Digimarc Corp (DMRC) 2017 Q3 法說會逐字稿

Good afternoon, and thank you for participating in today's conference call. Now I will turn the call over to Bruce Davis, Chairman and CEO of Digimarc. Mr. Davis, please proceed.

Thank you. Good afternoon. Welcome to our conference call. Charles Beck, our CFO, is with me. On the call today, we'll review Q3 financial results, discuss significant business developments and market conditions and provide an update on the execution of strategy. We'll archive this webcast in the Investor Relations section of the website. Please note that during the course of this call, we will be making certain forward-looking statements, including those regarding revenue recognition matters, results of operations, investments, initiatives, perspectives on business partners, customers, prospects, industry trends and growth strategies. We'll also discuss from time-to-time information provided to us by channel partners and actual or potential customers about their business activities. We are providing this information as we understand it was represented to us. We do not verify nor vouch for such information.

Such forward-looking statements and the statements about partners and customers are subject to many assumptions, risks, uncertainties and changes in circumstances. Any assumptions we share about future performance represent a point in time estimate. Actual results may vary materially from those expressed or implied by such statements.

We expressly 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 conference call. For more information about risk factors that may cause actual results to differ from expectations, please see the company's filings with the SEC, including the Form 10-Q we expect to file shortly. Charles will begin by commenting on our financial results. I'll then discuss significant business developments, market conditions and execution of strategy. Charles?

Thanks, Bruce. Good afternoon, everyone. Revenue for the quarter was $8.7 million, up from $5.6 million in the third quarter of last year due to higher license revenue. License revenue included a $3.5 million license fee from an existing licensee. In exchange for the upfront license fee, we waived any future royalty obligations from this licensee in one of the licensed fields of use. The license fee is due in 2 equal installments of $1.75 million in October 2017 and January 2018.

Service revenue was down slightly due to timing of program work with the Central Banks, which we anticipate making up for in Q4. Subscription revenue was lower reflecting lower Guardian revenue offset by higher Digimarc Barcode revenue. Digimarc Discover and Barcode bookings were $100,000 during the quarter versus $900,000 in Q3 of last year. As you will recall, we booked a 3-year enterprise deal in Q3 of last year, which accounted for the majority of the bookings. Notably though bookings so far this quarter are over $1 million with most of it coming from growth in an existing relationship. We continue to expect lumpiness in quarterly bookings in the early stages of market development due to timing and varying provisions affecting bookings.

Gross margin was 76% in the third quarter, up 15 points from Q3 last year reflecting the impact of the $3.5 million license fee, which has an indirect cost.

Operating expenses were $2.3 million higher than the third quarter of last year. The increase primarily reflects previously noted increases in staffing for sales, marketing, engineering and operations to expand our capabilities in selling and delivering the Digimarc Barcode to retailers and brands.

Net loss for the third quarter was $4.2 million or $0.39 per diluted share versus a net loss of $5.2 million or $0.55 per diluted share in the same quarter last year. We invested $6.9 million of working capital during Q3, including $5.7 million to fund operations and $700,000 for capital expenditures. We ended the quarter with over $60 million in cash and marketable securities. We anticipate cash usage will be between $5.5 million and $6.5 million in the fourth quarter. Our Q4 cash projection factors in collection of the first installment payment of $1.75 million under the paid-up license fee we entered into during the third quarter, which has already been received. We are in the process of finalizing our annual operating plan for 2018 and wanted to share with you our preliminary budget assumptions.

For budgeting purposes, we are assuming service revenue will be flat as 2017 included some nonrecurring project work. We met earlier this week with the leadership group for the program. We appear to have excellent alignment on the current state of the program and strategic direction. The program is solid and there are possibilities for growth that we have not yet quantified. We expect the year-over-year trend in license revenue to be down significantly, reflecting the impact of the paid-up license we entered into during Q3, which increases 2017 revenue significantly and reduces what would have been 2018 revenues?

We expect subscription revenue to grow significantly in 2018, reflecting new bookings for Digimarc Discover and Barcode. There is a large range of possible outcomes for revenue in this emerging area of our business. The amount of bookings and revenue recognized during 2018 will largely be dependent upon the pace of adoption by industry-leading retailers and brands and the effectiveness of delivery and support by our partners in the supply chain, which is inherently difficult to predict. We expect gross margins to grow as we generate more Discover and Barcode revenue with some of the improvement offset by lower license revenue as explained earlier.

Operating expenses are expected to increase, reflecting the first full year of staffing increases in 2017 and potential additional hiring in 2018 to support projected account activities and R&D. We anticipate entering 2018 with cash consumption running in the range of $5 million to $6 million per quarter. Cash consumption may fluctuate significantly quarter-to-quarter due to timing of customer receipts and vendor payments.

For further discussion of our financial results and risks and prospects for our business, please see our Form 10-Q that we expect to file shortly. Bruce will now provide his comments on significant business developments, market conditions and execution of strategy.

Thanks, Charles. First, kudos to our licensing team for making a significant contribution of working capital in a challenging environment for licensing IP. This was a good deal for both parties. We liquidated some future years' royalties, eliminating market and credit risk for us while providing our licensee freedom to operate in the field for a reasonable cost. Another good news regarding bookings and cash flow as Charles noted, our Q3 bookings are already over $1 million. We expect the bookings will continue to be lumpy though, but it's a nice way to start the final quarter of the year. And that evidence is progress in our business with the source of the booking. We're continuing efforts to tighten our focus on implementation in key accounts, resulting in better internal alignment of resources and improving operational efficiency. Now that we have effectively established the basic value proposition for Digimarc Barcode, we need to get everyone comfortable with scaling our platform as a successor to conventional barcodes and mission-critical applications.

As we discussed in our last call, the retail industry is undergoing a major transformation where the major trends are favorable to us. As you know, our platform is intended to mitigate the dilemma of how to offer low prices on the one hand and high engagement and convenience on the other. The goal of all retailers to provide a pleasant and efficient shopping experience at the lowest possible cost. Reliable efficient auto identification permeates both these goals. We are aligning our sales, marketing, client services and development teams with early adopters and certain other highly engaged developing customers and their suppliers to those case studies of successful implementation of scale. The technical focus of our company is now on the tools of training and oversight that supports this deliberate scale. Listening carefully to the advice of the key early customers and their suppliers.

Publicly acknowledged early adopters include Wegmans, New Seasons, McCormick and Walmart. On-shelf availability to Wegmans continues to increase. Our goal for Wegmans is to demonstrate the benefits of enterprise-wide implementation of our platform including full enhancement of the private brand portfolio, enhancement of fresh product labels and marketing materials and store associate and consumer applications built on this foundation. Wegmans continues to be an extraordinary partner, leading the industry in modernization of Auto ID for retail. We will hope then to earn the record place in history as the pioneer in multi-industry transformation of auto identification. It's apparent that we are dedicating substantial resources to scale on our business to Walmart. Details of the work remain confidential. Walmart has become more supportive of technical innovation in general. We intend to demonstrate significant value to Walmart with suppliers and the rest of the industry via our collaboration there. They have been and continue to be a tentpole strategy. I noted earlier today a new article of interest -- a news article of interest in the Northwest Arkansas Democrat-Gazette about expansion of testing of Bossa Nova Robots at 50 Walmart stores. Those of you who attended NRF last year may recall their centerpiece demonstration in our booth showing how Digimarc Barcode can assist automation of shelf compliance activities using Bossa Nova.

With respect to the other large retailer that we referred to in our last call, our efforts to demonstrate technical feasibility and supply chain readiness have been successful. We are beginning production with a small number of SKUs as we get to the stores in the next few months. And we have a plan to scale production from there. We witnessed strong growth in interest among other leading retailers during the quarter here and abroad across a range of applications related to the Digimarc Barcode and our retail label solution. CPG leaders profess great interest but continue to struggle with technical innovation as the industry wrestles to -- with strategies to address stagnating sales and commoditization of their brands. Private brands are gaining share and the global brands are struggling the finances. Retailers have become more open to innovation and unlike for CPG products, private brand sales and associated investments are growing.

Given these observations, our near-term bias is working with leading retailers. We welcome CPGs like McCormick and another unnamed category leader, who are committed to real progress. We're tired of doing free work for CPG's elected direction and commitment that these companies demonstrate.

Going forward, we are letting all customers and prospects know we are no longer providing free trials and that we expect to be paid for what we provide. Those companies that are unwilling to do so could wait for us to demonstrate successful implementation of scale with their competitors.

Focusing our limited resources on a more innovative and fair amount of retailers, private brands and CPG should shorten the path to implementation and orchestration of suppliers. Applications to the most interest of CPGs today center around manufacturing and quality control, in partnership with a leading machine business system supplier and product transparency as evidenced by our growing involvement in the Grocery Manufacturers Association SmartLabel initiative. Some opportunities for innovative CPG manufacturer to collaborate with leading retailers on a variety of initiatives are also being discussed. We're busy delivering the first tranche of enhanced McCormick products to the market and developing business with a few other global CPG leaders in the 3 geographies in which we're operating. As with retail, we're looking to establish collaborations that lead others in the industry to embrace the platform.

We were visited last week by some DNP executives regarding the Study Group activities in Japan. It seems we're making good progress there. We used the opportunity to introduce our country management for Japan. Ted Takahashi is a seasoned executive with over 30 years experience in the printing industry. He most recently was general manager of Ricoh's Commercial Printing Business group. Ricoh is the Japanese multinational imaging electronics company with nearly $20 billion in annual sales. Ted's top priority is to enhance our support for the shopping for The Future Study Group as they prepare for commercial launch of our platform. We are looking forward to Ted's leadership in developing the business model for Japan and improving our communications with and support for the group's initiatives. The group is preparing for several important trade shows in the territory in Q1 2018. We also added former L'Oréal and Mondelez executive Claudius Jaeger to our European leadership team. While this brings an abundance of energy and experience in selling to the leading German retailers where we are nurturing adoption of Digimarc Barcode and retail labels. These talented and experienced new Digimarc leaders will help us to deliver timely, efficient and effective development in our initial foreign market expansion on the way to globalization of the Digimarc Intuitive Computing Platform. Including supply chain support as well as our own internal business processes, we'll foster more speed and scale in accomplishing these goals. Our work on these matters are defining the standard operating procedures for globalization of the next generation of automatic identification pioneered by the original Barcode. The near-term focus is on nurturing enhancement of private brands and deployment of our scale label solution, supporting -- both supporting fast checkout, consumer engagement, associated productivity and other applications among early adopters. All of these as case studies in successful implementation, deriving best practices from our experience with them and applying these practices to scaling industry leaders. We believe this is the optimal path near-term revenue growth. The basic building blocks are in place to work with industry leaders in the U.S., Germany and Japan to begin scaling the market. Our balance sheet is in good shape. We're making good progress expanding our institutional knowledge and implementing requisite software training and support services to foster progress in key performance indicators of increasing bookings and providing other evidence of growing adoption to the industry and to the financial markets. The NRF show and Needham conference in January are less than 100 days away. We're working hard to put on an impressive show there with customers, partners, and the investors. That's it for our prepared remarks. We'll now open the floor to questions.

(Operator Instructions) Your first question comes from the line of Josh Nichols of B. Riley.

I just wanted to ask, I think, it was on the last quarterly call you mentioned that you delivered a proposal to a large retailer that you'd been in discussions with for a while. Any updates you could provide us on that? Or the other 2 MSAs that we've discussed before and a little bit on this call?

I don't recall exactly what you're referring to Josh. We have 2 MSAs in place with 2 large retailers. I don't recall talking about making a proposal to a third, although that's not inconsistent with our general posture here. We've made several proposals to several large retailers. Not just one.

And then, could you talk a little bit about, I know, you mentioned that there was an increase in interest following Amazon's acquisition of Whole Foods. Are you seeing that as a continuing level of high interest? Or has that dropped off a bit? Any feedback you could provide?

Yes. Retailers is really shaking up. I think that all the retailers who are going to survive are going to embrace technical innovation, just a much larger degree than they had in the past decade. So I think, the effect is enduring there. You can sense a little bit of frustration in my remarks about some of the CPGs. They also want to move forward, but they're evidencing less clarity strategically about how they should do that, whereas, the retailers appreciate that they have a dilemma to resolve that I have stated in my remarks, and that is that if you're going to have physical retail, it needs to be a convenient and enjoyable experience. But it has to be also low priced, because online and Amazon has led the way in this is all of those things. So that becomes the challenge. So you want to have the Wegmans like experience at the lowest possible cost. And most of retail is not there and it has been a prime motivator for Wegmans to become the collaborator that they've become with us because of they obviously have a wonderful shopping experience and then wanted to have a lowest possible cost structure to apply against that. And so our primary initial value to bring to them is improving operational efficiency.

And then last question, and I'll pass it on. Over the years, you built up a good number of partnerships throughout the number of verticals throughout the supply chain. And now you're investing heavily in Walmart, it seems like, do you -- as it stands today believe that you have the infrastructure in place to be able to deliver these types of solutions at scale? Or if not is there 1 or 2 pieces that you are looking to add and what might those be?

We're continuously improving the support for the supply chain. Our strategy, as you know, is that in more mature stage of market development where we reside mostly in the background, most of the work that needs to be done is done by the existing suppliers in relationships with the customers. So that work will go on forever. It's been in the formula stages and that's where we have made a lot of progress and continue to invest in tools, training and other elements of support for the suppliers. So what we've been doing in the last couple of quarters here, is again getting more refined and more efficient in the use of our own resources applied against the major opportunities as opposed to building out awareness and support, generally in the supply chain. So in the first couple of years of market development, we were sort of taking all comers so to speak, of the major players and now we're trying very hard to just focus on those that will deliver near-term effect on the top line. Those that are supporting the major customer prospects, not necessarily those prominent suppliers, but the ones that are most important to that goal.

Your next question comes from the line of Ethan Potasnick of Needham & Company.

This is Ethan Potasnick filling in for Jim Ricchiuti. I was wondering if you could provide, I guess, a little more color on this existing license fee and maybe any thoughts or how that played out? And if you could provide, which vertical or market that's coming from?

There's some competitive sensitivity and other limitations on our disclosure. We discussed the degree of disclosure with our licensee prior to doing our filings in our call here. And so we set up on all that they're comfortable with us saying so, I don't think I can add anything more out of respect to our relationship with them.

There is one area, they continue to be a licensee (inaudible) relationship. This was one particular field of use where they wanted some freedom to operate and as my remarks indicated in those circumstances that we can agree upon a fair price it's mutually beneficial because obviously, we enjoy having the money in the bank as opposed to awaiting quarterly reports on what would be sent to us.

Okay. Got it. And then you talked about moving to an account-based marketing strategy in your previous calls, is there anything tangible that you can share with us with respect to that recent shift?

Yes. The remarks today are evidence of continuing commitment and progress with respect to that shift. So as we entered the year, we were still thinking that we needed to create demand and awareness in demand, generally, we hinged the conclusion that we did not need to do that anymore, but more that we needed to focus more resources on the most promising opportunities. So that we could deliver at scale and then use those deliveries as the demonstration that we can do it for others. And I think that's a more efficient means of developing the market than spreading ourselves thinner across a number of opportunities. And so the account-based marketing is now really an account-based orientation of all of our resources. So we've built account teams against the major opportunities and the account teams are cross-functional. They're led by the account executive in sales. There's partners, in essence, a co-leader, who is a program manager. And then those 2 leaders define an ad hoc team, that serves the particular interest of the customer. And the team includes marketing, client services, development, anything that is needed to make significant progress with the account.

Okay. Got it. And then your comment on no longer providing free trials. Is that due to, I guess, any other retailers or CPGs were activity levels have picked up? And has that -- are you seeing increased buzz so to speak and if so, does that I guess warrant or will warrant new resources being dedicated going forward?

I guess I'll be as straightforward as I can be about the meaning of those remarks. We, in our first few years of market development have seen large companies, who are willing to engage in extensive testing and in trials as long as they're not paying for it. And of course, they're dedicating their own resources. So there's real cost to them, but there's no real revenue to us. And then, in the beginning, of course, it was important for us to consent to those and to participate to best of our ability. But in a resource-constrained environment that we find ourselves in today with an excess of demand, we intend to put up a financial criterion and those that are sincere enough to want to pay us to do work with us, we're happy to work with and those that don't feel like doing that, can wait. That's what I was saying. It's just -- it's really a statement to industry, but I want to make you guys aware that we are changing that posture and it is in effect now. And it should have a salutary effect on the relationship between revenues and cost obviously. So we won't continue adding cost without revenues. We'll be trying to add revenues and then we see if additional costs are justified.

Your next question comes from the line of Jeff Bernstein of Cowen.

Just a couple of questions. One, I was wondering you mentioned the Walmart doing more test with robots for inventory. Any other applications that you think are sort of driving people most at pit point, are they scan and go or curb side pickup programs that a lot of retailers are talking about, are those motivators now?

The sort of upside surprise in execution of strategy thus far has been with retail labels. We'll need to prove it to you over the course of the next several quarters, but when we began our market development, we began with packaging for consumer products and we're continuing with that and we're making progress in that area as evidenced by our work with Wegmans, Walmart, McCormick and others. But along the way, we discovered a lot of serious problems with the ability to read the barcodes, on labels on fresh products in bakery or deli and meat departments and so forth around the perimeter of the store. So if you can think of this, we started in the core of the store. A lot of the growth and lot of the interest is in fresh, on the perimeter of the store. And we thought "Well, we'll get to that some day." but then we learned more about the problems from some of our customers. And we determined that we could deliver effective solutions to many of those problems. And so we are now in beta test with a number of retailers on scale label solution, which we think will be quite successful, and if it is, it may be a surprising upside to the business model because we have heard some very large numbers from some of the retailers as to the size of the problem and then the question becomes through the early proofs, what sort of mitigation can our solution provide to those problems. And we think it will be a significant litigation.

And Bruce, the economic model there, how does that vary versus the sort of SKU model?

We have recurring license fee model for that. It's not only a price per SKU or per label because the accounting will be challenging for that. So it's based on the presumed number of printers and scale of printing in a model that we've built, that we believe conforms well to the structure of the industry. So it's a volume-based recurring license model.

Great. And then I just want to make sure that I heard correctly. Did you say that you are now starting to roll out with the second retailer in stores in terms of just getting some products into production?

We're in production, the products we'll get to the stores over the course of several months in the normal course of the supply chain.

Got you. So that's beside Walmart that's the other new retailer?

Yes.

Got you. And then I just was sort of wondering, I know you don't spend money lightly and now you've added a couple of high-end people in both Japan and in Europe. Do you carry a handicap, which one of those you think you will have a customer win in first?

That's a very, very good question. I'm afraid that I think I would flip the coin. I...

Really?

I've a certain amount of optimism in both geographies. As I've explained previously, they're different business models. So that's why I chuckled a little bit because we have the highly efficient group sharing model in Japan and we have some serious entrepreneurs in Germany. And I don't know who wins the race. But both moving along very well. And so I'm optimistic that we'll get some breakthroughs in those areas. The work in Japan is different than in Germany.

In Japan, we hired Ted, who is a very seasoned General Manager of a large corporation division. And who have also ran a business unit in America for a while. So he's a very capable bilingual entrepreneurial executive. And his job there is to build the business model. So it's really a much larger role than selling to accounts. It's really orchestrating our support for the Study Group and providing support for the leadership of the Study Group there. And figuring out what the best business model is for Japan. And we are open-minded about the Japan business model. It could be somewhat different than the domestic model. If it's helpful to us and to industry for rapid adoption. And so I'll leave that open for now. I don’t really have a theory on it. But I'm interested to see what comes of his early work with the Study Group. And I will report back to you guys once I have some ideas formulated.

In Europe, GS1 obviously has been our partner for some time now and has done a great job working with our staff in formulating opportunities. So there's a bunch of opportunities that is in development over there. So they are perhaps ready to get going pretty soon. We're -- we haven't been, that's one of the areas where we made specific pricing proposals and there is a great deal of interest. And we have been working through that model that I just described a moment ago on building account teams that can provide at first, support from a distance and then determine once there are contracts in place, staffing that can be supported by the contracts that we enter into. So we're not putting the cart in front of the horse in Europe or telling the customers that if you want to embrace this platform, enter into an agreement with us and then we will provide appropriate local support. So we're building a kernel -- basic kernel of capability there, but we are not going to ramp in until we get paying customers serving a -- help to support the cost.

Great. And then lastly, I read some commentary about the Japanese market saying that part of the attraction there had to do with some kind of security function. I don't know if it was anti-counterfeiting or if it was for shrinkage purposes or whatever, any thoughts about that?

Yes. The -- I haven't seen that, but I can tell you where the sweet spot is in Japan because I just had an update session with the leader of the Study Group. It's in the convenience industry. And it's unique to Japan and this is the part of why I am saying I'm open to figuring out the business model that moves quickly there. They have a labor shortage crisis in Japan and it is affecting the convenience store industry because they can't find people willing to work as cashiers. And it's a very serious or prominent problem there. So it's not so much speed of checkout, improving operational efficiency, generally, it's more about how can we get by with fewer cashiers and ultimately with no cashiers. And so that sort of the action, it's in the convenience stores. And convenience stores, of course, are heavy users of labels. And so that it fits right in with this little upside that is emerging in our portfolio with the retail label solution. So that's why I think things will get the most lift in Japan. But again, I'm trying to be cautious here because I've just hired an experienced country manager, who is going to educate us all to look into nuances of the opportunity and ideas about how to exploit the opportunities most effectively.

Your next question comes from the line of Jeff Van Rhee of Craig-Hallum.

Bruce, just a couple for you. As you look at this Barcode booking, you mentioned you had already here in Q4 of $1 million. Is this -- should we think of this as a booking to an existing MSA?

Yes.

Okay. And with respect to the structuring of it, you touched on the fresh labeling opportunity, which may have a different model versus a traditional SKU model versus a number of others where you're building apps and various things. How was this, can you give us a flavor for how this one was structured and maybe what that tells you about future contracting if anything?

No. Again I can't give you any details about it. It's a confidential relationship. And obviously, we're saying it's from a single source. Sorry I can't identify the source of the nature as a means of trying to find the source. So it is, what it is. It -- what it teaches us is what you and I have talked about on occasion and our goal here is to skew the uncertainty to the upside and that is to have these kinds of things pop up that. We can't predict, and you can't either, but there the kind of surprises you don't mind. So we expect volatility. We expect that there will be big bookings in some quarters in smaller others for a while. And so we build the customer base up so that, that naturally -- the volatility naturally subsides. So this one happened to be in October. And there can be more coming at any time in any month. And when they -- the customer chooses to enter into large financial obligation then we'll have a big impact, whether it's used to sort of pay as you go and have less impact. And so that's -- there's not much I can say about the details of this particular booking other than that.

Maybe then from just sort of down in the nuts and bolts of our projections as we all have models and are going to be revising things forward. How should we think about this rolling in from a revenue recognition standpoint that, that million rolls in over to whatever degree you can share? What kind of duration are we thinking? Because the guidance on the subscriptions was by your own admission, they're very wide, it would be big growth, not sure, lot of variables, but at least with respect to this one, how can we think about its flow-through on revenues?

Jeff, it's Charles. This particular booking will get recognized over a 1 year annual period.

Okay. Got it. I guess, Bruce, you talked in a number of places about training oversight tools. Just spend 30 seconds, I just want to -- I'm juggling a lot of stuff here, maybe I missed it because I know you touched on it a few times. So just your best clear examples of what that means tools training oversight, what are you doing there?

Yes. You'll see more of this emerging on our website. We also have a private website for our supplier partners where more things are. But if you just -- it reflects sort of a casual level on how barcodes operate, but if you become more of a student of barcodes, over the course of 40 years, a lot of, call it, performance characterization and quality assurance have been built in. And so our ambition here, our mission is a grand one, which is to supplant that, to do what they do. Well to do what they do, we have to assure the supply chain that we are going to be as reliable and safe as the Barcode. So we're building quality assurance tools, rating tools, verification tools. We're building a business process with above suspenders, backup of safety. It's all that stuff, which isn't obvious to anyone who is not in the business who doesn't live intimately in Auto ID. And then we have to flow that through to the supply chain, which means from the enhancement side and the enhancement tools on the prepress process and the printing process. And then on the reading side in the point of sale scanners and the machine business systems and smartphones and other -- and the robots and everybody else. So that's a lot of work. And that's the work that we're doing now. And as we invest in that, we will get to a point where we're fairly mature in various elements of it. We're still pretty early in the game. There is a plenty of work to do there. And that's where the support of some industry leaders is very helpful because it motivates the suppliers to collaborate and to share investment and to get these things done in a way that is very trustworthy for the supply chain. So we -- it's because of the importance that we will have that we must do all these things. So it's not merely as just slapping the old Digimarc Barcode on the pack and reading it. It's supporting financial transactions, inventory management, labor utilization, all kinds of mission-critical activities. So that's where the work is and that's where the work has been and it's hard to articulate and hard to visualize probably for most investors.

Your next question comes from the line of Ilya Grozovsky of National Securities.

I just want to do a follow-up a little bit on the $3.5 million, onetime. The field of use that this was coming from, how much other revenue potentially could be subject to a one time from other clients where they would say essentially buy out of it?

Yes. Good question, Ilya, but we don't know until we get there. That's the way these things work. So this is an existing relationship. There are other fields of use not yet included in the expansion and there are fairly some motivations that trigger our conversation like this like we had on the successful outcome as I said for both parties. And so there isn't any particular user trigger, it's more what do they need? What do we need? We have recurring discussions around the times of renewals or explorations. And then we try to come up with a model. And this has always been our approach in terms of our ethical basis. What works above is what's fair and in this case, they were willing to pay what would be the equivalent of multiple years of expected royalty for freedom to operate in an area that has risk and opportunity for them. And so we were happy to engage in the conversation. For us obviously, that's the working capital with no credit or market risk. And for them, it gives them the opportunity to work the market without having to worry about the burden of the continuing cost to us. So that's how the deal came by. I think they're probably pretty comfortable, it's a good deal, and I am too.

All right. So just a followup then. What -- in terms of on a quarterly basis, what is the whole, had this never happened? What do you think your revenues would have been in the quarter? In terms they would have obviously been paying the license fee. What do you, I mean, in other words, what kind of a whole because it looks like it's about $5.2 million without this onetime. What would it have been had this been business as usual?

Yes. So they are basically paying us quarterly royalties ranging anywhere from $200,000 to $300,000, was kind of the range of royalties. And we did earn the royalties.

On this used case, for this used case? Right?

And we did make the royalties for Q3 as well for licensee.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Bruce Davis. Sir, please proceed.

All right. Thank you very much. Thank you, everyone, for participating in the call. We, as always, appreciate your support and interest in the company. Our next public communication on a large scale will be NRF in January. And close to the lines to that is the Needham Emerging Growth Conference in January. We do have one other event in the month as mentioned today because we think it's a significant event and that is the GMA Executive Conference Executive Conference, mid-leader executive conference in Miami later in January. So it is going to be a very busy month. We hope to have a very good finish to the year and a start to the new one. So we look forward to talking to you again soon. Thank you.

This concludes today's call. Thank you, ladies and gentlemen, for joining us today for our presentation. You may now disconnect.