Shaun McEwan - Interim CEO Stephen Thompson - Interim CFO

Doug Taylor - Canaccord Genuity Todd Coupland - CIBC Robert Peters - Cormark Securities

Thank you, operator. Good morning, everyone, and thank you for joining us on today's call.

Q3 was a significant quarter for the Company with record financial results. It also marked the first quarter with a full contribution from our recently acquired businesses, IRD and VIZIYA.

I'll start the call with a quick look at our financial highlights and then we'll spend a few minutes reviewing the quarter's operational highlights and then what we see in our acquisition pipeline. Steve will then take a detailed look at the consolidated and segmented numbers which will be followed by the Q&A.

Q3 revenue was $85.9 million, exceeding the high end of the range previously provided in our update announcement on October 2. Adjusted EBITDA was $60.6 million, also exceeding the high end of that range previously provided.

As mentioned, these numbers reflect record levels for the business and significantly eclipse our previous high water marks. Cash generated from operations was $9.3 million which appears alike compared to the performance that I've just mentioned.

The fact is, that there was a significant increase in accounts receivable at quarter end which affects this measure. Cash generated from operations will show a significant increase in Q4 2017 as we have now collected a large portion of our receivables that we're expanding at quarter end subsequent to quarter end.

I'm also pleased to announce that our Board of Directors has declared an eligible quarterly dividend of CDN$0.0125 per share payable on January 5, 2018, for shareholders of record on December 15, 2017. Looking now at some of the factors that drove our strong Q3 results; WiLAN, our patent license business, was the key revenue and profit driver in Q3.

Much has been said on recently quarterly about the variability inherent in a business model for patent licensing business, and in Q3 we saw just how this variability and our patient approach to licensing can in fact lead to very positive outcomes. We generated several license agreements in Q3 including a new comprehensive agreement with Samsung, as well as licenses with Motorola and GTAQ [ph] among others.

We continue to have a large pipeline of license opportunities in multiple geographies. In Q3 WiLAN acquired a portfolio patents related to content delivery network technology.

This technology makes it possible for content providers to simultaneously send the same content to multiple client computing devices efficiently and reliably, even when bandwidth is limited or constraint. This type of technology is generally used by companies that offer video-streaming services and this portfolio was acquired under WiLAN's partner [ph].

Subsequent to quarter end, acquired a portfolio of patents which cover a variety of technology for securing data on storage devices such as self-encrypting drives. These improvements prevent unauthorized access to data in client devices, data centers and non-servers at the storage device level, these fans were purchased outright.

As we've been saying, WiLAN remains a key part of Quarterhill's investment portfolio and we expect them to remain a world leader in patent licensing. We will continue to acquire portfolios to expand the partnering program and we'll invest prudently where appropriate returns can be met.

And I would like to reiterate that the variability in the patent licensing business is going to continue, so we recommend that investors look at WiLAN as part of our business based on the value that it can deliver over the long-term rather than focusing on quarter-by-quarter numbers. The third quarter as I said earlier was the first full quarter of operations for both, IRD and VIZIYA.

Results for both, IRD and VIZIYA were slightly below our expectations for the quarter. That being said, we still feel it's pretty early on in the absorption of these businesses the past judgment.

We remain highly confident in their respective prospects. IRD continue to build its order book throughout the quarter announcing three new long-term contracts worth more than $10 million.

These contracts, as well as several smaller ones educated [ph] during the quarter significantly add to the overall order book maintained by IRD. On the new product front, IRD formally launched its pack for TACS which stands for Tire Anomaly and Classification System, which is a system built on its brand new sensor technology called VectorSense.

The product launched and placed just last week at ITS World Congress at Montreal. TACS is a data collection system embedded worldwide that captures a host of data when vehicles pass over it.

Among other things, it can detect over or under-inflation of tires, laying position, and unequal wheel loading. It provides valuable information for road structure designers, road management agencies and toll authorities among others.

A pilot study in Oklahoma found that close to 100% of vehicles flagged by the TACS system had a tire anomaly, and within that group 90% of the vehicles had tire issues requiring that the vehicles be pulled out-of-service until the repairs were made. This clearly highlights the safety features of the system which is ultimately a benefit to both, private enterprise and the public.

IRD already has one TACS order in hand for North America, and another in Europe with more demos in progress. This is one of the data aggregation and analytics solution that we are excited about and now we see as a link to capitalizing on the industrial IoT opportunity in the mobility segment.

Also at ITS World Congress last week, IRD launched VI2M, which stands for Vehicle Information-In-Motion. This is IRD's cloud-based data collection reporting an analysis tool.

This product permits users to align data for multiple sensors for the form of variety of analysis on these data and prepare a significant number of either prepackage or customized reports. We think this system is at the center of IRD's industrial IoT efforts on a go-forward basis.

Finally, we completed a tuck-in acquisition in Q3 acquiring iCOMS Detections S.A., an Intelligent Transportation Systems Company based in Brussels, Belgium. iCOMS gives IRD an expanded presence in the rapidly growing European ITS or Intelligent Transportation Systems markets and add new radar based products and services that we can now offer to all IRD's global customers.

Looking now at VIZIYA; VIZIYA's Q3 revenues were impacted largely because of few significant license deals have shifted into the fourth quarter. The typical VIZIYA deal will have a one-time license fee, annual software support revenue covering a year post the system delivery, and that's renewable annually thereafter.

And most often, services revenue to a system operation implementation entry. As a reminder, VIZIYA sells enterprise-grade software to Fortune 1000 companies operating in asset heavy industries such as oil and gas, mining and heavy metals.

These sales cycles are long and complex. When we acquired VIZIYA, we accepted that this variability and quarterly performances affect selling to this customer base.

Given VIZIYA's size, a shift of a quarter or two for $500,000 software license for example, can make a difference from a slightly lighter quarter to annually [ph] significant. Further, we can't lose sight of the acquisition accounting adjustment that saw recurring revenues for the quarter, some $250,000 lighter than would otherwise have been recorded.

For fiscal 2018, this deleted deferred revenue adjustment will no longer be required and we will see an uptick or really a return to the normal level of recurring maintenance revenue thereafter. In Q3, VIZIYA signed up its third customer, a large energy services provider for its filed data analytics service which is sold on a software as a service or SaaS model.

This particular contract is for a guaranteed four-year term which is significant for VIZIYA. In addition, the company has four other IoT opportunities in the pilot stage.

They also signed three smaller license agreements which has long-term maintenance revenue implications in sighting to the ultimate recurring revenue base. VIZIYA's pipeline remain strong, to further boost its future activity, VIZIYA's hired a Director of Partner Relations in Q3 whose role is to open up sales opportunities through new distribution channels.

With a strong Q3 under our belt and a significant boost to our cash balance post quarter end, we have ample capital resources to execute on our growth plan. Our acquisition pipeline is building and we are currently at various stages of discussion with about a dozen companies.

We remain focused on acquiring companies in the IoT market and in particular, companies in our four segments. In addition to those target segments, we are looking for businesses that have a broad range of products and services focused on capturing, analyzing and interpreting data that can turn that data into action-oriented information.

We're looking for companies with a history of growing sustainable cash flow, a capable and experienced growth-oriented management team, an established presence in their business areas with strong customer relationships, a sustainable competitive advantage, and the ability to grow organically or the additional acquisitions. We will continue to be prudent in how we deploy our capital and are looking for accretive transactions that can generate a plus 20% annual return on invested capital averaged out over a longer investment-hold period.

We remain excited with our growth prospects and look forward to adding to our portfolio investments in the coming quarters. We are cognizant of rising valuations in the current climate however, but we continue to remain disciplined in our valuation parameters.

While we want to add to our portfolio, we will remain patient in our search. With that, I'll pass it over to Steve for a detailed look at the numbers.

Thank you Shaun, good morning everyone. I'd start off with a look at some of the revenue segmentation in Q3.

Beginning with our Q2 release this year, we now breakout revenue and cost of revenue by type; licenses, systems, services and recurring. As you would expect, the majority of this quarter's revenue was in the license category which includes WiLAN's traditional patent licensing, as well as software license revenue from the factory segment.

$6.8 million of revenue was in the systems revenue category which includes revenue earned on contracted projects recognized on a percentage of completion basis, as well as OEM and proprietary product sales. Recurring revenue was $6.2 million which includes running royalties from patent licensing, maintenance, software as a service and data analytics revenue.

This revenue tends to come from contracts that range in term from one to five years. Service revenue which relates to professional services type revenue was nominal in Q3 at just under $1 million.

More detailed descriptions of these types and their related costs can be found in our MD&A. With Q2, we also began to segment our results by our industrial IoT target markets.

As Shaun mentioned, the targeted vertical are technology, mobility, factory and city. Today we have investments in three of those verticals; technology with WiLAN, mobility with IRD, and factory with VIZIYA.

Detailed segmented results on each vertical can be found in our Q3 press release and in our MD&A. For the purposes of today's call, I'll focus on highlights from each one, as well on the consolidated highlights for Quarterhill.

As Shaun mentioned, our consolidated revenue and adjusted EBITDA in Q3 were a record $85.9 million and $16.6 million respectively. Our technology vertical generated $72.6 million in revenue and $61.4 million in adjusted EBITDA.

Basically, in one quarter we delivered adjusted EBITDA in the neighborhood of what we have been generating on an annual basis over the past few years. It speaks to how performance in the patent license business needs to be viewed over a longer period of time rather than quarter-to-quarter.

Our mobility vertical generated $11.6 million in revenues in Q3 and $710,000 in adjusted EBITDA. This vertical is made up of the IRD operations.

To Shaun's earlier point, we expect these numbers to improve in coming periods as new product launches take hold and new sales are generated. Revenue in the factory vertical was $1.75 million with adjusted EBITDA just about breakeven; this vertical is made up of the VIZIYA operations.

Quarterhill's Q3 consolidated net income was $26.2 million or $0.22 per basic common share. Included in our bottom line is a $15.2 million non-cash expense related to the write-down on an intangible asset.

We also had an income tax expense of $9.1 million in Q3 representing a raise of 25.7%. Cash generated from our operations was $9.3 million, cash flow in Q3 was impacted by the significant increase in accounts receivable in the quarter.

Following quarter end, a significant amount of the receivables were collected which will have a positive impact on Q4's cash from operations. In Q3 we also paid $1.1 million in dividends.

On the balance sheet, cash and cash equivalents and short-term investments totaled $40.6 million at quarter end. For my comments a moment ago regarding collection of receivables post quarter-end, our cash balance at December 31, 2017 should show a significant boost from the level at the end of Q3.

Also on the balance sheet, in conjunction with our patent license activity in Q3, we have retired the bulk of our patent finance obligation reducing this liability from $20.6 million to $5.4 million. This concludes my review of the financial results, and I'll now turn the call back to the operator for questions.

Good morning. Perhaps I'll start with a question, I mean versus your guidance in early October, what was it that would drive such significant upside versus even though as expectations after quarter-end?

Doug, its Shaun. The reality is October 2 is one day after the year [ph] end and for us basically one day after the end of the quarter and we've got a fairly big organization now where historically it was just WiLAN, we were able to pretty well mail the revenue positions, almost right out of the gate, very quick with IRDA and VIZIYA, it takes longer to do the accounting roll-up if you will.

So it's a combination of all three businesses while they come-in together and having some slightly different performance than we expected in our guidance.

Okay. On the substantial license revenue in the quarter, is all the contingent compensation, legal or otherwise related to those or that -- you know, those license wins captured in the quarter, or would you think there will be any more that trickles into Q4?

No, we've accrued at the quarter-end for all the contingent consideration related to the deals that were closed within Q3.

Okay. And then related to cash, I know you said you've collected it, are you able to provide us kind of a view of -- in light of the related compensation you're paying out related to that, what your cash is on-hand now approximately?

It's difficult to give exact numbers in mid-quarter I think, Doug. But the reality is, if you look at the working capital consumption last quarter, it was around $45 million.

You can probably think that that's pretty close to zero now, and so -- and that's pretty well added to the cash position.

Yes, that's good enough. As you mentioned, VIZIYA and IRD, a little bit below your own expectations in the quarter; I understand what's happened here at VIZIYA with some deal slippage -- I was just a little unclear on what was going to on at IRD, I wonder if you can expand a little on why that was below your expectations in the quarter?

And I know, why -- before these new product launches happened post quarter end?

Yes, I think both divisions as it turns out were actually pretty significantly impacted by the severe weather patterns in the U.S. You think of IRD's business being a project oriented business, massive hurricanes, flooding's, and all those kinds of things affected their ability to deliver on some of their projects and particular, in some of the lower states; so that was one piece of it.

Weather is a big contributor and whether they can carry on their projects or not, IRD did have at least one, if not two fairly significant maintenance contracts, renewal-wise slip, we hope to get renewed in the next couple of weeks, but that has an impact on both, revenue and bottom line. And I think below expectations on the EBITDA line, really is -- I think our R&D has been pushing a little bit higher than we had expected or hoped in the last couple of months in the quarters, in fact, really owing to this new product launch and getting it done on-time.

We think we'll see R&Ds certainly after this quarter kind of return back to a more normalized level of couple of hundred thousands later than it is.

So just to step back, then the run rate for EBITDA revenue for both divisions, would you expect over the next 12 months to -- for it to approximate what we had expected or what they delivered historically?

Certainly that's our goal and expectations.

Okay, that's helpful. I'll pass the line.

Thank you.

Good morning, everyone. Could you -- you mentioned the higher, you just saw on the slippage of the two IoT businesses, could you just give us a rough idea on how much revenue and EBITDA was affected in both IRD and VIZIYA in the quarter?

In VIZIYA it's probably a little easier to identify because there is a few contracts, a software related contract as I said in my [indiscernible], $500,000 software license which would normally have some maintenance revenue and some services revenue applied to it. When it's less from Q3 into Q4, that's $500,000 of revenue and fundamentally $500,000 of EBITDA.

We had at least one of those deals in VIZIYA instance and there is a few others that are smaller in magnitude but because they are software licenses, they have a very dramatic impact on the EBITDA line. In IRD's case, it's a little harder to talk about; their margins tend to be in 30% to 35% range.

So the extent that we missed about a $1 million and $1.5 million in revenue that we expected is probably $300,000 to $400,000 with EBITDA contribution that we would have missed. But don't try to take that as guidance because it's a function of the -- in IRD's case, it's a function of how they can roll the projects out and when you're looking at weather and weather dependencies, it's not that it just slipped, it's difficult to hit the delivery on the project itself.

And the seasonality in IRD, what kind of rhythm should we see in that business?

Again, we have to go back to looking at IRD's previous financial statements prior to joining the Quarterhill family but their Q4 and Q1 now will likely be on average a little lighter than Q2 and Q3, generally, because again, it's mostly weather based, right. In Canada and the northern half of the U.S., winter month starts to make it more difficult to achieve some of their projects.

We are looking to their South American operations, in particular, out of Chile to pick up some of that slack but Chile frankly, is a little behind time right now, as well.

Okay. Now that's helpful color.

And then, just on the WiLAN piece; so for the licenses that would have been signed in Q3, Samsung, Motorola and you mentioned I think a couple of others. Has that now all been recognized in the financial statements or are there follow-on and/or recurring pieces?

No, they would have been all reflected in the financial statements.

Okay. And then once you get the $45 million in cash, you essentially will have sort of caught up from all of the payments relating to those agreements as well?

Correct.

Okay. And then, just lastly, you talked about the pipeline of patent licensing being pretty robust; can you characterize it let's say versus this very good quarter?

Would you -- like are you on a bit of a run, so it should be continued to be a tailwind in the fourth quarter or should we expect bit of a low now that you sign all these deals in Q3?

It's a good kind of question, I guess. And I think we can see the results of the variability over the last five or six quarters, a 30 and 8.72 [ph], it's difficult to predict exactly when our license is going to sign.

We can tell you that we remain very confident and we've got substantial hands in the fire if you will, we've got a number of litigations coming to fundamentally to trial in the next 12 to 16 months. There is all the reason to believe that there is ample opportunity to continue to have significant performance as we have in this quarter but is it going to be in Q4, Q1, Q2 or Q3 next year, it's very, very, very difficult to predict that.

And then, just lastly on M&A; you talked about an active pipeline, have you done the digestion necessary on VIZIYA and IRD, so you're in a position to act now if you want to?

If we put it on -- I think we're in a position to act for sure. If we had the right kind of valuation or right kind of deal parameters on the other side, as I said in the prepared remarks, we're seeing valuations still remain or even increase in terms of loftiness, that's making it a little more difficult for us to stick to our guns but we're remaining patient in that exercise as well.

Have we completely digested IRD and VIZIYA; we have work to do, there is no doubt about that. If I said it was probably 60% digested versus 100%, it's probably more like 60%.

I'm wondering what are the kinds of things that you're working on in those two areas?

Just generally getting the reporting for the forecast, the business discipline and structuring, trying to ship the business into the three divisions that we have or three subsidiaries that we have, that kind of stuff. It's a little bit of synergies that we think we can strip out relative to back office administration type operations which will take us a bit of time to work through.

That's great, thanks very much. I appreciate the color.

Thank you.

Thanks for taking my questions. I think a good amount of them have been answered but Shaun, just -- when we look at the patent portfolio you acquired post the quarter and I know you announced that you also had a rundown under your partner program in the quarter, how should we kind of think about investing patents going forward at WiLAN and kind of the waiting between the partnership program or the buying outright?

Is it -- I assume it's still kind of weighted much more towards the partnership programs?

That's a correct assumption. I think the business has the intention to try to do everything as much as possible, into the partner program.

And even then, some of the partner programs may still have a small amount of $100,000 with something like that in an upfront payment to make it palatable to department to carry the transaction. So, again, capital -- CapEx on it is fairly small on an annual basis but there maybe a few dollars even in the partner program from a CapEx perspective.

Perfect, thank you very much. And then looking at IRD, obviously I think its good color on the weather impact there.

I know you said that, there Q4 and Q1 tend to be a bit lighter; is there any chance to see some catch-up in Q4, just given I assume some of those projects have been delayed in the quarter?

We're looking for some catch-up, although -- again, it depends on their ability to deliver on the project itself. Currently our forecast say that it's a bit of a catch-up but not material.

Okay, perfect. And then just one last question for me, I was just hoping do you have any update on when we can look forward to hopefully taking the interim off your name?

Well, the process is ongoing still. The Board is obviously being very thorough and diligent in its search, and we can't really predict the timing, right.

The Board will make its decision when it determines that it's completed the process. So at this time I can tell you the process is still ongoing and the Board is very diligent.

Perfect. Thank you very much.