Digimarc Corp (DMRC) 2009 Q3 法說會逐字稿

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Digimarc third-quarter 2009 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions.)

I would now like to turn the call over to Bruce Davis, CEO of Digimarc. Mr. Davis, you may begin the conference.

Thank you. Good morning, and welcome to our conference call. Mike McConnell, our CFO, is with me.

We issued a press release last night announcing third-quarter financial results. The objectives of this call are to summarize and comment on these results, review significant business developments and market conditions, and provide an update on our strategy and operations. This webcast will be archived in the Investor Relations section of our Web site.

Before we proceed, please note that during the course of this call we will be making certain forward-looking statements. These statements are subject to many assumptions, risks, uncertainties and changes in circumstances. Actual results may vary materially from those expressed or implied by such statements.

Any assumptions we offer about future performance represent a point-in-time estimate. We describe various assumptions and projections in this call for the limited purpose of giving you a sense of our planning assumptions. We expressively disclaim any obligation to revise or update any assumptions, projections or other forward-looking statements to reflect events or circumstances that may arise after the date of this call.

For more detailed information about risk factors that may cause actual results to differ from expectations, please see the Company's filings with the SEC, including our Form 10-Q that we filed last night and our earnings release posted on our Web site last night as well.

During the course of this conference call, we'll refer to certain non-GAAP financial measures as defined by the SEC in Reg G. Definitions of these non-GAAP financial measures and reconciliations of these measures to their most directly comparable GAAP financial measures are included in the earnings release.

Mike will begin by commenting on our financial results. I'll then comment on our outlook and execution of strategy. Mike?

Thanks, Bruce, and good morning, everyone.

I'll begin by reminding everyone of the basis of accounting used in presenting our historical financial results. The digital watermarking business that forms the basis of the current new Digimarc was spun out from old Digimarc last summer, just prior to the sale of old Digimarc to L-1 Identity Solutions. As we've explained previously in our calls and SEC filings, the basis of accounting used for the digital watermarking business, prior to the spinoff and through August 1, 2008, is referred to as a carve-out of the digital watermarking assets, liabilities, and results of operations from the old Digimarc business that included our ID systems operations that were sold to L-1. It's, therefore, difficult to meaningfully compare the new and the old financial results due to the different basis of accounting used in light of this spinoff transaction. Please keep this mind as we discuss changes in results from prior periods.

Q3 2009 highlights include revenues of $4.8 million that were lower by 3% year over year and primarily reflect the impact of variations in scheduled payments in our revenue sources according to terms of contracts from our customers, lower revenues associated with our federal defense contracts that were signed too late in the quarter to provide meaningful revenue and, to a lesser extent, lower royalties from some of our licensees reflecting general economic conditions.

Revenues grew 10% sequentially over the second quarter, the majority relating to initial revenues associated with the startup of the federal contracts and revenues from our Nielsen relationships.

Gross margin was 68%, compared to 70% in Q3 of 2008, with the 2-point change due primarily to mix where lower-margin service revenues accounted for a greater part of the total and, to a lesser extent, the impact of the different basis of accounting for our expenses that I mentioned earlier. The gross margin increased 3 points sequentially over the second quarter and reflect improved service margins from the mix of our customer service contracts.

Operating expenses increased from $3.5 million to $3.7 million, primarily reflecting the change in basis of accounting between the two periods and, to a lesser extent, the impact of increasing our investment in our R&D resources, as we've noted in prior calls.

Our cash and marketable securities investment balances at September 30th were down about $2 million from the end of Q2, reflecting the $550,000 investment in our joint ventures with Nielsen and approximately $800,000 associated with our share repurchase program where we bought about 59,000 shares.

The revenue backlog at the end of the quarter was $46 million, reflecting the net booking activities and normal burn-off of our backlog.

For further discussion of the results, our business and financial models, and the risks and prospects of our business, I refer you to the Form 10-Q that we filed last night.

Looking forward, we continue to advise investors that our discussion of financial assumptions in the context of prevailing general economic conditions should continue to be viewed cautiously. With this in mind, our assumptions for the balance of the year include higher fourth-quarter revenues than we achieved in the third quarter, reflecting some catch-up of our previously delayed federal contracts.

Revenue for the year could be slightly lower than 2008, given that some of the federal business will be carried into 2010, and from continued weaker revenues from some of our smaller licensees that we attribute to the economic climate.

Financial results excluding the impact of our joint venture activities are expected to be better than the third quarter. The financial losses of the joint venture activities are expected to be less than the dollars contributed and a bit higher than the third quarter as a second joint venture gets underway.

We continue to work on a number of interesting opportunities that could impact the latter part of 2009 and the 2010 financial performance, but the potential impact is still too speculative to model at this point.

We expect the 2009 operating expenses, which include the majority of our $2.4 million of stock compensation expense, will be approximately $15 million. Stock comp expense is allocated between operating expenses and cost of revenues.

At these levels of revenues/expenses, we expect gross margin percent for the year to be in the mid-60s; GAAP losses, including losses from investment in our new joint ventures with Nielsen, to be about $2.5 million to $3 million; adjusted EBITDA, or earnings before interest, taxes, depreciation, amortization and stock compensation, to be near breakeven and maybe slightly negative.

We expect the year-end cash balances to be between $2 million and $2.5 million lower than at the start of the year due to our joint venture investments, lower expected revenues and their related impact on our operating results and the share repurchase program activity to date but prior to any additional impact resulting in spending that we may make under our stock repurchase program.

The primary explanation for differences between adjusted EBITDA and our GAAP loss is the $3 million of noncash charges for both stock compensation and depreciation.

Bruce will now provide his comments on our outlook and execution of our strategy. Bruce?

Thanks, Mike.

We have navigated the global recession pretty well so far, staying the course of our strategy for enhancing shareholder value. The relatively flat revenues that we expect for 2009 reflect the effects of delay in the commencement on the work on federal defense contracts and the dampening of royalties and fees from some of our commercial business partners.

The highlight of the year so far has been the expansion of our relationship with Nielsen, including the formation of two exciting new joint ventures and the combining of respective strengths of our companies to bring important innovations in media management and consumption to market.

We began some significant IT marketing initiatives in the second half of the year to expand our licensing program. One of the initiatives involving Arbitron became public knowledge due to their filing of an action for declaratory relief in the federal court in Delaware. We'd prefer not to comment on these matters until they are resolved due to the uncertainty and sensitivities inherent in licensing and litigation.

In sum, these initiatives target substantial growth opportunities for our company yet may require additional investment and enforcement to bring them home. We have identified numerous additional prospective licensees that we intend to pursue in due time.

We continue to broaden and deepen our IP portfolio with fascinating innovations anticipating the future of computing, mobile devices, networks and media and entertainment. Twenty-one patents issued during the quarter bring our total US and foreign patent count to over 545 at the end of the quarter. We filed 25 applications during the quarter, maintaining a pipeline of pending applications of more than 400.

We are in the process of finalizing our operating plans for 2010, and it should be quite an exciting year with new product introductions, upgrades to existing solutions, development of our Nielsen joint ventures, continuing negotiations with potential new business partners and initiation of more IP marketing.

We see opportunities for good growth in both services and license revenues. In our view, the range of potential revenues is quite large. Most of the variance in revenue expectations is in licensing, dependent on the timing and disposition of numerous licensing initiatives.

Our key objectives include continuing a high rate of valuable innovation, broadening the relevance of our IP by fostering adoption of digital watermarking and extending the scope of our patent portfolio to related technologies, entering into one or more significant new business relationships, providing excellent quality of service to the Central Banks and the US Department of Defense, growing our image management business through product upgrades and technology alliances, expanding Digimarc Mobile to newspapers and magazines in the US, developing successful joint ventures with Nielsen and, with all of this, improving our financial performance while we continue to build long-term value.

The high rate of growth in IP assets at Digimarc is broadening our licensing opportunity pipeline. We are expanding the breadth of our portfolio with research and development related to helping mobile devices to better see, hear, understand and respond to the world around them, layered encoding of media, and next-generation media industry workflows. We continue to patent at all levels of the typical technology stack, including basic technologies, applications, systems and processes.

The market studies associated with our licensing initiatives are broadening in concert with the expansion of our IP asset base to areas such as audience measurement, mobile music identification, visual search, copyright filtering, royalty audits and brand protection. Emerging target markets include ubiquitous computing, entertainment on the Internet, journalism, object-oriented search and sensor-based mobile device applications.

Our growth strategy has many facets, all encompassed within a coherent vision. The bedrock of our company is our government business, which includes our longstanding Central Bank relationship.

In the commercial realm, we believe we can play an important role in the evolution of computing to a model that is more ubiquitous, pervasive and intuitive. We see mobile devices as a key enabler of this new model. Much of our R&D is oriented toward facilitating development of a seeing, hearing, understanding device platform. As the media and computing markets evolve, we are seeking new business partners, fostering the success of existing partners, including building two new businesses with Nielsen, evangelizing our vision and doing whatever else we can to broaden and deepen the relevance of our technological innovation.

As we do these things, please keep in mind there is a substantial range of potential outcomes of various IP initiatives in terms of timing and dollars. The outcomes can provide revenue upside that is difficult to predict. On the other hand, the initiatives can get bogged down, take a long time to resolve and involve substantial increases in legal expenses, particularly if we're forced to litigation to enforce our IP rights.

We continue our constructive approach to IP licensing, in which we generally state our views in considerable detail and encourage potential partners to work with us to develop creative approaches, to provide reasonable compensation for our intellectual property in fair and mutually supportive relationships. We are very excited about our prospects.

This concludes our prepared remarks. Thank you very much for your interest and support, and we'll now take questions.

(Operator instructions.)

Our first question comes from the line of Paul Sonz with Paul D Sonz Partners.

Good morning.

Good morning, Paul.

Morning, Paul.

The first question I was interested in was the stock buyback program. I wondered if there are expectations that you'll be able to continue it this quarter.

Well we have authorization to continue the program, and so we'll use our discretion about making purchases.

Okay.

I guess the point I was getting at is from time to time you've become so enwrapped with other -- with issues that you become precluded from moving forward in the marketplace. I wondered if that was an expectation for this quarter in light of the fact that you announced that there are still potential opportunities that could be meaningful between now and the end of the year.

We are always subject to legal review in what we do in any regard to our stock. And so there may be times, from time to time, when it's not appropriate for us to be in the market, and those are judgments that we make internally in a private way. And so I don't have any specific comments on any future time period. But in general, you're right that that can be an inhibitor.

Okay.

When I listened to a presentation that was put on I think by the digital watermarking group, it was -- revolved around the work of AquaMobile and the use in magazines of digital watermarking. They said on that call that they expected that there would be a US trial in the not-too-distant future of digital watermarking in a magazine using the -- what I think -- was it called Click-to-See technology from AquaMobile?

Mm hmm.

I wondered if you had any information about when we might expect that.

I don't have any specific timetable, but obviously that's their announcement, not ours. But they are active commercially in a couple of newspapers and about eight or ten magazines outside of the United States. And I think they're having decent results, and so they're looking to expand their business. And it sounds like they will want to give a try to the US.

So we want to support them as much as we can in the things they do. They're a good partner of ours.

Okay.

On the last call, you said something, and I'll quote, "The most rapidly developing and interesting space is mobile." And I wondered if there are any developments reflecting that that we might see in the next quarter or two?

Developments at Digimarc --?

Yes.

-- or developments in the marketplace?

No, I think that -- I took it, and maybe I was wrong, that you were referring to things that Digimarc would be part of in the mobile space.

Well we're quite active in R&D on licensing in the mobile space. So there is a possibility of some significant events happening in the near term at Digimarc, but there's a certainty of significant events continuing to happen in the marketplace.

It's a hot market right now, a lot of things going on, things that are consistent with our vision and the development of IP here. And that is that we feel quite concerned here about the telephone, as we know it today, is probably not going to be a telephone for a whole lot longer. It's a little bit like calling your home media server a phonograph.

If you take a look at the Apple iPhone, it's a rather amazing device, but it's still only in its second generation. And so we are dedicated to expanding the functionality of such devices in really amazing ways. And so we're quite active, both in the R&D area and in the partnership area.

Bruce, a question -- does the phone as we know it, or that device, the iPhone, since I have an iPhone -- I don't have the most recent one, the 3GS -- but what technological advances, if any, are needed in that platform before it can do what you want it to do?

Well I don't know what level of technical detail you'd like me to get into. I'll try to keep it general. But the sensors continue to improve. That's good for us. So good sensors is good, both microphone and image sensors.

Then within the phone, the basic management of data is quite complicated, and we have certain desires that may not be consistent with the initial architectures of Apple and some other phone manufacturers. We in essence like raw data, and they have a management scheme to have the good behavior among many applications. And so we work on those kinds of issues of trying to get the kind of access to sensor data that optimizes the kinds of things we want to do.

And so there's a little bit of negotiation, a little bit of evangelization, a little bit of R&D, a little bit of demonstration. There are a lot of aspects to moving the device architecture in the direction that facilitates this enhanced functionality. So that's, I hope, an answer to your question.

I guess what I'm -- to just a focus it just a bit more -- I'm getting at is are you precluded by the architectures right now from delivering a product, if you came up with a partner, that would want to do something? Is --?

No. In fact, AquaMobile is doing it for visual search. And then there are a number of audio recognition solution providers in the market today. Some of them, for instance, are Shazam, Gracenote and [Badoni].

In the visual search area, there are a large number of companies, most of whom are working with visible indicia of 1 and 2D barcodes and some of them with image recognition. Those are the guys who are really the early-stage developers of aspects of this vision that we have and the platform that we are focused on.

So we see the device gaining more awareness of context. It already knows where it is. It knows what direction it's pointing in. It knows what time it is, what day it is. It knows who owns it. It knows some history of who owns it. It can hear things. It can see things. It's becoming really a cybernetic extension of the user. And what we're doing here is working at all levels of that technology stack to facilitate that expansion of functionality.

I hope that's responsive.

All right. Well I'll somebody else ask some questions, and then I hope to get another crack at it.

All right. Thanks, Paul.

Our next question comes from the line of Andy Hargreaves with Pacific Crest.

Hey, guys.

Hi.

I'm actually going to just kind of continue on that same trend.

I mean, you mentioned a couple of the people that are using some of that seeing/hearing functionality, but can you expand a little bit on where you see it going? And then kind of a follow-on question, but does your guys' business model change at all throughout different parts of the stack or --?

No, I think if what we are describing continues to develop we will prosper. We think we have substantial relevant IT surrounding such functionality. And so we see favorable market trends. We want to facilitate those market trends and we want to obviously establish relationships with companies that are involved. And so I personally believe that seeing and hearing will become standard features of those devices and the networks that serve them.

So whether that is a bunch of independent brands that do it or it is the handset providers or the network suppliers that ultimately have ownership over those features is not terribly relevant to us because of our IP orientation. We just want to make sure that we facilitate it happening and then that we harvest an appropriate return for our innovation for the benefit of our shareholders.

Does the fragmentation of the App Store ecosystem create any challenges for you guys or --?

No, it's fine, actually. Again, we think that this class of applications will become standard. And again, the branding of it is less important than the ubiquity. And I go back in my personal experience to the early days of the PC. I was -- I've been around the tech business a long time. And there's a certain Darwinism associated with operating systems, where the enduring value applications tend to get co-opted. And if you go back to the '80s and look at the OS development, you'll see that. And then we've had a little bit of disaggregation by regulation in recent years with the Microsoft operating system.

But I'm expecting a similar kind of evolution here where, in the early days -- the iPhone was truly a breakthrough and so there's a lot of experimentation in there, 40,000 or 50,000 applications. Out of that huge base of experimentation will come some enduring values. I think what we're talking about are among the enduring values, thus they will become standard features.

Okay. Thanks.

Okay.

Our next question comes from the line of Walter Schenker with Titan Capital.

Hi, Bruce and Mike. Bruce, as always, you paint a very exciting generalist picture. That's sort of a compliment. It doesn't sound like one.

In talking about some of the opportunities which could result in significance over the 12 months, there was defined as opportunities without any specificity as to what type of technology, what type of end markets. I was wondering if you could give us just a little more -- well as much as you're willing to give us -- color on what types of opportunities without giving us any forecast as to the -- because you won't do that -- the revenues or anything else involved but sort of specific areas or things that you think are closer to coming to fruition.

Yes, I think you may have misunderstood some of my earlier comments, Walter. And without reiterating all of them, I'll try to be more specific here.

When I was talking earlier in the prepared remarks about opportunities, I was talking about opportunities in the next year or so. And so those include obviously the IP initiatives that are already underway, including Arbitron, which is public, and the others that are not. All right? It includes the development of the Nielsen joint ventures, new product introductions and the upgrades to existing solutions and the initiation of more IP marketing, that is, seeking out more partners for the licensing program, and then growth in services in our government business. All of those things are not general statements about sometime in the future something may happen. Those are part of our operating plan for the next 15 months.

Yes, I understood that. I'm sorry, Bruce. I didn't -- instead of picking on pieces of it, I was just trying to get some idea of what type of areas, for example, new licensing might come in.

Okay.

In that, I said the following -- audience measurement, mobile music identification, digital search, copyright filtering, royalty audits and brand protection. Those are the areas.

Okay.

Those are the near-term areas.

Good. Okay. I will -- I thank you.

Yes, I can't -- I'm not -- I don't think it's in your interest or ours for me to identify specific companies and speculate about results. I think it's more appropriate for us to do our business and report to you on our success when we get it. And, if we're having some material effect, in terms of investment, to explain why we're doing that.

But at this point in time, we're managing the investment at quite a modest level here within the [AOP] you're all familiar with, and we are working hard to develop more business partners and to help the business partners and to grow their businesses.

Okay. Thank you, Bruce.

All right, Walter.

Our next question comes from the line of Kevin Hanrahan with KMH Capital Advisors.

Good morning, Bruce. Hello, Mike.

Hey, Kevin.

Hey, Kevin.

Congratulations on the share repurchase. I was pushing for share repurchase for quite a long time and now I saw some, so that's good.

Mike, can you tell us how many shares you bought back?

About 59,000.

Fifty-nine thousand. That was right about where I -- I had guessed around 61,000. So that's in the ballpark.

Can you tell me a little bit about headcount and where it is today relative to where it was maybe six months ago? What I'm really driving at is have you added people for your Nielsen joint ventures or some of the military contracts that you've had?

Actually, we did add some development work employees in the early part of the year, but we've been very static at this point in time. And we're reviewing our needs for our 2010 business plan, and we'll be addressing that over the next couple of months.

Yes, the last six months, the headcount's been steady, no change.

Okay. That sounds good.

And I know a lot of people are wondering what's coming down the pike, and I guess you can't comment that much until you get contracts signed. But thanks for giving us the areas that you're working on the most, where you see the most potential for the next one or two years.

Yes, I'm trying to be as indicative as I can be without getting down to specific negotiations. So I hope what I've said is helpful. I consider it quite specific, actually, but it may not be as specific as some would like to have.

Right, right. Okay. Congratulations.

Thanks.

(Operator instructions.)

Our next question is a follow-up from the line of Paul Sonz with Paul D Sonz Partners.

Hi.

Hi, Paul.

Three things.

The first is we talked several times about the venture capital opportunities that might present themselves, nascent companies with interesting technologies that, because of the economic environment are not -- are looking for a home. I wondered how -- where that effort was in -- for you guys?

We continue to explore a number of opportunities, frankly. We've looked at a lot of frogs here, haven't found any princes. So there's a lot of opportunity; we just haven't found anything worth bringing to your attention yet.

Okay.

The second question was JV1, any timetable for seeing a product from JV1?

Yes, I think pretty soon. We're doing some testing right now and it seems to be going pretty well. And so I'm hoping within the next couple of quarters here that we'll have some business to describe to you.

Good. Now this is a general question, and I think it's trying to get at what the other listeners or questioners have asked wherein we obviously don't want to upset the applecart by having too many specifics. On the other hand, we would like a little bit more information.

And so I'll guess I'll put the question this way. We're trying to understand, I think, the potential leveraging of what you're doing to the revenue streams over the next, let's say, 6 to 12 months and trying to understand, if some of these initiatives come through, whether it's a one-standard deviation move in terms of revenues and earnings or two-standard deviation move.

Yes. I -- at the risk of being consistent, I would say that -- what I usually say, which is we have a strategy in which we quite consciously and deliberately try to skew the volatility to the upside. And you see that, actually, in the financial performance during the recession here, that we're quite conservative in some senses, but we have very big aspirations.

And so the way that a business -- youthful or young portfolio will develop is a bit unpredictable in terms of upside. But the upside, we think, is very significant. And so it wouldn't be phrased in terms of standard deviations but probably in terms of potentially larger variations. And yet, it really is dependent on others, and it all comes down to the relevance of our IP to other people's business plans. And that's why we spend a lot of time talking about and thinking about, studying and trying to influence markets.

So if we're right that seeing, hearing, understanding and responding in somewhat automated ways -- automatic ways for mobile devices is going to become in important functionality, I'm very excited about our prospects to have some relevance to that development. And when I say I'm very excited, that means I expect people would need to have a business relationship with us.

And obviously there's a lot of the technology choices to be made, and there are lots of vagaries to work through and so forth, but we -- really, this is core to our vision. Not -- there would be a time -- and we didn't, in 1997, have these devices available to, but we had the idea in mind that there would be a means to -- for computers to identify objects, to see and hear. At the time, they were totally blind and deaf. And so we're teaching them Braille, and it's very exciting for us because it is our vision. It's been our vision from the beginning. But now it looks as though it could be even bigger than we thought because of this 24-by-7 appendage that we currently call our mobile phone. So it's a cool time. It's exciting, and we think we are kind of getting into our stride.

What you'll also see -- we'll post our updated corporate PowerPoint pretty soon that I'll be using to present at the AEA Conference next week. And in it, I'll say what I've said informally over the years a number of times, which is that the nature of our business is that -- the product cycle is quite long. It takes a couple/few years to do R&D and to obtain patents, and then it probably takes half a dozen years or so for it to kind of begin to get commercialized. And where the commercialization tends to hit its stride and where the maximum value of the portfolio occurs is usually 15-years-plus from the date of invention.

Well our company is only -- it depends how you want to measure it, but I've been here for 12 years. So we're still pretty young in that cycle. That's the problem that I think all of you guys have in the -- in what you perceive as the vagueness of the disclosures that we make about prospects, is that we're, in my view, getting into the sweet spot. And in the view of some investors, it's like, "Gees, it's about time." But it really is about time. It is, in terms of the natural development of such a business, about time. But it isn't late. That's my point. We're getting there. And that's for the first generation of technology. That's for the 1990s inventions.

We continue, as my remarks indicated, to innovate at a very high rate in ways that we think are creating additional future value that will be subject to the same product cycle. So we're not just cashing out our '90s innovation and calling it quits. We'll building a business we think that has a robust future here, as well as a very exciting near-term prospect.

Sort of another question -- and I'll be open about this is trying to understand the breadth of the discussions that you're having.

It sounded from -- if you add what you said this call to what you said last call, it seems like the number of conversations you were having has grown, and they were fairly substantial last call. How would the -- you have a relatively small structure at Digimarc. How are you dealing with all of these conversations?

We're really busy.

Okay.

We are a very unusual company at our small scale. But even at a larger scale, we have a leading-edge intellectual property development and licensing program here. It's one of the finest, I think, in the world. And so we're great experts at what we do. We understand what's called the art of the field that we work in better than any company our scale could possibly understand it, because we do all our work internally and we have virtually zero turnover in the core of our IP development for the last dozen years.

And so we know this field very well, better than any outside law firm could ever possibly learn it, which is the way that most small companies would deal with such things. And other companies have higher turnover rates than we do.

And so we begin with a foundation of expertise in the subject matter. Then we have really remarkably skilled and talented people here that I'm privileged to work with in the development of IP and in the licensing activities that we engage in. So -- and you see this in the patent rankings and so forth. We're -- any measure you want to measure us by, we have very high quality.

And so the question of value really comes down to relevance, we -- and there again, it's a long product cycle. And I personally believe we're getting into a time when we should be able to harvest significant value. The amount of that value is a little hard to try to project. But I think it's substantial and we're going to keep pursuing it.

And so we could invest more and pursue more, but we prioritize what we do and we feel comfortable that the way we're doing it is sort of optimal in the environment. Again, we want to have a business model in which you, as investors, understand and appreciate that the variance is skewed to the upside. So we could have a riskier business model that could theoretically produce a result sooner or maybe a bigger result, theoretically, but it'd be more risk.

So we think with nominal risk, financial risk, we can pursue substantial upside.

One final question, Bruce, the -- you use the word relevance. And what would you -- to show your relevance, because that's really the question, is everything you've built up going to be relevant to the digital marketplace going forward? If it is, to the extent that it is, we're going to prosper mightily. And the question is what would you point us, as investors, to, to show -- as milestones, to show your relevance or something that has happened that shows the relevance and validates your vision in the future.

Well the largest initiatives thus far, one successful, one pending, are in the audience measurement area. Obviously, the Neilsen relationship and the single company relationship is quite enormous in relation to our scale. And we are engaged with Arbitron to see if we can establish a partnership there.

So those are two examples of large scale, in relation to us, opportunities, but only two companies out of a universe of thousands or tens of thousands, and one application out of the very extensive range of possibilities that you and I have discussed and I've discussed with everybody else. Audience measurement is just one little application of our technology.

Okay. Thank you very much.

All right. Thanks, Paul.

Our next question comes from the line of Bill Gibson with [Wellington Capital].

Hi, Bruce. I want to follow up with -- you mention engaged with Arbitron, and I think you're calling it intellectual property marketing, as opposed to trying to avoid litigation. But I've got to assume there's dozens if not hundreds of companies violating your patents, and I just want to have a sense that you pick your spots correctly. Is that part of your thought process?

Absolutely. Yes.

We spend a lot of time analyzing prospects, and then developing our marketing plan with respect to any individual prospect, and then in approaching them, and then in structuring potential outcomes with them, and then in negotiating and then bringing it home. It's an elaborate process and we're disciplined about it. And it's one of the things I think that should distinguish us from many others.

So in the case of Arbitron, they'd published our letter, which we would not otherwise do. So everyone got a chance to sort of see our style. And if you get a hold of the letter and read it, you'll see in it that it's quite detailed and quite specific both about why we should have a business relationship and our willingness to be creative in structuring one. And I think it tends to take -- cause people to take us pretty seriously.

Okay, thank -- and then just one last quick one. I know Paul asked about JV1. How about JV2? I think Mike said it's starting to ramp this quarter, and are you still excited about its potential?

Absolutely, but it's a little further out and it's higher risk than JV1. And if we get started, in terms of visibility in the marketplace, during next year that would be, to me, a good outcome. So it's really, it's a bit longer term. It's a big idea. It involves some basic technology development as well as infrastructure development, and we have tested the concept with a lot of relevant audiences, and they all seem to be very positive about it.

So if we can pull it off, I think it's going to be great, but we've got a lot of challenges to deal with between here and commercial success. So that one's going to be a little slower burn, and yet we are building staff there and getting going because we think the investment is warranted by the scale of the opportunity.

Okay. Thanks, Bruce.

Yes.

(Operator instructions.)

There are no further questions at this time. I'll turn the conference back to management for any further remarks.

All right. That's great. Thank you very much, everyone. We appreciate your support, as always, and looking forward to talking to you again soon. Bye.

Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect.