Quarterhill Q1 Earnings Call Highlights

Key Points

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• Quarterhill said Q1 revenue rose 14% to $38.6 million, while gross margin improved to 28% from 12% a year earlier. Adjusted EBITDA turned positive at $2 million, marking a third straight quarter above zero and suggesting restructuring efforts are starting to pay off.

• The company ended the quarter with $428.8 million in backlog and said its pipeline beyond backlog exceeds $2 billion. Management highlighted recurring service work as a growing share of backlog, which should improve margin quality and cash-flow visibility.

• Quarterhill also announced a new $60 million credit facility that replaces convertible debentures with non-dilutive bank financing and extends maturities to 2031. Management said the cleaner balance sheet gives the company more flexibility for growth and potential M&A.

Quarterhill (TSE:QTRH) reported higher first-quarter revenue, sharply improved gross margins and a third consecutive quarter of positive Adjusted EBITDA, as management said restructuring efforts are beginning to translate into more sustainable financial performance.

On the company’s first-quarter 2026 earnings call, Chief Executive Officer Chuck Myers said the quarter marked “an inflection point” for Quarterhill, citing 14% year-over-year revenue growth, a 28% gross margin and continued positive Adjusted EBITDA.

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“These are not isolated data points,” Myers said. “They are proof that the company we set out to build two years ago is now operating at scale.”

All financial figures discussed on the call were in U.S. dollars.

Revenue rises as margins improve

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Chief Financial Officer David Charron said first-quarter revenue was $38.6 million, up from $33.9 million in the same period of 2025. He attributed the increase primarily to continued growth in the company’s commercial vehicle and enforcement business, which offset variability in project timing within its tolling segment.

Charron noted that revenue can fluctuate from quarter to quarter based on project timing and milestone recognition, and said the first quarter is typically Quarterhill’s softest because weather can limit field execution.

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Gross margin improved to 28% from 12% a year earlier, an increase of roughly 1,600 basis points. Charron said the improvement reflected restructuring actions implemented throughout 2025, improved contract economics in the tolling business and strong margin performance in the commercial vehicle and enforcement segment.

Adjusted EBITDA was $2 million, compared with negative $3.4 million in the first quarter of 2025. Charron said the $5.5 million year-over-year improvement reflected disciplined execution and operational changes.

Quarterhill used $5.4 million of cash from operations during the quarter, which Charron said was driven mainly by normal working capital fluctuations, including the timing of customer collections and a decrease in accounts payable, partially offset by a reduction in unbilled revenue. He said the company expects to generate positive cash flow from operations for the full year.

Backlog provides multiyear visibility

Quarterhill ended the quarter with a backlog of $428.8 million. Charron defined backlog as contracted work that has not yet been completed but is expected under existing customer arrangements, including signed contracts and expected extensions where scope and timing are defined. He said the figure does not include unsigned opportunities or potential change orders.

Charron said a growing share of the backlog is tied to recurring service and maintenance work, which tends to carry higher margins and provides clearer cash flow visibility. He also said the company’s pipeline beyond backlog currently exceeds $2 billion across tolling modernization, commercial vehicle and enforcement projects, and follow-on work with existing customers.

In response to a question from CIBC Capital Markets analyst Todd Coupland, Myers said the backlog will likely remain lumpy because of the nature of the business. He said that during his time at the company, backlog has ranged from about $325 million to $500 million.

Myers also said Quarterhill had added about $25 million of new backlog so far, while noting that the amount did not include other contracts that had been discussed earlier in the call.

Tolling wins and AI-enabled platform highlighted

Myers said Quarterhill’s tolling business had a strong first quarter, including several major wins. He said the company plans to announce a new customer later in the week, which will use Quarterhill’s advanced modular back-office solution. Myers described the system as an AI-enabled platform designed to consolidate fragmented tolling operations into a single intelligent controller. The deal is a five-year contract with five optional extension periods.

Quarterhill also extended its collaboration with the Illinois Tollway, where Myers said the company will continue supporting back-office and roadside transaction systems used for daily toll collection across northern Illinois.

On the commercial vehicle side, Myers said Quarterhill won several significant contracts, including a multi-million-dollar agreement with the Massachusetts Department of Transportation to expand its Weigh-In-Motion program.

Asked by ATB Cormark analyst Gavin Fairweather about tolling bids and the company’s new platform, Myers said Quarterhill is trying to bid “much more like a typical technology company and less like a system integrator.” He said the company now has a platform that can be modified to customer needs, rather than building software from scratch for each contract. Myers said that should allow Quarterhill to keep prices lower while improving margins as repeatability increases.

New credit facility strengthens balance sheet

Quarterhill ended the quarter with $14.7 million in cash, down from $24.8 million at the end of 2025. Charron discussed a new $60 million credit arrangement announced earlier in the week, consisting of a $30 million initial term loan, a $25 million delayed-draw term loan facility and a $5 million revolving credit facility. The arrangement also includes a $100 million uncommitted accordion intended to provide capital for mergers and acquisitions. The facilities mature in April 2031 and are secured by company assets.

Charron said the financing allows the company to redeem its convertible debentures and replace equity-linked debt with traditional, non-dilutive bank financing. He said it also consolidates prior credit arrangements, extends the company’s maturity profile and aligns its debt with the U.S. dollar functional currency of most operations, reducing foreign exchange exposure on the liability side of the balance sheet.

Myers said the refinancing completes the company’s balance sheet cleanup phase and gives Quarterhill more flexibility to invest in the business and pursue strategic opportunities.

Management points to margin expansion and M&A opportunities

Charron said Quarterhill expects continued margin expansion through 2026 and 2027 as its mix of recurring and software-enabled revenue increases. He said the company does not provide formal guidance, but its goal is to reach double-digit EBITDA levels.

Myers told analysts the company views its backlog as having a profile of roughly 40% gross margin and 20% EBITDA on a standalone basis. He said Quarterhill’s goal is to approach 20% EBITDA by exiting 2027.

Asked about acquisitions, Myers said potential tolling deals can be highly accretive, depending on whether the transaction involves acquiring contracts, a carve-out or a whole company. He said tolling acquisitions may appear expensive on headline multiples, but on a blended basis could be in the 2x to 4x EBITDA range. For safety and enforcement acquisitions, where the company would likely be acquiring more technology, Myers said multiples could be in the 6x to 8x range.

Myers said the intelligent transportation systems industry is seeing demand from aging infrastructure, government infrastructure spending and pressure on transportation agencies to modernize. He said AI is shifting the industry from transaction processing toward real-time intelligent operations, and positioned Quarterhill’s AI-enabled technology stack as central to its strategy.

“We’ve never been in a better position to deliver on shareholder value,” Myers said.

About Quarterhill (TSE:QTRH)

Quarterhill is a global leader in the Intelligent Transportation System (ITS) industry, advancing mobility through smart infrastructure solutions that reduce congestion, improve roadway safety, and create more sustainable travel. Each year, Quarterhill’s platforms process billions of transactions, perform compliance and safety inspections on millions of commercial vehicles, and enable transportation agencies worldwide to optimize thousands of lanes of traffic to improve travel for everyone. Leveraging advanced artificial intelligence and machine learning technologies, Quarterhill’s platform delivers automation and predictive insight to help agencies manage transportation networks more efficiently.

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