Certicom Announces Q2 FY04 Results

Certicom reported revenues of $27.6 million in the second quarter of fiscal 2004, which included $24.9 million in revenue recognized from the companys previously reported $25 million contract with the U.S. governments National Security Agency (NSA) for the licensing of Certicoms intellectual property (IP). Revenues from Certicoms core business, which exclude revenue from the NSA licensing agreement, were $2.7 million, up 4% from $2.6 million a year ago and up 20% from $2.2 million in the first quarter of fiscal 2004. This increase was primarily due to a rise in sales of security solutions to original equipment manufacturers (OEMs). Financial Review Core operating expenses, which exclude costs associated with the NSA agreement, of $2.7 million were slightly below previously provided guidance of $2.8 million to $3.1 million. This compares with operating expenses of $3.4 million in the same quarter last year, representing a 21% decrease. Second quarter core operating expenses were down 4% from first quarter 2004 operating expenses of $2.8 million, despite the negative impact of foreign exchange fluctuations. Total operating expenses, including cost of sales and excluding depreciation and amortization, were $3.9 million during the quarter. This amount included $1.2 million of incremental expenses resulting from the NSA contract. The companys total EBITDA was $23.6 million for the three months ended October 31, 2003. Excluding the revenue gain and incremental expenses triggered by the NSA contract, the companys EBITDA loss from its core business was $53,000. This compares with an EBITDA* loss of $0.9 million for the same period a year ago and an EBITDA loss of $0.6 million in the first quarter of fiscal 2004. Net income on a GAAP basis for the quarter was $22.3 million, or $0.70 per share (basic) and $0.63 per diluted share, compared with a net loss of $1.7 million, or $0.05 per share (basic and diluted), in the second quarter of fiscal 2003. In the first quarter of fiscal 2004, the net loss was $1.6 million, or $0.05 per share. The company does not anticipate paying income taxes as a result of the NSA contract, as it expects this gain to be absorbed by previous years operating losses. For the first six months of fiscal 2004, Certicom reported revenues of $29.8 million, which include $24.9 million in revenue recognized from the companys NSA licensing contract. Core revenues, which exclude revenue from the NSA contract, were $4.9 million, down 17% from $5.9 million in the same period last year. Core operating expenses, which exclude costs associated with the NSA contract, decreased 23% to $5.6 million from $7.2 million a year ago. The EBITDA loss from the companys core business was $670,000 for the period, compared with $1.3 million in the same period last year, which represents an improvement of 49%. The company posted net income on a GAAP basis of $20.7 million, or $0.65 per share (basic) and $0.60 per diluted share for the first six months of fiscal 2004, compared with a net loss of $2.7 million, or $0.09 per share (basic and diluted), in the same period last year. Cash and cash equivalents and restricted cash (collectively, Cash) totaled $5.3 million at quarter end. Cash at the end of the first quarter of fiscal 2004 was $6.8 million. The company made a $0.3 million payment for restructuring liabilities during the quarter, which represents the companys last significant one-time restructuring payment, thereby reducing Certicoms future cash requirements. In the third quarter, Certicom expects to receive $25 million as a result of the NSA contract. During the quarter, the company implemented a foreign exchange program, which is expected to significantly reduce its exposure to Canadian/U.S. currency valuation fluctuation in future quarters. Subsequent to quarter end, Certicom completed a