WiLAN Reports 2016 Second Quarter Financial Results

OTTAWA, CANADA -- (Marketwired) -- 07/28/16 -- WiLAN (TSX:WIN)(NASDAQ:WILN) today reported financial results for the three- and six-month periods ended June 30, 2016. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.

Q2 2016 Highlights

• Revenues of $16.0 million
• EBITDA* of $7.1 million, or $0.06 per basic share
• Cash balance increased to $103.7 million at June 30, 2016
• Returned $2.0 million to shareholders in dividend payments and buyback purchases
• Acquired a patent portfolio from SRI International covering technologies used for intelligent personal assistants in handsets and tablets
• Acquired patents from Barron Associates related to fitness tracking technology used in wearable devices
• Entered into partnerships with University of Waterloo and University of Saskatchewan

Year-to-Date 2016 Highlights

• Revenues of $46.1 million
• EBITDA* of $27.0 million, or $0.23 per basic share
• GAAP net earnings of $1.8 million, or $0.01 per basic share
• Returned $5.4 million to shareholders in dividend payments and buyback purchases

"Operational highlights in the quarter centered on the partnerships we signed with two of Canada's top Universities - the University of Waterloo and University of Saskatchewan - and on the patent acquisitions we made," said Jim Skippen, CEO of WiLAN. "The patents acquired from SRI International have a particularly noteworthy background since they were filed in connection with the development of the product that eventually became the SIRI voice-activated assistance program that is used in many Apple products."

Added Skippen, "As evidenced by our results so far in 2016, our financial performance can fluctuate quarter to quarter depending on the size and timing of new licenses. While this is a fact of life for every business in the patent industry, we believe we are firmly on track to continue growing over the long-term. Heading into the second half of 2016, we have 43 partners, 50 patent portfolios and more than 60 ongoing litigations, which collectively form a solid pipeline of license opportunities to drive future results."

Approval of Eligible Dividend

The Board of Directors declared an eligible quarterly dividend of CDN $0.0125 per common share to be paid on October 6, 2016, to shareholders of record on September 16, 2016.

Q2 and Year-to-Date 2016 Revenue Review

In the three month period ended June 30, 2016, WiLAN generated revenues of $16.0 million, compared with $35.0 million in the same period last year. In the six month period ended June 30, 2016, WiLAN generated revenues of $46.1 million, compared with $55.4 million in the same period last year.

The difference in revenue for both periods is primarily attributable to a greater level of fixed payment license agreements signed during the three month period ended June 30, 2015, and in particular, due to a large license agreement signed with Samsung in that period.

Q2 and Year-to-Date 2016 Operating Expense Review

Cost of revenue expenses

In the three month period ended June 30, 2016, cost of revenue totaled $16.1 million compared with $16.1 million in the same period last year. In the six month period ended June 30, 2016, cost of revenue totaled $34.1 million compared with $35.6 million in the same period last year.

The decrease in cost of revenue for the six month period ended June 30, 2016, is primarily attributable to a decrease in litigation expense partially offset by an increase in patent maintenance, prosecution, and evaluation costs, contingent partner payments and legal fees, and amortization expense. In general, patent licensing expenses are proportional to the breadth and depth of our licensing programs and should be expected to increase as we add programs to our business operations.

In the three month period ended June 30, 2016, litigation expenses were $0.6 million compared with $3.1 million in the same period last year. In the six month period ended June 30, 2016, litigation expenses amounted to $1.5 million compared with $9.4 million in the same period last year. The decrease in litigation expense for the three and six month periods ended June 30, 2016, is primarily due to an increase in shared risk fee arrangements with external legal counsel in comparison to the same period last year. The contingent-fee arrangements with external legal counsel are part of WiLAN's strategy to align incentives with its partners and to keep costs down.

Litigation expenses are expected to vary from period to period due to the level of litigation activities and shared risk fee arrangements in place at the time. The Company expects a decrease in litigation expenses in fiscal 2016 as a result of the expected level of litigation activities and corresponding contingent-fee arrangements.

Patent maintenance and prosecution expenses increased over the same period last year as a result of the higher number of patents and applications the Company currently maintains. The Company is actively working to reduce the number of non-core patents in its portfolio through a combination of strategic sales, lifetime licenses and, in certain cases, the abandonment or dedication to the public of several patents and applications.

Marketing, general, and administration expenses ("MG&A")

In the three month period ended June 30, 2016, MG&A expenses amounted to $2.8 million, or 17% of revenue, compared with $2.2 million, or 6% of revenue, in the same period last year. In the six month period ended June 30, 2016, MG&A expenses amounted to $5.4 million, or 12% of revenue, compared with $4.5 million, or 8% of revenue, in the same period last year. These costs will vary from period to period depending on the activities and initiatives undertaken at that time.

Research and development expenses ("R&D")

Restructuring activities, which commenced in October 2015, resulted in the elimination of WiLAN's R&D activities and, therefore, the Company does not expect to incur any expenses related to R&D in 2016. The Company does not expect the elimination of its R&D activities to have a material impact, if any, on its business activities.

Foreign Exchange

In the three month period ended June 30, 2016, WiLAN incurred a foreign exchange gain of $0.1 million compared with a negligible loss in the same period last year. In the six month period ended June 30, 2016, the Company incurred a foreign exchange gain of $0.3 million compared with a loss of $2.3 million in the same period last year.

The unrealized foreign exchange gains of $0.1 million and $0.3 million recognized in the three and six month periods ended June 30, 2016, respectively, resulted from the translation of monetary accounts, primarily cash and cash equivalents, short-term investments, dividends, and accounts payable, denominated in Canadian dollars to U.S. dollars. The change from last year is attributable to the decrease in the level of monetary accounts denominated in Canadian dollars and the Canadian dollar strengthening relative to the U.S. dollar.

EBITDA

In the three month period ended June 30, 2016, WiLAN generated EBITDA of $7.1 million, or $0.06 per basic share, compared with $25.2 million, or $0.21 per basic share, in the same period last year. In the six month period ended June 30, 2016, WiLAN generated EBITDA of $27.0 million, or $0.23 per basic share, compared with $29.8 million, or $0.25 per basic share, in the same period last year.

Net Earnings

In the three month period ended June 30, 2016, WiLAN's GAAP net loss was $3.2 million, or $(0.03) per basic share, compared with GAAP earnings of $11.0 million, or $0.09 per basic share, in the same period last year. In the six month period ended June 30, 2016, WiLAN's GAAP earnings were $1.8 million, or $0.01 per basic share, compared with GAAP earnings of $6.2 million, or $0.05 per basic share, in the same period last year.

Second Quarter 2016 Balance Sheet and Cash Flow Review

At June 30, 2016, the Company's cash, which is comprised of cash and cash equivalents and short-term investments, totaled $103.7 million, representing an increase of $1.8 million from the cash position at March 31, 2016, and an increase of $9.1 million from the cash position at December 31, 2015. The increase from December 31, 2015, is primarily attributable to $23.1 million of cash generated from operations, which was partially offset by the payment of dividends totaling $2.2 million, the repurchase of common shares under a normal course issuer bid totaling $3.1 million and patent acquisitions totaling $8.9 million which includes payments totaling $2.8 million for the repayment of patent finance obligations for patents acquired in 2013 and payments totaling $6.0 million for patents acquired in 2015.

Fiscal 2016 Financial Guidance

Cash operating expenses for the third quarter 2016 are expected to be in the range of $9.7 million to $11 million, of which $2.7 million to $3.1 million is expected to be litigation expense. These expenses exclude any contingent partner payments and contingent legal fees.