Wednesday, November 14, 2012 Vringo (VRNG) hosted a conference call to discuss Q3 Earnings, recent developments and to inform investors that they are executing a scalable business plan with a goal in mind to monetize their current patent portfolio. Their immediate goal is to monetize their current patent portfolio, as well as, team up with world-class law firms and other business professionals around the globe in an effort to find superior risk adjusted returns for their shareholders.
To start, the company stated that they were very pleased with 3rd quarter results and provided some relevant updates to shareholders.
First, the merger with Innovative/Protect (with subsidiary, I/P Engine) was completed less than 4 months ago. With strengthening financials, they stated that their balance sheet to date shows over $60 million in cash and zero debt. The company also announced that, under subsidiary Vringo Labs, they filed "nine" provisional patent applications. They have started to build the telecom infrastructure portfolio with the purchase of the Nokia patents during the 3rd quarter and filed a lawsuit in the UK against a subsidiary of ZTE Corporation, a leading manufacturer of telecom equipment.
The company also announced that they acquired subsequent to the end of the quarter, a portfolio of patents from Quantum Stream consisting of two patents and one application, both relating to the placement of advertising of advertising on web pages
Separately, the company received a favorable jury verdict against Google (GOOG) on November 6, 2012 and others in a patent lawsuit. Vringo believes that they have created a unique, powerful, and scalable business model as a company that creates, acquires and monetizes intellectual property and technology in the mobile, online and computing areas. They continue to see their strategy as being a scalable model in what their management team understands and has expertise in, namely: mobile, online, and computing.
Vringo expects to continue innovating and acquiring intellectual property and technologies in their "core knowledge areas" as they believe that they have demonstrated with the portfolios already acquired from Lycos, Nokia (NOK) and Quantum Stream. The company foresees an excellent opportunity in the IP sector which has become an attractive asset class commanding significant attention and investment.
The Recent Google Trial:
Vringo was very pleased with the jury's conclusion relating to "the validity and infringement" of the "420" and "664" patents and see this as a very significant wins. The jury also found that "reasonable royalty" damages should be based on a running royalty vs. a lump sum payment. Furthermore, the running royalty rate should be 3.5%. The jury also found that the total of approximately $30.5 million from Google, AOL (AOL), Target (TGT), IAC/Interactive (IACI), and Gannet (GCI) "if paid now in cash" would reasonably compensate Vringo's IP/Engine for the defendants past infringement commencing on September 15, 2011. In my prior article I suggested that the running royalties may yield the company $500-$600 million.
In light of the jury's decision with regards to the validity of these patents, the company stated that they are taking the necessary steps to monetize these assets. There have been many questions regarding the juries past damages calculations. The legal team is reviewing the verdict and has stated clearly that their lawyers plan to address all post trial matters with the court. Keep in mind that the company is now in the post trial phase of litigation and they expect motions to be filed with the court by both parties.
For example: Last Friday IP/Engine filed a motion with the court to award them pre-judgment and post-judgment interest along with supplemental royalty damages from October 1, 2012 through the date of judgment. The amount of these damages will not be known until the court orders an accounting from the defendants through the requested time period. With respects to Judge Jackson's final ruling and ongoing matters in the case the company we will have to wait for an official news release from the company.
The company also gave a brief summary of the Nokia patents that they have acquired that portfolio of patents on August 9, 2012 which entail over 500 patents in over 10 countries. David Cohen (formerly Senior Litigation Counsel at Nokia) has joined Vringo's management team and will be the Head of Litigation, Licensing and Intellectual Property. Investors should know that prior to joining the Vringo team; David was responsible for Nokia's successful global intellectual property litigation campaign against Apple (AAPL) which resulted in a reported settlement of $715 million plus ongoing royalties. David will now oversee all of Vringo's IP monetization efforts.
This week, the company also filed a new investor presentation focused solely on their acquired telecom infrastructure patent portfolio and can be view at the corporate website or here (pdf).
The majority of the intellectual property in the presentation relating to the 500 patents and patent applications (a global portfolio) acquired by Nokia were issued in more than 10 different countries and territories. They were filed in the late 1990's and early 2000's when Nokia was at the forefront of building a wireless infrastructure backbone all over the world. Today, this infrastructure allows people to use cellular and smart phone communication through voice calls and data through text, email and the Internet. On a special note: 31 of the 124 patent families are declared in the portfolio as essential to the wireless communication standards according to Nokia. The standards represented in the portfolio are commonly known as 2G, 2.5G, 3G and 4G. They are also known as GSM, WCDMA, LTE and others. This is very significant. These patents are expected to help scale the company up by using these patent standards to create a unique business model with recurring licensing revenues. Vringo can also potentially pursue high value encroachment claims in the future by enforcing these patents globally.
Current enforcement activities include: Vringo vs. ZTE
In August, the company engaged a very successful UK based law firm Powell Gilbert, a boutique law firm dedicated to specializing in IP. On October 8, 2012 the company announced that they filed a patent infringement lawsuit against the UK subsidiary of ZTE Corporation which is a leading global provider of telecommunications equipment and network solutions.
Additional New Developments:
Surprisingly, the company has been working with their product team in Israel, and they are continuing to advance the mobile product line there working with their several partners. They expect to continue to expand the distribution of their mobile applications as part of their business plan. The company says that they have also been working with a major mobile entertainment service provider, Neomobile in Italy.
Neomobile is a global Mobile Commerce Group at the forefront of the new mobile ecosystem. Established in February 2007, Neomobile is today a global leader in Mobile Entertainment, and Mobile Payment, highly visible in Europe, Latin America and India, with an offer portfolio able to meet and exceed its customers' demands for all access devices, from feature phones and smartphones to PCs and tablets. More about Neomobile: http://www.neomobile.com/
Third Quarter Operating Results:
The company has over $60 million in cash which is sufficient to meet any ongoing financial obligations. The net loss for Q3 was $3.1 million. Following the close of the merger with Innovative/Protect the company recorded total revenues of $226,000. On a per share basis, their net loss fell by 83% to a net loss of $0.06 per basic share, compared to a loss of $0.36 per basic share, presented by Vringo in their second quarter. The decrease in basic loss per share was mostly due to an increase in the number of shares, and a decrease in the fair value of warrants classified as a long-term derivative liability, partly offset by increased costs reflecting the post-merger operations of the combined company
As The Company Moves Forward:
In the quarter ahead, the company in closing stated that they will continue to be judicious with cash resources and equity. They do not see the need to do another equity offering at this time. They also said that they will continue to partner with world-class law firms and other industry professionals. As stated earlier, their goal is to deploy capital into strategic assets where they see strong potential that will offer shareholders superior risk adjusted returns.
Disclosure: I am long VRNG.