The Company adopted International Financial Reporting Standards ("IFRS") effective May 1, 2011. The accompanying interim financial statements represent the Company's first set of financial statements prepared in accordance with IFRS.
Q1 Fiscal 2012 Results
-- Q1 revenues of $18.3 million, compared with $18.5 million in Q1 fiscal 2011 -- Q1 adjusted net income of $7.2 million, compared with $8.9 million in Q1 fiscal 2011. Adjusted diluted EPS of $0.59, based on 12.1 million diluted shares, compared to $0.75 per diluted share in Q1 fiscal 2011, based on 11.8 million diluted shares -- Q1 IFRS net income of $2.6 million, compared to $5.1 million in Q1 fiscal 2011. IFRS diluted EPS of $0.21, compared to $0.43 per diluted share in Q1 fiscal 2011
"MOSAID delivered a solid first quarter to begin the fiscal year," said John Lindgren, President and CEO, MOSAID. "Operationally, we made significant progress in implementing our new multi-year strategy to drive future revenue growth through increased investments in litigation, patent acquisitions, and our people. We were particularly active in the courts, moving to assert our intellectual property rights by initiating patent infringement suits in the areas of semiconductor memory, Power over Ethernet technology, wireless communications, and cloud computing."
MOSAID had cash and marketable securities of $122.9 million at the end of the first quarter of fiscal 2012, compared to $114.8 million at the end of the fourth quarter of fiscal 2011. In Q1 fiscal 2012, MOSAID returned $3.0 million to shareholders in quarterly dividend payments.
On August 25, 2011, MOSAID declared a quarterly dividend of $0.25 per share. The dividend, which is an eligible dividend, is payable on October 6, 2011 to shareholders of record as of September 22, 2011.
A reconciliation of adjusted net income to International Financial Reporting Standards (IFRS) net income is included in the adjusted consolidated financial statements accompanying this press release.
First Quarter Operational Highlights
Microcomponents patent licensing: MOSAID entered into a non-exclusive patent portfolio license agreement with Analog Devices, Inc. (ADI). According to the terms of the agreement, MOSAID granted ADI a worldwide term license under its microcomponents patents covering certain ADI digital signal processing products. Since the beginning of calendar 2011, MOSAID has signed microcomponents patent license agreements with LG Electronics Inc., MediaTek Inc. and now with ADI.
Patent portfolio development: MOSAID had 2,869 patents and applications at the end of Q1 fiscal 2012, up from 2,822 at the end of Q4 fiscal 2011, and up 40% from 2,050 one year ago. The approximately 500 patents and patent applications recently acquired from Hynix Semiconductor Inc., which will be recorded following the completion of the selection process, will bring the portfolio to approximately 3,400 patents and applications.
During the quarter, MOSAID purchased an MPEG patent portfolio that is relevant to the MPEG, 3GPP and 3GPP2 media file standards. The patents cover certain products that have media playing capabilities, such as mobile phones, tablets, media player software and video conversion tools.
Research and Development: MOSAID introduced a production-ready 256Gb HLNAND™ (HyperLink NAND) Flash memory semiconductor chip. The 256Gb HLNAND device is optimized for mass storage applications, including enterprise data centers and high-performance computing applications. MOSAID's 256Gb HLNAND Flash chip is one of the fastest, highest-density, best performing Flash memory devices on the market. By sampling a production-ready 256Gb HLNAND chip, the Company is demonstrating that HLNAND can be manufactured cost-effectively, flexibly and at high yields.
MOSAID showcased the 256Gb HLNAND Flash device and its new HLNAND2 technology at the 2011 Flash Memory Summit, August 9-11, in Santa Clara, California.
Litigation update: On May 10, 2011, MOSAID initiated patent infringement litigation against Elpida Memory, Inc., Buffalo Inc. and Axiontech. MOSAID believes the defendants are infringing six patents related to Dynamic Random Access Memory (DRAM) circuit and process technology.
On May 16, 2011, MOSAID filed a complaint against Cisco Systems before the International Trade Commission (ITC). The complaint alleges that Cisco is infringing six patents relating primarily to Power-over-Ethernet technology. On June 16, 2011, the ITC voted to institute an investigation of certain Cisco products, based on the complaint filed by MOSAID. Further, the United States Patent and Trademark Office recently completed a re-examination of US patent 6,480,510, a predecessor of three of the patents at issue before the ITC. The re-examination is favorable and may assist the Company during the ITC proceedings.
On July 7, 2011, MOSAID sued HTC America, Inc. and Sony Ericsson Mobile Communications (USA), Inc. for infringing four U.S. patents that are essential to all cellular telephones that implement the E-911 emergency standard, as mandated by the U.S. Federal Communications Commission.
Subsequent to the quarter end, on August 9, 2011, MOSAID filed suit against seven companies, including Adobe Systems, Inc., Alcatel-Lucent USA, Inc., IBM Corp. and Juniper Networks, Inc., for infringing two of MOSAID's computer networking patents.
Also on August 9, 2011, MOSAID announced that ARM, Ltd. and ARM, Inc. filed a Complaint for Declaratory Judgment against the Company. On April 7, 2011, MOSAID filed suit against NVIDIA Corporation, Freescale Semiconductor, Inc. and Interphase Corp., alleging infringement of seven U.S. patents related primarily to power management techniques and microprocessor architecture. ARM, in its complaint, is seeking a declaration of non-infringement and invalidity with respect to the same seven U.S. patents at issue in MOSAID's suit against NVIDIA, Freescale and Interphase.
Also subsequent to quarter end, MOSAID received a notice of allowance for the re-examination of U.S Patent No. 6,480,510. This patent is the grandfather of three of the patents at issue before the ITC and we believe the results of their re-examination may assist MOSAID's case.
Corporate governance: the Company announced changes to the Board of Directors. John P. Veschi, Chief Intellectual Property Officer, Nortel Networks Inc., and J. Ian Giffen, an independent financial and technology advisor, were appointed as directors. Gene Davis, Chairman and CEO of Pirinate Consulting Group, stepped down from the Board due to other commitments. The Board thanks him for his many contributions.
The Board of Directors also congratulates Phil Shaer, Vice President, General Counsel & Corporate Secretary of MOSAID, for his achievement in being named a Finalist in Lexpert®'s Rising Stars - Leading Lawyers Under 40 competition.
Q2 and Fiscal 2012 Guidance
Management offers the following guidance for the second quarter of fiscal 2012:
-- Q2 revenues of $19.5 million to $21.5 million -- Q2 adjusted net income of $6.4 million to $7.1 million, or adjusted diluted earnings per share of $0.52 to $0.58 per diluted share, based on 12.2 million diluted shares
For the full fiscal year 2012, the Company is maintaining the guidance previously announced on June 16, 2011:
-- Fiscal 2012 revenues are expected to be in the range of $85.0 million to $90.0 million -- Fiscal 2012 adjusted net income is expected to be in the range of $24.6 million to $26.1 million, or $2.00 to $2.12 per diluted share, based on 12.3 million diluted shares
The above information is considered material forward-looking information. Financial guidance is provided to assist investors and other interested parties in understanding the Company's business. The reader is cautioned that using this information for any other purpose may be inappropriate.
Adjusted net income, which is not an international financial reporting standard (IFRS) measure, is IFRS net income adjusted for stock-based compensation, patent amortization, imputed interest, foreign exchange gains and losses on "other long-term liabilities," and non-recurring items as reconciled below. The Company uses adjusted measures internally to evaluate and manage operating performance as well as to forecast and plan. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.
MOSAID's revenues result primarily from intellectual property agreements, which by their nature may actually close on dates other than those projected. MOSAID's priority and focus is on obtaining the best terms possible under its agreements, rather than on the particular timing of agreement closure. MOSAID's revenues depend upon, among other items, the continued ability of its licensees to pay amounts as they become due. The Company takes steps, including monitoring the creditworthiness of its licensees, in order to manage this risk.