WIN reported Q114 revenue of $26.0M (GMCI: $23.1M, Cons: $23.4M), adj. earnings of $16.8M (GMCI: $14.0M, Cons: $11.5M) and adj. EPS of $0.14 (GMCI: $0.12, Cons: $0.10).

FQ114 RESULTS| WIN reported first quarter revenue of $26.0M, up 41% y/y due to higher fixed-payments from license agreements. Cost of revenue was down 31% y/y ($14.6M vs. $21.3M) due to a decrease in litigation expenses, which amounted to $1.7M in the quarter compared to $11.7M in Q113. The decrease in litigation expenses was primarily attributable to a decrease in litigation activities and a reduction in legal fees. We note that patent management expenses (patent maintenance, prosecution, and evaluation expenses) will now be included in cost of sales, which was previously recognized as part of R&D expenses.

At March 31, 2014, WIN had cash and short-term investments of $142.4M. The increase in cash y/y (total of $10.5M) is primarily attributable to the inflow of $21.4M from CFO, while offset by returning $4.5M to shareholders in dividend payments and the acquisition of patents amounting to $5.7M.

The Board declared a quarterly dividend of C$0.04 per common share. The record date for the dividend is June 13, 2014, and the payment date is July 3, 2014. We believe the dividend is sustainable given WIN’s track record of generating positive cash flow, and we look for future dividend increases.

Q214E GUIDANCE| WIN management sees Q214E revenue of at least $19.4M, operating expenses of $9.0-10.2M (including $1.4-2.5M in litigation expenses), and adjusted earnings in the range of $9.4-10.5M. The revenue guidance is provided prior to the completion of the second 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 WIN. We are looking for Q214E revenue of $21.7M, adj. EBITDA of $13.8M, and adj. EPS of $0.12.

STRATEGIC REVIEW| On October 30, 2013, WIN’s Board of Directors initiated a process to consider strategic alternatives to enhance shareholder value. This includes changes to WIN’s dividend policy or other forms of return of capital to shareholders, the acquisition or disposition of assets, joint ventures, the sale of the Company, alternative operating models or continuing with the current business plan, among other potential alternatives. A timetable was not set for the end of the review process, but WIN is running the company as if it were "business as usual". We believe likely acquirers of WIN could be Sterling Partners (acquired Mosaid), Intellectual Ventures (Private), Rockstar (Private – acquired Nortel patents), InterDigital (IDCC-US, Not Rated), and Acacia Research (ACTG-US, Not Rated).

RECENT EVENTS

PATENT VALIDATION| In connection with WIN’s October 2013 lawsuit against Apple (AAPL-US; Not Rated), US District Judge Rodney Gilstrap reversed the jury’s invalidity ruling, stating that claims 1 and 10 of WIN’s US patent #RE37,802 ("the 802 patent") were wrongly invalidated by the jury; therefore, the verdict cannot stand. The ruling of non-infringement, however, was not reversed. WIN has appealed the infringement to the US CAFC. We believe the validity decision strengthens WIN’s case for an appeal against Apple.

WIRELESS LICENSING AGREEMENT| WIN signed a license agreement with a US wireless carrier for certain patents relating to security techniques used in wireless networks. These patents are a subset of the patent portfolio that WIN acquired from Siemens AG (SIE-FRE: Not Rated) in July 2012. All terms of the agreement are confidential.

AUTOMOTIVE PATENT PORTFOLIOS| WIN acquired a patent portfolio relating to automotive diagnostic technology. All terms of the agreement are confidential; however, WIN stated that it does not consider the purchase amount to be material relative to its cash position. We note, this is the second automotive patent portfolio WIN has acquired. On April 1, 2014, WIN acquired another automotive patent portfolio relating to technology used in automotive headlights. We believe the automotive patent portfolios will help further diversify the Company’s business.

HON HAI LITIGATION| On February 24, 2014, WIN reached an agreement to settle all pending litigations (relating to its V-Chip patent) with Hon Hai Precision Industry (2317-TPE, Not Rated). All financial terms of the agreement are confidential. WIN filed the original suit on October 1, 2012, in Florida State Court concerning Hon Hai’s failure to report TV revenues related to WIN’s V-Chip patent as a part of a deal signed with WIN in January 2008. Hon Hai’s response was to file a suit on October 23, 2012, in New York requesting a declaratory judgement (DJ) that it did not infringe WIN’s V-Chip patent and to declare the patent invalid