Quarterhill (TSX:QTRH) reported first-quarter financial results on Thursday. The transcript from the company’s first-quarter earnings call has been provided below.
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Summary
QTRH reported a 14% year-over-year revenue growth with revenue at $38.6 million and achieved a 28% gross margin, emphasizing their third consecutive quarter of positive adjusted EBITDA.
The company completed a significant refinancing, securing a $100 million accordion facility to support M&A activities and enhance financial flexibility.
Significant operational highlights include new major contract wins in tolling, particularly a new customer operating on their AI-enabled platform and a multimillion-dollar contract with the Massachusetts Department of Transportation.
Management highlighted a robust backlog of $428.8 million, providing multi-year revenue visibility, and a pipeline over $2 billion, indicating strong demand and future growth potential.
CEO Chuck Myers and CFO David Charon indicated a focus on scaling the business and improving profitability, targeting 20% EBITDA margins by the end of 2027.
Full Transcript
OPERATOR
Good morning everyone and welcome to The Quarter Hill First Quarter 2026 Financial Results Conference call. Joining today are Chuck Myers, Chief Executive Officer and David Charon, Chief Financial Officer. At this time, all participants are in listen only mode. Following Management’s remarks, we will open the call for question and answer session during which analysts are invited to ask questions. Earlier this morning, Quarterhill issued a news release announcing its financial Results for the first quarter ended March 31, 2026. This news release, along with the Company’s MD&A and financial statements are available on SEDAR Plus. Certain matters discussed during today’s conference call or responses to questions may constitute forward looking statements. Actual results could differ materially from those anticipated risk factors that could affect results are detailed in the Company’s Annual Information form and other public filings available on SEDAR Plus. During this conference call, Quarterhill will refer to Adjusted ebitda. Adjusted EBITDA does not have any standardized meaning prescribed by IFRS. Please refer to the Company’s Q1 2026 MDNA for full cautionary notes regarding the use of forward looking statements and non IFRS measures. Finally, please note that all financial information provided is in US Dollars unless otherwise specified. I will now turn the call over to Mr. Myers. Please go ahead.
Chuck Myers (Chief Executive Officer)
Good morning everyone and thank you for joining us for our Q1 26 earnings call. This quarter marks an inflection point for quarterhill. We delivered 14% year over year revenue growth, 28% gross margins and posted our third consecutive quarter of positive adjusted EBITDA. These are not isolated data points. They are proof that the company we set out to build two years ago is now operating at scale. We began this journey with three goals in mind. First, restructure the organization and renegotiate contracts to better position the company for long term growth. You can see this in our margin profile today. Second, clean up the balance sheet to provide the financial flexibility needed to invest in the business and pursue strategic opportunities. With the refinancing announced early this week, this phase is now complete. Third Scale Our hyper focus now turns to driving growth across the organization and scaling our AI first platform to support inorganic growth. We have partnered with top M&A advisors with deep its experience and have secured $100 million accordion facility to move quickly on accretive opportunities.
Chuck Myers (Chief Executive Officer)
On the organic front, our tolling business had a strong Q1 with several major wins including a new customer we’ll be announcing later this week. This customer will operate on Quarter Hill’s Advanced Modular Back Office Solution, an AI enabled platform built to consolidate fragmented tolling operations into a single intelligent control layer. The deal is a five year contract with five optional extension periods. We’re excited for our new partnership and look forward to delivering AI first solution. We also extended our long standing collaboration with the Illinois Tollway. We will continue to support the mission critical back office and roadside transactional systems that power daily toll collection across Northern Illinois. On the commercial vehicle side, we’ve been awarded several significant contracts including a multimillion dollar agreement with Massachusetts Department of Transportation to expand their Weigh in Motion program. We continue to evaluate a number of similar opportunities in our pipeline which keep growing as more agencies are committing budgets to modernization.
Chuck Myers (Chief Executive Officer)
Now let me highlight a few key results from the first quarter. As mentioned, revenue came in at 38.6 million, gross margins were 28% and we achieved our third consecutive positive adjusted EBITDA quarter. This is a clear signal that the work we’ve done to restructure the business is translating into real sustainable financial performance and gives us tremendous confidence in our earnings power. As we continue to scale with that overview, I will now turn the call over to Dave to walk through the financial results in more detail.
Dave
Thanks Chuck and good morning everyone. I’ll start with revenue and then walk through margins, profitability, cash flow and the balance sheet. As a reminder, all figures are in US dollars. First quarter revenue was 38.6 million compared to 33.9 million in the first quarter of 2025, representing a 14% increase year over year.
Dave
The increase was primarily driven by continued growth in our commercial vehicle and enforcement business which offset variability in project timing within our tolling segment. As we discussed previously, revenue in our business can vary quarter to quarter depending on project timing and milestone recognition, with Q1 typically being our softest quarter due to weather conditions that limit our ability to execute in the field.
Dave
Going forward, our focus is on growing the top line with business that will continually expand our margins. As of March 31, 2026, we maintained a robust backlog of 428.8 million which provides multi year revenue visibility and when we refer to backlog, we mean the contracted value of work that has not yet been completed but is expected to be performed under existing customer arrangements. This includes signed contracts and expected extensions of existing programs. Where the scope and timing are defined, we do not include unsigned opportunities or potential change orders. Many of these contracts can extend for several years depending on the nature of the deployment and associated service arrangements.
Dave
A meaningful and rising share of backlog is tied to recurring service and maintenance work, which tends to be higher margin and gives us greater clarity on the cash flow ahead. Our pipeline beyond backlog currently sits at over $2 billion across tolling modernization, commercial vehicle and enforcement projects and follow on work with existing customers. Our gross margin in the first quarter was 28% compared to 12% in the first quarter of last year, representing an improvement of approximately 1600 basis points. The improvement reflects the restructuring actions implemented throughout 2025, improved contract economics in the tolling business, and continued strong margin performance in the commercial vehicle and enforcement segment and as a mix of recurring and software enabled revenue increases over time, we expect continued margin expansion throughout 2026 and 2027. Our adjusted EBITDA for the first quarter was $2 million compared to a negative 3.4 million in Q1 of last year, representing an improvement of approximately 5.5 million year over year. As Chuck mentioned, this marks the third consecutive quarter of positive adjusted EBITDA for the quarter, reflecting the disciplined execution and operational improvements we’ve put in place. We expect to continue delivering positive adjusted EBITDA going forward as we scale the business profitably. Turning to cash flow, during the first quarter we used 5.4 million of cash from operations driven primarily by normal working capital fluctuations, specifically the timing of collections from customers and a decrease in accounts payable offset by a reduction in unbilled revenue. As we move through the balance of 2026, we remain focused on closely managing our cash balance and we expect to generate positive cash flow from operations for the full year. Turning now to the balance sheet, we ended the first quarter with $14.7 million in cash compared to $24.8 million at the end of 2025. And as we announced two days ago, we ventured into a new credit arrangement totaling $60 million comprised of a $30 million initial term loan, a $25 million delayed draw term loan facility and a 5 million revolving credit facility with an additional 100 million uncommitted accordions to provide capital for MA activities. Facilities mature in April 2031 and are secured by company assets. To put it simply, this transaction reshapes our balance sheet in several important ways. First, it allows us to redeem our convertible debentures and replaces equity linked debt with traditional non dilutive bank financing. Second, by consolidating our prior credit arrangements into a single, more flexible facility, we’ve extended our debt maturity profile, giving us a long Runway free from near term refinancing pressure. Third, the new facility is denominated in US Dollars, which aligns our debt with the functional currency of the majority of our operations and therefore reduces our Foreign exchange exposure on the liability side of the balance sheet and finally the structure itself with the delayed draw component, the revolver and the uncommitted incremental capacity of up to 100 million provides us with significant dry powder. We now have the financial flexibility to pursue strategic growth initiatives and act quickly as the right opportunities present themselves. In short, this is a stronger, simpler and far more flexible capital structure and and it allows us to execute our growth strategy from a position of financial strength. And with that I’ll turn the call back over to Chuck for his closing remarks.
Chuck Myers (Chief Executive Officer)
Thanks Dave. Let me close with where we see the market going and how Quarter Hill is positioned to leave the ITS industry is at a critical moment. Aging infrastructure, the federal and state infrastructure spend cycle and the operational pressure on transportation agencies are converging into a sustained multi year demand for modernization. At the same time, AI is fundamentally changing what is enabled with our technology. Moving the industry from transaction processing to real time intelligent operations. Quarterhill is one of the very few companies in this industry that can deliver on both fronts. Deep and long standing operational expertise combined with a modern AI enabled technology stack. This combination is rare and it is what customers are responding to. We have built a next gen system, a unified command center for real time operations and decision making that the market will see in action. With our recent customer wins, we are positioning this platform as a cornerstone of our go to market strategy and have received extremely positive feedback from existing and new customers alike. Backed by a best in class technology stack and a revamped balance sheet, Quarterhill is positioned to deliver our strongest year yet. Supported by a $100 million accordion from our new banking partners and advised by leading its experts, we are prepared to act with conviction towards all our opportunities ahead. We’ve never been in a better position to deliver on shareholder value. With that operator, we can open the line for questions. Operator.
OPERATOR
Thank you ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press Star followed by the 1. On your touch tone phone you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press Star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Gavin Fairweather with ATB Cormark. Your line is now open.
Gavin Fairweather (Analyst)
Oh hey, good morning and congrats on the strong numbers. Maybe just to start. In terms of the bookings in the quarter, my crude calculation has about 60 million of new business in Q1 that was up about 4 times from 15 million that you had last year in the first quarter. So I know there’s a tolling renewal in there, but just on the new business side, can you just talk about whether this higher level is driven by a bigger win rate or more deals or both, and just what this overall kind of level of bookings does about kind of demand levels in the market that you’re seeing, I think.
Chuck Myers (Chief Executive Officer)
Thanks, Gavin. Good morning. And thanks for the nice comment. I think it’s important to remember, as you know, we held off on a lot of the tolling bids until we got the company in order. And so we’re much more aggressive in our bidding right now. So we have several, several bids in the pipeline. Doesn’t mean we’re going to win, but there’s. We have several that are sitting out there and several that are currently being worked on at the moment. So I think that’s a lot of it. And I think our safety enforcement business, you know, people often forget that when I got here, I sold off, if I recall correctly, about $8 million revenue to clean up some things strategically. And we’ve grown right through that and that business continues to grow quite nicely. So I think that’s. They’re attributed to both those factors.
Gavin Fairweather (Analyst)
Just on the tolling, you referenced the next generation Win in your prepared remarks. I was able to kind of dig up an RFP in terms of you guys winning a Utah RFP for back office. Some of the supporting docs were pretty interesting. Your technical score was quite high, but you’re able to offer a price that was lower than some of your main competitors. So hope you can just discuss kind of how the new platform is aiding in your bid efforts and what kind of margin you’d expect on this win with your new technology.
Chuck Myers (Chief Executive Officer)
I think that, you know, as the market adopts the technology, you know, our goal is to bid much more like a typical technology company and less like a system integrator. These bids are typically government, you know, system integrator bids where they ask you to name all your resources, like they’re building the software themselves. And now we have a complete path platform that’s really just being modified to meet their needs. So the good thing about that is it allows us to maintain a pretty high margin with the, with the original base package and build the margin as we go forward from project to project. So as we have repeatability, which the system is designed for, which we had, did not really have in the past as much, I think you’re going to see we think we’re going to see our margins increase and we should be able to keep, keep our prices lower. I mean, if you look at that, that bid a few years ago actually would have probably been quite higher, quite a lot higher, but with less margin than it was today.
Gavin Fairweather (Analyst)
That’s good to hear. And sticking on tolling like one of my AI tools is tell me you’ve won something bigger in California, maybe some protests, hoping you could maybe confirm that and also just discuss kind of how many bids you have in within that 2 billion bid book.
Chuck Myers (Chief Executive Officer)
Well, I would say that your research is your research and so sometimes the Internet doesn’t tell the truth and sometimes it’s quite accurate. So if, if we were to talk about that bid, we are, we don’t usually announce bids. We, we’re pretty sensitive to our customers needs so we don’t announce them particularly. But you know, folks can do their research. There’s a fairly decent sized win out there that we’re finalizing the contract on and we’re working with a partner on that. And so we, the name, you know, that the responses we have received are significant.
Gavin Fairweather (Analyst)
Great, great to hear. And then Dave, you know, nice to see the profitability in Q1. I know it’s normally a bit of a tougher quarter just, you know, weather wise. I know it was, you know, certainly a tough winter this year, but maybe you could just walk us through, you know, your thoughts around the margin trajectory for the balance of the year as we start to get into the better weather and some of these recent wins start to kind of ramp up and drive leverage in the business.
Dave
Yeah, exactly, Gavin, as you mentioned, the first quarter is usually the softest and a lot of our costs and our cost structure is quite fixed, you know, with people and our staff. And so the real opportunity to improve our margins comes with top line growth. And you know, in Q2, Q3 and Q4 are usually stronger quarters and so we’d expect stronger levels of profitability throughout the rest of the year and into 2027 as well. Thanks so much. I’ll pass the line.
OPERATOR
Thanks, Gavin. Ladies and gentlemen, as a reminder, should you have a question, please press Star one. Your next question comes from Todd Coupland with CIBC Capital Markets. Your line is now open.
Todd Coupland (Analyst)
Good morning, everyone. I wanted to talk about what’s an appropriate 2026 target model for growth and margins. If you can share us your thoughts on that. Thank you.
Dave
Thanks, Tom. Go ahead, Dave. I’m not going to steal your thunder. Chuck and I aren’t in the same Location here. So when you’re asking questions, if you can direct them to a specific person, that would be helpful. But this one’s obviously min. And Chuck will add commentary, I’m sure. But as we said, as we said previously, Todd, you know the work that we’ve done in 2025 to return the company to profitability, you know, we’re seeing the results in 2026 already. So we expect to see improved gross margins, improved levels of adjusted EBITDA throughout the year and into 2027. We don’t give guidance, but our goal was to reach double digit EBITDA levels. And I think that this is a really great start to the year. Chuck, I don’t know if you want to add something to that.
Chuck Myers (Chief Executive Officer)
No, I think you’re spot on.
Todd Coupland (Analyst)
Okay, that’s helpful. And if we were just to sort of step back from this year, all the cleanup that you’ve done with the backlog and I guess the thoughts towards bidding, what’s the margin profile in that backlog and in that pipeline? Just give us a sense on how to think about it beyond 2026.
Dave
Yeah, our backlog, we kind of look at it as 40% gross margin, 20% EBITDA business on a standalone basis. So we expect that if you’ve noticed our margins, this is an odd quarter, so they’re a little flat. But our margins have consistently grown since the first quarter of last year and we expect them to continue to grow. As you know, our target hopefully towards the end of 27 is probably 20%. EBITDA is our goal and you know, we feel like we’re going to be able to approach that.
Todd Coupland (Analyst)
So Chuck, on that point is a way to think about 27 exiting 27 at 20% or for the full year in 27 exiting 27. Todd. Yeah, yeah, okay.
Chuck Myers (Chief Executive Officer)
You know me, I don’t want to over promise, that’s for sure.
Todd Coupland (Analyst)
Yeah, no, that’s good to hear. And then, you know, with the pickup in the backlog and then the earlier comments you know, made about some large programs that you’re pursuing,
Chuck Myers (Chief Executive Officer)
do you expect the backlog now with industry trends to grow every quarter in 26 or is it going to be lumpy still? It’s the nature of the business. It’s always, look, since I’ve been here, in the two years I’ve been here, I’ve seen the backlog as high as 500 and as low as I think 325. But it always, you know, it always kind of just fluctuates in that range. I mean look to have even, even at 320 million, to have two times our revenue and backlog is pretty good. As you know. And anybody can look on our website, our backlog tends, we tend to end the year somewhere in the 60 to 72% range at the end of backlog going into the year. So I’ve always felt those are pretty strong numbers. So it’s more how you end the year kind of thing going forward. And you know, we had a nice pop of about 25 million of new backlog so far.
Todd Coupland (Analyst)
So it’s good. We’re happy with that. It’s good to see. Yeah.
Chuck Myers (Chief Executive Officer)
And that by the way does not include some of the, some of the other contracts that your predecessor may have talked about.
Todd Coupland (Analyst)
Yeah, yeah, Dory, Chuck, on that 60 to 70% is that you end the year with 60 to 70%. Is that the thinking of how much you’ll book in the, in the following year? So you, you basically have visibility to 60 to 70% at the beginning of 26 of what you’re expecting to book, Is that what you’re saying?
Chuck Myers (Chief Executive Officer)
Yeah, I think this year, going into this year we were about 72% or 71% as we went entered the year. You know, we added $166 million of new business last year.
Todd Coupland (Analyst)
I appreciate that Color. Thanks very much.
OPERATOR
Your next question comes from Gavin Fairweather with ATB Score. Mark. Your line is now open.
Gavin Fairweather (Analyst)
Yeah, just a quick follow up for me. Your prepared remarks talked about trying to get, you know, more scale in the business. I know with the debt done, you know, part of that is looking to do some M and A, particularly in tolling. So I thought it would be a good opportunity to just ask what a down the fairways acquisition would look like for you in terms of, you know, sizing multiples and what, what type of synergies you could get.
Chuck Myers (Chief Executive Officer)
Right. It’s, that’s an interesting question. It depends on the type of business. In the, in the, in the toll business, they tend to be very accretive because you’re not necessarily looking at an entire company acquisition. You tend to acquire contracts and the people associated with running those contracts. Also depends, you know, is it a carve out or is it a stock purchase as a whole company thing? But, but we tend, you know, they, the tolling, from my past experience, the tolling contracts tend to be very accretive when you bring them on. You know, if you look at it from a multiple perspective, you know, they may, they may look pretty, pretty high from a multiple perspective, but when you actually look at them in a blended basis, I’ve seen them as low as one times. But, you know, look at a normal business like these that are selling, are selling, you know, six to eight times today. Now, in the safety and enforcement business, that’s, that’s a different thing where there would be acquiring probably more technology. And I would think that, you know, you would be looking at things that are six to eight times. But the toll business, by the time you see blended, I bet you the blended number is probably in the 2 to 3 or 4 times EBITDA range in the acquisition cost.
Gavin Fairweather (Analyst)
Thanks much. Appreciate it.
OPERATOR
Thank you. As we have no further questions at this time, I will now turn the call over to Mr. Myers for closing remarks.
Chuck Myers (Chief Executive Officer)
Great. Thank you, operator. Once again, I always like to thank my shareholders. You guys have been great and the employees that have really made this company grow. And as we move forward, we’re pretty excited by our technology and all the things that we’ve done with the company in the last couple years. And we look forward to the next couple years. So thanks for listening and appreciate your support.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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