Quarterhill Q3 2026 Earnings Call - DEFI TECHNOLOGIES INC

Financial Performance:

• Q3 2026 revenue reached $43.2 million, a 9% year-over-year increase and the highest quarterly total since 2022.
• Gross profit stood at $12.3 million (29% margin), representing a 230 basis point expansion YoY due to restructuring and improved contract economics.
• Adjusted EBITDA totaled $3.9 million (9% of revenue), marking the fifth consecutive quarter of profitability, up significantly from $1.4 million (3% margin) in Q3 2025.
• Cash used in operations was $8.6 million, driven by acquisition-related costs for the Conduit deal, contrasting with $6.4 million generated in the prior year.
• Cash position increased to $51.6 million as of September 30, 2026, following a $51.8 million CAD private placement, up from $26.2 million in Q2.
• Revenue backlog was reported at $418.9 million as of September 30, 2026.
• The company eliminated $57.5 million CAD in convertible debentures and associated interest obligations post-quarter end.
• Divestment of remaining YLAN interest and early earn-out collection generated $8.5 million in cash proceeds.

Guidance and Future Outlook:

• Management expresses heightened confidence in execution strategy and ability to capitalize on upcoming opportunities in 2027.
• Anticipates closing the acquisition of Conduit's tolling business in Q4 2026, subject to regulatory approvals (TSX).
• Plans to integrate Conduit's operations and leverage the combined entity's scale for future RFPs, though specific pro forma balance sheet metrics will be disclosed upon deal closing.
• Long-term goal involves scaling the new AI-enabled modular platform from tolling into broader transportation markets.
• Expect continued growth in commercial vehicle and enforcement segments domestically and internationally, including the UK and Europe.

Business Segments and Product Lines:

• Tolling: Secured a $28.2 million, up to 14-year subcontract with LA Metro to support the Express Lanes back-office system, validating next-generation technology.
• Commercial Vehicle: Won a $5.25 million contract in Oklahoma for a full screening suite on I-35 (including tire anomaly detection) and multi-year contracts with Penn and Idaho DOTs for network modernization.
• Technology: Rolled out a new modular, AI-enabled platform in January that automates labor-intensive processes (image review to reporting) and allows phased adoption without system replacement.
• AI Capabilities: Leveraging vehicle ID, automated image review, and anomaly detection to improve accuracy and operational efficiency for transportation agencies.
• Divestments: Sold an underperforming German speed enforcement/red light camera business to streamline strategic focus.

Market and Competitive Landscape:

• LA Metro win demonstrates ability to compete for the country's largest managed lane programs, leveraging reputation and partner relationships.
• European and UK markets represent a strategic "sweet spot," with inherited Conduit contracts in the UK and new RFPs expected in the near future.
• Market sentiment for the Conduit transition is described as "cautiously optimistic" by customers.
• The combined entity of Quarter Hill and Conduit is positioned to bid on market RFPs, though antitrust considerations prevent detailed discussion of joint bidding strategies.

Risks and Challenges:

• Execution risk regarding the closing of the Conduit acquisition, contingent on regulatory approvals and standard closing conditions.
• Regulatory and antitrust constraints limit the ability to discuss specific joint bidding approaches with prospects.
• Transaction-related costs currently impacting cash flow from operations.
• Forward-looking statements are subject to material differences due to risk factors detailed in public filings.

Management Commentary and Tone:

• CEO Chuck Myers maintained a highly confident and positive tone, describing the quarter as "strong" and stating he has "never been more confident" in the strategy.
• CFO David Chiron emphasized the strategic success of balance sheet cleanup (debt elimination and equity raise) in providing flexibility for growth.
• Management highlighted that previous restructuring efforts have stabilized the business, shifting focus from survival to scaling and accelerating growth.
• Internal employee morale is described as high, with teams working hard on strategic initiatives ahead of the year-end wrap-up.

Analyst Questions and Answers:

• Conduit Integration: Management confirmed customers are cautiously optimistic about the transition but could not share specific feedback due to confidentiality.
• LA Metro Project: Confirmed the project is well underway several months post-award; contract value is initially $28 million.
• European Expansion: Reiterated plans to grow in the UK/Europe, inheriting existing Conduit contracts and targeting upcoming tolling RFPs, while exiting non-core assets.
• Margins: Q3 gross margins were flat sequentially; management intends to continue squeezing out margin points through operational efficiency.
• Balance Sheet: Pro forma debt and cash levels post-Conduit closing were deferred for announcement upon deal finalization; current debt load primarily includes the term loan with convertible debentures retired.

Other Key Points:

• The company will participate in the Roth Technology Conference (NYC) and Cowan Tech Conference (Toronto) in the coming weeks.
• All financial data presented is in U.S. dollars, except for specific Canadian figures noted (private placement and debenture repayments).
• The Q3 results exclude any operating contribution from Conduit's tolling business, which is expected to be integrated post-Q4 closing.