Quarterhill is “having difficulties” but is worth a look, this fund manager says

Tech patent company Quarterhill (Quarterhill Stock Quote, Chart TSX:QTRH) made headlines last summer when it won a $145-million lawsuit against Apple. And while the stock has been mostly in the decline since then, there might be another windfall coming its way from a second case with Apple, which would be good for the stock, says investment advisor Benj Gallander.

“We own Quarterhill. The big news is that they’re waiting for results — they won a lawsuit against Apple for $145 million for the first judgment and the second judgment was for ten dollars and the judge said to go back and negotiate,” Gallander, of Contra The Heard Investment Letter, told BNN Bloomberg Tuesday.

“If they have a good settlement with Apple, that should really help,” he says.

Ottawa-based Quarterhill and its subsidiary Wi-LAN saw its share price jump by close to a third last August after a California court found that versions of the Apple iPhone infringed on two of Wi-LAN’s wireless technology patents. But since then, there’s been less good news concerning QTRH, which finished 2018 down 43 per cent. The stock is up ten per cent year-to-date in 2019.

“Quarterhill is having some difficulties,” says Gallander. “They have the lumpiest revenues of any company I’ve ever been involved with. One quarter their $85-million bottom line is $20 million-plus, one quarter it’s $12 million, or they lose $12 million.”

“I like the CEO Douglas Parker. He did a lot of takeovers when he was at OpenText with over $2 billion in revenues,” he says. “They have about $68 million in the bank and no debt. They’ve done a few takeovers in the past few years and they’re trying to create more recurring revenue but they have not been all that successful at it.”

Ahead of Quarterhill’s first quarter financials due on May 9, the company’s fourth quarter in February featured revenue of $25.4 million, which was flat compared to the previous Q4’s $22.6 million and met the Street’s expectation of $24.4 million. The company posted a net loss of $2.1 million, much better than the $25.5-million loss a year prior.

Parker said the quarter showed the progress that Quarterhill had made during its pivot towards becoming a tech holding company.

“While 2018 was challenging in certain respects, we ended the year on a positive note in Q4 with strong revenue, Adjusted EBITDA and cash from operations,” the CEO said in a press release. “Overall, tangible progress was made in a year that I would characterize as one of operational stabilization while continuing to make advancements on our diversification strategy. Adding new companies to our portfolio remains a primary objective of the strategy but ensuring that our existing portfolio companies are optimizing their performance is equally important.”

Not so common in the tech sector, Gallander says that the company’s dividend is attractive.

“I like the dividend,” he says. “At a nickel a quarter it works out to about 3.5 per cent. I think there’s a lot of upside.”