LML Payment Systems (LMLP) annouced its fiscal fourth quarter and year end results this week. During the company's conference call, CEO Patrick Gaines revealed that "all litigation is now closed," adding that LMLP has no immediate plans to initiate further litigation. The milestone provides the perfect opportunity to close the books on the company's IP monetization effort. Further, LMLP's success illustrates how companies can use valuable IP assets to provide revenue and liquidity until new product lines take root.
LMLP's IP monetization effort began with lawsuits filed in 2008 and 2009 against numerous major financial institutions including JP Morgan (JPM), Wells Fargo (WFC), and Citigroup (C), along with eBay's (EBAY) payment transaction firm PayPal. Epic patent specialty firm McKool Smith served as the company's litigation counsel for the two lawsuits filed in the Eastern District of Texas. LMLP settled with and licensed five remaining defendants during the fourth quarter of its 2012 fiscal year, for $4.95 M in "non-recurring license fees."
For the fiscal year 2012, LMLP reported a total of $16.1 M in licensing revenue. Since 2008, LMLP licensed 21 different companies, reporting a total of $46 M in "non-recurring" licensing revenue. Some of the companies larger revenue generating settlement agreements included $7.5 M each from PayPal and Citigroup, $5 M from Wells Fargo, and $4.5 M from JP Morgan.
On average, LMLP earned $11.5 M annually during its four year IP monetization campaign, which was more than LMLP earned from its transaction payment processing business segment in fiscal years 2009 and 2010. Further, LMLP's total transaction payment processing revenue for fiscal year 2009-12 also totaled approximately $46 M, indicating that patent monetization accounted for half of the company's revenues over the period.
On the flip side, patent monetization revenues tend to be erratic and unpredictable, and LMLP proved no exception. The company earned most of its $46 M in fiscal 2011, reporting $32 M compared with $16 M in fiscal 2012. As a result, LMLP's total revenues were down 26% from last year. Fortunately, the transaction processing business grew 29% over last year, which bodes well for LMLP's future.
Overall, LMLP's patent monetization substantially impacted its balance sheet, allowing it to grow from less than $40 M to over $60 M in the past four years. Significantly, current assets grew from $14 M to over $42 M during a time when cost of revenue for the transaction processing business consumed well over half of the revenue earned. Cost of revenue for patent monetization, meanwhile, consumed only about a third of relevant revenue.
Without IP monetization, LMLP may have stayed in business, but certainly would have a much weaker cash position with far less than its current $50 M+ in total equity. LMLP's performance provides an excellent case study to demonstrate that IP is more than just an exit strategy. As LMLP proved, IP can also provide a bridge while a company builds a customer base for a new product. Further, stakeholders in other companies can use LMLP as an example when pressuring companies to work harder at actually monetizing their IP instead of taking on more debt when cash runs low.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
