Wi-LAN is facing strong headwinds, says Paradigm

Paradigm analyst Daniel Kim says trickier times may be ahead for Wi-LAN (TSX:WIN) because the time and cost of asserting it patents is rising.

Yesterday, Wi-LAN reported its Q1, 2015 results. The company lost (U.S.) $4.75-million on revenue of $20.4-million.

“The first quarter was a quarter of steady progress,” said CEO Jim Skippen. “Our adjusted earnings during the quarter were more than double our guidance owing to higher revenues and effective cost controls. “We also signed eight new licences in the quarter including two wireless licence renewals.”

Kim says the quarter was in-line with his forecasts. But the analyst worries that an increasing portion of Wi-LAN’s revenue is being generated by one time payments and that its royalty streams are in decline. The analyst says the environment for Wi-LAN’s industry is getting tougher.

“The company continues to diversify its addressable markets; however, the time and cost of asserting its patents continues to rise. Management has stated that it is looking into making an operational acquisition to temper a difficult market in its core business.

Management noted that it had returned $5.2-million to shareholders in dividend payments during the first quarter of 2015 and that its cash position now stands at $118.5-million, down $9.1-million from its cash position on December 31, 2014. Kim says he does not believe Wi-LAN’s dividend is in immediate danger, but believes that this could be an future option for reducing the company’s annual cash burden.

In a research update to clients today, Kim maintained his “Hold” rating, but lowered his one year target on Wi-LAN to $3.00 from his previous target of $4.00. The new target implies a return of 8%, including dividend, at the time of publication.