RightsCorp's (RIHT) CEO Christopher Sabec on Q1 2015 Results - Earnings Call Transcript

RightsCorp, Inc (OTCPK:RIHT) Q1 2015 Results Earnings Conference Call May 7, 2015 4:30 PM ET

Executives

Andrew Haag - Managing Director and Partner, IRTH Communications

Christopher Sabec - Chief Executive Officer

Robert Steele - Chief Operating Officer, President

Operator

Greetings, and welcome to RightsCorp’s First Quarter 2015 Conference Call. At this time, all participants are in a listen-only-mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Andrew Haag, Managing Director and Partner at IRTH Communications. Mr. Haag, you may begin.

Andrew Haag

Thanks Mike. Good afternoon, everyone. I'd like to welcome all of you to RightsCorp’s first quarter 2015 conference call. With us today are RightsCorp’s CEO, Christopher Sabec; and the Company’s COO and President, Robert Steele.

Before I turn the call over to Christopher, I'd like to remind you that in this call management’s prepared remarks contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question-and-answer session. Therefore, the Company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors not limited to general economic and business conditions, competitive factors, changes in business strategy or development plans, the ability to attract and retain qualified personnel, and changes in legal and regulatory requirements. In addition, any projections as to the Company’s future performance represent management's estimates as of today May 07, 2015. RightsCorp assumes no obligation to update these projections in the future as market conditions may change.

This afternoon, the Company filed its 10-Q with the SEC, and afterwards issued a press release announcing its financial results. So, participants in this call who have not already done so may wish to look at the documents as we provide a summary of those results on this call.

I'd like to now turn the call over to RightsCorp’s CEO, Christopher Sabec, who will give an overview of the Company’s business activities and developments for the first quarter 2015. Christopher will then turn the call over to Robert Steele, COO and President who will provide an overview of the Company's key financial performance and operating metrics. We will then open the call for Q&A. Christopher?

Christopher Sabec

Thanks Andrew. Hello everyone and thank you for joining our call today. We had a great start to 2015 with our first quarter generating top line growth of 62% year-over-year. This is a result of our business growing organically and reflects the hard work of our management team's execution in boosting our copyrights under representation and increasing the number of ISPs that help to monetize our business through a settlement. As an industry leader and combating copyright infringement in the entertainment space we continue to seek ways to monetize digital assets that include movies, TV, games, books and software and protect those who create and own intellectual property.

We have taken steps to execute on key initiatives including striking deals with copyright owners to monitor and collect on their digital assets and collaborating with ISPs to support our vision of effectively monetizing IP assets and paying content creators their fair share. We have built an impressive track record since our launch and represent more than 1.5 million copyrights work with over 233 ISPs in the United States and have closed over 200,000 cases of copyright infringement to-date. Piracy continues to negatively impact the content industries. In June of 2014 the Beastie Boys won a $1.7 million judgment from Monster Beverage Corp for copyright infringement when Monster used the Beastie Boys song without having properly licensed the song for an online video.

In late 2014, a judge ruled against Grooveshark, an online music service provider for thousands of copyright infringements. Grooveshark is similar to Napster and LimeWire and the other services that use copyrighted work from the recording industry without permission. Grooveshark was found guilty of massive copyright infringement and liable to the rights holders infringe. Grooveshark has seized operations. In March of 2015 a federal jury ruled that Robin Thicke’s 2013 megahit Blurred Lines had copied elements of Marvin Gaye song Got To Give It Up without permission. The jury found that Robin Thicke along with co-writer Pharrell Williams had committed copyright infringement and Gaye’s family won a judgment of $7.3 million.

These are just a few of the examples that demonstrate the ramifications against infringement and piracy and the support of the legal system. RightsCorp is at the forefront of online peer-to-peer copyright enforcement. RightsCorp is one of the most effective and vital solutions to this multibillion dollar problem that effects multiple industries and causes millions of dollars and damages and lost wages. As a company, each year we have made tremendous progress in all our key metrics and have a massive catalog of copyrights that we protect from some of the biggest and most recognized musicians, artists, TV shows and movies in the world.

Our solution has proved effective time and time again and we continue to break new ground and surpass new goals and milestones in this technology space. Our growth is determined by three major key metrics. First is the addition of copyrights that we acquire and sign-on to represent, we call this our authorized copyright catalog. At the end of March 2015 we reported that had surpassed 1.5 million copyrights which include music, movies, books and other digital content. The second metric is our own ingestion rate. This is the process of adding content from our proof catalog to our proprietary catalog monetization system. We continue to make strides in advancing and accelerating this ingestion process.

The third metric is the number of participating ISPs that forward our notices and our settlements offers. We recently reported that this number had increased by 466% when compared to the last 12 months and now is over 233 ISPs. Increasing the amount of participating ISPs is meaningful for us because each additional ISP allows us to pursue, monetize and collect upon thousands of potential infringement cases. To highlight that number on a macro level, we currently estimate there are roughly 1,800 ISPs in the U.S. and since we work with over 233, we believe that represents approximately 15% of the U.S. population. These three factors directly impact our top line growth and help drive our business revenues.

Compounding these metrics, drives the number of closed cases of copyright infringements, and hence an increase in our revenues. We’ve continually refined our technology to make our process more streamlined and efficient and the funding we received in 2014 will continue to help us boost our ingestion rates. A March 5th article in USA Today highlighted our business model for copyright protection. RightsCorp has a solution that works and people are beginning to pay attention. RightsCorp provides a key line of defense for intellectual property in today’s environment of peer-to-peer piracy and we anticipate a higher demand for our solution in the coming months.

I’d now like to turn the call over to Robert Steele who will provide an update of the financial and operational progress that we have made, as well as our plans for operational and infrastructure expansion to support our future growth. Robert.

Robert Steele

Thank you, Christopher. For the first quarter ending March 31, 2015, RightsCorp generated total revenues of $307,904, up 63% from $188,933 in the same period in 2014. The growth in revenues were driven by an increase in the number of copyrights and contract, an increase in active copyrights uploaded into our automated system to more than 250,000 and by the growing number of ISPs participating in the company service, creating a multiplier effect. We have now closed more than 200,000 cases of peer-to-peer copyright infringement. We see significantly less repeat infringement on ISPs that report out notices and suspend repeat infringers versus ISPs that do not yet do this. This sparks scenes of success of any other similar approach to dealing with this problem.

Sequentially we recorded a 27% increase in revenues from $241,928 in the fourth quarter of 2014. During the period ended March 31, 2015, we used $1,237,672 of cash in operating activities. Non-cash adjustments included 29,356 related to the depreciation and amortization, 27,375 for common stock issued for services, 1,052,057 related to gain on derivative liabilities and $0 related to amortization of discount and convertible debt.

Sales and marketing costs were $1,497 for the period ended March 31, 2015 compared to 31,308 for the three months ended March 31, 2014, a decrease of 29,811. The decrease was due to our growing market presence and reputation with the copyright holders and the benefits we provide to them. General and administrative expenses were comprised of cash and non-cash expenses. Total wage expense increased from $241,347 for the three months ended March 31, 2015 compared to $335,073 for the three months ended March 31, 2014. Our legal costs were $182,543 for the three months ended March 31, 2015 compared to $114,242 for the same period of 2014.

The increase of $68,300 was related to certain legal actions taken against the Company. The overall increase in our general and administrative expenses was $630,852, which include the non-cash charges. During the three months ended March 31, 2015, we used $24,663 of cash in financing activities. We used $10,000 to repay convertible notes and $14,663 in payments on notes paid. During the three months ended March 31, 2014 financing activities provided $783,488. We received $312,488 in proceeds from convertible notes and $471,000 in proceeds from common stock issued for cash. At March 31, 2015 the company had cash-and-cash equivalents of $823,531.

We would like to thank all of you for supporting our story and sharing our vision. We look forward to sharing our progress with you again in the next quarter. We now like to open up the call for questions.

Question-and-Answer Session

Operator

Thank you very much. The floor is now open for questions [Operator Instructions]. This first question comes from [Mark Trahan]. Go ahead Mark to your line.

Unidentified Analyst

I've listened to your presentation and quite frankly I'm a little bit confused at some of the statistics that you’ve been quoting. It seems to me that based on year ending last year, the year end of 2014 was very-very discouraging and based on guidance you fell short by about $300,000 last year on income. And it seems that this year if you look at quarter over last quarter, first quarter over fourth quarter, what you did in the fourth quarter was about the shortfall from 2014. Would you like to comment on why we are looking at such flat sales?

Robert Steele

This is Robert Steele speaking, and we’re excited about the fact that we just had the best quarter than we’ve ever had. We just did $307,000 in revenue which was a significant increase from the same quarter a year ago.

Unidentified Analyst

But sequentially it was not very impressive since the fourth quarter last year was substantially lower than what was originally guided. Can you put some color on what the guidance for the coming quarter we’re near at?

Robert Steele

We haven’t put out any projections -- there is an analyst report from SeeThruEquity that you can reference. But we’re very excited about the last quarter in our history.

Unidentified Analyst

What could you say about the fact that the stockholder value has gone down about 80% in last year, in spite of the fact that you’ve done two private equity raises?

Robert Steele

We think that this is a good -- we saw this a great time, we think this is a great time to get involved with a company as a shareholder. Fundamental investment thesis continues to be proven out. So with approximately 250,000 copyrights being monitored we generated $300,000 in top line revenue, there is 27 million Apple copyright on iTunes, so this can be an enormous business.

Unidentified Analyst

You mentioned that once approached with the settlement that there is a less chance of repeated offense by the copyright infringer, and therefore that seems to me like it’s diminishing audience and the people that would respond, have responded, and paid and they go away. So in light of that what are you doing to increase stockholder value?

Robert Steele

Mark, we believe that we have shown three years of track record that as we increase the amount of copyrights in our system that revenues go up. And so what our mission is going forward is to increase the number of copyrights on our system and increase the number of ISPs participating, because we're showing that over the last two to three years as we do that revenues increased and revenues have increased.

Christopher Sabec

Are there other questions from the audience?

Operator

There are no further questions.

Andrew Haag

Okay. So with that I’d like to thank all of the shareholders for their participation on today’s call and their support of the Company. This concludes RightsCorp’s first quarter 2015 conference call. And again Robert and Christopher congratulations on delivering record revenues and good sequential growth. Thank you.

Christopher Sabec

Thank you.