Quarterhill’s Q3 results will be hard to maintain, Paradigm Capital says

A positive outlook from Quarterhill (Quaterhill Stock Quote, Chart, News: TSX, Nasdaq: QTRH) made the stock the top performer on the TSX today, but Paradigm Capital analyst Daniel Kim says the great results backing it will be hard for the company to sustain.

This morning, Quarterhill announced that, driven by strong results from subsidiary Wi-LAN, it expected that revenue for the third quarter of 2017 is expected to be in the range of $72.5-million to $82.5-million. The company will report those results on November 9.

“We are very pleased to have such a substantial contribution from Wi-LAN this quarter,” said interim CEO Shaun McEwan. “As we have said in the past, financial results in this segment of our business can be variable from quarter to quarter and this is a prime example of the upside potential of this variability. Our expected results for the third quarter will provide a significant boost to our cash position, which will assist in the continued growth of Quarterhill.”

Kim says investors should approach this news with caution.

“The last time QTRH announced break-out results like this was Q1/16 with rev/ebitda of $30M/$20M,” the analyst notes. “The stock subsequently rallied over the course of several months from $2.70 to $3.80. There was a lot of momentum in the stock at the time. It had just acquired portfolios from Freescale and Qimonda, and 11 license deals signed in the quarter drove the beat. The problem is there is much less predictability in WiLAN proper’s license streams. So clearly while the shares will trade up on this news, we do not expect the same magnitude as last year.”

In a research update to clients today, Kim maintained his “Hold” rating and one-year price target of $2.00 on Quarterhill.