QUARTERHILL INC.
2023 Annual Report
Table of Contents
1
23
24
28
32
76
77
Management’s Discussion & Analysis
Management’s Report
Auditor’s Report
Consolidated Financial Statements
Notes to Financial Statements
Directors and Officers
Corporate Information
Management’s Discussion and Analysis
For the three months and year ended December 31, 2023 and 2022
Quarterhill Inc.
March 14, 2024
Contents
INTRODUCTION ...................................................................................................................................................................... 3
FOURTH QUARTER 2023 HIGHLIGHTS ................................................................................................................................. 4
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ............................................................................ 5
NON-IFRS FINANCIAL MEASURES AND NON-IFRS RATIOS ................................................................................................ 5
DESCRIPTION OF OUR BUSINESS ......................................................................................................................................... 7
BUSINESS COMBINATIONS ................................................................................................................................................... 8
OVERALL PERFORMANCE ...................................................................................................................................................... 9
SELECTED CONSOLIDATED ANNUAL AND QUARTERLY RESULTS .................................................................................. 13
CAPITAL AND LIQUIDITY ...................................................................................................................................................... 14
CONTRACTUAL OBLIGATIONS ............................................................................................................................................ 15
OUTSTANDING COMMON SHARE DATA............................................................................................................................ 16
OFF-BALANCE SHEET ARRANGEMENTS ............................................................................................................................. 16
RELATED PARTY TRANSACTIONS ........................................................................................................................................ 16
PROPOSED TRANSACTIONS ................................................................................................................................................ 16
CRITICAL ESTIMATES ............................................................................................................................................................ 17
FUTURE ACCOUNTING PRONOUNCEMENTS .................................................................................................................... 18
RISKS AND UNCERTAINTIES ................................................................................................................................................ 18
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING ................. 20
2
MD&A
INTRODUCTION
This Management’s Discussion and Analysis of Quarterhill Inc. (this “MD&A”) is dated March 14, 2024. References
in this MD&A to “Quarterhill”, “the Company”, “we”, “us” and “our” refer to Quarterhill Inc. and its consolidated
subsidiaries during the periods presented, unless the context requires otherwise. References to “Common
Shares” in this MD&A refer to common shares in the capital of Quarterhill. References to “Convertible Debentures”
in this MD&A refer to Quarterhill’s 6.0% Convertible Unsecured Subordinated Debentures due October 30, 2026.
The Common Shares and Convertible Debentures are listed under the symbols “QTRH” and “QTRH.DB”
respectively on the Toronto Stock Exchange (the “TSX”) and the Common Shares are listed on the United States
OTCQX Best Market (the “OTCQX”) under the symbol “QTRHF”.
Quarterhill is a growth-oriented Canadian company operating in the intelligent transportation system (“ITS”)
industry. We are a global leader in ITS that manages attractive technology companies in the intelligent
transportation systems industry and its adjacent markets.
This MD&A provides information for the three months and year ended December 31, 2023 and up to and including
March 14, 2024. This MD&A should be read in conjunction with Quarterhill’s consolidated financial statements
(“financial statements”) and the notes thereto for the year ended December 31, 2023, which have been prepared
in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”).
Unless otherwise indicated, all financial information in this MD&A is reported in thousands of Canadian dollars,
except for Common Share and earnings per share data which is reported in number of Common Shares and
Canadian dollars respectively. The tables and charts included in this document form an integral part of this MD&A.
This MD&A has been prepared with reference to National Instrument 51-102 - Continuous Disclosure Obligations
of the Canadian Securities Administrators. Additional information filed by us with the Canadian Securities
Administrators, including quarterly reports, annual reports and our Annual Information Form for the year ended
December 31, 2023 (our “AIF”), is available online at www.sedarplus.ca and also on our website at
www.Quarterhill.com.
Quarterhill and our operating subsidiaries operate in ever-changing business and competitive economic
environments that expose us to a number of risks and uncertainties, many of which are discussed under the
heading “Risks and Uncertainties” in this MD&A and/or under the heading “Risk Factors” in our AIF available online
at www.sedarplus.ca.
Our management is responsible for establishing appropriate information systems, procedures and controls to
ensure that all financial information disclosed externally, including in this MD&A, and used internally by us, is
complete and reliable. These procedures include the review and approval of our financial statements and
associated information, including this MD&A, first by our management’s Disclosure Committee, then by the Audit
Committee of our Board of Directors (the “Board”) and, finally, by our Board as a whole.
Three months and year ended December 31, 2023
2
3
Three months and year ended December 31, 2023 and 2022
MD&A
FOURTH QUARTER 2023 HIGHLIGHTS
Business Performance and Future Business Developments
Revenues for the three months and year ended December 31, 2023 were $58,451 and $194,316 compared to
$40,142 and $159,334 in the comparative prior year period, respectively. The increase in revenue is primarily
driven by stronger performance in our North American tolling and enforcement revenue streams.
During the three months and year ended December 31, 2023, through our wholly owned subsidiaries, we
announced new long-term customer contracts worth approximately $6.9 million and $35.3 million in lifetime
contract value to provide a variety of ITS products, solutions and services to US government agencies. The initial
term of these contracts currently ranges from one to three years with renewal options to extend services.
Our tolling business launched the operation of the E-ZPass Interoperability Hub with all E-ZPass InterAgency
Group (“IAG”) members now utilizing the new Hub. The Hub will help IAG members provide a seamless tolling
experience for their customers across interstate lines, with less time and effort than before. The tolling business
also went live on select roadways with both the Central Texas Regional Mobility Authority (“CTRMA”), in Austin,
Texas, and with the Orange County Transportation Authority (“OCTA”), in Orange County, California. Additional
roadways for both CTRMA and OCTA are expected to go-live in 2024.
Three months and year ended December 31, 2023
3
4
Three months and year ended December 31, 2023 and 2022
MD&A
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements and forward-looking information within the meaning of
Canadian securities laws, including such statements relating to:
assumptions and expectations described in our critical accounting policies and estimates;
•
• our expectation regarding the adoption and impact of certain accounting pronouncements;
• our expectation regarding the growth rates of our subsidiaries’ businesses;
• our estimates regarding our effective tax rate;
• our expectations regarding our ability to acquire additional businesses to further our growth; and
• our expectations with respect to the sufficiency of our financial resources.
The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “would”, “intend”, “believe”, “plan”, “continue”,
“project”, “could”, the negatives of these words or other variations on these words, comparable terms and similar
expressions are intended to identify forward-looking statements and forward-looking information. Forward-
looking statements and forward-looking information are based on estimates and assumptions made by us in light
of our experience and our perception of historical trends, current conditions and expected future developments,
as well as other factors that we believe are appropriate in the circumstances.
We provide forward-looking statements and forward-looking information to assist external stakeholders in
understanding our management’s expectations and plans relating to the future as of the date of this MD&A and
such statements and information may not be appropriate for any other purposes. The forward-looking
statements and forward-looking information in this MD&A are made as of the date of this MD&A only. We have
no intention and undertake 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.
NON-IFRS FINANCIAL MEASURES AND NON-IFRS RATIOS
Non-IFRS Financial Measures and Non-IFRS Ratios
Quarterhill uses both IFRS and certain non-IFRS financial measures to assess performance. Non-IFRS financial
measures are financial measures disclosed by a company that (a) depict historical or expected future financial
performance, financial position or cash flow of a company, (b) with respect to their composition, exclude amounts
that are included in, or include amounts that are excluded from the composition of the most directly comparable
financial measure disclosed in the primary financial statements of the company, (c) are not disclosed in the
financial statements of the company and (d) are not a ratio, fraction, percentage or similar representation. Non-
IFRS ratios are financial measures disclosed by a company that are in the form of a ratio, fraction, percentage or
similar representation that has a non-IFRS financial measure as one or more of its components, and that are not
disclosed in the financial statements of the Company.
Three months and year ended December 31, 2023
4
5
Three months and year ended December 31, 2023 and 2022
MD&A
These non-IFRS financial measures and non-IFRS ratios are not standardized financial measures under IFRS, and,
therefore, are unlikely to be comparable to similar financial measures presented by other companies.
Management believes these non-IFRS financial measures and non-IFRS ratios provide transparent and useful
supplemental information to help investors evaluate our financial performance, financial condition, and liquidity
using the same measures as management. These non-IFRS financial measures and non-IFRS ratios should not be
considered as a substitute for, or superior to, measures of financial performance prepared in accordance with
IFRS.
Adjusted EBITDA - Non-IFRS Financial Measures
In this MD&A, we use the non-IFRS financial measure “Adjusted EBITDA” to mean net (loss) income adjusted for
(i) income taxes, (ii) finance expense or income; (iii) amortization and impairment of intangibles; (iv) other charges
and other one-time items; (v) depreciation of right-of-use assets and property, plant and equipment; (vi) stock-
based compensation; (vii) foreign exchange (gain) loss; (viii) other income which includes equity in earnings from
joint ventures; (ix) dividends received from joint ventures; and (x) changes in fair value of derivative liability.
Adjusted EBITDA is used by our management to assess our normalized cash generated. Adjusted EBITDA is also
a performance measure that may be used by investors to analyze the cash generated by Quarterhill. Adjusted
EBITDA should not be interpreted as an alternative to net loss and cash flows from operations as determined in
accordance with IFRS or as a measure of liquidity. The most directly comparable IFRS financial measure is Net
(loss) income. See the Reconciliation of Net (Loss) Income to Adjusted EBITDA within the Overall Performance
section of this MD&A.
Adjusted EBITDA per share – Non-IFRS ratio
Adjusted EBITDA per share is calculated as Adjusted EBITDA divided by the basic weighted average of Common
Shares. Adjusted EBITDA per share is used by our management and investors to analyze cash generated by
Quarterhill on a per share basis. The most comparable IFRS measure is earnings per share.
Supplementary Financial Measures
Supplementary financial measures are financial measures disclosed by a company that (a) are, or are intended to
be, disclosed on a periodic basis to depict the historical or expected future financial performance, financial
position or cash flow of a company (b) are not disclosed in the financial statements of the company, (c) are not
non-IFRS financial measures, and (d) are not non-IFRS ratios.
Key supplementary measures disclosed in this MD&A are as follows:
Gross margin %
Calculated as gross profit as a percentage of revenue.
Working capital
Calculated as total current assets minus total current liabilities.
6
Three months and year ended December 31, 2023
5
Three months and year ended December 31, 2023 and 2022
DESCRIPTION OF OUR BUSINESS
Quarterhill is a disciplined manager and acquirer of established ITS companies. Our goal is to pursue both organic
and inorganic growth that capitalizes on attractive market trends in the ITS industry and its adjacent markets.
Additionally, in appropriate circumstances, we may also divest certain assets if favourable conditions for such a
MD&A
divestiture are presented.
Strategy
We are focusing our business on building a consistently profitable company through the management and growth
of companies in the ITS industry and its adjacent markets.
We believe that if we increase the share of our revenue derived from recurring sources we will also increase the
predictability of our revenues and cash flows. This will allow us to better scale our operations to ensure we meet
our strategic mandate of operating profitably regardless of the prevailing economic market conditions as we
grow both organically and through acquisitions. In appropriate circumstances, we may also divest certain
assets if favourable conditions for such a divestiture are presented, exemplified by the sale of WiLAN. On
December 28, 2023, the Company disposed of its net investment in PAT Traffic, a foreign subsidiary operating in
Latin America.
Our existing businesses are fully described in more detail in our AIF.
Our Business
Our businesses are focused on enhancing safety, mobility, efficiency and environmental performance across road
and other transportation infrastructure by providing ITS, products, solutions and services. Based on market
research, we believe the global ITS industry is expected to exceed US$90 billion by 2025, influenced by major
driving factors such as infrastructure spending, public safety, traffic congestion, smart city development and
environmental impact. We believe that we are well positioned to capitalize on these trends.
Our businesses are leading providers of essential ITS products, solutions and services with more than 60 years
of combined experience in areas such as commercial vehicle enforcement and tolling. Our customers
include government transportation and tolling agencies, traffic engineering operators and industrial, and
transportation service companies worldwide.
We have predictable and recurring revenue streams derived from selling ITS systems, products and solutions
through long-term customer relationships and recurring service contracts. Our businesses offer a portfolio of
integrated hardware and software to detect, measure and analyze a variety of transportation metrics which
produces a valuable source of analytics and telematics for users. With a variety of product and service offerings
throughout our operations in North America and Europe, we believe there is an abundance of opportunity to
create scale and efficiencies.
Three months and year ended December 31, 2023
6
7
Three months and year ended December 31, 2023 and 2022 Former Licensing Segment
On June 15, 2023, we disposed of our investment in WiLAN, which represented our licensing segment in its
entirety, for adjusted net proceeds of $54,286 through a combination of cash and equity consideration. Net
income (loss) from discontinued operations for the three months and year ended December 31, 2023 were $nil
and $(21,809), respectively. Included in the net loss for the year ended December 31, 2023 is a $11,505 loss on
sale of WiLAN. Net (loss) income for the three months and year ended December 31, 2022 were $(1,144) and
MD&A
$56,917, respectively.
BUSINESS COMBINATIONS
We remain focused on building robust cash flows and controlling expenses throughout all our businesses to
facilitate a healthy and sustainable balance sheet capable of supporting both our organic and acquisitive growth
strategies.
8
Three months and year ended December 31, 2023
7
Three months and year ended December 31, 2023 and 2022
OVERALL PERFORMANCE
Consolidated Statements of (Loss) Income
Revenues
Direct cost of revenues
Gross profit
Operating expenses
Selling, general and administrative expenses
Research and development expenses
Depreciation of right-of-use assets
Depreciation of property, plant and equipment
Amortization of intangible assets
Impairment and other charges
Results from operations
Finance income
Finance expense
Foreign exchange loss (gain)
Other (income) loss
Change in fair value of derivative liability
Loss before taxes
Current income tax (recovery) expense
Deferred income tax expense
Income tax expense
Net loss from continuing operations
Net (loss) income from discontinued operations
Net (loss) income
x
Other comprehensive (loss) income that may be
reclassified subsequently to net (loss) income:
Foreign currency translation adjustment
Comprehensive (loss) income
x
(Loss) income per share - Basic
From continuing operations
From discontinued operations
(Loss) income per share - Basic
(Loss) income per share - Diluted
From continuing operations
From discontinued operations
(Loss) income per share - Diluted
MD&A
Three months ended December 31, Year ended December 31,
2023
2022
2023
2022
$58,451
46,934
11,517
9,166
983
510
529
3,232
7,048
21,468
(9,951)
(812)
2,328
2,272
(122)
1,757
(15,374)
396
(156)
240
(15,614)
-
(15,614)
$40,142
$194,316
$159,334
29,976
10,166
153,719
40,597
121,525
37,809
11,927
586
747
644
2,833
4,285
21,022
(10,856)
(140)
2,586
(147)
665
(332)
(13,488)
(713)
6,170
5,457
(18,945)
(1,144)
(20,089)
35,025
4,268
2,047
2,163
11,590
9,619
64,712
(24,115)
(1,379)
9,058
1,732
(996)
1,248
(33,778)
(3,021)
13,045
10,024
(43,802)
(21,809)
(65,611)
48,616
2,539
2,327
2,234
11,620
20,292
87,628
(49,819)
(390)
9,763
(2,816)
(1,439)
(7,655)
(47,282)
276
6,593
6,869
(54,151)
56,917
2,766
(3,004)
($18,618)
(1,451)
(2,101)
($21,540)
($67,712)
16,313
$19,079
($0.14)
-
($0.14)
($0.14)
-
($0.14)
($0.17)
($0.01)
($0.18)
($0.17)
($0.01)
($0.18)
($0.38)
($0.19)
($0.57)
($0.38)
($0.19)
($0.57)
($0.47)
0.49
$0.02
($0.47)
0.49
$0.02
Three months and year ended December 31, 2023
8
9
Three months and year ended December 31, 2023 and 2022
MD&A
Our revenue streams consist of revenues earned on contracted projects, which are generally recognized over
time, product sales, hardware and software system implementations, and service and maintenance contracts.
Service and maintenance projects generally range from one to five-year terms but can be renewed with some
contracts that could reach up to ten years or more. For project-based work, revenues will routinely vary
significantly depending on the timing and nature of the specific projects underway in each reporting period.
Revenues for the three months and year ended December 31, 2023 were $58,451 and $194,316 compared to
$40,142 and $159,334 in the prior year comparative periods, respectively. The increase in revenue for the three
months and year ended December 31, 2023 as compared to the comparative prior year period was a result of
increased activity and improved performance in North American project revenue. Project revenues in the
comparative periods were impacted by lingering after-effects of the COVID-19 pandemic, such as labour
shortages and supply chain hindrances.
Gross profit as a value and as a percentage of revenues may be subject to significant variance in each reporting
period due to the nature and type of contract and service work performed and currency volatility. Gross profit for
the three months and year ended December 31, 2023 were $11,517 and $40,597, or 20% and 21%, as compared
to $10,166 and $37,809, or 25% and 24% in the prior year comparative periods, respectively. The decrease in gross
profit margin percentage compared to the prior year periods is primarily attributed to tolling implementation
project expense overruns. These expense overruns resulted in additional unanticipated costs and a reduced
margin profile for the implementation projects. This decrease in gross profit margin was partially offset by
continuing strong performance in our enforcement operations.
Total operating expenses are comprised of selling, general and administrative costs (“SG&A”), Research and
Development (“R&D”) costs, depreciation, amortization of intangible assets and impairment and other charges.
Total operating expenses for the three months and year ended December 31, 2023 were $21,468 and $64,712
compared to $21,022 and $87,628 in the prior year comparative periods, respectively. The increase for the three
months ended December 31, 2023, was due to higher impairment and other charges, which was offset by lower
SG&A. On December 28, 2023, the Company disposed of its net investment in PAT Traffic, a foreign subsidiary
operating in Latin America. The proceeds on disposal less transaction costs of disposal and the carrying amount
of the investment resulted in a loss of $3,741. The decrease for the year ended December 31, 2023 is mainly
attributed to the cost reduction initiatives deployed by the Company and the allocation of certain selling, general
and administrative personnel costs into cost of revenues as well as the absence of a one-time legal settlement of
$14,600 that was present in the comparative period.
We are committed to continual investments in R&D to enhance our current products and advance the availability
of new products within the ITS industry. For the three months and year ended December 31, 2023, net R&D
spending levels as a percentage of revenue were approximately 1.7% and 2.2%, as compared to 1.5% and 1.6% in
the comparative prior year periods, respectively. R&D expenses compared to the prior year comparative periods
have increased as a result of the Company’s continued investment in its ITS products and services.
10
Three months and year ended December 31, 2023
9
Three months and year ended December 31, 2023 and 2022
MD&A
Income tax expense for the twelve months ended December 31, 2023 was $10,024 compared to $6,869 for the
comparative prior year period. The increase in the current period was caused by deferred tax asset write-offs
triggered by the disposition of WiLAN.
The Company is exposed to foreign exchange risk primarily relating to its revenue, operating and capital
expenditures, net assets held in foreign currencies, and embedded derivative portions of unearned revenue on
certain U.S. dollar denominated sales contracts in North America, and previously in Latin America. This is more
fully described in the Risks and Uncertainties section.
Other income includes IRD’s share of income in its joint venture, Xuzhou-PAT Control Technologies Limited
(“XPCT”). XPCT has two business divisions that provide products and services to the ITS industry and construction
equipment manufacturers. For the year ended December 31, 2023, IRD’s share of XPCT’s income was $502
compared to $1,806 for the comparative prior year period. The decrease in earnings for the year ended
December 31, 2023 in XPCT is a result of a decrease in the number of concurrent wire harness projects underway
in comparison to the same period of the prior year.
Reconciliation of Net Loss to Adjusted EBITDA
Management considers Adjusted EBITDA, a non-IFRS financial measure, to be a useful indicator for the business
to capture financial performance in a given period related to the operations of Quarterhill.
We reported Adjusted EBITDA of $3,186 and $3,832 for the three months and year ended December 31, 2023,
compared to $(1,491) and $(10,467) for the comparative prior year periods, respectively. The increase in Adjusted
EBITDA for the three months ended December 31, 2023, compared to the prior year period is due to the changes
in revenue and direct costs of revenue as previously explained. Impairment and other charges generally consist
of impairment losses, advisor fees, accounting and valuation fees, due diligence related expenses and legal fees,
restructuring charges, and other one-time items. Although these expenses may recur, they are not fundamental
to the actual operations of our businesses and, therefore, have been excluded in the calculation of Adjusted
EBITDA. The remaining adjustments relate to finance income or expense, depreciation and amortization, non-
cash stock-based compensation, equity earnings and dividends received from joint venture, change in fair value
of derivative liability, other acquisition related accounting items and other one-time charges.
From time to time, we may acquire businesses in purchase transactions that typically result in the recognition of
goodwill and other identifiable intangible assets. Acquired goodwill is not amortized but is subject to impairment
testing at least annually and as other events and circumstances dictate. Other identifiable intangible assets are
typically subject to amortization and, therefore, will likely increase future expenses. The determination of the
value of such intangible assets requires us to make estimates and assumptions. We have ascribed value to
identifiable intangible assets other than goodwill in our purchase price allocations including, but not limited to,
backlog, trade name, non-competition agreements, customers and developed software related intangible assets.
To the extent we ascribe values to identifiable intangible assets that have finite lives, we amortize those values
over the estimated useful lives of the assets.
Three months and year ended December 31, 2023
10
11
Three months and year ended December 31, 2023 and 2022
Reconciliation of Net Loss to Adjusted EBITDA
MD&A
Three months ended December 31,
2023
2022
$
Per Share [2]
$
Per Share
Net loss from continuing operations
($15,614)
($0.14)
($18,945)
($0.17)
Adjusted for:
Income tax expense
Foreign exchange gain
Finance expense, net
Other charges
Depreciation and amortization
Stock based compensation expense
Dividends received from joint venture
Change in fair value of derivative liability
Other income
Adjusted EBITDA [1]
Weighted average number of Common Shares
Basic
[1] Refer to Adjusted EBITDA - Non-IFRS Financial Measures
[2] Refer to Adjusted EBITDA per share – Non-IFRS ratios
240
2,272
1,516
7,048
4,271
978
840
1,757
(122)
$3,186
0.00
0.02
0.01
0.06
0.04
0.01
0.01
0.02
(0.00)
$0.03
5,457
(147)
2,446
4,285
4,224
284
572
(332)
665
0.05
(0.00)
0.02
0.04
0.04
0.00
0.01
(0.00)
0.01
($1,491)
($0.01)
________________ ________________ ________________ ________________
115,025,344
114,639,700
Year ended December 31,
2023
2022
$
Per Share [2]
$
Per Share
Net loss from continuing operations
($43,802)
($0.38)
($54,151)
($0.47)
Adjusted for:
Income tax expense
Foreign exchange gain
Finance expense, net
Other charges
Depreciation and amortization
Stock based compensation expense
Dividends received from joint venture
Change in fair value of derivative liability
Other income
Adjusted EBITDA [1]
Weighted average number of Common Shares
Basic
[1] Refer to Adjusted EBITDA - Non-IFRS Financial Measures
[2] Refer to Adjusted EBITDA per share – Non-IFRS ratios
10,024
1,732
7,679
9,619
15,800
1,688
840
1,248
(996)
$3,832
0.09
0.02
0.07
0.08
0.14
0.01
0.01
0.01
(0.01)
$0.04
6,869
(2,816)
9,373
20,292
16,181
1,589
1,290
(7,655)
(1,439)
0.06
(0.02)
0.08
0.18
0.14
0.01
0.01
(0.07)
(0.01)
($10,467)
($0.09)
________________ ________________ ________________ ________________
114,776,086
114,389,608
12
Three months and year ended December 31, 2023
11
Three months and year ended December 31, 2023 and 2022
MD&A
SELECTED CONSOLIDATED ANNUAL AND QUARTERLY RESULTS
Selected Annual Results
(in thousands of Canadian dollars, except per share amounts)
Revenue
Net income (loss) from continuing operations
Net income from discontinued operations
Net income (loss)
(Loss) income from continuing operations per share, basic and diluted
(Loss) income per share, basic and diluted
Dividends declared per share
Total assets
Total liabilities
Selected Quarterly Results
Year ended December 31,
2023
2022
2021
$194,316 $159,334 $125,695
(43,802)
(54,151)
(14,974)
(21,809)
56,917
(7,209)
$(65,611)
$2,766 $(22,183)
$(0.38)
$(0.47)
$(0.13)
$(0.57)
$0.02
$(0.19)
$0.0125
$0.05
$0.05
$332,079 $411,944 $427,195
$142,023 $154,284 $186,079
Revenues
Net loss
from
continuing
operations
Net loss
from
continuing
operations
per share
(basic)
Net loss
Net loss per
share (basic)
Adjusted
EBITDA *
Adjusted
EBITDA per
share
*(basic)
Quarter ended
$ 000s
$ 000s
$
$ 000s
$
December 31, 2023
September 30, 2023
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
58,451
(15,614)
45,685
(2,228)
51,865
(13,681)
38,315
(12,279)
40,142
(18,945)
42,185
(4,985)
39,240
(20,357)
37,767
(9,864)
(0.14)
(0.02)
(0.12)
(0.11)
(0.17)
(0.04)
(0.18)
(0.09)
(15,614)
(1,863)
(32,520)
(15,614)
(20,089)
(9,714)
(24,332)
56,901
(0.14)
(0.02)
(0.28)
(0.13)
(0.18)
(0.08)
(0.21)
0.49
3,186
1,935
3,901
(5,190)
(1,491)
1,015
(8,120)
(1,871)
0.03
0.02
0.03
(0.05)
(0.01)
0.01
(0.07)
(0.02)
* Adjusted EBITDA and the respective per share amounts are non-IFRS measures; please refer to "Non-IFRS Financial Measures and Non-IFRS
Ratios" and "Reconciliation of Adjusted EBITDA" sections of this MD&A.
Historically, our operating results have fluctuated on a quarterly basis and we expect that quarterly results will
continue to fluctuate in the future, as revenues derived from the ITS business may be subject to varying project
phases and seasonality. The prior periods in the table above have been adjusted to reflect only continuing
operations. Operating results for interim periods should not be relied upon as an indication of the results to be
expected or achieved in any future period or any fiscal year as a whole. The risk factors affecting our revenue and
results, many of which are outside of our control, include those set out under the heading “Risk Factors” in our
AIF.
Three months and year ended December 31, 2023
12
13
Three months and year ended December 31, 2023 and 2022
Dividends declared on the Common Shares for the years ended December 31, 2023 and 2022 were as follows:
MD&A
1st quarter
2nd quarter
3rd quarter
4th quarter
2023
2022
Per Share
Total
Per Share
Total
$0.0125
$1,433
-
-
-
-
-
-
$0.0125
$1,433
$0.0125
$0.0125
$0.0125
$0.0125
$0.0500
$1,408
1,432
1,420
1,433
$5,693
In May 2023 the Company adjusted its capital allocation strategy and announced it will no longer pay a dividend.
This decision creates financial flexibility and will best position the business to generate value through a capital
allocation strategy focused on supporting the growth of the ITS business.
CAPITAL AND LIQUIDITY
The Company’s capital management objectives are to maintain financial flexibility in order to pursue its strategy
of organic growth and acquisition, and, from time to time, return capital to shareholders. The Company defines
our capital as cash, the aggregate of cash and cash equivalents, short-term investments, restricted short-term
investments, long-term debt, convertible debentures and shareholders’ equity. The Company manages its capital
structure in accordance with changes in economic conditions. To maintain or adjust its capital structure, the
Company may purchase Common Shares for cancellation pursuant to one or more normal course issuer bids
and/or substantial issuer bids, issue new Common Shares, issue convertible debentures or raise or retire our
debts.
Our cash, cash equivalents and short-term investments, exclusive of any restricted amounts, totaled $56,621 as
at December 31, 2023 compared to $67,907 as at December 31, 2022, representing a decrease of $11,286
primarily due to operational losses, debt repayment, dividends and termination costs, among other working
capital fluctuations. At December 31, 2023, we had sufficient working capital of $104,607 to cover short and long-
term obligations. Due to the nature of our business activities, operating cash flows may vary significantly between
periods due to changes and timing in working capital balances.
Our cash resources are generally used to fund our operations, provide working capital to any of our subsidiaries
if needed and to acquire additional businesses. We may also fund our ongoing cash requirements through the
use of additional short-term and long-term debt and, if desirable, based on market conditions, by selling Common
Shares and debt securities to the public.
In 2021, in order to finance the ETC acquisition, we entered into a credit agreement to receive senior secured
credit facilities from HSBC Bank Canada and Royal Bank of Canada consisting of a revolving credit facility in the
maximum amount of US$15,000 and a term credit facility of US$50,000. These facilities replaced all existing credit
facilities we had with HSBC Bank Canada. The interest rate as at December 31, 2023 was 9.8% and both facilities
14
Three months and year ended December 31, 2023
13
Three months and year ended December 31, 2023 and 2022
MD&A
have a maturity date of September 1, 2026 with a general security agreement over all the assets in North America
of IRD, ETC and its parent holding company, Quarterhill USA, Inc. The carrying value of these assets as at
December 31, 2023 was $290,598. As at and during the year ended December 31, 2023, we repaid $3,100 of the
term loan and had no borrowings or repayments on the revolving credit facility.
On June 27, 2023 (the “Amendment Date”), the Company finalized an amendment to its existing credit agreement.
As of the Amendment Date, the balance on the term loan was US$21,250. The amendment modified certain terms
and conditions of the credit agreement to provide the Company with additional flexibility in its covenant and cash
management, including a waiver on the Senior Leverage Ratio for all reporting periods up to March 31, 2024 (the
“Covenant Relief Period”) and a reduction in the revolving credit facility from US$15,000 to US$5,000. During the
Covenant Relief Period, the Fixed Charge Covenant Ratio can be satisfied through support of the parent company
to its subsidiaries.
Repayment of principal on the term credit facility was renegotiated to 2.5% of the balance as at the Amendment
Date per quarter up to the maturity date, upon which the remaining balance is due.
Stated Capital Reduction
On May 8, 2023, the Company's shareholders approved a reduction of the stated capital of the Company in the
amount of $120,000. The purpose of the stated capital reduction was to grant the board of directors more
flexibility in capital management, specifically in relation to its ability to distribute dividends. The reduction in stated
capital was offset by a corresponding increase in contributed surplus.
CONTRACTUAL OBLIGATIONS
Contractual obligations relating to accounts payable and accrued liabilities, long-term debt, convertible
debentures and lease liabilities as at December 31, 2023 are due as follows:
Total
Less than 1 year
2 - 3 years
4 - 5 years
Thereafter
Accounts payable and accrued liabilities
$40,186
$40,186
Long-term debt
Convertible debentures
Lease liabilities
26,045
57,500
11,420
2,816
-
3,025
-
23,229
57,500
5,032
$135,151
$46,027
$85,761
-
2,485
$2,485
-
-
-
878
$878
Three months and year ended December 31, 2023
14
15
Three months and year ended December 31, 2023 and 2022
MD&A
OUTSTANDING COMMON SHARE DATA
We are authorized to issue an unlimited number of Common Shares, 6,351 special preferred, redeemable,
retractable, non-voting shares and an unlimited number of preferred shares, issuable in series. As at
December 31, 2023, there were 115,076,583 Common Shares and no special or preferred shares issued and
outstanding. We also maintain the Quarterhill Inc. 2018 Equity Incentive Plan (the “Equity Plan”). Under the Equity
Plan, we can issue a maximum of 9.5% of our issued and outstanding Common Shares from time to time which
was, as at December 31, 2023, up to 10,932,275 Common Shares. As at December 31, 2023, we had options
granted to purchase up to 5,628,129 Common Shares.
OFF-BALANCE SHEET ARRANGEMENTS
As at December 31, 2023, IRD has an outstanding 100% guarantee to XPCT, for a loan in the amount of 15,000
Chinese yuan or $2,864 (December 31, 2022 - $2,945); however, IRD has the right to seek recourse against its joint
venture partner for any amount greater than IRD’s proportionate share of the liability. The amount owing
represents the maximum amount available to be drawn under this facility.
RELATED PARTY TRANSACTIONS
Subsidiaries
The financial statements include the accounts of Quarterhill Inc. and its wholly-owned subsidiaries. Balances and
transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this section.
Investment in Joint Venture
Investment in Joint Venture comprises a 50% interest, held by the Company’s IRD subsidiary, in XPCT, an ITS
products and manufacturing service provider in China. IRD had sales of $11 (2022- $125) during the year ended
December 31, 2023. At December 31, 2023, XPCT had $nil owing to IRD (December 31, 2022- $nil).
PROPOSED TRANSACTIONS
There are no proposed transactions.
Three months and year ended December 31, 2023
15
16
Three months and year ended December 31, 2023 and 2022
MD&A
CRITICAL ESTIMATES
Key areas involving estimation, uncertainty and critical judgments include the following:
Revenue Recognition
Contract revenue, contract costs, contract liabilities and contract assets are based on estimates and judgments
used in determining the progress of a contract. Estimates include amounts derived to measure the progress of
the contract. Progress towards completion is measured by comparing the actual costs incurred to the total
estimated costs for the contract. In determining the estimated costs to complete the contracts, assumptions and
estimates are required to evaluate issues related to schedule, material and labour costs, changes in contract
scope and subcontractor costs. Due to the nature of project contracts, estimates may change significantly
between accounting periods. Changes in estimates are reflected in the period in which the circumstances that
gave rise to the change became known and affect the Company’s revenue, contract assets, and contract liabilities.
Asset Impairments and Impairment Reversals
Quarterhill’s estimate of the recoverable amount for the purpose of impairment testing requires management to
make assumptions regarding estimates of the present value of future cash flows including growth opportunities,
economic risk, and the discount rate. These same assumptions are also used when assessing recoverability of
impairments previously recognized.
Income Taxes and Deferred Taxes
Quarterhill is subject to income taxes in Canada and other foreign jurisdictions. The calculation of income taxes
in many cases, however, requires significant judgment in interpreting tax rules and regulations. The Company's
tax filings are subject to audits which could materially change the amount of current and deferred income taxes
and liabilities. Additionally, estimation of the income tax provision includes evaluating the recoverability of
deferred tax assets based on the assessment of the Company's ability to use the underlying future tax deductions
before they expire against future taxable income. The assessment is based on existing tax laws, estimates of
future profitability and tax planning strategies. If the future taxable results of the Company differ significantly
from those expected, the Company would be required to increase or decrease the carrying value of the deferred
tax assets with a potentially material impact on the Company's consolidated statements of financial position and
consolidated statements of comprehensive income. The carrying amount of deferred tax assets is reassessed at
each reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will
be available to utilize all or part of the deferred tax assets. Unrecognized deferred tax assets are recognized to
the extent that it is more likely than not that taxable income will be available against which deferred tax assets
can be utilized.
Three months and year ended December 31, 2023
16
17
Three months and year ended December 31, 2023 and 2022
MD&A
FUTURE ACCOUNTING PRONOUNCEMENTS
Amendments to IAS 1, “Presentation of Financial Statements” - Classification of Liabilities as Current or
Non-Current
In January 2020 and October 2022, the IASB issued amendments to paragraphs 69 - 76 of IAS 1 to clarify the
requirements for classifying liabilities as current or non-current. The amendments specify that the conditions
which exist at the end of a reporting period are those which will be used to determine if a right to defer settlement
of a liability exists. The amendments also clarify the situations that are considered a settlement of a liability. The
amendments are effective for annual periods on or after January 1, 2024, with early adoption permitted. The
amendments are to be applied retrospectively.
Amendments to IFRS 16, “Leases” - Lease Liability in a Sale and Leaseback
In September 2022, the IASB issued Lease Liability in a Sale and Leaseback (Amendments to IFRS 16). The
amendment to IFRS 16 Leases specifies the requirements that a seller-lessee uses in measuring the lease liability
arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognize any amount of the gain
or loss that relates to the right of use it retains. After the commencement date in a sale and leaseback transaction,
the seller-lessee applies paragraphs 29 to 35 of IFRS 16 to the right-of-use asset arising from the leaseback and
paragraphs 36 to 46 of IFRS 16 to the lease liability arising from the leaseback. In applying paragraphs 36 to 46,
the seller-lessee determines ‘lease payments’ or ‘revised lease payments’ in such a way that the seller-lessee
would not recognize any amount of the gain or loss that relates to the right of use retained by the seller-lessee.
Applying these requirements does not prevent the seller-lessee from recognizing, in profit or loss, any gain or loss
relating to the partial or full termination of a lease, as required by paragraph 46(a) of IFRS 16. The amendments
are effective for annual periods on or after January 1, 2024, with early adoption permitted. The amendments are
to be applied retrospectively.
Management is currently assessing the impact of these amendments.
RISKS AND UNCERTAINTIES
Quarterhill operates in a dynamic and competitive business environment that exposes it to a number of risks and
uncertainties. This MD&A is qualified in its entirety by the risk factors described under the heading “Risk Factors”
in the AIF. The risks and uncertainties discussed in greater detail under the heading “Risk Factors” in our AIF are
not, however, the only risks we face. We may also be subject to additional risks and uncertainties that are currently
unknown or not currently deemed material to our business operations. If any of the risks or uncertainties we face
were to occur, they could materially affect our future operating results and could cause actual events and results
to differ materially from those which we expect or that we have described in our forward-looking statements.
In addition to the risk factors identified in our AIF, we may be exposed to other risks as follows:
Three months and year ended December 31, 2023
17
18
Three months and year ended December 31, 2023 and 2022
MD&A
Credit Risk
Credit risk is the risk of financial loss to the Company if a counter-party to a financial instrument fails to meet its
contractual obligations. Financial instruments that potentially subject us to concentrations of credit risk consist
primarily of cash and cash equivalents, accounts receivable and unbilled revenue.
Our cash and cash equivalents consist primarily of deposit investments that are held primarily with Canadian and
American chartered banks. Management does not expect any counter-parties to fail to meet their obligations.
We recognize a loss allowance provision using the simplified approach based on lifetime expected credit losses.
Our exposure to credit risk with our accounts receivable from customers is influenced mainly by the individual
characteristics of each customer. Our operating subsidiaries’ customers are for the most part, large multinational
companies or government organizations which do not have a history of non-payment. Credit risk from accounts
receivable encompasses the default risk of customers. Prior to entering into transactions with new customers, we
assess the risk of default associated with the particular customer. In addition, on an ongoing basis, management
monitors the level of accounts receivable attributable to each customer and the length of time taken for amounts
to be settled and where necessary, takes appropriate action to follow up on those balances considered overdue.
We have had no material bad debts for any periods presented.
None of the amounts outstanding have been challenged by the respective counterparties and we continue to
conduct business with them on an ongoing basis.
Quarterhill reviews financial assets on an ongoing basis with the objective of identifying potential matters which
could delay the collection of funds at an early stage. Once items are identified as being past due, contact is made
with the respective customer to determine the reason for the delay in payment and to establish an agreement to
rectify the breach of contractual terms.
Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. Our objective in
managing liquidity risk is to ensure that we have sufficient liquidity available to meet our liabilities when due. We
manage our liquidity needs through various sources including cash generated through operations, cash reserves,
various revolving credit facilities, long-term debt, convertible debentures and the issuance of Common Shares.
Market Risk
Market risk is the risk that the fair value of future cash flows from our financial instruments will fluctuate due to
changes in interest rates and foreign currency exchange rates.
Three months and year ended December 31, 2023
18
19
Three months and year ended December 31, 2023 and 2022
MD&A
Interest Rate Risk
The financial instruments that expose the Company to interest rate risk are its cash and cash equivalents, short-
term investments, bank indebtedness and long-term debt. The Company’s objectives of managing its cash and
cash equivalents and short-term investments are to ensure sufficient funds are maintained on hand at all times
to meet day-to-day requirements and to place any amounts that are considered in excess of day-to-day
requirements on short-term deposit with the Company’s banks so that they earn interest. When placing amounts
of cash and cash equivalents into short-term investments, the Company only places investments with Canadian
chartered banks and ensures that access to the amounts placed can be obtained on short notice. A one percent
increase or decrease in interest rates would not have resulted in a material increase or decrease in interest
income or expense during the year ended December 31, 2023.
Currency Risk
Portions of the Company’s revenues and operating expenses are denominated in U.S. dollars, Chilean pesos,
Mexican pesos, Euros and Chinese yuan. Because these financial statements are reported in Canadian dollars,
the Company’s operating results are subject to changes in the exchange rate of the foreign currencies (primarily
U.S. dollars) relative to the Canadian dollar. For instance, a decrease in the value of the U.S. dollar relative to the
Canadian dollar has an unfavourable impact on U.S. dollar denominated revenues and a favourable impact on
U.S. dollar denominated direct cost of revenues and operating expenses. Approximately 92% of the Company’s
cash and cash equivalents and short-term investments are denominated in U.S. dollars and are subject to changes
in the exchange rate of the Canadian dollar relative to the U.S. dollar.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER
FINANCIAL REPORTING
Our Chief Executive Officer and Chief Financial Officer have designed or caused to be designed under their
supervision, disclosure controls and procedures which provide reasonable assurance that material information
regarding Quarterhill is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer in a timely manner.
In addition, our Chief Executive Officer and Chief Financial Officer have designed or caused to be designed under
their supervision internal controls over financial reporting (“ICFR”) to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements. The control framework used to design
our ICFR is the “Internal Control - Integrated Framework (2013)” published by the Committee of Sponsoring
Organizations of the Treadway Commission.
As of December 31, 2023, an evaluation was performed on the effectiveness of ICFR to provide reasonable
assurance regarding the reliability of financial reporting and financial statement compliance with IFRS. Based on
the evaluation performed at that time, the Chief Executive Officer and Chief Financial Officer concluded they were
able to certify that the design and operating effectiveness of ICFR were effective.
Three months and year ended December 31, 2023
19
20
Three months and year ended December 31, 2023 and 2022
MD&A
There were no changes to our ICFR during the three months and year ended December 31, 2023 that have
materially affected, or are reasonably likely to materially affect, our ICFR.
A control system, no matter how well designed, can provide only reasonable, not absolute, assurance that its
objectives are met. Due to inherent limitations in all such systems, no evaluations of controls can provide absolute
assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls
and procedures and our internal controls over financial reporting are effective in providing reasonable, not
absolute, assurance that the objectives of our control systems have been met.
Three months and year ended December 31, 2023
20
21
Three months and year ended December 31, 2023 and 2022
Quarterhill Inc.
2023 Annual Consolidated Financial Statements
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Quarterhill Inc. (“Quarterhill” or the “Company”)
are the responsibility of management and have been approved by the Board of Directors (the “Board”).
The consolidated financial statements have been prepared by management in accordance with the
that
International Financial Reporting Standards. Management
these consolidated financial statements, which include certain amounts based on estimates and
judgments, reflect the Company’s business transactions and financial position in all material respects.
is responsible
for ensuring
Quarterhill maintains systems of internal accounting and administrative controls of high quality,
consistent with reasonable cost. Such systems are designed to provide reasonable assurance that
the financial information is relevant, reliable and accurate, and that the Company’s assets are
appropriately accounted for and adequately safeguarded.
The Board is responsible for ensuring that management fulfills its responsibilities for financial reporting
and is ultimately responsible for reviewing and approving the consolidated financial statements. The
Board carries out this responsibility through its Audit Committee (the “Committee”). The Committee is
appointed by the Board, and all of its members are independent unrelated directors.
The Committee meets periodically with management, as well as with external auditors, to discuss
internal controls over the financial reporting process, auditing matters and financial reporting items, to
satisfy itself that each party is properly discharging its responsibilities, the consolidated financial
statements and the external auditors’ report. The Committee reports its findings to the Board for
consideration when approving the consolidated financial statements for issuance to the shareholders.
The Committee also considers, for review by the Board and approval by the shareholders, the
engagement or re-appointment of the external auditors.
The consolidated financial statements have been audited by Ernst & Young LLP, the external auditors
on behalf of the shareholders. Ernst & Young LLP has full and free access to the Committee.
March 14, 2024
/s/ Chuck Myers
Chuck Myers
Chief Executive Officer
/s/ Kyle Chriest
Kyle Chriest
Interim Chief Financial Officer
23
24
25
26
27
Consolidated Statements of (Loss) Income and
Comprehensive (Loss) Income
(in thousands and in Canadian dollars)
Revenues
Direct cost of revenues
Gross profit
Operating expenses
Selling, general and administrative expenses
Research and development expenses
Depreciation of right-of-use assets
Depreciation of property, plant and equipment
Amortization of intangible assets
Impairment and other charges
Results from operations
Finance income
Finance expense
Foreign exchange loss (gain)
Other income
Change in fair value of derivative liability
Loss before taxes
Current income tax (recovery) expense
Deferred income tax expense
Income tax expense
Net loss from continuing operations
Net (loss) income from discontinued operations
Net (loss) income
x
Other comprehensive (loss) income that may be reclassified
subsequently to net (loss) income:
Foreign currency translation adjustment
Comprehensive (loss) income
x
(Loss) income per share - Basic
From continuing operations
From discontinued operations
(Loss) income per share - Basic
(Loss) income per share - Diluted
From continuing operations
From discontinued operations
(Loss) income per share - Diluted
22
8
9
10
19
17
23
23
4
20
20
See accompanying notes to these consolidated financial statements.
28
Note
21
Year ended December 31,
2023
2022
$194,316
153,719
40,597
$159,334
121,525
37,809
35,025
4,268
2,047
2,163
11,590
9,619
64,712
(24,115)
(1,379)
9,058
1,732
(996)
1,248
(33,778)
(3,021)
13,045
10,024
(43,802)
(21,809)
(65,611)
48,616
2,539
2,327
2,234
11,620
20,292
87,628
(49,819)
(390)
9,763
(2,816)
(1,439)
(7,655)
(47,282)
276
6,593
6,869
(54,151)
56,917
2,766
(2,101)
($67,712)
16,313
$19,079
($0.38)
($0.19)
($0.57)
($0.38)
($0.19)
($0.57)
($0.47)
0.49
$0.02
($0.47)
0.49
$0.02
2 | P a g e
2023 Annual Financial Results Consolidated Statements of Financial Position
(in thousands and in Canadian dollars)
As at
Current assets
Cash and cash equivalents
Short-term investments
Restricted short-term investments
Accounts receivable, net
Unbilled revenue
Income taxes receivable
Inventories (net of obsolescence)
Prepaid expenses and deposits
Non-current assets
Accounts and other long-term receivables
Long-term prepaid expenses and deposits
Right-of-use assets, net
Property, plant and equipment, net
Intangible assets, net
Investment in joint venture
Investment in other entity
Deferred compensation asset
Deferred income tax assets
Goodwill
TOTAL ASSETS
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Income taxes payable
Current portion of lease liabilities
Current portion of deferred revenue
Current portion of long-term debt
Non-current liabilities
Deferred revenue
Long-term lease liabilities
Long-term debt
Convertible debentures
Derivative liability
Deferred compensation liabilities
Deferred income tax liabilities
TOTAL LIABILITIES
Shareholders’ equity
Capital stock
Contributed surplus
Accumulated other comprehensive income
Deficit
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
See accompanying notes to these consolidated financial statements.
On behalf of the Board of Directors:
/s/ Roxanne Anderson
Roxanne Anderson
Chair, Audit Committee
/s/ Pamela Steer
Pamela Steer
Director
Note
December 31,
2023
December 31,
2022
6
7
8
9
10
11
4, 12
13
23
14
15
8
6
16
6
8
16
17
17
13
23
18
18
$56,621
-
-
36,160
45,377
-
14,257
6,353
158,768
5,782
-
7,006
5,480
104,795
6,696
3,840
1,262
-
38,450
173,311
$66,357
1,550
6,529
23,277
41,423
340
13,671
6,852
159,999
539
1,705
10,312
6,926
141,335
7,751
-
1,344
25,648
56,385
251,945
$332,079
$411,944
$40,186
877
2,589
7,693
2,816
54,161
823
7,588
22,938
50,609
3,034
1,252
1,618
87,862
$47,063
982
2,611
8,542
29,292
88,490
2,744
9,655
-
48,379
1,786
1,169
2,061
65,794
142,023
154,284
427,155
171,826
14,356
(423,281)
190,056
$332,079
546,482
50,958
16,457
(356,237)
257,660
$411,944
3 | P a g e
29
2023 Annual Financial Results
Consolidated Statements of Cash Flows
(in thousands and in Canadian dollars)
Operating activities:
Net loss from continuing operations
Add (deduct) non-cash items:
Stock-based compensation expense
Depreciation and amortization
Foreign exchange loss (gain)
Other income
Impairment losses
Loss on disposal
Deferred and non-cash income tax expense
Embedded derivatives
Change in fair value of derivative liability
Non-cash interest expense
Net change in non-cash working capital balances
Cash used in continuing operations
Net operating cash flows attributable to discontinued operations
Net cash (used in) generated from operating activities
Financing activities:
Dividends paid
Payment of lease liabilities
Repayment of long-term debt
Common shares issued for cash on the exercise of options
Cash used in financing activities
Net financing cash flows attributable to discontinued operations
Net cash used in financing activities
Investing activities:
Net proceeds from disposition of a subsidiary
Cash sold on disposition of a subsidiary
Proceeds from short-term investments
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Dividend received from joint venture
Capitalized software costs
Cash generated from (used in) investing activities
Net investing cash flows attributable to discontinued operations
Net cash generated from (used in) financing activities
Foreign exchange on cash held in foreign currencies
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to these consolidated financial statements.
30
Year ended
December 31,
Note
2023
2022
($43,802)
($54,151)
1,688
1,589
8, 9, 10
15,800
16,181
19
19
17
27
8
4
4
11
1,732
(996)
2,967
3,741
9,176
14
1,248
2,850
(2,816)
(1,439)
1,778
-
6,593
657
(7,655)
2,412
(17,016)
(6,974)
(22,598)
(43,825)
(5,896)
83,438
(28,494)
39,613
(2,866)
(3,058)
(5,693)
(2,015)
(3,100)
(36,128)
107
1,149
(8,917)
(42,687)
(135)
(201)
(9,052)
(42,888)
43,578
(10,751)
-
56
(2,214)
934
(4,497)
27,106
1,603
-
-
301
234
(2,943)
1,290
(5,746)
(6,864)
(3,434)
28,709
(10,298)
(899)
9,184
(9,736)
(4,389)
66,357
70,746
$56,621
$66,357
4 | P a g e
2023 Annual Financial Results
Consolidated Statements of Shareholders’ Equity
(in thousands and in Canadian dollars)
Capital
Stock
Contributed
Surplus
Note
Accumulated
Other
Comprehensive
Income
Total
Shareholders'
Equity
Deficit
Balance, January 1, 2022
$544,345
$49,937
$144
($353,310)
$241,116
Net income
Other comprehensive income
Stock-based compensation expense
Exercise of stock options
Common shares issued from restricted
stock units
Common shares issued from performance
stock units
Dividends declared
-
-
-
1,778
18
313
46
-
18
-
-
1,875
(629)
(179)
(46)
-
-
16,313
-
-
-
-
-
2,766
-
-
-
-
-
2,766
16,313
1,875
1,149
134
-
(5,693)
(5,693)
Balance, December 31, 2022
$546,482
$50,958
$16,457
($356,237)
$257,660
Net loss
Other comprehensive loss
Stock-based compensation expense
Exercise of stock options
Common shares issued from restricted
stock units
Common shares issued from deferred
stock units
Reduction of stated capital
Dividends declared
18
18
18
18
-
-
-
195
403
75
-
-
1,688
(88)
(657)
(75)
(120,000)
120,000
-
-
-
(2,101)
-
-
(65,611)
-
-
-
-
-
-
-
-
-
-
(65,611)
(2,101)
1,688
107
(254)
-
-
(1,433)
(1,433)
Balance, December 31, 2023
$427,155
$171,826
$14,356 ($423,281)
$190,056
See accompanying notes to these consolidated financial statements.
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31
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
1. NATURE OF BUSINESS
Quarterhill Inc. ("Quarterhill" or the "Company") is a Canadian company incorporated and domiciled in Canada.
The address of the Company's registered office is 200 Bay Street, Suite 1200, Toronto, Ontario, M5J 2J2. The
Company's shares are listed under the symbol “QTRH” on the Toronto Stock Exchange (the “TSX”) and on the
United States OTCQX Best Market under the symbol “QTRHF”. Quarterhill is focused on the acquisition,
management and growth of companies that provide integrated, tolling and mobility systems and solutions to the
intelligent transportation systems ("ITS") industry as well as its adjacent markets.
On June 15, 2023, the Company sold its investment in WiLAN Inc. and its related entities (“WiLAN”), which
represented the Licensing segment. The results of WiLAN have been presented as discontinued operations in the
Company’s consolidated financial statements in Note 4, Discontinued Operations.
2. MATERIAL ACCOUNTING POLICY INFORMATION
Basis of presentation
These consolidated financial statements of the Company were prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were authorized for issue by the Board of Directors on March 14, 2024.
Basis of measurement
These consolidated financial statements have been prepared on a historical cost basis, except for certain financial
instruments that are measured at fair value on a recurring basis, as explained in the accounting policies below.
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
The Company also holds, through one of its subsidiaries, a 50% joint venture ownership interest in Xuzhou-PAT
Control Technologies Limited (“XPCT”), which is accounted for using the equity method and includes only the
Company’s net investment and equity in earnings of the joint venture. Consolidation of a subsidiary begins when
the Company obtains control over the subsidiary and ceases when the Company ceases to control the subsidiary.
All intercompany transactions and balances have been eliminated in these consolidated financial statements.
Functional and presentation currency
The consolidated financial statements are presented in Canadian dollars, which differs from the functional
currency of the Company, which is US dollars.
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6 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
The Company follows the requirements as prescribed in IAS 21, "The Effects of Changes in Foreign Exchange
Rates" to translate to the presentation currency. The assets and liabilities of the consolidated entity are translated
to Canadian dollars at the exchange rate as at the reporting date and the income and expenses are translated to
Canadian dollars at the monthly average exchange rates of the reporting period. Foreign currency differences
arising from the translation are recognized in other comprehensive (loss) income ("OCI"). Exchange differences
on monetary items forming part of net investment of the Company in its foreign subsidiaries is recognized initially
in OCI and reclassified from equity to profit or loss on disposal of the net investment in accordance with IAS 21,
"The Effects of Changes in Foreign Exchange Rates".
Estimates, assumptions and judgments
The preparation of these consolidated financial statements in conformity with IFRS requires management to
make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets,
liabilities and the disclosure of contingent assets and liabilities at the reporting date. Uncertainty about these
assumptions and estimates could result in adjustments to the carrying amount of an asset or liability or the
reported amount of revenues and expenses in future periods. Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
Business combinations
Purchase prices related to business combinations are allocated to the underlying acquired assets and liabilities
based on their estimated fair value at the time of acquisition. The determination of fair value requires the
Company to make assumptions, estimates and judgments regarding cash flow projects, valuation techniques,
economic risk, weighted average cost of capital and future events. Significant judgments, estimates and
assumptions are also required by management in estimating the amount of contingent consideration payable.
As a result, the purchase price allocation impacts the Company’s reported assets and liabilities, including the
amounts allocated to intangible assets and goodwill, and future earnings due to the impacts of amortization
expense and impairment testing.
Revenue recognition
Contract revenue, contract costs, contract liabilities and contract assets are based on estimates and judgments
used in determining the progress of a contract. Estimates include amounts derived to measure the progress of
the contract. Progress towards completion is measured by comparing the actual costs incurred to the total
estimated costs for the contract. In determining the estimated costs to complete the contracts, assumptions and
estimates are required to evaluate issues related to schedule, material and labour costs, changes in contract
scope and subcontractor costs. Due to the nature of project contracts, estimates may change significantly
between accounting periods. Changes in estimates are reflected in the period in which the circumstances that
gave rise to the change became known and affect the Company’s revenue, contract assets, and contract liabilities.
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33
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
Impairments for non-financial assets and impairment reversals
The Company’s estimate of the recoverable amount for the purpose of impairment testing requires management
to make assumptions regarding estimates of the present value of future cash flows including growth
opportunities, economic risk, and the discount rate. These same assumptions are also used when assessing
recoverability of impairments previously recognized.
Income taxes
The Company is subject to income taxes in Canada and other foreign jurisdictions. The calculation of income taxes
in many cases, however, requires significant judgment in interpreting tax rules and regulations. The Company's
tax filings are subject to audits, which could materially change the amount of current and deferred income taxes
and liabilities. Additionally, estimation of the income tax provision includes evaluating the recoverability of
deferred tax assets based on the assessment of the Company's ability to use the underlying future tax deductions
before they expire against future taxable income. The assessment is based on existing tax laws, estimates of
future profitability and tax planning strategies. If the future taxable results of the Company differ significantly
from those expected, the Company would be required to increase or decrease the carrying value of the deferred
tax assets with a potentially material impact on the Company's consolidated statements of financial position and
consolidated statements of (loss) income and comprehensive (loss) income. The carrying amount of deferred tax
assets is reassessed at each reporting period and reduced to the extent that it is no longer probable that sufficient
taxable income will be available to utilize all or part of the deferred tax assets. Unrecognized deferred tax assets
are recognized to the extent that it is more likely than not that taxable income will be available against which
deferred tax assets can be utilized.
Business combinations
The Company uses the acquisition method of accounting for business combinations. The cost of an acquisition
is measured as the consideration transferred at fair value at the acquisition date. The determination of fair values
for the acquired intangible assets involves the use of discounted cash flow analyses. Any contingent consideration
to be transferred by the Company is recognized at fair value at the acquisition date. The Company determines
that a pre-acquisition contingency is probable in nature and estimable as of the acquisition date and records its
best estimate for the contingency as part of the purchase price allocation. The Company continues to gather
information and evaluates any pre-acquisition contingencies throughout the measurement period and makes
adjustments as necessary to the purchase price allocation. Changes in fair value of contingent consideration
outside of the measurement period are measured at fair value, with changes in fair value recognized in profit or
loss. Acquisition-related costs are expensed as incurred. Any excess of the fair value of the consideration
transferred over the fair value of identifiable net assets acquired, at the acquisition date, is recorded as goodwill.
34
8 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
Foreign currency transactions
Monetary assets and liabilities denominated in foreign currencies are translated into the applicable functional
currency of the entity at exchange rates prevailing at the consolidated statements of financial position dates.
Revenue and expenses are translated at the average rate for the period. The gains and losses from foreign
currency denominated transactions are included in foreign exchange gain/loss in the consolidated statements of
(loss) income.
Cash and cash equivalents
Cash and cash equivalents consist of cash in banks and highly liquid investments with original terms to maturity
at the date of acquisition of three months or less. As at December 31, 2023, cash equivalents were $nil (2022 -
$nil).
Short-term investments
Short-term investments are accounted for at amortized cost using the effective interest rate method. Short-term
investments comprise guaranteed investment certificates with original maturities of one year or less at the date
of investment, and their carrying value approximates their fair value.
Unbilled revenue
Unbilled revenue includes unbilled amounts typically resulting from sales under long-term contracts when the
cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the
customer accounted for under IFRS 15, "Revenue from Contracts with Customers" ("IFRS 15"). At any given period-
end, a large portion of the balance in this account represents the accumulation of labour, materials and other
costs that have not been billed due to timing, whereby the accumulation of each month’s costs and earnings is
administratively billed in subsequent months. Also included in the account are amounts that will become billable
according to contract terms, which usually require the consideration of the passage of time, achievement of
milestones or completion of the project.
Inventories
Inventories are measured at the lower of cost or net realizable value. The cost of inventories is determined on a
weighted average basis. Cost comprises all costs of purchase, costs of conversion and other costs incurred in
bringing the inventories to their present location and condition.
Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment
losses, if any. Cost includes the purchase price and the directly attributable costs required to bring the asset to
the condition necessary for the asset to be capable of operating in the manner intended by management. When
components of an item of property, plant and equipment have different useful lives, they are accounted for as
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35
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
separate items of property, plant and equipment and depreciated accordingly. The cost of replacing or repairing
a component of an item of property, plant and equipment is recognized in the carrying amount of the item if it is
probable that future economic benefits will occur and the cost can be measured reliably. The costs of routine
maintenance are recognized in profit or loss as incurred. Depreciation is calculated on the straight-line basis over
the estimated useful lives of the assets as follows:
Leasehold improvements
Computer equipment and software
Furniture and fixtures
Machinery and equipment
Building
term of the lease
3 years
5 years
4-7 years
20 years
The Company reviews the residual value, useful lives and depreciation methods used on an annual basis and,
where revisions are required, the Company applies such changes in estimates on a prospective basis.
Intangible assets
Intangible assets consist of developed software, customer relationships, non-competition agreements, trade
name and backlog.
Developed software, customer relationships, and trade names were acquired through business acquisitions and
are recognized at fair value as determined on the acquisition date less accumulated amortization and
impairments. Fair value of the developed software and brand is determined based on the present value of
expected future cash flows. Customer relationships represent acquired customer relationships with customers
that are capable of being separated from the acquired entity and being sold, transferred, licensed, rented or
exchanged. These customer relationships are initially recorded at their fair value based on the present value of
expected future cash flows.
Amortization is calculated on a straight-line basis over the estimated useful lives of the intangible assets as
follows:
Developed software
Customer relationships and backlog
Trade name
3-15 years
7-15 years
7-12 years
Non-competition agreements
term of agreement
The Company continually evaluates the remaining estimated useful lives of its finite intangible assets to determine
whether events and circumstances warrant a revision to the remaining period of amortization and are accounted
for prospectively from the date of the change.
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10 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
Impairment of non-financial assets
The carrying amounts of non-financial assets, excluding inventories, deferred income tax assets and contract
assets, are reviewed for impairment at each reporting date, or whenever events or changes in circumstances
indicate the carrying amounts may not be recoverable. If there are indicators of impairment, a review is
undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. Goodwill is
tested at least annually, at year-end, for impairment. For the purpose of impairment testing, assets that cannot
be tested individually are grouped together into the smallest group of assets that generates cash inflows, the
cash-generating unit ("CGU"), from continuing use that are largely independent of the cash inflows of other assets
or groups of assets.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell.
The value in use is determined by the cash flows expected to arise from the CGU discounted using a pre-tax
discount rate that reflects the current market assessments of the time value of money and asset-specific risk.
In determining fair value less costs of disposal, an appropriate valuation model is used. These calculations are
corroborated by the use of valuation multiples, quoted share prices and other available fair value indicators. An
impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable
amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs
are allocated first to reduce the carrying amount of any goodwill allocated to the CGUs, and then to reduce the
carrying amount of the other assets in the CGUs.
For non-financial assets that have been previously impaired, excluding goodwill, an assessment is made at each
reporting date as to whether there is any indication that previous impairment losses may no longer exist or may
have decreased. If such an indication exists, the Company estimates the recoverable amount of the asset or CGU.
A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to
determine the asset’s recoverable amount since the impairment loss was recognized. The impairment loss to be
reversed in the consolidated statements of (loss) income and comprehensive (loss) income is limited to the
recoverable amount, but not beyond the carrying amount, net of depreciation or amortization, that would have
arisen if the prior impairment loss had not been recognized.
Investment in joint venture
The Company’s joint arrangement has been determined to be a joint venture based on the Company's assessment
of its contractual rights and obligations. Joint ventures are accounted for using the equity method whereby the
investments are initially recorded at cost. The investment is increased or decreased to reflect the Company’s
proportionate share of the post-acquisition earnings or losses and equity movements of the investee, after
adjustments to align the accounting policies with those of the Company. When the Company’s share of losses
11 | P a g e
37
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
exceeds its interest in an equity-accounted investee, the carrying amount of that interest, including any long-term
investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the
Company has an obligation or has made payments on behalf of the investee.
Deferred compensation asset and liability
The Company recognizes a deferred compensation plan that enables upper level management and executives to
defer compensation until retirement. The Company funds these deferred compensation liabilities by making
contributions to a trust invested in various mutual funds, presented as deferred compensation asset on the
consolidated financial statements.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net
identifiable assets of the acquired business at the date of acquisition. Goodwill is presented separately on the
consolidated statements of financial position and is subsequently measured at cost less any accumulated
impairment losses.
Revenue recognition
The Company recognizes revenue, at an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services, when control of the promised goods or services is transferred
to the customer. Revenue represents the amount that the Company expects to receive for products and services
in its contracts with customers, net of sales taxes. The cumulative effects of revisions to contract revenues and
estimated completion costs are recorded in the accounting period in which the amounts become evident and can
be reasonably estimated. These revisions can include such items as the effects of change orders and claims,
warranty claims, liquidated damages or other contractual penalties and adjustments for contract closeout
settlements. The following paragraphs describe the specific revenue recognition policies for each of the
Company’s significant types of revenue.
Contracted projects
The majority of sales of integrated systems are delivered as contracted projects with contract terms of less than
one year to more than five years, and the Company typically transfers control of goods or services, and satisfies
performance obligations over time and therefore recognizes revenue over time as these performance obligations
are satisfied. This continuous transfer of control to the customer is often supported by the customer’s physical
possession or legal title to the work in process, contractual clauses that provide the Company with a present right
to payment for work performed to date plus a reasonable profit in the event a customer unilaterally terminates
the contract for convenience, and as the customer simultaneously receives and consumes the benefits provided
by the Company’s performance. The Company’s contract types include fixed price and time and materials
38
12 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
contracts. The transaction price includes amounts expected to be received in exchange for the goods or services
plus any contract amendments that are expected to be received. Payment terms are based on completion of
milestones throughout the project life for fixed price contracts and monthly for time and materials projects.
Many of these projects have distinct performance obligations typically encompassing one or more of installation,
maintenance and warranty. A contract’s transaction price is allocated to each distinct performance obligation
using the best estimate of the standalone selling price of each distinct good or service in the contract. The primary
method used to estimate standalone selling price is the expected cost plus margin approach.
Installations
Revenue for the installation obligations of fixed price contracts is recognized over time using the input method
based on costs incurred relative to the total expected costs to complete each project. Control is transferred to the
customer over time as the customer gains physical possession or legal title to the work in process, as well as
contractual clauses that provide the Company with a present right to payment for work performed to date plus a
reasonable profit in the event a customer unilaterally terminates the contract for convenience and, accordingly,
revenue earned from the contract is recognized over time based on the extent of progress towards completion
of the performance obligation based on costs incurred relative to the total expected costs to complete each
project. The Company reviews and updates the contract-related estimates regularly. Determining the contract
costs and estimates to complete requires significant judgment. Adjustments are recognized in profit on contracts
under the cumulative catch-up method in the period the adjustment is identified. If the Company anticipates the
estimated remaining costs to completion will exceed the value allocated to the performance obligation, the
resulting loss is recognized immediately.
Maintenance
The maintenance obligation of contracts with multiple performance obligations is recognized over the term of
the contract as control is transferred to the customer as the customer simultaneously receives and consumes the
benefits provided by the Company’s performance. Stand-alone maintenance service contracts are typically time
and materials, but some are fixed price, for which revenue is recognized in the same manner as fixed price
installations, over time using the input method based on costs incurred relative to the total expected costs to
complete each project. For time and materials contracts, labour and material rates are established within the
contract. Revenues from time and materials contracts are recognized as control is transferred to the customer
based on cost plus margin. These services are billed on a monthly basis and collected shortly thereafter.
Warranty
Revenue from warranty obligations is recognized over time based on time lapsed as this best represents the value
transferred to the customer.
13 | P a g e
39
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
Product sales
Product sales revenue is recognized when control transfers under the term of the enforceable contract.
Customers are billed when transfer of control occurs, and payments are typically due within 30 days.
Financial instruments
Recognition and initial measurement
Financial assets and liabilities, with the exception of accounts receivable and unbilled revenues that do not have
a significant financing component, are initially recognized at fair value plus or minus directly attributable
transaction costs as appropriate, except for financial assets at fair value through profit or loss ("FVTPL"), for which
transaction costs are expensed. Accounts receivable and unbilled revenue that does not have a significant
financing component are initially measured at the transaction price determined in accordance with IFRS 15.
Accounts receivable are recognized on the date that they originate, and all other financial instruments are
recognized when the Company becomes a party to the contractual provisions of the instrument. The Company
considers whether a contract contains an embedded derivative when the Company first becomes party to it.
Embedded derivatives are separately accounted for from the host contract if the host contract is not measured
at FVTPL and when the economic characteristics and risks are not closely related to those of the host contract.
Reassessment of the fair value of derivatives occurs each reporting period, with the changes in fair value
recognized through profit or loss.
Financial assets
The classification of financial assets depends on the business model for managing the financial assets and the
associated contractual cash flows. A financial asset is measured at amortized cost if it is held within a business
model whose objective is to hold assets to collect contractual cash flows, and its contractual terms give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding.
The Company’s financial assets consist of cash and cash equivalents, short-term investments, restricted short-
term investments, accounts receivable, unbilled revenue, and deferred compensation asset, all of which are
classified at amortized cost.
Financial liabilities
The Company determines the classification of its financial liabilities at initial recognition. The Company’s financial
liabilities consist of accounts payable and accrued liabilities, convertible debentures, long-term debt and deferred
compensation liabilities, which are classified at amortized cost.
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14 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
Subsequent measurement
Subsequent to initial recognition, financial assets and liabilities classified at amortized cost are measured using
the effective interest method, less, in the case of financial assets, any impairment. Interest income and expense,
foreign exchange gains and losses, impairment and any gain or loss on derecognition are recognized in profit and
loss. Contingent liabilities are reported at fair value and the gain or loss recognized in profit or loss as an other
charge.
Derecognition
The Company derecognizes a financial asset when the rights to receive cash flows from the financial asset have
expired or have been transferred and the Company has transferred substantially all risks and rewards of
ownership. The Company derecognizes a financial liability when the contractual obligations are discharged,
cancelled or expired.
Derivative instruments
The Company may use derivative financial instruments to reduce exposure to fluctuation in foreign currency
exchange rates. The Company may enter into foreign exchange contracts to hedge anticipated cash flows
denominated in a foreign currency. Embedded derivatives are separated from the host contract and accounted
for separately if the host contract is not a financial asset or liability and certain criteria are met. Derivative assets
and liabilities are remeasured at each subsequent reporting period with any gains or losses arising from changes
in fair value recorded within profit or loss.
The Company has elected not to apply hedge accounting to derivative contracts; as such, these derivative financial
instruments are recorded at fair value upon recognition and on a recurring basis, with subsequent changes in fair
value recorded in profit or loss during the period of change. Derivatives are reported as other current assets when
they have a positive fair value and as other current liabilities when they have a negative fair value.
Fair value measurement of financial instruments
The Company uses various valuation techniques and assumptions when measuring fair value of its financial
assets and financial liabilities. The Company utilizes market data or assumptions that market participants would
use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the
valuation technique.
The Company’s fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The
three levels of the fair value hierarchy are as follows:
Level 1 – Inputs are based on quoted prices (unadjusted) in active markets that are accessible at the reporting
date for identical assets or liabilities;
15 | P a g e
41
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
Level 2 – Inputs are based on quoted prices included in Level 1 that are observable for the asset or liability either
directly (i.e., prices) or indirectly (i.e., derived from prices); and
Level 3 – Inputs are based on prices or valuation techniques that are both unobservable and significant to the
overall fair value measurement.
The following methods and assumptions were used to estimate the fair values of each class of financial
instruments for which it is practicable to estimate that value.
Derivative financial instruments
The fair value of sales contract embedded derivatives is measured using a market approach, based on the
difference between the quoted forward exchange rate as of the contract date and quoted forward exchange rate
as of the reporting date. The fair value of forward exchange contracts is determined using the quoted forward
exchange rates at the reporting date. The fair value of derivative liabilities related to the convertible debentures
is measured using the Black-Scholes option pricing model.
Contingent liabilities
Contingent liabilities are carried at fair value, which is calculated using management’s estimates or, where
appropriate, a Monte Carlo simulation model.
The carrying amount of the Company’s other financial assets and liabilities, including cash and cash equivalents,
short-term investments, restricted short-term investments, accounts receivable, unbilled revenue, and accounts
payable and accrued liabilities, approximate their fair value due to their short-term maturity. The fair value of the
bank indebtedness and long-term debt approximates the carrying amount since these debt instruments have
floating interest rates. The value of convertible debentures is initially recognized at fair value, and subsequently
measured at amortized cost using the effective interest rate method. The carrying amount of the deferred
compensation asset and deferred compensation liability are measured at fair value based on the fair value of the
underlying investments.
Impairment of non-derivative financial assets
The Company applies the IFRS 9, "Financial Instruments" simplified approach to measuring expected credit losses,
which uses a lifetime expected loss allowance for all accounts receivable and contract assets. Lifetime expected
credit losses are estimated based on factors such as the Company’s past experience of collecting payments,
observable changes in national or local economic conditions that correlate with default on receivables, and
financial condition of the borrower. Financial assets are written off when there is no reasonable expectation of
recovery.
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16 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
Research and development
Research costs are included in the consolidated statements of (loss) income and comprehensive (loss) income in
the periods in which they are incurred, net of earned investment tax credits. Software development costs are
deferred and amortized when technological feasibility has been established, or otherwise are expensed as
incurred.
Warranties
The Company records the estimated costs of product warranties at the time revenue is recognized. Warranty
obligation arises from the Company having to replace goods and/or services that have failed to meet required
customer specifications due to breakdown or error related to product or workmanship. The Company’s warranty
obligations are affected by product failure rates, differences in warranty periods, regulatory developments with
respect to warranty obligations in the countries in which the Company carries on business, freight expense and
material usage and other related repair costs.
The Company’s estimates of costs are based upon historical experience, expectations of future return rates and
unit warranty repair costs. If the Company experiences increased or decreased warranty activity or increased or
decreased costs associated with servicing those obligations, revisions to the estimated warranty liability are
recognized in the reporting period when such revisions are made.
Financing costs
Financing costs are comprised of borrowing costs related to short- and long-term debt and the unwinding of the
discount on provisions.
Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the
contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease
commencement date, which is the date the leased asset is available for use. The Company has elected not to
separate lease and non-lease components and instead treats them all as lease payments and a single lease
component.
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, the Company’s incremental borrowing rate. The incremental borrowing rate is the rate that the
Company would have to pay to borrow the funds necessary to obtain an asset of similar value to the ROU asset
in a similar economic environment with similar terms, security and conditions. The lease term includes periods
covered by an option to extend if the Company is reasonably certain to exercise that option. The lease liability is
17 | P a g e
43
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
measured at amortized cost using the effective interest method. The lease liability is remeasured when there is a
change in future lease payments arising from a change in the Company’s estimate of the amount expected to be
payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a
purchase, extension or termination option. When the lease liability is remeasured, a corresponding adjustment
is made to the carrying amount of the ROU asset unless it has been reduced to zero. Any further reduction in the
lease liability is then recognized in profit or loss.
The ROU asset is initially measured based on the initial lease liability adjusted for any lease payments made at or
before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and
remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease
incentives received. The ROU assets are depreciated over the shorter of the lease term and the useful life of the
underlying asset using the straight-line method as this most closely reflects the expected pattern of the
consumption of the future economic benefits. In addition, the ROU asset can be periodically reduced by
impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
A lease modification will be accounted for as a separate lease if the modification increases the scope of the lease
and if the consideration for the lease increases by an amount commensurate with the stand-alone price for the
increase in scope. For a modification that is not a separate lease or where the increase in consideration is not
commensurate, at the effective date of the lease modification, the Company will remeasure the lease liability
using the Company’s incremental borrowing rate on the date of modification, when the rate implicit to the lease
is not readily available, with a corresponding adjustment to the ROU asset.
The lease payments associated with short-term and low-value leases are recognized as an expense on a straight-
line basis over the lease term as the Company has elected the relevant practical expedients. Short-term leases
are those with a lease term of 12 months or less. Low-value asset leases are those leases where the asset being
leased when new has a value of less than US$5.
Income taxes, deferred taxes and investment tax credits
Income taxes comprise current and deferred income taxes. Income taxes are recognized in the consolidated
statements of (loss) income and comprehensive (loss) income, except to the extent that they relate to items
recognized directly in equity or in OCI, in which case the income taxes are also recognized in equity or in OCI.
Current income taxes are the expected taxes payable on the taxable income for the year, using income tax rates
enacted or substantively enacted, at the end of the reporting period, and any adjustment to income taxes payable
in respect of previous years.
44
18 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
2. MATERIAL ACCOUNTING POLICY INFORMATION (continued)
Deferred income tax assets and liabilities are determined based on the difference between the accounting and
tax bases of the assets and liabilities and measured using the enacted tax rates that are expected to be in effect
when the differences are estimated to be reversed. The realization of deferred income tax assets is dependent
upon the generation of sufficient future taxable income during the periods prior to the expiration of the
associated tax attributes. The carrying amount of deferred tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part
of the deferred tax asset to be used. Unrecognized deferred tax assets are reassessed at each reporting date and
are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax
assets to be recovered.
The Company is also engaged in scientific research and experimental development giving rise to investment tax
credits that may be available to reduce future taxes payable in certain jurisdictions. In calculating income taxes
and investment tax credits, consideration is given to factors such as current and future tax rates in the different
jurisdictions, non-deductible expenses, qualifying expenditures and changes in tax law. In addition, management
makes judgments on the ability of the Company to realize these investment tax credits reported as assets based
on its estimations of amounts and timing of future taxable income and future cash flows in the related jurisdiction.
Discontinued operations
A discontinued operation is a component of the Company’s business, of which the operations and cash flows can
be clearly distinguished from the rest of the Company, and either (a) represents a separate major line of business
or geographic area of operations; (b) is part of a single coordinated plan to dispose of a separate major line of
business or geographic area of operations; or (c) is a subsidiary acquired exclusively with a view to resale.
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the
criteria to be classified as held for sale. Discontinued operations are presented separately from continuing
operations in the consolidated statements of (loss) income and comprehensive (loss) income and consolidated
statements of cash flows for all periods presented.
19 | P a g e
45
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
3. FUTURE ACCOUNTING PRONOUNCEMENTS
Listed below are the standards, amendments and interpretations that the Company reasonably expects to be
applicable at a future date and intends to adopt when they become effective.
Amendments to IAS 1, “Presentation of Financial Statements” - Classification of Liabilities as Current or
Non-Current
In January 2020 and October 2022, the IASB issued amendments to paragraphs 69 - 76 of IAS 1 to clarify the
requirements for classifying liabilities as current or non-current. The amendments specify that the conditions that
exist at the end of a reporting period are those that will be used to determine if a right to defer settlement of a
liability exists. The amendments also clarify the situations that are considered a settlement of a liability. The
amendments are effective for annual periods on or after January 1, 2024, with early adoption permitted. The
amendments are to be applied retrospectively.
Amendments to IFRS 16, “Leases” - Lease Liability in a Sale and Leaseback
In September 2022, the IASB issued Lease Liability in a Sale and Leaseback (Amendments to IFRS 16). The
amendment to IFRS 16, “Leases” specifies the requirements that a seller-lessee uses in measuring the lease
liability arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognize any amount of
the gain or loss that relates to the right of use it retains. After the commencement date in a sale and leaseback
transaction, the seller-lessee applies paragraphs 29 to 35 of IFRS 16 to the right-of-use asset arising from the
leaseback and paragraphs 36 to 46 of IFRS 16 to the lease liability arising from the leaseback. In applying
paragraphs 36 to 46, the seller-lessee determines “lease payments” or “revised lease payments” in such a way
that the seller-lessee would not recognize any amount of the gain or loss that relates to the right of use retained
by the seller-lessee. Applying these requirements does not prevent the seller-lessee from recognizing, in profit or
loss, any gain or loss relating to the partial or full termination of a lease, as required by paragraph 46(a) of IFRS
16. The amendments are effective for annual periods on or after January 1, 2024, with early adoption permitted.
The amendments are to be applied retrospectively.
Management is currently assessing the impact of these amendments.
46
20 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
4. DISCONTINUED OPERATIONS
On June 15, 2023, the Company sold WiLAN for a combination of cash, equity and other non-cash proceeds
totaling an estimated fair market value of $54,286. Equity consideration retained consists of 10% of WiLAN
currently recognized at fair market value on the consolidated statement of financial position using Level 3 inputs.
The contingent consideration has also been fair valued using Level 3 inputs and is recorded on the consolidated
statement of financial position in accounts and other long-term receivables. WiLAN represented the Company's
Licensing segment since its inception and, thus, following disposition, the Company has a single operating
segment, comprised solely of its ITS operations. As a result of the sale, the Company recognized the following loss
on sale in the consolidated statement of (loss) income:
Loss on sale of WiLAN
Gross cash proceeds at time of sale
Amounts in escrow or receivable
Fair value of contingent consideration
Fair value of equity investment in other entity
Transaction costs
Subsequent adjustment to proceeds of sale paid in cash (net)
Net proceeds of sale
Net assets disposed (including cash of $10,501)
Cumulative foreign exchange loss reclassified from equity
Loss on disposal, before tax
The results of the discontinued operations are presented below for the following periods:
$46,378
2,176
5,065
3,864
(3,694)
497
54,286
(62,625)
(3,166)
($11,505)
Revenues
Direct cost of revenues
Gross (loss) profit
Operating expenses
Results from operations
Other income
(Loss) income before taxes
Current income tax (recovery) expense
Deferred income tax (recovery) expense
(Loss) income from discontinued operations
Loss on disposal, before tax
Income tax expense on disposal
Year ended December 31,
2023
2022
$5,850
8,160
(2,310)
7,918
(10,228)
(303)
(9,925)
(375)
(3,357)
(6,193)
11,505
4,111
$146,356
66,629
79,727
18,931
60,796
(305)
61,101
895
3,289
56,917
-
-
Net (loss) income from discontinued operations
($21,809)
$56,917
21 | P a g e
47
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
5. FINANCIAL INSTRUMENTS
Derivatives include the embedded derivative portion of the unearned revenue of US dollar denominated sales
contracts in the Company’s Canadian, Chilean and Mexican subsidiaries. The fair value of sales contract
embedded derivatives is measured using a market approach, based on the difference between quoted forward
exchange rates as of the contract date and quoted forward exchange rates as of the reporting date. Derivatives
also include the derivative liability portion of convertible debentures and are measured using the Black-Scholes
option pricing model. The fair value of convertible debentures and long-term debt approximates carrying value
as these instruments bear interest at market rates. The carrying amount of the Company’s other financial assets
and liabilities, including cash and cash equivalents, short-term investments, restricted short-term investments,
accounts receivable, unbilled revenue and accounts payable and accrued liabilities, approximates their fair values
due to the short-term maturity of these items.
Inputs used to calculate the fair value of derivative and convertible debentures financial instruments are classified
as Level 2 inputs, inputs used to calculate contingent liabilities are classified as Level 3 inputs, and inputs for all
other financial instruments for which fair value approximates carrying value are classified as Level 1 inputs.
6. UNBILLED REVENUE AND DEFERRED REVENUE
Significant changes in unbilled revenue and deferred revenue balances during the year ended December 31, 2023
are as follows:
As at
Unbilled revenue
Deferred revenue - current
Deferred revenue - non-current
Net contract assets
December 31, 2023 December 31, 2022 $ Change
$45,377
(7,693)
(823)
$36,861
$41,423
$3,954
(8,542)
(2,744)
849
1,921
$30,137
$6,724
Revenue recognized for the year ended December 31, 2023 that was included in deferred revenue at the
beginning of the year was $6,030 (2022 - $6,834).
7. INVENTORIES
As at
Raw materials
Original equipment manufacturer materials
Work in process
Finished goods
48
December 31, 2023 December 31, 2022
$2,385
5,995
2,012
3,865
$2,101
6,517
1,642
3,411
$14,257
$13,671
22 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
7. INVENTORIES (continued)
During the year, inventories expensed within direct cost of revenues were $20,371 (2022 - $21,200). Write-downs
of inventory that were included in direct cost of revenues for the year were $78 (2022 - $105). Reversals of write-
downs recognized during the year were $75 (2022 - $127).
8. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
The Company has leases for corporate offices, production facilities, vehicles and equipment used in operations.
These leases have remaining lease terms ranging from 3 months to 10 years, some of which include options to
extend the leases for up to 14 years or to terminate the lease with notice periods of 120 days to 6 months or at
predetermined dates as specified within the lease contract. The Company has classified the assets related to
these leases as right-of-use assets and the liabilities associated with the future lease payments under these leases
as lease liabilities. The following table provides details of changes in the Company's right-of-use assets:
Cost
Balance, January 1, 2022
Additions
Disposals
Foreign currency translation
Balance, December 31, 2022
Additions
Disposals
Foreign currency translation
Balance, December 31, 2023
Buildings
Vehicles and
Operations
Equipment
Total
$10,934
6,304
(46)
731
17,923
2,063
(3,264)
(107)
$16,615
$437
63
-
(2)
498
-
(115)
4
$387
$11,371
6,367
(46)
729
18,421
2,063
(3,379)
(103)
$17,002
23 | P a g e
49
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
8. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (continued)
Accumulated Depreciation and Impairment
Balance, January 1, 2022
Depreciation
Disposals
Impairment
Foreign currency translation
Balance, December 31, 2022
Depreciation
Disposals
Impairment
Foreign currency translation
Balance, December 31, 2023
Net Book Value
Balance, January 1, 2022
Balance, December 31, 2022
Balance, December 31, 2023
$3,457
2,371
(46)
1,778
230
7,790
2,052
(1,873)
1,830
(101)
$9,698
$7,477
$10,133
$6,917
$153
164
-
-
2
319
94
(115)
-
-
$298
$284
$179
$89
$3,610
2,535
(46)
1,778
232
8,109
2,146
(1,988)
1,830
(101)
$9,996
$7,761
$10,312
$7,006
The Company recognized depreciation expense of $99 in discontinued operations during the year ended
December 31, 2023 (2022 - $208).
50
24 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
8. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (continued)
The following table provides details of changes in the Company's lease liabilities:
Balance, January 1, 2022
Additions
Interest
Payments
Foreign currency translation
Balance, December 31, 2022
Additions
Disposals
Interest
Payments
Foreign currency translation
Balance, December 31, 2023
As at
Maturities of lease liabilities:
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less imputed interest
Total
Comprised of:
Current portion of lease liabilities
Long-term lease liabilities
Lease liabilities as at December 31, 2023
$7,792
6,367
329
(2,545)
323
12,266
2,063
(1,402)
492
(3,194)
(48)
$10,177
December 31, 2023
$3,025
2,767
2,265
1,653
832
878
11,420
1,243
$10,177
$2,589
7,588
$10,177
25 | P a g e
51
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
9. PROPERTY, PLANT AND EQUIPMENT
Cost
Balance, January 1, 2022
Additions
Disposals
Foreign currency translation
Balance, December 31, 2022
Additions
Disposals
Foreign currency translation
Balance, December 31, 2023
Accumulated Depreciation and Impairment
Balance, January 1, 2022
Depreciation
Disposals
Foreign currency translation
Balance, December 31, 2022
Depreciation
Impairment
Disposals
Foreign currency translation
Balance, December 31, 2023
Net Book Value
Balance, January 1, 2022
Balance, December 31, 2022
Balance, December 31, 2023
Leasehold
Improvements
Computer
Equipment
and
Software
Furniture
and
Fixtures
Machinery
and
Equipment
Land and
Building
Total
$477
$6,015
$1,646
$3,070
$701
$11,909
2,072
(624)
15
4,533
1,664
7
-
24
732
-
3,394
(624)
51
14,730
2,214
(1,409)
(727)
(5,622)
781
-
3
2,430
10
(765)
(17)
827
787
-
(24)
26
-
-
503
157
508
-
9
6,532
383
(227)
(2,494)
210
3,894
487
-
(18)
(1)
432
50
-
-
260
48
-
(78)
-
230
27
(21)
4,448
1,658
4,767
1,233
925
(622)
(14)
1,522
1,158
437
4,363
1,590
723
21
223
4
(5)
-
(17)
11,305
51
19
-
(1)
69
19
-
6,215
2,268
(622)
(57)
7,804
2,171
462
(2,476)
(715)
(1,264)
(88)
(4,621)
1
1
7
2,632
1,103
1,860
-
-
9
5,825
$267
$2,121
$819
$1,837
$650
$5,694
$243
$2,169
$840
$3,011
$663
$6,926
$202
$1,816
$555
$2,907
-
$5,480
Depreciation expense of $8 was recognized in discontinued operations during the year ended December 31, 2023
(2022 - $34).
52
26 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
10. INTANGIBLE ASSETS
Cost
Balance, January 1, 2022
Additions
Foreign currency translation
Balance, December 31, 2022
Additions
Disposals
Foreign currency translation
Balance, December 31, 2023
Accumulated Amortization and Impairment
Balance, January 1, 2022
Amortization
Foreign currency translation
Balance, December 31, 2022
Amortization
Impairment
Disposals
Foreign currency translation
Balance, December 31, 2023
Net Book Value
Balance, January 1, 2022
Balance, December 31, 2022
Balance, December 31, 2023
Customer
Relationships,
Trade Name,
Non-
competition
Agreements
and Backlog
Total
Patents
Developed
Software
$403,981
$45,452
$92,418
$541,851
-
26,654
430,635
-
(428,877)
5,714
2,618
53,784
4,580
-
-
5,714
4,730
34,002
97,148
581,567
-
-
4,580
(428,877)
24
(1,103)
(1,733)
(2,812)
1,782
57,261
95,415
154,458
364,861
13,496
24,674
403,031
6,220
297
(408,425)
10,137
3,308
76
13,521
3,164
-
-
15,498
390,496
8,005
177
24,809
24,927
23,680
440,232
8,131
378
17,515
675
-
(408,425)
(24)
(100)
(210)
(334)
1,099
16,585
31,979
49,663
$39,120
$35,315
$76,920
$151,355
$27,604
$40,263
$73,468
$141,335
$683
$40,676
$63,436
$104,795
The Company recognized amortization expense in discontinued operations of $5,925 during the year ended
December 31, 2023 (2022 - $13,189). In addition, impairment losses of $675 were recognized by the Company
during the year ended December 31, 2023 (2022 - $nil).
27 | P a g e
53
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
11. INVESTMENT IN JOINT VENTURE
Balance, beginning of the year
Currency loss on financial statement translation
Company's share of earnings (recorded in other income)
Dividend received
Balance, end of year
December 31, 2023 December 31, 2022
$7,751
(623)
502
(934)
$6,696
$7,458
(223)
1,806
(1,290)
$7,751
XPCT is a joint venture in China in which the Company’s subsidiary International Road Dynamics Inc. (“IRD”) holds
a 50% interest. XPCT has two business divisions providing products and services to both the ITS industry and
construction equipment manufacturers.
IRD had sales to XPCT of $11 during the year ended December 31, 2023 (2022 - $125). As at December 31, 2023,
XPCT had no amounts owing to IRD (2022 - $nil).
As at December 31, 2023, IRD has an outstanding 100% joint and several liability guarantee to XPCT, for a loan in
the amount of 15,000 yuan, or $2,864 (2022 - $2,945); however, IRD can seek recourse against its joint venture
partner for any amount greater than IRD's proportionate share of the liability. The amount owing represents the
maximum amount available to be drawn under this facility.
The Company's ownership interest comprises a 50% share of net assets and net earnings of XPCT as well as
purchase price adjustments to allocate fair values assigned to certain assets and liabilities at the time of
acquisition. Summary financial information for XPCT is as follows:
As at
Cash
Other current assets
Non-current assets
Current liabilities
Accounts payable and accrued liabilities
Short-term loans
Non-current liabilities
Net assets - 100%
Net assets attributable to the Company - 50%
December 31, 2023 December 31, 2022
$300
24,825
535
(7,496)
(3,093)
(1,679)
$13,392
$6,696
$446
40,532
902
(14,590)
(9,844)
(1,944)
$15,502
$7,751
54
28 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
11. INVESTMENT IN JOINT VENTURE (continued)
Revenues
Direct cost of revenues
Depreciation and amortization
Finance expense
Other expenses
Income before income taxes
Income tax expense
Net income - 100%
Net income attributable to the Company - 50%
12. INVESTMENT IN OTHER ENTITY
Year ended December 31,
2023
2022
$43,183
(36,732)
(2,007)
(2,083)
(1,180)
1,181
177
$1,004
$502
$43,943
(35,915)
(1,499)
(962)
(1,322)
4,245
633
$3,612
$1,806
On June 15, 2023, as part of the consideration for the sale of WiLAN, the Company retained a 10% equity stake in
WiLAN. The investment is recorded at fair value using Level 3 inputs, with changes in fair value recognized through
profit or loss. As at December 31, 2023, the investment in WiLAN is valued at $3,840.
13. DEFERRED COMPENSATION
The Company's subsidiary, Electronic Transaction Consultants, LLC (“ETC”), provides a deferred compensation
plan that enables upper-level management and executives to defer compensation until retirement. ETC funds
these deferred compensation liabilities by making contributions to a trust invested in various mutual funds,
presented as a deferred compensation asset on the financial statements.
14. GOODWILL
The changes in the carrying amount of goodwill by segment are presented in the table below:
Balance, January 1, 2022
Foreign currency translation
Balance, December 31, 2022
Disposals
Foreign currency translation
Balance, December 31, 2023
Note Licensing
Intelligent
Transportation
Systems
Total
$16,061
1,065
17,126
(16,658)
(468)
-
4
$37,004
$53,065
2,255
3,320
39,259
56,385
-
(16,658)
(809)
(1,277)
$38,450
$38,450
29 | P a g e
55
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
14. GOODWILL (continued)
In accordance with the IFRS guidance related to goodwill, the Company is required to assess the carrying amount
of its goodwill for potential impairment annually or more frequently if events or a change in circumstances
indicate that impairment may have occurred. The Company tests goodwill for impairment annually at year-end
using data as of December 31 of that year at the level of the group of CGUs to which the goodwill is allocated,
which corresponds with the corresponding operating segment. On June 15, 2023, the Company sold WiLAN,
which represented the Company's Licensing segment as disclosed in Note 4, Discontinued Operations.
The recoverable amount of the CGU to which the goodwill belongs is determined based on a value-in-use
calculation that discounts the present value of estimated future cash flows at an appropriate risk-adjusted rate.
The Company uses its internal forecasts to estimate future cash flows and includes an estimate of long-term
future growth rates based on its most recent views of the long-term outlook for each business for a period of five
years and a terminal growth rate of 3%. Actual results may differ from those assumed in these forecasts. The
Company derives its discount rates using a capital asset pricing model and by analyzing published rates for
industries relevant to its reporting units to estimate the cost of equity financing. The Company uses discount rates
that are commensurate with the risks and uncertainty inherent in the respective businesses and in its internally
developed forecasts. The discount rate used in valuations as at December 31, 2023 was 14% (2022 - 12%).
The results of the assessments performed as at December 31, 2023 and December 31, 2022 indicated that the
recoverable amount of goodwill exceeded carrying value, and management believes that no reasonably possible
change in any of the above key assumptions would have caused the carrying amount to exceed its recoverable
amount.
Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based
on a number of factors including actual operating results. It is reasonably possible that the judgments and
estimates described above could change in future periods.
15. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As at
Trade payables
Accrued compensation
Accrued contingent partner payments and legal fees
Dividends payable
Accrued litigation costs
Accrued project losses
Other current liabilities
56
December 31, 2023 December 31, 2022
$31,389
4,422
-
-
-
1,989
2,386
$40,186
$21,376
10,781
1,146
1,433
6,473
4,228
1,626
$47,063
30 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
16. LONG-TERM DEBT
As at
Senior term credit facility:
US$50,000 due September 1, 2026
Less: current portion of long-term debt
Debt issuance costs, net of amortization
Total long-term debt
December 31, 2023 December 31, 2022
$26,045
(2,816)
(291)
$22,938
$29,681
(29,292)
(389)
-
During the year ended December 31, 2021, Quarterhill ITS, the parent company of IRD and ETC and wholly owned
subsidiary of Quarterhill, entered into a credit agreement to receive senior secured credit facilities from HSBC
Bank Canada and Royal Bank of Canada consisting of a revolving credit facility in the maximum amount of
US$15,000 and a term credit facility of US$50,000. These credit facilities replaced all existing facilities the Company
had with HSBC Bank Canada. The interest rate for the facilities as at December 31, 2023 was 9.8% (2022 – 6.9%).
Both the facilities have a maturity date of August 31, 2026 with a general security agreement over all of the assets
in North America of IRD, ETC and its parent holding company, Quarterhill USA Inc. The carrying value of these
assets as at December 31, 2023 was $290,598.
During the year ended December 31, 2023, no amounts were drawn from the revolving credit facility.
Repayments, if any amounts are drawn, on the revolving credit facility are ultimately due on the maturity date.
On June 27, 2023 (“Amendment Date”), the Company finalized an amendment to its existing credit agreement. As
of the Amendment Date, the balance on the term loan was US$21,250. The amendment modifies certain terms
and conditions of the credit agreement to provide the Company with additional flexibility in its covenant and cash
management, including a waiver on the Senior Leverage Ratio for all reporting periods up to March 31, 2024 (the
“Covenant Relief Period") and a reduction in the revolving credit facility from US$15,000 to US$5,000.
Repayment of principal on the term credit facility has been renegotiated to 2.5% of the balance as at the
Amendment Date per quarter up to the maturity date, upon which the remaining balance is due.
The financial covenants the Company must maintain are as follows:
– A Fixed Charge Coverage Ratio of at least 1.20 to 1.00 on a rolling four-quarter basis. During the Covenant
Relief Period, this covenant is satisfied through support of the parent company to Quarterhill ITS;
– A Senior Leverage Ratio of not more than 3.50 to 1.00 as at September 1, 2021 and thereafter up to and
including the fiscal quarter ending March 31, 2023. From April 1, 2023 and at all times thereafter, up to
and including the maturity date, the Senior Leverage Ratio may not exceed 3.00 to 1.00. This covenant is
waived for all reporting periods from March 31, 2023 up to March 31, 2024. This ratio may increase by
0.50 to 1.00 for the next two fiscal quarters immediately following an acquisition if the aggregate purchase
price is equal to or greater than US$20,000; and
– Certain minimum earnings thresholds must be met at each reporting quarter during the covenant relief
period.
31 | P a g e
57
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
16. LONG-TERM DEBT (continued)
Scheduled principal repayments on long-term debt are as follows:
To December 31, 2024
To December 31, 2025
To September 1, 2026
Principal
$2,816
2,816
20,413
$26,045
17. CONVERTIBLE DEBENTURES AND DERIVATIVE LIABILITY
The following table illustrates the allocation of the gross proceeds of the debentures between debt and equity at
issuance and subsequent remeasurement:
Convertible unsecured subordinated debentures:
Gross proceeds
Convertible debentures, host debt component
Debt issuance costs, net of amortization
Convertible debentures
Convertible debentures, derivative liability component, opening
Change in fair value of derivative liability
Derivative liability, ending
December 31, 2023 December 31, 2022
$57,500
$57,500
$51,836
(1,227)
$50,609
$1,786
1,248
$3,034
$50,003
(1,624)
$48,379
$9,441
(7,655)
$1,786
On October 27, 2021, the Company completed a brokered financing of $57,500 by way of the issuance of
unsecured subordinated convertible debentures (the “Debentures”), which includes the full exercise of a $7,500
over allotment option by the underwriters. The Debentures are traded on the TSX under the symbol “QTRH.DB”.
The Debentures have a coupon rate of 6%, payable semi-annually, with a maturity date of October 30, 2026 and
an initial conversion price into common shares of $3.80. Each Debenture is convertible into common shares of
the Company at the option of the holder at any time prior to the close of business on the earlier of the last
business day immediately preceding the date of maturity of October 30, 2026 (the "Maturity Date"). Holders
converting their Debentures will, in addition to the applicable number of common shares to be received on
conversion, receive accrued and unpaid interest, if any, thereon for the period from the last interest payment
date on their Debentures up to, but excluding, the date of conversion. Except in certain circumstances involving
a “Change of Control”, the Debentures will not be redeemable at the option of the Company before October 31,
2024. On or after October 31, 2024 and prior to October 31, 2025, the Debentures may be redeemed in whole or
in part at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice at a price
58
32 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
17. CONVERTIBLE DEBENTURES AND DERIVATIVE LIABILITY (continued)
equal to the principal amount plus accrued and unpaid interest, provided that the volume weighted average
trading price of the common shares on the TSX for 20 consecutive trading days ending on the fifth trading day
preceding the date on which the notice of redemption is given is not less than 125% of the then conversion price.
On or after October 31, 2025 and prior to the Maturity Date, the Debentures may be redeemed in whole or in
part at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice at a price
equal to their principal amount plus accrued and unpaid interest.
Assuming the conversion of all of the Debentures, the Company will issue 15,131,579 common shares. The initial
fair value of the conversion option was estimated at $9,533. The conversion option is considered a derivative
because the exercise price is in Canadian dollars whereas the Company's functional currency is US dollars.
Accordingly, the Company recognizes the conversion option as a liability at fair value with changes in fair value
recognized through profit or loss. The fair value of the conversion option is calculated using the Black-Scholes
option pricing model with the following weighted average assumptions:
As at
Risk-free rate
Expected life (in years)
Expected volatility
Expected dividend yield
Share price
December 31, 2023 December 31, 2022
5.00%
2.83
40%
0.00%
$1.95
3.89%
3.80
38%
1.95%
$1.58
Debt issuance costs incurred in 2021 associated with the issuance of the Debentures were $2,476 and were
allocated between the host debt and the conversion option on a relative fair value basis.
18. SHARE CAPITAL
The share capital of the Company consists of the following:
a) Common shares, with no par value
b) Special preferred, redeemable, retractable, non-voting shares
c) Preferred shares, issuable in series
Issued and Outstanding
December 31,
2023
December 31, 2022
115,076,583
114,639,700
Nil
Nil
Nil
Nil
Authorized
Unlimited
6,350.90
Unlimited
33 | P a g e
59
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
18. SHARE CAPITAL (continued)
January 1, 2022
Issuance of common shares upon vesting of restricted stock units
Issuance of common shares upon vesting of performance stock units
Exercise of stock options
December 31, 2022
Issuance of common shares upon vesting of restricted stock units
Conversion of deferred stock units to common shares
Exercise of stock options
December 31, 2023
The Company paid quarterly cash dividends as follows:
Number
113,880,853
131,316
19,196
608,335
114,639,700
278,915
51,168
106,800
115,076,583
1st quarter
2nd quarter
3rd quarter
4th quarter
2023
2022
Per Share
Total
Per Share
Total
$0.0125
$1,433
-
-
-
-
-
-
$0.0125
$1,433
$0.0125
$0.0125
$0.0125
$0.0125
$0.0500
$1,408
1,432
1,420
1,433
$5,693
Stated capital reduction
On May 8, 2023, the Company's shareholders approved a reduction of the stated capital of the Company in the
amount of $120,000. The purpose of the stated capital reduction was to grant the Board of Directors more
flexibility in capital management, specifically in relation to its ability to distribute dividends. The reduction in
stated capital was offset by a corresponding increase in contributed surplus.
Stock-based compensation
At the annual and special meeting of shareholders held on April 18, 2018, Quarterhill’s shareholders approved
the adoption of the Company’s 2018 Equity Incentive Plan (the “Equity Plan”). As at December 31, 2023, the
Company had options to purchase up to 5,628,129 common shares outstanding. Upon adoption of the Equity
Plan, all options outstanding under the Option Plan are now governed by the Equity Plan.
During the year ended December 31, 2023, the Company granted options to purchase 250,000 common shares
at exercise price of $1.25. The Company used the Black-Scholes model for estimating the fair value of options
granted with the following weighted average assumptions for the options granted in 2023.
60
34 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
18. SHARE CAPITAL (continued)
Risk-free rate
Volatility
Expected option life (in years)
Expected dividend yield
Forfeiture rate
2023
3.22%
41.74%
4.17
3.75%
31.15%
The table below illustrates the options activity for the years ending December 31, 2023 and 2022 :
Options Outstanding
Exercisable Options
Number of
Options
Price Range
Weighted Average
Exercise Price
January 1, 2022
8,544,271
$1.33 — $2.84
$2.02
Number
2,978,725
Weighted Average
Exercise Price
$2.04
Granted
Forfeited
Expired
Exercised
1,963,824
2.08 — 2.14
(703,331)
1.81 — 2.84
(526,478)
1.81 — 2.84
(608,335)
1.81 — 2.17
December 31, 2022
8,669,951
$1.33 — $2.84
Granted
Forfeited
Expired
Exercised
250,000
$1.25
(1,040,922)
1.81 — 2.70
(2,144,100)
1.33 — 2.70
(106,800)
$1.33
2.12
2.53
2.68
1.96
$2.02
$1.25
2.28
2.12
1.33
2,978,725
$2.04
December 31, 2023
5,628,129
$1.25 — $2.70
$2.09
4,682,956
$2.05
The weighted average fair value per option granted during the year ended December 31, 2023 was $0.41 (2022 –
$0.84).
The intrinsic value of the exercisable options was $330 as at December 31, 2023 (2022 - $97). The total fair value
of options vested was $66 for the year ended December 31, 2023 (2022 - $1,511).
As at December 31, 2023, there was $102 of total unrecognized stock-based compensation cost, net of expected
forfeitures, related to unvested stock-based compensation arrangements granted under the stock option plan.
This cost is expected to be recognized over a weighted average period of 3.3 years. Details of the outstanding
options as at December 31, 2023 are as follows:
35 | P a g e
61
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
18. SHARE CAPITAL (continued)
Range of Exercise
Prices
$1.25 — $1.25
1.99
1.26 —
2.00 —
2.49
2.50 —
2.70
Outstanding
Options at
December 31,
2023
250,000
2,270,997
2,150,465
956,667
$1.25
$2.70
5,628,129
Remaining Term
of Options in
Years
Weighted
Average Exercise
Price
5.47
2.22
2.79
3.65
2.82
$1.25
1.90
2.13
2.67
$2.09
Exercisable
Options at
December 31,
2023
250,000
2,270,997
1,493,622
668,337
4,682,956
Weighted
Average Exercise
Price
$1.25
1.90
2.11
2.67
$2.05
Restricted stock units
Pursuant to the Equity Plan, the Company has also granted restricted stock units (“RSUs”) to certain employees
during the year ended December 31, 2023. These RSUs are settled in common shares issued from treasury on a
one-to-one basis in six tranches, with the first tranche having vested on the date of grant and each subsequent
tranche vesting upon the Company coming out of its regular quarterly blackout for the fiscal quarters ending June
30 and December 31, 2024, 2025 and 2026. During the year ended December 31, 2023, the Company granted
RSUs valued using the most recent TSX closing price for the common shares on the date of grant as follows:
Number
Price
Amount
100,715
500,000
150,000
250,000
1,000,715
$1.26
1.47
1.52
1.78
$127
735
228
445
$1,535
For the year ended December 31, 2023, the Company has recognized $614 in stock-based compensation expense
as a result.
RSU activity for the years ended December 31, 2023 and 2022 was as follows:
January 1, 2022
Granted
Settled
Forfeited
December 31, 2022
Granted
Settled
Forfeited
December 31, 2023
62
Number
395,257
390,264
(313,045)
(49,613)
422,863
1,000,715
(420,103)
(129,847)
873,628
36 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
18. SHARE CAPITAL (continued)
Deferred stock units
In May 2023 the Board opted to receive 2023 annual directors’ fees in deferred stock units (“DSUs”). The Company
granted DSUs to directors and board observers in June and September 2023. Pursuant to the Equity Plan, these
DSUs can be settled in cash or common shares issued from treasury on a one-to-one basis, on the distribution
dates at the Board’s discretion, which are intended to be settled in common shares. The distribution date for a
director is when the individual retires from the Board. The Company granted 661,600 DSUs on June 17, 2023,
60,259 DSUs on September 6, 2023, and 45,389 DSUs on September 15, 2023. For the year ended December 31,
2023, the Company has recognized $618 in stock-based compensation expense as a result.
DSU activity for the year ended December 31, 2023 was as follows:
December 31, 2022
Granted
Settled
December 31, 2023
Number
-
767,248
(98,400)
668,848
19. IMPAIRMENT AND OTHER CHARGES
Other charges within the consolidated statements of (loss) income and comprehensive (loss) income include costs
that relate to certain cost reduction initiatives that the Company has undertaken from time to time, acquisition
and divestiture related costs and other charges. During the year ended December 31, 2023, the Company
recognized other charges of $9,619 (2022 - $20,292).
Details of impairment and other charges for the years ended December 31, 2023 and December 31, 2022 were as
follows:
Impairment losses
Loss on disposal
Severance costs
VIZIYA settlement
VIZIYA-related arbitration fees
Total impairment and other charges
Year ended December 31,
2023
2022
2,967
3,741
2,911
-
-
1,778
-
2,507
14,600
1,407
$9,619
$20,292
37 | P a g e
63
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
19. IMPAIRMENT AND OTHER CHARGES (continued)
For the year ended December 31, 2023, the Company recorded impairment losses of $2,967 (2022 - $1,778). The
impairment losses primarily relate to a planned change in the use of right-of-use building assets and other related
assets. As a result, the Company recorded an impairment charge to reduce the carrying value of the right-of-use
building assets of $1,830 (2022 - $1,778), property, plant and equipment of $462 (2022 - $nil), and intangible assets
of $675 (2022 - $nil).
On December 28, 2023, the Company disposed of its net investment in PAT Traffic, a foreign subsidiary operating
in Latin America. The proceeds on disposal less transaction costs of disposal and the carrying amount of the
investment resulted in a loss of $3,741.
20. (LOSS) INCOME PER SHARE
Basic (loss) income per share is calculated by dividing net (loss) income by the weighted average number of
common shares outstanding during the year. Diluted (loss) income per share is calculated by dividing net (loss)
income by the adjusted weighted average number of common shares outstanding to assume conversion of all
potential dilutive stock options to common shares.
Numerator:
Net loss from continuing operations
Net (loss) income from discontinued operations
Net (loss) income
Denominator:
Weighted average number of common shares outstanding for basic (loss) income
per share
Weighted average number of common shares outstanding for diluted (loss) income
per share
From continuing operations
From discontinued operations
Basic (loss) income per share
From continuing operations
From discontinued operations
Diluted (loss) income per share
64
Year ended December 31,
2023
2022
($43,802)
(21,809)
($65,611)
($54,151)
56,917
$2,766
114,776,086
114,389,608
114,776,086
114,389,608
($0.38)
(0.19)
($0.57)
($0.38)
(0.19)
($0.57)
($0.47)
0.49
$0.02
($0.47)
0.49
$0.02
38 | P a g e
2023 Annual Financial Results Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
21. SEGMENT REPORTING
An operating segment is a component of the Company that engages in business activities from which it may earn
revenues and incur expenses, including revenues and expenses that relate to transactions with any of the
Company's other components, and for which discrete financial information is available. The operating results of
all operating segments are reviewed regularly by the Company's Chief Operating Decision Maker (“CODM”) to
make decisions about resources to be allocated to the segment and assess their performance. The Company's
CODM is the Chief Executive Officer. The Company’s operating segments are organized on the basis of products
and services provided and also represent its reportable segments. The Company’s reportable segments were
previously identified as Licensing and ITS. WiLAN represented the Licensing segment and was sold on June 15,
2023. The results of WiLAN have been presented as discontinued operations in the Company’s consolidated
financial statements in Note 4, Discontinued Operations. The Company’s consolidated statements of (loss) income
and comprehensive (loss) income reflect the sole ITS segment.
The following table includes revenue by contracts disaggregated by the timing of revenue recognition:
Revenue recognized at a point in time
Revenue recognized over time
Total revenues
Year ended December 31,
2023
2022
$19,233
175,083
$194,316
$20,129
139,205
$159,334
Revenues by geography for the years ended December 31, 2023 and 2022 are as follows:
United States
Chile
Germany
Canada
Korea
Belgium
Thailand
Rest of the world
Total revenues
Year ended December 31,
2023
2022
$173,244
$133,843
4,223
3,785
3,249
1,423
954
454
6,984
4,444
3,273
3,552
2,462
1,063
2,441
8,256
$194,316
$159,334
39 | P a g e
65
2023 Annual Financial Results Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
21. SEGMENT REPORTING (continued)
Total of property, plant and equipment, right-of-use assets, intangible assets, and goodwill by geography are as
follows:
As at
United States
Canada
Belgium
Chile
Germany
Total
Major customers
December 31, 2023 December 31, 2022
$145,089
5,040
85
-
5,517
$155,731
$173,391
33,143
220
244
7,960
$214,958
A major customer is defined as an external customer whose transactions amount to approximately 10% or greater
of the Company’s revenue. There was one major customer totaling $34,884 for the year ended December 31,
2023, whereas for the year ended December 31, 2022 , there were two major customers that accounted for
$54,432 of total revenues.
Remaining performance obligations
As at December 31, 2023, the amount of transaction price allocated to remaining performance obligations was
$113,705. The Company expects to recognize approximately 43% of this revenue in 2024, 22% in 2025, and 35%
thereafter.
66
40 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
22. EXPENSE BY NATURE
Personnel costs
Subcontractor fees
Direct and indirect materials costs
Professional and outside services
Communications and information technology
Facilities
Travel and entertainment
Other administrative expenses
Depreciation of right-of-use assets
Depreciation of property, plant and equipment
Amortization of intangible assets
Impairment and other charges
Year ended December 31,
2023
2022
$71,752
$73,287
56,740
31,978
8,817
15,700
2,472
4,676
878
2,047
2,163
11,590
9,619
37,142
29,282
10,532
13,517
3,443
4,580
897
2,327
2,234
11,620
20,292
Total direct cost of revenues and operating expenses
$218,432
$209,153
Salaries and wages
Employee benefits
Stock-based compensation
Bonuses
Other personnel costs
Total personnel costs
$56,203
10,722
1,688
2,132
1,007
$58,892
10,325
1,588
1,561
921
$71,752
$73,287
41 | P a g e
67
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
23. TAXES
The reconciliation of the expected provision for income tax expense (recovery) to the actual provision for income
tax expense reported in the consolidated statements of (loss) income and comprehensive (loss) income for the
year ended December 31, 2023 is as follows:
Net loss before income taxes
Canadian statutory income tax rate
Expected income tax recovery
Permanent differences
Foreign rate differential
Return to provision
Change in benefit of tax assets not recognized
Other
Income tax expense
The income tax (recovery) expense is as follows:
Current income tax (recovery) expense
Current period
Adjustment in respect of prior periods
Deferred income tax expense
Current period
Adjustment in respect of prior periods
Year ended December 31,
2023
2022
($33,778)
26.50%
($8,951)
376
722
416
16,198
1,263
$10,024
($47,282)
26.50%
($12,530)
1,773
851
391
16,043
341
$6,869
Year ended December 31,
2023
2022
($3,021)
-
(3,021)
12,629
416
13,045
$10,024
$276
-
276
6,202
391
6,593
$6,869
68
42 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
23. TAXES (continued)
The effect of temporary differences, tax losses, and tax credits that give rise to significant components of the
Company’s deferred income tax assets and liabilities, which have been recognized during the year ended
December 31, 2023, are as follows:
As at
Deferred income tax assets
Tax loss carryforwards
Capital assets
Scientific research and experimental development ("SR&ED") carryforwards
Other temporary differences
Deferred income tax assets
Deferred income tax liabilities
Capital assets
Other temporary differences
Deferred income tax liabilities
Deferred income tax liabilities, net
December 31, 2023 December 31, 2022
$1,510
2,324
-
2,899
6,733
(6,549)
(1,802)
(8,351)
($1,618)
$16,378
5,464
7,732
957
30,531
(4,058)
(2,886)
(6,944)
$23,587
The Company is required to assess whether it is probable that it will realize the benefits of its deferred tax assets
based on consideration of all available evidence. The factors the Company uses to assess the likelihood of
realization are its history of losses, forecasts of future pre-tax income, and tax planning strategies that could be
implemented to realize the deferred tax assets. Accordingly, available deferred income tax assets in the amount
of $27,123 were not recognized as it is not probable that future taxable income will be available to the Company
to utilize the benefits.
The amount of deductible temporary differences, unused tax losses, and unused tax credits for which no deferred
tax asset is recognized in the consolidated statements of financial position for the year ended December 31, 2023
is as follows:
As at
Tax loss carryforwards
Capital assets
Tax credits
Other deductible temporary differences
December 31, 2023 December 31, 2022
$52,496
11,387
2,897
32,771
$99,551
$53,238
22,136
8,201
18,579
$102,154
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69
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
23. TAXES (continued)
As at December 31, 2023, the Company had unused non-capital tax losses of approximately $57,878 (2022 -
$47,093) that are due to expire as follows:
Expiry
SR&ED pool
Canadian Tax
Losses
US Tax Losses
Other
Jurisdictions
Consolidated Tax
Losses
2038
2039
2040
2041
2042
2043
Indefinite
-
-
-
-
-
-
31,804
$31,804
3,294
290
2,550
-
2,994
-
-
$9,128
-
-
-
-
-
-
-
-
-
-
-
-
46,730
$46,730
2,020
$2,020
3,294
290
2,550
-
2,994
-
48,750
$57,878
The Company has investment tax credits of $2,897 that expire in various amounts from 2024 to 2043. Investment
tax credits, which are earned as a result of qualifying SR&ED expenditures, are recognized and applied to reduce
income tax expense in the year in which the expenditures are made and their realization is reasonably assured.
As at December 31, 2023, the Company had temporary differences of $2,917 (2022 - $5,059) associated with
investments in subsidiaries for which no deferred tax liabilities have been recognized, as the Company is able to
control the timing of the reversal of these temporary differences and it is not probable that these differences will
reverse in the foreseeable future.
24. FINANCIAL RISK MANAGEMENT
Credit risk
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its
contractual obligations. Financial instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, short-term investments, restricted short-term investments,
accounts receivable and unbilled revenue. The Company recognizes a loss allowance provision using the
simplified approach based on lifetime expected credit losses. The Company’s exposure to credit risk with its
accounts receivable from customers is influenced mainly by the individual characteristics of each customer. The
Company’s customers are for the most part large multinational companies or government organizations that do
not have a history of non-payment. Credit risk from accounts receivable encompasses the default risk of the
Company’s customers. Prior to entering into transactions with new customers, the Company assesses the risk of
default associated with the particular customer. In addition, on an ongoing basis, management monitors the level
of accounts receivable attributable to each customer and the length of time taken for amounts to be settled and,
where necessary, takes appropriate action to follow up on those balances considered overdue. The Company has
had no significant bad debts for any periods presented.
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70
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
24. FINANCIAL RISK MANAGEMENT (continued)
The following table provides an aging analysis of trade accounts receivable. The age of an invoice does not
necessarily indicate an account is past due as many contracts for system revenue require the successful
completion of system testing and acceptance.
As at
Current
1 - 30 days
31 - 60 days
61 - 90 days
91 days and over
Less expected credit loss
Accounts receivable
Long-term accounts receivable
Total accounts receivable
December 31, 2023 December 31, 2022
$639
21,827
5,658
2,141
6,135
(240)
36,160
5,782
$41,942
$8,978
5,628
1,995
2,844
4,392
(560)
23,277
539
$23,816
None of the amounts outstanding have been challenged by the respective counterparties, and the Company
continues to conduct business with them on an ongoing basis. Accordingly, management has no reason to believe
that these balances are not fully collectable in the future.
The Company reviews financial assets on an ongoing basis with the objective of identifying potential matters that
could delay the collection of funds at an early stage. Once items are identified as being past due, contact is made
with the respective customer to determine the reason for the delay in payment and to establish an agreement to
rectify the breach of contractual terms.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company’s objective in managing liquidity risk is to ensure that it has sufficient liquidity available to meet its
liabilities when due. The Company manages its liquidity needs through various sources including cash generated
through operations, cash reserves, various revolving credit facilities, and the issuance of common shares. The
Company’s cash and cash equivalents, short-term investments, and restricted short-term investments consist
primarily of deposit investments that are held primarily with Canadian chartered banks. Management does not
expect any counterparties to fail to meet their obligations. Though the Company has reclassified its long-term
debt as current as a result of breaching its financial covenants, there is sufficient working capital to cover such a
repayment.
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71
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
24. FINANCIAL RISK MANAGEMENT (continued)
The table below presents a maturity analysis of the Company's financial liabilities:
Total
To December 31, 2024 To December 31, 2025 To December 31, 2026 Thereafter
Accounts payable and
accrued liabilities
Long-term debt
Convertible debentures
Lease liabilities
$40,186
$40,186
26,045
57,500
11,420
2,816
-
3,025
$135,151
$46,027
-
2,816
-
2,767
$5,583
-
20,413
57,500
-
-
-
2,265
3,363
$80,178
$3,363
See Note 8 for maturity of lease liabilities.
Market risk
Market risk is the risk to the Company that the fair value of future cash flows from its financial instruments will
fluctuate due to changes in interest rates and foreign currency exchange rates. Market risk arises as a result of
the Company generating revenues from foreign currency transactions.
Interest rate risk
The financial instruments that expose the Company to interest rate risk are its cash and cash equivalents, short-
term investments, bank indebtedness and long-term debt. The Company’s objectives of managing its cash and
cash equivalents and short-term investments are to ensure sufficient funds are maintained on hand at all times
to meet day-to-day requirements and to place any amounts that are considered in excess of day-to-day
requirements on short-term deposit with the Company’s banks so that they earn interest. When placing amounts
of cash and cash equivalents into short-term investments, the Company only places investments with Canadian
chartered banks and ensures that access to the amounts placed can be obtained on short notice. A 1% increase
or decrease in interest rates would not have resulted in a material increase or decrease in interest income or
expense during the year ended December 31, 2023.
Currency risk
Portions of the Company’s revenues and operating expenses are denominated in US dollars, Chilean pesos,
Mexican pesos, euros and Chinese yuan. Because these consolidated financial statements are reported in
Canadian dollars, the Company’s operating results are subject to changes in the exchange rate of the foreign
currencies (primarily US dollars) relative to the Canadian dollar. For instance, a decrease in the value of the US
dollar relative to the Canadian dollar has an unfavourable impact on US dollar denominated revenues and a
favourable impact on US dollar denominated direct cost of revenue and operating expenses. Approximately 92%
of the Company’s cash and cash equivalents and short-term investments are denominated in US dollars and are
subject to changes in the exchange rate of the Canadian dollar relative to the US dollar.
72
46 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
24. FINANCIAL RISK MANAGEMENT (continued)
Foreign exchange risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due
to changes in foreign exchange rates. Foreign exchange gains or losses in net (loss) income arise on the translation
of foreign currency-denominated assets and liabilities held in the Company's North American operations and
foreign subsidiaries. As the parent company's functional currency is in US dollars, it is subject to changes in the
exchange rate of foreign currencies, primarily the Canadian dollar, relative to the US dollar while subsidiary
companies with a functional currency not in US dollars are subject primarily to changes in the exchange rate of
foreign currencies, primarily the US dollar. As at December 31, 2023, the Company’s sensitivity to a 5%
strengthening (weakening) of the US dollar relative to the Canadian dollar and all other currencies for which the
functional currency of the subsidiary company differs from the Canadian dollar would result in approximately
$698 of pre-tax (loss) income to the consolidated statement of (loss) income.
25. RELATED-PARTY TRANSACTIONS
These consolidated financial statements include the accounts of Quarterhill and its wholly owned subsidiaries.
Balances and transactions between the Company and its subsidiaries, which are related parties, have been
eliminated on consolidation and are not disclosed in this note. Transactions and balances with XPCT, a joint
venture in China in which the Company's subsidiary IRD holds a 50% interest, which is also a related party, are
disclosed in Note 11.
Key management personnel are Quarterhill's President & Chief Executive Officer, Chief Financial Officer and
Senior Vice-President, General Counsel & Corporate Secretary and the Chief Executive Officers of each of IRD and
ETC. Other related parties are close family members of the key management personnel and entities controlled
by key management personnel.
The executive compensation expense to key management personnel is as follows:
Salaries and benefits
Stock-based compensation
Year ended December 31,
2023
2022
$4,837
950
$5,787
$2,770
1,073
$3,843
47 | P a g e
73
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
26. CAPITAL MANAGEMENT
The Company’s capital management objectives are to maintain financial flexibility in order to pursue its strategy
of organic acquisitional growth, pay dividends, and, from time to time, return capital to shareholders, while
maintaining an adequate return for shareholders. The Company defines its capital as the aggregate of cash and
cash equivalents, short-term investments, restricted short-term investments, long-term debt, convertible
debentures and shareholders' equity.
Current portion of long-term debt
Non-current portion of long-term debt
Convertible debentures
Long-term debt and convertible debentures, net of debt issuance costs
Less:
Cash and cash equivalents
Short-term investments
Restricted short-term investments
Net debt
Shareholders' equity
Total capital management
December 31, 2023 December 31, 2022
$2,816
22,938
50,609
76,363
(56,621)
-
-
19,742
190,056
$286,161
$29,292
-
48,379
77,671
(66,357)
(1,550)
(6,529)
3,235
257,660
$338,566
The Company manages its capital structure in accordance with changes in economic conditions. To maintain or
adjust its capital structure, the Company may purchase shares for cancellation pursuant to a normal course issuer
bid or substantial issuer bid, issue new shares, or raise or retire debt. The Company is subject to covenants and
restrictions related to its credit facilities as further described in Note 16, Long-term Debt.
74
48 | P a g e
2023 Annual Financial Results
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands and in Canadian dollars, except share and per share amounts, unless otherwise stated)
27. CHANGES IN NON-CASH WORKING CAPITAL BALANCES
Accounts receivable
Unbilled revenue
Income taxes receivable
Inventories
Prepaid expenses and deposits
Deferred revenue
Deferred compensation asset
Deferred compensation liabilities
Accounts payable and accrued liabilities
Income taxes payable
Supplemental cash flow information
Net interest paid in cash
Taxes paid
Year ended December 31,
2023
2022
($13,670)
(6,376)
138
(2,095)
(1,371)
(1,172)
82
83
6,962
403
$1,091
(4,521)
(345)
60
(1,687)
(741)
(180)
181
(937)
105
($17,016)
($6,974)
Year ended December 31,
2023
2022
$4,829
$548
$6,509
$707
28. RECLASSIFICATION OF PRIOR YEAR PRESENTATION
Certain prior year amounts have been reclassified for consistency with the current year presentation. These
reclassifications had no effect on the reported results of operations.
49 | P a g e
75
2023 Annual Financial Results
DIRECTORS
Roxanne Anderson (1)
Chair of the Audit Committee
Rusty Lewis (2, 3)
Chair of the Board
LEADERSHIP TEAM
Chuck Myers
Chief Executive Officer
Kyle Chriest
Chief Financial Officer
Bill Morris (1,2)
Chair of the Compensation Committee
Mike Childress
Chief Technology Officer
Chuck Myers
Chief Executive Officer
Pamela Steer (1, 3)
Anna Tosto (2, 3)
Chair of the Nominating & ESG Committee
Member of (1) Audit Committee, (2) Compensation Committee,
(3) Nominating & ESG Committee
.
David Sparks
Executive Vice President, Strategy
Ana Guerra
Vice President, People & Culture
Donna Bergan
Vice President, Marketing
Kevin Holbert
President, Tolling
76
STOCK EXCHANGE LISTINGS
Toronto Stock Exchange, Symbol: QTRH
OTCQX Best Market, Symbol: QTRHF
TRANSFER AGENT
Computershare Investor Services Inc.
PUBLIC FILINGS – SEDAR
Quarterhill’s publicly filed documents are available at www.sedarplus.ca
AUDITORS
EY Canada
INVESTOR RELATIONS
Dave Mason
Tel: 1.416.247.9652
ir@quarterhill.com
HEAD OFFICE
200 Bay Street
North Tower
Suite 1200
Toronto, ON
M5J 2J2
WEBSITE
www.quarterhill.com
77
200 Bay Street, North Tower, Suite 1200
Toronto, ON M5J 2J2
www.quarterhill.com