Progress made with product and intellectual property licensing strategy

Webcast URL: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=974600


  • Signed significant contract with Sybase
  • Launched Certicom Security Architecture™ for Mobility for embedding security across multiple families of mobile devices
  • Subsequent to quarter end, announced Security Builder® NSE™ (National Security Edition), enabling organizations to build applications that meet National Security Agency (NSA) guidelines
  • Launched Security Builder® IPSec™ for embedding the Internet Protocol security (IPSec) protocol into wireless handhelds and to secure Voice over IP (VoIP)

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.


  • Certicom signed a substantial licensing contract with Sybase and another contract for Security Builder IPSec with a customer that cannot be disclosed for confidentiality reasons.
  • David Sequino joined the company as vice president, worldwide sales. Mr. Sequino has more than 15 years of sales and business development expertise, the majority of it in the embedded systems industry, a primary focus for Certicom. Recently, Mr. Sequino assumed the additional responsibility of overseeing marketing.
  • Licensed Security Builder Crypto 4.0, its cross-platform cryptographic toolkit, to Avanza Technologies to build ECC into its secure identity management product, It'sM(*)iMail.
  • Disbursed approximately $10 million (CDN$13.2 million) to fully retire its convertible debentures, which matured on August 30, 2004. By repaying the debentures, Certicom is now completely debt free and well positioned to pursue the execution of its long-term business strategy. The company is in a strong cash position with $29.1 million in cash at the end of the second quarter.
  • Announced plans to capitalize on new opportunities in the embedded virtual private network (VPN) market with the launch of Security Builder IPSec, a developer toolkit for embedding the Internet Protocol security (IPSec) protocol into wireless handhelds and to secure Voice over IP (VoIP).
  • Introduced the Certicom Security Architecture for Mobility enabling device manufacturers to quickly and cost-effectively embed security across multiple families and generations of devices. To develop this overall architecture, Certicom worked with Intel and device manufacturers to develop a comprehensive security platform that is optimized for the Intel® Wireless Trusted Platform.
  • Announced that Perceptive Software, known for its innovative document imaging, management and workflow software, has licensed Security Builder PKI developer toolkit. For Perceptive Software, the toolkit will enable its developers to quickly and easily add ECC-based digital signature functionality to its ImageNow® suite of products.


  • Hosted the first Certicom ECC Conference 2004, bringing together ECC researchers, industry experts and users. During the two-day conference, participants from North America, Europe and Asia discussed the growing adoption of ECC and shared best implementation practices and insights for future applications.
  • Announced that Certicom’s implementation for the Elliptic Curve Digital Signature Algorithm (ECDSA) earned the Federal Information Processing Standards (FIPS) 186-2 validation—making Certicom the first company to receive the designation for an ECC-based algorithm. By using Certicom’s ECDSA implementation in their products, OEMs and ISVs can meet FIPS requirements without undergoing the time-consuming and costly testing process.
  • Announced Security Builder NSE a cryptographic toolkit that enables organizations to build applications that meet the NSA guidelines to protect mission critical national security information.
  • Two Certicom executives received awards for their work in advancing ECC. Scott Vanstone, founder and executive vice-president of strategic technology, was awarded the prestigious University of Waterloo Award for Excellence in Research for his role in researching and deploying ECC as a practical security technology. Tony Rosati, vice-president of intellectual property licensing, received the 2004 Distinguished Fellow award from the Centre for Applied Cryptographic Research.
  • Announced Security Builder IPSec toolkit was licensed to Ireland-based Worldnet21 to build its own IPSec-compliant virtual private network (VPN) client: AnthaVPN, a Secured by Certicom product. The agreement enables Worldnet21 to significantly reduce the time-to-market of its own VPN product, as well as to ensure a complete solution provided by Security Builder IPSec.
  • Extended its Certicom Security Architecture, enabling developers to embed government-mandated security into devices and applications, and give them access to the lucrative government market. Certicom Security Architecture™ for Government also provides developers with an efficient way to enhance new and existing applications with ECC to meet the NSA guidelines.


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 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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Operating expenses, EBITDA and cash as defined below are non-GAAP earnings measures that do not have standardized measures prescribed by GAAP, and therefore may not be comparable to similar measures presented by publicly traded companies.
  1. This news release contains references to operating expenses. Certicom defines operating expenses as total operating expenses plus cost of revenues and excluding depreciation and amortization and stock-based compensation.
  2. 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.
  3. This news release contains references to cash, which 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.