NeuLion's (NEUL) CEO Roy Reichbach on Q4 2016 Results - Earnings Call Transcript

| About: NeuLion Inc. (NEUL)

NeuLion's (OTCPK:NEUL) Q4 2016 Earnings Conference Call March 2, 2017 8:30 AM ET

Executives

Robert Kelly - Investor Relations

Roy Reichbach - President and Chief Executive Officer

Tim Alavathil - Chief Financial Officer

Chris Wagner - EVP of Marketplace Strategy

Analysts

David McFadgen - Cormark Securities Inc.

Gabriel Leung - Beacon Securities

Matthew Harrigan - Wunderlich

Operator

Good day, ladies and gentlemen, and welcome to the NeuLion Fourth Quarter 2016 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded.

I would now like to turn the conference over to Robert Kelly, Investor Relations for NeuLion. Sir you may begin.

Robert Kelly

Good morning, and welcome to NeuLion’s fourth quarter and full year 2016 earnings call. Today we will be discussing our results that were issued after the markets’ closed last night. With me on the call are Roy Reichbach, NeuLion’s President and Chief Executive Officer; Tim Alavathil, NeuLion’s Chief Financial Officer; and Chris Wagner, NeuLion’s EVP of Marketplace Strategy.

Before we get started, we wanted to emphasize that some of the information discussed on this call is based on information as of today, March 2, 2017, and contains forward-looking statements that may involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings release we issued yesterday as well as NeuLion’s SEC and SEDAR filings.

During the call we will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available in our earnings press release and in our 10-K on NeuLion’s Investor Relations website. Participants are advised that the webcast is live and is also being recorded for playback purposes. An archive of the webcast will be made available on NeuLion’s Investor Relations website for a limited time and is the property of NeuLion. The webcast archive may not be rerecorded or otherwise reproduced or distributed without prior written permission from NeuLion.

In terms of our agenda for today’s call, Roy will discuss NeuLion’s 2016 highlights, followed by Tim, who will review our financials and then Roy will come back to discuss operational highlights and a look ahead to 2017. After which, we will open up for questions. I’ll now turn the call over to Roy.

Roy Reichbach

Thank you, Rob, and thanks to all of you who are joining us today. We are pleased to announce our Q4 and fiscal 2016 results. We believe we are well positioned to continue building on our market-leading position for the delivery of live and on-demand video content to Internet connected devices.

For our customers, NeuLion represents an unencumbered technologically advanced platform designed and developed by NeuLion engineers. Our proprietary solutions allow our customers to utilize one vendor to deliver a true end-to-end experience.

In fiscal 2016, we grew overall GAAP revenue by 6% to $99.8 million. Revenues from our NeuLion Digital Platform grew 3%. Excluding NHL related revenues, revenues from our NeuLion Digital Platform grew 14%. As the leader in enabling live and on-demand digital content, NeuLion continues to earn the trust of a growing mix of global content owners in the sports and entertainment industries.

In the fourth quarter we signed deals with Coliseum Sports Media, MAGIX, and Insight TV amongst others. Our pipeline of new customer opportunities continues to grow, particularly in Europe since the expansion of our London office and our acquisition of Saffron Digital in June of this past year.

Our CE licensing business is well positioned to capitalize on the growing opportunities in the 4K market. The Consumer Electronics Association projects that global shipments of 4K-enabled TVs will reach 330 million by 2019 and NeuLion Digital Platform customers have been increasing their requests for us live 4K content. These market conditions will continue to drive our CE SDK business, enabling leading global consumer electronics manufacturers to provide 4K streaming direct to their television sets. Our next live 4K streaming event takes place this Saturday, March 4, with UFC 209 live from Las Vegas.

Each new 4K live streaming event further validates our integration strategy between our NeuLion Digital Platform and our consumer electronics licensing business.

I would like to take a moment to welcome Tim as our new CFO. Tim has been with NeuLion for over 10 years and brings a deep understanding of our business to the role.

I will now turn it over to Tim to take us through our results for the year, and then I’ll come back to discuss a few more operational highlights and a look forward.

Tim Alavathil

Thanks, Roy. On today’s call, I will provide a summary review of our fiscal year 2016 financial results. As we noted earlier, we released our results last night. A copy of which is available for you to download from the investor relations section of our website, NeuLion.com.

Our 2016 total GAAP revenue increased 6% to $99.8 million. Of that, our NeuLion Digital Platform contributed $67.9 million. 2016 revenue growth came despite a 5.5 million headwind related to revenue associated with the National Hockey League. As a reminder, the NHL sold their media rights last year and in connection with that transition to another service provider.

GAAP revenues from our consumer electronics and MainConcept licensing products were $31.9 million in fiscal 2016.

On a non-GAAP basis, which includes certain revenues excluded for GAAP reporting purposes due to purchase accounting rules, our consumer electronics and MainConcept licensing revenues were $32.9 million for the full year period, down from pro forma $46.7 million in 2015. As we have discussed on prior calls, the overall decline in our consumer electronics licensing relates to the non-renewal of legacy technology license agreements with Sharp and Toshiba as a result of the sale of their respective television brands. Both brands are no longer in the TV manufacturing business.

Additionally, as we have previously disclosed, LG switched from a fixed fee licensing model in 2015 to a variable unit model in 2016. For the year ended 2016 we had no customers who accounted for over 10% of our revenues.

The revenue mix by geography in 2016 was 66% from North America, 20% from Asia and 10% from Europe. Variable revenues, which are primarily comprised of subscription revenue share, usage-based revenue and per unit revenues accounted for 54% of our total revenues in 2016. This compares to 43% in 2015. Approximately 95% of our total revenues are derived from reoccurring fixed license fees and reoccurring variable revenues.

Cost of revenue increased 3% to $18.3 million in 2016 compared to $17.8 million in 2015. Cost of revenue as a percentage of total revenue decreased to 18% in 2016 compared to 19% in 2015. For the full year, excluding share-based compensation of $4.6 million, our SG&A and R&D expenses were $68.1 million, an increase of $200,000 or 0.3% compared to $67.9 million in 2015. In 2015, we only had 11 months of DivX incorporated into our financials as the acquisition closed on January 30, 2015.

Our full year 2016 GAAP net loss was $1.8 million or a loss of $0.01 per share compared to a net income of $25.9 million or $0.11 per share for the full year 2015. As a reminder, our 2015 net income reflects a one time income tax benefit of $27.8 million. Excluding this income tax benefit, 2015 net loss would have been $1.9 million.

Non-GAAP adjusted EBITDA was $14.4 million in 2016 compared to $24.8 million in 2015.

Our full year 2016 tax expense, which is comprised of current and deferred taxes, were $1.4 million. Cash tax payments for the full year were $3.5 million, which are primarily comprised of foreign tax withholdings on license revenues from customers in foreign jurisdictions as well as minimum state and foreign corporate tax payments.

Turning to our balance sheet, in 2016, we generated $12.5 million in cash from operating activities, and ended the year with total cash of $41.9 million. This represents a decline of $23.5 million as compared to Q3, the majority of which related to the remitting of cash we collected on behalf of our customers in the third quarter, as well as the purchase of an office building to service our future headquarters in New York.

Working capital at the end of 2016 was $22.7 million. Cash used in investing activities in 2016 includes a $9 million payment in relation to the acquisition of Saffron Digital and $10.2 million used to purchase fixed assets of which $7.3 million was paid for our office building which I previously discussed. Cash used in financing activities in 2016 included $5.1 million used for our share repurchase program, which represents 6.1 million shares of common. As of February 28, we have purchased 7.7 million shares under the program.

Now, I will turn it back to Roy for some closing remarks.

Roy Reichbach

Thank you, Tim. I’ll now take you through some of our operational highlights from 2016 and provide a look forward to 2017. First of all, our team is growing. Since June of last year, we set an aggressive goal to hire an additional 22 new sales positions. I am pleased to confirm that we achieved that with 10 new sales people in North America, and 12 internationally, and they are squarely focused on driving increased sales. We are already seeing the impact of our focus on new sales with the expansion of our pipeline of new potential sports and news and entertainment opportunities.

We expect this to translate into new signed deals over the coming quarters. As a reminder, new deal revenue associated with those new deals is amortized over the life of the contract beginning with the go live day.

We continue to stay with a flexible strategy. We support our customers regardless of the initial size of their project. Through our land and expand strategy we gain a foothold with the new customer by helping them solve a problem that their internal teams may not otherwise been able to handle as efficiently and effectively.

From here we look to grow and expand the scope of the relationship as we prove the value and the power of the NeuLion Digital Platform. We are also flexible with our customers in terms of the pricing model that we use to generate revenue. Each of our customers is unique and we offer multiple options to suit their business model and allow us to grow with them.

Our revenue models include upfront setup and development fees, annual license fees and a variable component that can take the form of a revenue share, per subscriber fee, a usage fee, or some combination of all three.

We also continue to be technology leaders. We have developed an innovative platform that allows us to implement new features and functionality faster than our competitors. Next month at the National Association of Broadcasters show in Las Vegas we will be demonstrating an exciting enhancement into the NeuLion Digital Platform.

NeuLion ACE Analytics offers our customers and prospects the latest advances in data analytics. NeuLion collects live and on-demand watch data for the benefit of our OTT and TV everywhere customers who have licensed the NeuLion Digital Platform. We have been beta testing NeuLion ACE Analytics with several of our customers. The new product will offer our customers advanced analytics dashboards that will help target and segment possible new subscriber activations for their services and also pinpoint possible subscriber churn segments. We are very excited about the NeuLion ACE Analytics products, which will be made available to all NeuLion Digital Platform customers.

Lastly, our reach is continuing to expand. In 2016 we made a substantial commitment to growing our European presence to take advantage of the significant opportunities that we see there. We are weeks away from opening a new European headquarters, which allows us to support our growing base of customers in the region that includes Sky Sports, BT, Eleven Sports Network, the English Football League, Carrefour, Euro League, ITV, and ESPN amongst others.

At our new European headquarters, we have also built a state-of-the-art technical operations center, specifically to service this important marketplace. Europe remains a Greenfield opportunity for us, and we will look to continue to grow and expand in this marketplace with additional operators, content rights holders and content owners. Beyond this, we see further opportunity to replicate the success we have had in Europe in both Asia and Latin America.

To conclude, NeuLion will continue to invest in growing our business. As we have discussed these investments include more sales and marketing professionals, new facilities both in New York and London, and continued investment in driving innovation and enhancement of our products. The marketplace continues to demand our technology and services, as OTT and TV Everywhere projects accelerate around the world.

NeuLion is well positioned for sustainable organic growth as a technology-leader, both with our Digital Platform and our consumer electronics licensing solutions. We are committed to converting sales opportunities into revenue, and look forward to being able to report positive results from our sales and marketing efforts in future quarters. Thank you.

And I will now turn it over for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from David McFadgen with Cormark Securities. Your line is open.

David McFadgen

Yes. Hi, a couple of questions, so Tim, just a clarification, when you talked about a 5.5 million headwind from NHL, is that the revenue that you lost in 2016 versus the prior year?

Tim Alavathil

Correct.

David McFadgen

Okay. Does that include the Rogers NHL GameCentre live as well?

Tim Alavathil

Yes.

David McFadgen

Okay.

Tim Alavathil

So, it is 5.5 million for the full year and then 4.5 million just exclusively in Q4.

David McFadgen

Right, okay. And then so when you talk about in 2016 the revenue on the NeuLion Digital Platform being up 14% excluding NHL, you are also excluding GameCentre live there as well to get that 14%, correct?

Tim Alavathil

Correct. All NHL related revenues, correct.

David McFadgen

All NHL, okay. And then next year, or I guess this year 2017 you will be facing another sort of headwind because there won’t be any NHL revenue this year, so the revenue recognized – all NHL associated revenue in 2016 was that about 8 million?

Tim Alavathil

Yes, correct.

David McFadgen

About 8?

Tim Alavathil

7.5 million?

David McFadgen

7.5 million, okay.

Roy Reichbach

David, just to clarify, this is Roy. The statement that you made that there is no NHL revenue is not accurate.

David McFadgen

Oh, yes, sorry. A million I think a year is that correct?

Roy Reichbach

At least, we have disclosed a million in consulting work that we are committed to provide but there is also other opportunity for us with the NHL.

David McFadgen

Okay, great. So just moving onto DivX, I mean I know it was down because of Sharp and Toshiba and LG, the contract changed, do you think at this level of revenue that you provide in 2016 it would be stable going forward in 2017, or you're just wondering when that business might stabilize?

Roy Reichbach

Yes, David, as we have stated in the prior couple of quarterly calls we felt that we were going to start seeing revenue from the CE SDK in Q4, which we did. We also felt that there would be a stabilization as we moved into the early parts of 2017 with respect to the CE business generally. We think that is where we are and we are hoping and expecting for some bit of an up-tick as we move into the latter half of 2017, but I think that where we have reached a period of stabilization on the CE business.

David McFadgen

Okay, and then just on, you know, you talk about increasing your sales force, are you done now, now that you have those 22 hires?

Roy Reichbach

Well, we are done with that – with what we pushed for starting in June of last year. We are taking now a hard look at – in particular Asia and Latin America. We have more limited sales force in Asia and even much more limited sales force in Latin America. So we are looking for opportunities there to expand our reach, and as we are doing that my expectation is that we will continue to grow the sales force to meet those needs, but we don't want to get too far ahead.

We have spent a good deal of time and money building our North American and European and EMEA business and that sales force. That is starting to show some real gains already both in terms of pipeline and in terms of some deals that have either closed already or in the short-term ready to close. So, you know, as we let that piece of the business start to mature a little bit – mature might be an overstatement since we think that there is a lot of room for growth in EMEA.

But as that starts to mature, we are going to spend more time and effort focusing on how we grow the Asian and Latin American geographies for us. So, there is still going to be some increase in our personnel over time. Nothing in the – I wouldn’t say we are going to do anything in the next quarter, but I think as we move into the second half of 2017 I'm hoping that we are going to see more interest in those territories.

In fact, I'm going to be in Asia all next week with this effort in mind. So I think the idea of growing our sales force both in Asia and Latin America is a really good thing for us.

David McFadgen

Okay. So, barring any significant hires on the sales force do you think the SG&A line would be sort of fairly flat here in 2017, flat with 2016?

Tim Alavathil

David, a couple of things. It should increase. Two main reasons is the acquisition of Saffron occurred mid-year. So, there will be increased expenses associated with that as well as the new hires predominantly came in in the second half of 2016. That we got to project for the full year. So we are expecting SG&A expenses to increase year-over-year.

David McFadgen

Okay. So in the past you guys have given actually even guidance on the number of petabytes you thought you would stream going forward for the first year, can you give us any idea what you think the petabytes might be in 2017?

Chris Wagner

Hi, David. It is Chris. We are in the process kind of collecting that right now. So we don't have the final petabyte count, but as soon as we get it all tallied up, I think we guided that both in where do you put that? In your MD&A?

Roy Reichbach

I don't think we guided it last year just because exclusive of the NHL, we weren’t certain what those petabyte numbers would be excluding the NHL. So I think last year was the first year that we didn't actually guide on the petabytes.

David McFadgen

Okay, but do you think you might give us some indication for this year on the petabytes.

Tim Alavathil

We are looking into it now in terms of what the balance is.

David McFadgen

Okay. All right, and then one last question of asset, so Capex was up because of the new office building and so on, what do you think the total Capex will be in 2017?

Roy Reichbach

So David, I think excluding the Capex – the big Capex was the purchase of the office building, which was $7.3 million. There was also some purchase of servers and certain equipment for our London office. So excluding that stuff, you know, we are still in the same range of about $2 million to $2.5 million. That's what we've been doing the last couple of years at a $1.5 million $2.5 million, so it shouldn’t be too far off from that, excluding certain additions that were, some lease holes we're going to do at our New York office as well as our London office.

David McFadgen

Yeah. Well, that's I was kind of wondering about it. Are you done on the CapEx of this new building or is there going to be some more CapEx in 2017 from that?

Tim Alavathil

There'll be more CapEx. So, that'll be lease holes on the New York office building and there is going to be more lease holes in terms of the UK office building as well.

David McFadgen

Can you give us an idea what that would be? Just ballpark.

Tim Alavathil

Yeah. It'd be in the I think it's the $3 million to $5 million market.

David McFadgen

$3 million to $5 million, okay. Alright, okay. Thanks a lot, guys.

Tim Alavathil

Thanks, David.

Roy Reichbach

Thanks, David.

Operator

Thank you. Our next question comes from Gabriel Leung with Beacon Securities. Your line is now open.

Gabriel Leung

Good morning and thanks for taking my questions.

Roy Reichbach

Good morning, Gabriel.

Gabriel Leung

Good morning. A couple of things. Roy, you know you talked about the pipeline being healthy and robust. I'm kind of curious, can you provide some color into sort of what's in the pipeline, whether or maybe provide a sense of the range of dollars that you're in discussions with. Just give us a sense of how growth might play out for the core platform over the next couple of quarters?

Roy Reichbach

Yeah. I mean, our pipeline is extremely diversified as we sit here today. We're seeing interest from small accounts that have that own the content and when they get that content over the top directly to consumers, we're seeing a lot of interest now from operators that we've not had as much a relationship with historically on TV Everywhere side, on the direct OTT play. Indications of that are things like the Sky box office that we now power in the UK, we believe there are lot of opportunities for us and again our pipeline all throughout Europe.

And that's hopefully where we can expand further into Asia and Latin America as well. We're also seeing some of the larger opportunities. We are, our relationship with the EFL is helping us with respect to sports properties throughout Europe. And that the EFL as Chris is pointing out to me for those who don’t know that is the English Football League. They actually just had their EFL Cup which is their big tournament that played on Sunday in at Wembley Stadium and we go live with them in July. We've built a very strong relationship with them and I think they're going to be helpful for us as we're moving forward.

But the pipeline ranges from deals that are $100,000 $200,000 a year upwards of seven to eight figures, so on an annual basis. And they're all throughout the range of opportunity. So, it is a very diversified portfolio but it's getting stronger and stronger every week. And I think that’s a tribute to the new sales organization that we put in place. They're working hard, a lot of them are seasoned sales people with existing relationships in the areas of media that we need to touch upon. And we're seeing the effects of that already. So, we're hopeful that we'll be able to make some nice announcements in the upcoming quarter.

Gabriel Leung

I'm just curious in discussions with I guess specifically in the operator side. Obviously, we got the announcement around the OTT service from YouTube this week. I'm just curious, I mean, right now I think it's focused on the US. But what are some of the comments from some of the operators that you're talking to. Do you think this will sort of accelerate their own deployment in the OTT related services?

Roy Reichbach

I'm not sure that that's what's going to accelerate. I think they're all accelerating as we speak. We move from most of these operators from a situation where digital and OTT play for them was nice to have two years ago, and is now a must have for them as we're moving forward. So, I think that's accelerating independent of these other market factors.

Tim Alavathil

And the other thing is, all these operators are trying to retain their own subscribers. So, being able to offer content in their GO's are multiple strains. You know, it's something I've to do to retain subscribers is that’s what they want, right. So, it's kind of totally independent of what YouTube's trying to do in terms of building their own network. And the operators also want their own data that they use to drive and activate subscribers, reduce churn, all that kind of stuff. That's part of the NeuLion A10 Linux announcement with our new product.

But it's all about connecting with their subscribers, retaining the subscribers, putting content on any screen. And we continue as Roy has pointed out, that content is not just sports content, its news and it's entertainment. So, that's also a good diversification for us.

Gabriel Leung

That's great. Roy alluded to sort of seven to eight figure annual dollar figure contracts in the pipe. I'm just curious on some of those like as larger more transformational opportunities. Are you still only in discussion phase or you in RFP phase with some of these guys? That's the first question. The second question is, in terms of the competitors that you sort of bump into on these larger deals, maybe you can talk about a couple of guys that you're seeing?

Tim Alavathil

Sure. We're -- these deals are in all phases. So, they're in discussion and RFI and RFP stages. So, they are through the whole ecosystem of the sales cycle. And we're seeing same sort of players that we've seen, it depends to a certain extent on geography, some of the bigger North American players or North American opportunities, some folks from Europe tends to be more people are multinational or European focused. And but we're seeing it's interesting.

In some places we see three people who we would expect in a different geography, those people aren’t there. We happen to be and I think this is where we're well positioned. We're in these discussions everywhere and so it's nice for us to see that the competition is different in each locale. It demonstrates both the interest that we generated from every corner of the world. And the fact that we are products that our platform are perceived as a market leader or across the globe.

Gabriel Leung

That's great. Two more things. On the pro sports side, sort of everyday we sort of hear the announcement of somebody who wanted to do some live streaming, whether it's Twitter or Yahoo or YouTube. I guess, obviously without the same bells and whistles as you offered to the pro sports, but over the longer term, on your discussions with your major pro sport customers. You know, why is that you think is sort of plays that over the next several years. Did you see a scenario unfolding with NBA and NFL like we saw with AHL?

What are some of your thoughts around that?

Roy Reichbach

You know what, and the market for sports rights continues to grow. They are the most valuable media rights in the world these days. And that's they're extremely expensive. In fact, yeah, some might say folks who are older paying for them. We'll have to see whether that how long that continues and where the top of that market is. But as long as people are continuing to bid up those rights, there is going to be a need to monetize those. And there's only so many dollars if you go around to buy those rights at certain points as well. So, I'm not sure what that top is. But it also gives us an opportunity with the ones who retain their rights to monetize those.

We're going to see I think very different message from organization whether it's some may do what the NHL did which is license their rights to someone who is then decide how they are going to monetize those. They may do it in multiple forms where someone does it with the Twitter for example on a smaller – on a limited basis and does it direct on another basis. We are still seeing this thing play out, and I am not sure that there is one solution yet that has proven to be the best.

We don't believe that as long as we continue to provide the best technology platform that every day there is a new opportunity for us that's both with our existing customers and with ones that we haven't touched upon yet. So we still feel we are well-positioned to take advantage on the sports marketplace but at the same time and I think you could tell from some of the answers I gave you earlier we have focused a lot on the TV everywhere side of this business because there is a huge growth opportunity for us there. So it's a much more Greenfield situation. With some of the operators obviously the challenge there is still the internal IT groups within those operators, but we are seeing more and more acceptance of a non-internal solution then we have historically.

Tim Alavathil

Okay, the other thing that's different is lot of these sport rights deals the ones you mentioned were Twitter and Facebook are non-exclusive transactions. So that also gives viewers an opportunity go to a lot of different places right because the fees are so high exclusivity becomes really expensive so I think one big difference over the last couple of years especially with the social networks is they are non-exclusive transactions.

Gabriel Leung

Got it. Last question from me. You mentioned expecting some stabilization over the year perhaps some growth over later half of 2017. I am actually kind of curious drilling it for a second I know the LG as you mentioned before is sort of on the variable contract now. Have you actually been able to renew them? I thought they were out two year deal that expired on 2016 so I guess -- right now?

Roy Reichbach

Yes we entered it – we are having discussions. We are entering to a short term extension to allow those discussions to continue and I expect that will be included shortly.

Gabriel Leung

And just in terms of others larger ones I guess Samsung specifically are they still running on the expiry license right now and is there any discussions about moving them to a variable like LG did?

Roy Reichbach

They are in the expiry license and we are not planning on having any discussions with them until the renewal period comes up. So there has been no discussion in terms of moving to a pre-unit.

Gabriel Leung

And just overall how are discussions going? What's the hold back for some of these outside of Sony is larger TV manufacturer in terms of adapting the new CE SDK?

Roy Reichbach

They all want to license the CE SDK. The issue for them is to ensure that there is enough content to drive TV sales. So and we are seeing more push from our content partners on the 4K side. So that's again why we have been talking about later half of 2017. We knew that there needed to be a confluence both from the CE side and from the content side with respect to 4K. So as we are getting more production of 4K content that's driving the CE manufacturers to adapt and then distribute the SDK.

Tim Alavathil

Even the IPs are involved now, right. So they are driving bigger broadband pipes. If we do Google around for chart spectrum and look at all the stuff happening around 1G lines there is a lot – there is an expanding broadband that's also happening, that's also a contributor to infrastructure for 4K delivery.

Gabriel Leung

Great. I am curious just want to clarify this if you have a TV anywhere operator customer that overtime wants to deliver OTT 4K using your platform with the TV you also need to have this CE SDK in order to play that?

Roy Reichbach

Yes. To optimize that 4K play-out yes, those TVs can play in 4K but if you actually and I don't want to – I am not going to point to any CE manufacturer in particular because I don't want to get in that position but if you look at their play out without our CE SDK and then with our CE SDK there is a very, very demonstrable difference in what you see and so specially when it comes to live sports where the 4K experience is extremely valuable there is where the value proposition for the CE SDK is for us.

Tim Alavathil

That's the video quality. There is also a feature set game Roy send you a little chart that shows you basically for a TV manufacturer if they go to new line CE SDK they get things like instant replay, slow motion, there is all these interactive features in the player that actually run on the TV set in addition to the quality the stream that Roy is talking about.

Gabriel Leung

Got it. That's a great feedback. Thanks guys.

Operator

Thank you. Our last question comes from Matthew Harrigan with Wunderlich. Your line is now open.

Matthew Harrigan

Thank you. Quite a number of my questions are answered but some of two things that dangling. Big attention on NeuLion is trying to do on measurement and comp score I mean clearly you are not doing linear networks. You alluded the some of the viewing measurement that you have is a lot more precise. Is there a decent prospect to monetize that some of overtime, I suspect you probably end up working with comps score or the MSO directly or something like that but is that a new potential bucket for you?

Unidentified Company Representative

Yes Matt, its Chris. I will take that one. We are certified with Nielsen, so all of our encoders carry that Nielsen watermark. So we have done that with Univision and a couple of other big customers of ours so they can aggregate both their TV and digital audiences together and that Nielsen certification we have done with our encoder set allows that to happen around their audience measurement. So that's part of the answer.

The other thing we are doing is NeuLion analytic is really focusing on the initially the customers of ours that have direct to consumer businesses so that's billing subscribers. So we have some really rich data that's real time data of what those subscribers watch. All the billing information and all the support information have been aggregated into warehouse and we have data scientist have created all these views to look at segmentation, activate turn management how we go to like Facebook and look alike marketing. There is some really cool stuff there around how to build this subscription business. That's what -- focused on. So there is kind of two market CB with Nielsen and then you have the direct to consumer business over the top and that's really around driving subscribers and keeping them if that answers your question.

Matthew Harrigan

Yes. And then Roy alluded to Sky Box Office. I know some of the DIVX motivation was desired to get bit more direct relationships on entertainment side. Can you say how was your digital platform revenue on digital platform revenues or entertainment and is that a pretty nice opportunity particularly over Europe.

Tim Alavathil

Yes. Well we don't break down that segmented basis where it's the TV everywhere, the entertainment side versus the sports side. The sports side though still predominates but the TV everywhere the entertainment side is clearly a larger opportunity for us as we move forward. Our expectation is that that starts to take a much larger position on our overall platform business and that's frankly where some of the real large opportunities are that I was talking about earlier in terms of what our pipeline is, so the bigger pipeline opportunities for us is going to be around the TV everywhere side of business.

Matthew Harrigan

And then on your comp structure in Q4 you have got a little bit less seasonality now unfortunately given the NHL but is the Q4 run rate kind of the run rate we should think about on the cost side almost annually given you probably taken out some of the little bit of seasonality?

Tim Alavathil

Yes Matt, so it's Tim here. We have taken out some of the seasonality but there is still the NBA, NFL that goes that happens in Q4. So Q4 is typically from a revenue perspective and also from SG&A perspective the highest operating expense quarter. So it's really not. It's difficult we still have that seasonality right now. We hope in the future not to have it but as it stands now there is still seasonality in our SG&A so it's really hard to look at it on a quarter-by-quarter basis. It's really more on a full-year basis and I think with the additions of Saffron and the additional sales staff we do expect SG&A expense to go up overall but Q4 is definitely the highest quarter. So that is not the run rate.

Matthew Harrigan

And then your comps rate -- very good comp rates it had in October. Huge focus on the rich data, social media integration even on some newer sports like E sport things like Formula One and then [indiscernible] in particular. How much development you see that taking now I mean it feels like something is kind of a question that extends beyond new line but it feels like you can add a lot more value particularly for your real enthusiast looking at the top global sports?

Tim Alavathil

And the clippers deal is a clear indication of where things I think aren't – will be going and have started to go. We are very, very deeply embedded with them in terms of development of that net generation product set. And I think that that's going to help us as we see more interest in that advance type of products. Again we have got a lot of new clients that are doing a lot of different things and the thing that the most important baseline for them is a strong underlying platform and that's what we provide. So that's strong underlying platform combined with extremely rich data and then taking advantage of folks who understand how to manipulate that data for the benefit of the end user is going to be I think for the very high enthusiast type networks, a very valuable assets which I think will be able to monetize as we move forward. But it's still that's for the highest level or the most interested fans. We are providing a platform that allows for the growth of that segment of the business but more importantly that supports every user everyone who has content rights or owns content and wants to monetize it. So that is a piece that we are going to focus on as we move forward with development of the clippers is started at but there is a much bigger opportunity for us to be focusing on as we sit here today and that's where our main focus is.

Matthew Harrigan

And then lastly I think, couple of years ago there was a German QUALCOMM engineer talking about 4K and he commented that -- of the content situation is kind of like taken his left stage which drew some giggles and unfortunately in the U.S. I mean Chris read the point that and this is going to be largely OTT. It's not going to be linear channels but the [indiscernible] basically not on the linear channel side and drag TV probably a little bit later but I think you really thought this is going to be reflection point maybe this year and maybe late last year in terms of announcements are you a little disappointed I mean are you alluded to lot of things happening but in terms of what's available on consumer friendly right now it doesn't feel like there is that much and then actually the side point to be curious what sort of expanding streaming activity do you expect on this, by relative to the last one. You think you can be up 30%-40% in terms of the bits streamed?

Tim Alavathil

Starting with the first piece of it. While lot of for us to be able to say that it is proliferation of 4K content today. We are not there yet. But I think this is not unlike the move from SD to HD. We all sat and waited with our HD sets for HD content and it took longer for that to develop. We are seeing the same thing with 4K. Although we are seeing the production side now starts to take foot and as our production side starts to grow there is going to be more distribution of 4K content. I think and I am not going to speak for what he said previously but I think what we have always being talking about is that right now and specially with 4k for sports OTT is the only way to deliver that effectively at the moment because there isn't the production facilities, the capabilities by the broadcasters to handle that at the moment.

My expectation is that as the demand for 4K continues to increase the broadcasters are going to have to react to that and there will be 4K distribution. It's going to be a longer haul and there is a lot of opportunity for us in that interim to be the leaders on the 4K side which is what we are well-positioned for. But just like the broadcasters were dragged to HD, if there is consumer demand and consumers are going to walk away from them if they don't have 4K they are going to have 4K. They have got to stay in business. So they have to adapt. It's a big lift for them.

Unidentified Company Representative

Yes, direct TV making a lot of noise with their 4K channel. So that put to Roy's point that puts pressure on the original sports networks to produce 4K and it puts pressure on the NBPDs to be able to deliver 4K and that's all good for us.

Matthew Harrigan

And then the U.S. on the streaming side, 4K as a real advantage in getting more customers is actually seeing tool to get more customers and again do you expect a lot more activity on this side on 4K side on the last time around?

Tim Alavathil

UFC is very focused on the experience and 4K video qualities as you have seen her, just fantastic. They have been the most aggressive so far of our customer base in focusing 4K and we have done 4K events with them now. So they continue to invest in the production to Roy's point about you got to produce 4K content to stream it. So I can't comment on their activation and subscriber around 4K because it's their data. But they continue to do 4K events. So I think they are happy with the experience.

Matthew Harrigan

Thanks Chris. Right Tim.

Operator

Ladies and gentlemen that concludes our question-and-answer session for today. I would like to turn the conference back over to Roy Reichbach, Chief Executive Officer for closing remarks.

Roy Reichbach

Thank you and thanks all of you for attending the call today. We truly appreciate the time, the questions and your interest in NeuLion. Lastly I would like to thank all of the NeuLion employees for their hard work and dedication in 2016 and we are looking for a great 2017. Thank you.

Operator

Ladies and gentlemen thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day.

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