Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Unwired Planet, Inc. (NASDAQ:UPIP)

F2Q14 Earnings Conference Call

January 30, 2014 5:00 pm ET

Executives

Phil Vachon - Chairman of the Board

Eric Vetter - President, Chief Financial Officer and Chief Administrative Officer

Lauren Stevens - Investor Relations

Analysts

Mark Argento - Lake Street Capital Markets

Mike Latimore - Northland Capital Markets

Steve Busch - Southpaw Investments

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Unwired Planet's Second Quarter 2014 Financial Results Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Thursday, January 30, 2014. I would now like to turn the conference over to Ms. Lauren Stevens. Please go ahead.

Lauren Stevens

Thank you. Good afternoon and thank you for joining us today to discuss the results of Unwired Planet’s second quarter fiscal 2014. Joining me today are, Phil Vachon, Chairman of the Board of Directors; and Eric Vetter, our President and Chief Administrative Officer.

The second quarter fiscal 2014 financial results press release was issued at the close of market today, which includes a non-GAAP to GAAP reconciliation, and if you’ve not seen a copy, you can find it at our website at www.unwiredplanet.com. For your convenience, this call is being recorded and will be available for playback from our website.

Further, any remarks that may be made on this call or included in our earnings press release about future performance, plans, objectives, and strategies of the Company may constitute forward-looking statements which are made pursuant to the Safe Harbor provision of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Such forward-looking statements do not constitute guarantees of future performance and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by the forward-looking statements. We assume no obligation to update any forward-looking information discussed during this call and we encourage you to refer to the Safe Harbor language included in our earnings press release and our periodic report filed with the SEC which describe risk factors that may impact our future results.

I would like to note that during the discussion of our financial results, unless otherwise indicated, earnings related items are reported on a non-GAAP basis as defined by Regulation D, which includes stock-based compensation, restructuring expense, discontinued operations, and items related to certain strategic costs and the tax impact of these items. Please access our press release to review a reconciliation of the non-GAAP measures we report to the corresponding GAAP measures.

With that, I would like to turn the call to Phil.

Phil Vachon

In our last call, we discussed the challenges of the U.S. IT market as it relates to our business. The environment described then hasn't changed. The only question for us has been, what we are going to do about it. Over the last two quarters, we've been working on a strategy that will help us compensate to the realities in the U.S. market. Let's begin with a short discussion on spend and then move on to IT.

The Company currently has 12 full-time employees, the majority are in licensing. G&A expense is down sequentially in a few areas such as accounting, audit, and corporate/legal. We're now at a headcount that's appropriate for both the size of our business and the maintenance of a public company. We don't anticipate growing G&A or headcount spend significantly as the revenue ramps. The majority of our spending is allocated to revenue generating activities on assets that we already own.

In our last call, we described 20 discussions that were and still are underway, and we are pursuing more. This number now stands at 27. The good news on this front is that many of our negotiations have graduated from technical debate into an economic debate. Our commitment is to reasonable pricing, but despite this, we're still being offered royalty payments that reflect a gap in the value of our patents. We will continue these discussions where we are making progress. When discussions fail, we'll pursue litigation. Let's state again for the record, we'll enforce our rights when necessary.

The four cases that were already filed are progressing. We have PTO activity, Markman hearings, venue motions, and discovery upcoming that are too numerous to mention on this call, so please see our blog for details on each case.

We received another 127 patents from Ericsson in the quarter, raising our total to approximately 2,600 total assets. Three of these are new families that are essential to LTE. Our already strong portfolio gets only stronger. It's useful for investors to note that these new patents and the bulk of a number of our portfolio come from Ericsson. Earlier this week, Ericsson announced a settlement with Samsung with the use of their LTE, 4G, 3G, and 2G patents in the amount of $652 million plus future royalties.

Unwired Planet owns a subset of patents from Ericsson in all of these same technologies that are present in most of the modern smartphones made in the last decade. According to Ericsson LTE research report in November 2013, there'll be 2.6 billion LTE subscriptions worldwide by 2019. The blog also has a good read from CES on LTE in cars, and you should check that out.

Next, there are two new distinct areas of focus for the Company, both of which completed planning during the quarter and now are in the implementation phase. First, we completed analysis of our asset base, aligned it with our licensing strategy and have engaged in several new conversations to provide short-term revenue for the Company. There are numerous ways to monetize IP, and we have been aggressively pursuing multiple non-traditional paths. Currently, there are few new discussions that look quite promising. However, investors should always keep in mind that the timing in terms of any transaction in the IP world can vary widely.

Second, we are going global in our licensing with the worldwide strategy, which management proposed and the Board approved this quarter. Mobile technologies are global. We have a unique portfolio which covers patented technologies in dozens of countries. As part of our monetization efforts, we intend to collect royalties on a worldwide basis and are taking the necessary steps to do so.

Markets outside the U.S. have both significant size and different rules regarding the enforcement of intellectual property. The cost and time to resolution are often significantly lower. Unwired Planet has the resources to adapt to these changing environments for patent holders. Our ability to implement our plan speaks not only to the diversity and breadth of our portfolio, but also the strength of our balance sheet.

We see our ability to go global as a distinct advantage for Unwired Planet that one would typically see in only largest of portfolios. This is not to say we're abandoning U.S. markets, because we're not. Our prospective licensees run global businesses, often with volumes higher than in the U.S. The patents in our U.S. streets are very strong and we have more where those came from. While we do not have any announcement to make today, we're taking the necessary steps to get ready, investors should see evidence of our significant commitment to global licensing efforts in this fiscal year.

Now, I would like to turn the call over to Eric for a presentation of the numbers.

Eric Vetter

Thanks, Phil, and good afternoon, everyone. For the second quarter of fiscal 2014, we are reporting a net loss of $7.3 million on a GAAP basis. Our results are comprised as follows. We had no net revenues in the quarter just ended. Patent initiative expenses totaled $5.7 million. Of this, $1.5 million was for prosecution and maintenance, as this was one of our biggest renewal quarters, $3 million was for litigation and litigation planning work, and $1.2 million related to external licensing resources and internal licensing staff. Included in these costs is $0.3 million of stock-based compensation expense.

General and administrative expenses totaled $1.4 million for the quarter. These costs are comprised of external accounting, legal, and other public company costs as well as employee and executive-related expenses. Stock-based compensation in G&A this quarter totaled $0.2 million.

As with the prior quarter, we incurred $0.9 million of paid-in-kind interest expense this quarter related to the notes we issued at the end of June 2013. This expense was partially offset by $0.5 million of other income, which primarily was a result of the quarterly revaluation of our market condition stock liability related to the Ericsson transaction. Discontinued operations amounted to $0.2 million of income, the result of a property tax refund we received during the quarter.

From a balance sheet perspective, we ended Q2 fiscal 2014 with $73.3 million in combined cash and investments and $7.1 million in current liabilities. As Phil mentioned earlier, we remain focused on containing our costs while aggressively pursuing agreements reflective of the value of our strong patent portfolio. As always, we appreciate everyone's support and your time today.

At this point, operator, we would like to open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Mark Argento with Lake Street Capital Markets.

Mark Argento - Lake Street Capital Markets

Just a quick question, could you just refresh our memories in terms of “non-traditional” other options you have in terms of licensing? I assume that's partnering with other licensing entities, but could you just walk through at a high level some of the different potential avenues you see out there for the company or for some of the assets?

Phil Vachon

Sure. One of the unique things about intellectual property is that it's pretty malleable . You can do a lot with it. They are intangible assets. So that means that you can pursue a variety of types of monetization schemes, soI'm going to give you some examples of it, not to say that we're engaged in any one particular one, but we looked at, there are things like selling assets, there are things like partnering with third-party firms who are looking for IP and have capital, focus on a specific market, there's things as esoteric as rent expense , rent for office, there's the ability to grant sublicenses. I mean there's a whole bunch of different options and we have evaluated the portfolio against all those options and are engaged in some discussions to create some value using that strategy.

Mark Argento - Lake Street Capital Markets

Great. In terms of the time-table, I know this is something you've been working on, I assume fairly aggressively over the last quarter or two, would you expect – would you have kind of a direction already picked out, now you're down to negotiating the finer strokes? I'm trying to get brass tacks on some deals, and is it multiple different opportunities that you're working on or is it kind of one larger opportunity?

Phil Vachon

As I said in the call, we've got a couple of discussions that look very promising and are very focused on using these alternate monetization strategies because the time-to-money is a lot shorter than licensing discussions or litigation. So, those discussions, it's not like we're just starting this, we are pretty deep into the process with a number of parties, and just as I said again in the call, with the IP business, if you think you can predict when something's going to happen, you're making a mistake. So, we are very encouraged by what's going on, we think it's the right answer for the company in terms of how to create shorter-term value while we all wait for the rest of the strategy to play out, and that's what we're up to.

Mark Argento - Lake Street Capital Markets

Great. And then one for Eric. In terms of expenses, it looks like the last couple of quarters, you've been kind of bumping along at roughly $7 million a quarter. Do you anticipate that changing at all? I assume that ticks up if you start to get more aggressive on litigation. Any thoughts on kind of quarterly run rate expenses?

Eric Vetter

No, Mark. We'll stick with the guidance we gave before, which is G&A in that $1.5 million range that we've been running at, and then the broader range around the IP, we were in that $4 million to $6 million range, and that is a reactive business to an extent depending on what we get in some of the feedback on some of these cases we're in, and then also in actions we'll take forward. But for right now, we're sticking with that guidance.

Mark Argento - Lake Street Capital Markets

Great. And then back to Phil, in terms of the cross-license deal that you had mentioned between Ericsson and Samsung, is there any read through for you guys relative to the assets that you have, and I think at one point you guys talked about having roughly 10% of their overall portfolio, and I know it's always just a little sloppy when you start carving things up that way, but in terms of $600 million plus in licensing, you have 10%, granted 10% that was licensed by, but is it fair to start thinking in terms of $50 million, $60 million, $70 million, $80 million type of implied value for your IP in that one license scenario?

Phil Vachon

You know, I knew somebody was to run that math. Here's how I think about it. Yes, the good news for us – and the reason I highlighted in the call is that those patents come from a very nice place. It's a place that just got $652 million, from the same – I would just say, like if they were a person, it would become a very good family. So, we've got a bunch of patents that we have spent a bunch of money on processing and coming out with really highest value-added ones that we're marketing to the licensees. So look, it's a subset of what Ericsson just licensed for probably over $1 billion and its lifetime. So we're pretty optimistic about that. The Samsung license did not contain any license fees for the patents that Unwired Planet owns.

So, we now have in front of us an opportunity to license the, if you want to call out the rate, remaining 10%. What I'd tell you is that, from a modeling standpoint, I would anticipate that our transaction with any licensee would probably model what Ericsson did, because I mean they collected for past damages and then they – or passed licenses and then they collected for forward -- or are going to collect royalties on an ongoing basis. I expect that we'll model that strategy as well.

Mark Argento - Lake Street Capital Markets

Got you. And then last question for me, in terms of upcoming core activity, I think you guys, you have at least one if not a couple of Markmans coming up this spring and summer, is that right?

Phil Vachon

Yes, if you go to the blog, Mark – it was like there's so much stuff going on that we just couldn't cover on the call, and actually I'm not even that familiar with it because it's just too much to keep track of. So, I would just ask you to have a look at the blog and if you have any questions, we’d of course be happy to answer them.

Mark Argento - Lake Street Capital Markets

Great, thanks guys.

Operator

Thank you. Our next question comes from the line of Mike Latimore with Northland Capital.

Mike Latimore - Northland Capital Markets

You talked about kind of an increasing global strategy. By that, do you mean more litigation or more discussion with entities located internationally?

Phil Vachon

Both.

Mike Latimore - Northland Capital Markets

Okay. And how about – how do you view that from a cost perspective, does that fit within the kind of guidelines you kind of laid out there?

Phil Vachon

Yes, we've looked at – I sort of highlighted it on the call on the script, but let me just give you a little more color on it. We looked at the strength of our portfolio. You have to have patents in the countries that you're serving them, right, that you're trying to get licenses for. So, you first of all have to do a topology of your portfolio, figure out what countries you're strongest in, and then go look at the market size for what you're going after and make sure that it all makes sense. That's the exercise that we've been going through in the last quarter or two. So, we've clearly picked out some markets that we like.

We may need to have to go look at the patent rules for asserting patents in those markets, what are the land mines you're going to step on, how much money do you need, what's the time-to-money. And so, we have circled around a strategy, a global strategy, and using all those factors, we anticipate that when we launch, we'll do an announcement.

Mike Latimore - Northland Capital Markets

Got it. And then you talked about the 20 discussions on the last call. I mean how many of those 20 have actually given you offer of some sort [indiscernible]?

Phil Vachon

I'm going to give you a range because I don't really know exactly, maybe a third of them.

Mike Latimore - Northland Capital Markets

All right. And so the ones that have given some sort of offer, are you still in discussions with those or have they [indiscernible] and they're kind of looking at offers?

Phil Vachon

Of the 27, two have terminated discussions. Like we just figured, it's going nowhere, it's a waste of time and money, and so those discussions have terminated and we're going to do what we got to do.

Mike Latimore - Northland Capital Markets

And I guess what's your view on the Samsung-Ericsson settlement, does that make it – does that potentially accelerate any opportunity there for you guys or does it delay them or no real change?

Phil Vachon

The most important thing I think in that regard, and I'm [indiscernible] to this specific question about is that this freed up the LTE market, licensing market. There were not a lot of milestones in here or markets in the LTE market for licensing. This sort of – we think that this is a great place to have to be right now because we're going behind the deal that really sort of made the markets for LTE licensing. So that is very, very helpful. And so I hope that it would accelerate things, but you never know. We have a subset of what they just licensed. It's not all of it but it's really good and it's really powerful and we expect that we will be able to get value from it.

Mike Latimore - Northland Capital Markets

And just one last, I know you still have an outstanding payment potentially from Microsoft. [indiscernible]?

Phil Vachon

We have a $10 million payment that we have…

Eric Vetter

We have an amount, yes.

Phil Vachon

Yes, I think it's payment due from Microsoft, assuming we meet certain requirements. At our journal, we've disclosed about that.

Eric Vetter

There's an optionality too and it's still outstanding out there.

Phil Vachon

Right. So look, when we consider structuring deals, we always consider structuring deals to maximise revenue. So, if there's a way to collect that, we certainly will.

Mike Latimore - Northland Capital Markets

Perfect, thanks.

Operator

(Operator Instructions) Our next question comes from the line of Steve Busch with Southpaw Investments.

Steve Busch - Southpaw Investments

Regarding the Ericsson-Samsung deal, is there any opportunity or was there any opportunity for our patent to be bundled in with their patent at the same time or is there opportunity like that going forward?

Phil Vachon

We don't know status of the patents, but in our portfolio, the 2,600 patents, we own those patents and Ericsson does not have a right to sublicense them. I can't characterise, it's probably confidential about what the conversations were during that whole time, but suffice it to say that Ericsson concluded their deal without concluding a deal with us and we are now licensing our patent separately.

Steve Busch - Southpaw Investments

All right, okay. I mean it just seems like if Samsung wanted to get it all done at once, it'd been easier to do it then, but okay. And so, you're saying that Samsung licensing the Ericsson patents doesn't in any way harm your patent portfolio, they can't claim that they've already licensed it from Ericsson?

Phil Vachon

Not at all.

Steve Busch - Southpaw Investments

Okay, perfect. Thank you very much.

Operator

Thank you. There are no additional questions. Please continue with any closing remarks.

Eric Vetter

Listen, we appreciate everybody's time as always today, and as Phil said, we're working on a lot of options and we hope to have more news as we progress, and look forward to talking to everybody again soon. Thank you.

Operator

Ladies and gentlemen, this concludes the Unwired Planet second quarter 2014 financial results conference call. We'd like to thank you for participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Unwired Planet's Management Discusses F2Q14 Results - Earnings Call Transcript
This Transcript
All Transcripts