Quarterhill Inc. (QTRH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Quarterhill Inc. Annual Meeting. My name is John Gillberry, and I am the Chair of Quarterhill's Board of Directors. I'm speaking to you today from my home in Gray County. This is our third and hopefully, final COVID-related virtual AGM. And I'd like to repeat what I've said for the past 2 years that although we're disappointed that we can't see each of you today, our thoughts are with you, your families and the communities that you serve. We want to thank you for your patience as we navigate through this unprecedented situation in our third virtual meeting in light of the circumstances. In particular, I want to offer my sincere hope and that of our Board and everyone at Quarterhill and our subsidiaries, Electronic Transaction Consultants, International Road Dynamics and WiLAN that all our shareholders, employees and communities recover as soon as possible and make our ways to better days. Instructions on how to ask questions and the voting procedure will appear on your screens as we proceed. As with any technology, unexpected glitches may occur with this meeting and potentially, to both your and my internet connections, but our service providers for this platform are very experienced at running this type of meeting and will do their best to help us all out. This meeting will now come to order, and I will ask for Prashant Watchmaker to act as Secretary of the meeting and Roxane Parsaud and Josette Koffyberg of Computershare Investor Services, Inc., to act as scrutineers. Based upon the statutory declaration provided by Computershare, I confirm that the notice of this meeting -- calling this meeting, and the management information circular and form of proxy for this meeting were mailed to Quarterhill's shareholders in accordance with Quarterhill's bylaws and the Canada Business Corporation Act. I have received a preliminary scrutineer's report, and there is a quorum present here today by proxy, representing more than 25% of Quarterhill's issued and outstanding common shares. Therefore, I declare this meeting is regularly called and properly constituted for the transaction of business. Each Quarterhill shareholder present at this virtual meeting that has properly registered other than as a guest is entitled to 1 vote for each share held. Each matter to be voted on at this virtual meeting must be approved by a simple majority of votes cast by all shareholders present today, except for the articles of amendment special resolution, which must be approved by a majority of not less than 2/3 of the votes cast by shareholders who vote on that special resolution. We will conduct the votes on the matters before us by a poll. On a poll, every shareholder entitled to vote on the matter has 1 vote in respect to each share entitled to be voted on the matter and held by that shareholder. The whole -- the poll will be opened for all resolutions at the same time, which will allow you to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. I will announce the results on voting of each resolution at the end of the formal portion of the meeting. Following the conclusion of the formal portion of this meeting, I will hand the meeting over to our President and Chief Executive Officer, Bret Kidd, who will deliver a presentation on our business. After which, Bret and I will address appropriate questions from shareholders, starting with questions that have been provided to us prior to the meeting. Where questions are of a similar nature, they will be organized by theme. And in the interest of everyone's time, I will not address the same or similar question twice. Shareholders and proxy holders may address this meeting when there is a request to discuss a motion before the meeting. If you want to address the Chair on any motion, please type your question or comment into the message section once it opens during the discussion period. If there is any discussion or question, I will read that question aloud. At this time, the polls are now open. This meeting has been called to consider 6 matters. The first item of business is the presentation of Quarterhill's audited financial statements for the fiscal year ended December 31, 2021, together with the auditor's report. The financial statements were mailed to the shareholders who requested them and can also be accessed at our website at www.quarterhill.com or from Quarterhill's SEDAR issuer profile page at www.sedar.com. We would like to dispense with the reading of the auditor's report since all requesting shareholders should have received a copy of the report. May I ask for a shareholder to move that we dispense with the reading of the auditor's report? Would a shareholder or proxy holder, please make the motion.

Mr. Chair, I so move.

Thank you. Would a shareholder or proxy holder please second the motion?

I'm pleased to second the motion.

Thank you. Is there any discussion of this motion? As there is no discussion, I now call for a vote on the motion before the meeting. Would a voting shareholder and -- sorry, would all voting shareholders and proxy holders, please enter your votes in Lumi. [Voting]

The second matter to be dealt with is the election of Directors. In accordance with Quarterhill's articles, the Board has determined that 8 Directors should be elected at today's meeting. As mandated in Quarterhill's bylaws, all nominations for election of Directors were received by our Corporate Secretary at least 30 days prior to this meeting. The circular for this meeting identifies the following individuals as management's nominees: Roxanne Anderson, Michel Fattouche, John Gillberry, Bret Kidd, Rusty Lewis, James Skippen, Pamela Steer and Anna Tosto. As the number of individuals nominated is equal to the number of vacancies on the Board of Directors and there being no further nominations as permitted by Quarterhill's bylaws, could a shareholder or proxy holder please move the nomination of this slate of Directors?

Mr. Chair, I so move.

Thank you. Would a shareholder or proxy holder please second the motion?

Mr. Chair, I second the motion.

Thank you. Is there any discussion of this motion? As there is no discussion, I now call for a vote on the motion before the meeting. Would a voting shareholders -- would all voting shareholders and proxy holders, please enter their votes in Lumi. [Voting]

Thank you. Now could a shareholder please move these nominees to be elected as Quarterhill's Directors to hold office until the next annual election of Directors or until their successors have been duly elected or appointed?

Mr. Chair, I so move.

Thank you. Would a shareholder or proxy holder please second the motion?

Mr. Chair, I second the motion.

Thank you. Is there any discussion of this motion? As there is no discussion, I now call for a vote on the motion before the meeting. Would all voting shareholders and proxy holders, please enter your votes in Lumi. [Voting]

The third item is the appointment of the auditors. May I please have a motion moving that Ernst & Young LLP, Chartered Accountants, be appointed Quarterhill's auditors for the next year and the Directors be authorized to fix their remuneration?

Mr. Chair, I so move.

Thank you. Would a shareholder or proxy holder please second the motion?

Mr. Chair, I second the motion.

Thank you. I now call for a vote on the motion before the meeting. Would all voting shareholders and proxy holders, please enter your votes in Lumi. [Voting]

The fourth item for consideration at this meeting is the equity plan U.S. addendum resolution as more fully set out added at Exhibit A to our March 10, 2022, Management Information Circular. May I please have a motion moving that the U.S. addendum resolution be approved?

Mr. Chair, I so move.

Thank you. Would a shareholder or proxy holder please second the motion?

Mr. Chair, I second the motion.

Thank you. Is there any discussion of this motion? As there is no discussion, I now call for a vote on the motion before the meeting. Would all voting shareholders and proxy holders, please enter your votes in Lumi. [Voting]

The fifth item for consideration at this meeting is the articles of amendment special addendum resolution as more fully set out at Exhibit B to our March 10, 2022, Management Information Circular, which -- special resolution must be approved by not less than 2/3 of the votes cast by shareholders who vote on the special resolution. May I please have a motion moving that the articles of amendment special addendum resolution be approved?

Mr. Chair, I so move.

Thank you. Would a shareholder or proxy holder please second the motion?

Mr. Chair, seconded.

Thank you. Is there any discussion of this motion? As there is no discussion, I will now call for a vote on the motion before the meeting. Would all voting shareholders and proxy holders, please enter your votes in Lumi? [Voting]

The sixth and final item for consideration at this meeting is the shareholder proposal more fully set out at Exhibit C to our March 10, 2022, Management Information Circular. May I please have a motion moving that the shareholder proposal be approved?

Mr. Chair, I so move.

Thank you. Would a shareholder or proxy holder please second the motion?

Mr. Chair, I second the motion.

Thank you. I will now read the statement prepared and provided to us by [ Mr. George Christopoulos ], who raised the shareholder proposal, following which, I will respond to some of the comments made by Mr. Christopoulos, and I apologize for the pronunciation. His statement reads as follows: according to the mandate of the Board of Directors, the Board's primary role is that of stewardship. The Board monitors strategic direction and evaluates where the resources are being managed in a manner consistent with the enhancement of shareholder value. According to its charter, the nominating committee has the responsibility to develop a succession plan for the Board. Quarterhill's balance sheet reports $594 million of share capital and contributed surplus. Compare that to a recent market capitalization of $278 million. Shareholder value has not been enhanced over the long term nor is it obvious that an acceptable Board's succession plan was being developed. Quarterhill's response to the proposal fails to address the first sentence of the supporting statement. This seems to underscore the apparent failure of both the Board and the Nominating Committee. One, returns to shareholders have been inadequate; two, strategy has been inconsistent; three, there have been 5 CEOs over the last 5 years; four, to date, there's no -- there has been inadequate renewal of the Board. It takes effort and resolve for any shareholder to write, but one investment fund recently wrote the Board, requesting a delay of the AGM to allow sufficient time for Board renewal. However, the Board did not issue a response. To the contrary, the circular was issued before the release of the 2021 financial statements. Why the hurry to hold the 2022 AGM? If the Board nominees are elected, the Board will still have 3 members who date back to 2005 and 2006. Since strategy has changed and CEOs have been changed repeatedly, a reasonable conclusion is that responsibility for the unacceptable shareholder returns rests with the Board and more particularly, its longest-standing members. The proposal which contains the views and opinions of the shareholder was based on discussions -- sorry, based on disclosures in the 2021 circular. They should have been more clearly noted in the proposal, but regrettably was not. However, this was made very clear during communications with the Chairman. In addition to not addressing the issues of shareholders' value over the long term, Quarterhill's response fails to note the following: Quarterhill was asked several times for suggestions for wording changes to the proposal, but provided none. In response to the Chairman's promise that there would be governance and Board changes, the shareholder offer to enter into a confidentiality standstill agreement so plan changes could be discussed. The response states that the Board has just considered -- has been considering introducing term limits for the past few years, but Page 55 of the 2021 circular appears contradictory, stating the Board does not believe they should limit the number of terms for which an individual may service the Board. The proposal was written with reference to committee memberships and actual attendance as described in the 2021 circular. Committee memberships can be -- can change during the course of the year. Furthermore, only the circular reveals who attended the actual meetings. Quarterhill's website does not disclose continuity of membership or meeting attendance. The Chairman and Vice Chairman may have the ability to control agenda for Director meetings. Also according to the charter, each are ex-official members of each of the nominating Audit Compensation and Governance Committees. Page 16 of the 2021 circular describes Mr. Skippen as not independent, yet at Page 52 stated the Board considers Mr. Skippen to actually be independent of Quarterhill's management and also stated that he generally attended meetings of the independent Directors. Practical concerns that the shareholders have regarding independence of the Board from management's past decisions may not all magically evaporate 1,096 days after a Director's last made decision as a member of management. The response does not state that Paul Hill, who gained ITS experience, has left the Board, meaning the net change of ITS experience following Bret Kidd's appointment was 0. It would have been far more appropriate to add a Director such as Rusty Lewis to the Board prior to spending $150 million for ETC, not 7 months after. As noted, the response fails to address the primary issues of long-term shareholder value, but it spares little in its personal attack of the messenger. The fact that any shareholder proposal might fail to gain 50.1% support does not make the proposal inconsequential or serve as a valid excuse for not fully addressing the suboptimal performance. Weakness in any governance practice has the potential to lead to suboptimal performance and, in some cases, can result in failure to prevent disaster. The absence of other supporting voices does not make the observation and the concerns of a shareholder less valid. That is the statement of the author of the shareholder proposal. I have read the statement presented by Mr. Christopoulos consistent with the shareholder proposal included in the circular. Both management -- both the Board of Directors and the management believe that it contains misleading and inaccurate information. I wanted to respond to some of the more egregious claims raised in the statement just to highlight the errors, which are duplicated in the actual shareholder proposal. The statement indicates that shareholder value has not been enhanced and that returns to shareholders has been inadequate. Please bear in mind that inadequate is a very subjective measure. I can say that the total share return, which is share price appreciation plus dividends since April 2019, is 82%, and share appreciation alone during this period is 69%. This is during the time that the Board made the strategic direction and decision to move away from a holding corporation concept and pursue a pure-play ITS strategy. When I joined the Board, we had a market cap of less than $50 million, a share price of less than $1, and the company was losing money quarter after quarter with a significant cash burn. Since this time, we have returned over $165 million to shareholders in the form of share buybacks and dividend payments. Today, our market cap is close to $300 million. We have a very promising ITS business poised to grow based on our strategy, and we have just preannounced a significantly strong fiscal quarter. I do not think by any measure, this performance could be called inadequate. I have to note also that there have been many macroeconomic factors that have affected our business and the capital markets as a whole over the past few years that are ignored in the shareholders' proposal. These range from significant changes in the U.S. patents law to global pandemic and now a war in Ukraine, all of which are well beyond Quarterhill's control. The statement also indicates that to date, there has been inadequate renewal of the Board. As Quarterhill and our predecessor WiLAN have evolved, we have constantly added new Board members with specific skill sets to complement the company. Over the last 7 years, 7 members have left the Board and 9 members have joined. We have constantly looked and reviewed the skill sets of Board members and candidates with a view of maximizing the performance of the Board and supporting the business. The recent additions of Rusty Lewis and Pamela Steer are evidence of this strategy. The statement also indicates that Quarterhill was asked several times for suggestions about wording to the proposal, but none were provided. Our response is that manage -- it is not management or the Board's obligation to take valuable time and resources away from their primary responsibilities to correct material errors, facts, spelling and grammar mistakes for the author of the shareholder proposal. All the information the individual shareholder required was available through publicly accessible sources such as SEDAR and/or Quarterhill's website. Notwithstanding the ease of access to this information, the shareholder proposal still contains many mistakes, inaccurate data and/or is misleading, if taken out of context. I would like to add that Quarterhill's management and our Board have devoted a great deal of time and expense to the shareholder proposal, including numerous calls and e-mails with Mr. Christopoulos and additional legal and related costs going into the shareholder meeting. We feel that none of this was necessary, all that given our -- we feel that none of this was necessary at all, given our adoption of the new [ tenure ] policy set out in our recent circular, especially when you consider the significant margins by which we expect that not only will this shareholder proposal be defeated by our shareholders, but also by what we expect -- also which we expect our nominees to the Board to be approved by our shareholders. We will issue a press release with those numbers within the next 2 business days. Is there any further discussion? As there is no discussion, I now call for a vote on the motion before the meeting. Would all voting shareholders and proxy holders please enter your votes in Lumi? [Voting]

This concludes the formal corporate matters to be attended to at this meeting. Before concluding the formal part of this meeting, is there any other formal business to come before the meeting today? If there is no further business, I ask for a motion to conclude the formal portion of this meeting.

Mr. Chair, I so move.

Thank you. Would a shareholder or proxy holder please second the motion?

Mr. Chair, I second the motion.

Thank you. Is there any discussion on this motion? As there is no discussion, I now call for a vote on the motion before the meeting. Would all voting shareholders and proxy holders please enter your votes in Lumi? [Voting]

Voting has now closed on all matters that were before the meeting. Although I do not have the results of the live voting, I can declare that based on the proxies received for the meeting, all matters that were put to a vote today, except for the shareholders' proposal, have passed. I can confirm that the shareholder proposal is not adopted by Quarterhill shareholders. In addition, I declare our nominees to be elected to the Board to be duly elected as Quarterhill Directors until the next annual meeting or until their successors have been duly elected or appointed. As I noted, we will issue a press release within the next few days with the full details of all matters that were voted on today and also file results of the meeting on SEDAR. At this point, the formal portion of the meeting is now concluded. In just a couple of minutes, I will hand the meeting over to Bret Kidd, who will give us a presentation on the ITS industry, and more specifically, the opportunity Quarterhill has in this sector. But before I do, I think it's important for the shareholders and analysts on the call to reflect on what a pivotal year 2021 has been for Quarterhill, and where we have come from and where we are today. 2021 was a transformational period and that -- transformative period that was several years in the making. And we believe that the net result is that here in 2022, the business is very well positioned for success. Quarterhill origins trace back to WiLAN's Incorporation in 1992 and its IPO in 1998. WiLAN developed and produced wireless technologies and was the leading edge of an emerging and soon-to-be dominant industry. In the '90s, WiLAN invented WiBand frequency division multiplexing, or WOFDM, a modulation technique that became an integral part of the standard for broadband wireless application. This technology was adopted into various 802.11 standards, paving the way for the ubiquity of WiFi technologies prevalent today. Early to mid-2000s, despite having invested heavily to develop WiFi based on this technology, WiLAN was receiving little compensation from its competitors who were utilizing this technology in new wireless products. It was a hardware business with about $25 million in revenue and was burning cash and change was required. In 2006, WiLAN pivoted to become a pure-play IP licensing business. This began a 10-year run as a world leader in IP licensing, signing agreements with more than 320 technology companies during that span and adding more each year. WiLAN helped pioneer the public company model for IP licensing business, and in the year since its initial listing has returned more than $165 million to shareholders via dividends and buybacks. In 2012, during this period, U.S. Congress passed the America Invents Act, AIA, which brought about sweeping legislation to the U.S. patent system. Among other things, it launched the Inter Parties Review, or IPR, process for evaluating the validity of patents. In general, this legislation and IPR process served as headwinds for individuals and patent licensing firms seeking fair and reasonable value for patents they held. In 2017, looming IFRS accounting rule changes that affected IP licensing revenue recognition combined with the broad industry headwinds from the AIA made the public company model for IP licensing less shareholder-friendly and necessitated a pivot to diversify the business. This was a common undertaking for public IP licensing businesses and most were sold or reinvented themselves around that time period. The track record in cash flow generation from WiLAN had produced a strong balance sheet, which was ideal platform on which to launch a new strategy. In 2017, we announced our pivot towards that of an acquirer of technology businesses in select sectors. Subsequently, we used the cash on hand to acquire IRD, VIZIYA and iCOMS. Through 2018 and 2019, we honed our strategy and attempted to be a consolidator, a little mini constellation, if you will, in the enterprise software sector. However, it was and still is a very crowded space with established players already engaged with that type of strategy. Those participants along with the growing presence of private equity pushed up valuation, and as a result, no purchases at reasonable valuations could be made over a 2-year period. We took stock of lessons learned and reexamined our option. In late 2019 and into 2020, we aimed our focus on leveraging our strengths in our ITS assets and the work that had been done to enhance those companies since they were acquired. With that, we made more -- we made a more subtle pivot again in 2020, focusing on ITS as management and the Board developed and undertook a new strategy road map to pursue tuck-ins and platform acquisitions in that industry. Why did we like the ITS strategy? We already had an established leadership presence in the industry with IRD. Access to deal flow was strong with acquisition targets being generated from within IRD and other third-party sources. ITS industry is a fragmented industry, ripe for consolidation. More reasonable valuations can be found in ITS versus other tech areas and growth tailwinds are evident. Advances in technology are creating the potential to transform how we build, maintain and derive value from the infrastructure. 2021, the groundwork was laid for a new strategy in 2020, and it led to the execution on M&A in 2021. We acquired Sensor Line and VDS as tuck-ins for IRD. Then in September, we acquired ETC, a leader in tolling that immediately gave us scale into our ITS business. ETC had the team, infrastructure and financial profile that enabled Quarterhill to accelerate its migration to that of a pure-play ITS company. That led to our announcement in December, appointing Bret Kidd ETC's CEO at the time to the CEO position of Quarterhill. As part of that announcement, we also launched a strategic review process for the WiLAN business. WiLAN has been a terrific provider of cash flow over the years. It has a strong team with extensive experience in the niche industry. It has a portfolio of over 4,500 patents, which we have continued to invest in and replenish since our diversification strategy in 2017. While it is a difficult decision to make and to undertake the process for WiLAN, the strategic review process was initiated as indicated in December as it was recognized that there may be better alternatives for WiLAN, given Quarterhill's strategic focus on the ITS business. Completion of that process will usher in a new phase for Quarterhill's shareholders and staff, one of the world's leading pure-play IT providers -- ITS providers. In summary, so from the inventors of wireless technology to one of the top patent licensing providers in the industry to a significant player with a global footprint in the growing ITS industry in the past 15 to 20 years have been an exciting period and one that we've had to adapt fundamental changes to our underlying business to pivot and pursue new opportunities for growth. We understand that this has been a frustrating time for some investors, but while we look at where we are at today, we are very excited about the future. This is a business with: one, world-class ITS assets and leadership; two, visibility into a stable and growing revenues; three, a strong balance sheet to support, both organic and M&A growth; and four, expanding market growth rates propelled by multiple industry tailwinds. Our transition to continue in 2022 -- our transition will continue in 2022 as we work on strategic review process and pursue ITS acquisitions opportunities. And we will continue to see the evolution in other areas of the business as you have seen here today at the Board level with the expectation of further changes to come. It is a very exciting time to be a shareholder in Quarterhill. With that, I would now like to introduce Quarterhill's President and Chief Executive Officer, Bret Kidd, who will provide an update on our business. After which, Bret and I would be pleased to take appropriate questions from shareholders and proxyholders. Bret, over to you.

Thanks, John, and good morning, everyone, and thank you for joining us today. I'll spend a few minutes today providing you with an update on the business and explain why we're excited about the future at Quarterhill. Just a quick note on our safe harbor statement. Some of the presentation content and language used may be forward-looking in nature. Actual future results may differ from expectations. Now to our 2021 highlights. John touched on some of the key developments last year, but to summarize for the ITS business, 2021 was characterized as a year of M&A with the completion of 3 acquisitions: ETC, Sensor Line and VDS. This transformed the company by bringing scale to our ITS operations, which was reflected in the ITS revenue run rate at year-end of $186 million. We deployed a total of $160 million on these acquisitions, which was a significant portion of the $400 million 5-year goal we are working towards. Building on our strong balance sheet, in 2021, we improved our access to capital with a new debt facility, a shelf prospectus and a $57.5 million oversubscribed convertible debt financing that brought new institutional investors to our story. Our businesses performed well with both ETC and IRD having a record year for new bookings, while WiLAN continued to advance a number of key licensing programs, despite COVID-related headwinds in its industry. Speaking of, in October, the U.S. Court of Appeals for the Federal Circuit held its oral hearing in the case between WiLAN and Apple. The 3-judge panel handed down its ruling in February of this year, and subsequent to that, WiLAN announced that it had reached a licensing agreement with Apple on March 22, helping to get this year off to a very strong start. In summary, through our accomplishments in 2021, we are set up for a strong 2022. We have a focused strategy, a healthy M&A pipeline, good business fundamentals in both our ITS and licensing segments and a very strong financial foundation to support our growth initiatives. Let's spend some time looking at our strategy in more detail. Quarterhill today is a leader in transportation infrastructure technology. We are literally driving tomorrow's mobility today. Working from this leadership position, we're looking to grow organically and through M&A to capitalize on the tailwinds that are driving growth in the Intelligent Transportation Services, or ITS market. Our efforts in this area today are supported by our leading licensing business, WiLAN, which has been a reliable generator of cash flows during its history as a patent license entity. First, it makes sense to define the space that we are in. So what is ITS? It is the use of technology to improve the way people and goods move through transportation infrastructures, and simply put, ITS is everywhere. The graphic represents just a portion of total ITS products and services, but it illustrates how on any given day people are interacting with ITS often multiple times, whether in their personal or professional lives. Lights in an intersection, traffic flow management, highway tolls, city congestion zones, speed and red light cameras, all of this is ITS. Electronic signage on the highway indicating traffic ahead, sensors in the road detecting bridge stability, the weight of trucks or faulty tires, cameras and other radar identifying types of vehicles and their histories, again, all ITS. These solutions are in place today throughout our infrastructure, and they're becoming smarter and increasingly interconnected. With tech and cloud-based computing advances, these interactions no longer happen in a silo as the data being generated by this mobility can be harvested to further improve goals and outcomes of ITS. So what are these goals and desired outcomes? Increasingly, ITS is being leveraged to help address 4 fundamental challenges facing the public and private sectors: revenue generation, safety, sustainability and efficiency. Regarding revenue generation, cash-strapped governments are facing ever widening gaps to fund infrastructure and other parts of government. Traditional funding mechanisms like gas taxes continue to decline the purchasing power and become less relevant as vehicle fleets become more and more electric. Increasingly, governments are turning to road usage fees, such as tolling, managed lanes and congestion zones while also automating safety enforcement through solutions like red light cameras. In the U.S., toll revenues are already exceeding $20 billion annually and growing quickly. While the number of tolled roads is expected to double between 2020 and 2025. In Toronto alone, there are now more than 200 red light cameras and 50 speed cameras. These have a dual effect of improving safety and generating revenue. Usage fees like these are the only infrastructure funding source expected to grow in the coming decades. Improving road safety is another significant policy and economic challenge for society. ITS has been shown to be a positive factor here by using technology to improve emergency response times and traffic flows and by leveraging the user fee model to fund safer construction and maintenance. Studies have shown that fatalities on toll roads are 1/3 of that of nontoll roads. And true commercial vehicle safety is another critical objective. With ITS solutions like Weigh-in-Motion and Automated Tire Evaluations in particular, the state of Virginia removed 13,000 unsafe tires on the roads in the first year using IRD's TACS, or tire monitoring solution. Sustainability is still another critical challenge to the policymaker space, and ITS will be key to achieving aggressive environmental targets. Idling cars and traffic and congestion in cities leads to excessive carbon emissions. But a more efficiently run infrastructure can help reduce this waste of time and energy. Congestion zone programs in London and Stockholm have reduced emissions within those regions while increasing the use of public transit. Finally, none of us loves traffic and every minute in traffic steals precious time from family and production work or leisure. ITS solutions like automated management, traffic light coordination and managed lanes can reduce congestion significantly. The congestions on program in London reduced congestion by 30% and increased speeds by the same 30%. As a result, we are seeing multiple tailwinds in the market today as governments and organizations look for ways to tackle these problems. These market forces could really be described as undeniable trends, which we'll endure for decades and where Quarterhill can deliver exceptional value. The first undeniable trend is the wide and growing gap between infrastructure funds and infrastructure needs. In the U.S. alone, where 65% of the roads are in poor condition and the funding gap is at $5.6 trillion, the fuel tax has been the primary source for new road projects. However, the fuel tax itself is in a state of decline as the number of electric vehicles on the road increase while there is no political capital -- clinical will at all to raise the tax and even more so now with such high gasoline prices. To help alleviate this infrastructure gap, the Biden administration passed a $1.2 trillion bill in 2021, with about 1/3 of that allocated to transportation infrastructure. However, that is really just a small portion of what is needed to fill the funding gap. As a result, governments are turning to tolling and other user-driven fees to help pay for and maintain infrastructure projects. This bodes well for our ITS business. The second undeniable trend is the ever-increasing demand for safer and more sustainable mobility. As roads continue to expand with ever more vehicles on them, there are growing needs to use technology to address complex safety issues. Meanwhile, governments are striving to meet aggressive sustainability targets such as the G7 countries commitment to zero emissions by 2050. As I've said previously, there really could be no better time to be in ITS. Undeniable macro trends such as government stimulus, the massive need for road prepare and expansion and government's need for new sources of revenue to pay for these projects create ideal conditions, broad expansion in the industry. ITS has long been a large, stable and growing market, and these market tailwinds are having a favorable impact on the outlook for that growth. Annual spend on ITS is forecast to double in the next 5 years from $45 billion to $90 billion, growing at a 15% CAGR. Road segments are about half of that $23 billion today and expected to grow to $47 billion in 5 years. Since ITS supports essential services, the market has been remarkably resilient despite the pandemic. Over the last couple of years, the tailwinds supporting this growing market opportunity have only gotten stronger. In fact, ITS stands to benefit from broader government infrastructure mandates to put people back to work in a post-COVID environment. So having examined the favorable market dynamics on the previous slides, I'll now spend a few minutes discussing our strategy to capitalize on them and grow our business. In a nutshell, our strategy calls for organic growth for our existing ITS assets along with an active M&A program to further accelerate that growth. As we execute on this plan and evolve towards a pure-play ITS business, we expect to establish a more stable financial profile, attract greater investor interest and then find greater investor willingness to pay a higher multiple in line with other ITS companies due to the scale and stable revenue profile. I'll talk to our organic growth potential first, which begins with our 2 ITS platforms, ETC and IRD. ETC was acquired September 1 last year and immediately scaled and transformed Quarterhill's ITS business. It established Quarterhill as a leader in tolling. It provided a second platform in ITS for tuck-ins. It delivered a good integration partner for IRD. It onboarded a deep and experienced ITS team with a sales pipeline of more than $4 billion and a strong organic growth potential. ETC completed some of the largest contracts in its history in 2021, resulting in a record year for order bookings and the momentum as carried over into 2022 with 2 new deals announced already this year. IRD is a leader in commercial vehicle enforcement. These are solutions such as Weigh-in-Motion, speed and red light cameras, fiber optic sensors and radar and camera technologies. IRD made 2 tuck-in acquisitions in 2021, Sensor Line and VDS, which have expanded the company's enforcement offerings as well as their presence in Europe. The transactions led to the establishment of IRD Europe to focus and drive activity in that region. IRD also had a record year for order bookings in 2021 with new contracts in New York state, Illinois, Idaho, Oklahoma and Hawaii, among others, resulting in a record backlog at the end of the year. IRD is a well-respected company in the ITS industry and will continue to be an ideal platform for additional tuck-in M&A. Now looking at the combined businesses. Q4 2021 was the first full quarter of results from both ETC and IRD and results reflected the scaling up of the business, as I mentioned earlier, with an exit revenue run rate of $186 million. We expect adjusted EBITDA margin for the business to expand towards the 15% level in 2 to 3 years as certain new and large projects being implemented this year move into the operations and change order phase and as inflation pressures normalize. On the integration front, while IRD and ETC will continue to operate with their unique branding, we see lots of opportunities for the businesses to work together and leverage one another's strengths. This could drive synergies in the area of revenue, technology, operations and expenses. Meanwhile, M&A remains an essential component of our growth story. ITS is a fragmented industry where valuations remain reasonable, and we have considerable resources to execute an M&A plan. So what types of businesses are we looking for? We're looking at acquisitions in the 5 road market segments identified here, and we're looking at both tuck-ins and platform type businesses. More specifically, we're seeking scale, which could be international or in North America; product and service capabilities, mainly the kinds of technologies or operational capabilities that reinforce our leadership in our current markets; and diversifications. We're growing our total addressable market, mainly by entering new customer bases and/or end markets, which ideally leverage our existing solutions. We have some exposure in the rail segment of ITS, but expect the bulk of activity to remain in the road vertical for now. We're also seeing greater interest in smart city type applications like IRD's recently announced 5 sensor systems. The lines between ITS and smart city technology will continue to blur, and we are well set up for it. Earlier, I touched on the congestion zones in London and Stockholm. This is an area of blurring the lines between ITS and smart cities, where we expect to see a ramp in activity with some 20 U.S. cities looking to adopt this type of program in the coming years. Regarding our M&A program, we have previously spoken of a commitment to deploy $400 million over 5 years, and we continue to work towards this goal. Meeting this target will depend on many factors, including sourcing appropriate opportunities and remaining disciplined in our approach. However, we're confident given our significant financial resources and our growing pipeline of M&A opportunities. We believe we are well positioned to execute on our organic and M&A growth plan. We have strong deal flow that is being generated internally from both ETC and IRD as well as from our network of third-party advisers. We have good synergy potential for tuck-ins, and we have differentiation in the market. Ours is an appealing home for sellers. We have a management team experienced in M&A and in ITS, and we have great access to financial resources, 2 cash flow generating segments, a balance sheet with over $100 million of working capital, a strong outlook for Q1 2022, as announced a few weeks ago, calling for an unaudited estimated revenue of $165 million to $175 million and adjusted EBITDA of $77 million to $82 million, and we have opportunities to add additional leverage. While we're keen to deploy capital, we will be patient and we will be disciplined buyers, focusing on paying reasonable valuations and looking for businesses with a growth profile, positive cash flows, new products, new geographies and management depth. Now the obvious focus of today's presentation has been ITS, but I need to stress the important role that WiLAN has played in helping us execute on our ITS mandate. As John mentioned earlier, WiLAN has a storied history as a pioneer and a leader in the patent license industry. Its successes in this area provided the capital required to pivot the business back in 2017, and has been contributing meaningful cash flows to the ITS expansion ever since. WiLAN has a diverse collection of more than 4,500 patents that have been successfully licensed to more than 400x the companies around the world, and the business is led by a focused and experienced team of IP professionals. In December, we announced a strategic review for the WiLAN business, and we're encouraged by the inbound interest we received since the announcement. In March, we hired Stout a global investment bank and advisory firm as lead adviser for the review process. Stout has served companies in more than 80 countries and with its substantial experience with IP transactions, they will be an excellent adviser to assist with the WiLAN strategic review. I'd like to close on this slide, which helps to summarize and visualize the potential that we see from execution of our growth plan. I'd like to start by reminding everyone that the information presented here is for illustrative purposes only, and this is not to be construed as a forecast or guidance. In the chart, the bar at left shows ITS revenue in 2021. The bar at right illustrates where we believe our revenue run rate could be in 2025. Now when we execute on our M&A plan and generate modest organic growth from existing and acquired ITS assets, there are a couple of key assumptions we used to develop the charts: First, we would deploy approximately $400 million on M&A over 5 years, including the $160 million deployed in '21. The ITS businesses are assumed to grow organically at a conservative growth rate. We would be acquiring smaller ITS companies at 6x to 9x adjusted EBITDA or slightly higher for high growth or larger ITS companies already at a certain scale. Acquisitions may be partially funded through conservative levels of debt. Based on these assumptions, as we execute our growth plans through organic and M&A activities, ITS revenue over the 5-year period could grow to approximately $500 million. Our target margin for adjusted EBITDA would increase to 15%. With our ITS businesses at scale, we believe it could attract a higher valuation multiple of 15x enterprise value to adjusted EBITDA consistent with other public ITS, IoT and telematics companies that have achieved similar scale. Again, this slide is for illustrative purposes only, but we feel it could provide investors with a sense of how we view our ability to increase shareholder value over the next 5 years. Before we open it up to Q&A, just a few closing thoughts. You've heard me say before, but there has never been a better time to be in ITS. The industry has multiple market tailwinds, including the massive need for new and upgraded infrastructure, inadequate funding from traditional sources like the gas tax, which can be supplemented by newer tech-based user-driven solutions like tolling and enforcement, U.S. federal government's infrastructure bill, which we'll see to allocate billions for new infrastructure projects in the coming years. This is also the trend being seen worldwide. And finally, policy initiatives related to sustainability, traffic management and enhanced safety are driving governments at all levels to look at tech-based infrastructure solutions. These tailwinds are having the effect of increasing the industry outlook for growth to double-digit percentages. Historically, ITS grew at a rate in the neighborhood of 5% per year, but over the next several years, it is expected that CAGR will triple. Quarterhill is well positioned to capitalize on this growth. We have 2 strong ITS platform businesses in ETC and IRD. Both have talented teams and strong reputations in their respective fields. Both are coming off record years in terms of new order bookings, have growing backlogs and sales pipelines and both have internally generated pipelines for M&A. Against this backdrop, our key priorities in '22 are to drive organic growth with execution on new project implementations in sales pipeline conversion, integrate further our ITS businesses and continue to execute on M&A opportunities. With that, we will now open for Q&A.

Thank you, Bret. We have a number of questions that have come in, both in advance of the meeting and during the course of the meeting. As I said earlier, to the extent that questions are duplicate or similar in nature, I'll only address the question once, and we will only address those questions, which are appropriate. So the first question sent is does the resolution of the Apple case make it easier to sell WiLAN. Bret, I'm going to toss that question over to you.

Very good. Thanks, John. Yes, I'd first like to say that I'm pleased that we have reached a license agreement with Apple. It's a case that has been active since 2014 and definitely want to extend kudos to the team at WiLAN for helping bring it to completion. In terms of WiLAN's future, as noted, we have the strategic review underway and in Q1 hired a lead adviser Stout to drive that process. And as we've said previously on the matter, the ultimate outcome could take many forms, and a sale is just one of them. But to answer the question, we believe that the license agreement does provide certainty regarding an important litigation for the business. So in resolving that, it does solve one of the questions in interest parties would have. Arguably, it does simplify an analysis of the business, although it is also important to note that the Apple litigation was just one of many that are ongoing today. As we've noted a couple of times, WiLAN has more than 4,500 patents, dozens of ongoing litigations, an excellent team with a track record for delivering outsized cash flows over time.

Thank you, Bret. The next question is, with all this cash, do you expect special dividend or to raise the regular dividend, will you consider another buyback? I'll field this one. At this point in time, our focus is on deploying our funds in the M&A, where we feel we can drive the greatest increase in shareholder value. In addition to the significant tailwinds in the ITS as a whole, as we scale the ITS business, our overall revenues and cash flows will grow and become more predictable. We believe that this will appeal more to investors and to lead to higher market valuations consistent with other public ITS businesses at scale and therefore unlock value. Regarding buybacks, we have used buybacks in the past. So it's something we can look into in the future, and we'll continue to look at -- it's impossible for me to predict whether we will employ a buyback again in the future. The Board does discuss buybacks and dividend policy on a regular basis virtually at every Board meeting. And we'll continue to look at this as we move forward. The next question says Board compensation seems to be excessive given the corporation's market capitalization and the corporation's performance. Why are Board fees not cut? So my answer to this is that I think this is the same question that came in last year. We don't believe our Board fees are excessive. If you want to attract good people to a Board, you need to pay them a fee that is competitive. And we think that we are absolutely competitive with other companies of similar size and complexities. And it's important to note that not all the remuneration for the Board receives is in cash. All of our Board members are invested in the company as well and have minimum ownership requirements that must be met over time. I think it's really important to note that you have a very engaged smart and professional board and one that is evolving with the business, as you can see today, with the additions of Pamela and Rusty. The next question deals with term limits. It says last year, I asked why there were no term limits for Board members and you explained that you didn't have term limit policy. But now you've introduced one, what's changed really is the nature of the question. So what's changed is important. 2021 was a transformational year for the business. We deployed $160 million in M&A with the ETC acquisition being the game-changing transaction. And that brought about scale to our ITS operations and established a platform in tolling in the pipeline of M&A opportunities in this particular vertical. It also set in motion a broader shift in the business to that of a pure-play ITS business and leading to the strategic review of WiLAN business and the change in leadership at Quarterhill as it transitions from a holdco model to that of an ITS operating company model. As part of that transition to ITS, we look to bring new leadership to the Board, which we've done here today with the addition of Pamela and Rusty. Two people in a position to help our ITS business capitalize on the tailwinds evident in the industry. As we undertake to refresh the Board through internal discussions and those with external advisers, we've decided to introduce term limits as part of our governance and mandates going forward. Our 10-year policy generally follows the recommendations published by the capital markets modernization task force in its final report prepared for the government of Ontario. So I think the shift in view from last year is a reflection of the evolution of our business, our willingness to adopt and to change in the governance landscape and our willingness to listen to our shareholders. With other changes expected in the coming year at our AGM next year, we could have a Board with an average tenure of 5 years. Okay. The next question says, what sort of impact is inflation having on the ITS business, what [indiscernible] supply chain challenges, how does the ETC and IRD operating divisions protect your margins in an environment where costs may be increasing by 10% or more? It's a complex question, but I'm kicking that one over to you, Bret.

Yes. Thanks, John. Like most companies, we did start feeling the effect of inflation beginning in Q4 of last year, and those effects are absolutely continuing into 2022 like you're reading about for just about every company on earth. The most notable area for us has been with wage inflation and hiring for the onboarding of new projects. We are growing pretty significantly, especially on the ETC side, have a lot of hiring to do. And in effect, we're buyers in a seller's market. So we will, especially in the short term, see impact on ITS margins as noted at the -- our year-end call in March. We are moving forward with adding those resources and we're utilizing a range of sources of talent to try to mitigate those increases. But it will take some navigating over the course of the year. The good news is that our -- both of our companies, ETC and IRD, have very strong cultures and very high retention rates overall, which definitely serves as a competitive advantage in this environment. On the supply chain side, we are experiencing those same challenges in terms of availability and in terms of cost of inputs. Again, as you're reading about availability of various components is unpredictable and can lead to delays in deliveries of products and services. We've seen some of that impact late last year, and we're already seeing it again this year. These -- obviously, these kinds of imbalances can lead to higher prices, higher costs as well. We do expect, again, these same challenges to persist in 2022. We would see those easing as inflationary forces abate -- we also -- I think we'll be able to exert some pricing power in a go-forward state and the contracts that we proposed. So over time, I think that, that will help us too, and our margins will also continue to benefit, as I was talking about before. As we move from implementation phases across a broad number of projects this year and move into the operations and change order phases going forward. So both the, hopefully, overall macroeconomic conditions and specific micro conditions inside ETC and IRD will help us mitigate these challenges.

Good. Next question says, I saw the announcement about the E-ZPass hub win. Can you talk more about that opportunity? Again, Bret, this is directed directly to you.

Yes. Very excited to talk about E-ZPass. It's, clearly, ETC's most strategic victory in years. The program is building an interoperability hub for 40 tolling agencies spanning 18 states in the eastern part of the United States. There's over $10 billion in transactions, 32 million accounts that are part of this network. And just to explain it a bit an interoperability hub enables seamless billing and transaction processing across all agencies. So ensuring that a driver with an account at any one member agency can utilize the toll roads and facilities of the others but utilizing again that same account. ETC already operates the Central U.S. interoperability hub, which includes Texas, Oklahoma, Kansas and soon Colorado. So with E-ZPass, ETC will effectively be all of interoperability east of the Rockies. Over time, E-ZPass, we expect will be a foundation for other mobility as a service type transactions where that same account that allows you to pay for tolls across multiple agencies will also enable you to pay for things like parking, mass transit and other sorts of mobility services. So we believe as that migrates to that over time, it will create a wealth of new opportunities for ETC to facilitate these transactions and provide other value-added services to the agencies themselves. This really could be a game changer for us over time.

Thank you. Next question. What is the plan to lower the corporate overhead cost? And how much run rate reduction can be expected by year-end? Are these significant cost overlaps between ETC and IRD? Bret?

Very good. Yes, integration efforts are underway, both at the holding company level and between IRD and ETC. We do expect to see some decline in corporate spend this year, but it will be more of a transition year as we still have 3 portfolio companies and are running the process for the WiLAN business. We think the savings will increase further in 2023 and beyond. A good portion of the savings will take some time as some elements like third-party services, insurance, IT contracts, some of those sorts of things will have set expiration dates and will need to be renegotiated. And then some of the aspects of the IRD, ETC integration will require extra care given that we're in growth mode and don't want to hinder that. So savings will absolutely be coming, but we're not at this point right now or at the point right now where we can put a specific number on it.

Next question says, is ETC going to start selling its tolling services outside the U.S.? Can IRD Europe help with this? Again, that's for you, Bret.

Yes, we do believe there is a future for ETC solutions outside the U.S. and IRD's international footprint with customers in over 80 countries will absolutely play a role in that. IRD also has extensive tolling operations globally already. Their focus is more on roadside applications, sensors and other hardware and often more traditional tolling type systems. So if you look at their footprint and their capabilities, they complement nicely with ETC's all electronic roadside software suite and the back office solutions as well that ETC brings and that overall combination, we think, will be a very compelling one in international markets. The other consideration of our expansion outside of the U.S. is that we have a $4 billion pipeline in the U.S. alone right now. So there is a lot of opportunity in ETC's core market that will definitely continue to keep us very busy. But as we scale and as we further integrate with IRD, we'll find more and more opportunities internationally.

Good. What is the branding direction for Quarterhill? Will ETC and IRD platforms carry their individual branding and what is the rationale behind the strategy? Another one for you, Bret.

Yes. The intent is to maintain those brands for now as both IRD and ETC have great reputations in their core markets. This approach also facilitates future platform acquisitions where the acquired company may have a strong brand and where there's a preference -- a part of the selling team to maintain that identity. However, over a 2- to 3-year timeframe, I do see the ITS brands coalescing under one name, whether that is Quarterhill or another name will be determined. But logically, with some additional scale, we'll take that step as part of a natural evolution.

Okay. Next question says, we are seeing some initiatives to remove tolls as well as modest growth outlooks and share multiple contractions for some ITS peers. This, despite the tailwinds you speak of, can you talk to the factors that support the 15% CAGR industry outlook you mentioned?

Yes, happy to. I touched on some of these points earlier, but there are some other areas to mention as well. So as with any effort to fund necessary government services, there's always going to be a healthy debate. However, the truly undeniable trend is towards the adoption of tolling and other ITS revenue-generating initiatives. And it's really because infrastructure needs are costly and growing, traditional infrastructure funding mechanisms are just no longer working. And a few additional data points there. In the U.S., 86% of the highway trust fund comes from the gas tax, this purchasing power has been halved in the past 30 years, and it continues to decline, and there's absolutely no will to increase the gas tax. And actually, on the contrary, as gas prices have risen recently, there have been bipartisan calls to eliminate the gas tax altogether, at least for a while, and some states have already implemented holidays on state-level gas taxes. And even in the 2021 infrastructure bill, which totaled $1.2 trillion and referred to before, it includes several hundred million dollars for surface transport, but also provided more catalysts for tolling type solutions, including increased ability to toll interstate highways, seed funding for public-private partnerships and seed funds for congestion programs in urban areas. So user funded infrastructure is just a necessity and a growing one. And there are some data points that are demonstrating this growth. If you look at toll revenue, toll enabled vehicles, the number of miles of toll roads, all have been growing and our forecast to continue to grow at CAGR is ranging from 7% to 17%. Meanwhile, less than 1% of roads actually have tools today. So there's plenty of room to expand, especially via managed lane programs, which we're seeing going up in multiple areas. And over time, as we start to look at road usage charging, which is going to move even beyond specific road systems and start to be more regions and pricing associated with those. Technology is enabling innovation in this space, such as the shift to all electronic tolling where you no longer have the toll collectors and booths, which slow you down. Interoperability like we're doing with E-ZPass that could open up a whole range of new services through the platform. And things like road usage charging as well, which will be critical going forward.

Okay. I think this is our last question coming in, but it might -- it's probably a great one to end on. It says, what's your vision for the next 18 to 24 months out. Bret?

Yes. I really appreciate that question. I've been in the role for just over 100 days now, and some key themes and objectives are really taking shape for me, and I think for the company overall. First, as we've been talking about today or I was through the presentation. The time is now for ITS. The tailwinds we've been talking about, I think, are truly undeniable, and Quarterhill is very well positioned to capitalize on those tailwinds and in the market. So in saying that, I really think along the lines of 4 strategic priorities going forward, one is focusing on the top 3 -- what I really see is the top 3 mobility priorities and that's user funded infrastructure, which we've been talking about and where ETC brings tremendous strengths today. Safety, which is an IRD strength, both in terms of commercial vehicle operations and increasingly and passenger fleets as well. And then the third is sustainability, where IRD and ETC both have solutions that touch on this area today. Even aspects of Weigh-in-Motion and managed lanes, the congestion capabilities that ETC has, all support that. But user funded infrastructure, safety and sustainability are 3 sort of solution areas that we're going to continue to focus on going forward. The second overall priority, I think, is to continually elevate the solutions that we have. We've got tremendous leadership at ETC and IRD and a blend of software and sensor solutions. Some evidence of that on ETC side is that in every major procurement that -- or every procurement that we participated in, in the last 3 years, ETCs received the highest technical scores. So we've got tremendous capabilities there, and there's also tremendous differentiation priority as well, including things like the tire solution that I mentioned before. So we've got -- we have a strength. We want to maintain that leadership, but we also want to keep elevating that. So adding data solutions to the core capabilities we have today and move increasingly towards SaaS-type models, which as I was referring to before, at E-ZPass. The interoperability solution, I think, is a foundation for that as is a path for both IRD and ETC solutions in one-off ways. The third theme would be strategically consolidate. So we've talked about M&A as continuing to be a core of our approach going forward, and we want to use that vehicle to support these objectives. I talked about CL technology leadership and diversification is a focus on the M&A side. We'll keep doing that. And we'll also buy wisely and look for margin and multiple accretion as we're making those acquisitions. And finally integrate and grow. So there's rounding out of our leadership team, especially adding a CFO, which we're focused on, but also continuing to enhance talent broadly at all levels of the organization and continue to invest in that culture that I talked about before that I think is already serving us well, but we need to spend even more time on. We need to make sure that our units are empowered to sell and deliver, but we also need to remove impediments from them and optimize costs. So we stay as lean as we can and as nimble as we possibly can. So when doing those kinds of things above, I think that we will provide superior financial results. We should add significant EBITDA. We should increase our valuation multiple, lower our cost of capital and all those things will lead to enhanced shareholder value, which we know we're absolutely here to do, and we'll be focused in accomplishing that. So it's -- I could not be more excited to be in this role at this time and especially with the capabilities that the Quarterhill already has brought together and the resources that we have at hand. It's just tremendously exciting time for me, for the company and I think for the industry overall.

Great. Bret, thank you. I'm just checking. There are no additional questions at this time. So this concludes all matters before our annual meeting, and I now declare the annual meeting adjourned. I'd like to thank everyone for attending today's meeting. We look forward to reporting back to you on some of the developments discussed today. Our Q1 2022 results will be issued May 12 with details on our conference call and webcast to be issued closer to the date. On behalf of the Board of Directors and the broader team at Quarterhill and our subsidiaries, we hope that you and all your loved ones stay safe and healthy. Thank you and good bye.