Price Target Calculation

We rate Quarterhill an Outperformer with a price target of ~$3.00. See Exhibit 1 for our net asset value. Note our 2018E EBITDA value for Mobility and Factory includes the next four quarters.

Recall that Quarterhill has changed how it records licensing record agreements in the future as they will be recognized in the period they are signed. For patent licensing, our target reflects 60% of the present value of prospective agreements or $1.41. The total value potential is ~$750 million undiscounted. This includes wireless/infrastructure patents for $350 million, semiconductor patents for $200 million, TV patents for $50 million, streaming patents for $50 million, content delivery patents for $50 million and data storing patents for $50 million. We have discounted these potential license agreements at an annual rate of 15% over five years. We exclude the litigation win against Apple of $145.1MM from our price target but show it in the NAV also at a 60% discount. Apple has announced its intention to appeal, meaning the final outcome could be a different amount than awarded.

Quarterhill provides segments for its business lines: Technology, Mobility and Factory. Mobility and Factory are the new IoT investments, which include the value of International Road Dynamics and Viziya. We value the IoT segments separately on an EV/EBITDA value until we have a clearer view on earnings leverage:

For Mobility, which is only International Road Dynamics, our value of $0.40 is based on 10x 2018 EBITDA of $4.7MM. For Factory, which is only Viziya, our value of $0.48 is based on 10x 2018 EBITDA of US$5.7MM.

Comparable IoT companies trade at 10x 2018 EV/EBITDA multiples. We will update this multiple as we better understand the leverage of these two acquisitions.

Our price target does not include the dividend yield of ~2.7%. Quarterhill has stated that it has no intention of changing its dividend policy with the new growth strategy. Investors benefit from the dividend yield, while waiting for new licenses to be signed.