Progress made with product and intellectual property licensing strategy
Webcast URL: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=974600
Highlights:
Mississauga, Ontario (December 9, 2004) – Certicom Corp. (TSX: CIC), the authority for strong, efficient cryptography, today announced results for the second quarter of fiscal year 2005 ended October 31, 2004. All figures are in U.S. dollars and in accordance with Canadian Generally Accepted Accounting Principles (GAAP), except where otherwise noted.
Certicom reported second quarter revenue for fiscal 2005 of $2.6 million, compared to $2.7 million, excluding revenues from the NSA contract2, in the second quarter of fiscal 2004. For the same period in fiscal 2004, revenues including the NSA contract were $27.6 million. In the first quarter of fiscal 2005, the company reported revenues of $2.9 million.
“ During the quarter, we made progress with our strategy and signed two significant contracts, including Sybase, which will see revenues recognized over a number of quarters. In fact, over the past six months, our deferred revenues have increased more than four-fold which clearly demonstrates we are successfully executing our plans,” said Ian McKinnon, President and Chief Executive Officer. “Opportunities for intellectual property licensing also continue to build and we expect to complete some agreements in the second half of fiscal 2005. These opportunities further support our long-term business model by providing royalties and recurring revenues over future quarters.”
“ Subsequent to quarter end, we announced two key milestones that will help speed ECC adoption,” added Mr. McKinnon. “First, we announced Security Builder NSE, a toolkit that helps contractors to meet the NSA guidelines for protecting the most critical government information. Second, our implementation for the Elliptic Curve Digital Signature Algorithm earned the first FIPS 186-2 validation. Both of these initiatives will be of particular benefit to vendors who sell to governments.”
Second Quarter Financial Review
Operating expenses1 were $3.4 million, in line with previously provided guidance of $3.4 to $3.7 million for the period, compared to operating expenses of $2.7 million in the second quarter of last year (excluding incremental expenses resulting from the NSA contract). The increase in year-over-year operating expenses reflects the company’s increasing investment in support of the intellectual property licensing strategy. Including the NSA contract related expenses, last year’s second quarter operating expenses were $3.9 million.
The company posted an EBITDA2 loss of $0.8 million, compared to a loss of $53,000, excluding the revenue gain and incremental expense triggered by the NSA contract, in the same period last year. Including the revenue gain and incremental expenses triggered by the NSA contract, the company’s EBITDA was $23.6 million in the second quarter last year.
The net loss on a GAAP basis for the quarter was $1.0 million, or $0.03 per basic and diluted share. Net income in the same period last year including earnings from the NSA contract was $22.3 million, or $0.70 per basic share and $0.63 diluted share.
Certicom had $29.1 million in cash3 at October 31, 2004 compared to $38.5 million at July 31, 2004 and $5.3 million at October 31, 2003. During the quarter, Certicom disbursed US$10 million, or CDN$13.2 million, to retire fully its convertible debentures, which matured on August 30, 2004.
“ We are pleased with the progress made in the quarter by signing two contracts that will help establish a recurring revenue stream for future quarters,” said Hervé Séguin, Chief Financial Officer. “In addition, with the repayment of our convertible debentures the company is entirely debt-free and in a very strong cash position to execute its long-term business strategy. Our financial position has been further enhanced by eliminating the related interest expense.”
For the first six months of fiscal 2005, Certicom reported revenue of $5.5 million, compared to $4.9 million, excluding the NSA contract, in the same period last year. Including revenues from the NSA contract, revenues in the same period for fiscal 2004 were $29.8 million.
Operating expenses1 for the period were $6.7 million compared with operating expenses of $5.6 million (excluding incremental expenses resulting from the NSA contract) for the first six months of fiscal 2004. Including the NSA contract related expenses, for the first six months of fiscal 2004 operating expenses were $6.8 million.
The company posted an EBITDA2 loss of $1.2 million in the first six months of fiscal 2005, compared to an EBITDA loss of $0.7 million, excluding the revenue gains and incremental expenses triggered by the NSA contract, in the same period last year. The company’s EBITDA in the first six months of fiscal 2004 including the revenue gain and incremental expenses triggered by the NSA contract in the second quarter last year was $23.0 million.
The company posted a net loss on a GAAP basis of $2.2 million, or $0.06 per basic and diluted share for the first six months of fiscal 2005, compared with net income, including earnings from the NSA contract, of $20.7 million, or $0.65 per basic share and $0.60 per diluted share, in the same period last year.
While Certicom does not provide guidance for revenue and cash, we have performed market analysis to determine our addressable market. Based on a combination of external and internal research, Certicom estimates the potential addressable market for its intellectual property and product licensing strategy is $2.4 billion over a five-year period.
The addressable market in Certicom’s six verticals is significant due to both the present size of the new vertical markets and to the exploding requirement for security. As the acknowledged leader in ECC security, we expect to have strong growth in the product licensing market, but we see the greatest potential in intellectual property licensing.
Certicom continues to work diligently to maximize the potential of its business and we expect to grow our market share 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.
Certicom does provide quarterly guidance for operating expenses. Third quarter fiscal 2005 operating expenses, including cost of sales, are expected to range from $3.3 million to $3.6 million.
Management will host a conference call to discuss Certicom’s performance for the first quarter of fiscal 2005 starting at 10 a.m. (ET) (7 a.m. PT) December 9, 2004. The call may be accessed at: 1-800-814-3911 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 December 9 at 7 p.m. (ET) until December 16 at 11:59 p.m. (ET). For access, please call 1-877-289-8525 or 416-640-1917 and enter the passcode 21102909#.
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.
US$000's | Three months ended October 31, | Six months ended October 31, | ||
---|---|---|---|---|
2004 |
2003 |
2004 |
2003 |
|
EBITDA (loss) excluding the NSA contract |
$(804) |
$(53) |
$(1,219) |
$(670) |
Add (subtract): | ||||
Revenue from the NSA contract |
24,880 |
24,880 |
||
Expenses related to the NSA contract |
(1,216) |
|
(1,216) |
|
EBITDA (loss) including the NSA contract |
$(804) |
$23,611 |
$(1,219) |
$22,994 |
Add (subtract): |
||||
Depreciation and amortization |
(159) |
(205) |
(324) |
(572) |
Stock-based compensation expense |
(132) |
(234) |
||
Restructuring recovery |
1,900 |
|||
Interest income and other income (expense), net |
306 |
(570) |
346 |
(742) |
Interest expense |
(208) |
(501) |
(763) |
(954) |
Net income (loss) on GAAP basis |
$(997) |
$22,335 |
$(2,194) |
$20,736 |