The Company adopted International Financial Reporting Standards ("IFRS") effective May 1, 2011. The accompanying interim financial statements represent the Company's first set of financial statements prepared in accordance with IFRS.
Q1 Fiscal 2012 Results
-- Q1 revenues of $18.3 million, compared with $18.5 million in Q1 fiscal
2011
-- Q1 adjusted net income of $7.2 million, compared with $8.9 million in Q1
fiscal 2011. Adjusted diluted EPS of $0.59, based on 12.1 million
diluted shares, compared to $0.75 per diluted share in Q1 fiscal 2011,
based on 11.8 million diluted shares
-- Q1 IFRS net income of $2.6 million, compared to $5.1 million in Q1
fiscal 2011. IFRS diluted EPS of $0.21, compared to $0.43 per diluted
share in Q1 fiscal 2011
"MOSAID delivered a solid first quarter to begin the fiscal year," said John Lindgren, President and CEO, MOSAID. "Operationally, we made significant progress in implementing our new multi-year strategy to drive future revenue growth through increased investments in litigation, patent acquisitions, and our people. We were particularly active in the courts, moving to assert our intellectual property rights by initiating patent infringement suits in the areas of semiconductor memory, Power over Ethernet technology, wireless communications, and cloud computing."
MOSAID had cash and marketable securities of $122.9 million at the end of the first quarter of fiscal 2012, compared to $114.8 million at the end of the fourth quarter of fiscal 2011. In Q1 fiscal 2012, MOSAID returned $3.0 million to shareholders in quarterly dividend payments.
On August 25, 2011, MOSAID declared a quarterly dividend of $0.25 per share. The dividend, which is an eligible dividend, is payable on October 6, 2011 to shareholders of record as of September 22, 2011.
A reconciliation of adjusted net income to International Financial Reporting Standards (IFRS) net income is included in the adjusted consolidated financial statements accompanying this press release.
First Quarter Operational Highlights
Microcomponents patent licensing: MOSAID entered into a non-exclusive patent portfolio license agreement with Analog Devices, Inc. (ADI). According to the terms of the agreement, MOSAID granted ADI a worldwide term license under its microcomponents patents covering certain ADI digital signal processing products. Since the beginning of calendar 2011, MOSAID has signed microcomponents patent license agreements with LG Electronics Inc., MediaTek Inc. and now with ADI.
Patent portfolio development: MOSAID had 2,869 patents and applications at the end of Q1 fiscal 2012, up from 2,822 at the end of Q4 fiscal 2011, and up 40% from 2,050 one year ago. The approximately 500 patents and patent applications recently acquired from Hynix Semiconductor Inc., which will be recorded following the completion of the selection process, will bring the portfolio to approximately 3,400 patents and applications.
During the quarter, MOSAID purchased an MPEG patent portfolio that is relevant to the MPEG, 3GPP and 3GPP2 media file standards. The patents cover certain products that have media playing capabilities, such as mobile phones, tablets, media player software and video conversion tools.
Research and Development: MOSAID introduced a production-ready 256Gb HLNAND™ (HyperLink NAND) Flash memory semiconductor chip. The 256Gb HLNAND device is optimized for mass storage applications, including enterprise data centers and high-performance computing applications. MOSAID's 256Gb HLNAND Flash chip is one of the fastest, highest-density, best performing Flash memory devices on the market. By sampling a production-ready 256Gb HLNAND chip, the Company is demonstrating that HLNAND can be manufactured cost-effectively, flexibly and at high yields.
MOSAID showcased the 256Gb HLNAND Flash device and its new HLNAND2 technology at the 2011 Flash Memory Summit, August 9-11, in Santa Clara, California.
Litigation update: On May 10, 2011, MOSAID initiated patent infringement litigation against Elpida Memory, Inc., Buffalo Inc. and Axiontech. MOSAID believes the defendants are infringing six patents related to Dynamic Random Access Memory (DRAM) circuit and process technology.
On May 16, 2011, MOSAID filed a complaint against Cisco Systems before the International Trade Commission (ITC). The complaint alleges that Cisco is infringing six patents relating primarily to Power-over-Ethernet technology. On June 16, 2011, the ITC voted to institute an investigation of certain Cisco products, based on the complaint filed by MOSAID. Further, the United States Patent and Trademark Office recently completed a re-examination of US patent 6,480,510, a predecessor of three of the patents at issue before the ITC. The re-examination is favorable and may assist the Company during the ITC proceedings.
On July 7, 2011, MOSAID sued HTC America, Inc. and Sony Ericsson Mobile Communications (USA), Inc. for infringing four U.S. patents that are essential to all cellular telephones that implement the E-911 emergency standard, as mandated by the U.S. Federal Communications Commission.
Subsequent to the quarter end, on August 9, 2011, MOSAID filed suit against seven companies, including Adobe Systems, Inc., Alcatel-Lucent USA, Inc., IBM Corp. and Juniper Networks, Inc., for infringing two of MOSAID's computer networking patents.
Also on August 9, 2011, MOSAID announced that ARM, Ltd. and ARM, Inc. filed a Complaint for Declaratory Judgment against the Company. On April 7, 2011, MOSAID filed suit against NVIDIA Corporation, Freescale Semiconductor, Inc. and Interphase Corp., alleging infringement of seven U.S. patents related primarily to power management techniques and microprocessor architecture. ARM, in its complaint, is seeking a declaration of non-infringement and invalidity with respect to the same seven U.S. patents at issue in MOSAID's suit against NVIDIA, Freescale and Interphase.
Also subsequent to quarter end, MOSAID received a notice of allowance for the re-examination of U.S Patent No. 6,480,510. This patent is the grandfather of three of the patents at issue before the ITC and we believe the results of their re-examination may assist MOSAID's case.
Corporate governance: the Company announced changes to the Board of Directors. John P. Veschi, Chief Intellectual Property Officer, Nortel Networks Inc., and J. Ian Giffen, an independent financial and technology advisor, were appointed as directors. Gene Davis, Chairman and CEO of Pirinate Consulting Group, stepped down from the Board due to other commitments. The Board thanks him for his many contributions.
The Board of Directors also congratulates Phil Shaer, Vice President, General Counsel & Corporate Secretary of MOSAID, for his achievement in being named a Finalist in Lexpert®'s Rising Stars - Leading Lawyers Under 40 competition.
Q2 and Fiscal 2012 Guidance
Management offers the following guidance for the second quarter of fiscal 2012:
-- Q2 revenues of $19.5 million to $21.5 million
-- Q2 adjusted net income of $6.4 million to $7.1 million, or adjusted
diluted earnings per share of $0.52 to $0.58 per diluted share, based on
12.2 million diluted shares
For the full fiscal year 2012, the Company is maintaining the guidance previously announced on June 16, 2011:
-- Fiscal 2012 revenues are expected to be in the range of $85.0 million to
$90.0 million
-- Fiscal 2012 adjusted net income is expected to be in the range of $24.6
million to $26.1 million, or $2.00 to $2.12 per diluted share, based on
12.3 million diluted shares
The above information is considered material forward-looking information. Financial guidance is provided to assist investors and other interested parties in understanding the Company's business. The reader is cautioned that using this information for any other purpose may be inappropriate.
Adjusted net income, which is not an international financial reporting standard (IFRS) measure, is IFRS net income adjusted for stock-based compensation, patent amortization, imputed interest, foreign exchange gains and losses on "other long-term liabilities," and non-recurring items as reconciled below. The Company uses adjusted measures internally to evaluate and manage operating performance as well as to forecast and plan. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.
MOSAID's revenues result primarily from intellectual property agreements, which by their nature may actually close on dates other than those projected. MOSAID's priority and focus is on obtaining the best terms possible under its agreements, rather than on the particular timing of agreement closure. MOSAID's revenues depend upon, among other items, the continued ability of its licensees to pay amounts as they become due. The Company takes steps, including monitoring the creditworthiness of its licensees, in order to manage this risk.
Due to the nature of the expense, patent licensing and litigation expense can vary significantly quarter-to-quarter.
The "Forward-Looking Information" section of this document provides information on various risks and uncertainties faced by the Company.
The complete financial statements and management's discussion and analysis for first quarter ended July 31, 2011 are available on MOSAID's website at www.mosaid.com or at www.sedar.com.
Conference Call and Webcast
Management will hold a conference call and webcast on Thursday, August 25, 2011 at 5:00 p.m. ET. The webcast will be live at www.mosaid.com and may also be accessed by dialing 1-800-446-1671. Please provide confirmation number 30494016. The webcast will be available on mosaid.com for 90 days following the event.
About MOSAID
MOSAID Technologies Inc. is one of the world's leading intellectual property companies. MOSAID licenses patented intellectual property in the areas of semiconductors and communications and develops semiconductor memory technology. MOSAID counts many of the world's largest technology companies among its licensees. Founded in 1975, MOSAID has offices in Ottawa, Ontario and Plano, Texas. For more information, please visit www.mosaid.com and http://InvestorChannel.mosaid.com
Non-GAAP Measures and Definitions
Throughout this press release, we refer to a number of measures which we believe are meaningful in the assessment of the Company's performance. All these metrics are non-standard measures under IFRS, and are unlikely to be comparable to similarly titled measures reported by other companies. Readers are cautioned that the disclosure of these items is meant to add to, and not replace, the discussion of financial results or cash flows from operations as determined in accordance with IFRS. For a discussion of the purpose of these non-GAAP measures, please refer to the Company's Fiscal 2011 MD&A on SEDAR at www.sedar.com.
Adjusted net income, a non-IFRS measure, is IFRS net income adjusted for share-based compensation, patent amortization, imputed interest, foreign exchange gains and losses on "Other long-term liabilities," and any other non-recurring items. The Company uses adjusted measures internally to evaluate and manage operating performance, and to forecast and plan. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.
Forward Looking Information
This document and certain other public documents incorporated by reference in this document, contain forward-looking statements to the extent they relate to MOSAID or its management, including those identified by the expressions "anticipate," "believe," "could," "estimate," "expect," "foresee," "intend," "may," "plan," "will," "would" and similar expressions. Similarly, statements in this document that describe MOSAID's business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. These forward-looking statements are not historical facts, but rather reflect MOSAID's current expectations regarding future events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results, performance or achievements to differ materially from those in such forward-looking statements. Assumptions made in preparing forward-looking statements and financial guidance include, but are not limited to, the following: MOSAID's continued expansion of its patent portfolio and of its opportunities for future patent licensing revenue as a result of MOSAID's acquisition of patents from third parties and from development of new inventions; semiconductor and telecommunications product vendors continuing to infringe MOSAID's patents; the timing and amount of MOSAID's litigation expenses; MOSAID's ability to sign new patent licensees; current assumptions as to the identification of products that are unlicensed to MOSAID's wireless patents; and the timing and amount of MOSAID's Research & Development expenses.
Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following: MOSAID's ability to negotiate settlements with licensees; legal rulings and/or regulatory investigations, audits or complaints having an adverse impact on the validity, enforceability, royalty rates, potential royalty rates, and strength or breadth of coverage of MOSAID's essential and/or nonessential patents (including, but not limited to, adverse results from litigation or proceedings in patent offices and government regulatory agencies in various countries around the world); judicial, legislative or regulatory changes that impair the ability of patent holders to earn licensing revenues; worldwide economic conditions and demand for technology products; economic, social, and political conditions both globally and in the countries in which MOSAID or patent licensees operate, including conflict, war and, other security risks, health conditions, possible disruptions in transportation networks and fluctuations in foreign currency exchange rates; non-payment or delays in payment by or insolvency of licensees or other debtors; variability in patent licensees' sales of licensed products; failure to maintain and enforce MOSAID's existing patent portfolio, or failure to obtain valuable patents as a result of R&D activities, or failure to acquire valuable patents from third parties; MOSAID's ability to recruit and retain skilled personnel; change in MOSAID's financial position; consolidation of MOSAID's licensees; natural events, such as severe weather and earthquakes in the locations in which MOSAID or patent licensees operate; and changes in the tax rate applicable to MOSAID as the result of changes in the tax law in the jurisdictions in which profits are determined to be earned and taxed, the outcome of tax audits and the ability to realize deferred tax assets.
Except as may be required by applicable law or stock exchange regulation, we undertake no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. Accordingly, readers should not place undue reliance on forward-looking statements. If we do update one or more forward-looking statements, no inference should be drawn that additional updates will be made with respect to those or other forward-looking statements. Additional information identifying risks and uncertainties affecting MOSAID's business and other factors that could cause MOSAID's financial results to fluctuate are contained in MOSAID's Annual Information Form, under the section entitled "Risk Factors," and in MOSAID's other public filings available online at www.sedar.com.
MOSAID Technologies Incorporated
Unaudited Adjusted Consolidated Financial Statements
For the Quarter Ended July 31, 2011
The attached consolidated financial statements have been prepared by Management of MOSAID Technologies Incorporated and have not been reviewed by an auditor.
Adjusted net income, which is not an International Financial Reporting Standard (IFRS) measure, is IFRS net income adjusted for stock-based compensation, patent amortization, imputed interest, foreign exchange gains and losses on "other long-term liabilities," and non-recurring items as reconciled below. The Company uses adjusted measures internally to evaluate and manage operating performance as well as to forecast and plan. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED ADJUSTED STATEMENTS OF INCOME
(In thousands of Canadian Dollars, except per share amounts)
(Unaudited)
Quarter ended Quarter ended
July 31, 2011 July 31, 2010
(Revised)
----------------------------------------------------------------------------
Revenues $18,250 $18,488
Operating expenses
Patent portfolio management 2,131 2,186
Patent licensing and litigation 4,552 2,493
Research and development 863 475
General and administration 1,206 1,055
Foreign exchange (gain) (59) (74)
----------------------------------------------------------------------------
8,693 6,135
----------------------------------------------------------------------------
Adjusted income from operations 9,557 12,353
Investment income 398 342
----------------------------------------------------------------------------
Adjusted income before income tax expense 9,955 12,695
Income tax expense 2,787 3,808
----------------------------------------------------------------------------
Adjusted net income $ 7,168 $ 8,887
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted earnings per share
Basic $0.60 $0.76
Diluted $0.59 $0.75
Weighted average number of shares
Basic 11,904,350 11,767,954
Diluted 12,124,251 11,840,308
Adjusted net income is reconciled to IFRS net income as follows:
(Dollar amounts in thousands)
Quarter ended Quarter ended
July 31, 2011 July 31, 2010
(Revised)
----------------------------------------------------------------------------
IFRS net income $2,576 $5,083
Add (deduct):
Share-based compensation 1,307 871
Patent amortization 3,841 3,380
Imputed interest 635 746
Foreign exchange loss 197 618
Income tax expense - for the above items (1,388) (1,811)
----------------------------------------------------------------------------
Adjusted net income $7,168 $8,887
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted foreign exchange (gain) is reconciled to IFRS foreign exchange loss as follows:
(Dollar amounts in thousands)
Quarter ended Quarter ended
July 31, 2011 July 31, 2010
----------------------------------------------------------------------------
IFRS foreign exchange loss $ 138 $ 544
Less: foreign exchange loss on long-term
debt 197 618
----------------------------------------------------------------------------
Adjusted foreign exchange (gain) $(59) $(74)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
MOSAID Technologies Incorporated
Unaudited Consolidated Condensed Financial Statements
For the Period Ended July 31, 2011
The attached consolidated financial statements have been prepared by Management of MOSAID Technologies Incorporated and have not been reviewed by an auditor.
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands of Canadian Dollars)
(Unaudited)
July 31, April 30, May 1,
2011 2011 2010
----------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $111,456 $ 97,809 $ 70,732
Marketable securities (Note 12) 11,437 17,021 30,096
Accounts receivable 7,457 13,301 4,880
Prepaid expenses 549 542 698
Other asset (Note 12) 1,025 1,136 2,053
----------------------------------------------------------------------------
131,924 129,809 108,459
Property and equipment 459 321 257
Acquired intangible assets (Note 5) 68,389 71,292 80,685
Deferred income tax asset (Note 9) 1,621 1,990 4,818
Investment tax credits receivable (Note
9) 16,209 16,118 15,748
----------------------------------------------------------------------------
$218,602 $219,530 $209,967
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Current Liabilities
Accounts payable and accrued
liabilities $10,559 $ 12,893 $ 8,221
Deferred revenue - - 4,400
Other liability (Note 12) - - 992
Current portion of other long-term
liabilities 10,368 9,896 8,294
----------------------------------------------------------------------------
20,927 22,789 21,907
Other long-term liabilities 27,272 26,911 33,132
----------------------------------------------------------------------------
48,199 49,700 55,039
----------------------------------------------------------------------------
Shareholders' Equity
Share capital (Note 6) 129,595 129,021 126,573
Contributed surplus 5,004 4,526 4,153
Retained earnings 35,035 35,435 22,588
Accumulated other comprehensive income 769 848 1,614
----------------------------------------------------------------------------
170,403 169,830 154,928
----------------------------------------------------------------------------
$218,602 $219,530 $209,967
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying Notes to the Condensed Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In thousands of Canadian Dollars, except per share amounts) (Unaudited)
July 31, July 31,
Period Ended 2011 2010
----------------------------------------------------------------------------
Revenues $18,250 $18,488
----------------------------------------------------------------------------
Operating expenses
Patent portfolio management 2,131 2,186
Patent licensing and litigation 4,552 2,493
Research and development 863 475
General and administration 1,206 1,055
Foreign exchange loss 138 544
Share-based compensation (Note 7) 1,307 871
Patent amortization 3,841 3,380
Imputed interest 635 746
----------------------------------------------------------------------------
14,673 11,750
----------------------------------------------------------------------------
Income from operations 3,577 6,738
Investment income 398 342
----------------------------------------------------------------------------
Income before income tax expense 3,975 7,080
Income tax expense (Note 9) 1,399 1,997
----------------------------------------------------------------------------
Net income $ 2,576 $5,083
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share (Note 10)
Basic - net earnings $0.22 $0.43
Diluted - net earnings $0.21 $0.43
Weighted average number of shares
Basic 11,904,350 11,767,954
Diluted 12,124,251 11,840,308
See accompanying Notes to the Condensed Consolidated Financial Statements
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of Canadian Dollars)
(Unaudited)
July 31, July 31,
Period Ended 2011 2010
----------------------------------------------------------------------------
Net income $2,576 $5,083
----------------------------------------------------------------------------
Other comprehensive income, net of tax:
Gains (losses) on derivatives designated as cash
flow hedges 435 (367)
Gains (losses) on derivatives designated as cash
flow hedges in prior periods transferred to
earnings in the current period (514) (506)
----------------------------------------------------------------------------
Other comprehensive (loss) (79) (873)
----------------------------------------------------------------------------
Comprehensive income $2,497 $4,210
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying Notes to the Consolidated Condensed Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of Canadian Dollars)
(Unaudited)
Accumu-
lated
Other
Contri- Compre-
Common Common buted Retained hensive
Share Shares Surplus earnings Income Total
(Number) ($) ($) ($) ($) ($)
----------------------------------------------------------------------------
Balance at May
1, 2010 11,763,626 $126,573 $4,153 $22,588 $1,614 $154,928
Net income - - - 5,083 - 5,083
Dividends - - - (2,943) - (2,943)
Employee and
Director Stock
Option Plan 4,625 90 (21) - - 69
Employee and
Director Stock
Purchase Plan 6,448 31 (22) - - 9
Restricted share
unit plan - - - - - -
Stock-based
compensation - - 486 - - 486
Dividend
reinvestment
plan - - - - - -
Other
comprehensive
income - - - - (873) (873)
----------------------------------------------------------------------------
Balance at July
31, 2010 11,774,699 $126,694 $4,596 $24,728 $741 $156,759
----------------------------------------------------------------------------
Balance at April
30, 2011 11,900,198 $129,021 $4,526 $35,435 $848 $169,830
Net income - - - 2,576 - 2,576
Dividends - - - (2,976) - (2,976)
Employee and
Director Stock
Option Plan 3,000 89 (36) - - 53
Employee and
Director Stock
Purchase Plan 3,503 132 (46) - - 86
Restricted share
unit plan - - - - - -
Stock-based
compensation - - 560 - - 560
Dividend
reinvestment
plan 11,403 353 - - - 353
Other
comprehensive
income - - - - (79) (79)
----------------------------------------------------------------------------
Balance at July
31, 2011 11,918,104 $129,595 $5,004 $35,035 $769 $170,403
----------------------------------------------------------------------------
See accompanying Notes to the Condensed Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands of Canadian Dollars)
(unaudited)
July 31, July 31,
Period Ended 2011 2010
----------------------------------------------------------------------------
Operating
Net income $2,576 $5,083
Items not affecting cash
Amortization 4,051 3,411
Stock-based compensation 560 486
Unrealized foreign exchange loss on other long-
term liabilities 197 618
Deferred income taxes and investment tax credits 310 215
----------------------------------------------------------------------------
7,694 9,813
Change in non-cash working capital items (Note 11) 3,503 (4,837)
----------------------------------------------------------------------------
11,197 4,976
----------------------------------------------------------------------------
Investing
Acquisition of property and equipment and acquired
intangibles (1,107) (74)
Acquisition of marketable securities (5,698) (9,909)
Proceeds on disposal and maturity of marketable
securities 11,282 10,492
----------------------------------------------------------------------------
4,477 509
----------------------------------------------------------------------------
Financing
Increase in other long-term liabilities 457 747
Dividends paid (2,623) (2,943)
Issuance of common shares 139 78
----------------------------------------------------------------------------
(2,027) (2,118)
----------------------------------------------------------------------------
Net cash inflow 13,647 3,367
Cash and cash equivalents, beginning of period 97,809 70,732
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $111,456 $74,099
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplementary Information:
Cash on hand and bank balances $111,456 $74,099
Short-term investments - -
----------------------------------------------------------------------------
Total cash and cash equivalents $111,456 $74,099
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying Notes to the Condensed Consolidated Financial Statements
Contacts: Investor and Media Inquiries Michael Salter Director, Investor Relations and Corporate Communications 613-599-9539 x1205 Email Contact