Jim Skippen - President and CEO Shaun McEwan - CFO

Daniel Kim - Paradigm Capital Doug Taylor - Canaccord Genuity

Good morning, everyone. Starting with highlights, revenue in Q4 was $30.2 million, EBITDA was $17.5 million, and cash generated from operations was $7.6 million.

For fiscal 2016, revenue was $92.9 million, EBITDA was $53.7 million, and cash generated from operations was $36.8 million. Our cash balance at the end of 2016 was $107.7 million, which was up $13.2 million from the beginning of 2016.

These numbers reflect a strong Q4 and a good finish to the year. 2016 in total was another year of steady revenues, solid EBITDA, strong margins, and strong cash flow.

The Board also declared to pay the dividend of CAD1.25 per share in Q4. Taking a look at some of the license highlights.

In Q4, we signed six licenses. We made progress on TV renewals and that we signed two of the top six TVs sellers in the U.S.

In December, we announced renewals of TV licenses with both Tongfang and Funai. Funai is a major Japanese manufacturer of consumer products and sells televisions under the Philips, Magnavox, and RCA brands.

Tongfang is a large Chinese company producing many products including television sold under the Westinghouse brand. We also signed a number of licenses to our Norstar portfolio which was acquired from Freescale.

For the year-end total, we signed 32 licenses, including renewal renewals. Some of the highlights during the year included licenses in Q1 with GlobalFoundries and TSMC, two of the world's leading foundries.

We also signed three licenses to our Advanced Microscopy portfolio. These licenses were with Hitachi, Carl Zeiss, and Thermo Fisher.

We had success with our Building Controls portfolio which we purchased from Hewlett-Packard signing several licenses during the year. This portfolio includes patents for technology associated with home automation or smart homes.

And finally it was a solid year for Automation Solutions portfolio. The patents in this portfolio cover our automation technology, using industry facilities, including manufacturing plants and refineries.

We signed four licenses for this portfolio in 2016. Turning to acquisitions, we acquired seven portfolios in 2016 using our partnership model.

In Q4, we acquired a portfolio of patents with GlobalFoundries. The portfolio covers process technologies using the manufacture semiconductor devices.

These patents originated with IBM and were -- from the large portfolio. Also in Q4, we acquired a portfolio of patents from Eastman Kodak.

The portfolio acquired covers various elements of electrophotography and other printing techniques. This portfolio has broad geographic coverage, with patents in the U.S., Germany, Japan, and China.

Kodak has been a technology leader in the digital printing process and photography for over 45 years. The third acquisition we made in Q4 was through Panasonic.

The acquired portfolio covers motion sensing systems using in a variety of consumer devices including business trackers and handsets. This is the third licensing partnership we have made with Panasonic as our strategic relationship continues to strengthen.

Other notable acquisitions made during the year included a portfolio of Wi-Fi patents acquired from MLR LLC in Q3. Wi-Fi continues to be an area in which we have substantial technical expertise.

In Q2, we acquired an important portfolio from the Stanford Research Institute. These patents cover inventions and technology that became the popular SIRI voice-activated assistance program used in Apple devices.

Also in Q2, we acquired a portfolio of patents from Barron Associates. The acquired patents relate to technology that allows variable devices to track the movement of the human body during different activities.

This is a key component in today's business tracking devices. And finally, earlier this year, we entered into partnerships with University of Waterloo and the University of Saskatchewan.

These are two candidates top Universities and they sought our assistance help license or promoted through technologies. The partnership speaks to a strong reputation in the licensing world as well as to our potential to develop new and exciting markets for our services.

Litigation now to litigation, we currently have more than 60 ongoing litigations. As mentioned prior calls, we continue to look at other geographies that commence litigations in addition to the U.S., such as Canada, China, and Germany.

In Q4, for instance, we launched our first litigation in China. This was against Sony and relates to networking patents we acquired from Siemens.

We also commenced litigations in the year in Germany against Deutsche Telecom, Sony, and Amazon. Subsequent to year end, we won a favorable ruling against Ericsson concerning certain LTE patents at the Federal Circuit Court of Appeals.

In its decision, the Court of Appeals overturned the Florida District Court's negative rulings on the three patents at issue and overturned a Summary Judge ruling on the three patents against us. This is the third important ruling we had against Ericsson recently that has gone in our favor.

Previous favor of all sessions included a win in arbitration and an earlier Court of Appeal win. This latest ruling paves the way for our trial to begin in Florida on the three patents in question.

We hope these recent successes will help motivate Ericsson to seek a fair license to WiLAN's patent portfolio rather than force companies into protractive litigation. Turning to dividends, in 2016, we paid $4.5 million in dividends and $4.2 million in share buybacks.

Looking forward, the Board has declared a dividend of CAD1.25 cents per share payable in April 5th, 2017 to shareholders of record on March 22nd. I wanted to take a moment during this conference call to talk about the inherent lumpiness is revenues in our business.

As we discussed in recent calls, variability and quarterly performance is becoming more common for our industry as expected to be a factor in our results going forward. The last five quarters have all been somewhat lumpier than anticipated by estimates.

However, three of the last five quarters were positive surprises. So, sometimes the lumpiness does work in our favor.

We do see this trend of lumpiness continuing as quarterly payments from the agreements we signed in 2010 and 2011 wind-down, we will have less quarterly revenue booked in advance of a quarter and will bring more dependent on signings during each quarter to reach our revenue objectives. We do expect to re-sign a number of the companies that signed with us in 2010, 2011 but it is unclear whether these re-signings will result in lump-sum payments or regular quarterly payments.

We will continue to resist the temptation to take a deal that is less than it should be simply to have a better quarter or to smooth out lumpiness. We absolutely believe it is in the best interest of the business to hold out in order to receive per value for our patents.

We've been in this business a long time and in our experienced the best way to get the fair licenses to build a strong case and exercise patience. We have a lot going for us.

We have a large number of quality portfolios and a large number of opportunities in the pipeline. We can see that we should have the patent power to continue to grow revenues.

We also have strong balance sheet, which enables us to holdout for a fair license if necessary. Ultimately, we know exactly what's in this business the patience we yield, the best long-term results for the company.

In closing, we ended 2016 on a strong note and we look to carry this momentum into 2017. The very large portfolio of patents over 50 licensing programs and over 60 ongoing litigations, we continue to build our pipeline of future licenses and revenue.

Over to you Shaun.

Thanks Jim and good morning everyone. I’ll start things off with a quick look at revenue.

Revenue in Q4 was $30.2 million, an increase from $26 million last year. Full year revenue was $92.9 million compared to $102.9 million last year.

Cost of revenue expenses were $17.8 million in Q4, down from $18.1 million last year. For the full year, cost of revenue expenses were $64.1 million, down from $70.4 million in previous year.

For the year, this decrease in expenses was primarily attributable to lower litigation cost and amortization expense, which were partially offset by an increase in competition and benefits, patent maintenance, prosecution, and evaluation expenses, and contingent partner payments and legal fees. Our performance in 2016 reflects the shift towards more contingency-based litigation expense, the expansion of our partner programs, and the overall growth of our patent portfolio.

Litigation expense was approximately $2.6 million in Q4, up from $2.1 million in Q4 last year. This reflects the best level of activity in Q4 2016 and just above the midpoint of our guidance range of $1.5 million to $3.1 million.

Litigation expense is down significantly year-over-year coming in at $4.8 million for the year compared to $13.2 million last year. Lower litigation expense reflects our goals to reach settlement without litigation and to form contingency fee arrangements with our legal partners.

Patent maintenance, prosecution, and evaluation expense was $1.9 million in Q4 compared to $2 million last year. While only slightly lower year-over-year, this does reflect the progress we are making in reducing our portfolio of patents to only those that are most important to our licensing business.

As of today, our total patent count stands around 11,000. For 2016, this expense was $10 million compared to $7.7 million in 2015.

This year-over-year expense is proportional to the size of our overall portfolio which increased significantly in 2016 when compared to 2015. For this year 2017 we will continue to work to cull the portfolio of certain non-core patents in order to optimize this expense.

Finally contingent partner payments in Q4 were $3 million compared to $2.4 million in Q4 of last year. For the full year this contingent partner payments amount was $5.7 million when compared to $3.6 million in the previous year.

This item increased in 2016 as more revenues were generated from our licensing programs that contain contingent partner payment obligations. Marketing, general and admin expenses were $2.5 million, compared to $1.6 million last year and on a full year basis they were $9.8 million when compared to $7.5 million for 2015.

The quarterly and annual increases in MG&A are both primarily due to rise in comp and benefits line which is principally a result of higher restricted share unit accruals that are variable compensation plan mostly because our performance in the current year and the fact that our stock prices up more than 20% year-over-year. EBITDA in Q4was $17.5 million or 58% of revenue compared to $12.9 million or 49% of revenue in Q4 last year and EBITDA for the full year was $53.7 million representing 58% of revenue compared to $54.7 million or 53% last year.

Higher margins in 2016 are related to our average to closely managed costs as well as our strategy to increase the number of contingency fee relationships with our legal partners. Looking at the bottom line, GAAP net income in Q4 was $0.07 per share compared to $0.03 per share in Q4 last year and for the full year GAAP net income was $0.09 compared to $0.08 in 2015.

Of note, our 2016 tax provision was $8.6 million compared to $6.9 million last year and this largely reflects increased foreign withholding taxes arising from increased level of overseas license agreements. Looking at the cash flow and balance sheet, for moment in Q4, we generated $7.6 million in cash from operations compared to $10.7 million in Q4 last year.

In Q4 2016, we spent $1.9 million on patent acquisitions mostly related to acquisitions completed in previous years and as compared to $6.8 million for Q4 of last year. For the full year we generated cash from operations of $36.8 million, out of this we returned $8.8 million to shareholders and as Jim has already outlined, and we've paid $15.2 million from patents acquired largely in previous years.

And we will drive your attention to the fact that after payment $8.8 million returned to shareholders in both dividends and share buybacks that's bring a total since we started paying dividends back in 2009 to move on to $124 million. We ended the year with cash, cash equivalents and short-term investments on our balance sheet of $107.7 million, up $13.1 million from the end of last year.

Finally, let’s look at guidance for the first quarter of 2017. Cash operating expenses in the first quarter expected to be in the range of $8.5 million to $11 million of which $2.5 million to $3.5 million is expected to be litigation expense.

This guidance does not include any contingent payments that may arise as a result of incremental revenues booked in the quarter. This concludes my review of the financial results.

And may I turn the call back to the operator for questions.

Good morning. Thank you.

Congrats on the quarter. The first obvious three questions, clearly with the significant deal in the quarter if we look at the license deals announced in the quarter this came as a surprise to myself in terms of the magnitude of the beat.

Jim, wondering if you can give us a bit more color, I mean if I look at the companies that were announced, I would have presumed they would've been relatively modest amounts in terms of the awards to yourself. Can you give us a bit more color in terms of where this beat came from and it was one or two of these companies that drove this revenue beat?

Well, it's difficult for us sometimes to really get too much more granular about it because our agreements are [Indiscernible] doing that. I can't tell you that we had three licenses that contribute more than 10% to the quarter and if I would look at where the majority of -- we have the -- we have a non-insignificant license in the wireless sector.

We had a non-insignificant license in the TV sector and non-insignificant in the semiconductor area and they all contributed. These are new licenses.

I will tell you too without getting too granular on it or identify which one. One of the TV licenses we signed was a royalty license.

So, both -- although they are similarly-sized companies, and as I said there's significance sellers in the U.S. so you expect them to pay a significant amount.

One contributed more to the quarter than the other because of the nature of the license. So, I can't really give you too much more than that and I'll accept the congratulations on the quarter and that's -- it’s a little bit of the nature of lumpiness.

When people say lumpiness, they think it's all bad, but sometimes it could be--.

Right. If my numbers are correct, I'm going to track one -- out of many metrics, I track one is the simple number of licenses signed based on the press releases from the company?

And my total for the year was 29, press release suggested 32, so is my number off or were there more -- was there more going on?

We may not press release everyone. I think various fees for that.

There might -- it might just be that the -- other party is adamant that we not press release and much is that -- is not something we like. We view as being better for the company is sign the license and get the money than to not license because of that.

That can be it. It's possible that if we thought it wasn’t a significant license, we -- or worth mentioning, we wouldn’t mention it.

But I'm surprised the difference is only -- there's only three because I think it's not uncommon that we do sign some licenses that we for various reasons don't press release.

Of course, okay. With regards to the press release, there's three renewals within the quarter, do any of those relate to the previously mentioned roll-off of agreements signed in 2010, 2011?

One does I would say. Two of them are actually -- are TV renewal, so we have two companies that were signed up, they were paying chip licenses, those licenses expired and they took new licenses to a broader portfolio and then one was in the wireless space.

And I mean a relatively well-known handset company that was previous licensee. So, those are the three.

Right. Okay.

And in terms of the programs, I mean, forgive me, I mean those are a while ago back in 2010, 2011. In terms of where you said today for your view on potential renewals, can you talk about what stages you are at right now with the companies and how many companies you have currently in your sights?

Well, there are many companies in our sights. Virtually all of them that were signed, we do it -- we expect them to re-sign.

We already have one with ZTE and what -- some of the factors that are contributing to the discussions of these. In 2010, 2011, we were primarily driving those licenses with Bluetooth, Wi-Fi patents and a small number of wireless cellular patents.

Fast-forward six years and we really don't have much of a Bluetooth portfolio now. So, Bluetooth is not really contributing to re-signing.

So, you have to factor that and if you had a company that only sold Bluetooth products or chips, they are unlikely to re-sign right now because we simply don't have debt in that area. On the Wi-Fi front, the original Wi-Fi patents that we had, we were very fundamentally.

They were strong patents. Those patents have expired.

Now, just recently, we acquired a very interesting Wi-Fi portfolio, but I don't think it's of the same nature as our original fundamental Wi-Fi patents. So, although, Wi-Fi is a factor, it's not as factor.

So, two primary drivers are gone. Now, on the cellular front, we have a much stronger portfolio.

I think we have many, many patents now that we are able to document and I feel like that's a much stronger driver of licenses than it was back in 2010, 2011. So that should be in our favor.

The other thing is that we now have many, many other portfolios. We have over 60 portfolios now and many of these companies need a license I think to the semiconductor portfolios or some of the other technologies we have.

So, long-lit way of saying the mix that drives the license will be different but most of them still need to renew.

All right. Again that’s helpful.

So Jim going back to the wireless patent portfolio, I presume then the win against Ericsson in Appeals Court such a critical win for you with regards to asserting your LTE patents then.

I think every win is critical. The most important thing is when we announced the other license and hopefully they all will lead up to that and as I mentioned if you're keeping track of it we had that some significant wins against Ericsson and we hope that brings a good favor in a more meaningful way.

Very good. Two more quick questions if I may.

Can you remind me with regards to litigation you have in Germany with Deutsche Telecom, Sony and Amazon? What patents are you asserting against those players?

So those patents were acquired from Siemens. And they are networking patents.

We think they are very strong patents and Germany moves pretty quickly and I actually think some of our well I actually maybe not that one but some of these suits we filed in China and Germany it's possible we will have a trial in 2017 if we aren’t settled.

Okay. Great.

Last question, probably better for Shaun with regards to free cash flow. Can you remind me again in terms of the payment structure?

I believe there were some patent finance obligations that were rolling off in 2017. Could you remind us of the numbers specifically that we should look for this year, please?

The exact -- there is two elements and when we follow savings on SEDAR later, today or tomorrow you’ll be able to get the details of it. But there are two numbers really one is about 5.5 million that will roll out for sure on that roughly 1.4 million a quarter for next four quarters.

The second one is about $5 million that is subject to certain license agreements being sought. If those license agreements are signed, that will roll out, if they aren’t signed, it will push out.

Great. Thanks very much.

Thank you.

Thanks. Good morning.

You acquired or partnered on a couple of new patent portfolios in Q4 you mentioned and you’re also calling your portfolio which you provided an update on the total addressable market you think for the portfolio as you see it now or you now have.

As I said, we have over 61 portfolios now, but if you wanted to sort of think of it in terms of a quantum, how big is the market or our expectations on royalties. We do track that and we certainly think it's -- we think it's in the $1.2 billion or $1.5 billion range, could be higher.

Those aren’t guaranteed but in terms of our internal tracking that’s approximately what we think we’re going to end up at with these patents.

That's over the lifetime of the patents.

Yes, it’s totally looking at five year timeframe that that's now I guess it could be a little bit longer than that but that’s how we toggle it. Now this is not an exact science and lots of things can happen and sometimes we think it's in the best interest of the company to accept less sometimes we end up getting more but if you wanted if you want to look at our books and how we’re tracking it and what we think is possible that’s what we think.

Right. So I mean when you talk about your efforts to call patent portfolio for non-core patents I mean would those ever have an impact on the addressable market, do they ever reduce or you have zero value assigned to those patents is that kind of how it works?

I mean we have such a large patent portfolio now and the 15,000 patent ranges is exactly not for lot of big name brand -- very well-known blue-chip companies that don't have anything like that. And the maintenance costs on such a large portfolio end up being one of our biggest expenses.

So in order to improve our performance it really is critical I think that we do call the portfolio and what we mean by that is identify patents that we don’t think are crucial to the licensing effort and we ear-mark those as patents we are going to not pay the ongoing maintenance fees on and allowed to abandon, allows to become abandoned. And at least -- in our experience it really doesn't matter that much.

We still have lots of -- we keep all the patents that we can actually assert and demonstrate evidence of use on. It’s only the patents where we just don't think that's very likely to happen.

And we still have a very large portfolio so I don't think it’s a factor in the amount of money we get.

Shaun…

These factors in some much money we make though, because if we don’t cut those expenses we are not going to be as profitable.

Okay. Shaun, receivables kind of jumped -- just of your book some revenue kind of late in the quarter perhaps from one of the larger license deals and you may not have collected.

Could you confirm if that's the case? Or does anything else going on there and whether you have made that collection?

I can confirm that we have collected all but 150,000 of that receivable balance as of today.

And that’s helpful. So I mean if I look at your dividend payment your new and CIB even if you are to exhaust that program the kind of cash flow with the reduced patent payments for prior patent acquisitions caches clearly are going to start building up on you guys are piling up.

Outside of the current dividend and buyback I mean can you talk a little bit about your priorities for your balance sheet and your cash balance?

Yes, sure. And I’m glad you’ve highlighted that because its important point that we started the year with cash US 90 million.

Our current cash today is -- maybe you could what’s the number Shaun?

North of a 120.

Well north of a 120. It waves good news story.

We’re being successful and we’re accumulating a lot of cash but we well understand -- enormous amount of cash of the balance sheet is not necessarily helping our business that much. So we are looking for ways to deploy that cash to benefit companies -- the company and shareholders.

And we’re looking at all kinds of possibilities including buybacks and dividends but other things as well. And without sort of getting the card that had a horse -- we are working harder than that.

We’re trying to be disciplined about it, but we do believe that we need to deploy some of that cash in a more productive way.

Yes, it’s a nice problem to have for sure.

It’s a nice problem to have, that is for sure.

Last question for me and let have some broader, Jim, I think it’s the first time – well it is the first time you had a call like this since Trump took his seat and I guess the last where you said you see any changes to the administration view on patents and what you're seeing out of the U.S. regulatory market.

That’s a very good question. And I could tell you the sort of patent community, we’re all not sure, but I’m somewhat optimistic.

It sounds like we shall leave is the head of the patent office in U.S. It came from Google; some people are not sure given her background her full patent she really is.

I first intended like she might be saying but the latest I’ve heard is that it sounds like she might be going and at least something that might be a positive thing because they are not sure she is -- Google does not -- I have a reputation for being [indiscernible] patents. So, that’s history is formulated her opinions, it may mean that they have the patent officer actually isn’t that for patent and change might be good.

Lot of the noises out of Trump administration is being about protecting IP about the importance of fostering small businesses which need good IT protection. The other thing is I really haven’t heard very much lately.

We're not hearing as much about patent reform. The two big things that I think feature in patent reform are one cost, those who would pay the cost; the two, that you might be restricted on which jurisdictions you can bring.

And those are two other things we've been looking and hearing about for maybe five years. We're ready for that if it happens, but we'd rather didn’t.

And at least I think myself it's less likely that that's going to happen, but it's early days, we're going to have to see what happens.

That's great color. I appreciate that.

I'll pass around.

Thank you. Just coming back to the original patents or deals signed in 2010, 2011 and with the renewal of the ZTE that you referenced Jim, obviously, early data points in terms of how you're seeing this program renewals coming?

Could you, without giving specific numbers, tell us if the renewal with a company like ZTE if it's equal or better or worse versus the deal signed years ago?

I think ZTE would rightly be quite upset with me if I talked about stuff like that with that granularity. So, unfortunately I really can't Dan.

Can you share with us if any of that roll-off began in this quarter or should we expect it to happen in more earnest in 2017?

When you say roll-off, what are you referencing?

In terms of the quarterly payment for deals signed back in 2010, 2011 with those deals rolling-off; I believe it was supposed to happen in early 2017 or late 2016?

The truth is that amounts have been rolling off for years and we've been making up with new deals or with new payments. But there has been a steady erosion of backlog over the last number of years.

And that erosion adds to something also happening or deal signed that changes the dynamic which could happen. It's going to continue, so we will continue our backlog but just a little less all the time.

And of course by 2018 -- or the end of 2017, any licenses with term payments in the future, you won't be able account anymore as revenue. So, in effect, most of what's been our backlog historically is going to come to an end even if we had [Indiscernible].

So, that's the way it is.

All right, okay. So, just to clear then my concern was there potentially was going to be a bit of cliff impact, but what you're suggesting is similar to what we've always been seeing for the past several years that it would be more of a moderated decline in the, so-called core revenue base.

I think that's it. I mean it's more of a -- it sort of goes along the one level and that drops, goes one level drops.

I certainly implying that we likely always have a little bit less backlog going into the next quarter.

All right, okay. Very good.

Thanks so much.

Thanks Dan.