Intellectual property licensing agreement with government defense contractor reinforces ECC momentum

Webcast URL:http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1030920


  • Signed 15-year contract to license ECC-based intellectual property portfolio to General Dynamics
  • Extended Certicom Security Architecture for Government to provide integrated suite of security toolkits that ensure critical FIPS 140-2 and ECC compliance
  • NSA announces ECC as the exclusive key management and digital signature standard to secure sensitive but unclassified data within the U.S. government, subsequent to quarter end

Mississauga, Ontario (March 3, 2005) – Certicom Corp. (TSX: CIC), the authority for strong, efficient cryptography, today announced results for the third quarter of fiscal year 2005 ended January 31, 2005. All figures are in U.S. dollars and in accordance with Canadian Generally Accepted Accounting Principles (GAAP), except where otherwise noted.

Certicom reported third quarter revenue for fiscal 2005 of $3.0 million compared to $2.1 million in the third quarter of fiscal 2004. In the second quarter of fiscal 2005, the company reported revenues of $2.6 million.

“The contract we signed with General Dynamics during the quarter is evidence of the momentum and long-term growth potential of our product and intellectual property licensing strategy,” said Ian McKinnon, President and Chief Executive Officer. “We are also currently in discussions with a number of multinational organizations regarding potential intellectual property licensing contracts.”

“In addition, at the recent RSA conference, the NSA announced the selection of ECC as the exclusive key management and digital signature standard to secure sensitive but unclassified data within the U.S. government. Combined with the NSA decision in October 2003 to license 26 Certicom patents and make ECC a crucial technology for mission critical national security information, this recent announcement by the NSA means that ECC technology is now the standard to secure all classified and unclassified U.S. government communications,” added Mr. McKinnon. “This will support our business expansion objectives since all government technology suppliers will need to embed ECC technology, and as a result will broaden our market dramatically.”

Third Quarter Financial Review
Operating expenses1 were $3.5 million, in line with previously provided guidance of $3.3 to $3.6 million for the period, compared to operating expenses of $3.0 million in the third quarter of last year. The increase in year-over-year operating expenses reflects the company’s increasing investment in support of the intellectual property licensing strategy. In the second quarter of fiscal 2005, operating expenses were $3.4 million.

The company posted an EBITDA2 loss of $0.6 million, compared to a loss of $0.9 million in the same period last year. In the second quarter of fiscal 2005, the company posted an EBITDA loss of $0.8 million.

The net loss on a GAAP basis for the quarter was $0.9 million, or $0.02 per basic and diluted share. In the same period last year, the net loss was $1.8 million, or $0.05 per basic share and diluted share.

Certicom had $27.5 million in cash3 at January 31, 2005 compared to $29.1 million at October 31, 2004 and $36.5 million at April 30, 2004.

“The company continues to execute on its plan to build recurring revenues with the signing of the General Dynamics agreement,” said Hervé Séguin, Chief Financial Officer. “Certicom maintains a very strong cash position with the flexibility to support the ongoing implementation of our long-term business strategy.”

Nine Month Financial Review
For the first nine months of fiscal 2005, Certicom reported revenue of $8.5 million, compared to $7.0 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 $31.9 million.

Operating expenses1 for the period were $10.2 million compared with operating expenses of $8.6 million (excluding incremental expenses resulting from the NSA contract) for the first nine months of fiscal 2004. Including the NSA contract related expenses, for the first nine months of fiscal 2004 operating expenses were $9.8 million.

The company posted an EBITDA2 loss of $1.8 million in the first nine months of fiscal 2005, compared to an EBITDA loss of $1.6 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 nine months of fiscal 2004 including the revenue gain and incremental expenses triggered by the NSA contract in the second quarter last year was $22.1 million.

The company posted a net loss on a GAAP basis of $3.1 million, or $0.08 per basic and diluted share for the first nine months of fiscal 2005, compared with net income, including earnings from the NSA contract, of $18.9 million, or $0.56 per basic share and $0.53 per diluted share, in the same period last year.

Third Quarter Operational Highlights

  • General Dynamics C4 Systems, a business unit of General Dynamics, licensed Certicom's entire intellectual property portfolio of over 300 patents and patents pending. This 15-year agreement allows General Dynamics to use ECC and other related patents from Certicom as the public-key security technology in any of its products for the commercial and defense sector.
  • 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. This toolkit includes the technology that was part of the 26 patents licensed by the NSA in 2003 plus proven, optimized implementations backed by Certicom.
  • Extended its Certicom Security Architecture™, enabling developers to embed government-mandated security into devices and applications, and giving 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.
  • Two Certicom executives received awards for their work in advancing ECC. Scott Vanstone received the prestigious University of Waterloo Award for Excellence in Research and Tony Rosati received the 2004 Distinguished Fellow award from the Centre for Applied Cryptographic Research.
  • 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 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.
  • 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.

Subsequent To Quarter End

  • At the recent RSA conference the NSA announced that it has selected ECC as the exclusive key management and digital signature standard to secure sensitive but unclassified data within the U.S. government. This essentially makes ECC the standard to secure all U.S. government communications.
  • The Standards for Efficient Cryptography Group (SECG), of which Certicom is a founding member, announced an ECC protocol test site and certificate authority (CA). These two new initiatives being spearheaded by the SECG will help developers quickly and effectively test ECC-based implementations to facilitate faster time-to-market.
  • Announced a partnership with Beep Science, a leading provider of Open Standard DRM technology, enabling Certicom to integrate and resell Beep Science’s digital rights management (DRM) software solution. This supports Certicom’s objective to provide a comprehensive integrated security platform that addresses the evolving needs of device manufacturers.
  • To support its long-term growth strategy, Certicom has expanded its sales presence by adding key staff in London, England; Stockholm, Sweden and San Diego, CA.

Certicom does not provide guidance for revenue and cash, but does provide quarterly guidance for operating expenses. Fourth quarter fiscal 2005 operating expenses, including cost of sales, are expected to range from $3.4 million to $3.7 million.

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.

Conference Call
Management will host a conference call to discuss Certicom’s performance for the third quarter of fiscal 2005 starting at 10 a.m. (ET) (7 a.m. PT) March 3, 2005. The call may be accessed at: 1-800-814-4859 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 3 at 7 p.m. (ET) until March 10 at 11:59 p.m. (ET). For access, please call 1-877-289-8525 or 416-640-1917 and enter the passcode 21114349#.

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 Unisys. 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.


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.

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






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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.

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