Quarterhill Q3 2026 Earnings Call - DEFI TECHNOLOGIES INC

Explicit Guidance:

• No explicit quantitative financial guidance (e.g., specific FY2027 revenue, earnings, margin, or capex ranges) was provided for future periods.
• Q4 2026 Expectations: Anticipated to close the acquisition of Conduent's tolling business in the fourth quarter of 2026, subject to closing conditions including TSX approval.

Business-Segment Outlook:

• Tolling Business (Conduit): Integration planning for the Conduit acquisition is underway; the combined entity aims to leverage Conduit's existing large UK tolling contracts alongside Quarter Hill's technology.
• Commercial Vehicle: Continued strong performance expected with opportunities to expand existing relationships and introduce technology to new domestic and international markets.
• Product Pipeline: The LA Metro Express Lanes subcontract ($28.2M) is expected to run for up to 14 years. The company expects to capitalize on multiple upcoming tolling opportunities in Europe over the "next couple of years."
• AI & Technology: New AI-enabled modular platform (launched January 2027 with first customer) is expected to automate labor-intensive tolling operations (image review, customer service, reporting) and scale to broader transportation markets.
• Geographic Expansion: Targeting significant growth in Europe and the UK; strategy involves acquiring Conduit's European tolling base while continuing organic growth in commercial vehicle sectors via the Brussels hub.
• Backlog: As of September 30, 2026, backlog stands at $418.9 million (signed contracts and defined scope extensions); excludes pipeline opportunities.

Market and Competitive Outlook:

• Demand Trends: Management observes "cautiously optimistic" feedback from customers regarding the transition to the combined Quarter Hill/Conduit entity.
• Competitive Positioning: Strong competitive advantage driven by next-generation AI technology (vehicle ID, automated image review, anomaly detection); winning capability validated by major wins against incumbents for long-duration contracts.
• Pricing & Contracts: Focus on "improved contract economics" following a two-year restructuring; strategy to bid separately or jointly on RFPs is currently subject to antitrust regulations pending transaction closing.

Macro / Industry Outlook:

• No specific commentary provided on interest rates, FX, inflation, or broad economic indicators beyond the expectation that the strengthened balance sheet provides flexibility to execute strategy regardless of market conditions.
• Regulatory: Transaction closing remains contingent on regulatory approval (TSX).

Strategic Initiatives:

• M&A (Conduit Acquisition): Targeting Q4 2026 closing; integration planning is in progress.
• Capital Structure Optimization: Completed in September 2026:
  • Raised CAD $51.8M via private placement (including ~$2M insider investment).
  • Repaid CAD $57.5M convertible debentures in full in October 2026 (eliminating interest expense and dilution risk).
  • Divested remaining 10% equity interest in YLAN for $8.5M (including early earn-out payment).
• Technology Rollout: Full deployment of AI-enabled modular platform expected to begin with first customer in January 2027, scaling to other agencies without requiring legacy system replacement.
• International Asset Optimization: Divested underperforming speed/red light camera assets in Germany to align with core strategic fit.

Risks and Headwinds to Outlook:

• M&A Execution: Closing of the Conduit acquisition is conditional on satisfaction of closing requirements, specifically TSX approval.
• Antitrust Constraints: Joint bidding on future RFPs with Conduit is legally restricted pending transaction closure.
• Margin Pressure: Gross margin expansion may face "sequential" headwinds or "flat" performance if revenue mix shifts; management notes continuous pressure to squeeze out additional margin points.
• Regulatory/Compliance: Standard risk that actual results could differ materially from forward-looking statements due to factors outlined in the company's earnings release and filings.

Management Tone on the Future:

• Confidence Level: High; CEO stated, "I've never been more confident in our strategy or our ability to execute it."
• Strategic Clarity: Management describes the current position as "solid," having completed a "restructuring" phase to focus on "accelerating growth and scaling."
• Momentum: Viewed as entering a "new era" of growth supported by a simplified capital structure and proven technology traction in both tolling and commercial vehicle sectors.

Miscellaneous:

• Event Schedule: Management confirmed participation in the Roth Technology Conference (NYC) and the Cowan Tech Conference (Toronto) in late 2026.
• Financial Reporting: All financial figures are presented in U.S. dollars; Q3 2026 results reflect only current operations and exclude Conduit's operating contribution.