Strengthened financial foundation; continued ECC customer wins

Mississauga, Ontario (March 10, 2004) – Certicom Corp. (TSX: CIC), the authority for strong, efficient cryptography, today announced results for the third quarter of fiscal 2004 ended January 31, 2004. All figures are in U.S. dollars and in accordance with Canadian Generally Accepted Accounting Principles (GAAP), except where otherwise noted.

For the third quarter, Certicom reported revenues of $2.1 million, which were flat with the third quarter last year. In the second quarter of fiscal 2004, Certicom reported revenues of $27.6 million, which included $24.9 million in revenue recognized from the company’s $25-million contract with the U.S. government’s National Security Agency (NSA) for the licensing of Certicom’s intellectual property (IP), which was announced in October 2003. Second quarter revenues from Certicom’s core business, which excluded revenue from the NSA licensing agreement, were $2.7 million.

Although the IT spending environment is slowly recovering, Certicom continues to experience weaker demand in the market for security toolkits and applications. This has been compounded by longer than expected sales cycles targeting original equipment manufacturers and independent software vendors, which embed security into their products.

“Although we are working diligently to maximize the growth potential of our business, we expect market conditions to remain challenging and unpredictable,” said Ian McKinnon, president and CEO. “That being said, we are seeing increasing market acceptance of Elliptic Curve Cryptography (ECC), which should drive Certicom’s core technology. As ECC becomes more widely accepted, we anticipate that our product and services business will deliver increasing growth over time, although the pattern may be uneven.”

Mr. McKinnon continued, “A key focus for management now is to leverage our NSA win, which represents a significant validation of Certicom’s ECC-based technologies. In addition to growing our product and services business, our objective is to realize increasing revenue from licensing the company’s IP patent portfolio starting in the second half of fiscal 2005. We are making early progress with this strategy, which we expect to be an important future growth driver for Certicom. ”

Third Quarter Financial Review

Operating expenses, including cost of sales and excluding depreciation and amortization, were $3.0 million compared with operating expenses of $3.2 million in the same period last year, representing a 5% improvement. Operating expenses (which exclude costs associated with the NSA agreement of $1.2 million) in the second quarter of fiscal 2004 were $2.7 million.

The increase in third quarter expenses from the second quarter reflects the impact of currency fluctuations and investment in the company’s evolving IP business. However, third quarter expenses were in line with previously provided guidance for the period of $2.9 million to $3.2 million.

The company posted an EBITDA* loss of $0.9 million, compared with a loss of $1.1 million in the third quarter last year. In the second quarter of fiscal 2004, excluding the revenue gain and incremental expenses triggered by the NSA contract, the company’s EBITDA* loss from its business was $53,000.

The net loss on a GAAP basis for the quarter was $1.8 million, or $0.05 per basic and diluted share, compared with a net loss in the same period last year of $174,000, or $0.01 per basic and diluted share. In the second quarter of fiscal 2004 the company posted net income on a GAAP basis of $22.3 million, or $0.70 per share (basic) and $0.63 per diluted share, reflecting the contribution from the NSA agreement.

Nine-Month Financial Review

For the first nine months of fiscal 2004, Certicom reported revenues of $31.9 million, which include $24.9 million in revenue recognized from the company’s NSA licensing contract. Revenues, which exclude revenue from the NSA contract, were $7.0 million, down 12% from $8.0 million in the same period last year. Operating expenses, which exclude costs associated with the NSA contract of $1.2 million, decreased 17% to $8.6 million from $10.4 million a year ago. The EBITDA* loss was $1.6 million for the period, compared with $2.4 million in the same period last year, which represents an improvement of 34%. The company posted net income on a GAAP basis of $18.9 million, or $0.56 per share (basic) and $0.53 per diluted share for the first nine months of fiscal 2004, compared with a net loss of $2.9 million, or $0.09 per basic and diluted share in the same period last year.

Cash** totaled $38.5 million at quarter end. Cash at the end of the second quarter of fiscal 2004 was $5.3 million. During the quarter, Certicom received a payment of $25 million as a result of the NSA contract.

“ We have significantly strengthened the company’s financial foundation to support our pursuit of sustainable, profitable growth,” said Hervé Séguin, chief financial officer. “In November, we completed an equity offering for net proceeds of approximately $10.4 million, which attracted a strong response from institutional investors in Canada as well as the U.S. With the $25 million payment from the NSA, we ended the quarter with $38.5 million in cash. We are pleased that fiscal 2004 will be the first profitable year in the company’s history.”

Third Quarter Operational Highlights

  • Signed a total of five new customer contracts.
  • Announced that Motorola has embedded movianVPN™ into its A760 smartphone. This is the first time this leading global handset maker has embedded virtual private network (VPN) security into its handsets, and reflects Motorola’s strategy to provide enterprises with strong, efficient security that is transparent to end users. Under the terms of the agreement, revenue for Certicom will be generated as the movianVPN application is activated by enterprise customers.
  • Announced that Expertcity, a leading provider of managed real-time web-based remote-access and customer-support technologies, is using Security Builder® Crypto™ and Security Builder® SSL™ developer toolkits to embed ECC security into its next generation technologies.
  • Announced that Security Builder®GSE™, Certicom’s core developer toolkit for government, earned the FIPS 140-2 validation for the Palm OS 4.1 platform. This makes Security Builder GSE the first developer toolkit to provide a FIPS 140-2 validated module for use on both PC-based and multiple wireless operating systems, including Windows, Windows CE and Palm.
  • Announced movianVPN for Pocket PC 2003. With its continued support for the latest operating systems, Microsoft Windows Mobile, Palm OS and Symbian OS, movianVPN can now be used with more than 50 handheld devices.
  • Bluefire Security Technologies™ announced its plans to integrate Security Builder GSE, Certicom’s FIPS 140-2 validated module, into its product. Bluefire can now offer new solutions that meet stringent government information security requirements.

Subsequent to quarter end, Certicom announced an agreement to license its ECC technology to Neopost, the leading European and number two worldwide supplier of mailing solutions. Neopost is using the Security Builder® Crypto™ toolkit to embed ECC-based security into its mailing systems, thereby creating a secure means to generate Digital Postage Marks that meet the stringent requirements of North American postal officials.

Also subsequent to quarter end, Certicom announced it was chosen by Regal CineMedia Corporation (RCM) to protect RCM’s digital content network. RCM is the media subsidiary or Regal Entertainment Group (NYSE: RGC), the largest theatre operator in the world, with more than 6,000 screens in 555 locations throughout the U.S. Using the Security Builder® Crypto™ developer toolkit, the companies developed an encryption system that allows RCM to securely send copyrighted digital content by satellite to selected theatres.


Certicom does not provide guidance for revenue and cash but does provide quarterly guidance for operating expenses. Fourth quarter fiscal 2004 operating expenses, including cost of sales, are expected to range from $3.4 million to $3.7 million. Compared to actual third quarter operating expenses of $3.0 million, this increase is largely attributable to the launch of the company’s new growth strategy and a calendar year-end charge for employee bonus payments. 
In separate news today, Certicom announced a new growth strategy based on the company’s strong, well-managed IP portfolio, which includes more than 300 individual patents and patents pending that are registered in numerous countries. Please visit Certicom’s website at www.certicom.com.

Conference Call
Management will host a conference call to discuss Certicom’s performance, new growth strategy and outlook, starting at 5 p.m. (ET) (2 p.m. PT) today, March 10, 2004. The call may be accessed at: 1-800-814-4861 or 416-640-4127. It will also be webcast with supporting slides and subsequently archived at http://www.certicom.com. To listen to the webcast, participants will require Windows Media Player™ which can be downloaded via Certicom’s website, prior to accessing the event. A taped rebroadcast will be available from March 10 at 7 p.m. (ET) until March 17 at 11:59 p.m. (ET). For access, please call 1-877-289-8525 or 416-640-1917 and enter the passcode 21037909#.

Consolidated Balance Sheets

Statements Of Operations And Retained Earnings (Deficit)

Condensed Consolidated Statements Of Cash Flows

About Certicom
Certicom Corp. (TSX: CIC) is the authority for strong, efficient cryptography required by software vendors and device manufacturers to embed security in their products. Adopted by the US Government’s National Security Agency (NSA), Certicom technologies for Elliptic Curve Cryptography (ECC) provide the most security per bit of any known public key scheme, making it ideal for constrained environments. Certicom products and services are currently licensed to more than 300 customers including Motorola, Oracle, Research In Motion, Terayon, Texas Instruments and XM Radio. Founded in 1985, Certicom is headquartered in Mississauga, ON, Canada, with offices in Ottawa, ON; Reston, VA; San Mateo, CA; and London, England. Visit www.certicom.com.
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Certicom, Security Builder, Security Builder Crypto, Security Builder SSL, Security Builder PKI, Security Builder GSE, movianVPN, movianCrypt and movianMail are trademarks or registered trademarks of Certicom Corp. All other companies and products listed herein are trademarks or registered trademarks of their respective holders.

*This news release contains references to earnings before interest, taxes, depreciation and amortization (EBITDA), which is defined as gross margin less selling and marketing, product development and engineering and general and administrative expenses. EBITDA is a non-GAAP earnings measure, which is used by Certicom to assess the operating performance of its ongoing business. Non-GAAP earnings measures do not have standardized meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other publicly traded companies.

US$000's Three months ended January 31, Nine months ended January 31,






EBITDA (loss) excluding the NSA contract





Revenue from the NSA contract




Expenses related to the NSA contract




EBITDA (loss) including the NSA contract





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Restructuring recovery





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Net income (loss) on GAAP basis






Forward-Looking Statements
Except for historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially. Factors that might cause a difference include, but are not limited to, those relating to the acceptance of mobile and wireless devices and the continued growth of e-commerce and m-commerce, the increase of the demand for mutual authentication in m-commerce transactions, the acceptance of Elliptic Curve Cryptography (ECC) technology as an industry standard, the market acceptance of our principal products and sales of our customer's products, the impact of competitive products and technologies, the possibility of our products infringing patents and other intellectual property of fourth parties, and costs of product development. Certicom will not update these forward-looking statements to reflect events or circumstances after the date hereof. More detailed information about potential factors that could affect Certicom's financial results is included in the documents Certicom files from time to time with the Canadian securities regulatory authorities.

The shares of the company described above have been offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and outside the United States pursuant to Regulation S of the Securities Act. The shares have not been registered under the Securities Act and may not be offered or sold in the United States or to a U.S. Person absent registration or an applicable exemption from registration requirements.

This press release does not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offering would be unlawful.

For further information, please contact:

Investors and Financial Analysts Media:
Hervé Séguin Brendan Ziolo
Chief Financial Officer Director of Marketing
Certicom Corp. Certicom Corp.
(905) 501-3827 (613) 254-9267
hseguin@certicom.com bziolo@certicom.com