Company announces Q4 and Year End Results for Fiscal 2004

Webcast URL: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=832480


  • Full-year revenues of US$34.5 million and net income of US$17.2 million
  • Improved liquidity, US$36.9 million in cash at end of fiscal 2004
  • Recently announced IP licensing strategy validated by RIM contract in Q1 FY2005

Mississauga, Ontario (June 10, 2004) – Certicom Corp. (TSX: CIC), the authority for strong, efficient cryptography, today announced results for fiscal year 2004 and the fourth quarter ended April 30, 2004. All figures are in U.S. dollars and in accordance with Canadian Generally Accepted Accounting Principles (GAAP), except where otherwise noted.

Certicom reported full year revenues for fiscal 2004 of $34.5 million, compared to $10.4 million in fiscal 2003. For the fourth quarter, Certicom reported revenues of $2.6 million, up 8% compared with the fourth quarter last year, and up 23% compared to the third quarter of 2004. For the full year, Certicom reported net income of $17.2 million, or $0.50 per basic share and $0.48 per diluted share, compared to a loss of $4.9 million, or $0.15 per basic and diluted share in its last fiscal year ended April 30, 2003.

“We saw increased market acceptance of Elliptic Curve Cryptography (ECC) in fiscal 2004, and we expect this momentum to carry over into fiscal 2005,” said Ian McKinnon, President and Chief Executive Officer. “Subsequent to the end of the quarter, we announced significant ECC-based licensing agreements with Research In Motion and Unisys Corporation. These contracts are a strong endorsement of our industry-leading technology.”

“ Due to the NSA win, Certicom was able to complete the first profitable year in the company’s history,” added Mr. McKinnon. “We remain confident in our ability to continue to leverage our patented ECC technology through IP and product licensing agreements. Investment in support of our IP licensing strategy will continue in 2005 to achieve our goal of realizing incremental IP licensing revenues in the second half of the year.”

Full Year Financial Review
For the fiscal year 2004, Certicom reported revenues of $34.5 million, which include $24.9 million in revenue recognized from the company’s NSA licensing contract, compared to $10.4 million for fiscal year 2003. Operating expenses, including cost of sales and excluding depreciation and amortization and stock-based compensation expense, were flat at $13.7 million compared to a year ago. For the year, EBITDA* was $20.8 million, compared with a loss of $3.2 million last year. This improvement in EBITDA* is due primarily to the one-time impact of the NSA contract. The company posted net income on a GAAP basis of $17.2 million, or $0.50 per basic share and $0.48 per diluted share for the fiscal year 2004, compared with a net loss of $4.9 million, or $0.15 per basic and diluted share last year. As a result of fiscal 2004 being a profitable year for the company, a bonus of $1.4 million was distributed to all employees.

Cash** totaled $36.9 million at year-end, compared to $8.8 million at year-end 2003. Cash at the end of the third quarter of fiscal 2004 was $38.5 million. 
“Since the company completed its first profitable year in its history, we begin fiscal 2005 in a strong financial position,” said Hervé Séguin, Chief Financial Officer. “We ended fiscal 2004 with $37 million in cash and have the resources needed to prudently make investments in support of our business plan. We will continue to monitor expenses closely as we pursue sustainable, profitable growth.”

Change In Accounting Policy
During fiscal 2004, the company prospectively adopted the recommendations of revised accounting rules relating to Stock-based Compensation and Other Stock-based Payments for stock options issued to employees during 2004. As a result of this change in accounting policy, the company recorded stock-based compensation expense of $143,000, which is included on the statement of operations starting in the fourth quarter. Future quarters will now include a stock-based compensation expense.

Fourth Quarter Financial Review
Operating expenses, including cost of sales and excluding depreciation and amortization and stock-based compensation expense, were $3.9 million compared with operating expenses of $3.2 million in the same period last year, representing a 20% increase. Operating expenses in the third quarter of fiscal 2004 were $3.0 million. The fourth quarter expenses included a year-end bonus expense of $0.5 million.

Expenses in the fourth quarter were slightly higher than previously provided guidance of between $3.4 and $3.7 million for the period. The increase relates primarily to the investment in the company’s evolving IP business.

The company posted an EBITDA* loss of $1.3 million, compared with a loss of $0.8 million in the fourth quarter last year. In the third quarter of fiscal 2004, the company’s EBITDA* loss from its business was $0.9 million.

The net loss on a GAAP basis for the quarter was $1.7 million, or $0.04 per basic and diluted share, compared with a net loss in the same period last year of $2.0 million, or $0.06 per basic and diluted share. In the third quarter of fiscal 2004 the company posted a net loss on a GAAP basis of $1.8 million, or $0.05 per basic and diluted share.

Both the EBITDA* loss and the net loss on a GAAP basis for the quarter included a fiscal year-end bonus expense of $0.5 million. Excluding the bonus expense, the EBITDA* loss for the quarter was flat compared to the fourth quarter of fiscal 2003, and the net loss on a GAAP basis for the quarter improved by $0.8 million compared to the same period in fiscal 2003.

Fourth Quarter Operational Highlights

  • Signed a total of six new customer contracts, including Unisys Corporation, which licensed Certicom’s Security Builder® toolkits to embed ECC in its document processor families. The highly-optimized implementations of ECC, found in the Security Builder® toolkit, enable Unisys to digitally sign more than 10,000 images per minute and address the security requirements of Check 21 (Check clearing for the 21st Century Act) image exchange.
  • Announced the launch of the company’s new growth strategy for its IP licensing business. This will extend its business of embedded security to include the licensing of its extensive ECC-based patent portfolio. Certicom is now pursuing IP licensing opportunities with organizations that require software or hardware implementations of strong, efficient cryptography.
  • Announced an agreement to license its ECC technology to Neopost, the leading European and number two worldwide supplier of mailing solutions. Neopost embeds ECC-based security into its mailing systems using the Security Builder® Crypto™ toolkit, thereby creating a secure means to generate Digital Postage Marks that meet the stringent requirements of North American postal officials.
  • Announced that Regal CineMedia Corporation (RCM) selected Certicom to protect its digital content network. RCM is the media subsidiary of 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. The companies developed an encryption system using the Security Builder® Crypto™ developer toolkit, which allows RCM to securely send copyrighted digital content by satellite to selected theatres.
  • Announced Security Builder® Crypto™-C#, the first commercially available cryptographic toolkit for the Microsoft .NET Framework and .NET Compact Framework. Security Builder® Crypto™-C# enables developers to easily add strong, efficient security to these applications on a desktop or portable device, without the need to learn new programming routines.
  • Named Chris Monico, an assistant professor at Texas Tech University, and his team of mathematicians, as the winners of the Certicom Elliptic Curve Cryptography (ECC) 2-109 Challenge. The effort to solve the challenge required 2,600 computers and took 17 months. The key solved in this challenge is well below the strength of commercial standards used by organizations, which is ECC 163 or higher, and would be approximately one hundred million times harder to solve.

Subsequent to quarter end, Research In Motion (RIM) has licensed the Security Builder® Crypto toolkit and ECC-based intellectual property from Certicom. This agreement allows RIM to extend its existing ECC-based security from Certicom in its Blackberry® offerings. Under the agreement, RIM will pay a one-time $3.5 million IP license fee in the first quarter of fiscal 2005, entitling them to deploy a fixed number of seats. Certicom will be recognizing the license revenue over three years starting in the first quarter of fiscal 2005. The agreement provides for additional revenue once RIM exceeds the pre-paid number of seats.

Also subsequent to quarter end, Certicom announced that Sierra Wireless has embedded movianVPN™ by Certicom into its VoqMail™ Professional Edition (VoqMail Pro) wireless e-mail solution, offered for the new Voq Professional Phone™. As an embedded feature that supports multiple VPN gateways, the solution is designed to offer IT managers minimal administration and a better return on their existing security infrastructure investment.

Certicom does not provide guidance for revenue and cash but does provide quarterly guidance for operating expenses. First quarter fiscal 2005 operating expenses, including cost of sales, are expected to range from $3.3 million to $3.6 million.

Certicom continues to work diligently to maximize the growth potential of its business in order to achieve sustainable, profitable growth. This growth pattern may be uneven as Certicom continues to manage extended sales cycles that are incumbent with the targeting of original equipment manufacturers and independent software vendors, which embed security into their products.

Conference Call
Management will host a conference call to discuss Certicom’s performance for the full year and fourth quarter of 2004 starting at 10 a.m. (ET) (7 a.m. PT) June 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 June 10 at 7 p.m. (ET) until June 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

Consolidated 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 April 30, Year ended April 30,






EBITDA (loss) excluding the NSA contract





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EBITDA (loss) including the NSA contract





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Restructuring recovery



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Net income (loss) on GAAP basis





** Cash is defined as cash and cash equivalents, marketable securities and restricted cash.

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