Technology -- Communications -- Communications Technology

POST STRATEGIC REVIEW UPDATE

Investment recommendation

WiLAN recently concluded a review of strategic alternatives kicked off in

October. Despite interest, the company’s board has decided that the

offers fell short of valuing the company appropriately and has directed

management to shift the business plan to focus on reduced risk with

improved profitability and a more aggressive return of cash to investors.

With the announcement, WiLAN is increasing its dividend 25% and

plans to put a 10% buyback in place. We reiterate our SPECULATIVE

BUY rating and C$4.75 target based on EV of 7x C2015E EBITDA.

Investment highlights

 We see value in WIN shares given: 1) a mandate to return cash to

shareholders via a ~6% dividend yield and 10% share buyback, 2)

support for cash flow driven by reduced litigation and patent

maintenance, 3) a 5+ year backlog worth ~$300M with potential for

growth; and 4) a robust balance sheet with cash of $1.18/share.

 WiLAN plans to adjust its operating model by 1) shifting to a larger

number of smaller licensing deals instead of broad portfolio deals,

2) de-risking through sharing of licensing risk with patent portfolio

partners in new verticals, 3) reducing litigation cost with contingent

fees and a higher litigation threshold and 4) pruning the portfolio of

4,500 patents to a more focused 2,500.

 To assure investors of its longer-term opportunity set, WiLAN has

established a roadmap to double its revenue and increase GAAP

earnings to above $0.30 per share by 2018.

Valuation

WiLAN currently trades at 3.8x C2014E EV/EBITDA and 6.3x adj. EPS,

at a discount to the peer average of 7.3x and 18x. As described within,

we believe that the value of WiLAN’s patent portfolio, discounted $300M

backlog and current cash balance provides support for our target.

Following the conclusion of the strategic review, we are removing

WiLAN from our Focus List.