Blue Calypso, Inc. (OTCQB:BCYP) Q4 2015 Earnings Conference Call March 22, 2016 4:30 PM ET
Chris Fameree - CFO
Andrew Levi - Chairman, Founder, CEO and CTO
Andrew D'Silva - Merriman Capital
Tony Low Beer - Private Investor
Bryan Luter - WFG Investments
Greetings and welcome to the Blue Calypso Fourth Quarter Fiscal Year-End 2015 Financial Results Conference call. At this time all participants are in a listen-only mode. [Operator Instructions]. As a reminder, this conference is being recorded.
On this call are, Andrew Levi, CEO and Chris Fameree, CFO of Blue Calypso will provide updates on the company's progress and results for the quarter with a question-and-answer session to follow.
At this time, I'd like to introduce Blue Calypso's CFO, Chris Fameree. Please go ahead.
Thank you and thanks, everybody for joining our 2015 our fiscal year-end financial and operational review. I will start with some financial overview and I'll then turn it over to Andrew Levi, CEO to talk about our litigation, our current litigation where we sit with our current litigation and also to discuss operations.
Revenue for the 12 months ended December 31, 2015 approximately $1 million compared to approximately $760,000 for the same period in 2014, represents a 32% increase year-over-year. A substantial portion of that increase distributed to the royalty revenues associated with our litigation settlement.
In conjunction with the increased revenue, we were actually able to significantly narrow our loss as compared to the prior year. For the 12 months ended December 31, 2015 we had a net loss of approximately $3.3 million as compared to a net loss of $7.7 million for the year ended December 31, 2014.
This constitutes 57% improvement year-over-year. For the year ended December 31, 2015 general and administrative expenses were reduced to $2.3 million as compared to $6.1 million for the same 12 months ending December 31, 2014. This equates to an approximate 2% [ph] reduction.
The decrease is primarily attributed to a reduction of stock-based compensation and reduced headcount and executive compensation. As of December 31, 2015 the company had approximately $730,000 in cash on hand. As we have previously disclosed in our filings and previous calls. In order to bridge our short-term working capital needs and in conjunction with our attempted off-list to a major exchange.
In July, 2015 we had issued a senior convertible note, with a principal amount of $550,000 more detail on this note can be found in our 10-K and related 8-K filing. I would like to reiterate, this instrument was entered into in order to allow the company to meet our short-term working capital needs in anticipation of the large raise.
Once we completed the funding around in October, 2015 given the short-term nature of the note, we began to work [indiscernible] settle that note. In December of 2015, we paid down $250,000 of that principal and renegotiated in terms of the conversion to make them more favorable to the company.
Subsequently, subsequent to year-end, during February, 2016. We were able to successfully negotiate and pay in full the balance owed to the note holder both the principal and accrued interest re-establishing the company's debt-free status from debt-free instrument perspective.
In order to pay off the note, while maintaining current operations, we did conduct a minimal capital raise earlier this month in the beginning of March, 2016. [Indiscernible] proceeds of approximately $390,000.
The investment round was intentionally minimized given the markets valuation of the company at that point in time, however we felt that it was best interest of the company and shareholders to eliminate the previously mentioned short-term debt facility. Our current cash on hand suggest the company is funded into May, 2016.
We are currently assessing the capital needs of the business and exploring various options to ensure the company has an appropriate working capital into the foreseeable future. As in any decision we are mindful of the impact, any pathway may have on our shareholders.
Andrew Levi, our CEO will now provide an update on the general business technology and the status of the patent related matters.
Thanks, Chris. Hi, shareholders. Currently, we remain in litigation with Groupon and FourSquare and have settled our complaints with Yelp, IZEA, LivingSocial and MyLikes. On December 7, a panel of three judges Reyna, Schall and Chen of the Federal Circuit Court of Appeals heard all our arguments from our legal team at Fish & Richardson as well as defendants and representatives from the Patent Trials and Appeals Board regarding our appeal of certain negative rulings delivered by the PTAB in December, 2014.
We appealed the decision of the PTAB to institute the CBMR in the first place. Ruling that certain claims to the patents were invalid. And that the written description of the 516 patent was insufficient. Groupon cross-appealed the board's decision, that the Ratsimor reference was not publicly available as prior art.
On March 1, the federal circuit overturned to the PTAB decision as to insufficient written description but upheld the decisions of invalidity based on anticipation of several claims of the patents by the prior art Paul referenced. It's important to note that, that Judge Schall dissented from the anticipation ruling. Instead he agreed with Blue Calypso's position that, the Paul reference was disclosed two separate systems that called for sending emails to all members without performing a key step in the Blue Calypso invention of matching and targeting.
Additionally, the federal circuit upheld the board's decision that the Ratsimor reference was not publicly prior art and confirm the board's decision to institute the CBMR process on the basis that Blue Calypso's patent portfolio qualified as a business method patent which was financial in nature.
We're currently contemplating our amiable options to pursue an En banc review of the holding with respect to anticipation by the Paul reference. An en banc review would occur before a panel of eight judges in the federal circuit instead of just three in our recent hearing. We also have the option of requesting the Supreme Court review to Federal Circuit's decision. These options for appeal must be filed within 30 and 90 days respectively from the date of March 1, decision.
The reversal of written description matter is a significant win for us as it re-establishes the 516 parent patent issued date of February, 2010 as the date to damage is begin to accrue. Prior to this reversal, the first date of infringement was relegated to the later issue date of the 679 patent in April, 2012.
If we pursue in our successful in reversing the ruling of invalidity based on the Paul reference. As we believe, Judge Schall correctly held then we will reinstate all of our invalidated claims as a result of the PTAB's negative decision which would further galvanize our portfolio.
While we're having success in this long and complicated process, there are still battles to be fought prior to any final conclusion being rendered. We've got a great legal team being very thoughtful as to the best course of action and considering all possibilities to set us up for the highest probability of success in protection and enforcing our IPS fits in the current circumstance, as well as in the future.
Now I'm going to move into an operational discussion of the business. Our space specifically brick-and-mortar retail including product manufacturers who offer their goods at physical locations is right before dramatic evolution. Physical retailers continue to lose ground to online merchants such as Amazon, Peapod and Netflix every day.
The online shopping experience is easy. It provides shoppers what they need, when they need it, including product details, comparative pricing, product reviews, complementary and alternative products as well as expedited shipping sometimes same day. The retail sector as we see it, is comprised of any physical real estate location where people go to spend money on products, services or experiences including but not limited to big box and specialty retail, grocery, entertainment, auto and restaurant industries to name a few.
Physical retail must evolve to satisfy the needs of shoppers that have developed the need for data to help make them, make their buying decisions. And these retailers and product manufacturers are actively seeking a path to involve and compete with the market share that's eroding to online ecommerce.
The evolution of global retail is a massive market opportunity, which we believe can only be solved through a highly integrated and scalable mobile-driven technology platform such as our KIOSentrix platform. We believe that we're the only company attacking the problem from a true platform perspective.
In other words, our system solved the problems for all retailers, all product manufacturers and all consumers globally. While we manufactured beacons. We don't see ourselves as just a beacon company. Rather our platform supports all relevant methods of activation including short codes, NSC, QR, Wi-Fi, mobile apps, social media and yes, Beacons.
We also support native content as well as retail or managed contents stored elsewhere. In short, we're scalable, extensible and broaden our ability to drive evolution for the entire retailer consumer products industry.
On the technology front, our KIOSentrix portal continues to grow with highly compelling features for product manufacturers and brick-and-mortar retailers. The system is driven by rich lifecycle-based mobile marketing, analytics and innovation and location-based capture of activation, engagement, conversion and influencer data.
The portal enables customers to get real-time business intelligence on how campaigns are targeted, targeted content and convert shoppers into buyers and store intercept engagement loyalty and advocacy. A recently released outbound integration opt-in system, allows marketers to communicate with shoppers, once they leave the store via attached email and in-app messaging.
We're hard to work on the next generation of in-store intercept technology which takes beacons to a new level in the industry. Our KIOSentrix smart devices should be ready for deployment in the coming months and include in store traffic fingerprinting, Wi-Fi gating as well as real-time remote management of both iBeacon and Google's Eddystone beacon protocols.
We're currently rebranding and launching our own universal shopping app for both Apple and Android devices which we now call Often [ph]. Often [ph] includes a comprehensive list of retailer favorites including loyalty, locations, reviews, deals and offers and additional retailer driven content.
Also included are price comparisons in UPC and QR code scanning abilities as well as robust shopping list management tool. Often [ph] will re-skin itself as a shopper and as a beacon-enabled retailer presenting geographically and circumstantially relevant shopping content powered by Hyperlocal in-store activation.
The combination of our KIOSentrix platform, KIOSentrix smart beacons and our Often [ph] app brings the retail industry the only platform which truly embraces products manufacturers, retailers and customers, in a way that improves the shopping experience for all.
On the sales and marketing front, our KIOSentrix technology is now available in over 4,000 retail locations across 20,000 products skews [ph]. This is due impart to two marquee engagements with a Fortune 500 big box retailer as well as one of the largest growers of plant in the country Monrovia.
Our technology powers the information available on all of the 2,006 plant tags for the big box retailer on their branded plants as well as for Monrovia plants, which were also available in the same big box retail stores as well as smaller retail garden centers across the country.
Our platform helps the customers choose and learn how to care for, purchase plants both in-store and at home. We work very closely with Monrovia and their team on their mobile plant experience and also took on the development and maintenance of their ecommerce web store leveraging supply chain and ecommerce talents of our Blue Calypso apps team.
We expect the work we're doing in the horticulture tag space to become an industry standard. The horticulture space has to been slow to embrace technology. We've also received industry recognition in several horticulture magazines and periodicals, which will further propel awareness across the industry, which should quickly translate to other industries.
We are also currently working with Park Place Motors on our second engagement, which is helping us to establish our platform in the automotive sector. We have a very large and growing pipeline of product manufacturers and retailers of all sizes and industries.
We continue to be very aggressive without their marketing efforts, with the goal of driving prospects into one of our weekly live demos, that we host. I encourage you all to sign up for one of our demos to see the power of the platform yourself.
We've been very aggressive in our creation of industry content, positioning the company as a thought leader in retail and ad tech space. We will be exhibiting alongside our partner [indiscernible] with global shop show in Las Vegas later this week, which will host approximately 12,000 attendees.
We'll also exhibit a horticulture show in June, several other retail industry focus conferences throughout the year. In conclusion, we've got a lot of good things to talk about and I'm as excited as I've ever been about the progress we're making in the space and about the opportunity in both brick-and-mortar as well as with product manufacturers.
At this point, I would like to thank you for your support, confidence and trust as a Blue Calypso shareholder. At this time, I would like to turn the call back over to the operator to begin the Q&A session.
[Operator Instructions] our first question is from Andrew D'Silva of Merriman Capital. Please go ahead.
Good afternoon. Thanks for taking my call. Just couple quick questions here. First off, as far as your recent customer wins with Monrovia and the big box retailer go, have you been able to utilize them as a critical reference customer with companies currently in your pipeline and if that is the case, has that resulted in any progress or at least and if they expedited in the sales cycle perhaps quicker time to pilot launches or things of that nature?
Absolutely. Hi, Andy. Thanks for the question. There is no doubt that having a fortune 500 big box retailer in our portfolio of customers that we're doing big things for causes people to take notice. This is a very innovative opportunity that we're bringing to the retail sector at whole, that really. The challenge is nobody wants to be first and nobody wants to be last.
And so the more referenceability [ph] we've got, the more velocity we create and frankly the less risk, somebody that considers becoming a client of ours. It feels like they're taking on and so there's no doubt, that every single time that we add a reference accounting including the big box retailer, including Monrovia, some of the others I mentioned Park Place Motors, we've done work with Minyards.
We're accumulating quite a list of folks in the sub-sectors that we're very focused on that make the buying process and the sales process, the sales lifecycle shorter and shorter.
Yes, great. Thanks for that and then, staying with your sales pipeline. Last quarter I think on the call you said, you had around 40 potential customers in your pipeline. Have there been any gains or attrition to that number and are the types of companies in brands that are in the pipeline still quite diverse, with some being big brand and retailers in the mix currently?
Yes, the mix of opportunities that we're in pursuit of is very diverse. We're having great success in product manufacturer’s people that create products, that are sold in retail. And some of those opportunities are massive. They're with a national footprint, if not a global footprint that puts our technology in front of consumers both in stores, as well as when they buy products and take them home. But your question about, how is the pipeline looking.
I can't get into granular detail about it, but I can say in summary that our pipeline is twice the size it was last time we had a call and it's very diverse. Some of the opportunities are small, some of the opportunities are very, very big across to like I said before across the sectors that we're focused which should be big box retail, speciality retail, grocery, automotive, entertainment and CPG.
Okay, got it. Thank you for that and then just, last question. As it relates to litigation side. As I relates to how things are moving along in the Eastern District, Texas and then also and currently at the Federal Circuit. Obviously a big win getting back claims of the parent patent, but since there isn't any real downside in the en banc review of Paul for your case. Are there any advantages right now, that waiting and seeing the decision from the Federal Circuit from the en banc review process before initiatives removed or resume in Eastern District, Texas? Any thoughts or anything you can provide on that will be very useful?
Yes, so the legal team at Fish & Richardson are really looking at this from a lot of different angles. There are advantages to, there is advantages and disadvantages to going all the way through the process of the en banc review prior to getting back to work in the Eastern District. And at this juncture, we haven't made a decision as to where our preference is, there is enough complexity to the decision.
I feel strongly that we will likely file for the en banc review. There's a big question of, whether the federal circuit will even take it up. That's not a guaranteed track. But, as you mentioned the critical thing is just re-establishing the earliest date being the issue date of the 516 patent in February, 2010 is a big deal to us.
So, if we could re-establish the entire 516 patents because there are some claims due to the Paul reference that are still currently held invalid. It just makes the argument that much stronger.
Yes, it's all right. Well thank you very much to that and good luck, going forward, this year.
Thank you. The next question is from Tony Low Beer, a private investor. Please go ahead.
Tony Low Beer
Thanks for good job you've done so far this year. I've got two questions. First of all do you have any rough estimate of what you expect your revenues to be this year versus last year? And also, when the appeals court handed down the decision, there was a discussion that they would set up some new court dates to hear the new cases separately or combined case, the two cases into one and hear it one case.
Now as this has been postponed because you decided to possibly to have the appeals court hear it en banc or how does this all fit together?
So regarding financial guidance for 2016, we've not released anything. I can kind of talk in, can of in abstract terms. I really believe that, 2016 is breakout year for us. And with us, booking just over $1 million in revenue in 2015 and the way that the pipeline is really accelerating. We really found our space with the brick-and-mortar retailers and the technology is really, it's commercialized and people are deploying and every day it's more and more proven.
I'm very optimistic that we're going to have a banner year in 2016. We're internally working through some financial forecast and models and started doing that last year. I can tell you that, we did a month-over-month model and so far, we're tracking on course with that model. And it's kind of back-end loaded.
So we're working hard to drag some of the opportunities out of the pipeline which I think we will be successful in doing and there are few deals that we're working in the pipeline that are very large, they are six and potentially seven figure deals. So the nice thing about our model is, it's built to scale and because it's easily deployable it doesn't take a whole ton of customers for the business to get to the point that it's cash flow positive.
We've talked in the past about, where is that point of cash flow positive and we've got models and again it has everything to do with, what revenue we sell and what cash we collect but we're still working off a model that shows that, being cash flow neutral, cash flow positive in not that far away from us.
So we obviously have to execute, but I feel very good about our sales progress. Tony on your second question. The court mandated that, the parties us and the defendants file a joint report in the Eastern District of Texas, that reports how the results of the federal court of appeals events affects the case, that is currently state. And so we don't necessarily see eye-to-eye obviously which is why we're in dispute with the defendants, but we don't see eye-to-eye on how we think the case, the federal circuit’s ruling affects the go forward initiatives, but the court right now is taking that up.
And so they're, it's not certain that we're not going forward in the Eastern District even if we do an En Banc, but right now the court's evaluating the brief that was filed post federal circuit's ruling and I expect that we're going to hear something from them very shortly.
If I was to guess, I think that because we're so far at odds and the report that we submitted, that it could become an in-person hearing with the judge in the Eastern District to try and figure out, where we go from here and what that timeline looks like.
Tony Low Beer
Guys have been trying to stonewall from day one, so what else is new.
Yes, I hear you and Judge Gilstrap's had this case on his docket on form another now for three years and my sense is eventually, he's going to need to get it cleared off. And then we want to bring this thing to closure as well. I mean, I would love to nothing more than to spend my, 100% of my cycles on growing the revenue stream. But the IP litigation requires attention and its valuable asset of the company, we'll do, we need to do to maximize that asset value for everybody.
Tony Low Beer
So there's going to be a hearing with the Judge and this Judge will either set the court date or push the thing en Banc, what's he going to do or you don't?
Yes, let's - those are all the options and I have no idea, what Judge Gilstrap is going to decide to do. I don't know, but I do believe that we will know that definitively in the not too distant future. I would say, maybe a couple weeks and he's got a big case load over there in Eastern District. So he's I think whenever our number gets called, he'll figure it out.
Tony Low Beer
Thank you, Tony.
Thank you. Our next question is from Bryan Luter of WFG Investments. Please go ahead.
Hi, Andrew. Congratulations on the win and the federal circuit. I guess, is it safe to assume somewhat that Judge Gilstrap subsequent to the positive Markman hearing last year, set the court date six months later and was I guess eager to call the Markman given Groupon's invoice [ph] antics prior to the Markman being held, that getting this point back only strengthens the case. And does it do anything to, I guess weaken I guess having a day in court.
Yes, that's true. Hi, Bryan. We're definitely in a stronger position today than we were when we had the Markman hearing and so, we're definitely not in worse position that's for certain. I don't personally know enough about how much the en banc could affect our case on a positive basis. I mean, if we go through the en banc process, we won't be in any worse position than we're right now. It could only improve.
So it's really, a decision of our legal partners Fish & Richardson who has a lot more experience and insight as to what our preference is, but at the end of the day. We filed our brief and Judge Gilstrap is going to decide and we could go forward and parallel with both, both the en banc and Gilstrap might say, let's get after it, let's go.
Or he may on the other hand, say this En banc could have a material effect and in the event that there is a positive outcome in the en banc review. I don't want to see this case again. So let's sit and see what happens. So I mean, I don't know which way could fall, I really don't.
Just for the sake of history, how many claims did you win the first go around for the PTAB review and how many additional claims were added with the win recently in the federal circuit and then how many other claims are there, at large that could come back, if Paul is ruled out as prior art?
So, we had 28 claims survived the PTAB process. I believe that the effect of the federal circuit of appeals ruling caused us to get back only a handful. Maybe four, five claims. There's a dispute on some of the parent claims versus dependent claims because the odd thing about it is, there are dependent claims that are invalidated, but there is a valid parent claim.
And so it's a kind of a separate complicated legal issue, that the guys are Fish at working through with, but the PTAB and the PTO to try and resolve. We've got parent claims then, the dependent claims should survive as well, but something weird has happened in the process and they're trying to get that cleaned up. But [indiscernible], we got claim one back on the 516 patent, that is the parent patent and the original claim. So that's.
So that's a big deal, so there's not really much loose hanging terminology or to be construed.
I think what you're asking is, I think what you're asking is, would it cause us to have to go back to another Markman, I don't think so. The terminology in the Markman and claim construction I'm told is, solid and should be valid in the event that, even with a few new claims [indiscernible] patent back alive should be enough to go forward, but again I'm not an attorney and Judge Gilstrap may have a different opinion.
And this is taking a new approach that because of the parent patent claims came back into play that without going through an en banc they should be entitled to other claims that were previously ruled invalid, is that correct? So there's [indiscernible] with the PTAB that could give that.
Yes, it's something like that. There's an administrative they believe there's an administrative error that was made in the process that should cause us to get, a handful of dependent claims reactivated.
Got it. Good stuff, appreciated. I'm looking forward to the day in the court here.
Yes, me too. Thanks Bryan.
Thank you. We have no further questions at this time. I would like to turn the conference back over to management for any closing comments.
So I simply like to say, thanks to all of you on the call to all the shareholders of Blue Calypso it's been an interesting ride. I think that the company is very well positioned operationally to capture market share in a massive, massive evolution and retail that we believe we're well positioned to be market leader in.
So we're going to continue to work very hard and on behalf of all the shareholders and perhaps the management team. Thanks for your support.
Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may now disconnect.
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