WiLAN Reports 2016 Year End and Fourth Quarter Financial Results

OTTAWA, Canada – February 9, 2017 – WiLAN (TSX:WIN) (NASD:WILN) today reported financial results for the three- and twelve-month periods ended December 31, 2016. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.

Fourth Quarter 2016 Highlights

• Revenues of $30.2 million
• EBITDA of $17.5 million, or $0.15 per basic share, representing 58% of revenue
• GAAP net earnings of $8.6 million, or $0.07 per basic share
• Acquired portfolios from GLOBALFOUNDRIES Inc. and Kodak Inc.
• Launched litigation in China against Sony Corp.

Fiscal 2016 Highlights

• Revenues of $92.9 million
• EBITDA of $53.7 million, or $0.45 per basic share, representing 58% of revenue.
• GAAP net earnings of $11.1 million, or $0.09 per basic share, up 10%
• Returned $8.8 million to shareholders in dividend payments and share buybacks
• Cash and cash equivalents and short-term investments at December 31, 2016 was $107.7 million
• Signed 32 license agreements, including three renewals
• Acquired patent portfolios under the partner model with Eastman Kodak, Panasonic, GLOBALFOUNDRIES, SRI International, Funai, Barron Associates and MLR, LLC
• Entered into partnerships with University of Waterloo and University of Saskatchewan
• Expanded litigation presence further into China, Germany and Canada

“2016 ended on a positive note with a strong quarter for revenue, EBITDA and cash flow,” said Jim Skippen CEO of Wilan. “During the year we added several exciting patent portfolios to our already substantial and valuable holdings, reflecting investment in our future. We also grew our pipeline of license opportunities by launching a number of negotiations and litigations with potential licensees in both our traditional U.S. market as well as in other geographies such as China, Germany and Canada.

Looking forward, we will remain patient in our license negotiations in order to obtain what we believe is fair value for our patents. This may lead to variability in our quarterly financial performance; however, we believe that it is absolutely in the best long-term interest of the business to protect the value of those patents. While financial performance has been lumpy in the past five quarters, in three of those quarters we have generated positive revenue surprises.”

Approval of Eligible Dividend
The Board of Directors has declared an eligible quarterly dividend of CDN $0.0125 per common share to be paid on April 5, 2017, to shareholders of record on March 22, 2017.

Fourth Quarter and Fiscal Year 2016 Revenue Review
In the three month period ended December 31, 2016, WiLAN generated revenues of $30.2 million, compared with $26.0 million in the three month period ended December 31, 2015. In the twelve month period ended December 31, 2016, WiLAN generated revenues of $92.9 million, compared with $102.9 million in the twelve month period ended December 31, 2015.

For fiscal 2016, the decrease in revenues is primarily attributable to the completion of certain fixed payment license agreements offset by an increase of one-time payment license agreements signed during the quarter and fiscal year. For the twelve month period ended December 31, 2016, the top ten licensees accounted for 77% of revenues, whereas in fiscal 2015 the top ten licensees accounted for 76% of revenues.

Fourth Quarter and Fiscal Year 2016 Operating Expense Review

Cost of revenue expenses
In the three month period ended December 31, 2016, cost of revenue totaled $17.8 million compared with $18.1 million in the same period last year. The decrease in expenses year over year was primarily attributable to lower patent amortization expense offset by increases in compensation and benefits as well as litigation and contingent partner payments and legal fees. Amortization expense is lower as a number of acquisitions completed prior to fiscal 2010 have now been fully amortized. The increase in compensation and benefits expense was driven largely by increases in accrued variable compensation resulting from the achievement of certain performance objectives.

In the three month period ended December 31, 2016, litigation expenses amounted to $2.6 million compared with $2.1 million for the same period last year. Fourth quarter 2016 litigation expenses were slightly above the mid-point of guidance provided in the Company’s third quarter 2016 financial results press release of $1.5 to $3.1 million.

In the twelve month period ended December 31, 2016, cost of revenue was $64.1 million, compared with $70.4 million in the twelve month period ended December 31, 2015.

The decrease in expenses was primarily attributable to a decrease in litigation costs and amortization expense partially offset by an increase in compensation and benefits, patent maintenance, prosecution and evaluation expenses, and contingent partner payments and legal fees.

In the twelve month period ended December 31, 2016, litigation expenses were $4.8 million, compared with $13.2 million in the twelve month period ended December 31, 2015. The decrease in litigation expenses in 2016 is attributable to a decrease in the level of litigation activities that were not covered under contingency legal fee models as compared to fiscal 2015.

Litigation expenses are expected to vary from period to period due to the variability of litigation activities and shared risk fee arrangements with our law firms. We expect an increase in litigation expenses in fiscal 2017 as a result of the expected level of litigation activities and the corresponding fee arrangements.

Patent maintenance and prosecution expenses increased over the same period last year as a result of the increased 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 of several patents and applications.

Marketing, general, and administrative expenses ("MG&A")
In the three month period ended December 31, 2016, MG&A expenses amounted to $2.5 million, or 8% of revenue, compared with $1.6 million, or 6% of revenue, in the same period last year. In the twelve month period ended December 31, 2016, MG&A expenses amounted to $9.8 million, or 11% of revenue, as compared to $7.5 million, or 7% of revenue, in 2015. 

The quarterly and annual increases in MG&A spending are both primarily attributable to an increase in compensation and benefits as a result of higher accrued variable compensation and higher public company costs from higher restricted share and deferred stock unit accruals given the Company’s share price.

Research and development expenses ("R&D")
Restructuring activities completed in fiscal 2015 resulted in the elimination of our R&D activities and as a result we did not incur any expenses related to R&D during fiscal 2016.

Foreign Exchange
In the three month period ended December 31, 2016, the Company incurred a foreign exchange loss of $0.1 million compared with a loss of $0.1 million in the three month period ended December 31, 2015. For the twelve month period ended December 31, 2016, the Company incurred a foreign exchange gain of $0.1 million compared to a loss of $3.0 million in 2015. 

Unrealized foreign exchange gains and losses result 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.

Fourth Quarter and Fiscal Year 2016 Earnings Review
In the three month period ended December 31, 2016, WiLAN generated EBITDA of $17.5 million or $0.15 per basic share, compared with $12.9 million or $0.11 per basic share, in the same period last year. In the twelve month period ended December 31, 2016, WiLAN generated EBITDA of $53.7 million or $0.45 per basic share, compared with $54.7 million or $0.45 per basic share, in 2015.

The Company’s GAAP earnings amounted to $8.6 million, or $0.07 per basic share, in the three month period ended December 31, 2016 compared with GAAP earnings of $3.0 million, or $0.02 per basic share, in the same period last year. For the twelve month period ended December 31, 2016, GAAP earnings amounted to $11.1 million, or $0.09 per basic share, compared with GAAP earnings of $10.0 million, or $0.08 per basic share, in 2015.

Fourth Quarter and Fiscal Year 2016 Balance Sheet and Cash Flow Review
At December 31, 2016, the Company’s cash, comprised of cash and cash equivalents and short-term investments, totaled $107.7 million, representing an increase of $13.1 million from the cash position at December 31, 2015. The increase is primarily attributable to $36.8 million cash generated from operations offset by payments for patents acquired in the current and previous years totaling $15.2 million, the repurchase of common shares under a normal course issuer bid totaling $4.2 million and the payment of dividends totaling $4.5 million. The Company’s cash equivalents and short-term investments include T-bills, term deposits and GICs.
 
Fiscal 2017 Financial Guidance
Cash operating expenses for the first quarter of 2017 are expected to be in the range of $8.5 million to $11.0 million, of which $2.5 million to $3.5 million is expected to be litigation expense. These expenses exclude any contingent partner payments and contingent legal fees.

Conference Call Information – February 9, 2017 – 10:00 AM ET
WiLAN will conduct a conference call to discuss its financial results today at 10:00 AM Eastern Time. WiLAN President & CEO, Jim Skippen and CFO, Shaun McEwan will host the call.

Webcast
A live audio webcast will be available at http://www.gowebcasting.com/8328

•  To access the call from Canada and U.S., dial 1.866.822.1668 (Toll Free)
• To access the call from other locations, dial 1.647.427.2297 (International)
 
Replay Information
A webcast of the call will be available at http://www.gowebcasting.com/8328

A replay will also be accessible by telephone until 11:59 PM ET on February 23, 2016.

•  Replay Number (Toll Free): 1.855.859.2056 or (International): 1.404.537.3406
• Conference ID #: 59931305