Quarterhill Inc (QTRHF)

[jtdiii]

An extraordinarily compelling post from Glenn on SH...

I just want to add a couple additional items to your "reasons for liking Wi-LAN's business model" ...

1 - Operational Profitability

Wi-LAN's business model is very profitable, and WIN has very high net operating margins. From Todd Copeland/CIBC's very comprehensive research report on Wi-LAN from December 2011, CIBC forecasts a EBITDA margin of 61.1% for FY2012 (it was approx. 54% in 2011).

By contrast, Acacia (ACTG)'s operating margin was approx 15% in 2011. So basically, assuming ACTG's operating margin remains constant in 2012, Wi-LAN generates nearly 4x as much operational profit from each dollar of revenue as Acacia.


2 - Low Valuation = High Margin of Safety

In addition to the $220 million cash on Wi-LAN's balance sheet, Wi-LAN is currently trading at approx the value of the cash on its balance sheet + the NPV of future revenue streams from deals already signed.

So basically, you're buying future revenue/earnings potential - on both the patent licensing and Gladios side - for free.

This represents a significant margin of safety in broader stock market that, to my mind, is very vulnerable to "black swan"-type event from a global financial system that's truly on the brink of a major systemic rupture (in the next 2 years).

If Wi-LAN's current share price was $20/sh, I would argue that Wi-LAN was still a great business, but I wouldn't necessarily say that at that price it was a GREAT investment.