Tyler Burns - Director, IR Jim Skippen - President and CEO Shaun McEwan - CFO

Daniel Kim - Paradigm Capital Tod Copeland - CIBC Robert Young - Cannacord Genuity

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, 2015.

This news release is available on WiLAN's Web site as well as 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 do 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.

Thank you, Tyler and good morning to everyone. During the quarter WiLAN generated revenues of $20.4 million, significantly exceeding our guidance of $17.5 million.

We generated adjusted earnings of $6.8 million. This exceeded the top-end of our guidance by $3.6 million or over 110%.

We returned $5.2 million to shareholders in dividend payments. Finally, the Board has declared quarterly dividend of CAD$0.0525 per share.

This dividend will be paid on July 3, 2015 to shareholders of record on June 12, 2015. During the quarter, we signed a total of eight license agreements.

Three of the licenses were to a portfolio of network related patents being licensed by our Open Network Solutions subsidiary. Covidien became the second company to license a portfolio related to medical stent technology.

Texas Instruments signed two separate agreements for semiconductor patents that came to WiLAN from partners, Isis and Cypress Semiconductor. The remaining two agreements were wireless technology license renewals with InFocus and TRENDnet.

Next a few words about our acquisition program. During the quarter, we closed one acquisition.

This portfolio came from a major global semiconductor company and covers power management technologies. These patents include techniques to extend battery life and recharge batteries.

This portfolio, together with the power management portfolio we obtained through our partnership with ROHM establish a solid presence in the power management market that we hope to grow in the future. Now a few words on our litigations.

We are continuing with a number of significant smaller litigations. Current major litigations involve Hertz, and Apple and Micron.

We currently have two LTE litigations involving Apple. These litigations are in the Federal District Court in Southern California.

You may recall that we are in the early stages of appealing a summary judgment ruling of infringement in the first case in Southern California involving Apple and two LTE patents. We expect the appeal process to take approximately 12 months.

We have a second LTE case involving five different LTE patents with the same judge in Southern California. The patents in the two LTE cases are largely unrelated and the issues are different.

However in Q1, the judge in the case decided that it might be more efficient to wait for the appeal in the first case to conclude before allowing the second case to proceed to trial and say the case. We were not thrilled with this decision, but it is important to understand that this is not in decision on the merits of the case, just an insurance that the court has no replication of issues with judicial economy.

On May 18th, two weeks from now, we are scheduled to begin trial proceedings in Southern Florida in our case involving Ericsson and the infringement of three LTE patents. This case was revived after our successful appeal of a decision returning an early year agreement signed with Ericsson.

To sum up, our team is working hard to strengthen our business despite a more challenging environment for patents and patent licensing companies. I feel we are making steady progress and that possibilities for new licenses and new exciting patent portfolios for acquisition continue to prevent themselves.

Our cost control measures are having a positive impact, which was reflected in the fact that we more than double the adjustment earnings provided in our guidance. We also continue to explore possibilities to expand and diversify our business, both in patent licensing and possibly beyond it.

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 as Jim has already outlined were $20.4 million and that exceeded our guidance of $17.5 million by 17%.

That’s the 13th consecutive quarter where that has exceeded our guidance by a very wide margin. Four licenses in the first quarter individually accounted for 15%, 13%, 10% and 10% respectively as compared to the three licenses in the prior period accounting for 25, 12, 10.

For the three months ended March 31 and the top ten licensees accounted for 78% of our revenues versus 81% of revenues for the comparable period last year. While covering our operating expenses briefly, constant revenue expenses were $19.466 million and that does represent an increase over the comparative prior year period of almost 4.8 million.

Virtually all of the increase is related to increased litigation expenses incurred in the quarter. At $6.2 million, our litigation expenses came in approximately 7% below the midpoint of the guidance that we previously provided.

As I have highlighted before on these calls, the litigation expenses that we are talking about here relate to either full fees external arrangements or our hybrid fixed fee abouts plus expenses of our litigations, like external experts, technical analysis and things of that nature. We do also have a contingent litigation expense that is reflected on our statements and that relates to amounts paid to external counsel upon successful conclusion of licensing agreements.

Together these two litigation expense lines will vary quarter-to-quarter as a result of the level of activities undertaken as well as the level of any license agreements signed during the quarter. Marketing, general and administration expenses for the first quarter of 2015 decreased year-over-year by 23% to $2.3 million.

The decrease in spending is largely related to decreased stock based compensation and public company cost. In the first quarter, the Company incurred a foreign exchange loss of $2.3 million, which included a non-cash unrealized foreign exchange loss of approximately $1.8 million.

The unrealized foreign exchange loss recognized in the quarter results from converting Canadian dollar cash on hand to U.S. dollars at the end of the quarter as well as the revaluation of foreign exchange contracts held, which at March 31 amounted to approximately $11.500 million.

These contracts matured at various days through to October 2015. During the quarter we recorded current income tax expense, which is a cash expense for us of approximately 1 million.

Our income tax expense consists of foreign taxes withheld or royalty revenues received from licensees in foreign jurisdictions whether is no 3D [ph] relief. We did record a net income tax expense of $568,000 in the first quarter as compared to $2.6 million from the previous year.

As I have outlined in previous calls our tax expense is considerable when compared to our pre-tax earnings. We do not anticipate that this will change in the forcible future.

As a result of all of the above in the first quarter, WiLAN reported a GAAP net loss of $4.758 million or $0.04 per share on both a basic and fully diluted level. Through the first quarter, adjusted earnings, as Jim already outlined were $6.8 million or 0.06 per share on a basic level.

That represents approximately 33% of our revenues and it's more than double the high end of the previously provided guidance range. Now quickly turning our attention to cash flow and balance sheet for a moment, we generated $2.4 million in cash from operations in the first quarter and paid $5.5 million to shareholders in dividend and share buyback payments, and made payments for patents acquired in the current and previous fiscal years in the amount of $6.5 million.

This resulted in a cash declining by $9.1 million during the first quarter to finish at $118.5 million. Lastly, I will discuss our guidance for the second quarter of 2015, ending June 30, 2015.

Revenues for the second quarter, based on royalty reports received up until now are expected to be at least $18.3 million. I would like to remind listeners that our revenue guidance reflects actual revenues based on fixed-price contracts or on running royalty reports received up until now.

Therefore it is the minimum revenue we expect to record for the quarter. Operating expenses for the second quarter are expected to be in the range of $11.7 million to $12.9 million, out of which $3.8 million to $4.8 million is expected to be litigation expense.

For the second quarter of 2015, and assuming no additional agreements are signed, or no further royalty reports are received, adjusted earnings are expected to be in the range of $5.5 million to $6.7 million. As we've highlighted in the press release issued earlier today, for more than three years now, WiLAN has continuously outperformed its quarterly revenue guidance, often by a very large margin.

This over performance is due in part to the fact that WiLAN includes in its guidance only the revenue from contracts signed and running royalty reports received prior to the conference call as I just indicated. A little over year ago we adopted earlier financial reporting time frames.

So we would be issuing now results at the same time as ours peers, and a by product of who's decision is that we determine guidance a few weeks earlier than we had in the past, and a portion of revenues tied the running royalties is also not reported to us until after our guidance is given. Further WiLAN' business continues to evolve in that an increasing portion of our revenues are being generated by one time payments in each quarter.

These factors increasingly may even make a guidance seen misleading, since virtually every time our actual quarterly revenues are higher than guidance. Therefore we believe that providing this kind of guidance is not particularly helpful to investors since it perpetually under represents the revenues and the adjusted earnings than WiLAN actually reports.

Accordingly this will be in the last quarter in which we provide revenue and adjusted earnings guidance. We will continue to provide expense guidance on a quarterly basis.

This concludes my review of the financial results for the first quarter ended March 31 and I'll now turn the call over the operator for our first question.

I have to go back to the whole issue of guidance and suspension thereof. Wondering if I can -- understanding all the issues with regards to your position on where the Company fits, what has changed?

If I look back say year ago, when I went to your Annual Meeting guys put together a great presentation, breaking out all your addressable markets, providing pretty terrific visibility in total addressable markets and all the various verticals you are going after. And now if we look at the Company for the past several years at least, WiLAN has been able to consummate anywhere from half a dozen to a dozen new patent licensees every quarter, pretty consistently, which has been great.

So what I'm struggling to understand is what has changed. Is it the fact that you're running royalties and/or your term licensees are starting to roll-off and that visibility is making things a bit murkier or is your type of business in terms of new patent licensees that you hope to sign per quarter, say the six to 12 type range, has that visibility decided drop-off or is there something else that I'm missing?

There are two questions there I think maybe if I heard it right. I’ll state a question and then try to answer it and you can tell me if I got the right question.

In the first question I think you're saying again, why are you deciding that -- to suspend revenue guidance. And the reason is that when we look back at the last three years, we’ve exceeded that revenue guidance by an average of 20% and often by significantly more than 20%.

So we think that it may be misleading, particularly since our -- we give our results earlier in the quarter, so that running royalty reports are invariably not received by the time we give guidance. And then increasing number of our licenses are one-time payments.

So rather than give guidance that could be misleading, and we don’t think is a service to investors, we think probably it's better for investors, for us not to provide that information, because it's misleading potentially. So that’s the reason on the guidance.

It has nothing to do with revenues falling off or anything like that. We have a healthy balance, a backlog and revenues continuing for some time and we’re -- really at the end of last year, we felt we were ahead of our plan in terms of achieving $200 million by 2018 and I'll admit that this quarter was not what I thought a blockbuster quarter but it's a solid first quarter and this business is lumpy.

We continue to sign licenses and make progress and we’re still working hard to achieve that ambitious goal of $200 million by 2018. So that’s the guidance part.

Was there another question, besides that?

Well, I guess a key thing that I focused on in terms of the wording of why you're suspending guidance is an increasing portion of revenues are generated by one-time payments. So I think about a year ago analysts were quite focused on trying to determine what that drop or that decline rate might be, and it looks like for 2014, it wasn’t much of an issue because there were so many one-time licensees and the quarterly revenues are relatively stable.

If we look at the run rate of revenues, last year was $100 million. Now based on these two quarter, first quarter results and Q2 guidance, it looks like you're on a run rate of $80 million.

So I guess my question is trying to better understand what the decline rate is in your core revenues versus one-time.

You just highlighted a problem because you just said based on your guidance $80 million, but based on our -- we don’t think that the guidance is necessarily reflective of what we’re actually going to do. So it ends up being misleading.

Again, our hope is that this year will be a better year than last year. We can’t guarantee that, but that’s certainly what we’re working towards.

And really one quarter not being on track for in excess of 100 million, if you multiply it by four, I don’t think tells a whole story. So I don’t think one quarter is something to state well, you must only be achieving 80 million.

I think that that's not true at all. But it is true that more and more of our licenses and payments are going to be one-time lump sum as we go forward.

So increasingly like every other Company virtually in our sector will be dependent on the performance of the quarter to generate the revenues for the quarter and that’s why giving people just a backlog number and calling guidance, it can be misleading, because people will assume like you just did that -- well, that must be what you're going to get in the year, which isn’t necessarily true.

Just in the quarter what was the percentage of revenue that was in your new area of business strategy and then how many deals did that make up?

Yes, Tod, we're trying to get away from giving exact numbers all the time right for obvious reasons, but of the deals that we signed in the quarter the one time inch partnership, at least historically common partnership kind of deals we'd say it's in the sub-one third of our revenue base in the quarter.

Okay. One third.

And when you look at that one third, that's the piece that you see growing and moving towards that ultimate $200 million figure over time. Is that the right way to think about that?

I think there's two issues in that going to 200 million. That is the renewal base and rebuilding our longer term license agreements as we've done in the past and that will always be a part of it although they're not up for renewal I guess, and there is still a portion of our backlog that is involved with that.

The second dimension would be these onetime just kind of things and we do expect those to grow as well. Over the last year, year and a half we've grown from a couple of portfolios in our licensing programs to pushing almost 50 nonstop, but the reality is that those license programs get momentum and speed and they're starting license agreements, they will be an increasing portion of our revenue base.

And I thought -- correct me if I'm wrong, I thought last quarter the one timer's were less than 10% of revenue. So are you bucketing a couple of things in that answer so I get you to the third?

Well, it's less than a third is willing to add. So it’s not exactly the third.

And it's going to vary quarter-by-quarter based on the revenues in a particular. So it's hard to say that it's always exactly only this much or going to be that much.

Okay. Fair enough.

And then Jim, you spoke about possible usage for your cash and sounds like you are looking beyond the patent licensing market. I'm just wondering, I hadn’t heard that commentary from you before.

What are your thoughts on that?

I think -- maybe this gets back to something Daniel was getting at, but I think it's important for people to understand and investors to understand that's we're patent spot market the way there is a spot market for oil or gold. The patent market would be significantly down and the reason are numerous and all you have to do is watch the TV or follow anything that's going on and you would understand that that's dynamic reflects.

And that has significantly affected every company in our sector. I would say of the companies in our sector which I consider currently companies that acquire patents and license them, I think we are the best performer of all of them, if you look at sort of the financial return we're able to generate in the profit.

Product having said though, it is a tougher market and we do believe that's the patent licensing market has a definite future but we think that we have ambitious and aggressive growth targets and we think to satisfy those aggressive growth targets, we're better to look at possibly getting into some other IP centric businesses. So I won't give more details on that other than to say that we would want to use our IT expert intellectual property expertise to dovetail into some related industries.

So we are in looking at possibilities for our business to diversify. So that's -- I probably can't say too much more than that if that hopefully that puts a little bit of pressure on the bonds [ph].

Okay. Yes so I clearly will be interested to hear your thoughts and as that evolves over time but thanks for that comment.

Tim.

I was wondering if there a backlog update into provide, especially are you going to provide backlog now that's so everyone top line guidance.

We need periodically update backlog but I think our decision continues that we don't want to update backlog every quarter. At times we think there is over emphasis and over focus on our backlog.

I'll remind you that companies like Acacia [ph] which we consider our closest peer has no backlog. And I think we'd rather people focus more on those potential upside of hundreds of millions of dollars that we think that our patent portfolio can generate rather than just our backlog.

Okay. And I guess the part of concern here is the top line has declined, the guidance is just -- and I understand new ones on our guidance but it's adjusted…

We are having hard thing hearing you.

Sorry maybe that's better. I see the topline, it's gone down now for five quarters.

So the guidance -- and I understand the new ones around the guidance, it would suggest it's going to go down for another quarter, and I was wondering if you could talk about I mean how should investors think about that quarter-over-quarter decline? Is that the one-time items that are not showing up in the revenue in the last couple of quarters or is it the backlog declining without a faster rate than new licenses.

How do we reconcile that with the expectation for growth in the future?

I think it's back. Our guidance last quarter was $17.5 million.

Our guidance this quarter is $18.3 million. So I don’t know.

To me that is -- that’s going up almost, $1 million. So I am not sure -- it is true that -- it is true.

I can’t deny that for five quarters there has been decline. We just think that’s hopefully just the lumpiness of our business.

And when we look at the quarter, the possibilities and the things that we have in front of us, we’re hopeful that trend will be discontinued soon and we’re certainly working torwards that and we have the prospects for that in terms of the licenses that we’re negotiating. So we still have a steady base of backlog for a long time that we can build on and I don’t think there is an imminent dramatic cliff.

It's just -- what happens is over a long period of time. It will decline, but it's not imminent.

The other thing I’d remind you is that we have basically three types of agreements and we’re continuing to pursue and sign these three types of agreements which are running royalty based on unit sold, this payment payable over a term and one-time payment. Now I would say that the one-time in type agreement are probably going to grow particularly a number as we have more and more programs now.

We now have 29 programs that have generated revenues. So we’re increasing the number of programs we have that are generating revenue significantly.

But some of the settlements are a smaller amount. But we do plan to continue to have deals that have periodic payments over a series of quarters.

So it's not going to be just one-time, but there will be a mix. So I think the underlying suggestion is that things are trending downwards.

We certainly hope that’s not the case and are working hard and we think we’ve got the ammunition to continue to build the business up from here So, we don’t see it that way at this point at least.

And so in Q4 and Q1 would it just have been a lower level of one-time payments because in the past I have assume Q4 and Q1 would have benefitted from the higher level of unit driven royalty reports. And so I am trying to understand why Q4 and Q1 would have been so much lower than Q2, Q3 without understanding whether the backlog has come down, that’s the key thing I am trying to reconcile.

I mean some of our TV licensees are -- there is a lot of even flow in that business, some of the ones that were larger licensees are reporting lesser royalties. So that’s probably one factor.

I think some of its just the even flow when term agreement end when we sign one-time deals. So I agree that five consecutive quarters of downward revenues looks like, well maybe that’s a trend.

We’re hoping it’s not and just sort of the way things worked out these five quarters and that’s -- that that trend will end soon. Maybe Shaun has some more comments on that that he might want to add.

I was just going to say add to the extent to that, we’ve always tried to talk about looking at an annual basis, risen over two year annual basis, because it takes time to generate license revenues and it takes time to generate material license revenue. So when we look at our business, we’re looking at more on an annual basis than quarter-by-quarter.

So like Jim said, we certainly have plans, we expect this year to be an increase over the last year on an annual basis, it's just may not materialize given the lumpy nature of the business perfectly, linearly quarter-to-quarter-to-quarter.

And maybe it might be a good idea to provide annual guidance if that’s the where the confidence is might help to support and the expectations, the logical thing to do would be to look at the historical revenues and the backlog that you would assume has declined and you would have assumed that that will continue into the future. So I mean some information around why you're expecting growth or why you hope there is growth in the full year would be very helpful.

I guess the other area I was hoping to look at is the, I mean the cash balance at this level of revenue if we remain at this level, then the intangibles in patent payments where they have been and the dividend you're going to be using cash -- and I was wondering if that continues should we think about the dividend being reduced or would you decide to reduce the patents expense, the quarterly patent expense?

Well, we had a Board Meeting yesterday and there is no plan to decrease the dividend. That was not -- decreasing the dividend was not contemplated at all in the Board meeting.

We are spending cash generally on patent because when into the middle of last year, we made some strategic changes to our business model, we decided that spending cash would be a much rarer occurrence than it has been historically and typically we would take on portfolios without laying any cash up front and we've trended much-much more in that direction and many of the significant portfolios we've taken on recently have been like that or follow that sort of model. So we are allocating less cash towards patent purchases so it does take little up pressure up at dividend.

And as I said we look at last year, the significant revenue growth last year, we had a significant growth in the bottom line. This quarter while we've been a progress, yes it wasn't a blockbuster quarter, hopefully that means that there are deals waiting to be done which are going to make subsequent quarters even better.

But so I just -- to be when I look at, it looks like steady progress, business is usual, you can't judge a patent licensing business on one quarter. You have to look over a long period of time, one year or two years, and we look at one or two years, it looks to me like we're still making progress.

Okay. And then last question from me, are the royalty reports from those unit driven?

I guess the television is mostly, do any of those come in April or is that pretty much done now?

No they are not due till the end of the quarter, so it's April 29, and typically summer arrived late so we all would seem to get royalty reports after the end of the quarter. And remember over the last three years we have an average beat on the revenue up 20%, significantly exceeded the guidance and we think that trends is going to get even more dramatic, so that's why we just think it's not helping investors to give them that number, now you mentioned the annual guidance there is no company in our sector that gives annual guidance and that's I think simply because of the lumpy nature.

I think we happen to be realistic too that the patent licensing world has gotten tougher. Now there is some benefit to that only the best will survive and the various entry or higher, but it is a tougher business now and that maybe another reason to consider carefully whether it's the right move, but this time until things settle low a little bit more, whether we should be giving annual guidance.

Okay. Well thanks for answering my questions.

It's me Daniel again. I wanted to come back to the cash issue if I may, if I can ask in a different way.

You suggested that you are potentially looking at acquisitions to diversify your business, can you quantify for us at least, perhaps a range of how much you anticipate you might spend and how much you would like to have in cash remaining as working capital post to acquisition?

Well, I think how much we'd like to spend does depend on the opportunity. So I'm reluctant myself to say too much about that and we are -- we think we have to be very careful about this and make sure that if we do anything and that if really does make sense, the ideal part of it would have an IT centric business with convert patents but would have another other revenue streams and with the accretive toward business well that's kind of what were looking for we, I think I've been on a record through a lot of my carrier saying that I think a company like ours should have 50 million in cash on hand and I don't see any reason to vary from that right now, so I will take 50 million which gives us a fair bid of maneuvering room and I will remind everyone that the 120 million we have, that's U.S.

forcing Canadian, it's quite a bit more now and so already we haven't despite making a number of acquisitions we haven't burned through that much cash really. So we have some flexibility as to what we can do.

Right. Okay let me ask another way with regards to cash, the stock is now down to $3.21 annual dividend implies a 7% yield, which on any metric given the interest rates would be very generous yield.

Clearly we want the stock price to go higher but the market is telling you something different, so either the markets implying the dividend is adversely getting cut or stock is going to go higher. So my question to you is with the all the various uses of cash potentially coming here with the potential acquisition, patent acquisitions as you said however will come lower, it is a lumpy number year-over-year.

But dividend is 20 million drain a year, I'm just trying to better understand where all this the cash will potentially shake out and what is that risk of potentially decrease in terms of use of cash.

I can give you an answer, Shaun may have some other comments. You have to remember, we just finished the fiscal year where we generated approximately $60 million in adjusted earnings, as you said our dividend is costing us about 20 million or 21 million week.

We think that there is no reason to believe that last year won’t be replicated and that isn’t -- that’s what the business is doing as far as we can tell. So as far as we can see right now, we can afford the dividend, easily afford for a lengthy period of time.

Your comment that the market is saying the dividend is going to be cut, I'm not sure I agree with that, I think that what the market is doing if you look at all the other companies in our sector, the Unwired Planet, the Marathon, the [indiscernible] companies like [indiscernible] that acquire patents and licenses. They are all experienced, they are all -- they are all down significantly and I think we’re caught up in that.

Having said that I still -- we analyze the financial performance, we think we’re doing as well better than any of them. And so my hope is that the start eventually recovers a bit when the sectors gets a little bit out of the doldrums and looks business as usual.

Thank you for attending WiLAN’s first quarter 2015 financial results conference call. A replay of this call will be available until 11:59 PM on July 29, 2015.

Instructions for accessing the replay of this conference call can be found on the news release that was issued earlier today and on the WiLAN Web site. Thank you.

Good bye.