Canadian tech company Quarterhill (Quarterhill Stock Quote, Chart: TSX, NASDAQ:QTRH) has been trying to pivot from a patent licensing business to a tech holding company but the move won’t appeal to investors more inclined towards pure-play companies, says Peter Imhof, vice-president and portfolio manager at AGF Investments.
Ahead of Quarterhill’s third quarter financial results due in early November, the company’s share price has certainly bounced around over much of 2018, starting the year off at C$2.33 per share before dropping to a low of C$1.33 by mid-July. Soon after, however, the company subsidiary WiLAN Inc. was awarded $145.1 million in damages in a patent infringement lawsuit against Apple Inc. The news immediately brought the stock up 28 per cent, after which QTRH had a good August before dropping down again over much of September and October. The stock currently sits at C$1.68 per share. (All figures in US dollars unless noted otherwise.)
“When WiLAN switched over to Quarterhill, they were going to make a number of acquisitions and kind of be a bit of a holding company and then use some of their cash on the balance sheet from settlements from WiLAN,” says Imhof, in conversation with BNN Bloomberg. “You can see that the stock has come off quite a bit after they announced this and then they had a bump when they had a settlement with Apple — and I think Apple is trying to contest that settlement.”
“The stock does look cheap but I’m just not big on holding companies,” says Imhof. “I liked it more when it was a pure-play like WiLAN before.”
Quarterhill’s second quarter results were released on August 9, with the company generating revenue of $20.4 million, 34 per cent of which represented recurring revenues. Quarterhill reported an adjusted EBITDA loss of $4.0 million for Q2.
The patent lawsuit wasn’t the first between WiLAN and Apple. In 2013, WiLAN sought $248 million in damages but a US jury found in favour of Apple.
“I wouldn’t sell it here because it’s very cheap,” says Imhof. “It’s holding out better than most stocks here in the downturn, so I think it’s a defensive position, and if they get the money from Apple, the stock should have a nice move up.”