Good morning, everyone, and welcome to Quarterhill's fourth quarter and full year 2025 financial results conference call. Joining us today are Chuck Myers, Chief Executive Officer, and David Charron, Chief Financial Officer. At this time, all participants are in a listen-only mode. Following management's remarks, we will open the call for a question-and-answer session during which analysts are invited to ask questions. Earlier this morning, Quarterhill issued a news release announcing its financial results for the fourth quarter and full year ended December 31, 2025. This news release, along with the company's MD&A and financial statements, are available on SEDAR+. Certain matters discussed during today's conference call or responses to questions may constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect. I'm sorry.
Risk factors that could affect results are detailed in the company's annual information form and other public filings available on SEDAR+. During this conference call, Quarterhill will refer to adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed by IFRS. Please refer to the company's Q4 2025 MD&A and full cautionary notes regarding the use of forward-looking statements and non-IFRS measures. Finally, please note that all financial information provided is in U.S. dollars unless otherwise specified. I will now turn the call over to Mr. Myers. Please go ahead.
Good morning, everyone, and thank you for joining us today. Quarterhill has been executing a multi-year transformation to stabilize the business, improve execution discipline, and return the company to sustainable profitability. As we enter 2026, Quarterhill is operating from a stronger foundation with improving margins, positive adjusted EBITDA, and growing demand for our technology solutions. We are also seeing strong demand across our markets and continued momentum in our technology roadmap. We've made meaningful progress advancing our AI-enabled platform, which is now playing a larger role in how we compete and win. Our focus now shifts to scaling the business and building on the progress we made in 2025. Before discussing the results, I want to briefly revisit the operational actions that position the company for this next phase. At the beginning of 25, we outlined a clear plan to stabilize the business and restore sustainable profitability.
That plan focused on four priorities. First, implementing and restructuring an alignment of our cost structure with the scale of the business. These actions generated millions in annualized cost savings and improved operational efficiency across the organization. Second, we took targeted actions to improve the performance and economics of certain tolling programs. That work represented an important step in stabilizing the business. Third, we introduced a disciplined bidding framework. Every new project must meet defined financial thresholds and generate positive cash flow during the implementation. This approach ensures we pursue profitable growth that strengthens the company. Fourth, we strengthened our project execution and delivery oversight across the organization by aligning senior leadership more closely with key project milestones and performance tracking. These actions materially improve the operating profile of the company. As the year progressed, these benefits began translating into stronger financial performance.
Let me highlight a few of the key results in the fourth quarter and the full year. Revenue for the year was in line with 2024, reflecting our deliberate focus on improving the quality and economics of our tolling programs rather than chasing volume. Gross margins expanded significantly as restructuring actions took hold and contract performance improved. In the fourth quarter, we reported gross margins of 31% and delivered our second consecutive quarter of positive adjusted EBITDA. With that overview, I'll now turn it over to David to walk you through the financial results in more detail.
Thanks, Chuck, and good morning, everyone. I'll start with revenue and walk through margins, profitability, cash flow, and the balance sheet. As a reminder, all figures are in U.S. dollars. Fourth quarter revenue was $38.5 million, compared to $38.9 million in the fourth quarter of last year. For the full year 2025, revenue was $155.2 million, compared to $153.3 million in 2024, representing modest year-over-year growth. The increase for the full year was primarily driven by continued growth in our safety and enforcement business, which offset variability in project timing within our tolling segment. As we have previously discussed, revenue in our business can vary quarter to quarter, depending on project timing and other factors, including the weather.
Our focus remains on improving the quality and profitability of the work we pursue, not simply the volume. As Chuck mentioned, the operational turnaround actions we implemented during the year began to translate into improved financial performance in the second half of 2025. At the end of the year, we continued to maintain a significant backlog of $404 million, which provides us with multi-year revenue visibility. Just to remind everyone, when we refer to backlog, we mean contracted value of work that has not yet been completed but is expected to be performed under existing customer agreements. This includes signed contracts and expected extensions of existing programs where the scope and timing are defined. We do not include unsigned opportunities or potential change orders. Many of these contracts can extend for several years, depending on the nature of the deployment and associated service agreements.
Importantly, a growing portion of this backlog consists of recurring operations and maintenance services revenue, which generally carries higher margins and improves visibility into future cash flow. Beyond the backlog, our opportunity pipeline remains approximately $2 billion, spanning tolling modernization opportunities, safety and enforcement deployments, and follow-on programs with existing customers. Turning to gross margin. Our gross margin in the fourth quarter was 31% compared to 20% in the fourth quarter of last year, and up from 26% gross margin we reported in Q3. For the full year, gross margin was 21% compared to 18% in 2024. The improvement reflects the restructuring actions implemented earlier in the year, improved contract economics in the tolling business, and continued strong margin performance in the safety and enforcement segment.
Adjusted EBITDA for the fourth quarter was $4.4 million or 11% of revenue, compared to $1.2 million or 3% of revenue in Q4 of last year. This marks the second consecutive quarter of a positive adjusted EBITDA for the company and marked improvement from negative adjusted EBITDA in the first half of 2025. For the full year, adjusted EBITDA was negative $300K, with the second half of the year demonstrating the impact of the operational improvements that we implemented. Turning to cash flow, we generated $4.1 million of cash from operations in the fourth quarter. Q4 marked the second consecutive quarter of positive cash from operations, following two quarters of cash used in operations in the first half of 2025.
For the full year, we generated approximately $2.3 million in operating cash flow compared to negative $4.4 million in the prior year. The improvement reflects stronger margins and continued focus on working capital management. Now, turning to the balance sheet. We ended the year with $24.8 million in cash, compared to $24.1 million at the end of the third quarter. As everyone is aware, we have a number of debt maturities later this year, including our bank facility of about $14 million and the convertible debentures of about $40 million. One of our key priorities following our return to profitability is cleaning up the balance sheet and optimizing the company's capital structure. We've engaged financial advisors to help us evaluate and execute a comprehensive refinancing solution, and that process is well advanced.
We're encouraged with the level of interest we've received to date and continue to work with our advisors to finalize our refinancing plan. We expect to provide additional details on this process in the near future. With that, I'll turn the call back over to Chuck for his closing remarks.
Thanks, Dave. Let me step forward and share our perspective on how the market is evolving and where we're directing our focus as we move forward. Transportation infrastructure globally is in the early stages of a major modernization cycle. The governments and transportation agencies are under pressure to improve roadway safety, manage increasing traffic volumes, and operate infrastructure more efficiently. ITS technologies are becoming central to how these agencies address these challenges. We are seeing a clear shift towards ITS platforms where AI-driven software is central to how the infrastructure is managed. Quarterhill operates directly in the center of these trends. This demand environment is reflected in both our $400 million backlog and our opportunity pipeline, which remains at approximately $2 billion.
We are in the final stages of rolling out our next gen platform, designed to serve as a single command center for real-time operations, reporting, and decision making. The goal is simple. Today, many of these systems rely on a mix of disconnected tools. We're bringing that together under one unified platform that is more flexible, easier to use, and built around AI. This platform includes capabilities such as vehicle fingerprinting, predictive analytics, anomaly detection, as well as emerging capabilities in agentic and visual AI, all aimed at improving accuracy and providing customers with better visibility into their networks. From an architecture point of view, the platform is designed to integrate with existing systems, connecting across various CRM, ERP, and operational platforms to provide a consistent real-time view.
As we continue to roll out the technology, we'll be bringing together tolling, enforcement, and mobility data into a single platform, strengthening the overall system. Over time, we expect this approach to continue to support our margin expansion and improve scalability across the business. Looking ahead, our priority is to continue building on the operational progress achieved during 2025. While our primary focus remains organic growth across our markets, we see a clear opportunity to expand the platform through selective strategic acquisitions that strengthen our technology capabilities, expand our market presence, and increase our operating leverage. We have engaged a global M&A firm to help us define targets and synergies. We're well-positioned to act on attractive targets that can accelerate the growth and expand these capabilities. We expect these synergies to drive higher EBITDA and operating leverage.
As the business continues to prove, the strength of our individual businesses is becoming clearer. Entering 2026, our priorities are clear: accelerate growth, scale the platform, and continue expanding margins. With that, we can open the line for questions. Operator?
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. If you are using the speaker phone, please lift the handset before pressing any key. The first question will come from Gavin Fairweather from Cormark. Please go ahead.
Oh, hey, good morning. Thanks for taking my questions. Maybe to start on tolling margins. Great to see further progress in Q4 coming through. Maybe you can just discuss the level of kind of tolling gross margins now and whether you're seeing any further opportunities for enhancement, including as some of these contracts are kinda coming up for renewal in 2026 and 2027.
Oh, yeah. Hey, Gavin. Good morning. Oh, we see substantial growth. I mean, our goal, as we've stated for quite a while, is 40% gross margins and 20% EBITDA. Of our $400 million of backlog, these numbers are a bit approximate, but of like $375 million-$380 million of that is we look at it as about 40% gross margin, 20% EBITDA business.
Appreciate that. Just on the contracts as they roll, do you see that being a catalyst for further uplift?
The follow on contracts, absolutely, for sure. I mean, just this year we added $166 million in new and additional changes to our existing contracts.
That's great. Just on the size of the bid book and organic growth, you know, it sounds like it's a priority to kind of re-accelerate the growth in 2026. Maybe you can just, you know, provide, you know, a bit of a look into, you know, how sales cycles are performing. If you've seen any change in kind of competitive dynamics, and how you feel overall about starting to see that, you know, significant bid book start to kind of convert into into new business for you.
Well, yeah, I mean, I think for us, it looks like pretty good. Look, we see a pretty good horizon here. As you saw, even going into the end of year on the commercial vehicle side, I think you saw a number of new orders coming in pretty consistently. We see, ironically, even though last year we kind of held off on some of the bids and made some pretty, maybe where we did bid, we weren't that aggressive, while we were getting our house in order. Now as we look, even a lot of those bids were delayed, and we now have an opportunity to go into them this year. I think you're gonna be able to expect to see some pretty decent announcements here in the pretty near future.
Great to hear. Just on the new platform, can you just refresh us on kind of where you stand on the project? You know, any kind of upcoming milestones or timing to really kind of fully commercialize that new platform?
Yep. We will be announcing a contract in the near future for that. That platform we spent about the last 12-14 months developing from scratch. A good portion of it is complete and ready to roll into commercial operations. We're actively negotiating contracts on that new platform.
Great. I noticed that the capitalization of R&D was up a little bit this quarter. Are there some one-time costs with that platform that are maybe kind of outsourced running through the capitalization line or how would you describe that?
No, I would describe that as, and I'll let Dave answer it, but we were probably more methodical than we should have been in the past in accruing actual costs of the people working on a platform. We don't expect that to ever be a huge number. As a percentage of most technology companies in our business, I would say our capitalized software cost is quite low. I'll let Dave take a crack at that one.
Yeah. Thanks, Chuck. Not much more to add here, Gavin, other than, you know, you heard Chuck talk about all the work on that AI platform in the last 12 months or so. Our, you know, product development efforts have increased in over that 12 months, and we've reflected that in the capitalized development costs. You'll continue to see that going forward at about that level.
Just lastly for me, maybe for Dave. Do you see any further opportunities on the working capital line over the course of 2026?
Yeah, absolutely. You know, our unbilled revenue is still higher than I'd like to see it. You know, as you know, that unbilled revenue converts to accounts receivable, and that converts to cash. We're gonna have a lot of focus in 2026 on converting that unbilled revenue to cash.
Thanks so much. I'll pass along.
Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star one now. Thank you. That concludes our question and answer session. I will turn the call back over to Mr. Myers for closing remarks.
Great. Thank you, operator. Thank you, everyone, and thank those who joined the call. As always, a huge shout-out to our employees, our board. The progress that we've made is a direct reflection of their hard work. Super pleased with it and really looking forward to this year. We're heading into 2026 with real momentum. Both the business units are winning higher margin work. Our next generation platform is advancing, and demand for our technology continues to grow. The foundation is in place for our growth this year. You know, huge shout out and thank you to our customers, shareholders and analysts for your continued support. For those of you that are here at the ROTH Conference with us, we look forward to connecting with you over the next two days and have a great day, everybody, and thanks.
Ladies and gentlemen, this concludes our conference for today. We thank you for participating, and we ask that you please disconnect your lines.