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Press release from Marketwire

WiLAN Reports Second Quarter 2012 Financial Results

Company increases quarterly dividend

Thursday, August 02, 2012

WiLAN Reports Second Quarter 2012 Financial Results06:30 EDT Thursday, August 02, 2012OTTAWA, CANADA--(Marketwire - Aug. 2, 2012) - Wi-LAN Inc. ("WiLAN" or the "Company") (TSX:WIN)(NASDAQ:WILN) today announced financial results for the second quarter of fiscal year 2012 ended June 30, 2012. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.Second Quarter 2012 HighlightsIncreased quarterly dividend by 16%. Revenues of $20.8 million, exceeding our guidance of $19.7 million. Adjusted earnings* of $10.1 million, or 8 cents per share, exceeding our guidance of $9.1 million. Three licenses signed including one with Bomgar Corporation, the first license signed by WiLAN and partner 01 Communique, which settled litigation launched in January 2012. Markman order issued in 3GPP litigation. United States Patent and Trademark Office confirmed the validity of all the claims in WiLAN's U.S. Patent No. 5,828,402 and allowed more than 30 new claims. Returned $6.9 million to shareholders in dividend and share buyback payments. Generated $12.3 million in cash from operations; held cash and cash equivalents and short-term investments of $191.1 million at June 30, 2012. "WiLAN delivered strong revenue and adjusted earnings in the second quarter of 2012," said Jim Skippen, President & CEO. "The Company signed three new licenses during the quarter which contributed to our revenue exceeding guidance. Our adjusted earnings of $10.1 million or 48% of revenue, also exceeded guidance and demonstrates the profitability of our business model."Added Skippen, "With the strong financial performance of our business and the confidence that we have in the future, we are investing more of our free cash flow at this time in dividend payments to shareholders. As financial conditions permit, we plan to continue to consider the possibility of future dividend increases on a regular basis.""We are very pleased that our Gladios IP team, and partner 01Communique, signed their first license. The agreement, with Bomgar Corporation, is an important step in what we believe will be a very successful licensing program. Another positive development in our business was the validation of our U.S. Patent No. 5,828,402 by the United States Patent and Trademark Office strengthens our Digital TV licensing program," said Skippen.Eligible DividendThe Board of Directors has declared an eligible dividend of CDN $0.035 per common share to be paid on October 5, 2012 to shareholders of record on September 14, 2012.Second Quarter 2012 Revenue ReviewIn the three month period ended June 30, 2012, WiLAN generated revenues of $20.8 million, as compared to $27.4 million in the three month period ended June 30, 2011. The increase over guidance is due to the signing of additional license agreements with payments occurring in the quarter. For the three month period ended June 30, 2012, the top 10 licensees accounted for 86% of revenues, whereas the top 10 accounted for 79% of revenues in the three month period ended June 30, 2011.Second Quarter 2012 Operating Expense ReviewIn the three month period ended June 30, 2012, cost of revenue expenses totaled $7 million as compared to $6.4 million in the three month period ended June 30, 2011. The increase in expenses for the three and six months ended June 30, 2012 is primarily attributable to an increase in compensation costs as a result of increased staffing levels, and amortization expense as a result of patent acquisitions we completed during fiscal 2011, partially offset by a decrease in third-party royalties.Three months endedSix months endedJune 30, 2012June 30, 2011June 30, 2012June 30, 2011Cost of revenue$864$884$2,157$1,744Amortization of patents5,9225,32211,85110,328Stock-based compensation236167460293$7,022$6,373$14,468$12,365Research and Development costs, inclusive of the costs related to the management and maintenance of the Company's patent portfolio as well as the costs of its research efforts increased over the comparable period last year principally as a result of increased level of staff and increased costs associated with the size and breadth of our patent portfolio.Three months endedSix months endedJune 30, 2012June 30, 2011June 30, 2012June 30, 2011Research and development$1,874$1,489$4,277$2,778Depreciation1125121675Stock-based compensation(6)97258247$1,980$1,637$4,751$3,100The $4.8 million invested in research and development in the first six months of fiscal 2012 included patent administration cash expenses of $2.1 million and technical research and product development cash expenses of $2.2 million spent across two separate technology and product development initiatives. The investment in technical research and development in the first six months of 2012 was more than double the investment made in the comparison period last year.Considering the significantly higher investment that would be required to move the product development initiatives towards becoming full-fledged product companies, WiLAN made the decision in the second quarter of 2012 to streamline our efforts to focus on technical research for the purpose of generating patents. This change reduced the number of staff working on technical research and product development by approximately 50%, which resulted in a restructuring charge of approximately $418,000 being incurred in the second quarter. With this change, the Company expects its technical research expenses to remain below $2 million per year for the foreseeable future.Marketing, general and administrative ("MG&A") expenses represent the cost of litigation and all corporate services. For the three months ended June 30, 2012, MG&A expenses amounted to $9.2 million or 44% of revenues as compared to $5.7 million or 21% of revenue for the three months ended June 30, 2011. The increase in spending for the three months ended June 30, 2012 is primarily attributable to an increase in litigation expenses partially offset by a decrease in incentive costs.Three months endedSix months endedJune 30, 2012June 30, 2011June 30, 2012June 30, 2011Marketing, general and administrative costs$2,353$2,177$4,810$3,911Litigation expense5,8392,2769,69713,642Incentive costs-548-1,072Asset write-off related to restructuring209-209-Depreciation137109272199Stock-based compensation6465811,213991$9,184$5,691$16,201$19,815For the three months ended June 30, 2012, litigation expenses amounted to $5.8 million compared to $2.3 million for the same period last year. The increase in litigation expenses is attributable to increased level of discovery activities in patent infringement litigations in the U.S. District Court for the Eastern District of Virginia, prior to its settlement, and the U.S. District Court for the Southern District of Florida, extensive preparation for the claims construction hearing, that took place on April 26, 2012, in our action against eight major companies including Alcatel Lucent USA Inc. and HTC Corporation before the U.S. District Court for the Eastern District of Texas with respect to four of WiLAN's U.S. patents, and activity in the appeal of the summary judgment ruling in our litigation involving LG.At June 30, 2012, the Company's net cash, comprised of cash and cash equivalents and short-term investments, totaled $191.1 million, representing a decrease of $242.6 million from the net cash position at December 30, 2011. The decrease is primarily attributable to the repayment of the remaining aggregate principal amount of the outstanding Debentures and accrued and unpaid interest totaling $233.2 million and the repurchase of common shares under the normal course issuer bids totaling $14.6 million. The Company's cash equivalents and short-term investments include T-bills, term deposits and GICs.During the second quarter ended June 30, 2012, the Company generated $12.3 million of cash from operations and returned $6.9 million to shareholders in share buyback and dividend payments.Second Quarter 2012 Earnings ReviewIn the second quarter ended June 30, 2012, WiLAN generated adjusted earnings of $10.1 million or 8 cents per share as compared to $20.8 million, or 17 cents per share, in the comparative period.The Company's GAAP earnings amounted to a loss of $0.1 million, or nil per share on a basic level, in the three month period ended June 30, 2012, as compared to GAAP earnings of $10.3 million, or 8 cents per share on a basic level, in the same period last year.The decrease in adjusted and GAAP earnings between the reporting periods is primarily attributable to lower revenues and higher investment in litigation for the purpose of driving future revenue growth.Third Quarter 2012 Financial GuidanceFor the third quarter 2012 ending September 30, 2012, the Company expects revenue to be at least $19.9 million. This revenue guidance does not include the potential impact of any new agreements that may be signed during the balance of the third quarter of 2012 or the potential impact of any royalties identified in audits conducted by the Company. Operating expenses for the third quarter are expected to be in the range of $10.6 million to $12.6 million of which $5.5 million to $7.0 million is expected to be litigation expense. For the third quarter of 2012, and assuming no additional agreements are signed, adjusted earnings are expected to be in the range of $7.5 million to $9.5 million.The above statements are forward-looking and actual results may differ materially. The "Forward-looking Information" section at the end of this press release provides information on various risks and uncertainties that the Company faces. Additional information identifying risks and uncertainties relating to the Company's business are discussed in greater detail in the "Risk Factors" section of WiLAN's AIF for the 2011 fiscal year dated March 9, 2012 (copies of which may be obtained at www.sedar.com or www.sec.gov). Financial guidance is provided to assist investors and other interested parties in understanding WiLAN's performance. The reader is cautioned that using this information for any other purpose may be inappropriate.The Company's revenues result primarily from the licensing of intellectual property which, by its very nature, is directly affected by the timing of the closure of license agreements, the nature and extent of specific licenses including actual rates, product sales by licensees which can be subject to seasonality as well as overall market demands and the timeliness of the receipt of licensee royalty reports. In addition, certain revenues may be of a one-time nature.The above guidance for the three month period ended September 30, 2012 reflects our current business indicators and expectations and is subject to fluctuations in foreign currency exchange rates. Due to their nature, certain income and expense items, such as significant settlements from companies involved in current enforcement actions, brokerage opportunities, new significant litigation or defense actions that could arise during the quarter, losses on asset impairments or realized foreign exchange losses cannot be accurately forecast. Accordingly, we exclude forecasts of such items from our guidance. Actual revenues reported may exceed the guidance provided due to the receipt of royalty reports, signing of new license agreements and completion of licensee audits, all after the guidance is provided.WiLAN's imperative is to negotiate the best possible license as measured over the long-term and accordingly, the timing of actual license signings may vary from that forecasted. Actual results may vary materially from the guidance provided as a consequence of the above noted factors.Conference Call Information - August 2, 2012 - 10:00 AM ETWiLAN will conduct a conference call to discuss its financial results today at 10:00 AM Eastern Time (ET). WiLAN CEO, Jim Skippen and CFO, Shaun McEwan will be on the call.Calling InformationA live audio webcast will be available at http://www.investorcalendar.com/IC/CEPage.asp?ID=169149To access the call from Canada and U.S., dial 1.877.407.0782 (Toll Free) To access the call from other locations, dial 1.201.689.8567 (International) Replay InformationThe call will be available at http://www.investorcalendar.com/IC/CEPage.asp?ID=169149 and accessible by telephone until 11:59 PM ET on November 2, 2012.Replay Number (Toll Free): 1.877.660.6853 Replay Number (International): 1.201.612.7415 Replay passcodes (both required for playback)Account #: 286 Conference ID #: 397538 About WiLANWiLAN, founded in 1992, is a leading technology innovation and licensing company. WiLAN has licensed its intellectual property to over 260 companies worldwide. Inventions in our portfolio have been licensed by companies that manufacture or sell a wide range of communication and consumer electronics products including 3G and 4G handsets, Wi-Fi-enabled laptops, Wi-Fi and broadband routers, xDSL infrastructure equipment, cellular base stations and digital television receivers. WiLAN has a large and growing portfolio of more than 3,000 issued or pending patents. For more information: www.wilan.com.Note(*) WiLAN follows GAAP in preparing its interim and annual financial statements. Adjusted Earnings are earnings from continuing operations before stock-based compensation expense, depreciation and amortization expense, interest expense, unrealized foreign exchange gains or losses, provision for income taxes and certain other non-cash, one-time, or non-recurring charges.Forward-looking InformationThis news release contains forward-looking statements and forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and other United States and Canadian securities laws. The phrases "will be", "strengthens", "to be", "Company expects", "are expected", "may be", "potential impact" and similar terms and phrases are intended to identify these forward-looking statements. Forward-looking statements and forward-looking information are based on estimates and assumptions made by WiLAN in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that WiLAN believes are appropriate in the circumstances. Many factors could cause WiLAN's actual performance or achievements to differ materially from those expressed or implied by the forward-looking statements or forward-looking information. Such factors include, without limitation, the risks described in WiLAN's March 9, 2012 annual information form for the year ended December 31, 2011 (the "AIF"). Copies of the AIF may be obtained at www.sedar.com or www.sec.gov. WiLAN recommends that readers review and consider all of these risk factors and notes that readers should not place undue reliance on any of WiLAN's forward-looking statements. WiLAN has no intention and undertakes no obligation to update or revise any forward-looking statements or forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.All trademarks and brands mentioned in this release are the property of their respective owners.Wi-LAN Inc.Condensed Consolidated Statements of Operations(Unaudited)(in thousands of United States dollars, except share and per share amounts)Three months endedJune 30, 2012Three months ended June 30, 2011Six months endedJune 30, 2012Six months ended June 30, 2011RevenueRoyalties$20,791$27,419$45,484$53,764Brokerage----Total Revenue$20,791$27,419$45,484$53,764Operating expensesCost of revenue7,0226,37314,46812,365Research and development1,9801,6374,7513,100Marketing, general and administration9,1845,69116,20119,815Realized foreign exchange (gain) loss(26)64(20)404Unrealized foreign exchange (gain) loss1,105(373)(4,271)(2,862)Restructuring charges418-418-Total operating expenses19,68313,39231,54732,822Earnings from operations1,10814,02713,93720,942Investment income182465904782Interest expense--(1,126)-Debenture financing, net--(31,138)-Earnings (loss) before income taxes1,29014,492(17,423)21,724Provision for (recovery of) income tax expenseCurrent6977171,9221,724Deferred7423,476(4,785)(10,098)1,4394,193(2,863)(8,374)Net earnings (loss)(149)10,299(14,560)30,098Other comprehensive incomeCumulative translation adjustment---(9,830)Comprehensive income (loss)$(149)$10,299$(14,560)$20,268Earnings (loss) per shareBasic$0.00$0.08$(0.12)$0.25Diluted$0.00$0.08$(0.12)$0.25Weighted average number of common sharesBasic121,338,319122,391,639121,577,498119,751,247Diluted121,338,319124,821,577121,577,498122,365,607Wi-LAN Inc.Condensed Consolidated Balance Sheets(Unaudited)(in thousands of United States dollars)As atJune 30, 2012December 31, 2011Current assetsCash and cash equivalents$189,571$432,186Short-term investments1,5621,524Accounts receivable1,1092,153Prepaid expenses and deposits1,505290Deferred financing costs-1,716Deferred tax asset1,887-195,634437,869Furniture and equipment, net1,4031,769Patents and other intangibles, net106,971118,645Deferred tax asset19,13218,086Goodwill12,62312,623$335,763$588,992Current liabilitiesAccounts payable and accrued liabilities$18,795$22,169Due to related party-7,102Current portion of patent finance obligation2,5172,458Deferred tax liability-1,851Debentures-203,85521,312237,435Patent finance obligation3,9295,189Success fee obligation11,86415,21237,105257,836Shareholders' equityCapital stock430,133436,606Additional paid-in capital9,93814,061Accumulated other comprehensive income16,22516,225Deficit(157,638)(135,736)298,658331,156$335,763$588,992Wi-LAN Inc.Condensed Consolidated Statements of Cash Flow(Unaudited)(in thousands of United States dollars)Three months endedJune 30, 2012Three months ended June 30, 2011Six months endedJune 30, 2012Six months ended June 30, 2011Cash generated from (used in)OperationsNet earnings (loss)$(149)$10,299$(14,560)$30,098Non-cash itemsStock-based compensation8768451,9321,531Depreciation and amortization6,1715,48212,33710,602Foreign exchange (gain) loss798(527)1,131(3,205)Deferred financing costs--1,746-Accretion of debt discount--25,175-Disposal of assets209-209-Deferred income tax recovery7423,476(4,785)(10,098)8,64719,57523,18528,928Change in non-cash working capital balancesAccounts receivable1,680(980)1,044(1,738)Prepaid expenses and deposits(553)(222)(1,215)(499)Accounts payable and accrued liabilities2,5421,9612,4022,588Due to related party--(7,102)-Cash generated from operations12,31620,33418,31429,279FinancingProceeds on sale of common shares, net---72,035Dividends paid(3,679)(3,108)(6,720)(4,407)Success fee obligation(9,745)-(9,745)-Repayment of convertible debentures--(233,247)-Common shares repurchased under normal course issuer bid(3,171)-(14,638)-Common shares issued for cash on the exercise of options9792,8641,9944,970Common shares issued for cash from Employee Share Purchase Plan1168711687Cash (used in) generated from financing(15,500)(157)(262,240)72,685InvestingSale (purchase) of short-term investments32(2,330)(38)(2,846)Purchase of furniture and equipment(222)(445)(331)(953)Purchase of patents(690)(8,688)(1,376)(9,367)Cash used in investing(880)(11,463)(1,745)(13,166)Foreign exchange gain (loss) on cash held in foreign currency(798)5273,0563,205Net cash and cash equivalents (used in) generated in the period(4,862)9,241(242,615)92,003Cash and cash equivalents, beginning of period194,433165,398432,18682,636Cash and cash equivalents, end of period$189,571$174,639$189,571$174,639Wi-LAN Inc.Reconciliation of GAAP Net Earnings to Adjusted Earnings(Unaudited)(in thousands of United States dollars, except share and per share amounts)Three months endedJune 30, 2012Three months ended June 30, 2011Six months endedJune 30, 2012Six months ended June 30, 2011Net earnings (loss) under GAAP$(149)$10,299$(14,560)$30,098Adjusted for:Unrealized foreign exchange gain1,105(373)(4,271)(2,862)Depreciation and amortization6,1715,48212,33810,602Stock based compensation8768451,9311,531Restructuring charges418-418-Asset write-off related to restructuring209-209-Interest expense--1,126-Debenture financing, net--31,138-Income tax expense (recovery)1,4394,193(2,863)(8,374)Adjusted earnings$10,069$20,446$25,466$30,995Adjusted earnings per basic share$0.08$0.17$0.21$0.26Weighted average number of common sharesBasic121,338,319122,391,639121,577,498119,751,247Diluted121,338,319124,821,577121,577,498122,365,607FOR FURTHER INFORMATION PLEASE CONTACT: Kathryn HughesFor Media inquiries, please contact:Director, Marketing & CommunicationsO: 613.688.4897C: 613.898.6781khughes@wilan.comORShaun McEwanFor Investor inquiries, please contact:Chief Financial OfficerO: 613.688.4898C: 613.697.7159smcewan@wilan.comORDirector, Investor RelationsTyler BurnsO: 613.688.4330C: 613.697.0367tburns@wilan.comwww.wilan.com