The TSX, TSXV, CSE and NEO exchanges list over 4,000 companies, a daunting number for any investor to sort through.
Parsing prospective opportunities from also-rans begins with narrowing down your investable universe, leaving only companies whose operations mark a clear path forward.
In the interest of expediting that task for TMH readers, our new series, Anatomy of a Flagship Asset, introduces you to the most promising projects and products creating value in the Canadian stock market.
Next up is Quarterhill (QTRH), a growth-focused holding company with an established presence in the long-runway businesses of intelligent transportation systems (ITS) and intellectual property licensing.
A stalwart in transportation technology
Quarterhill holds two intelligent transportation subsidiaries with entrenched presences in the space, which is estimated to grow from $34 billion in global sales in 2020 to $70 billion by 2025 (Markets and Markets).
International Road Dynamics (IRD), est. 1980, manages traffic flow on over 16,000 roads in over 80 countries through its proprietary systems, generating and collecting data to enhance planning, management and operations.
IRD’s suite of IoT technologies includes:
- The automated Tire Anomaly and Classification System (TACS) to detect and manage tire risk
- The iTHEIA artificial intelligence traffic data system, which provides real-time, video-based traffic counting and classifying
- Mainline and ramp electronic screening systems for commercial vehicles
- Virtual weigh stations providing vehicle records for enforcement, traffic surveillance and data collection, with over 9,900 installed worldwide
- Highway traffic management systems
- Toll collection services
IRD has installed over 2,000 custom vehicle enforcement systems worldwide.
Quarterhill’s other transportation-centric subsidiary is Electronic Transaction Consultants (ETC), est. 1999, an end-to-end mobility systems provider to some of the U.S.’s largest tolling authorities. The company processes more than two billion transactions annually, representing over US$3 billion in toll billings across over 1,500 toll lanes.
ETC’s core products make up its riteSuite platform, a scalable and customizable cloud-based tolling and mobility solution. The platform’s applications include:
- riteJetStream, a toll transaction processing system which uses open source, big data infrastructure
- riteVision, a cloud-based, SaaS vehicle recognition system that uses machine learning algorithms to replace traditional optical character recognition-based systems
- riteView, a highly interactive and customizable suite of big data analytics, reporting, and dashboard tools
- riteOSS, a complete monitoring and ticketing system configured specifically for toll and ITS applications, including smart KPIs and automated lane performance analysis
- rite Redundant Roadside Communications, an automated system for redundant, real-time communications between lane controllers and lane equipment
The subsidiary also offers maintenance and system integration services to ensure maximized traffic flow and minimized risk to tolling authorities, as well as back office solutions, and its Orion congestion management system that integrates with existing IoT devices on streets.
An established player in the intellectual property market
Quarterhill’s final subsidiary, WiLAN, develops, manages and commercializes patented technologies to ensure inventors receive fair compensation for their work.
Its multi-disciplinary team of engineers, technology and market researchers, patent attorneys and agents, corporate attorneys and business negotiators has signed over US$1 billion in licensing agreements since 2006, which span across over 500 patented licenses, over 100 managed litigations and 12 years of positive cash flow.
WiLAN’s key licensing markets include telecommunications, semiconductors, consumer electronics, transportation and enterprise solutions.
It counts Samsung, LGE, Ericsson, Broadcom, Cisco, Dell, HP, HTC, Intel, LG, Nvidia, Motorola, Panasonic, BMW and Taiwan Semiconductor among its key clients.
WiLAN also develops and monetizes proprietary technologies to solve real-world challenges, with a current focus on blockchain, improving the delivery of video and other data over 5G satellites, coordinated charging of satellites and satellite sub-payloads, and coordinated charging of IoT devices.
Future catalysts
Considering the generational relevance of Quarterhill’s businesses, given the essential roles road transportation and patents play in humanity’s development, the company’s success will be primarily determined by steady deal flow and the leading-edge nature of its solutions.
A brief look into Quarterhill’s fiscal 2022 financial results demonstrates that it’s firmly on the path to further growth, with revenue of $305.7 million over 2x that of 2021, catalyzed by new ITS contracts worth over $200 million and WiLAN’s completed licensing agreements with Apple, Micron and Kyocera, among others.
The company also ended the year with $67.9 million in cash – on top of being free cash flow-positive over the last five years – positioning it to capitalize on growth opportunities in ITS and adjacent markets.
To clarify due diligence, potential investors should take note of the built-in fluctuations in Quarterhill’s businesses, which may cause concerns where none are warranted. Most of WiLAN’s licenses, for example, are one-time in nature, meaning they can result in pronounced differences in revenue, gross margin, and adjusted EBITDA when their volume or dollar value changes from one period to the next.
Similarly, ITS margins will fluctuate based on the nature and stage of projects in a given period, and the timing for recognition of costs and revenue. A record number of tolling projects in the implementation phase led to a decrease in ITS gross margin in Q4 2022, as another example, but it’s expected to increase as the projects transition to the operations phase in 2023 and 2024.
While some short-term pain may be the price of admission, Quarterhill’s decades of expertise and value creation, within niches of enduring applicability to the global industrial complex, grant it the elements of a worthwhile long-term holding.
Quarterhill (QTRH) is down by almost 24 per cent over the last five years, signaling a disconnect between its high-quality businesses and the general investing public.
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