Wi-LAN restructuring gets thumbs up at Paradigm

Yesterday, Wi-LAN reported its Q3, 2015 results. The company earned (U.S.) $829,000 on revenue of $21.4-million. Wi-LAN also announced a corporate restructuring that began in October and is expected to be completed by December. The Ottawa-based patent player says it will try to spin out its R&D unit while retaining a minority interest in it, and will look to buy more high quality patents. The company also announced that CEO Jim Skippen would delay his planned retirement and stay on with Wi-LAN for at least three more years.

“It is well understood that the environment for patent licensing companies has been undergoing a number of changes that have significantly altered the performance and outlook for IP market participants,” said Skippen. “Against this backdrop, Wi-LAN has chosen to make a number of difficult decisions regarding our staffing and resource allocation. We believe these steps are essential to the long-term growth and strength of our business, and to our ability to continue delivering healthy profit margins.”

Kim says a leaner, more focused Wi-LAN should reveal a lot of the positives the company already has going for it.

“WIN has made aggressive changes to ensure it has sufficient cash to assert its impressive patent portfolio. Some may argue that a 2.7% dividend yield is appropriate for this company. For the current business, we agree. However, we look forward and see ample evidence to suggest there is meaningful upside based on the fundamentals — this is a high cash-generating company and we cannot ignore its extraordinary EBITDA and FCF generation.”

In a research update to client today, Kim maintained his “Buy” rating and one-year target price of $5.00 on Wi-LAN, implying a return of 177% at the time of publication (including the company’s dividend).