Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Tyler Burns - Director of IR

Jim Skippen - President and CEO

Shaun McEwan - Chief Financial Officer

Analysts

Blair Abernethy - Cantor Fitzgerald

Daniel Kim - Paradigm Capital

Eyal Ofir - Clarus Securities

Ralph Garcea - Global Maxfin

Robert Young - Canaccord Genuity

Rob Manson-Hing - CIBC

WiLAN, Inc. (WIN.TO) Q2 2014 Results Earnings Conference Call July 30, 2014 10:00 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to WiLAN's Second Quarter Fiscal 2014 Financial Results Conference Call. At this time, all participants are in a listen only mode. Following management’s presentation we will conduct a question-and-answer session during which analysts are invited to ask questions. (Operator Instructions).

I would now like to turn the meeting over to Tyler Burns, Director of Investor Relations.

Tyler Burns

Thank you, operator, and good morning, everyone. Earlier this morning, WiLAN issued a news release announcing its financial results for the second quarter ended June 30, 2014. This news release is available on WiLAN's website and will be filed on SEDAR and EDGAR. On this morning's call, we have Jim Skippen, WiLAN's President and Chief Executive Officer; Shaun McEwan, WiLAN's Chief Financial Officer; and Michael Vladescu, WiLAN's Chief Operating 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 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.

Jim Skippen

Thanks Tyler and good morning everyone. I'll now speak the highlights of the second quarter. During the quarter, WiLAN generated revenues of $25.7 million, exceeding our guidance by $6.3 million or 32%. WiLAN generated an adjusted earnings of $16.6 million during the quarter exceeding, the top-end of our guidance by $6.1 million or nearly 60%. WiLAN had GAAP earnings of $5.6 million. During the quarter WiLAN generated of $11.7 million of cash from operations. We returned $4.3 million to shareholders in dividend payments. And during the quarter, we signed partnership agreements with six companies that have opened up new markets for WiLAN.

During the quarter, the U.S. Patent Office after conducting re-exam proceedings at the urging of certain defendants in our cases confirmed the validity of our 802 patent which was an issue in our case against Apple and Texas. It’s worth highlighting that the Texas Court also confirmed the validity of the 802 patent, ruling that the patent was improperly validated by the jury in the trial against Apple that was held in October 2013. The 802 patent was one of the original WiLAN patents filed by its founders.

Finally, the Board of Directors has declared a quarterly dividend of CDN0.05 per share for the second quarter of 2014 representing a 25% increase over our previous quarterly dividend. This is the fifth time, we've increased our dividend since it was introduced in June 2009. This dividend will be paid on a October 3, 2014, to shareholders of record on September 12, 2014.

Next I would like to talk about licensing partnerships. The plan we’ve established is just focusing more at licensing partnerships and outwrite patent acquisitions. We defined our licensing partnership as a relationship with the patent owner in which we help the patent owner drive value from the patents with offering a turnkey licensing program for the patent portfolio.

With our expertise in licensing, strong financial position, strong track record, we are ideally positioned to be the licensing partner of choice for many companies.

The partner will typically receive its rewards only when we actually sign licenses, so the risk is shared. This partnership focus is intended to generate a greater return from the resources that we invest with less risk and enable us to execute a larger number of licensing programs. This does not mean that we will completely eliminate portfolio purchases, but we do believe they will be fewer in number.

As highlighted earlier, our team secured licensing partnerships for six new portfolios in the second quarter. Early in the second quarter, we entered into two different licensing partnerships in the automotive market, another partnerships involved technology related to headlights, second relates to automotive diagnostic technology.

Also in the second quarter, we entered into a partnership, the license technology related to irrigation control. This transaction actually comes with the revenue stream for an existing running royalty license. We also acquired a portfolio related to networking capabilities of non-standard devices such as point of sales terminals. Anyone who buys a cup of coffee or goes out for dinner knows that point of sale terminals are big business, devices are everywhere. It is particularly exciting as we've already signed our license with [Philips] for this portfolio by some three months after acquiring it.

In the second quarter, we signed up partnership agreement, the license technology related to medical spends. This agreement expands our business into the medical technology market, a market we believe represents the significant opportunity for WiLAN. Later in the second quarter, we entered into an agreement with a global leader in non-volatile memory or flash memory to acquired portfolio of patents.

Obviously we're very pleased another large global corporation selected WiLAN to be their licensing partner of choice. Although we are restricted from saying very much in the press release about this transaction, we believe this deal is extremely significant for WiLAN. Flash memory market is a giant multi-billion dollar market and we believe major flash vendors will need and want to license this important portfolio.

We already have document evidence of use of 13 families of patents portfolio covering flash memory broadly. Given the pedigree of the patents, the remaining license of the portfolio and considering the size of the flash market, we believe this program has the potential to generate very significant revenues for WiLAN.

We are particularly pleased that our acquisition of this portfolio did not require any upfront payment by Wi-LAN and revenues will be shared with our partner. To put it in perspective, we believe this is probably the most significant portfolio WiLAN has acquired to-date. The partnerships signed in the second quarter bring the number of signed licensing partnerships to 25. This includes partnerships with other global corporations including British Telecom, Cypress Semiconductor, [Axis] and Panasonic.

As we continue to grow our business, primarily through licensing partnerships, the number of portfolios we are actively licensing will continue to rise. As we embarked on increasing number licensing programs, a number of programs could ultimately require litigation to achieve a successful licensing outcome. I wanted to clarify the impact of this litigation activity on our financial results.

In the past, we have fully funded all litigation efforts which was quite expensive, particularly if revenues were delayed. This has now dramatically changed. Going forward, we expect our law firm partners to share the risk with us of achieving a successful litigation outcome, which we hope as a speedy license agreement. We expect the majority of future cases to be full contingency cases with a law firm only gets paid upon a successful outcome of the litigation.

Certain cases may involve some payments to the law firms during the process of litigation. But typically it will be fixed and tapped so that the most of the law firms awards will only come upon a successful outcome.

So what does this mean? The key point for investors I think is that as licensing activity and possibly litigation activity rises, litigation expenses will not rise nearly as much as in the past, because most of the cost is postponed until the litigation is over and there is a successful outcome. The successful outcome should more than offset the cost.

I will now turn to licensing activity during the second quarter. In second quarter, a WiLAN subsidiary signed a license agreement with Bluegrass Cellular and one other U.S. wireless carrier for technology -- for a technology company that wants to remain anonymous related to network management.

As a reminder, the patents in our network management licensing program were acquired from Siemens in the second half 2012. This technology which is packed at multiple jurisdictions relates to networking reliability and security for carriers generating tens of billions of dollars in annual revenue from the services that use these technology.

Also during the quarter, we signed a renewal licensing with Archos S.A.; Archos signed a first license for a Wi-Fi and SIM CDMA technology since 2008, recognizing the value of the technologies that we've added since 2008, the renewal license with Archos adds coverage to 3G and 4G wireless technologies using a broad range of Archos brand in consumer electronics devices, including PCs and smartphones.

Towards the end of the second quarter, we also signed a license with Nokia Networks. Remember that WiLAN first signed a patent license agreement with Nokia in December 2006 the latest of the portfolio patents that we owned at the time. Nokia Networks is a successor of Nokia for its networking business, so we consider this renewal to position WiLAN to sign wireless license agreements with respective licensees and renewal agreements with licensees.

It is critical that we invest responsibly in the development of new technologies and the all right acquisition of patent assets to not only sustain but to increase the value of our wireless portfolio. Understanding this dynamic in the second quarter WiLAN acquired a portfolio of wireless patents from Nokia Networks.

The acquired portfolio patents have worldwide coverage its various current and future wireless handset infrastructure technologies. As Nokia has been at the forefront of the development and commercialization of wireless communication technology for decades, we believe the acquired portfolio was able to signing of future licenses. Also during the quarter we completed the license agreement with Sony for portfolio of television technology.

In conclusion I believe we continue to make solid progress towards delivering on the plan that we have put in place to more than double our revenues by 2018, while increasing profitability and reducing business risk.

With the reduction of legal fees due in large measure in new shard risk fee model adopting with all of our council, our margins have increased significantly. The second quarter marks the third quarter in a row that our business has delivered strong adjusted earnings and significant GAAP earnings.

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

Shaun McEwan

Thank you Jim and good morning everyone. Revenues for the second quarter ended June 30, 2014 were $25.7 million which exceeded our guidance of $19.4 million by $6.3 million or roughly 30%. For our second quarter of 2014 three licensees individually accounted for 12%, 12% and 10% respectively of revenues whereas in the comparable period last year four licensees individually accounted for 17%, 16%, 14% and 10% respectively. In the second quarter of 2014 and 2013 as a comparative, the top 10 licensees accounted for 74% versus 85% last year.

I want to take a quick moment to highlight to investors that as a number of our licensing programs as Jim has outlined in our business increases. And in particular the number of licensing partnership increases we expect that a greater share of the revenue that we generate in a given quarter will come from what characterizes one-time payment. As we’ve highlighted many times, the revenue guidance that we provide includes only those revenues booked just prior to when we put that press release at. Therefore additional reports received in the remainder of the quarter and any new license agreement signed including those with the onetime payments or front-end loaded will have a positive impact on actual revenue reported.

Now I’d like to cover our operating expenses briefly. The cost of revenue expenses for the second quarter of fiscal 2014, totaled $14,472,000 or approximately 56% of revenue. Compensation costs, patent management costs and external litigation expenses all cash costs in those category were $1.9 million, $2.1 million and $1.7 million, respectively.

Cost of revenue expenses in the quarter also included $8.4 million in non-cash expenses which is principally amortization of patent. Over the last few quarters, our total cost of revenue expenses have declined sequentially due impart to lower compensation costs and principally lower litigation expenses. Comparatively in the second quarter of fiscal 2013, cost of revenue expenses totaled $24.2 million included compensation costs of $1.2 million, patent management expenses of $1.5 million and litigation expenses of $14.5 million along with non-cash expenses totaling $6.6 million.

In the second quarter, litigation expenses at $1.7 million were at the lower end of lower guidance and were down significantly from the comparable period last year. This decrease year-over-year is largely attributable to a decrease in the level of litigation activity and these new shared risk fee arrangements that Jim has already outlines.

Litigation expenses are expected to vary from period-to-period due to the variability of litigation activities themselves and any contingent payments that maybe required as a result of licenses signed in that particular quarter.

Our marketing, general and administration expenses in the second quarter of 2014 totaled $2.8 million or approximately 11% of revenue included $2.2 million in overhead expenses, which are cash oriented and $492,000 in non-cash charges for depreciation and stock-based compensation. Comparatively, in the same period last year, MG&A expense totaled $3.6 million, which was comprised of $2.8 million in overhead expenses and non-cash charges of $858,000.

In the second quarter, the company realized a gain on foreign exchange of $1.1 million, which included a non-cash unrealized foreign exchange gain of $1.3 million. The unrealized foreign exchange gain recognized in the second quarter results from the translation monitory accounts denominated in Canadian dollars to U.S. dollars at quarter end as well as the revaluating of foreign exchange contracts WiLAN held. Speaking of that at June 30th,WiLAN held foreign exchange forward contracts totaling approximately $21 million which mature at various stage through the January 2015.

We recorded a net income tax expense of $3.4 million in the second quarter as compared to an income tax, excuse me, recovery of $2 million in the previous year.

The current income tax expense of $1.3 million booked in this quarter relates to taxes withheld on royalties received from foreign jurisdictions for which there is no 3D released. We also booked a $2 million deferred expense resulting from the utilization of certain loss carry forwards principally in Canada. As at the end of the quarter we still held various tax assets totaling more than $120 million. As a result of all of the above, WiLAN’s GAAP net earnings for the second quarter were $5.599 million or $0.05 per share of all the basic and fully diluted level compared to a loss of $7.632 million or $0.06 of all the basic and fully diluted basis in the second quarter last year.

We believe that adjusted earnings a non-GAAP measure assist in evaluating the performance of our business by eliminating non-cash and certain other non-operating expenses. For the second quarter ended June 30, 2014 adjusted earnings were $16.6 million or $0.14 per share on a basic level. This compares favorably to a loss of $762,000 or $0.01 per share on a basic level last year.

Now quickly turning our attention to the balance sheet for a moment. We ended the second quarter with $140.1 million in cash, cash equivalents, and short-term investments. This remains principally consistent with cash at last quarter end and represents an increase of $8.2 million from the cash position at December 31, 2013.

During the quarter we generated $11.8 million from operations out of that we returned $4.3 million to shareholder through dividend payments and $125,000 on the repurchase of common shares on a normal course issuer bid which really commenced only the last week of the quarter. Further we used approximately $10.7 million to pay for patents that we had previously acquired.

Lastly I will discuss our guidance for the third quarter of 2014 ending September 30th. For that quarter we expect revenues to be at least $19.7 million. This revenue guidance does not include the potential impact of any additional reports that we receive or any new agreements that may be signed during the balance of the third quarter that we already outlined.

Operating expenses for the third quarter of 2014 are expected to be in the range of $9.7 million to $10.4 million, of which litigation expense is expected to be between $2.5 million and $3.2 million. For the third quarter of 2013, and assuming no additional agreements are signed, adjusted earnings are expected to be in the range of $9.4 million to $10.2 million.

Due to their nature, certain income and expense items, such as significant license agreements with companies, brokerage opportunities, new litigation actions, contingent payments to licensing partners and litigation counsel that may be required from certain licenses signed in any particular quarter, losses on asset impairments or realized foreign exchange gains or losses cannot be accurately forecast. Accordingly, we exclude such forecast items from our guidance. Actual revenues reported may exceed the revenue guidance provided due to the receipt of royalty reports and the signing of new license agreements that happen after our guidance is provided as well actual expenses may exceed the expense guidance provided due in part, to contingent payments to licensing partners and litigation counsel that may be required from certain licenses signed during the quarter.

This concludes my review of the financial results for the second quarter ended June 30, 2014. And I’ll now turn the call over to Tyler.

Tyler Burns

Thank you very much, Shaun. We will now move to the Q&A portion of our conference call. As we want to get questions from as many analysts as possible, we ask that you limit yourself to one question and one follow up. We also ask that analysts avoid long and multi-part questions. Should analysts have additional questions and time permits, they are certainly invited to rejoin the queue.

Operator, may we have the first question please?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from the line of Blair Abernethy with Cantor Fitzgerald. Please proceed with your question.

Blair Abernethy - Cantor Fitzgerald

Thanks for very much. Jim, I just wonder if you can give us a little color on this disposition program that you announced yesterday with Adapt IP Ventures, some sense of sort of the magnitude of what this covers for you, value and may be timing on -- any sense of timing when this could generate some revenue for you.

Jim Skippen

Sure. So first of all, it was their release not ours. I did give them a poke but just to be clear it wasn't our release. The second thing is that the release sounds very extensive like there is a lot of patents that are beings sold. In fact it's 150 patents that really relate to our white space development. And that will be conducted ourselves. And it does touch literally on a number of wireless standards like LTE and other things but really it's a white space portfolio.

It's difficult to predict when revenues might be generated from this but I certainly would not expect anything for several months after the release. Could be quicker but that’s what I’d estimate. And I am reluctant at this point to publicly estimate how much it will be.

Blair Abernethy - Cantor Fitzgerald

Understood, thank you.

Operator

Thank you. Our next question comes from the line of Daniel Kim with Paradigm Capital. Please proceed with your question.

Daniel Kim - Paradigm Capital

Yes, good morning. Jim thanks very much for clarifying in particular the flash memory opportunity, wondering if you could at all frame the opportunities within the other verticals that the company is now targeting, specifically trying to get a sense of how much more if at all, how much more money will be required to round up patent portfolios if required in any of the other verticals before you start assert these patents?

Jim Skippen

Well okay, I’ll try to tackle that one. Essentially I think all the portfolios that we have at this point; we would view as self sufficient. In other words, they’re enough to be licensed as they are. It doesn’t mean we won’t indulge them in the future but that we’re not waiting to start licensing activities on them. We think they’re already valuable and already ready to license. So, we have approximately 30 portfolios now that we look at as distinct portfolios and they’re all important portfolios, they’re all valuable and they’re all -- we’re actively starting to license many of them. So, I am reluctant to try to go through all 30 of them and give exact dollar numbers on the call at least. But hopefully that helps a little bit.

Daniel Kim - Paradigm Capital

That is helpful, thank you. My second question would be related to the Apple situation. I guess first off, wondering what the next steps would be on the 802 patents now that the patents are valid. And secondly, as it relates to Apple again, I believe you’re coming up to trial end of this year with relating to the LTE patents. Will there be any type of merging of these two separate matters or how do you think this play out for the balance of the year?

Jim Skippen

Well, of course our objective is always to sign a license. So we’re always actively working towards that end, if whether upfront or in the background but you can count on us trying to do that, if it's possible. If it's not possible, that would be disappointing, but we will end up in litigation in November on several patents. These are patents that were developed by Ken Stanwood's team, Ken Stanwood is a full time employee of ours and a subsidiary of ours at Cygnus and we have a very strong case, we think the very fundamental patents, we just had a very positive ruling terrifying the Markman, which we think really assists in the case and we'll go to trial in November, if there is not a resolution which of course is our first choice.

Now we did introduce to Apple through a number of additional patents that we think they might be interested in and we hope to have a friendly discussion with Apple that's in those patents, we then file suit on the same patents in San Diego us in San Francisco. So these are additional five LTE patents. So we now have 8 or 9 LTE patents that are in litigation with Apple and we believe that the few cases should be consolidated because the patents are all related and they are codevelopers, so we'll likely be working in that towards that end. But I don't expect that the, and we expect we think all the cases should be as on the San Diego. But I don't think these new five patents will be the subject of the trial November, it will be just the original four.

Daniel Kim - Paradigm Capital

Thank you very much.

Jim Skippen

Okay, hopefully. Did I explain, I know it's confusing a bit Daniel, but does that clarify there, I hope that’s it.

Daniel Kim - Paradigm Capital

That's helpful. Thank you.

Jim Skippen

Thank you.

Operator

Thank you. Our next question comes from the line of Eyal Ofir with Clarus Securities. Please proceed with your question.

Eyal Ofir - Clarus Securities

Thanks. Just to clarify the Apple trial, you talked about going to trial November. Is that the 802 kind of…

Jim Skippen

No. I am glad you asked that because I…

Eyal Ofir - Clarus Securities

But that’s a different trial, the LTE trial

Jim Skippen

Yes, the LTE trial is November it’s on four LTE patents developed by our sorry two LTE patents I should say developed by Ken Stanwood.

Eyal Ofir - Clarus Securities

Okay, that was in Florida, right?

Jim Skippen

It was in Florida and was transferred to San Diego.

Eyal Ofir - Clarus Securities

Okay.

Jim Skippen

The..

Eyal Ofir - Clarus Securities

Yes so that I just wanted to clarify for kind of 802 situation on what kind of (inaudible) we will see.

Jim Skippen

Yes, the 802 was one of the original patents that WiLAN had developed by its founders, we think it broadly covers 3G technologies it’s been licensed by many parties, Apple beat us on that patent trial the judgment came back and said despite the fact that the jury has found the patent invalid, he didn’t agree with he didn’t think any reason that jury could reach at conclusion and that any overturn that. Then they took another kick, Kim because they took the Apple as the patent is re-examined and patent office looked at it and the patent office just recently came back and said no, all those things are valid. So now we have one remaining issue which is infringement. And we are appealing the infringement ruling to the Court of Appeal. We hope that they are influenced by the fact that the jury got the validity wrong, and we feel optimistic about that and that appeal I would expect would get heard you will see result probably within the next six months or so, maybe a little bit longer.

Eyal Ofir - Clarus Securities

Okay. When do you expect to hear dates on that appeal?

Jim Skippen

Well we have to file materials because, we just actually asked for an extension of one month with Apple’s consent on filing material, so I would expect the materials would be filed at the end of August. And that I would expect that we'll have a hearing within 3, 4 months and results within six months. It could be a little longer or it could be a little shorter. But that's the approximate timeframe.

Eyal Ofir - Clarus Securities

Okay. But and just a general question, obviously a lot of moving pieces in your business now and you have a lot more partnerships in hand. Can you just say, I think looking at over next 12 months, where do you think into the partnerships, where the most growth is going to help drive your revenue profile?

And then just in terms of the ongoing discussions, you guys are having in terms of licensing, what are you seeing there and kind of what your thought process in terms of licensing just as general patent, apart from just as I think?

Jim Skippen

Well, it's always difficult to predict in the short-term, where the growth comes from, it could come from many places here and if I predicted, it would partly work definitely not predict. I definitely think we are going to continue to see growth, legacy programs like our wireless and TV programs. But I also think that some of the bright spots in the horizon, where we are seeing a fair bit of licensing activity and offers or in areas office from prospect of licensees and then areas like our British Telecom portfolio that applies to basically digital life management, video and other content that springing over the internet. We're seeing a lot of life on our portfolio that relates to non-standard devices, but point of sale terminals offers on that portfolio. So, we think we'll see activity there. I'm hopeful that on some of the Panasonic patents are CMOS image sensing patents, we're going to see some licenses, it's possible on the flash portfolio, the big flash portfolio, we may see some licenses. And So it's -- there’s lots of areas where there could be licenses with 30 exit program and we have got lot of teams that could be licensing and when I track sort of where we're at on them, we have lots of interest in taking licenses just surprise to that issue.

I think we're going to see lots of growth in lot of areas. So hopefully that helps without being too granular about it.

Eyal Ofir - Clarus Securities

Okay, thanks. And just on the partnership you expect to have more kind of one-off payments versus kind of….

Jim Skippen

Yes. Like assets of course what we're seeing in the last few quarters we currently have guidance around 90 million of revenues in this quarter closer to 20, but and then the actual results come in and it’s much higher. And I think what we're seeing is that with so many portfolios and many licensees are happy to make one time payments or may be there is a payment one year and then a payment next year and the year after.

But most of these sort of pay every quarter deals that we're going to see a lot more one-time payments in our revenues. And they're going to be a much bigger components of overall revenues. So again when we look at the guidance for next year we know for instance there are number of reports that haven't come in on running royalties. So we know those will come in, so we know the actual revenues will be higher and we also are in the process of negotiating number of deals some of which will be one time probably and that could affect revenues too.

So long weighted way of saying these one time or periodic payments are becoming a bigger component of overall revenues and it's probably fair to expect that they're going to show up most quarters and they usually don't come in till the end of the quarter. So they're not there at beginning where we give our guidance and we only give guidance on what we've actually got in the bag.

This time I just repeat we're missing some running royalty payments as well that are significant. So that’s a little bit more color on the guidance.

Eyal Ofir - Clarus Securities

Okay, perfect. Thanks and best of luck.

Jim Skippen

Okay. Thanks.

Operator

Thank you. Our next question comes from the line of Ralph Garcea with Global Maxfin. Please proceed with your question.

Ralph Garcea - Global Maxfin

Good morning gentlemen.

Jim Skippen

Hi Ralph.

Ralph Garcea - Global Maxfin

Just as you get more active on these partnerships in that. I mean how much or how far advanced are your partners in discussions with perspective licensees, when you sign these agreements? I mean if you look at the flash side or even the point of sale terminal ones. I mean, have they already started sort of putting companies on notice?

Jim Skippen

No.

Shaun McEwan

No, they’re all different. The flash portfolio is a virgin portfolio, it’s never been asserted, never been licensed as such. This is a very well known global company that and so they have a few cross-licenses, but not very many. So largely the propose is completely on license. And there was a huge room for us to get this portfolio and I sort of think the market unfortunately I understand why the market reacts as much as we thought it would because we (inaudible) be. So quite in the press release though how significant it was but it’s very significant. In the term we are good and there is no cash upfront so it’s a real win for us.

But unlike if you compare that to the point of sales terminal portfolio that portfolio has actually been through litigation, been successful and a number of parties are taking licenses. And so it’s a great portfolio for us to take along because we know it’s a winner and we’re just basically going around and making sure that doing the clean up on the unlicenses parties out there and it’s pleasure to license that take a very high quality portfolio.

Ralph Garcea - Global Maxfin

Okay. And then just on the one-time payments, I mean even though you’re not getting these sort of quarterly run rates. I mean these are still sort of five year or seven year deals and you’re just leaving it flexible so they can pay as units are shipped and so forth.

Shaun McEwan

No. So we do have some, so there were some agreement signed at last quarter that are still quarterly payments. But with some of these very smaller proposal. So let's say there is only one or two patents in the portfolio, but they are valuable patents. And maybe the infringement it's not a huge amount of infringement. What typically happens is someone pays us an amount and then they are fully licensed for the life of the patent. And we're going to see more patents like that. And that's much closer to I think the style licensing that you'd see from a company like [Acacia]. And that's going to be a component of our overall revenues.

So it's not that it’s five to seven years and it’s unit based running royalties, it’s that it's a one-time payment, maybe a smaller licensee also the bottom-line and we're just going to see more and more of those.

Ralph Garcea - Global Maxfin

Okay. Thank you.

Jim Skippen

Okay. Thanks Ralph.

Operator

Thank you. Our next question comes from the line of Robert Young with Canaccord Genuity. Please proceed with your question.

Robert Young - Canaccord Genuity

Hi, good morning. I was hoping to dig into a little bit into the litigation expense. The last two quarters have been in the 1.7 million level. And I think, if I understand how these are structured there is a retainer fee or an extended retainer fee which includes typical work and then there is a success fee. And I was wondering if that 1.7 million, is that a good sort of a baseline level for that retainer fee or should we think that could potentially go lower if there is no activity?

Jim Skippen

No, yes, it’s good to try to clarify this for people. So we basically have two models now with lockers. The first model is a 100% contingency where all we would pay probably is older pocket disbursements. So they would typically be things like third-party experts or maybe forward copies or things like that. But we don’t pay anything to the law firm until we are successful in the litigation and then they would get a percentage. And the rough rule of thumb on percentage is about 30% of the growth.

The other type of model that we have is a little bit more complicated. But basically what we do is we agree on a fixed amount. So let’s say for argument sake, the fixed amount we agree on is $3 million or $1 million, it doesn’t really matter what but basically it’s usually a percentage of what we think the actual cost would be. So if the actually cost litigation let’s say -- we think it be would $10 million, we might agree to pay 40% of that. So that -- let’s use 4 million. We would then pay 4 million in sort of quarterly payments, not for 4 million a quarter but whatever 4 million breaks down to over two years. And at the end, once we paid it off, that’s it; we don’t pay any more to the firm. The firm would then cover disbursements and it would cover its own fees. So that’s all the fees they get. And it will only get more money if 30% of the actual amount that we get from the licensee is more than the 4 million. So this enables the firm to operate on a marquee litigation because they have enough to sort of cover their cost; they are not making any profit probably, believe it or not but they are they can cover the cost and our interests are aligned. They are also -- we like it because on these big litigations third party costs can be a lot and they are actually incented to try to keep them down too, but they’re still incented to get the maximum amount because that’s how they make a lot of money. So that’s the other model that we have employed.

Robert Young - Canaccord Genuity

Okay, that’s helpful. And then if I follow up would be -- I was wondering if you would venture an updated backlog figure. I think the guidance this quarter is roughly the same as last quarter around the same spot. So, I think you said that you’d signed some quarterly payers which might suggest the backlog is dropped. So, I was wondering if you could maybe give us some direction to that or maybe update…

Jim Skippen

We have a range of backlog, the range certainly hasn't changed. And I can tell you backlog is pretty steady, it hasn't changed much from last quarter. But I don't want to really be granular on backlog every single quarter. So, unfortunately, we’re not prepared to do that at this point, except to tell you it’s very similar to what it was.

Robert Young - Canaccord Genuity

Okay, thanks. I’ll hop back in the queue.

Jim Skippen

Thanks.

Operator

Thank you. (Operator Instructions). Our next question is a follow-up from the line of Blair Abernethy with Cantor Fitzgerald. Please proceed with your question.

Blair Abernethy - Cantor Fitzgerald

Thanks very much. Jim, I wonder if you can give us some color on your thinking now in terms of stock buyback.

Jim Skippen

Well, we only actually got in place because of the regulatory timing of at all for the last seven or eight days of the quarter. And we have it; we've been making modest purchases on it. We're continuing to think about it. Certainly if we saw weakness in the stock price, I'm quite sure we get much more aggressive. We do think the stock price doesn't reflect the value of the company. So we may get more aggressive anyway. But I don't want to give too much more color than that except we do expect to make consistent purchases everyday and we will react to the stock price. And if that we don't think the market is valuing it properly, we'll get more aggressive.

It is a balance because we do think we can use that money to go out and buy or at least sometimes we have to pay advance on very valuable portfolios which can really benefit the company in the long-term. So we have to offset that against buyback. We also have over 6% dividend now, a very aggressive dividend. So, we are committed to the buybacks but I won't say much more than that in terms of the volume.

Blair Abernethy - Cantor Fitzgerald

Okay, I appreciate that. And just if I could slag one more in, could you just talk to the volume of licensing activity in the first half of this year versus sort of what you were trending last year and the capacity of your team to sign more licenses?

Jim Skippen

Well, we've changed the organization somewhat. We used to have sort of person at charge of licensing, one that charges business development. Now we have five independent teams, somewhat independent teams and they certainly charge their own acquisitions and own licensing. And I think that has unleashed some entrepreneurial spirit in the teams. And we're seeing a lot of activity, particularly for some of our teams. So my own feeling is the trend is very good with a lot more programs, with a lot more activity, through volume of programs, we should see more licensing. So bottom line is, it looks healthy to me and I think the results are indicating that as well, the dramatically improved financial results of the company over the last two, three quarters.

So I have to it'll be interesting to see over the next three, four months. All the teams have aggressive targets in terms of attracting new partners and all of them have aggressive targets in terms of signing the licenses. So I have to sit back and hope that it comes to fruition.

Blair Abernethy - Cantor Fitzgerald

Okay, great. Thank you.

Jim Skippen

Okay.

Operator

Thank you. Our next question comes from the line of Rob Manson-Hing with CIBC. Please proceed with your question.

Rob Manson-Hing - CIBC

Hi good morning.

Jim Skippen

Good morning.

Rob Manson-Hing - CIBC

Just in terms of the timing for the Sony, Philips, Nokia Networks signings is that going to be recognized in Q3?

Shaun McEwan

There will be some revenues from Q3, yes.

Rob Manson-Hing - CIBC

Okay. And then in terms of litigation cost, I don’t think I’ve got a good sense of what I guess maybe longer-term?

Shaun McEwan

Oh, yes, yes. I am glad you asked that, but I may speak to that. So, I think litigation expenses in the quarter were about $1.7 million. I actually think the run rate that we’re expecting is probably $2 million to $3 million and that’s the range we think at this point is sort of a normalized range for litigation expenses, which is up a bit but obviously dramatically down from the $40 million plus a year before.

Rob Manson-Hing - CIBC

Yes. Is that assuming that you go into litigation with lot of these like auto, irrigation, medical potential licensees, is that kind of the thought?

Jim Skippen

Yes, yes, we’re just taking that possibility into account.

Rob Manson-Hing - CIBC

Okay. And last question, I thought you were going to recognize a major obligation this quarter $30 million or so in Q2 and I didn’t see that come. Is that something going to happen next quarter or what’s the timing of that because of Samsung?

Jim Skippen

Oh, everyone has got confused looks in the room here and I am not paused with what that is, I don’t think there is an obligation next quarter to Samsung of $12 million to $13 million.

Shaun McEwan

(Inaudible) on our balance yet.

Rob Manson-Hing - CIBC

Yes, yes, okay. Okay, I must have been mistaken then, okay. Thanks a lot.

Jim Skippen

Okay. Thanks you.

Operator

Thank you. Our next question comes from the line of Daniel Kim with Paradigm Capital. Please proceed with your question.

Daniel Kim - Paradigm Capital

Thank you. Just to clarify on the legal. Jim with regards to the new agreements that you have to offload the risk and share the litigation expenses, does that apply only to new patent associations or would that also apply to the Apple case?

Jim Skippen

No, all of our litigations one or the other model at this point, that's the only so to the extent they weren’t that way, we've changed them and negotiated new deals. So I think it will be safe to assume that the Apple follows that model.

So we obtain a fixed amount if we say presume with Apple and it's not going to change and when we lease a license with Apple then the law firm will get a significant portion of its reward.

Daniel Kim - Paradigm Capital

Great. Thank you very much.

Jim Skippen

1.7 contemplates, the fixed fee for Apple which should not changed.

Daniel Kim - Paradigm Capital

Right. Thank you.

Jim Skippen

Okay.

Operator

Thank you. Our next question comes from the line of Robert Young with Canaccord Genuity. Please proceed with your question.

Robert Young - Canaccord Genuity

Couple of quick one. Just the decision use adapt IP ventures. It seem to me there expertise and how and so Blair asked earlier about the workload on the team. Is that a sign that you're just overflowing a little bit and why would you use a broker for that?

Jim Skippen

Okay. Well quick answer on those (inaudible). I'm not sure we view our sales is patent brokers. And that yes, we have sold some patents in the past, but the brokerage business is, it's a slightly different business. And that’s all they do they just focus on sales they have many, many contract they can talk to companies that might be harder us to talk to and so we they only gets paid upon a successful outcome of transaction and so we think it’s a sensible way for us to manage ourselves, but this relates back really to the announcement we made three or four months ago when we ended this feat review that we intended to divest some of our portfolios that didn’t think were core portfolios for us. So one of the first ones we are looking at is a wide space portfolio that was developed internally and we do think that it makes sense to use an outright broker for that and most of the licensing companies like us when they divest portfolios they do use brokers so this is not unusual and we could develop that expertise and operate as a service but we really don’t currently.

Robert Young - Canaccord Genuity

Okay. And then the purchase of intangibles in the quarter 11 million I think you said earlier that there was payments for patents previously acquired I just it seems obviously that would be the Nokia announcement but should we expect another purchase of intangibles related to Nokia announcement in the coming quarters?

Jim Skippen

What you need to look at is the patent finance obligations on the balance sheet that reflects the lot of patents we have and the cash flows the way it works is the cash flows on the statement of cash flows actually reflects the sort of the retirement of patent finance obligation that’s why I said it’s related to previously acquired stuff.

Robert Young - Canaccord Genuity

Okay, great. Okay thank you.

Jim Skippen

Thank you.

Operator

Thank you. This concludes WiLAN’s second quarter 2014 financial results conference call. I will now turn the call back to Tyler Burns for final remarks.

Tyler Burns

Thank you for attending WiLAN’s second quarter 2014 financial results conference call. A replay of this conference call will be available until 11:59 PM on October 30, 2014. 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 website. Thank you for attending. Good bye.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: WiLAN's (WIN.TO) CEO Jim Skippen on Q2 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts