the recent acquisitions provide reliable organic growth, the high ends of WiLAN’s earning potential can’t be beat.
“Even when Viziya or IRD are firing on all 12 cylinders, the reality is they can't generate $30 million in EBITDA in a year,” he says.