Certicom Reports Results for Second Quarter of Fiscal 2009

MISSISSAUGA, ON, Dec. 3, 2008 (Canada NewsWire via COMTEX) -- CIC | Quote | Chart | News | PowerRating -- << Results on target with new strategic plan Highlights for the Quarter: - Certicom partnered with Itron to offer authentication and enhanced security for its market-leading Advanced Metering Infrastructure (AMI) system - Daintree Networks licensed Certicom's Security Builder technology for the development of secure ZigBee Smart Energy networking products - Sterling Commerce extended its license of Certicom's security solutions and professional services for protecting financial transactions - Proginet, Nortel and Sybase all licensed Certicom's security solutions for FIPS 140-2 certification, the benchmark standard for government agency data security - Certicom launched new support for Suite B algorithms in Security Builder(R) SSL(TM) to help developers conveniently incorporate Suite B-enabled SSL support into their products - Certicom continued to reinforce its global infrastructure by strengthening sales teams in Asia-Pacific and Europe Subsequent to Quarter-End: - Certicom launched its new Asset Management System (AMS), which is being implemented by global leaders in semiconductor manufacturing to help lower their inventory and supply chain costs and enable new revenue sources - Certicom responds to Research in Motion's announcement of their unsolicited intent to acquire all of the outstanding Certicom shares >>

Certicom Corp. (TSX: CIC | Quote | Chart | News | PowerRating) ("Certicom" or the "Company") today reported results for the second quarter and six months of fiscal 2009 ended October 31, 2008. All figures are in U.S. dollars and presented in accordance with Canadian Generally Accepted Accounting Principles (GAAP), except where otherwise noted.

Revenue for the quarter was $6.6 million, compared to $3.8 million in the second quarter of fiscal 2008. For the first six months of fiscal 2009, revenue was $10.8 million, compared to $7.0 million in the first six months of fiscal 2008, an increase of 54% year-over-year. The revenue distribution for the six-month period was 31% toolkits, 27% solutions, 18% professional services and the balance was from maintenance and intellectual property. This distribution is in line with the Company's plan.

"Certicom continues to make notable progress at this early stage of our new three-year strategic plan. We're very pleased to be meeting our plan objectives even in this environment of economic turmoil, with several key licensing agreements contributing to strong quarterly and year-to-date revenue numbers," said Karna Gupta, Chief Executive Officer. "Our contract win with Itron in the energy and utilities vertical is particularly significant given the growth potential for green energy and Itron's leading market position in automated meter management technologies. We have closed several new contracts in the first six months of fiscal 2009, giving us a robust back-log as we enter the second half of the fiscal year."

Mr. Gupta continued: "In addition, we continue to invest in developing a comprehensive solutions portfolio. We recently launched the Certicom Asset Management System, which is initially targeted towards the semiconductor vertical to manage, secure and control manufacturing processes in a global outsourcing environment. This significant development adds to Certicom's strong heritage of solving specific and complex business problems."

Second Quarter Financial Review

Operating expenses(2) excluding Sony litigation expenses for the quarter were $6.9 million, compared to $5.5 million in the second quarter of fiscal 2008. The expense guidance given for the second quarter was $5.2 million, which excluded the cost of revenues and Sony litigation expenses. The actual equivalent expenses for the second quarter of fiscal 2009 were $5.9 million. The higher expenses were mainly attributable to investments in accelerated product development and one-time management restructuring costs. The Sony litigation costs were $1.8 million, compared to $0.6 million in the same quarter of fiscal 2008, and were consistent with the expense guidance given last quarter.

The Company posted a net loss on a GAAP basis of $2.6 million or $0.06 per basic and diluted share for the quarter, compared to a net loss of $2.8 million and $0.06 per basic and diluted share in the second quarter of fiscal 2008.

Certicom had $33.3 million in cash(3) at quarter-end, compared to $38.5 million at year-end fiscal 2008. The Company has no debt.

Six Month Financial Review

Operating expenses(2) excluding Sony litigation expenses for the six-month period were $12.8 million, compared to $11.3 million for the same period last year. The increase in year-over-year operating expenses was mainly due to investments in accelerated product development and one-time management restructuring costs. The Sony litigation costs were $3.0 million for the six-month period, compared to $1.0 million in the same period of fiscal 2008.

For the first six months of fiscal 2009, the Company posted a net loss on a GAAP basis of $5.9 million, or $0.14 per basic and diluted share, compared to a net loss of $6.2 million, or $0.14 per basic and diluted share, for the same period last year.

For further detail about Certicom's execution of its strategic growth plan, investors are encouraged to refer to additional supporting information on the slides posted on the Company's web site at www.certicom.com in the "Investor Events" section.

Financial Outlook

Revenues

Given the year-to-date results, the backlog in place and the forward-looking pipeline, the Company expects to generate year-over-year revenue growth of at least 25% in fiscal 2009(1) and to double its revenue within three years. Management expects that the momentum in its new market verticals will continue to provide strong revenue growth for the remainder of fiscal 2009 and beyond.

Operating expenses(2)

For the third quarter of fiscal 2009, operating expenses(2), excluding expenses related to the Sony litigation, are expected to range from $6.5 million to $6.9.(1) million. The expenses related to the Sony litigation for the quarter are expected to be approximately $1.4 million.

Cash Management

The Company anticipates that it will be able to achieve positive cash flow by no later than the fourth quarter of fiscal 2010(1).

Business Environment Outlook

"We are encouraged by our growth in the semiconductor and the energy & utilities verticals, where our solutions offer not only efficiency and cost savings, but also enhanced brand protection and revenue growth," said Mr. Gupta. "We believe that our strong financial position, core technical strengths and early success in executing our new strategic plan provide an excellent base and give us confidence in the longer term outlook, even in the face of the current global economic uncertainty."

Mr. Gupta continued, "Looking ahead, we expect to achieve further operational and financial progress as we execute on our strategic plan and move towards our ultimate goal of sustainable, profitable growth."

Sony Patent Infringement Litigation

Certicom continues to progress as planned through the discovery phase of the Sony litigation. The Company's patent counsel has completed most of its work on securing depositions and assessing documentation and software code. The Company remains confident of its legal position and ability to pursue this litigation to a successful conclusion. As stated previously, the claims construction hearing of the litigation case (known as a Markman hearing) has been set for June 11, 2009, with a trial date of September 8, 2009.

Conference Call

<< ------------------------------------------------------------------------- Conference Call and Webcast December 4, 2008, 10 a.m. ET (7 a.m. PT) ------------------------------------------------------------------------- Participant Numbers 416-644-3415 or 1-800-733-7571 ------------------------------------------------------------------------- >>

The conference call will be webcast live with supporting slides and subsequently archived at www.certicom.com. To listen to the webcast, participants will require Windows Media Player(TM) which can be downloaded from Certicom's website prior to the event. An archived recording will be available from 12 p.m. (ET) on December 4 until 12 a.m. (ET) on December 11, 2008. To access the archive, please call 416-640-1917 or 1-877-289-8525 and enter passcode 21284616 followed by the number sign.

About Certicom

Certicom manages and protects the value of content, applications and devices with government-approved security. Adopted by the National Security Agency (NSA) for government communications, Elliptic Curve Cryptography (ECC) provides the most security per bit of any known public-key scheme. As the global leader in ECC, Certicom's security offerings are currently licensed to hundreds of multinational technology companies, including IBM, General Dynamics, Motorola, Oracle and Research In Motion. Founded in 1985, Certicom's corporate offices are in Mississauga, Ontario, Canada with worldwide sales and marketing headquarters in Reston, Virginia and offices in Europe and Asia. Visit www.certicom.com

Certicom Safe Harbor Statement

Except for historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties. Forward-looking information includes information concerning Certicom's future financial performance, business strategy, plans, goals and objectives. When used in such documents, the words "plans", "expects", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", "will", "believes" or variations of such words and phrases often, but not always, identify forward looking statements. The forward-looking information reflects management's current beliefs and is based on information currently available to management. The forward-looking information is provided solely to give you the opportunity to review management's beliefs and opinions in respect of the future and the forward-looking information is based on management's current expectations in these areas, and should not be used for any other purpose. The forward-looking information in this news release is not a guarantee of future performance and undue reliance should not be placed upon it. The forward-looking information in this news release includes, but is not limited to, the financial outlooks in several areas in the section titled "Financial Outlook", notably, expectations respecting growth and revenue, operating expenses, and cash management. The forecasts and projections that make up the forward-looking information are based on assumptions which include, but are not limited to: the levels of demand for Certicom's products and services; the ability to obtain and maintain patents and protect Certicom's intellectual property portfolio; the execution of the strategic growth plan; retention of the existing customer base; sufficient human resources to deliver services and execute the strategic plan; currency exchange rates; favourable economic and market conditions; the ability to hedge certain risks; and favourable labour relations. The forward-looking information is subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. The factors which could cause actual results or events to differ materially from current expectations include, but are not limited to: the ability of Certicom to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits; the ability of Certicom to develop, promote and protect its proprietary technology security breaches or defects in Certicom's products; competitive conditions in the businesses in which Certicom participates; changes in consumer spending; the outcome of legal proceedings as they arise; general economic conditions and normal business uncertainty; consolidation in Certicom's industry and by its customers; customer preferences towards product offerings; the risk that customers may cancel their contracts with Certicom; reliance on a limited number of customers; demand for ECC-based technology; performance of Certicom's management team and Certicom's ability to attract and retain skilled employees; operating Certicom's business profitably; fluctuations in revenue and foreign currency exchange rates; interest rate fluctuations and other changes in borrowing costs; the ability to develop and maintain strategic relationships; and other factors identified under the heading "Risk Factors" in Certicom's annual information form dated July 21, 2008 and filed on SEDAR at www.sedar.com.

Certicom, Certicom Security Architecture, Certicom Trust Infrastructure, Certicom CodeSign, Certicom KeyInject, Security Builder, Security Builder API, Security Builder BSP, Security Builder Crypto, Security Builder ETS, Security Builder GSE, Security Builder IPSec, Security Builder NSE, Security Builder PKI and Security Builder SSL are trademarks or registered trademarks of Certicom Corp. All other companies and products listed herein are trademarks or registered trademarks of their respective holders. Information subject to change.

<< ENDNOTES: 1. This financial outlook is forward-looking information - please refer to the section "Certicom Safe Harbor Statement" of this news release when considering this information. 2. This news release contains references to operating expenses. Certicom defines operating expenses as total operating expenses excluding depreciation and amortization and stock-based compensation. It also excludes interest income, other income (expense) and withholding tax expense. ------------------------------------------- Three months ended Six months ended --------------------- --------------------- October 31, October 31, 2008 2007 2008 2007 ------------------------------------------- Cost of revenues $ 943 $ 998 $ 1,731 $ 1,616 Sales and marketing 2,771 1,796 4,893 3,995 Product development and engineering 2,072 1,560 4,070 3,409 General and administrative 2,936 1,687 5,063 3,302 ---------- ---------- ---------- ---------- Total operating expenses $ 8,722 $ 6,041 $ 15,757 $ 12,322 ---------- ---------- ---------- ---------- Less: Litigation (1,841) (562) (2,976) (989) ---------- ---------- ---------- ---------- Total operating expenses excluding litigation $ 6,881 $ 5,479 $ 12,781 $ 11,333 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 3. This news release contains references to cash, which is defined as cash and cash equivalents, short term and long term marketable securities and restricted cash. October 31, April 30, 2008 2008 Cash and cash equivalents $ 4,069 $ 1,641 Marketable securities 29,202 25,980 Long-term marketable securities - 10,832 ------------------------------------------------------------------------- Total Cash $ 33,271 $ 38,453 ------------------------------------------------------------------------- CERTICOM CORP. -------------- CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars) CANADIAN GAAP October 31, April 30, 2008 2008 ------------- ------------- (Unaudited) (Audited) ASSETS Current assets: Cash and cash equivalents.................. $ 4,069 $ 1,641 Marketable securities...................... 29,202 25,980 Accounts receivable, net................... 5,439 5,426 Unbilled receivables....................... 601 503 Prepaid expenses and other current assets............................ 612 659 ------------- ------------- Total current assets..................... 39,923 34,209 Long-term marketable securities.............. - 10,832 Property and equipment, net.................. 1,094 1,173 Patents, net................................. 3,009 2,776 Other assets................................. 24 24 ------------- ------------- Total assets............................. $ 44,050 $ 49,014 ------------- ------------- ------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable........................... $ 2,917 $ 2,255 Accrued liabilities........................ 3,420 2,332 Deferred revenue........................... 4,434 5,123 Obligation under capital lease............. 15 17 Current portion of lease inducements....... 52 52 ------------- ------------- Total current liabilities................ 10,838 9,779 Other long-term payables..................... 718 718 Obligation under capital lease, long-term.... 17 30 Lease inducements, net of current portion.... 9 35 ------------- ------------- Total liabilities........................ 11,582 10,562 Shareholders' equity: Share capital.............................. 38,676 38,624 Contributed surplus........................ 10,166 9,021 Retained deficit........................... (15,068) (9,131) Accumulated other comprehensive loss....... (1,306) (62) ------------- ------------- Total shareholders' equity............... 32,468 38,452 ------------- ------------- Total liabilities and shareholders' equity.................... $ 44,050 $ 49,014 ------------- ------------- ------------- ------------- CERTICOM CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS ----------------------------------------------------------- AND DEFICIT ----------- (In thousands of U.S. dollars, except number of shares and per share data) (Unaudited) CANADIAN GAAP Three months ended Six months ended October 31, October 31, 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Revenues: Product and intellectual property.................. $ 4,971 $ 1,638 $ 7,319 $ 3,051 Services................... 1,648 2,160 3,495 3,955 ---------- ---------- ---------- ---------- Total revenues........... 6,619 3,798 10,814 7,006 Cost of revenues: Product and intellectual property.................. 170 - 206 12 Services................... 773 998 1,525 1,604 ---------- ---------- ---------- ---------- Total cost of revenues... 943 998 1,731 1,616 ---------- ---------- ---------- ---------- Gross margin................. 5,676 2,800 9,083 5,390 Operating expenses: Sales and marketing........ 2,771 1,796 4,893 3,995 Product development and engineering............... 2,072 1,560 4,070 3,409 General and administrative............ 2,936 1,687 5,063 3,302 Depreciation and amortization.............. 308 330 602 638 Stock-based compensation... 550 677 1,145 1,211 ---------- ---------- ---------- ---------- Total operating expenses................ 8,637 6,050 15,773 12,555 ---------- ---------- ---------- ---------- Loss from operations......... (2,961) (3,250) (6,690) (7,165) Other income: Interest income............ 357 462 750 986 Interest expense and other income (expense), net..... 46 (35) 14 (2) ---------- ---------- ---------- ---------- Total other income 403 427 764 984 ---------- ---------- ---------- ---------- Loss before provision for income taxes................ (2,558) (2,823) (5,926) (6,181) Provision for income taxes.............. 1 3 11 19 ---------- ---------- ---------- ---------- Net loss for the period...... $ (2,559) $ (2,826) $ (5,937) $ (6,200) Retained deficit, beginning of period......... (12,509) (2,005) (9,131) 1,369 ---------- ---------- ---------- ---------- Retained deficit, end of period............... $(15,068) $ (4,831) $(15,068) $ (4,831) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Basic and diluted net loss per share................... $ (0.06) $ (0.06) $ (0.14) $ (0.14) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Shares used in basic and diluted net loss per share calculations (000s)......... 43,700 43,637 43,689 43,419 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- CERTICOM CORP. -------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands of U.S. dollars) (Unaudited) CANADIAN GAAP Three months ended Six months ended October 31, October 31, 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Net loss for the period...... $ (2,559) $ (2,826) $ (5,937) $ (6,200) Other comprehensive income: Net unrealized gain (loss) on derivatives designated as cash flow hedges....... (925) 960 (1,244) 1,057 ---------- ---------- ---------- ---------- Comprehensive loss......... $ (3,484) $ (1,866) $ (7,181) $ (5,143) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- CERTICOM CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) (Unaudited) CANADIAN GAAP Three months ended Six months ended October 31, October 31, 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Cash flows from operating activities: Net income (loss).......... $ (2,559) $ (2,826) $ (5,937) $ (6,200) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization............ 308 330 602 638 Stock-based compensation 550 677 1,145 1,211 Amortization of lease inducements............. (13) (13) (26) (26) Changes in operating assets and liabilities:............ Accounts receivable and unbilled receivables, net................... (2,903) 114 (111) 2,812 Prepaid expenses and other assets.......... (763) (48) (1,197) 48 Account payable........ 708 281 662 (297) Accrued liabilities.... 1,506 (309) 1,088 (953) Deferred revenue....... (774) (873) (689) (679) Obligation under capital lease......... (8) - (15) - Other payables......... - (1) - (28) ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities.......... (3,948) (2,668) (4,478) (3,474) Cash flows from investing activities: Purchase of property and equipment................. (216) (250) (325) (433) Purchase of patents........ (223) (342) (430) (654) Net maturity of marketable securities................ 209 1,415 7,610 2,186 ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities.............. (230) 823 6,855 1,099 Cash flows from financing activities: Proceeds from issuance of common stock, net......... 46 57 52 2,091 Common shares repurchased.. - - - (306) ---------- ---------- ---------- ---------- Net cash provided by financing activities.... 46 57 52 1,785 Effect of exchange rate on cash and cash equivalents... (2) - (1) - ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents... (4,134) (1,788) 2,428 (590) Cash and cash equivalents, beginning of period......... 8,203 4,595 1,641 3,397 ---------- ---------- ---------- ---------- Cash and cash equivalents, end of period............... $ 4,069 $ 2,807 $ 4,069 $ 2,807 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- >>

SOURCE: Certicom Corp.

Investors and Financial Analysts: Hervé Séguin, Chief Financial Officer, Certicom Corp., (905) 501-3827, hseguin@certicom.com; Media: John Callahan, Director, Public Relations & Marketing Communications, Certicom Corp., (703) 234-2357, jcallahan@certicom.com, www.certicom.com

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