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A serial internet entrepreneur and tech enthusiast with a background in mechanical engineering. Partially retired at the moment and have found interest in the stock market before probable retirement. Holder of multiple patents and former pro se litigant.
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  • Vringo - Already Cash Flow Positive?

    While writing a previous article titled Vringo : A Diamond In The Rough... I began to dig into possible revenues Vringo could acquire from the settlements with ADT and TYCO corporation. By using very rough and conservative numbers, the potential revenue was calculated to be anywhere between $2-4M/month. If this is the case and considering Vringo reduce cash burn rate of $1.75M/month for 2014 it is entirely possible that this confidential agreement between Vringo and TYCO has resulted in Vringo being cash flow positive!

    As some of you may or may not know, on January 28, 2014, and April 28th, 2014, Vringo reached a confidential agreement with ADT Corporation and TYCO respectively. The agreement resolves patent litigation that was pending in the United States District Court for the Southern District of Florida.

    ADT is the largest security company in the Unites state and Canada, serving a customer base of roughly 8 million accounts with $7B in annual recurring revenue.

    Similarity, as of 2011 Tyco has US revenues of $17.3B and serves a customer base of roughly 12 million accounts.

    Both TYCO and ADT have a combined 20 million monitored sites within the United States. Using an estimate that this technology is used within 20% of retail monitored sites it can be surmised that the infringement could cover up to 4 million sites and is likely to increase considerably as customers enable the remote monitoring features.

    Best analysis suggests that the "on-going royalty" could be as high as $1 per site per month. This calculation is likely derived from a 3% licencing fee at $30/month/site.

    Ignoring past infringement, Vringo could gross as much as $48 million per year, between both settlements. Once again, I feel the need to reiterate this because of these events Vringo could very well be profitable.

    Disclosure: I am long VRNG.

    May 05 8:25 AM | Link | 2 Comments
  • Vringo : A Diamond In The Rough - Short Term Speculation

    Since the beginning of the year, Vringo, Inc. (NASDAQ:VRNG), a company engaged in the innovation, development and monetization of intellectual property, has reached some rather impressive and unexpected milestones.

    Thus far, since January 1st 2014 Vringo has completed the following:

    • On January 28, 2014, and April 28th, 2014, Vringo reached a confidential agreement with ADT Corporation and TYCO respectively. The agreement resolves litigation that was pending in the United States District Court for the Southern District of Florida. While the agreement is confidential it is estimated base on ADT and TYCO's revenues that this could amount to 2-4 Million per month. If this is the case Vringo is now cash flow positive!

      Prior to 2011 TYCO and ADT were 1 company. Both TYCO and ADT have a combined 20 million monitored sites which likely infringe on Vringo's technology. Using a similar estimate that this technology is used within 20% of retail monitored sites it can be surmised that the infringement could cover up to 4 million sites. Best analysis suggests that the "on-going royalty" could be as high as $1 per site per month. Disregarding past infringement, Vringo could gross as much as $48 million per year, between both settlements. Once again, I feel the need to reiterate this because of these events Vringo could very well be profitable.

    • On February 18, 2014, Vringo finalized a deal with Infomedia Services. Under the terms of the deal Vringo was able to sell many of its older and unused assets for a 8.25% stake in Infomedia Services. However, more importantly Vringo was given "the opportunity to license certain intellectual property assets and support Infomedia to identify and protect new intellectual property. Additionally, Vringo's CEO was appointed as a full voting member on Infomedia's board of directors. has which is on an impressive growth path." Considering the synergy between these companies and InfoMedia Services technology I would be willing to bet Vringo will file additional suites to monetize the hundreds of infomedia patents.
    • As of February 21, 2014, Vringo has lowed it monthly cash burn by at least 14%, from $2 Million / Month to roughly $1,750,000. This does not include the possible revenue from settlements and is calculated using Q4 Financials and theProxy Statement. Using this burn rate and the cash on hand the cash balance is sufficient for Vringo to operate through 2014 and 2015, conservatively without budgeting for a significant revenue event.
    • Throughout the new year, Vringo has been keeping the pressure on ZTE and Indiamart in numerous jurisdictions. Thus far Vringo has done a great job enforcing the patents they received from Nokia (NYSE:NOK). The suites against Indiamart has resulted in two injunctions and outside of any settlement the India case is scheduled to go before a non-binding arbitration panel on May 16th. Of further interest is the fact that Vringo and ZTE corporation reached a mutual agreement to postpone litigation, presumably to work out a possible settlement. Similarly, Indiamart.com must appear in front of a court on May 6th for violation of numerous court orders. I believe Vringo has enormous leverage in negotiations at this point considering that under the India Contempt of Court Act, 1971 company executives, directors, and officers may be physically jailed for contempt.

    However, now that the cases against ADT, TYCO, and MSFT are out of the way and considering the very real possibility of an imminent ZTE settlement it is time to return our focus on to the Google case.

    Since 2012 to the end of 2013 Vringo has received enormous publicity with regards to its enormously lucrative case against Google (NASDAQ:GOOG). Thus far Vringo has been awarded nearly $1 billion dollars against the defendants and is likely to recover a significant portion of the damages awarded. Seeking Alpha contributor Justice Giles delineates the possible outcomes within his article, "Are You Capitalizing On This Big Opportunity". The article by Justin Giles does a brilliant job of outlining various outcomes based on appellate rulings. And while certain specific are yet to be ruled on I am of the same mindset that Google would have to shell out anywhere from $1.5B-$2B over the long run.

    With appeal arguments scheduled for May 6th, 2014 it is time to look at what is going on, what material events may occur, and what are the possible effects on share price.

    During this appeal Google is arguing infringement, patent validity, claim construction, and everything that went against them during Pre-trial. Vringo is expected to defend against Google's appeals as well as cross-appeal issues on laches and past damages. While many people have quite diligently researched the timeframes for a formal CAFC order in the range of 30-180 days I do believe that the oral arguments as well as questions from the judges will shed invaluable light on the mindsets and opinions of the tenured justices.

    If history has proven anything it is that these court proceeding can be very volatile. Throughout the last two years simple court proceedings and even words from Judge Jackson has caused Vringo stock to swing up and down almost 50%. Considering the enormous amount of cash at stake, equal to roughly 5 times Vringo's current market capitalization, any positive hint from the justices will likely cause this stock to soar. While it is unlikely, suppose Vringo only gets $500M, this would cause the stock, one a strict enterprise valuation basis, to almost double.

    Conclusion:

    With a market cap just over $350M even if Vringo was to bat 0.100 they would still have of hundreds of million of dollars on the way, and there story seams to just keep getting better. In terms of opportunity costs, investing into could very well be one of the most profitable investment for years to come.

    Disclosure: I am long VRNG.

    May 04 6:33 PM | Link | Comment!
  • Vringo's True Potential: What, When, Why, And How?

    Summary

    • Vringo has a world class team and proven business execution.
    • Vringo is on the brink of monetizing numerous patents with numerous companies. The potential revenue may dwarf the possible Google income.
    • The potential for an enormous increase in the capitol valuation of Vringo is quite possible.

    On April 28, 2014, Vringo, Inc. (NASDAQ:VRNG), announced a shareholders update that has reinvigorated investor interest for Vringo, and for good reason. Since VRNG released their April 28th shareholder update the stock price has risen roughly $0.25 or 6.6% and has renewed many reasons why this stock could potentially climb much higher in the near future.

    VRNG was formerly involved in the development of mobile technologies and now boasts an impressive and seemingly lucrative warchest of intellectual property ("IP"), business contracts, and ongoing licensing discussions.

    General Background and Team:

    By way of a brief background, Vringo previously developed phone software, ringtone technology, mobile apps, and content distribution technology. However, these former business models were jettisoned via a remunerative agreement with Infomedia Services allowing VRNG to focus on more lucrative activities while gaining a 8.25% stake in a rapidly growing tech company. Vringo has strategically positioned itself to get the 'best bang for the buck' and through an exceptional business pivot has transformed itself into a technology development, licensing, and enforcement firm.

    Through this radical change Vringo now has over 500 patents, including numerous standard-essential patents and has also brought on a of highly experienced IP licensing and monetization team consisting of Donald E. Stout, David L. Cohen, and Dickstein Shapiro. Vringo's team is nothing less than impressive By digging through Vringo's website one can begin to see the accomplishments of Vringo's battle tested litigation team and the countless victories already under their belts. Image from Vringo's investor presentations.

    Present Accomplishments:

    As some may or may not be aware during the past two years Vringo has already accomplished some pretty impressive feats. These feats include but are not limited to the following particulars:

    1. Vringo sued Google (NASDAQ:GOOG) for Google's infringement of patents that cover technology used in AdSense and Adwords. A guilty verdict was given and Google, as well as other co-defendants, were ordered to pay Vringo royalties. Despite the huge victory Google appealed.
    2. Vringo reached a settlement with Microsoft (NASDAQ:MSFT) with regards to advertising patents.
    3. Vringo has successfully argued in the United States Patent and Trademark Office for the validity of the asserted patents. The United States Patent and Trademark Office agreed with Vringo.
    4. Vringo acquired 8.25% of Infomedia Services, a UK based mobile software company with rapidly increasing revenues.
    5. Vringo reached a confidential settlement with ADT Corp (NYSE:ADT) with regards to alleged infringement of monitoring patents held by Vringo.
    6. Vringo has initiated suit against Tyco International Ltd (NYSE:TYC) with regards to alleged infringement of monitoring patents held by Vringo.
    7. Vringo has initiated suit against global electronics supplier ZTE Corporation (ZTE) in India, Europe, and Australia.
    8. Vringo has initiated suit against Nuage Techsol for unlicensed sale of ASUS and ZTE equipment.
    9. Vringo has obtained an injunction against IndiaMart.com banning them from selling unlicensed ZTE Corporation equipment.

    Potential Rewards:

    Thus far, although patent litigation, licensing, and enforcement has proven time and time again to be a rather unpredictable and volatile business - through the use of rough estimates most investors can begin to value the potential of Vringo's business model and growing business.

    As a disclosure, for the purposes of calculating these potential and incoming revenue I have chosen to employ very simple calculations as well as a brief explanation.

    Google Case

    Earlier this year Google was ordered to pay a 6.5% running royalty rate. This royalty rate when applied to Google's estimated revenue would result in total payments of $1,227,456,699 dollars to Vringo.

    Furthermore, although many investors have already discounted a possibility of a laches reversal when combined with a jury award correction, interest, and supplemental damages there is approximately $463,210,245 dollars which Google is likely to be required to pay Vringo.

    The calculation and numbers used here can be seen at this Google Spreadsheet. The revenue numbers are based on both evidence at the trial and publicly available financials.

    ADT Settlement

    As previously mentioned, Vringo settled with ADT with undisclosed terms. General estimates, using ADT's revenue breakdown and industry standard licensing agreements would put the potential revenue paid to Vringo at 2,000,000 to 3,000,000 a quarter if this is a monetary settlement.

    For the purposes of calculating 'capital valuation' I have estimated considered the total payments from ADT to be roughly $40,000,000 over the life of the patents.

    MSFT Settlement

    The Microsoft settlement is a little ambiguous, however, the gist of the settlement is that Microsoft has to pay 5% of whatever Google pays. Via a general estimate of Google paying $1,000,000,000 Vringo would then obtain roughly $50,000,000.

    ZTE Case and Potential Settlement

    Vringo's assertion of patents against ZTE are also very complex. With pending litigation within at least three jurisdiction of India, Europe, and Australia I can only imagine that there are a lot of details, discovery, and due diligence needed to be done before enough evidence surfaces to begin honing in on the exact amount of potential revenue.

    However, Vringo asserted a term sheet against ZTE which asked for $2.50 per phone. Unfortunately, due the complexity and confidentiality of ZTE's global business it is hard to know exactly how many phone are being made.

    Many people have estimated anywhere between 20-50 million ZTE phones are being made each year that infringe of Vringo's patents which would result in a net income of anywhere between 50 million to 150 million each year. These are impressive numbers that I believe will become comparable with the Google case. Currently, Vringo is asserting 11 patents against ZTE, the latest of which expires in 2027.

    Using another conservative estimate of 10 years of licensing at 50 million per year would net Vringo 500 million.

    Quick and Dirty Capital Valuation:

    By using the above revenue numbers and excusing the possibility of additional revenues, more patent cases, or additional settlements the net capital value that would be added to Vringo would be roughly $2,290,000,000 or about 2.3 billion.

    Considering Vringo's current market capitalization of $343.19 million such an increase in capitol assets would increase Vringo's inherent value by nearly 7 times. The corresponding price per share should beroughly $29.

    Disclosure, Further Discussion, and Other Reading

    For the purposes of good order and disclosure, I feel it would be helpful for all to provide more background on my introduction to Vringo, the history, where I have gotten my info, my current stance, and most importantly additional viewpoints and thoughts.

    • I've been following Vringo for nearly two years. Like many others it has been a bumpy ride.
    • During the time I've been following Vringo I've gotten a lot of my info from PACER, EDGAR, The USPTP Public Pair, and more recently international court website for India and Australia.
    • I'm currently long on Vringo.

    Additional Reading and Due Diligence

    As any investor should know, due diligence is key and while I do not pretend to know everything the following links are helpful for reaching a fully informed opinion that aligns with each individuals goals and risk tolerance.

    Disclosure: I am long VRNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Disclosure: I am long VRNG.

    May 03 3:31 PM | Link | 2 Comments
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