Mr. Jim Skippen reports
WILAN REPORTS FOURTH QUARTER AND FISCAL YEAR 2012 FINANCIAL RESULTS; COMPANY GENERATES ADJUSTED EARNINGS OF $41.8 MILLION OR 47 PERCENT OF REVENUE; ANNUAL DIVIDEND INCREASED 14 PERCENT TO CDN $0.16 PER SHARE
Wi-LAN Inc. has released its financial results for the fourth quarter and fiscal year 2012 ended Dec. 31, 2012. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.
Fourth-quarter 2012 highlights:
- Revenues of $21.2-million, exceeding the company's guidance of $20.7-million;
- Adjusted earnings of $7.0-million, or six cents per share;
- Initiated litigation against Alcatel-Lucent, Apple, Ericsson, HTC, LG,
Research in Motion, Sierra Wireless and Toshiba;
- Increased the quarterly dividend to four Canadian cents per common share.
Fiscal-year 2012 highlights:
- Revenues of $88.0-million;
- Adjusted earnings of $41.8-million, or 34 cents per share;
- Generally accepted accounting principles earnings, including $31.1-million in expenses related to the 6-per-cent extendible convertible unsecured subordinated debentures
financing, amounted to a loss of $14.5-million, or 12
cents per share on a basic level, as compared with GAAP earnings of $31.8-million, or 26 cents per share on a basic level, in the same period last
year;
- Acquired patent portfolios from Siemens AG and Alvarion Ltd.;
- Signed licensing partnerships with two patent owners, including Sensio
Technologies, bringing total number of partners signed to eight;
- Generated $34.0-million in cash from operations;
- Returned $30.3-million to shareholders in dividend and share buyback
payments;
- Held cash and cash equivalents and short-term investments of $176.9-million at Dec. 31, 2012.
"Our efforts and accomplishments in 2012 advanced key strategies that we believe will drive Wi-LAN's future growth," said Jim Skippen, president and chief executive officer. "The sustainable growth of the company's business demands a disciplined licensing strategy and one that focuses on reaching the right agreements for the company over the long term. We reached agreements with eight companies in 2012 that are expected to generate significant future revenues."
Added Mr. Skippen: "As part of the company's overall strategy, we are focused on increasing the number of portfolios that we can license. In 2012, Wi-LAN acquired valuable portfolios from technology leaders Siemens AG and Alvarion Ltd. and continued generating patents through the company's own research efforts. Our Gladios partnership efforts secured their first licence agreement for partner 01Communique, and the company's roster of Gladios partners has now increased to 12.
"Our solid balance sheet with over $176-million in cash and the company's positive cash flow with adjusted earnings of over $41-million or 47 per cent of revenues in 2012, gives us a strong financial foundation upon which to continue building the company's business. Wi-LAN's financial strength enabled the company to return over $14-million to shareholders in dividend payments in 2012 and gave the board the confidence to increase the company's annual dividend by over 14 per cent to 16 cents in 2013."
Eligible dividend
The board of directors has declared an eligible dividend of four Canadian cents per common share to be paid on April 5, 2013, to shareholders of record on March 22, 2013.
Fourth-quarter and fiscal-year 2012 revenue review
In the three-month period ended Dec. 31, 2012, Wi-LAN generated revenues of $21.2-million, as compared with $24.2-million in the three-month period ended Dec. 31, 2011. In the 12-month period ended Dec. 31, 2012, Wi-LAN generated revenues of $88.0-million, as compared with $105.8-million in the 12-month period ended Dec. 31, 2011. The decrease in revenue compared with the prior-year periods is primarily attributable to the timing of fixed payment amounts as a result of the significant licence agreements signed during the first quarter of 2011, some of which required payments that were one-time in nature and some of which had more significant upfront payments.
For the 12-month period ended Dec. 31, 2012, the top 10 licensees accounted for 83 per cent of revenues, whereas the top 10 accounted for 77 per cent of revenues in the 12-month period ended Dec. 31, 2011.
Fourth-quarter and fiscal-year 2012 operating expense review
Cost of revenue comprises patent licensing expenses, which include royalty obligations, cost of patents sold through brokerage activities, employee related costs and other costs incurred in conducting licence negotiations, as well as litigation and amortization expense related to acquired patents. Litigation and amortization expense is not necessarily variable with revenues. Patent licensing expenses are predominately employee-related costs and therefore are not directly variable with revenues. Wi-LAN also includes, as a cost of revenue, any costs related to sourcing new patent portfolios or developing new strategic partnerships.
In the three-month period ended Dec. 31, 2012, cost of revenue totalled $16.6-million as compared with $38.0-million in the three-month period ended Dec. 31, 2011. For the 12-month period ended Dec. 31, 2012, cost of revenues totalled $55.5-million as compared with $72.5-million in the same period last year. The decrease in expenses is primarily attributable to a decrease in the success fee partially offset by an increase in litigation expenses and amortization expense as a result of patent acquisitions completed during fiscal 2011 and 2012.
For the three months ended Dec. 31, 2012, litigation expenses amounted to $8.8-million compared with $2.6-million for the same period last year. For the 12 months ended Dec. 31, 2012, litigation expenses amounted to $25.6-million compared with $17.5-million for the same period last year. The increase in litigation expenses over the prior-year periods is partially attributable to an increased level of effort in patent infringement litigations, including preparations for two Markman hearings that are scheduled to take place in March, 2013, and April, 2013, respectively, and preparations for a trial that is scheduled to begin in April, 2013.
Marketing, general and administration expenses represent the cost of corporate services, including facilities, executive management, finance, corporate legal, human resources, office administration, marketing and communications, information technology, and all costs associated with being a public company. In the fourth quarter ended Dec. 31, 2012, MG&A expenses amounted to $3.1-million as compared with $10.2-million in the fourth quarter ended Dec. 31, 2011. For the fiscal year ended Dec. 31, 2012, MG&A totalled $12.9-million as compared with $20.3-million in the same period last year. The decrease in spending for the 12 months ended Dec. 31, 2012, is primarily attributable to a decrease in incentive and commission costs partially offset by an increase in staff costs.
Fourth-quarter and fiscal-year 2012 earnings review
In the fourth quarter ended Dec. 31, 2012, Wi-LAN generated adjusted earnings of $7.0-million or six cents per share as compared with $17.8-million, or 14 cents per share, in the comparative period. In the fiscal year ended Dec. 31, 2012, Wi-LAN generated adjusted earnings of $41.8-million or 34 cents per share as compared with $71.5-million, or 58 cents per share, in the comparative period. The decrease in adjusted earnings between the reporting periods is primarily attributable to lower revenues and higher investment in litigation.
The company's GAAP earnings amounted to a loss of $2.1-million, or two cents per share on a basic level, in the three-month period ended Dec. 31, 2012, as compared with a GAAP loss of $5.6-million, or five cents per share on a basic level, in the same period last year.
In the 12-month period ended Dec. 31, 2012, the company generated a GAAP loss of $14.5-million, or 12 cents per share on a basic level. This included $31.1-million in expenses related to the debenture of which $25.5-million was non-cash expense.
In the 12-month period ended Dec. 31, 2011, the company generated GAAP earnings of $31.8-million, or 26 cents per share on a basic level. This included debenture financing costs which, after amortization of accretion of debt discount, a non-cash expense of $41.7-million, extinguishment of the conversion feature, a non-cash gain, of $66.7-million and amortization of financing costs, consisting of commissions and professional service fees of $4.2-million, amounted to a net gain of $20.7-million.
Fourth-quarter and fiscal-year 2012 balance sheet and cash flow review
At Dec. 31, 2012, the company's net cash, comprising cash and cash equivalents and short-term investments, totalled $176.9-million, representing a decrease of $256.8-million from the net cash position at Dec. 31, 2011. The decrease is primarily attributable to the retirement of the debenture, the acquisition of patents and other intangibles totalling $25.4-million, the returning of $30.3-million to shareholders in dividend and share buyback payments, partially offset by $34.0-million in cash generated from operations. The company's cash equivalents and short-term investments include T-bills, term deposits and GICs.
During the fourth quarter ended Dec. 31, 2012, the company generated $17.2-million of cash from operations and returned $4.2-million to shareholders in dividend payments.
First-quarter 2013 financial guidance
For the first quarter 2013 ending March 31, 2013, the company expects revenue to be at least $18.1-million. This revenue guidance does not include the potential impact of any new agreements that may be signed during the balance of the first quarter of 2013 or the potential impact of any royalties identified in audits conducted by the company. Operating expenses for the first quarter are expected to be in the range of $18.7-million to $20.4-million of which $13.0-million to $14.4-million is expected to be litigation expense. For the first quarter of 2013, and assuming no additional agreements are signed, adjusted earnings are expected to be between a loss of $2.2-million and break-even.
Conference call information -- March 6, 2013 -- 10 a.m. ET
Wi-LAN will conduct a conference call to discuss its financial results on March 6 at 10 a.m. Eastern Time. Mr. Skippen and chief financial officer Shaun McEwan will be on the call.
Calling information
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 accessible by telephone until 11:59 p.m. ET on May 8, 2013.
Replay number (toll-free): 1-877-660-6853
Replay number (international): 1-201-612-7415
Replay passcode (conference ID No.): 408442
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of U.S. dollars, except per share amounts)
Three months Three months 12 12
ended ended months ended months ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2012 2011 2012 2011
Revenue
Royalties $ 21,183 $ 24,224 $ 87,960 $ 104,813
Brokerage - - - 996
-------------- -------------- -------------- --------------
Total revenue $ 21,183 $ 24,224 $ 87,960 $ 105,809
-------------- -------------- -------------- --------------
Operating
expenses
Cost of
revenue 16,587 37,993 55,503 72,467
Research and
development 2,263 2,523 8,887 7,792
Marketing,
general and
administration 3,067 10,226 12,858 20,294
Realized
foreign
exchange
(gain) loss 114 (656) 22 (1,958)
Unrealized
foreign
exchange
(gain) loss 247 (6,833) (5,213) 2,997
Transaction
costs - 1,799 - 3,044
Restructuring
charges - - 418 -
-------------- -------------- -------------- --------------
Total
operating
expenses 22,278 45,052 72,475 104,636
-------------- -------------- -------------- --------------
Earnings (loss)
from operations (1,095) (20,828) 15,485 1,173
Investment
income 212 2,626 1,277 5,654
Interest
expense (121) (3,410) (1,247) (4,218)
Debenture
financing,
net - 16,403 (31,138) 20,747
-------------- -------------- -------------- --------------
Earnings (loss)
before income
taxes (1,004) (5,209) (15,623) 23,356
-------------- -------------- -------------- --------------
Provision for
(recovery of)
income tax
expense
Current 420 643 3,480 3,275
Deferred 695 (234) (4,583) (11,716)
-------------- -------------- -------------- --------------
1,115 409 (1,103) (8,441)
-------------- -------------- -------------- --------------
Net earnings
(loss) $ (2,119) $ (5,618) $ (14,520) $ 31,797
============== ============== ============== ==============
Other
comprehensive
income
Cumulative
translation
adjustment - - - (9,830)
-------------- -------------- -------------- --------------
Comprehensive
income (loss) (2,119) (5,618) (14,520) 21,967
-------------- -------------- -------------- --------------
Earnings (loss)
per share
Basic $ (0.02) $ (0.05) $ (0.12) $ 0.26
Diluted (0.02) (0.05) (0.12) 0.25
We seek Safe Harbor.
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