Thursday, May 14, 2015 4:30:01 PM
James Bagnall, Ottawa CitizenMore from James Bagnall, Ottawa Citizen
Published on: May 13, 2015
Last Updated: May 13, 2015 7:20 PM EDT
“What are we here for?” For a moment, I expected WiLAN chief executive Jim Skippen to slip into a discourse on the meaning of life. But, no. On Wednesday morning the battle-hardened executive had something else in mind.
He wanted to explain to his company’s long-suffering shareholders why it was important to believe in WiLAN’s promise despite a 25 per cent plus drop in its share price during the past year.
“We are affected by factors that are bigger than us,” Skippen told a group of WiLAN shareholders and employees, “We feel the market has over-reacted.”
Skippen was characteristically direct. He talked about how patent licensing firms such as WiLAN are facing a multitude of negative influences. Part of it, he acknowledged, stems from the firm’s business model — which involves suing firms that use technologies claimed by WiLAN or its partners.
He said opposition lawyers in these cases have portrayed WiLAN and its competitors as “patent trolls”, firms that are “doing something wrong” by trying to extract royalty payments through the courts. Skippen added that the result is judges and juries in the U.S. are less inclined to render favourable judgments or royalty arrangements.
Another hurdle is a four-year old U.S. law that allows targets of lawsuits to get their patents reviewed by the U.S. Patent Office. Many of these reviews have gone against the patent licensing industry.
In short, it’s a much tougher playing field than Skippen enjoyed in 2006 when he re-launched WiLAN as a patent licensing expert.
Yet, there is a curious disconnect between the company’s actual performance and its share price, which closed Wednesday at $2.62 on the TSX — down from $3.56 a year earlier and a peak of more than $9 in 2011.
Last year, for instance, WiLAN generated $20.1 million from operations on revenues of $98.3 million (all figures U.S.) – a sparkling reversal from the loss of a year earlier. A large part of this reflects a new method of paying for the firm’s outside lawyers — hired guns who are now compensated only after WiLAN wins.
Wi-Lan has also rewarded shareholders since 2009 with a growing dividend that is now among the richest on the TSX. At 21 cents per share, it translated Wednesday to a yield of nearly eight per cent.
Last year, WiLAN shelled out $18.7 million to shareholders — in effect paying them for their patience in holding onto the company’s stock. Indeed, Skippen at one point marvelled that dividend payments now exceed the firm’s annual revenues from when he first took over the firm.
“Anyone who thinks we haven’t been making progress,” he said, “hasn’t been paying attention.”
Skippen noted he is frequently asked why the firm doesn’t decrease the size of its dividends, and use the proceeds to reduce the number of shares. There were 120 million outstanding at the end of March.
Such a move would increase the value of WiLAN’s remaining shares, potentially enriching the value of compensation pulled down by company executives. To his credit, Skippen and the rest of WiLAN’s board of directors have resisted. “We’d rather reward shareholders (with dividends) than help those who want to get out of the stock,” Skippen observed.
In short, he wants to ally himself with investors who are in it for the long haul. A year ago, Skippen predicted his firm would more than double its revenues to $200 million by 2018. To get there, WiLAN needs to generate annual revenue growth of 20 per cent — an aggressive target given the current conditions of the industry.
To lend substance to his projections, Skippen offered shareholders revenue projections for each of WiLAN’s biggest pools of patents — including 4G (fourth generation) wireless technologies and flash memory patents.
Skippen believes Wi-Lan will secure royalties of up to $625 million for his firm’s 40-plus patent portfolios. This is an estimate of payments from agreements expected to be signed over the next few years involving patents currently held by WiLAN. The company also expects to receive up to $325 million courtesy of patent licences already negotiated.
In sum, this suggests potential royalties of $950 million over the next four to six years, depending on the lifespan of the patents.
Skippen scaled back his projections from last year, when he estimated future royalty streams of $1.2 billion — including up to $840 million for royalties yet to be negotiated.
A number of things account for the difference, including deeper conservatism at WiLAN and the fact that juries in patent trials have been awarding lower-than-expected royalty rates.
When Skippen finished his presentation, he called for questions. Oddly, there were none. Perhaps the crowd of investors is content with WiLAN as a dividend play.
jbagnall@ottawacitizen.com
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