Quarterhill still has to prove itself, this fund manager says

The ups and downs of technology patent company Quarterhill (Quarterhill Stock Quote, Chart TSX:QTRH) make it a tough name to predict, but the stock is showing technical signs pointing towards a short position, says James Hodgins of Curvature Hedge Strategies.

Formerly WiLan, Quarterhill has made recent efforts to branch out from its licensing business into software as a service and Internet of Things technologies, a move which would mitigate some of the variability inherent to the patent business. The company’s revenues can bounce around depending on wins or losses on patent lawsuits, a case in point being last summer’s $145.1-million infringement case result in Quarterhill’s favour in its ongoing legal battle with Apple. That win bounced the company’s share price up by almost a third.

Over the longer term, however, the stock looks gloomy, having dropped from the low $4.00 range as of 2014 to the mid $1.00 range where it has been mired for a number of months now.

“This is the old WiLan, which was a bit of a soap opera itself, back when 4G was being rolled out and they had that spectrum,” said Hodgins, to BNN Bloomberg on Friday. “Quarterhill does these royalties with technology products.”

“On our quant models, it shows as a short, so we’ve got a small short position in it but it’s not really that fundamentally based, so I couldn’t really give a fundamental recommendation,” he says.

Quarterhill, which recently announced that it was moving its headquarters from Ottawa to Kitchener, Ontario, released its first quarter results on May 9, coming in with revenue of $39.8 million and an adjusted EBITDA of $12.5 million. The company saw a big increase in its WiLAN business and should see further success coming after a recent licensing deal with US tech giant Nvidia.

“Q1 was a strong start to the year,” said President and CEO Doug Parker, in a press release. “With WiLAN, our licensing business, we had the type of quarter that illustrates the positive aspects of its revenue variability, as that business generated almost $15.0 million in Adjusted EBITDA and accordingly a significant amount of cash flow that can be used to support our M&A strategy.”

“The recent license announcement with Nvidia reflects that WiLAN’s momentum has continued into Q2 and on the expense side we are already benefitting from the lower cost base established through the 2018 restructuring,” Parker said.