Mr. Shaun McEwan reports
WILAN REPORTS SECOND QUARTER 2014 FINANCIAL RESULTS
Wi-LAN Inc. has released its financial results for the second quarter of fiscal year 2014 ended June 30, 2014. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.
Second-quarter 2014 highlights:
- Revenues of $25.7-million, exceeding guidance of $19.4-million by 32 per cent;
- Adjusted earnings of $16.6-million, or 14 cents per basic share,
exceeding guidance of between $9.4-million and $10.5-million by nearly
60 per cent;
- Generally accepted accounting principles earnings of $5.6-million or five cents per basic share;
- Announced 25-per-cent increase to quarterly dividend;
- Signed licence agreements for wireless technology with Nokia Networks
and Archos S.A.;
- Entered licence agreement with Sony Corp. related to television
technology;
- Secured licence agreements for network management technology with two
U.S. wireless carriers;
- Signed significant partnership with industry-leading memory company;
- Diversified business with licensing partnerships in the automotive, data
networking, irrigation and medical technology markets;
- U.S. Patent Office and U.S. District Court confirm validity of Wi-LAN's
802 patent, which was at issue in the Apple case;
- Returned $4.3-million to shareholders in dividend payments.
"In the second quarter, we made significant progress in our ongoing efforts to increase the profitability and diversification of our business," said Jim Skippen, president and chief executive officer. "Strong revenues, driven in part by signed licence agreements with Nokia Networks and Sony, and the control of litigation expenses, contributed to the third straight quarter of positive GAAP earnings and adjusted earnings exceeding 55 per cent of revenue."
Added Mr. Skippen: "Licensing partnerships signed recently have established Wi-LAN in many new markets including the automotive, data networking, medical and semiconductor markets. In particular, we are very excited about the quality and value of a patent portfolio that a Wi-LAN subsidiary acquired from an industry-leading memory company in the second quarter. We are very pleased that the U.S. Patent Office, after conducting re-exam proceedings at the urging of certain defendants in our cases, has confirmed the validity of Wi-LAN's 802 patent. The 802 patent was filed by the founders of Wi-LAN and has been licensed to many parties."
Eligible dividend
The board of directors has declared an eligible dividend of five Canadian cents per common share to be paid on Oct. 3, 2014, to shareholders of record on Sept. 12, 2014.
Second-quarter 2014 revenue review
In the three-month period ended June 30, 2014, Wi-LAN generated revenues of $25.7-million, as compared with $19.9-million in the three-month period ended June 30, 2013. The increase in revenues is primarily attributable to the timing of fixed payment amounts as a result of the significant licence agreements signed during the 12 months ended Dec. 31, 2013, and the six months ended June 30, 2014, for which certain agreements contained higher fixed payments at the beginning of the licence agreement.
Second-quarter 2014 operating expense review
In the three-month period ended June 30, 2014, cost of revenue totalled $14.5-million as compared with $24.2-million in the comparative period. The decrease in expenses is primarily attributable to a decrease in litigation expense partially offset by an increase in amortization expense and patent maintenance, prosecution and evaluation expenses as a result of patent acquisitions completed during fiscal 2013, and compensation and benefits as a result of increased staffing levels.
For the three months ended June 30, 2014, litigation expenses amounted to $1.7-million compared with $14.5-million for the same period last year. This decrease in comparison with the same period last year is largely attributable to a decrease in the level of litigation activities and new shared risk fee arrangements entered into with the company's external counsel. Litigation expenses are expected to vary from period to period due to the variability of litigation activities and any contingent payments that may be required from licences signed in any particular quarter.
In the second quarter ended June 30, 2014, marketing,
general and
administration expenses amounted to $2.8-million as compared with $3.6-million in the second quarter ended June 30, 2013. The decrease in spending for the three and six months ended June 30, 2014, is primarily attributable to a decrease in compensation and benefits and stock-based compensation as a result of changes in staffing levels.
For the three months ended June 30, 2014, R&D expenses were $660,000 as compared with $692,000 in the same period last year. Although expenses declined slightly quarter over quarter, compensation and benefits increased during the quarter as a result of an increase in staffing levels.
Second-quarter 2014 earnings review
In the second quarter ended June 30, 2014, Wi-LAN generated adjusted earnings of $16.6-million or 14 cents per basic share as compared with a loss of $762,000 or 1 cent per basic share, in the comparative period. The increase in adjusted earnings for the second quarter of 2014 is primarily attributable to increased revenues and reduced litigation expenses.
The company's GAAP earnings amounted to earnings of $5.6-million, or five cents per share on a basic level, in the second quarter 2014, as compared with a GAAP loss of $7.6-million, or six cents per share on a basic level, in the same period last year.
Second-quarter 2014 balance sheet and cash flow review
At June 30, 2014, the company's cash, comprising cash and cash equivalents and short-term investments, totalled $140.1-million, representing an increase of $8.2-million from the cash position at Dec. 31, 2013. The increase is primarily attributable to $33.2-million of cash generated in operations partially offset by the payment of dividends totalling $8.8-million and payments related to patent acquisitions totalling $10.7-million. The company's cash equivalents and short-term investments include T-bills, term deposits and GICs.
Third-quarter 2014 financial guidance
For the third quarter 2014 ending Sept. 30, 2014, the company expects revenue to be at least $19.7-million. This revenue guidance does not include the potential impact of any additional reports yet to be received, new agreements that may be signed during the balance of the third quarter of 2014 or the potential impact of any royalties identified in audits conducted by the company. This guidance is provided prior to the completion of the first month of this fiscal quarter and as such, a number of reports that normally are submitted at or shortly after the month-end have yet to be received by the company.
Operating expenses for the third quarter are expected to be in the range of $9.7-million to $10.4-million of which $2.5-million to $3.2-million is expected to be litigation expense. For the third quarter of 2014, and assuming no additional agreements are signed, adjusted earnings are expected to be in the range of $9.4-million to $10.2-million.
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 licence agreements, the nature and extent of specific licences 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 targets for the three-month period ending Sept. 30, 2014, reflect the company's current business indicators and expectations and are subject to fluctuations in foreign currency exchange rates. Due to their nature, certain income and expense items, such as significant licence agreements with companies, brokerage opportunities, new litigation actions, contingent payments to licensing partners and litigation counsel that may be required from certain licences signed in any particular quarter, losses on asset impairments or realized foreign exchange losses cannot be accurately forecast. Accordingly, the company excludes forecasts of such items from its guidance. Actual revenues reported may exceed the revenue guidance provided due to the receipt of royalty reports, signing of new licence agreements and completion of licensee audits, all after the guidance is provided. Actual expenses incurred may exceed the expense guidance provided due, in part, to contingent payments to licensing partners and litigation counsel that may be required from certain licences signed during the quarter.
Wi-LAN's imperative is to negotiate the best possible licence as measured over the long term and accordingly, the timing of actual licence 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 -- July 30, 2014 -- 10 a.m. ET
Wi-LAN will conduct a conference call to discuss its financial results today at 10 a.m. Eastern Time. Mr. Skippen and chief financial officer Shaun McEwan will be on the call.
Calling information
A live audio webcast will be available on-line.
To access the call from Canada and the United States, dial 1-877-407-0782 (toll-free).
To access the call from other locations, dial 1-201-689-8567
(international).
Replay information
The call will be available on-line and accessible by telephone until 11:59 p.m. ET on Oct. 30, 2014.
Replay number (toll-free): 1-877-660-6853
Replay number (international): 1-201-612-7415
Conference ID: 13585851
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of U.S. dollars, except per share amounts)
Three months Three months Six months Six months
ended ended ended ended
June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Revenue
royalties $ 25,655 $ 19,941 $ 51,633 $ 38,310
Operating
expenses
Cost of revenue 14,472 24,172 29,102 45,445
Research and
development 660 692 1,268 1,499
Marketing,
general and
administration 2,810 3,612 5,742 6,373
Foreign
exchange
(gain) loss (1,112) 1,266 277 2,299
------------- ------------- ------------- -------------
Total operating
expenses 16,830 29,742 36,389 55,616
------------- ------------- ------------- -------------
Earnings (loss)
from operations 8,825 (9,801) 15,244 (17,306)
Investment
income 143 188 278 383
------------- ------------- ------------- -------------
Earnings (loss)
before income
taxes 8,968 (9,613) 15,522 (16,923)
Provision for
(recovery of)
income tax
expense
Current 1,338 1,293 2,780 2,594
Deferred 2,031 (3,274) 3,174 (5,451)
------------- ------------- ------------- -------------
3,369 (1,981) 5,954 (2,857)
------------- ------------- ------------- -------------
Net and
comprehensive
income (loss) $ 5,599 $ (7,632) $ 9,568 $ (14,066)
============= ============= ============= =============
Earnings (loss)
per share
Basic $ 0.05 $ (0.06) $ 0.08 $ (0.12)
Diluted 0.05 (0.06) 0.08 (0.12)
We seek Safe Harbor.
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