Tyler Burns - Director of Investor Relations James Douglas Skippen - Chief Executive Officer, President, Chief Legal Officer and Executive Director Michael Shaun McEwan - Chief Financial Officer

Justin Kew - Cantor Fitzgerald Canada Corporation, Research Division Daniel Kim - Paradigm Capital, Inc., Research Division Todd Coupland - CIBC World Markets Inc., Research Division Eyal Ofir - Clarus Securities Inc., Research Division Robert Young - Canaccord Genuity, Research Division

Thank you, operator, and good morning, everyone. Earlier this morning, WiLAN issued a news release, announcing its financial results for the first quarter ended March 31, 2013.

This news release is available on WiLAN's website, and will be filed on SEDAR and EDGAR. On this morning's call, we have Jim Skippen, WiLAN's President and Chief Executive Officer; and Shaun McEwan, WiLAN's Chief Financial Officer.

Following prepared remarks by Mr. Skippen and Mr.

McEwan, analysts will have the opportunity to ask questions. Certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements.

Actual results could differ materially from those anticipated. Risk factors that could affect our results are detailed on the company's annual information form and other public filings that are made available on SEDAR and EDGAR.

During this conference call, we will refer to adjusted earnings. Adjusted earnings does not have any standardized meaning prescribed by U.S.

GAAP. Adjusted earnings are defined in our quarterly and annual filings that are made available on SEDAR and EDGAR.

Now I would like to turn the call over to Jim Skippen. Jim, please go ahead.

Thanks, Tyler, and good morning, everyone. First, I'm pleased to advise that the Board of Directors has declared a quarterly dividend of CAD $0.04 per share for the first quarter of 2013.

This dividend will be paid on July 5, 2013 to shareholders of record of June 14, 2013. During the quarter, WiLAN generated revenues of $18.4 million, exceeding our guidance for the quarter.

WiLAN also generated adjusted earnings of $1.3 million in the quarter, also exceeding our guidance. We returned $4.9 million to shareholders in share buyback and dividend payments.

Our licensing partnerships gained momentum recently with the signing of partnership agreements with British Telecom and Espial Group in the first quarter. We also advanced large number of important litigations, including receiving a Markman ruling in the Apple case, which we believe is a favorable order.

Next, I would like to discuss our core licensing programs and recent license signings. In the first quarter, we signed a wireless technology license agreement with MediaTek Inc., a large Taiwanese-based semiconductor manufacturer covering WiLAN Bluetooth products sold in North America.

We also signed a license for digital TV and display technologies with Kith Consumer Products. As recently announced, we just finalized a license agreement with Panasonic.

The license represents an important step forward for digital TV and display licensing program, as Panasonic has licensed our broad TV portfolio. With that, I would now like to turn my attention to 6 litigations with trials approaching in 2013.

Firstly, a trial originally scheduled to begin April 2013 on 3GPP HSPA patents, with defendants, Alcatel-Lucent, Ericsson, HTC and Sony Mobile Communications, is now scheduled to begin in early July. We have a Florida trial, scheduled to begin September 2013 and it's Ericsson involving LTE-related patents.

We received a favorable Markman ruling, as I mentioned earlier, in our case against Apple, HTC and a number of other defendants in Texas. The trial in this case is set to begin October 2013.

We have a trial on our case against Toshiba in Florida on TV technologies, scheduled for October 2013. In November, we have a trial in a Florida case against Blackberry related to handset and Bluetooth technologies.

Finally, we have a trial on our breach of contract litigation, involving Hon Hai in Florida in November as well. Next, I would like to touch on our licensing partnerships.

During the first quarter, we announced 2 partnerships, including one with British Telecom. We are at the beginning stages of our partnership with British Telecom, which involves the licensing of our portfolio of patents for the digital rights management and other technologies.

Currently, we have 13 partners, and we are engaged in discussions with a number of prospective new partners. We are actively moving licensing partnership programs forward through various stages of planning execution, including discussions already with a number of prospective licensees.

I believe our partnership program is beginning to gain momentum, and we look forward to communicating more positive developments in the future. At this time, I want to remind investors of the basic tenets of our strategy.

Firstly, we will build core licensing programs in different technology segments. We expect each core portfolio will improve many and sometimes hundreds or even thousands of patents.

We intend to keep investing in the growth of each portfolio and expanding the number of core portfolios that we can license so that the value to licensees is always increasing and our business is always growing. Second, we will expand the number of portfolios that we can effectively license through licensing partnerships.

Our partners see value in the capital and expertise that WiLAN can bring to bear in licensing their patents, and together, we will share in the revenues that result from licensing these portfolios. Thirdly, we attempt to conclude license agreements with our prospect licensees without litigation, but we are fully prepared to use litigation if licensing negotiations do not progress adequately.

We will, if necessary, in fact, use multiple litigations on multiple portfolios to encourage prospective licensees to enter serious negotiations. Lastly, we are prepared to be fair on our licensing, but we expect to reach the right agreement that suitably compensates Wi-Lan for the value of our portfolio and enables our business to continue.

The board and I are quite determined not to sign poor licenses simply to meet short-term pressures. It's important to understand that while signing agreements with poor terms might boost our short-term results, these same poor terms will jeopardize our long-term success.

Our activities in 2012 and early in 2013 has set the stage for a very busy remainder of 2013. With multiple trials currently scheduled in 2013, first of which starts in just 7 weeks on July 1, we are working very hard to either win the litigations or achieve fair license agreements.

With that, I will now turn things over to Shaun to discuss our financial results in more detail. Shaun?

Thank you, Jim and good morning, everyone. Revenues for the first quarter of 2013, ended March 31, were $18,369,000 and that exceeded our guidance of $18.1 million for the quarter.

This does represent a decline over the comparative period of last year slightly less than 26%. For the quarter, 3 licensees each accounted for more than 10% of revenues as compared to 2 in the same period last year.

In the first quarter of 2013, the top 10 licensees accounted for 81% of revenues from royalties, which is the same as the prior year period. Cost of revenue expenses for the first quarter totaled $19.8 million.

Patent licensing and litigation expenses, which are cash cost in this category, were $898,000 and $12.2 million, respectively. Cost of revenue expenses in the quarter also included $6.5 million in patent amortization and $158,000 in stock-based compensation, both of which are noncash expenses.

Comparatively, in the first quarter of fiscal 2012, the cost of revenue expense totaled $11.3 million. And this included licensing expenses of $1.3 million, litigation expenses of $3.9 million and patent amortization of stock-based compensation totaling $6.2 million.

Litigation expenses at $12.2 million were slightly below the range we previously provided of between $13 million and $14.4 million in our guidance and accounted for virtually all of the increase in cost of revenue expenses this year over last year. R&D expenses in our first quarter were $2.2 million or 12% of revenue as compared to $2.8 million or 11% of revenue for the same period last year.

Our research expense, consisting principally of staff cost, was just over $500,000 for the quarter, which is less than half of the comparable period last year, the decline in expenses related to the restructurings we undertook in mid-2012 to streamline our research activities. We also spent approximately $1.4 million on the management of our patent portfolio, expenses relating to the prosecution and maintenance of our patents that we consider as development expenses.

This expense increased over the comparative period by slightly more than $170,000, given the growth of our portfolio over the same period last year. Our marketing, general and administrative or MG&A expenses in the first quarter of 2013 totaled $2.9 million, and that includes $2.1 million in overhead expenses, which are cash-oriented and $800,000 in noncash charges for depreciation and stock-based compensation.

Comparatively, in the first quarter of 2012, MG&A expense totaled $3.2 million, which comprised of $2.5 million in overhead expenses and noncash charges of $700,000. For the 3 months ended March 31, 2013, WiLAN recorded a net income tax recovery of $876,000 as compared to a net income tax recovery of $4.3 million last year.

The current income tax expense of $1.3 million is related to taxes withheld on royalties received from foreign jurisdictions for which there is no treaty relief. As a result of all of the above, WiLAN's GAAP earnings amounted to a loss of $6.4 million or $0.05 per share on a basic level in the 3-month period ended March 31, 2013 as compared to a GAAP loss of $14.4 million or $0.12 per share on a basic level for the comparative period last year.

Adjusted earnings, a non-GAAP measure that assists in evaluating the performance of the business by eliminating noncash or nonrecurring items, for the first quarter were $1.3 million or $0.01 per share on a basic level, which compares favorably to our guidance of a range of between breakeven and a loss of $2.2 million. Now quickly turning our attention to the balance sheet for a moment, we completed the quarter with $167.2 million in cash, cash equivalents and short-term investments.

This represents a decrease of $9.7 million from the net cash position held at December 31, 2012. Accounts receivable of $6.5 million is slightly higher than would normally be expected, but virtually all of the amounts that would have been considered overdue at quarter end have since been collected.

As a result, during the first quarter of 2013, business operations consumed $5 million of cash and the company paid dividends totaling $4.2 million and repurchased shares totaling $656,000. These 3 key items account for the change in cash position over the first quarter of 2013.

For the second quarter of 2013, ending June 30, 2013, we expect revenue to be at least $17.5 million. This revenue guidance does not include the potential impact of any additional royalty reports to be received between now and the end of the quarter or any new agreements that may be signed during the remainder of the second quarter.

To put a bit more color on our Q2 revenue guidance, revenues from our variable licenses related principally to the television market that have been reported as of today are lower than we received in Q1 2013 and this is the principal reason for the lower revenue guidance. Not all reports are in as of today, but the ones that have reported lower unit sales, and therefore, lower royalties owing to us.

We have communicated before that the revenue from our variable licenses can have some seasonality, and that in particular, the second quarter is the quarter in which those lower revenues have been reported in the past, and we're seeing that reflected in the guidance today. Operating expenses for the second quarter are expected to be in the range of $16.6 million to $18.2 million, of which $10 million to $12 million is expected to be litigation expense.

For the second quarter then, assuming no additional agreements are signed, adjusted earnings are expected to be in the range of between a loss of $1 million and earnings of $1 million. This concludes my review of the financial results for the first quarter, ending March 31, 2013.

I'll turn the call back to you, Tyler.

Thank you very much, Shaun. We now move to the Q&A portion of our conference call.

[Operator Instructions] Operator, may we have the first question?

So Jim, just on the litigation expenses, so the guidance were lower -- sorry -- yes, the litigation this quarter was lower than guidance, the 12.2 versus 13 to 14.4. And then also next quarter sequentially is going to be lower at 10 to 12, down from 12.2.

How does that kind of line up with the litigation catalyst -- or not catalyst, but the trials that we have upcoming?

Well, the first trial starts in July, which is the following quarter or the next quarter so -- but there's a lot of work that goes into it. I'm trying to -- maybe you can give me a little bit more help what you're looking for.

Okay, well, I guess it was 2 questions. The first question is litigation expense for this quarter was lower than the guidance range, number one.

Yes.

So what is the delta there...

What happens in that, Justin, is we have -- we pay most of our law firms based on the hours they spend, and it's very, very hard to predict with this number of litigations exactly what that's going to be because there's all kinds of permutations and combinations that can occur that will cause fees to be a little bit less or a little bit more. And then when you have multiple litigations, that effect becomes even more compounded and profound.

So I would be surprised if any estimate that we have is ever exactly met. It is just that, an estimate, and sometimes, it's going to be a little bit more, and sometimes, it's going to be a little bit less.

I think we try to be conservative. So generally, we're hoping that we've been conservative and that it won't be more, although there's no guarantee on that.

There's not much more to it than that. It's just that at the end, when we do our guidance, we -- in our forecast for the business, we look at all the litigations.

We look at the activity. We talk to our law firms.

We add it all up, and we come up with a number that we think is going to be the number. So there's nothing mysterious that's in that.

The only thing, I guess, I could say to you is that there are no trials or Markmans in Q2, and so that is somewhat of a factor. But there is preparation for trials going on in Q2, and that ends up being a lot of work.

And hopefully, that helps a little bit.

That's very helpful. Second question, Shaun, just on the accounts receivable with -- can you just give me -- give us a bit of color?

You said that it's all being collected, so I guess, AR should come down to kind of historical level going forward?

Correct.

Okay, and can you give us a bit of color on what those were...?

I can tell you there were 2 agreements that were paid within days of quarter end, but they weren't here on quarter end so they end up looking like a bit of cash consumed.

Jim, wondering if I can delve a little bit deeper into this recently announced Panasonic deal. Wondering if you can just explain the implications here with regards to the DTV and/or the V-Chip program.

So if you look at Panasonic, I believe one of the fourth-largest player within the television space, so obviously, good for the DTV side. I believe this is probably the biggest blue chip customer you signed in that area.

So that's my first question in terms of what else you're seeing in terms of ramp up on that side of the business. And secondly, as it relates to V-Chip, this is the first significant player we've seen signed since LG.

So number one, wondering where this sits with other new potential licensees and/or renewals from existing licensees, please.

Well, we view the Panasonic license as a very positive development. We think the rate is a fair rate, and one that we'd be willing to accept from other licensees so that's good.

You're right, they are a relatively large, well-known brand, so that's good. I think that they were very influenced by the technologies in our portfolio over and above the V-Chip technology when they saw what we've been able to do with the portfolio and the number of technologies we added, and we're happy about that.

They were very keen on having a license to the entire portfolio. And as far as other licensees go, it's early days because we just announced this deal a day or 2 ago, but there's no doubt that it should have a positive impact on our ability to sign deals with other licensees because it demonstrates to them that a large well-known company is willing to take a license to the portfolio, and it makes it easier for the next licensees to justify taking a portfolio of that licensee.

In terms of what you're seeing for renewals, are any upcoming in terms of material number on the V-Chip side?

There are no renewals on the V-Chip because all the licenses on the V-Chip are basically for the life of the patent and those -- that's a unique program, which was started by Tri-Vision, the company we bought. We, more or less, continued the program, although we changed the license agreement somewhat, and the -- you basically get a license to the V-Chip family for the life of the patent, and that's all the license covers.

So there's no renewal. It goes for the entire life of the patent.

What we found is everyone's still paying us under those licenses. What we've seen, though, this quarter is a bit of a drop across all the TV suppliers.

So I think what's going on is partially attributable to seasonality and maybe partially attributable to just lower TV sales. Sales are down a bit, and I think we're kind of at the thin edge of the wedge because we get these reports right after the quarter ends.

So even before Gartner Dataquest gives us kind of inflow. But I think what we're going to see is that TV sales are generally down a bit in the first quarter, and that's typically the weakest quarter as well.

Okay. And sorry, just one last question, if I may, related to that.

Given Panasonic was signed in the second quarter, I presume now you may have a bit of a departure from past practices, whereby you're no longer receiving so-called bulk payments from some of these smaller-ish players where you recognize, say, $1 million, $2 million, $3 million from licensees per quarter. So even though you signed numerous licensees in Q1 and you have Panasonic in Q2, I presume that what you're doing is likely recognizing these fixed payments over multiple years.

Is that a correct assumption?

Well, yes, it is correct that we are spreading out payments from all licenses as a general rule. It won't always be exactly like that, but generally, that's true.

Another thing is that we don't recognize, for instance, pending royalty payments. So if the Panasonic deal were running royalty, we wouldn't recognize any revenues from that until we get the royalty report.

That's another thing you have to factor in when you're evaluating this kind of a deal. And of course, given that we just signed the deal 2 days ago, we wouldn't have any reports of that nature if that were part of the deal.

So there are many factors that go into it, so hopefully that helps you a bit, Daniel.

Just a question on cash and a question on litigation expense. So you're going down this quarter a little less activity.

Is it fair to say that Q3 will still be roughly the peak quarter in terms of litigation expense given all the trials that will fall into that quarter?

It's a good -- it's always hard to estimate this, but right now looking at it, I would say that would be a fair estimation, but there are many variables that can happen. And as I mentioned, people are working pretty hard to try to get these things settled.

And if they do settle, it's going to dramatically impact both the top -- both the expense line and the revenue line. But if nothing sells, which is a possibility, then it's probably fair to think that litigation expenses will go up in the quarter.

Okay. And on the cash -- so Shaun, if I understood you correctly, you basically said you got a piece of the 10 back post the quarter.

So should we think about the burn is basically the dividend or roughly $5 million? And how do you think about that over the course of this year?

I mean, obviously, you don't want to be burning into your cash every quarter to pay out the dividend. So give us your thoughts on that.

So first, if you look at adjusted earnings roughly being the cash generated by the operations, parking any changes in receivables and payables, the reality is when we're at a marginal loss of $1 million to a profit of $1 million, you're not generating a lot of cash, right? So the realities are burned.

It's quite likely going to be attributable to the dividend, as well as any share buybacks. And in particular, first quarter, we only launched the buyback in mid-March, but we did generate $656,000 in share acquisitions.

So those 2 things are combining to generate the cash burn and barring any, as Jim said, settlements and license agreements, they're going to dramatically change either the revenue or the expenses or both. The reality is that's what it kind of looks like for Q2 and potentially into Q3 as well.

Okay. But I presume the objective here is you'll see -- if your plan unfolds, you'll see some agreements settled off 1 or 2 or several of these trials and then you should have a step-up in the business and dramatically reduce that burn.

I presume that's the thinking.

Well, if you roll the clock back to 2011, I think the leverage that is in this business was evident when we generated sort of a 72% to 76% operating margin, which generated almost the same number in positive cash flow. So to the extent that our plans unfold the way we anticipate, that leverage will be reexperienced.

First off, can we just touch base on the Panasonic deal again? I understand that based on what you're seeing, it's probably not included in your guidance.

Maybe, first of all, confirm that Panasonic is not part of the $17.5 million guidance. But also, I imagine that there would have been some catch-up payment to be made by Panasonic on historical TV.

So I was just wondering if you guys get any onetime payment at some point in time or if you guys have bundled that into the ongoing royalty stream.

We're just debating who's going to answer that question, Shaun or me. But, okay, well, so first of all, we didn't say that there wasn't some amount in the quarter from Panasonic.

But we aren't going to confirm one way or another. But it is a bit of a unique license.

I will say that, and then it does have -- there's a fixed payment part and a running royalty part. So just to take that into account.

Secondly, what's...

Didn't we answer both questions?

Yes, I guess. Is that really the answer to both your questions?

Yes. So the fixed component, is that something that you will see in Q2?

Or is that something that could also be in multiple quarters?

Multiple quarters.

Okay, that's helpful. And then just, Jim, talking about the current litigation, obviously, there's only so much you can say.

But you've gone through mediation with Apple and some of the other parties. I'm assuming that that's already concluded.

You're obviously going on...

It's actually continuing. There was a court order after we got a Markman ruling in the Apple case, which we thought was a very positive Markman ruling for us.

The judge ordered that the parties would continue, but have another court mandated mediation, so...

Okay, so that's still ongoing then?

Still ongoing, and really, it shouldn't surprise anyone that there are many discussions ongoing right now. And the way I find this business often works is the parties are -- can be fairly part -- far apart and at the very end, they converge in the middle.

So it's not like you get close to the middle and then you stay there, you stay at fair ways apart, and then you, all of a sudden, both move quite a bit and you get to the middle and you get a deal done. So there's lots of stuff going on.

It's very important that the other side believes that we are fully prepared to litigate, and we are fully prepared to litigate. We're very confident in our position, and we're not going to compromise.

So we convey that message, but we're always ready to transact if the amount is fair. So that's the dynamic, and people are traveling and talking with licensees all the time.

Okay, so I guess, theoretically, we can hear of announcements at any point in time.

Anytime.

The other question I have for you guys was around the BT agreement partnership, I should call it. So obviously, DRM was the first application though.

Is there any ongoing discussion with BT in terms of extending those out to other patented players?

I really can't disclose the clock, what's going on there. I would say, though, that with any large company where we sign a license for a limited subset of the technology, we generally are trying to leverage that to get a bigger subsection of your technology.

So as a general rule, that's what we try to do.

Okay. So that's helpful.

Final question for me just for Shaun, on the guidance again, sorry, talked about how you didn't receive some royalty reports, and that's why the guidance is also lower. There's a little bit seasonality aspect of it, but how much of it was or maybe you can give us some indication, how many royalty reports based on volume have you already received and how many of them have you not?

We have 268 licensees today, but I couldn't tell you exactly the number that has or hasn't been reported. But I can tell you that, historically, even if you look at last quarter, we had a guidance of 18.1.

We finished the quarter at 18.4. Clearly, a few more reports came in after we provided our guidance.

I would anticipate and hope we're in the same position, although clearly, there's no promises of that. All of the big guys that we would expect who will have reported by now have reported.

So we feel pretty comfortable that we've got the number correct in terms of -- at least the numbers.

Okay. And then you also get the Panasonic royalty report, which we'll have to assume maybe you're incorporating some fixed payments from them into your guidance, but not the actual royalty stream.

I think Jim's already answered that one.

The 3GPP case that you said is in July, is that more precision around when that's going to happen? Or is there still some uncertainty there, I mean, more than usual with respect to potential for delays?

The date schedule is the first week of July. Actually, I don't remember if it's July 1 or the first week.

It may actually be July 1. But what we find will happen in this type of thing is there'll be jury selection and other things going on.

It may move a day or 2, but at this point, at least, we very much anticipate that, that's when the trial's going to be, but judges are people, and there are many reasons why something would come up for them that causes them to move the trial date so -- but at this point, we have no reason to believe it won't be July 1.

Okay, and it seems as though the period between, say, July and November is going to be an extremely busy period for you. I was wondering if just -- are there any capacity concerns for WiLAN?

I understand that you offset some of that with outside litigation professionals, but do you have the ability -- if this gets all squeezed into a tighter time frame, if 3GPP gets delayed a little more, do you have everything in place to handle all that?

We -- as far as prosecuting our litigations, we have very good firms. They're well staffed.

I have no doubt that they can prosecute them without -- with some oversight, but limited oversight. When it comes to license negotiations, we typically always handle those internally, but we have lots of bench strength in the company that has experience now in negotiating licenses, and so I think we're okay.

But I do spend a lot of my time thinking about this and trying to figure out what we can do to add additional bench strength there. We are recruiting right now to get some more people that help us in litigation management, but I think we're okay.

Last question, if I may, just on the MediaTek, it's limited to North America. I was wondering why limited to North America.

Is there an opportunity to expand outside of North America in terms of the plan?

Yes, there's definitely an opportunity to expand outside of North America. I think that they felt there was some urgency in dealing with just North America.

We accommodated that, but there's no reason to think that we wouldn't be pursuing a much broader license, not only in jurisdictions beyond North America, but on technologies that are not included in the license.

Thank you, operator. This concludes WiLAN's First Quarter 2013 Financial Results Conference Call.

A replay of this conference call will be available until 11:59 p.m. on August 8, 2013.

Instructions for accessing the replay of this conference call can be found on the news release that was issued earlier today and that is available on WiLAN's website. Thank you for attending.