Quarterhill Inc

TSX:QTRH

Earnings Call Transcript 2020-Q1

[Operator]

Good morning and welcome to Quarterhill's Q1 2020 Financial Results Conference Call. On this morning's call, we have John Gillberry, Chair of the Board; and Dave Cortens, Interim Chief Financial Officer. [Operator Instructions] Earlier this morning, Quarterhill issued a news release announcing its financial results for the 3-month period ended March 31, 2020. This news release, along with the company's MD&A and financial statements, will be available on Quarterhill's website to be filed on SEDAR. Certain matters discussed during today's conference call or answers that may be given to questions do constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's annual information form and other public filings that are made available on SEDAR. During this conference call, Quarterhill will refer to adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed to IFRS. Adjusted EBITDA is defined in the company's quarterly annual filings that are made available on SEDAR. Please note that all financial information provided is in Canadian dollars, unless otherwise specified.I would now like to turn the meeting over to Mr. Gillberry. Please go ahead, sir.

[John Kendall Gillberry, Independent Chairman]

Good morning, everyone, and thank you for joining us on our today's call. It's been a very busy few months for us, and I'll start things off this morning with a look at our recent developments and then activity for the quarter. Dave Cortens will provide a more detailed look at some of the key numbers, after which we will open this up for questions.Before we get into our review, I'd like to make a few comments on the COVID-19 situation. Here at Quarterhill and at our portfolio companies, we are doing everything we can to minimize any potential impact from the virus on our employees, customers and the broader communities we are part of. The world changed dramatically from the start of Q1 to the end. And for many companies and individuals, these changes have brought about a significant shift in their day-to-day circumstances.While not untouched by COVID-19, we believe that our portfolio companies have resiliency even in this challenging macro environment. Our businesses remain in operation, doing the best to serve their clients, identify new opportunities and close new business. The enhanced safety precautions that we have taken, combined with the current economic environment, means that certain circumstances -- in certain circumstances, there is some delay in activity related to providing ongoing services or initiating new engagements. However, overall, the operational prospects for our business remain sound and are backed by the strong financial position of Quarterhill. As you know, COVID-19 was a factor in our decision to pause our M&A strategy, and we will revisit this decision as the broader situation evolves and with our new CEO coming on board in June.I want to commend the team at Quarterhill and its subsidiaries for having adapted well to this new environment, for continuing to push forward on their strategic priorities and for demonstrating a steady commitment to ensuring their customers receive the type of quality service they are accustomed to.With that, I'd like to move on to reviewing a couple of key recent developments and then onto the Q1 review.As you saw in our Q1 press release this morning, we appointed Paul Hill and Dr. Michel Fattouche to our Board of Directors effective today. We have previously addressed Paul's appointment when we announced him as Quarterhill's incoming President and CEO. For Michel, we were very pleased to have him return to the Board. Michel was one of the co-founders of WiLAN and previously served on the Board from 2006 to 2018. He is that rare combination of entrepreneur and inventor and is also one of Quarterhill's largest shareholders. We look forward to once again benefiting from his expertise and trusted counsel as we execute on our growth opportunities.The big news of this call is the appointment of Paul Hill as our new CEO. Paul is an exceptional leader for the business today, and we are very excited to have him join Quarterhill and take over as CEO. He has been active in the tech industry for 3 decades and managed almost every aspect of a software business during that time. Paul has the operational experience of having run tech businesses and has the transactional experience of having led multiple M&A deals. He has held senior roles at both big and small organizations, a valuable combination in the management of portfolio companies. He has frequently been a Board member responsible for mentoring company leaders. Finally, as a well-known tech executive in the Canadian market, we believe Paul will be able to help fill the gaps and attract talent to help grow Quarterhill's portfolio companies. Paul starts June 1, and he will intensely focus on enhancing operations within our portfolio companies; engaging with employees, customers and the investment community; analyzing and updating our growth strategy. We are clearly excited to have him come on board and also very[Audio Gap]completed our search within our targeted time frame despite the general disruption from COVID-19 and a very competitive market.With the release of our Q1 results today, we also announced a follow-up to our initiative to return capital to shareholders. Considering the company's significant cash balance and the cash flow generating potential of our portfolio companies, we announced at the end of March that the Board would undertake a review of alternative to return some capital to shareholders. Having completed this review, we announced today that we intend to launch a substantial issuer bid to purchase up to $20 million of our shares. On completion of the substantial issuer bid, we intend to adopt a normal course issuer bid. Additional details on the substantial issuer bid will be made available to shareholders in the bid circular, which will be mailed in the coming weeks.With our strong financial foundation and the cash flow generating capabilities of our portfolio companies, we believe that these initiatives could unlock some value in the company while still preserving our financial strength and our ability to execute and deliver on our growth plans.I will now look at Q1 results, but before I do, 2 things I'd like to highlight. One, with the release of Q1 results, we are now reporting according to IFRS accounting standards and no longer using U.S. GAAP; and second, we are now reporting on Canadian dollar versus U.S. dollars. So unless indicated otherwise, all dollar amounts we speak about today are Canadian.Q1 highlights. A quick look at the Q1 numbers shows revenue at $26 million, adjusted EBITDA at $800,000 and cash from operations at $9.1 million and cash and equivalents balances at the end of the quarter of $103.1 million. When compared to Q1 last year, the numbers reflect some variability in the patent licensing model at WiLAN. However, they also reflect the favorable impact from some of the cost-cutting initiatives we have undertaken throughout the organization in recent years and ability to grow our cash.Looking now to portfolios. As you saw in our press release on Tuesday, we announced the sale of VIZIYA, our subsidiary and the enterprise software licensing that operates in the gas -- in oil and gas, heavy manufacturing and mining sectors. It is important to note that we were approached by the owners of Prometheus, the industry giant in this sector who has been extremely active in consolidating the sector. Until they approached us, VIZIYA was not up for sale. However, there were several very compelling reasons for us to look at a divestiture to the specific buyer, which included, but not limited to, one, a significant purchase price that resulted in a strong internal rate of return in which we basically doubled our investment in 3 years; two, a quick and relatively easy transaction without significant third-party costs; and three, Prometheus is a huge player in the industry and had made more than 6 acquisitions in the space in the last 3 years and are a very strong, [ formidable ] competitor.Overall, VIZIYA is a promising young company with quality products and a strong team, and we will miss them as part of the Quarterhill family. However, this transaction was one we just could not turn down. It crystallizes a significant return for our shareholders and strengthens our balance sheet in a turbulent market. And that strong financial foundation and cash balance will increase the number of options that our incoming CEO will have as he develops and deploys the company's future growth strategies.WiLAN. WiLAN had a good Q1, generating $3.5 million of adjusted EBITDA on $10.2 million in revenue. This reflects WiLAN's continued ability to generate cash flow even at more modest revenue levels. In terms of a COVID-19 impact to the WiLAN business, in general, license agreements are completed in face-to-face negotiations. However, the team is demonstrating that it can get business done in a work-from-home environment and continues to press forward on this litigation pipeline. WiLAN's licensing activity in the quarter included an agreement with UMC on semiconductor patent from our Polaris portfolio. But the biggest development for Q1 -- or WiLAN in Q1 in early January when it won a second jury verdict against Apple in the [ second jury ] trial.At our AGM in April, we noted that if there's to be an appeal in the Apple case, and keep in mind, either side can appeal in this verdict, that the appeal decision will be rendered in approximately 24 months' time. Of course, as we said in the past, we are always open to negotiation at any time on a reasonable outcome. With 2 jury verdicts in our favor so far in this trial process, we believe we have a strong position to negotiate from.Looking now at IRD. Q1 is seasonally slow for -- is a seasonally slow quarter for IRD, falling in the winter months when certain projects are more difficult to launch or complete. Nevertheless, results were reasonable, and importantly, investment at IRD continues as we look to position the business for future growth. COVID-19 has had and will likely continue to have some impact on IRD, primarily in certain international markets where the economic lockdowns have been the strictest. In these situations, we are dealing with delays as opposed to lost contracts.In IRD's largest market, the U.S., their services have been deemed essential by most states, and the business continues to demonstrate strength here. In fact, transportation departments and state governments are looking to products like IRD's weigh-in-motion to help determine the impact of COVID-19 on passenger and commercial traffic. They are using these inputs to help in their long-term contingency planning for future disruptions that could arise from external events. We continue to believe the prospects for IRD remain strong, and we are investing to enhance their existing products to develop new products, which may expand their addressable market.An example of a new product is the iTHEIA artificial intelligence, or AI, traffic data system. The iTHEIA provides real-time, video-based counting and classifying of traffic. This system relies entirely on AI to perform traffic counts right at the roadside. In a recent test pilot with the state of New York, the iTHEIA successfully classified vehicles into 6 size-based categories over 3 lanes of traffic with 98% accuracy. This product was developed in part with technologies acquired through the iCOMS tuck-in acquisition we made in 2017.In closing, despite a very difficult business environment, our interactions with customers and prospects remains high, and we continue to execute on existing mandates we're working to build a pipeline for future activity. But on our last call, we said we expected growth in 2020 from each of our businesses. The broad uncertainty throughout the economy today makes such forecasting kind of unrealistic, and we are no longer guiding to that outcome. However, that does not mean that we don't believe that our businesses can grow this year; simply that there is too much economic uncertainty right now to make any calculated forecasts like that.We remain optimistic overall and see strengths in our business, underpinned by both solid financial position. We have new CEO coming on board shortly, and for the remainder of the year, we will remain focused on disciplined cost control, managing the businesses to generate cash flow and taking steps within each business to be well positioned to capitalize when market conditions improve[Audio Gap] the pandemic with a strong balance sheet, solid portfolio and[Audio Gap] operating profile, and we believe we're well prepared to manage through the crisis period.With that, I will turn it over to Dave Cortens to take a closer look at some of the numbers. David?

[David Cortens, Interim Chief Financial Officer]

Thanks, John. Good morning, everyone. As John mentioned at the outset, with our Q1 release today, we are now reporting in Canadian dollars under IFRS standards. We made these changes following the delisting of our stock from Nasdaq at the end of 2019. For the most part, IFRS and U.S. GAAP standards present a similar picture, but it's worth discussing a couple of items that have resulted from the change.One, when a company transitions to IFRS from a different standard, there are additional disclosure requirements. In particular, since we present our financial statements on a comparative basis, we are obliged to go back to the beginning of the prior year to apply all changes. This information is set out in Note 18 to our financial statements, which provides further explanation of our changes and reconciliations from the GAAP statements to IFRS.Second, the conversion to IFRS also required a detailed review of all of our accounting policies. While there are no substantive changes in any policies, we are obliged to adapt to best practice disclosures and terminologies used under IFRS standards. The actual accounting adjustments under IFRS for our company were limited to the way our right-of-use assets are being amortized and the disclosures in our income statement. Under IFRS standards, we are now disclosing amortization of these assets separately and breaking out the interest expense component of our lease liabilities. Under U.S. GAAP, these values were formerly embedded in our SG&A costs.The only other change in presentation relates to the classification of our research and development investment tax credits. Formerly considered an offset to tax expense, these are now netted against our gross R&D spend.And of course, the other main change to our financials is the conversion to Canadian presentation of our financial results, formerly expressed in U.S. dollars. In summary, what this does is translate our U.S. dollar assets and liabilities on the balance sheet at the month end rate in effect at the reported date and the income statement values at the average monthly foreign currency rate.I'll now start off with a quick quarterly review and look at revenue in more detail. Revenue was down year-over-year due to the variability in the patent licensing model alignment. Virtually all of WiLAN's licensor are onetime in nature, and accordingly, significant fluctuations in revenue, gross margin and adjusted EBITDA will result in the volume or dollar value of license changes from one period to the next. This was the case in Q1 as larger-sized agreements were closed in Q1 of the prior year.As we've said in the past, WiLAN's operations need to be viewed over a longer period of time due to the timing effect on revenue inherent in the patent licensing business. When viewed on an annual basis, WiLAN has shown it could deliver significant cash flows through the revenue and cash flow contributions will not be -- I'm sorry, though the revenue cash flow projections will not necessarily be spread evenly throughout the year.Of note, on a revenue segment basis, recurring revenue was $6.2 million in Q1 compared to $7.5 million in the prior year. A large portion of this revenue comes from IRD, which, so far in 2020, has maintained 100% renewal rate on all long-term maintenance contracts. The reason for year-over-year difference is a timing factor, reflecting the underlying work from those contracts when it is completed.Gross profit was 42% in Q1 and impacted by lower revenue but still at a reasonable level overall. Operating expenses were lower by $2.9 million year-over-year. This was primarily due to the lower amortization of intangibles, special charges and SG&A. R&D rose year-over-year due to our investment in both IRD and VIZIYA.In terms of managing expenses, in reaction to COVID-19, each business is unique in its own, but overall, we are closely monitoring discretionary spending, and in general, we are maintaining staff levels, holding off at hiring in some cases but ramping up if necessary, for example, during the summer period for IRD. Staff hiring would be a good sign, of course, and balancing that somewhat is that IRD has had some clawback in staffing levels in international markets where the lockdown has delayed work.As it relates to COVID-19 and the financial relief programs offered by various governments around the world, we are exploring our options, and we'll look to take advantage of any programs we may qualify for. At this time, we have not yet applied to any programs for any relief.Adjusted EBITDA on a consolidated basis for Q1 was $800,000, down from last year due primarily to the lower revenue at WiLAN. But as John mentioned, WiLAN still posted a positive adjusted EBITDA number in the quarter.Looking forward, regarding the tax treatment from the sale of VIZIYA. We believe that we can deploy or realize tax loss benefits against any capital gains tax that would be owed. And as a result, we don't expect to pay tax on this transaction. Our Q2 financial statements will reflect only the financial treatment of the VIZIYA sale.Cash from operations in Q1 was $9.1 million, up from last year. Cash and cash equivalents and short-term investments increased $13.7 million to $103.1 million at March 31, '20 compared to 2019 year-end cash. Cash increased as a result of positive cash flow from operations offset by financing and investing cash activity outflows, which primarily consist of repayment of bank indebtedness, a dividend payment and purchase of property and equipment. Our total debt level is $2.7 million and is miniscule in comparison to our cash level.Our balance sheet provides a solid backbone from which we can pursue our growth strategies. In an environment like we have today, Quarterhill has the type of financial and operational profile that is built to endure. And finally, in Q1, we paid dividends of $1.5 million. And this morning, in our earnings release, we announced details of our next dividend payment. The Board of Directors has declared an eligible dividend of $0.0125 per share payable on July 3, 2020, for shareholders of record on June 12, 2020.This concludes my review of the financial results, and I'll now turn the call back to the operator for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Doug Taylor of Canaccord Genuity.

[Douglas Taylor, Director]

I'd like to start with the review of the alternatives for returning cash to shareholders. Can you elaborate a little bit on your thoughts on how you arrived at both this method and also the amount that you decided to return at this particular juncture and whether or not that decision was made prior to the sale of VIZIYA or would have been impacted by it?

[John Kendall Gillberry, Independent Chairman]

Yes. Thanks. So first of all, it's sort of a 2-part question: How did we get to the structure of the return of capital, and the second part is how did we get to the amount. So on the first instance, we did do a fair amount of research on methodologies to return capital to shareholders. And obviously, as you know, there are several different structures that might allow us to do that. But we actually did have conversations with shareholders, institutional and retail shareholders, on this subject matter. And that did help us sort of define, refine and kind of hone in on what the right structure was for returning capital to shareholders.So there was a combination of a lot of dialogue with shareholders. As you've seen in the press release, we did actually get an adviser in on this discussion for us as well. So we looked at precedents. We looked at what else has been done in the market. And the significant issuer bid consistently came out on top of the methodologies best used for returning capital to shareholders at this point in time. Once again, with an NCIB following on the back of that, which we will initiate after the SIB is concluded. So like, it wasn't a quick discussion. There was a lot of analysis, a lot of dialogue and a lot of input from a lot of stakeholders in this decision factor.The amount of it was determined by taking a hard look at cash on hand, forecasting cash throughout the course of the year, which does take into account, to some extent, the VIZIYA transaction, which did sort of come into this play on -- in sort of the middle of this process, if you will. And just taking a look at what we have in our, I'll say, pipeline of opportunities to take a look at throughout the course of the year. So keeping and maintaining a strong balance sheet and a strong position throughout the current economic time, which was a strong item, I'll call it, a strong attribute that we feel that serves all the shareholders well. And at the same time, finding a number that we thought we could return to shareholders without impairing the companies and the subsidiaries in any given way is how we ended up on the $20 million with the NCIB following on the back of that. So to answer your question, there was a fair amount of analysis and discussion and cash flow forecasting that went into the end number as well.

[Douglas Taylor, Director]

And just to follow up then on the commentary about the NCIB to follow. I mean a lot of companies have an NCIB and are not necessarily particularly active. Are you trying to signal that you intend to be quite active, assuming share prices are relatively consistent with current levels with that NCIB going forward?

[John Kendall Gillberry, Independent Chairman]

Yes. I mean we will file for the highest amount that TSX will allow us to file for, for the NCIB. As you know, it's regulated. And then purchases will be subject to market conditions and relevant factors at that time. So I mean we're putting it in place for a reason, not just so we're just doing this for optics. But we're going to have to take a look at it at the time that it comes back into play. And that's down the road a little bit. So I can't really kind of forecast where we're going to be at that point in time, but we'll be prepared to execute on it should we think that that's the right strategy to do at the time.

[Douglas Taylor, Director]

Okay. The VIZIYA sale, just to be crystal clear, the timetable of that transaction closing is expected to be in this current quarter in Q2. Is that right?

[John Kendall Gillberry, Independent Chairman]

That is correct.

[Douglas Taylor, Director]

Okay. And are there any working capital implications or cash that's going with the sale? Or is this transaction net of working capital and cash, the price that you received?

[John Kendall Gillberry, Independent Chairman]

Yes. What -- the number that you saw in the press release is the net number, essentially what we banked on the transaction.

[Douglas Taylor, Director]

That's very clear. And then, I mean, I'll ask just for a little bit more specifics to the extent you're able on the current status of the Apple trial, post trial motions. And any more color there given the size of the award and the potential implications would be helpful.

[John Kendall Gillberry, Independent Chairman]

Yes. I mean this is always a question. And Doug, we don't mind it being raised because it is significant and it is material. The hearings that could have taken place in May were canceled, which I think is -- as I understand it, is not unusual when a judge feels that he has all the information that he needs in order to render a judgment. And I think we will hear the outcome of that judge's opinion and that judgment probably by the end of August. I mean I think that that's a reasonable expectation to hear that.And then there's just no telling what that will look like, but that's a timetable that you can kind of, sort of, I would say, pencil in. And then as I indicated, we will have the opportunity as well Apple to launch appeals against what falls out of that judgment. So I think we're kind of in a wait-and-see mode until we hear that judgment, which we -- like I said, we will expect sometime before the end of August.

[Douglas Taylor, Director]

And just to put a finer point on that, the delays -- or not delays, but the trial on appeal and all this, none of this is being held up by COVID-19 at this point. You said the decision to not hold the in-person motions was the judge's decision, not related to the pandemic.

[John Kendall Gillberry, Independent Chairman]

That is my absolute understanding. Of course, we're not going to get a definitive statement back from them why, but I think that it is -- as I'm being told, it is not unusual not to have -- it is not unusual to have a hearing canceled once the judge has -- feels he has all the information in order to render a judgment. So we didn't hear pandemic in that storyline. That's what I know.

[Douglas Taylor, Director]

And then on the other -- the WiLAN business outside of Apple, you had mentioned that you were able to execute on some licensing opportunities in -- remotely. Do you -- is it fair to say that there was some impact to your Q1 or will be some to your Q2 results from some potential licensing opportunities slipping to the right? Or do you think you achieved what you had set out to in the first quarter and going forward given all the things that have gone on here?

[John Kendall Gillberry, Independent Chairman]

So I think what I indicated is that I think Q1, we had limited impact by COVID-19, saving except for the fact that, I mean, it made difficult working conditions for our team who are used to -- like the finalization of these licensing agreements tends to be face-to-face when we're putting the final touches on these things. So -- but the team got it done. I think that we would be naive to think that COVID-19 is not going to have any impact at all on WiLAN as we look throughout the course of the year because it is a very complex set of circumstances that's involved in driving revenue in the WiLAN business. There's litigation, which means that there's court dates, which means that there's a lot of people involved. There's negotiations. And most of these negotiations, as you know, Doug, happen internationally.So I just think when you put the complete complexity of WiLAN into a basket and you look at it, you're going to have to say that COVID is going to have an impact in terms of potentially the timing on some of the transactions that we had originally looked at. Nothing in the book has looked like it slipped or canceled because of COVID-19. But the timing of it is certainly going to be challenging as we look out to the third and fourth quarters, I think. Hard to say, but I think it would be naive to think that it's not going to have some impact.

[Douglas Taylor, Director]

Certainly an uncertain business on a quarterly basis, even at the best of times. So...

[John Kendall Gillberry, Independent Chairman]

Absolutely. And that has been the same for the last few years, right?

[Douglas Taylor, Director]

John, I just want to say I appreciate the commentary and all the color you've provided on an interim basis here, and look forward to hearing from the new CEO, John, when he joins as well, Paul Hill.

[Operator]

Your next question comes from the line of Gavin Fairweather of Cormark.

[Gavin Fairweather, Analyst of Institutional Equity Research]

I wanted to start out on the WiLAN business and specifically the cost structure. When I look at the Q1, looks like the COGS and the SG&A was about CAD 7 million together and kind of a leaner quarter, so probably not a lot of fees paid to partners in this kind of quarter. I previously thought that kind of USD 6 million or USD 7 million was kind of the base cost structure of the business. So curious if you've taken out some further costs to that business.

[John Kendall Gillberry, Independent Chairman]

I'm going to let Dave Cortens weigh in on this one. But I believe that we've seen sort of Q4, Q1 this year is sort of our normalized SG&A [ beatbox ] for the WiLAN business. But you're correct. In a quarter where we have smaller revenues, there may not be the same cost base relative to payouts to partners and/or litigation fees. But maybe, Dave, you can put better color around that.

[David Cortens, Interim Chief Financial Officer]

Yes. No, I mean, really, you've hit it, John. And again, basically, obviously, in a below-the-line sense, we have a very controlled and specific cost sort of burn rate within our WiLAN business. But the direct cost of revenue against any particular licensing revenue that we may realize in a quarter can vary quite a bit depending on the nature of the deal that's closed and whether or not it involves a partnering payout against it or not. And in this particular case, the particular transactions did not attract as much partnering payouts or contingency payouts as we call them. So it effectively helped the profit line, the gross margin line, if you will. So you will get variability even on a margin basis. There is, of course, a fixed element in there of some of the committed legal support costs that we incurred.

[Gavin Fairweather, Analyst of Institutional Equity Research]

Okay. That's very helpful. And then just on the VIZIYA sale, it sounds like it was an inbound offer and the one that you felt like you could turn down. But I guess I'm curious if part of it or part of your calculus had to do maybe kind of some concerns around demand just given kind of the current environment and the ability for them to kind of close license sales maybe in 2020.

[John Kendall Gillberry, Independent Chairman]

Yes. So it's a good question. And quite honestly, the demand for the software and the business plan, we were very comfortable with and confident in -- going into -- coming into 2020 and actually even going into the COVID-19 environment. That being said, Gavin, I think, once again, when we look at all the different attributes that went into making a decision as to whether or not we should or should not sell this asset at this point in time, taking a look at the broader global economic environment that we're in certainly weighs into the discussion, right? You don't -- you can't put a number on it. You can't sort of put a fine point around what that impact is. That impact was not going to be positive, right? Now whether that manifests itself in changes in 2020 or 2021, it's something that we did spend some time talking about. So yes, it had some -- it took some time and some consideration in the thought process. But not -- it was not a single motivator or driver to it.

[Operator]

Your next question comes from the line of Andrew Hood of M Partners.

[Andrew Hood, Research Analyst]

The first thing I was wondering, based on my math, after the sale of VIZIYA and then also after the SIB and assuming an NCIB of variable size, I would assume you guys have at least $100 million in cash still left after all that. So I was just wondering, is there kind of a cash balance you want to keep on the balance sheet post acquisitions? I guess the way -- what I'm basically saying is how much are you looking to deploy on acquisitions when you eventually return to your M&A program? And do you have any sort of idea of the time line of that return? I know there's a lot of uncertainty right now, but I just wanted to hear your view there.

[John Kendall Gillberry, Independent Chairman]

Okay. So Andrew, nice to talk to you again. We catch up every once in a while. So it's an interesting question. It's a good question. And I know you're going to think I'm [ patting ] this one down the road because maybe that's exactly what I'm doing. But we're not going to talk about when we're going to return to an M&A strategy until after we get Paul Hill on board and Paul actually gets his arm wrapped around the assets that he has and the opportunities that he has.Paul has got a wealth of experience and a very diversified sort of technology background. And Paul needs some time to kind of come in, understand the team, understand the asset, understand the -- not just the business assets but the cash assets that he has to work with and then come back to the Board and say, here's what I really want to do with this business, and here's why, and here's the time frame. So I'm not going to put out there a time frame that John Gillberry is making reference to that Paul may have to live up to. I think that would be unfair and unrealistic kind of expectation to do.That being said, I do think that we have communicated that we've always liked to work from a strong balance sheet and a reasonably strong cash position. And I think it will be up to Paul to convert cash into assets that show the right kind of level of return on invested capital to shareholders. So I know I danced all around your question, Andrew, and I'm sorry about that. But it's really -- we're really in this transition phase with me sort of taking a big step backwards and Paul coming in. And I really want Paul to articulate that strategy to the Street as opposed to me at this point in time.

[Andrew Hood, Research Analyst]

Okay. No, it sounds good. Next thing I was wondering on, I was wondering if there's some kind of subtext we should be receiving as a result of Dr. Fattouche joining the Board again. Is there any particular reason why he -- I know he's a big shareholder as well, but is there any particular reason why he's back?

[David Cortens, Interim Chief Financial Officer]

Yes. He's a really, really smart guy. He knows the world of intellectual property and licensing, and he knows the world of 5G really, really well. So he is a great addition to, I would say, our team, especially in terms of looking at new licensing and IP portfolios within the WiLAN base business, which is sort of his home field kind of thing.We are really excited to have him back. And believe me, we cut at length before he came back on board and agreed to come back on board. But I do think that there's new and exciting opportunities within the licensing portfolio business, and Michel will be very, very key to understanding and helping us get to the bottom of some of those opportunities.

[Andrew Hood, Research Analyst]

Okay. Sounds good. And then the final question for me. You guys mentioned in your prepared remarks about some potential relief programs you could be applying to. Do you have any idea yet what kind of programs those could be?

[John Kendall Gillberry, Independent Chairman]

Yes. I guess...

[David Cortens, Interim Chief Financial Officer]

It's a license spend.

[John Kendall Gillberry, Independent Chairman]

Dave Cortens. Yes.

[David Cortens, Interim Chief Financial Officer]

Yes. I mean that's basically the [ Q's ] program is where we're looking at in particular, right? And it would sort of depend on how we look at -- we have to do a bit of a look back and decide whether or not we're going to decide it, file it on a consolidated or individual corporate basis. But that's the program we're looking at right now. There's also some American potential programs that may be available to us as well.

[Operator]

Your next question is from Todd Coupland of CIBC.

[Todd Adair Coupland]

I wanted to ask a couple of questions. I'll start with the OpEx at around $10 million in the quarter. You said you're going to hold staffing levels as -- in terms of what you know so far. Is that about the right number to think about looking forward?

[John Kendall Gillberry, Independent Chairman]

I'm going to let Dave weigh in on this as well. But Todd, I'm going to tell you that I know that the entire OpEx cost base is something that Paul Hill says that he wants to kind of get in and really get dirt under his fingernails on and understand in a very detailed way. So I don't see it getting any worse than that. But I'm not telegraphing that there's changes coming there as well. I'm just saying it's going to be significantly under the microscope early in Paul's start date. So with that, maybe, Dave, you can talk a little bit more about the specifics of what's in the numbers and under the hood.

[David Cortens, Interim Chief Financial Officer]

Yes. I mean again -- obviously, again, I think we're trying to operate within that broad envelope. Obviously, we're mindful of controlling costs through the uncertainty of COVID. One of the things that we are investing in a deal through the period, though, is investment in our technologies and our accounting and ERP systems that will have some effect on the overheads in the period. But I don't think it's going to move materially outside of our expectations in terms of current overhead rates, if you will.

[Todd Adair Coupland]

Okay. That's helpful. And then just to make sure I have the numbers right. So your $103 million of cash at the end of the quarter, you're taking [ $49.24 million ] in, so a little over $150 million, and then you're committing to $20 million for the SIB. So that's essentially the pro forma number for the new CEO.

[David Cortens, Interim Chief Financial Officer]

Yes. And keep in mind...

[John Kendall Gillberry, Independent Chairman]

Yes. Plus or minus whatever the impacts there are of the working capital of Q2. We had 1.5 months under our belt there. Dave, you can reflect a little bit on that sort of from a macro perspective. But...

[David Cortens, Interim Chief Financial Officer]

I was going to say, one of the things you have to keep in mind is the cash balances are significantly U.S. dollar-based cash balances, too. So there will be variability depending on the currency as well, right?

[John Kendall Gillberry, Independent Chairman]

[ That's right. ]

[Todd Adair Coupland]

And then I just wanted to ask about the strategy. So should our takeaway at this point anyway be targeted midsized M&A impact at reasonable prices likely targeting recurring business models? Is that the way to think about M&A prior to putting a specific detailed new CEO plan in place?

[John Kendall Gillberry, Independent Chairman]

Yes. So I mean we're always going to have a real keen eye on return on invested capital. So that -- I mean that thesis is not going to change, Todd. I think that you're going to find that Paul will come back out within like the first 30 -- by the end of 30 days of his commencement date and say, here's what I've seen, here's what I've learned and here's what my analysis of what I wanted to do going forward is. I know that he is going to hit the decks running on June 1. And I know that he's been doing a ton of information gathering, sort of leading up to his start date while he's disentangling himself from Carta. So once again, I don't want to box Paul into anything. When he comes out with his story on the end of June is going to be his story.

[Todd Adair Coupland]

Okay. And that's fair. Is there any learnings that you care to share in terms of midsized tech recurring M&A? I mean there's a few competitors in the space. They've been there for a while. Maybe prices are softening a little bit in this environment. But I mean you just got paid a pretty good price on a business that didn't hit their profit targets and you still have doubled your money. So are you basically saying maybe there was a pivot away from that to a broader funnel to get more reasonable prices and appropriate returns on capital?

[John Kendall Gillberry, Independent Chairman]

Yes. So I actually personally believe that there is sort of a swim lane between the very bottom and the very top. I think that the very -- the consolidators who've got strong platforms who are using sort of current market conditions to continue to build out their platform as Prometheus did are going to continue to pay top dollar for those assets because there's a competitive environment for them. But there's going to be a lot of businesses and all kinds of industry sectors that are going to be either devalued or looking for exits in the coming months and the coming years. And I do think that, that's going to create a substantial pool of assets and opportunities.What Paul is going to have to do is take a look at what platforms he wants to look at, what industry sectors he feels most comfortable to bowl about, what industry sectors are going to show the kind of compounded growth rate that he is talking about wanting to look at and so forth. So we did -- I think we did very well. We're jumping into an enterprise software licensing business that, quite honestly, as Board members have quoted out with -- maybe in a notable exception, very, very little about. And we did very, very well on it.But I think that what Paul is looking to do is saying like it can't be sort of a one-off [ maybe a ] story again. We need to find things that are going to be long-term, sustainable and that we can build on over the long term. I think you're going to hear that sort of statement from Paul, and then he's going to back it up with the strategy around that kind of narrative.

[Todd Adair Coupland]

Okay. And then just lastly, with Michel coming on board, I accept your points on his expertise in 5G and IP. So the takeaway there is WiLAN is definitely still a central piece given the patents that can still be harvested over time. Is that the way to think about that?

[John Kendall Gillberry, Independent Chairman]

I think it is. I think that WiLAN has proven itself time and time again to be an interesting business that generates revenue, earnings and cash flow that we still don't get what anybody would expect to see in terms of respect from the marketplace out of it, but it is a significant driver and engine that can fuel growth for the bigger enterprise, if you will, of Quarterhill.And yes, so -- and I do think that there's some very interesting things happening in the world of 5G. And where we've been able to make some significant revenue and earnings in WiLAN in the past, we can see that opportunity repeating -- potentially repeating itself in the future if we stay current in terms of our licensing strategy -- acquisition portfolio licensing strategy. And Michel will be very, very valuable in helping us sort of navigate those waters.

[Operator]

This concludes the analyst Q&A and Quarterhill's Q1 2020 Financial Results Conference Call. You may now disconnect your line. Thank you.

[John Kendall Gillberry, Independent Chairman]

Thank you.

[David Cortens, Interim Chief Financial Officer]

Thank you.

[John Kendall Gillberry, Independent Chairman]

Bye-bye.

[David Cortens, Interim Chief Financial Officer]

Bye-bye.