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WiLAN bulking up with cash

Sales to double in 2011 after 300 patents added in quarter
By James Bagnall, Ottawa Citizen June 7, 2011
Ottawa-based WiLAN Inc. appears well on track toward meeting its projected sales target this year of $110 million to $115 million (all figures U.S.). The patent licensing firm Monday reported record revenues of $26.3 million for its first quarter ended March 31, up 66 per cent compared with the same period a year earlier.

Earnings soared to $19.8 million, compared with just $1.1 million in the first quarter of 2010.

WiLAN chief executive Jim Skippen reminded analysts Monday he had long predicted that his willingness to sue technology heavyweights for using WiLAN patents would one day pay off. "The first quarter marks the start of that return to WiLAN and its shareholders," he said.

WiLAN not only added more than 300 technology patents to its portfolio during the quarter - bringing the total to 1,300 plus - it also scored several major legal victories south of the border.

The result: WiLAN signed a series of patent licensing deals with key wireless firms such as Cisco Systems, Intel Corp. and Motorola Mobility. The stream of royalties and other payments arising from these deals began in earnest in the first quarter and are expected to increase in years to come.

There may be more on the way. WiLAN is pursuing four more big court cases including: LG Electronics of South Korea (V-chip technology patents), HTC of China (CMDA and OFDM patents), TexasInstruments (Bluetooth technology) and Ericsson, Sony-Ericsson, Alcatel-Lucent and HTC (3GPP wireless base station technology).

Given WiLAN's impressive legal wins earlier this year, the odds of pre-trial settlements in all or most of these cases are likely good.

Even assuming no contribution from these ongoing suits, WiLAN is expected to more than double revenues in 2011 compared with the $50.7 million in sales it recorded last year.

The consensus estimate by analysts surveyed just prior to the release of first quarter earnings called for a revenue jump of 127 per cent in 2011, followed by a further 25 per cent rise in 2012, according to Thomson Reuters.

At the same time, WiLAN is looking at reduced legal bills. In part this is because the big cases settled to date this year were immensely complicated proceedings, which meant that preparing for trial consumed a lot of cash.

First quarter litigation costs for the company were $11.4 million compared to just $3.8 million in the same period a year earlier.

Although WiLAN faces the possibility of new trials, the company says the issues involved are more straightforward and therefore less expensive to litigate.

Despite heavy legal expenses, WiLAN generated $11 million in cash from company operations in the first quarter.

Combined with $72 million in net proceeds from the sale of common shares, the company substantially boosted its cash position to $192.9 million at the end of March, more than double where it was just three months earlier.

This naturally prompts questions about what Skippen plans to do with his war chest.

He hinted there may be some interesting developments in the near future.

"More players with significant patents are coming to us," he has stated.

Skippen explained that the holders of these patents were seeking WiLAN's expertise in extracting royalties from those who were using the patents.

"They're asking us if it would be possible for us to work together," Skippen said.

"And we're looking at that."

Skippen also noted he was "working hard on a number of possible acquisitions" of patents, as well as purchases of firms that owned patents.

Despite the first-quarter results, which were slightly better than analysts had forecast, not to mention a newly acquired listing on New York's Nasdaq exchange, WiLAN's share price slipped seven per cent Monday to close at $6.76 on the TSX.

A possible explanation: against the backdrop of a declining stock market generally, investors may not have liked Skippen's unwillingness to once again bump up the firm's revenue and earnings guidance for 2011.

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