Jim Skippen - President and CEO Shaun McEwan - CFO

Doug Taylor - Canaccord Genuity Daniel Kim - Paradigm Capital

Thank you, Operator. And good morning to everyone.

Before I get to our quarterly update I want to start today's call by addressing the operational and financial changes announced with our Q3 results. We believe that that position WiLAN to one capitalizing our potential for long-term growth in an evolving market and two maintain a strong balance sheet.

Last year we announced some initial cost savings measures to reduce the risk in our business model and enhance profitability. First we focused on attracting portfolios from licensing partners doing share in the risk and success of a licensing program.

Second we've changed the way we work with law firms by ensuring this firms share in the risk of our licensing programs. To date we have achieved some success of this initiative however based on our assessment of the IP market from where it is going we believe more change is required.

As you know the legal environment for patent licensing companies is undergoing change. That change is significantly altering the performance and outlook for participants to address our market challenges and position the business to grow and create long-term shareholder value.

Today we have announced four key actions, we believe these steps are essential to the long-term growth of our bookings from backlog numbers and to our ability to stabilize and grow our cash balance. They're one - a 33 reduction in staff and elimination of other expenses, two - the spin out of our R&D units, three - a reduction in our dividend to $0.05 per share per year.

And four - [indiscernible] will remain as CEO for a minimum period of three years in order to help the business manage through this period of transition. Regarding the R&D unit and reduction in staff, these actions began in October and are expected to be completed by the end of December.

Our plan would be to retain a minority interest in the spin out entity which will now focus on products. Shaun will speak about the expected financial impact of these actions.

Regarding the dividend, management and the Board believe that this is a prudent step as we adopted the change in market and work to reposition the business for long-term growth. Changes in the patent licensing market have resulted in lower bookings in backlog numbers for all players in the market including WiLAN.

As a result we believe that focusing cash resources or monetizing our existing patent portfolio and acquiring other high quality patents is a best use of capital to grow the business and create value for shareholders. To do so we must prudently manage our cash balance.

We are maintaining a $0.05 annual per share dividend to reflect the continued cash generating ability of the company. As such the Board has declared a quarterly dividend of CAD$0.0125 per share.

This dividend will be paid on January 6, 2016, to shareholders of record on December 15, 2015. We'll re-visit our dividend levels and consider onetime special dividend as driven by our business performance.

All these have been very difficult decisions to make. I firmly believe we can prosper in an IP market that is under pressure from a changing legal environment.

WiLAN remains one of the strongest and most successful companies in the patent licensing sector, but managing that position requires some of the tough decisions we make today. Going forward, to remain a strong player in this market we'll one - focus on our high quality portfolio, two - continue to acquire new quality patents, three - draw on the very deep bench strength of our team and four - prudently manage our cash flow.

Some more challenges are in front of us, I look forward to providing the leadership necessary to manage through this transition phase and execute on our plans for long-term growth. Now to discuss our third quarter results, during the third quarter WiLAN generated revenue of $21.4 million compared to $24.6 million in Q3 last year.

With our Q3 announcement today we've taking the step of providing a revenue backlog number and we'll consider referring on this regularly going forward. Shaun will discuss our backlog later in the call.

Adjusted earnings were $12.2 million compared to $13.2 million in Q3 2014. GAAP net earnings per share for the quarter were $0.01 up from the small loss in Q3 2014.

We generated $23.3 million in cash from operations this quarter compared to $10.7 million in Q3 2014, and we returned $5.1 million to shareholders in dividend payments. Turning now to licensing, during the quarter we signed 11 license agreements.

Licenses signed when their areas of medical technologies, networking, semiconductor packaging, enhanced image processing and image sensing technology. Some of these were significantly in such as Xerox, Lexmark, Nikon and Olympus.

Year-to-date we have signed 28 licenses. In a separate release this morning we announced that subsequent to the quarter end we've acquired a portfolio of approximately 3,300 patents from Freescale Semiconductor.

This portfolio is acquired on a partnership model in which Freescale receives the bulk of its consideration only from successful licensing of the portfolio. We're pleased that a company of Freescale stature has the confidence to place such an important portfolio with us.

This portfolio includes high quality patents that cover a variety of technologies. High quality in this case means it contains many important patents that apply to products and carries a pedigree from industry leaders Motorola and Freescale.

These technologies relate to forward searches, memory, semiconductor packaging, wireless and the Internet of Things among others. We believe in all their significant license cum potential associated with this portfolio.

We've already documented over 77 examples of patent use in various companies' products and believe this portfolio will be a key driver for revenues in the future. Our team has already begun efforts to launch a licensing campaign.

While the acquisition is primarily revenue share situation it is involve a commitment to make certain upfront payments which will be credited against Freescale's share revenues. These payments will be made over the next four quarters and are not expected to have a material impact on WiLAN's cash position.

As stated earlier our strategy to grow WiLAN is based on acquiring high quality patents, monetizing our portfolio and defending that portfolio. Between the recently acquired Qimonda patent portfolio and now the Freescale portfolio we've added more than 10,000 of high quality patents in just the last two quarters.

As of today we have more than five times the number of patents that we did a year ago. In Q3 we acquired one other portfolio for partnership model in addition to Freescale.

As a remainder the model we follow in these acquisitions is typically to offer little or no upfront payment with the patent vendors receiving all or most of their compensation only when we've successfully licensed the portfolio. Now some comment on litigation.

Firstly I would remind investors that WiLAN has over 50 litigations active at this time involving 60 patents. Quarterly it is not practical to provide a quarterly update on every litigation.

And I will touch on some of the most significant ones. While there were no findings from infringement at least any dependence this quarter we did have a number of important practical wins.

Firstly the Second Circuit Court of Appeals ordered LG to arbitrate the issue of whether certain TV's equipment WiFi are covered by the wireless license with us. LG fought WiLAN currently on this issue and lost in front of the magistrate, lost in front of District Court judge and has now lost at the Court of Appeals.

Secondly sometime ago Ericsson initiated its [indiscernible] release action or DJ against us in California. The DJ asked the court to declare that Ericsson was licensed the certain WiLAN networking patents which have been acquired for payments.

We have asserted these patents against certain Ericsson customers. We are pleased that in Q3 the court dismissed Ericsson's case against us in a summary judgment proceeding.

Although Ericsson claimed they were licensed in the patents the court found no evidence of such a license. Thirdly we were successful in a further arbitration against Ericsson.

Ericsson alleged that they were validly licensed under our portfolio, it had a part that a small Canadian company [indiscernible] Networks which had taken a license. The arbitrator found that WiLAN had validly terminated the license with [indiscernible] Networks due to its violation of the agreement.

So would not exist Ericsson. It was a frequent scene in Ericsson's defense against WiLAN that Ericsson was licensed under the Belair agreement so this is an important tactical victory for WiLAN.

On August 4, we presented our overall argument at the Federal Court of Appeals on our Agus2 patent against Apple. This was a case that was originally filed in Texas relating to 3G technologies.

We've not yet received any ruling in regards to this appeal but we do expect that ruling any day. As a remainder following the invalidity and non infringement [indiscernible] we received in August – October 2013 on this patent the judge in the case overruled the jury's invalidity verdict and ruled that WiLAN's patent was indeed valid.

The validity of [indiscernible] patent subsequently reconfirmed by the U.S patent office. In Washington today we are making overall arguments to the Federal Court of Appeals on two other wireless LTE patents in a different Apple case that originated in the Southern district of California.

Overall Q3 was a reflection of both the challenges and opportunities facing WiLAN. But the announcement we have made today we are making the necessary changes to kickstart the revenue opportunities within our growing patent portfolio.

We will emerge from this process as a leaner organization but with the flexibility to adapt toward changing market environment and with a necessary resource to invest in growing, monetizing and defending our high quality patent portfolio. A portfolio that with today's Freescale acquisition announced five times larger than it was just a year ago.

I should add that as part of our restructuring activities, we've downsized our internal Investor Relations department and signed up LedgeRock Advisors to assist with Investor Relation's going forward. 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. Revenues in the third quarter were $21.4 million compared to $24.6 million for the same period last year, the decrease is primarily due to the completion of fixed quarterly payments for certain license agreement executed in previous years.

Our estimated backlog position is in a range of $190 million to $225 million as at September 30. Backlog consists of the value of signed license agreement which have fixed periodic payments, plus our estimate of revenues to be collected under signed running royalty license agreements.

We expect the majority of these revenues to be collected over the next three fiscal years with some license agreement extending to more than seven years. We are providing this metric as we believe it is a reasonable indicator of the direction for future revenue streams.

On a 12 month trailing basis revenues and adjusted earnings were $98.9 million and $56 million respectively. Our cost of revenue expenses were $16.7 million in the quarter down from $17.6 million in the same period last year.

Our Q3 gross margin of 22% was down slightly from the 28% recorded last year due primarily to lower revenue. At $1.7 million our litigation expenses came well below the mid-point of the $2 million to $2.8 million guidance we previously provided.

Marketing, general and administration expenses for the third quarter were $1.4 million down significantly from the $2.7 million experienced last year. The decrease in spending in the third quarter of 2015 is due to lower overall spending in all categories.

During the quarter we recorded current income tax expense which is the cash expense of approximately $800,000, our current income tax expense consists primarily of foreign tax withheld on royalty revenues received from licensees in foreign jurisdictions for which there is no treaty release. We recorded a net income tax expense of $1.4 million in the third quarter compared with $3.1 million for the previous year.

As a result of all the above in the third quarter Wi-LAN recorded GAAP net earnings of $800,000 or $0.01 per share on both the basic and fully diluted basis, compared to a slight loss in the Q3 of 2014. Third quarter adjusted earnings were $12.2 million or $0.10 per share on a basic level, representing approximately 57% of revenue, this represents an increase from the 54% recorded in the same period last year.

Moving to Wi-LAN restructuring activity briefly as Jim mentioned, we undertook researching activity subsequent to our third quarter to optimize our operations, reduce cost, and focus the business on a strongest growth opportunity. When completed the restructuring, it is expected to result in reduction of cash operating expenses of $8 million to $10 million annually.

The restructuring is expected to cost between $1 million and $1.2 million with most of those expenses coming in our fourth quarter. We expect the restructuring to be completed by the end of December 2015.

Let's turn briefly to the Freescale patent portfolio acquisition that we also announced today. As Jim discussed this portfolio is important due to its magnitude, quality and potential.

However with approximately 3,300 patents acquired from Freescale as with the Qimonda acquisition, we expect our 2015 cost of revenues to increase slightly as a result of an increase in patent maintenance fees and related cost along with the potential litigation. As Jim outlined in his section, we are focused on aggressively optimizing the number of patents within this and the remainder of our portfolio to drive new revenue and growth opportunities for the business.

On the terms of the agreement Freescale will share in the proceeds from licensing the portfolio after the threshold amounts of licensing revenue have been achieved by Wi-LAN. As Jim mentioned we do not consider any upfront payments to be material relative to our current cash on hand and our cash flow generating ability.

Now turning your attention to cash flow and our balance sheet we generated $23.3 million in cash from operations in the third quarter and paid $5.1 million to shareholders in dividend payments. We made payments for patents acquired in the current and previous fiscal year in the amount of $36.1 million; this includes the full payment for the Qimonda patent portfolio that we announced that we had acquired in June of this year.

This resulted in cash and cash equivalence in short term investment all cash amount declining by $18.4 million during the third quarter to finish at $95.6 million. Lastly I will discuss our guidance for the fourth quarter of 2015.

Cash operating expenses for the fourth quarter are expected to be in the range of $10.8 million to $13.2 million of which $2 million to $2.5 million is expected to be litigation expenses, these expenses do not include the restructuring cost that I've already outlined early in the call. This concludes my review of the financial results for the third quarter of 2015 and I'll now turn the call over the operator for our first question.

Thanks. Good morning, I just wanted to tee in on the backlog announcement a little bit more, it's down prematurely from what you reported last December, I think about 20% the mid-term and that’s in spite of what appears to be a pretty active period for new license agreement announcements.

Are the agreements that you're announcing just smaller in nature, can you help us reconcile that? And the 20% decline at the midpoint is that a reasonable indicator of the growth that you look for the coming year?

Well it's a good question, the answer is little bit complicated. So first of all there are definitely some licenses that are lower amounts, in some cases that's appropriate based on the reasonable royalty for the product and how much product is being sold.

I’ve always counted this business that the bookings tend not to be consistent year-over-year. You’ll have some years where you'd have very high bookings, other years they are lower.

And at least so far this year at least compared to our revenues our bookings are definitely lower and that’s why you're seeing us eating into some backlog. But there are other years 2013, 2011 where our bookings significantly exceeded our revenues and I think that pattern is going to continue.

In terms of what we think that in making sure the business going forward, I think in a roundabout way that’s what you're asking about. We are working through our strategic planning right now and typically when we do that we do apply to outlook and how we think things are going to look.

And I think that what we expect for 2016 is probably a flattish year compared to this year. It could be better than flattish, frankly if we don’t make -- we don’t make some signings, it could be worse.

But that’s what we currently think and then we start to significantly grow after that.

So when you say a flattish year relative to this year, I mean would you exclude the Samsung agreement that chunky deal from that analysis?

No, that’s part of it, I mean that was about a license they took, that wasn’t taken by the where you're selling patents, it was a third-party that decided they want to take a license of that’s all of our bookings this year. And [indiscernible] including that.

Next just I mean based on the structuring the 8 million to 10 million, I mean would you -- is it fair to say that the Q3 run rate in OpEx, cash OpEx you'd be taking 2 million to 2.5 million per quarter off of that amount are there other offsets in other areas for example with the patents that you’ve just purchased now with Freescale are you expecting an increase in the level of patent maintenance expense that might offset some of the returns from your restructuring initiative?

It's Shaun. Doug, the reality is that 8 million to 10 million kind of includes a bit of both, it includes a little bit of expected savings on restructurings related to trimming the portfolio, [indiscernible] with their [indiscernible].

So even though there are some expected cost increases we’ve already factored that into the cost reductions that we tend to get by change in the business structure.

So I mean, I guess maybe I’ll ask the question different way, I mean is there a significant amount of patent maintenance cost that you're going to be taking on with the Freescale portfolio. As you did with the Qimonda portfolio and do you expect to be pruning that over the coming quarters as well?

I mean, I think on the face of it we don’t prune any of it. There will be additional maintenance cost, but we are very, very committed to aggressively pruning and we are doing better in terms of planning than we had expected and so we are going to distill these portfolios down to the really valuable patents and not carry paid maintenance fees on patents that aren’t so valuable.

So, I mean this 8 million to 10 million is a permanent cash cost savings that we’ve managed to get out of the business, but we don’t think effecting the revenue generating ability one bit.

Maybe one last one for me and then I’ll pass the line. There has been a number of different, as I always say number of pattern reform legislative initiatives in various stages U.S.

government bodies right now, there's been opposition build, I mean I guess from your perspective can I just get you to refresh what you’ve say is the has there been any change positive or negative on the overall outlook for your business sort of related to legislation over the last 90 days?

Sure and I can tie some of that into some other things that might be relevant for investors so that’s a helpful question. So it's really hard to know what’s going on there, it's like a ping pong ball that gets battered back and forth.

Right when we think changes are eminent all of a sudden they are not so eminent. And so it's very hard to say, but there still are bills floating around Congress and I still feel it's likely that at some point something more will get passed.

But really I think, we think that actually some of the legislative changes have gone way-way too far and unfortunately we think people are starting to wake up to the fact that they are really hurting the patent system in I think a misguided attempt to take -- effect a few people that have used the system and it's actually very few and it's having more far reaching effect, so we don’t know for sure. I will tell you one thing though which is I think relevant to keep in mind in light of the changes we have made, we have over 50 litigations ongoing, we have also just acquired two incredibly powerful portfolios I say need money for us to be able to drive and litigation starting extract to value out of.

One of the things that in this litigation is the notion that loser would pay if you lose the patent case. We don’t know if that going to pass, but we feel we better be ready for a worst case scenario where we lost a major case, and had to pay substantial damages, cover cost or worse.

Now that's never happened to us, we're actually the only major patent licensing company either or one of the only major ones that has never had a cost award against us, many of our brother companies actually have a cost awards against them, we never have. We've actually had people try to get them and they've been turned down.

But, just to be able to handle a worst case scenario, and be able to monetize all these patents we feel we've got a little bit more careful with cash maybe then we have been in the past, and that’s more of the reasons why we are making some of the changes with the dividend and also with the cost cutting.

That’s very helpful, I’ll pass the line.

Good morning thank you. I have two questions but first comments great to hear that you're sitting on the Board Jim, it provides some consistency to the business plans.

So my question would be going back to the backlog issue, if we look at the num, passthrough number that is deliverable over three years, given it is a mix of recurring and some one time payments, can you shed some light regarding how you anticipate that will be delivered over the three year period, is it a -- is it more upfront and then you can that coming off towards your three or how should we think about that number?

I think I am going to get Shaun to answer that but I’ll tell you that in case it kind of didn't become apparent, we are leading toward just providing an updated backlog number every quarter so people really have very good visibility on what we have got. So the good, the bad or whatever it will be very apparent to people unless we think that is really going to negatively impact our business from the point of view of revealing of licensees are paid, we talking the most sensitive issue with licensees, we are planning to that.

So I'll let Shaun just add, talk a of little bit about the weighted average prima facie.

And one [indiscernible] Daniel as we think the majority that -- we know the majority that’s going to be earned over the next three fiscal years, although you have remember there are some agreements that run as long as seven, when I say majority it's not a 100%. It would be fair to say that it is little more frontend loaded in terms of each to the next three years, so more in the next year, a little bit less in year after and little bit less in year after that.

Okay, now going back to my second question, so that's helpful, thank you. In the past I think what investors struggled with most was trying to ascertain what the organic revenue decline was for WiLAN, and when you continue to time your licensees every quarter that certainly mitigates that potential of the client, so my question is Jim you allude to the fact that you have provided some great guidance for next year and then growth thereafter.

If we were to look at the type of business however, this is where I would like to get bit more clarity if I may.

Sure.

I think it was about one or two years ago at your AGM, the type of business opportunity this is all pre Qimonda, pre Freescale obviously, type was quite large, I think $500 million to $800 million if memory serves. So my question is where does that type of opportunities fit today based on analysis you have done on this two new asset portfolios, but more important number two when do you think you could start monetizing some of these assets to expect to generarte some revenues for WiLAN?

Well, we are certainly working on monetizing them now and we certainly we are making good progress on signing agreements, we would like to see some large agreement and hopefully we will have some due now before too long. Since we go through some of the major key areas that build up -- built to that point, and I think by the way the 800 would be top of the range that we talked about before and let me just go through.

We think that wireless, we think we've got enough in the tank to do $200 million they are going to -- there are number of wireless players that have not yet signed, we actually have launched litigation against a few that needed to sign up. We have some renewals that are coming up, we think we got lots of ammunition to get those renewed.

There is still a lot of stuff in the TV tank and we actually just recently launched litigation against three or four of TV manufactures that had been, had not signed. And now, when some of the V-Chip licenses expire we’re already talking with some of the licensees about renewal.

Qimonda probably is in the $120 million range that’s driven largely by memory technologies and process technologies. Freescale we think is in the $120 million range driven by a number of things processing technology, memory, wireless, packaging, the things I alluded to in my conference call script.

SanDisk portfolio is in the -- the portfolio is in the flash portfolio we have is probably in the $150 million range, $160 million range and all the others would be approximately 200 million when we add them up. Now these are the kind of what we think is realistic licensee numbers, but they are not really -- they are quite conservative and we think we could do better than that, no, we could do worse too.

But it give us you a feeling for what we think we’ve got in the tank with our 15,000 plus patents and it's a lot.

Terrific. Last question if I may, with regard to your financial planning.

We look at the operational cost savings that the company has planned in addition to the money saved from the dividend cut, so roughly let's call it even numbers $25 million a year savings and if we look at your free cash flow on a trailing 12-month basis which was negative 5 million. So now on a pro forma basis you’ll be generating roughly 20 million a year free cash flow, however obviously litigation is going to be ramping up the [indiscernible] new patent portfolios.

So with regards to your financial planning going forward is that cost savings enough to offset the increase in litigation expenses planned or how you think about where your cash is going to move going forward?

I am going to answer part of that and Shaun is going to answer part of it. Let me just tell you this, just again a little bit of us been very fair [indiscernible] no matter what happens we’re going to stay a strong company and no matter what we’ve got a dividend we think that’s sustainable.

So our plan on the litigation is to continue as we have been mostly signing up law firms to deals where they get their upside only if we’re successful. So we have to be able to -- we have to have the money that if we had to pay the law firm we could.

But we can’t be guaranteed that we can get the top quality law firms on contingency. So this is part of our targets and another thing as I said is we have to be able to absorb cost awards against us, if they happen, we know if they won’t, they haven’t to be but if they do we have to be able to absorb that.

Now if things continue as we hope they do with us mostly being able to finance litigation on contingency not getting significant cost awards against us, realizing the licenses revenue we think we’re going to realize, we will have excess cash and we’ll deploy it and we’ll consider giving some of it back to shareholders, if that seems like the best use of the cash. So why don’t you just…got more to say on that.

The only extra thing I would add on that Daniel is when you look at our past, past cash flow generation as Jim highlighted our litigation strategy changed about a year and a half few years ago. So that effect that contingent litigation in fact if you will -- we have 50 litigations ongoing today and you've seen us only spend $1.7 million in litigation expense as it is.

So when we go forward I would expect that the litigation dollars are going to impact the margin a little bit and therefore the cash impact will be a little bit lower or greater impact less generation a little bit next year compared to like last year when we had fixed. But it will be much more variable, much more tied directly to the revenue.

So you got to be careful if they are trying too much conclusion of their last year’s cash generation as compared to next year’s.

Right, okay, I mean obviously without changing litigation the contingency trend litigation fees in the past when it's high 50 million, right now there're only a 10 on a go forward basis, what do you think would be the more comfortable range for you in the years to come?

Well we’re not attempting to give guidance on a longer range plan, I think the kind of quarter repayments that we’re seeing now in two, two and half range which was guidance last quarter actual once it has been rounded up to two or talked about the guidance to two, two and a half in Q4. That feels like a fairly high end sustained number if you will probably a little bit lower in long-term.

But the variable part, the contingent part it's almost impossible to predict, is this going to be tied directly to the revenue.

Thank you, operator. So thank you everyone for attending our conference call.

I just wanted to add that we will be presenting at the Cantor Fitzgerald Tech conference on November 17th and the CIBC conference as well as the IP Deal Makers Forum in New York in the first week of December. Thank you again for your time today and good bye.