Ana Raman - Director, IR Jim Skippen - President and CEO Shaun McEwan - CFO

Bridget Zhang - Paradigm Capital Robert Young - Canaccord Genuity Todd Copeland - CIBC

Thank you, Kevin, and good morning, everyone. Earlier this morning, WiLAN issued a news release announcing its financial results for the second quarter ended June 30, 2015.

This news release is available on WiLAN's Web site 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 in 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 US GAAP.

Adjusted earnings are defined in our quarterly and annual filings that are made available on SEDAR and EDGAR. Please note that all financial information provided is in US dollars, unless otherwise specified.

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

Thanks Ana and good morning to everyone. During the second quarter WiLAN generated strong revenue of $35 million, which was above our updated guidance of $34 million and exceeded our initial guidance of $18.3 million significantly.

Adjusted earnings were $24.9 million. Adjusted earnings were up 50% Q2 2014.

GAAP net earnings for the quarter were up 96% year-over-year. We generated $7.2 million in cash from operations, returning $5 million to shareholders in dividend payments.

We acquired the Qimonda portfolio of 7,400 patents from Infineon. We also signed a significant license agreement with Samsung, our first licensed fee for the Qimonda portfolio.

Finally, the board has declared a quarterly dividend of $0.525 earnings per share. This dividend will be paid on October 6, to shareholders of record on September 18.

Turning now to licensing, during the quarter we signed nine licensing agreements including our license with Samsung. Licenses signed with portfolios in the following areas, LED Lighting, Irrigation Control, building automation and medical technologies.

Following the end of the quarter, we also signed a license for our [indiscernible] technology, which marks the fourth license time for that portfolio since we entered this market about a year ago. Other license agreements signed during the quarter were related to semiconductor technology.

We signed for new roles with both Sirius and GammaTech Computer related to wireless technology. A significant achievement for WiLAN during the second quarter was the acquisition of Qimonda semiconductor portfolio from Infineon.

The Qimonda portfolio was an important acquisition due to its magnitude, quality and revenue potential. We invested approximately $33 million to acquire this portfolio which has an average remaining life of over eight years.

We estimate that the revenue we expect to generate from the Qimonda portfolio will be more than $100 million. All we’ve said, we would limit the outright purchase of patents.

We intend remaining open and opportunistic for high quality patent acquisition that become available to us. In addition to the Qimonda portfolio, we acquired five other portfolios.

The model we follow on these acquisitions is typically to offer low or no upfront payment with the patent vendors receiving all or most of their compensation when we’ve successfully licensed the relevant portfolio, particularly to note is our win with Funai Electronics to acquire microphone technology. This marks the third partnership in managed patents we’ve signed with a major Japanese company, the others being Panasonic and RIM.

Other acquisitions made in Q2 include medical and industrial automation technologies. The agreements signed in the second quarter bring the number of portfolios we’re managing to more than 45.

On the litigation front, investors may be interested in knowing about two upcoming events, there are ongoing litigation with Apple, we’ve an upcoming [indiscernible] argument on our 802 patent scheduled for next week on August 4. As a reminder following the invalidity in [indiscernible] verdict we received in October 2013 on this patent, with the Apple, the judge in the case overruled the jury’s invalidity verdict and ruled that WiLAN’s patent was in fact tell us [ph].

The validity [ph] of the 802 patent was also subsequently reconfirmed by the US patent office in its administrative proceeding. We’re scheduled for a trial on our network managing patents with Ericsson on September 15 as well.

Overall, we made solid progress across our business divisions in the second quarter. We delivered strong revenue and earnings by executing against our business strategy.

We added quality portfolios to our assets and licensed patents in a number of new market segments. We acquired the Qimonda portfolio, which we believe is a large high quality patent portfolio with substantial future revenue potential.

This portfolio has already resulted in a significant license with Samsung. With that I’ll now turn things over to Shaun to discuss our financial results in more detail.

Shaun?

Thank you, Jim and good morning everyone. Revenue in our second quarter of $35 million increased 71% on a sequential basis and 36% when compared to the same period last year.

Revenue was also higher than our updated revenue guidance for the quarter of approximately $34 million. Our cost of revenue expenses were $16.1 million, up 11% over Q2 2014.

Our Q2 gross margin of 54% was up significantly from 44% in the same period last year due to this higher revenue. At $3.1 million our litigation expenses came in approximately 27% alone in the midpoint of the guidance we previously provided.

Marketing, general and administration expenses for the second quarter decreased year-over-year by 21% to $2.2 million and this decrease in spending in the second quarter is primarily attributable to a decrease in compensation including stock based compensation. During the quarter we reported current income tax expense, which is a cash expense of just over $1 million.

Our current income tax expense consists primarily of foreign taxes withheld on royalty revenues received from licenses in foreign shares vision [ph] for which there is no treaty release. We recorded a net income tax expense of $5.1 million in the second quarter as compared with $3.4 million for the previous year.

As a result of all of the above, in the second quarter WiLAN generated GAAP net earnings of $11 million or $0.9 per share under the basic and fully diluted basis. Second quarter adjusted earnings were $24.9 million or $0.21 per share on a basic level, representing approximately 71% of revenues for the quarter.

This represents an increase year-over-year of approximately $8.2 million, which is largely attributable to higher revenues and lower operating expenses in the quarter. Let’s turn briefly to the Qimonda patent portfolio acquisition that Jim has already mentioned.

As he discussed, this portfolio is important due to its magnitude, quality and potential. However, with more than 7,000 patents required from Infineon, we expect our 2015 cost of revenue to increase as a result of increase in patent maintenance fees and related costs, as well as any potential litigation matters that may arise.

We are focused on aggressively optimizing the number of patents within this portfolio to control our patent management success. Wi-LAN did make a cash payment of approximately $33 million for the Qimonda portfolio and did receive its payment from Samsung for its license in early July subsequent to our quarter end.

Turning our attention to cash flow and balance sheet for a moment, we generated $7.2 million in cash from operations in the second quarter and we paid $5 million to shareholders in dividend payments. We also made payments for patents acquired in both the current and previous fiscal years in the amount of $6.6 million.

This resulted in cash declining by $4.4 million during the quarter to finish at $114.1 million. Lastly, I will discuss our guidance for the third quarter of 2015.

Cash operating expenses for this quarter are expected to be in the range of $11.8 million to $13.3 million, out of which $2 million to $2.8 million is expected to be our litigation expense. This concludes my review of the financial results for the second quarter of 2015 and I'll now turn the call over the operator for our first question.

Hi, good morning, Jim. Good morning, guys.

Congrats on the solid quarter. I just have a couple of questions today.

So first on Qimonda, it’s a very impressive acquisition, almost twice the size of the total portfolio you had prior. So how should we think of the past monetization here, given the increasing lean towards one-time payments?

Is assuming two to four on new licenses per year a reasonable prospect? And then on the cost increase, as Shaun mentioned, how do you think we should model the rent of patent expenses accordingly?

Let me address the second question, because it’s fast and easier to respond. It’s Shaun speaking.

Okay.

The rent of patent expense has already factored into our Q3 guidance. So I think if you take a look at that, you will see we’re already at not quite the top, but very close to top in that level and as we aggressively turn that portfolio, you will see those expenses [indiscernible] over the next year or so.

Okay, great, thanks.

Shaun, I’ll try to capture the first question. So really our licensing methodology on Qimonda is not going to be that different than the methodology we followed on generating our - the $850 million in bookings we’ve generated to-date or the 300 plus licenses we’ve generated to-date.

And basically the methodology is that we will approach prospective licenses. Sometimes they approach us.

But sometimes we’ll approach them and we will typically show them evidence of the use of the patent and technique with a portfolio as large as the Qimonda portfolio, which you pointed out, has more than doubled our current portfolio. We typically have many tips [ph] of patents against their products and hopefully they realize that there is significant value and quality in the portfolio and strictly try to negotiate a license, sometimes if they feel are out there and we come to an agreement.

Of course if we don’t come to an agreement and we may have - we have to resort from litigation, but that’s a large resort. We expect that litigation on the portfolio should become necessary, will likely be done on a full contingency basis and we’ve already negotiated agreements to that effect.

Your estimate of two to four licenses a year, that’s certainly possible. We don’t know [ph] how it all will import, but we do expect some licenses to be fairly significant in size and I don’t know whether - you talked about one-time payments, it may be one-time payment, it may also be spread out [indiscernible] so hopefully that gives you a bit of assistance for my question.

Okay, great. Thank you.

And then could you speak a bit about your partnership charge going forward? How that’s progressing?

I know this quarter was very active with like nine licenses, like five patent portfolios, do you see that momentum continuing into the back half of the year?

Definitely, it was a very active quarter in terms of acquiring new portfolios, to acquire Qimonda and the five others. I don’t know what - we’re going that same pace, but I do expect we’ll continue to attract new portfolios.

I mean speaking - myself, I’m certainly with our key to [ph] emphasize new licensing as much as business development these days. So I’m hopeful that - I think we have a lot of the ammunition in terms of portfolios that we can bring the bear and so I’d like to see more licenses, but I would expect more acquisitions as time progresses.

Great and just to go back to what you said on limiting the outright purchase of patents, it means that you want to go more towards this partnership style strategy right? Did I understand that correctly?

I think what I was trying to convey was that we’ve announced in the past that we were going to focus more on outright or on partnerships where effectively we don’t pay money upfront. We get the portfolio.

Okay.

And we get the patents [indiscernible] but that doesn’t mean that we won’t ever consider acquisitions. And so Qimonda was an example of the situation where we believe in the best interest of the company to make an outright acquisition and we will do that from time to time.

Right.

We’re confident that we are so [indiscernible] acquiring patents and even probably it would be the exception of the rule, but it will happen on occasions.

Right, okay, perfect and then moving forward, what are some of the key portfolios and technologies you see the growth [indiscernible] and do you have any interesting growth opportunities that you can identify at this time?

Yeah, well, we have several portfolios that we’re expecting our growth to come from. I can talk about a few of them.

We have a large valuable flash portfolio that we’ve acquired and we’re already in litigation with Micron in that portfolio. We have our wireless portfolio, which we continue to think as a substantial revenue generation potential.

Obviously, the Qimonda portfolio and some of the - lots of interesting things in that portfolio for its - particularly the process technologies in that portfolio, which are kind of technologies that we think perhaps we’re going to need to license, memory controller technology and other memory technology in that portfolio is obviously of significant interest. We acquired the Panasonic portfolio, which has [indiscernible] which we think is the best substantial potential.

So those are some examples to some of the portfolios that we think are going to generate significant revenues going forward.

Great and then so including Qimonda, that’s now 565 million to 725 million in potential revenue you say?

I have to look at - I mean I have to consider. That sounds in the ballpark of?

In the ballpark?

Yeah.

Okay, great. And?

I would suggest maybe we’ll let another analyst to ask a question and then if you want more, you are free to ask after that.

Absolutely, that was my last question. So perfect.

Okay.

Hi guys, good morning. Maybe just a clarification on last thing there, the $100 million in the potential monetization after the Qimonda portfolio, is that over the full eight year life and how should we think about it near term [ph], are there any other large potential one-time deals that you could see, maybe not as big as Samsung sort of in the multi-million range this year?

Well, so first of all, the 100 million and what we are trying to give investors the flavor of is what the revenue expectations we have. I mean we’re hopeful [ph] it would be more than that, but we think, we certainly think that we can see - there is always risk, but being relatively concerned, if we think we can see our way at more than $100 million.

When it comes in exactly, I’m not sure. But - and when it gets paid, so it may get paid up front, but they may get licenses to the portfolio for the balance of the life.

It may only - I don’t know exactly how the licenses are going to shake up, because it could be the people with the license parts of the portfolio and ends up having a lot more life because actually it is not going to expire in eight years. It’s just upon average.

It expires in about eight and a half years. So there is potential life beyond eight years.

So the way I look at it is just that’s a portfolio that I’ll feel that it is very disappointing and it didn’t work out as close as I hoped, if we don’t get at least a $100 million from that over the licensing terms.

Okay.

And on the second question, it’s certainly possible that we get large multimillion dollar settlements in short order, but we don’t predict that. We’ll take the time.

We depend on the licensee to say yes it’s time to deal and that’s in their hands, not at ours, but we certainly do expect over the not to just - to generate significant multimillion dollar deals. We hope it’s sooner rather than later and certainly our teams are working hard in that regard.

Okay and then the guidance for the cash OpEx for the current quarter, should we think of the difference between this quarter and the guidance as the - what increase in patent administration should be, I mean, allowing for the difference in litigation costs, is the bulk of that patent administration?

[indiscernible]

Okay and then I think you said earlier in the call that there was an opportunity to reduce that. I think you said within the year or within a year, I guess, is there any kind of a target on how much you can reduce that patent administration?

We certainly have internal targets but not - I’m probably not going to go out and put out them in the public domain, but we are looking for some pretty aggressive reduction in those costs over the next year. It won’t happen obviously in the first quarter.

We own the portfolio. We are probably even in the second quarter, but over time we look to fairly aggressively, you can read into that much you like, but it’s certainly in the several percentage points, but we can’t be careful, still we’ve to take the right path relative to the exercise that we go to do [indiscernible].

Okay, it seems that the very large patent pool and I’m assuming that a lot of the value has come inside of a small percentage of those patents of this 7,000 plus, it gives it apart [ph] would you pretend to be cutting account by half or more or are all these patents valuable?

These are all valuable in a variety of ways, right. We could cut it by straight out of [indiscernible] and which gives you lot much value obviously, but we can seriously get into selling these patents as we’ve done in the past in terms of the brokerage operation and those kinds of things.

So the value is going to be downstream, we certainly have tried to cut the company expenses over the next year or two around that 50% level, but exactly how and when is very difficult to predict.

To answer your question now it’s certainly - it could get cut by 50% or more. It’s possible and we are very determined in the senior management to make sure that we cut these costs and that we’re only keeping the patents that are valuable to us.

Okay, great, thanks a lot. And then in the cash flow statement, you’ve got a patent cost of 60 million a quarter.

It will fluctuate, but it seems to be around that level. Is that kind of the cash draw for like past agreements on patent purchases and deals?

Is that going to be relatively consistent? And I imagine the Qimonda is going to hit next quarter on one month and then should we expect it to come back down to like the $6 million range a quarter?

You are talking about the cash consumption in terms of patents acquired for cash and the equivalent cash flows?

Yeah.

Yeah, the majority of that is retirements of the patent finance obligations on our balance sheet. That is about $5.5 million a quarter for the next several quarters.

Details of the longer payment profiles are built into the annual financial statements in the notes, but most of that number, the rest of that would be the cash purchases made or the advances made on the furniture programs in the particular quarter. That will decline over the next two quarters and [indiscernible] in the annual financial statement.

Second question being related to the Qimonda in long term, yeah, that is sitting in our accounts payable at the end of the quarter and it’s a significant rise in the accounts payable and that amount was paid on July 6, so roughly $33 million.

And suppose you give a net sort of [indiscernible] considering the Samsung one-time payment, is there any way to give a sense of what the cash balance is now?

Accounts receivables were virtually all collected prior to end of quarter and payables in terms of at least the 33 million abnormal amounts were paid prior to the quarter end, so you can pick those two numbers and add them with cash position, you get a pretty good position right now.

Great, okay, and last question from me and then I’ll hand it over straight for other questions [ph] questions. The last quarter, Jim, you were talking about some opportunities that get into –adjacent IP-centric businesses.

I was wondering if you could flush that out of more if you had a chance to think about it more or give us a little more idea of what you are thinking there and then I’ll pass the line. Thanks a lot.

So I really can’t say too much more than exactly what you said. So that’s an idea that I’ve had around and we talked about and it remains a possibility that we are open to and it’s not a must-have, but it’s sort of a thing that if we see the right opportunity where we have our company just focuses on IP and it has patents, but also has more of a technology core type business and IT doesn’t sound make you [ph] something we look at.

The interest has been just to diversify a little bit from the pure patent licensing, but I can’t say too much more than that and it’s quite possible I think [indiscernible].

Okay. Thanks guys.

I’ll pass the line.

Thank you.

Hi, good morning, everyone.

Good morning.

I just wanted to just clarify that the cash position, so, Shaun, you’re basically saying that there aren’t any other major items other than those two, so performance around 97 million?

Perhaps yeah.

Okay, thank you. I just - Jim, this is probably a question for you.

So you’ve obviously announced your intentions to move on to other opportunities. Congratulations on that.

I wanted to understand, though, what that might mean for the strategy of the company. Do you feel that the new CEO will buy into the new strategy, whether it’d be some leeway to adjust it?

I guess that would be my first point. And then second point, what would the latitude be for capital allocation, so strategy and capital allocation including the dividend?

So thoughts on that and whether that’s up for review with the new executive coming on board in the upcoming months? Thanks.

Well, just to clarify, what I announced is a retirement just after almost ten years, I’m ready to retire. It sounds like I’m moving to do something else.

I wanted to something else, the board wants me to do something else. I just feel that it’s a lengthy time.

So I’m retiring, but I’ll stay on the board. I wouldn’t want to better the discretion of my successor.

They may have new ideas and then certain chances change. But I think I will be staying on the board.

I think the board right now buys into the current strategy and so I would be surprised if there was a whole as full as change of the strategy, but that will depend on the circumstances and the individuals that are looking at the strategy six months or a year from now. I mean it’s possible even if the current team, if we didn’t change, we might keep our strategy of business circumstances, but I don’t think right now we expect a dramatic shift in strategy.

I hope that answers your question.

Yeah. And would you make the same comment around capital allocation?

Well, I think that’s all part of it. I mean I think that the board has to look at the dividend every quarter and consider the business prospects of the company and financial circumstances of the company, but again I don’t want to better the discretion of the board or successors they may have different ideas that we’ve had in the past, but hard to say, we may have different ideas that we’ve had in the past too.

I just don’t know Shaun, I can’t say [indiscernible] that a new CEO would have the different dividend strategy cost, I just don’t know.

Yeah, okay. That’s great.

So my last question, just wondering if you can give us any flavor on the relate stage nature of your pipeline. Do you think that that’s going to allow you to sign additional agreements, material agreements between now and the end of the year?

Well, we’re certainly planning on that and we have the prospects there and we got people that we’re talking to about licensing, so it’s certainly - all the ingredients are there, but I’ve been long time in this business, I know that until the ink on the page isn’t gone, but it’s - we do have the ability given if things work out the way we think they will, we’ll sign additional licenses, significant licenses during the balance of the year.

Okay, that’s great. Thanks very much.

I appreciate it.

Thanks Todd.

Thank you all for attending WiLAN’s second quarter 2015 financial results conference call. A replay of this call will be available until 11:59 PM on October 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’s Web site. Thank you and good bye.