MARA Holdings Inc (MARA) 2016 Q4 法說會逐字稿

Hello and thank you for standing by.

Welcome to Marathon Patent Group's 2016 Year-End Financial Results Conference Call.

(Operator Instructions).

At this time, I would like to turn the conference over to Jason Assad, Investor Relations with Marathon Patent Group.

Please go ahead.

Thank you, operator.

Good afternoon, and welcome to Marathon Patent Group's 2016 Year-End Results Conference Call.

With us today are Marathon's Founder and Chief Executive Officer, Doug Croxall, and Chief Financial Officer, Frank Knuettel.

Before I turn the call over to management, please remember that certain statements contained in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements contained in this release relate to, among other things, the effect of a global economic downturn on technology companies; the ability to successfully develop licensing programs and attract new business; rapid technological change in relevant markets; changes in demand for current and future intellectual property rights; legislative, regulatory and competitive developments addressing licensing and enforcement of patents and/or intellectual property in general; and general economic conditions.

They're generally identified by words such as believes, may, expects, anticipates, should and similar expressions.

Readers should not place undue reliance on such forward-looking statements, which are based upon the company's beliefs and assumptions as of the date of this release.

The company's actual results could differ materially due to risk factors and other items described in more detail in the Risk Factors section of the company's annual reports filed with the SEC, copies of which may be obtained at www.sec.gov.

Subsequent events and developments may cause these forward-looking statements to change.

The company specifically disclaims any obligation or intention to update or revise these forward-looking statements as a result of changed events or circumstances that occur after the date of this release, except as required by applicable law.

In addition, certain of the financial information presented in this call references non-GAAP financial measures.

The company's earnings release, which was issued this afternoon and available on the company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors.

Finally, this conference call is being webcast.

The webcast link is available in the Investor Relations section of our website at www.marathonpg.com.

With that, it's now my pleasure to turn the call over to Marathon's Founder and CEO, Doug Croxall.

Doug?

Thanks, Jason, and thank you, everyone, for joining us this afternoon to discuss Marathon Patent Group's 2016 year-end operating results.

For 2016, we reported record revenue of $36.6 million, a 93% increase over 2015 revenues of $19 million, generating record non-GAAP earnings of $8 million or $0.53 per weighted average basic share.

While we remain pleased with our year-over-year revenue growth, our fourth quarter revenues, much like our third, were obviously, but not unexpectedly, light.

It's for this very reason I've long suggested the nature of our business lends itself to being evaluated on an annual basis as opposed to quarterly.

While potential revenue events existed, we continue to refuse to materially compromise what we believe to be reasonable royalty rates in an effort to impact results in any particular quarter.

As discussed previously, we are keenly aware of investors' desire to see predictable revenue.

It's for this reason that we are and have been refocusing our revenue generation on license that provide a recurring revenue feature.

The recurring revenue may take the form of a fixed quarterly or annual payment by licensees to Marathon and should help investors better model future potential revenue.

We're also aware of investors' desire to see more transparency.

Although we try to continually provide current investor communication, much of what happens at Marathon can unfortunately not be communicated until an outcome has been reached in litigation, which typically involves the settlement and the execution of a license.

The entire licensing and litigation process and settlement negotiations are governed by very strict confidentiality.

However, investors need to be able to assess the state of our business and prospects.

I assure you that we are doing our very best to afford you a proper level of transparency, while not impeding our ability to generate licensing revenues.

More often than not the results of our efforts only become tangible upon the execution of a licensing agreement.

A tremendous amount of work often results in a single culminating event.

While it may outwardly appear that our business is event-driven, it is in fact more of a process with predictable milestones.

Currently, we're working on licensing initiatives designed to promote a recurring and predictable revenue outlook, which will also allow enhanced transparency and predictability.

With this in mind, we will continue to initiate licensing campaigns that may or may not also involve initiating suits.

For example, we continue to bring cases like those recently filed by our Munitech IP subsidiary against 8 defendants and covering standard essential patents acquired from Siemens AG as well as cases recently filed by our Magnus IP subsidiary against 2 defendants.

In addition, we are constantly exploring opportunities that could result in us achieving greater scale and further diversification.

I'd like to give you some selected portfolio updates.

Signal IP portfolio.

The patents relate to the automotive and related industries in the areas of occupant restraint and safety systems as well as automotive-centric communication methodologies, including sensing and detecting -- detection technologies.

We have 2 active cases.

One against Fiat Chrysler, which is scheduled for trial this June in the Eastern District of Michigan.

The second case is against Toyota and is currently stayed pending final outcome of the IPR proceedings.

CRFD Research.

CRFD Research wireless technology portfolio represents key enabling wireless technologies in 2 distinct areas: the first, in-session handoff, in which active sessions on wireless devices, where wired and Internet-connected devices can be handed off to other wireless devices with no loss of session history; and secondly, mobile web content transformation in which web content is transformed into formats compatible with destination devices and is capable of supporting both secure and unsecure connections.

We have 4 active cases in the District of Delaware against DISH, Hulu, Netflix and Spotify.

We have concluded the IPR process and are involved in 3 -- we have concluded the IPR process, which involved 3 instituted final decisions.

All 3 are on appeal and before the Federal Circuit with hearings set for April 6 of this year.

Oil and gas.

Approximately 11,000 patent assets relating to oil and gas equipment and services.

Licensing discussions have been initiated and will continue.

Munitech IP.

The standard essential patents relate to W-CDMA and GSM cellular technology.

Significantly, most of the patent families have been declared to be Standard Essential Patents with the European Telecommunications Standard Institute and/or the Association of Radio Industries and Businesses related to Long Term Evolution, LTE, Universal Mobile Telecommunication Systems and/or General Packet Radio Service.

On February 13 of 2017, complaints were filed in the Regional Court of Dusseldorf in Germany against Google, ZTE, Xiaomi, Telekom Deutschland, Vodafone and Telefonica.

Magnus IP.

This is our Internet of Things portfolio.

This portfolio is comprised of Standard Essential Patents directed towards self-healing control network for automation systems.

The patents are relevant to wireless mesh or home area networks for the use in Internet of Things or connected home devices and enable simple commissioning application-level security, simplified bridging and end-to-end IP security.

The technology can support a wide variety of Internet of Things-enabled devices, including lighting, sensors, appliances and security.

Cases were recently filed against Honeywell and Somfy in the Regional Court of Munich in Germany.

The first oral hearing has been scheduled for August 3 of 2017.

Traverse Technologies.

This portfolio pertains to battery anodes and cathodes using nanostructure techniques and enables exceptional battery performance and allows for integration of micro systems that enhance overall functionality.

The technology utilizes both nano-materials and nanostructures to enhance battery performance.

As preparation for initial filings is underway, the ongoing prosecution of the portfolio continues with 3 patents granted in the last 90 days.

Licensing discussions have also been initiated.

Motheye.

This portfolio covers systems that reduce or eliminate reflection at facets of the semiconductor gain medium as well as suppressing natural longitudinal modes.

In addition, the technology enables more precise wavelength control of the light output of a laser.

This allows the laser to be used in a dense wavelength division multiplexing system.

Licensing -- excuse me -- licensing discussions have also commenced on Motheye just recently.

Dynamic Advances.

This portfolio contains patents, which relate to systems and method that provide and utilize a definitive model of enterprise metadata, a design of keywords with simplified complexity, graphical model of logical structure and a branch of -- and a branch and bound search algorithm and a case-based interaction method to process natural language inputs.

Licensing discussions have been initiated.

Again, in aggregate, our wholly-owned subsidiaries now manage approximately 12,000 patents worldwide.

We also continue to explore opportunities for our 3D Nano subsidiary.

In summary, we're reacting to market conditions and opportunities and believe that we are well positioned to see continued year-over-year revenue growth.

We expect 2017 revenues to be in the range of $40 million to $50 million.

Our projected 2017 revenue range is supported by the quality and the size of our managed asset base, which has never been stronger and provides opportunities for more potential revenue than in prior years, including potential for recurring revenues.

We will continue to expand our licensing activities across Europe and Asia.

We will continue to attempt to structure all future license with fixed periodic payments to build future booked revenue, which we hope may provide our investors with a better sense of our revenue and earnings potential.

Finally, I believe it's very important for investors to make note of the following: We heard you a year ago, when you stated you wanted to see us reload our asset base following a very successful run of monetization in recent years.

I'd like to point out that we have done precisely that.

Since this time last year, we have increased our managed asset base by nearly 40 times from approximately 300 to approximately 12,000 patents.

Just one of those assets alone has already proven itself, resulting in a $24.9 million license agreement.

Our dramatically increased portfolio of assets is a direct result of investing in our future.

With this strong and diverse asset base now in place, we have focused the company's resources squarely on licensing with a goal of now harvesting return on investment.

That concludes my prepared remarks.

With that, I would now like to turn the call over to Frank, our CFO, for a detailed look at our 2016 year-end financial results.

Frank?

Thanks, Doug.

Revenue increased approximately 93% to $36.6 million for the year ended December 31, 2016, compared to $19.0 million of revenue for the year ended December 31, 2015.

The increase in revenue in 2016 resulted primarily from licenses issued by our Dynamic Advances and OrthoPhoenix subsidiaries, with the Dynamic Advances settlement occurring shortly before commencement of the scheduled trial.

Revenues from the 5 largest licenses in 2016 accounted for approximately 97% of the company's revenue for the year ended December 31, 2016, and revenues from the 5 largest licenses in 2015 accounted for (technical difficulty) 62% of the company's revenues for the year ended December 31, 2015.

Direct cost of revenues for the years ended December 31, 2016, and December 31, 2015, were approximately $19.1 million and $16.6 million, respectively.

For the year ended December 31, 2016, this represented an increase of approximately $2.5 million or 15%.

Direct costs of revenue include contingent payments related to patent enforcement legal costs, patent enforcement advisers and inventors.

Direct costs of revenue also includes various non-contingent costs associated with enforcing the company's patent rights and otherwise in developing and entering into settlements and licensing agreements that generate the company's revenue.

Such costs generally include legal fees and expenses, consulting fees and data management costs.

Direct costs of revenue for 2016 were higher than in 2015, primarily due to higher revenues and, therefore, higher contingency payments.

While lower on an absolute basis, direct costs of revenue in 2015 were a higher percentage of revenue than they were in 2016, based on the fixed fee engagement agreement with the law firm that represented one of the company's subsidiaries in 2 United States trials during the year, an increase in enforcement activity in Germany and, to a lesser extent, France, and preparation for a significant number of trials in both the United States and Germany in 2015 in the company's Dynamic Advances, Signal IP and TLI subsidiaries.

Other operating expenses increased 18% to approximately $33.1 million in fiscal year 2016, as compared to approximately $28.1 million in fiscal year 2015.

This increase in other operating expenses in 2016 compared to 2015 resulted from an increase in patent impairment expenses in the approximate amount of $6.2 million in 2016 compared to 2015 and goodwill impairment expenses in 2016 of approximately $4.3 million compared to no goodwill impairment expenses in 2015.

These increases were partially offset by a decrease in patent amortization expenses of $3.3 million, a decrease of consulting and professional fees of $1.1 million (sic -- see press release, "$1.8 million") and a decline of $0.3 million in other general and administrative expenses.

Operating expenses for the years ended December 31, 2016, and December 31, 2015, include noncash operating expenses totaling approximately $25.8 million and $20.8 million, respectively.

Results for the year ended December 31, 2016, represent an increase in noncash operating expenses in the amount of approximately $5.0 million or 24% compared to the noncash operating expenses for the year ended December 31, 2015.

The increase in 2016 over 2015 was driven by patent and goodwill impairment costs, both of which are noncash items.

For the year ended December 31, 2016, net income on a non-GAAP basis was $0.53 per weighted average basic common share compared to net loss per weighted average basic common share on a non-GAAP basis of $0.48 for the year ended December 31, 2015.

On a diluted common share basis, net income on a non-GAAP basis for the year ended December 31, 2016, was $0.49 per weighted average diluted common share compared to a net loss on a non-GAAP basis of $0.48 per weighted average diluted common share for the year ended December 31, 2015.

We ended 2016 with cash totaling approximately $5 million as compared to $2.6 million as of December 31, 2015.

As of December 31, 2016, we had approximately 15.2 million weighted average basic shares outstanding and 18.6 million shares in total.

Thank you for all of your attention.

Operator, you may now open the call for questions.

(Operator Instructions) Our first question comes from the line of Mike Latimore with Northland Capital Markets.

I think you mentioned there was an oral hearing August 3 for the Magnus portfolio.

Is there an oral hearing scheduled for the Munitech portfolio?

No, not yet.

Okay.

Is that something that's sort of first half, second half, most likely for an oral hearing there?

For Munitech?

Yes.

So Munitech is in Dusseldorf and that court actually just has one hearing, and that hearing likely falls sometime in December.

But most likely, it'll get moved into the beginning of 2018, just knowing holiday schedules and the court schedules, but most likely, it will be January, could be December, could be February.

Got you.

And then on the -- you mentioned that both the oil and gas portfolio and the Dynamic Advances are kind of -- you're in discussions there.

At what point do you decide, well, we might need to initiate some litigation?

Or does it feel like you will stick with the discussion for a while?

We'll initiate litigation when we feel -- if the soft licensing discussions aren't progressing at the pace that we would like them to.

So far, they have been.

So we will continue in that.

It's much more profitable for us to settle this outside of litigation.

So we'll continue -- we'll continue with the conversations because they've been going fairly well.

Great.

And then, I guess, just on that topic.

Can you -- roughly, what is the, I guess, effective gross margin on a soft licensing revenue event versus one litigated?

Well, look, we save a tremendous amount of cost because we don't have out-of-pocket costs or we don't have significant legal contingency costs.

So it depends on the portfolio because some portfolios we have a 50-50% deal with the previous patent owner.

But we still -- the net revenue absolute number would be higher.

The percentage split will be the same but the absolute number is typically higher because we've eliminated pretty significant costs.

So the margin may not improve, but the absolute number will.

Right.

And then on Toyota, I know these are hard to predict, but when do you think you'll kind of get through the final IPR process there and be able to finalize it fairly?

Yes, I mean, trial will likely be in 2018 if it doesn't settle before.

We had claimed (technical difficulty) survive the IPR.

They are appealing IPR decisions that were in our favor.

So the chance on -- look, there's always a chance on appeal that they win.

It typically doesn't happen.

But sometime this summer, we should have that appeal finalized and then, hopefully, the court moves quickly and lifts the stay, sets the trial date.

And then just last one.

What should we think about sort of tax, operating costs being on a quarterly basis here?

Yes, so we've historically run in the $1.2 million to $1.4 million range per quarter for all the overhead, the non-cost of revenues expenses.

We have consolidated some of our operations and anticipate going forward that we will be spending less than that amount on a quarterly basis to the tune perhaps of $900,000 to $1 million or perhaps even a little bit less than that.

Got it, got it.

Good.

Thanks a lot.

Good luck this year.

Our next question comes from the line of William Gibson with ROTH Capital Partners.

Yes.

Is the -- well, actually, just one technical question or one bookkeeping -- what was the fourth quarter share count?

I mean, you mentioned 18.6 million now, but --

Well, we had 18.6 million as of 12/31.

Oh, 12/31.

Okay.

And 19.3 million as of the filing date.

Good.

And was there a negative adjustment on cost of revenue in the fourth quarter?

I'm just backing my way into that number.

No, there's no negative adjustment on cost of revenues.

We had some cost of revenues associated with the lawyers that work -- principally in Europe and Asia where they don't work on a contingency basis, they work on a time or a fixed fee basis.

As a side bar, the fixed fee basis that we do have in Europe is considerably lower than the fixed fee basis engagements we had in the United States in 2015.

But there is no negative adjustment or anything in the fourth quarter.

Okay.

And then lastly, could you give us a little color on what might be going on, on the capital front in terms of sources of capital?

We don't have any plans to do any capital raise.

Obviously, the last time I said that proved to be wrong.

So I want to be careful with that.

We're operating as we normally have and we expect to generate cash flow from licensing deals.

I mean, we've been very active over the last 2, 3 weeks.

But we don't have any -- we have no plans at this point to do a capital raise at all.

Our next question comes from the line of Jeff Feinberg with Feinberg Investments.

Thanks for the update.

I heard the commentary about the dramatic increase in the number of patents, and the press release about the enthusiasm about the success and the focus on collecting on those.

Can you please give us some perspective?

Just as you had very nice growth 2016 versus 2015, how we should be thinking about financial goals or aspirations 2017 or beyond?

So we expect revenues to fall in the $40 million to $50 million range for the calendar year.

Our expectations is that -- that our earnings will be slightly higher than they were in 2016 as well.

Beyond 2018, looking at 2019, it's pretty hard to predict going 2 years out.

But if I had to predict, I would guess that we would probably have another up year in revenue and in non-GAAP earnings per share, which is really the most meaningful measurement of our performance.

But at this point, outside of knowing that it will be a up year on a revenue basis, it would be difficult to really narrow that range.

What will help us narrow that range, and we will be able to narrow the 2018 range, probably later, maybe Q -- our Q2 call in August, will be the performance of Dynamic Advances and the performance of our oil and gas portfolio.

Those portfolio have licensees that will likely occur in calendar year 2018 and when we see performance in 2017, we can extrapolate in the outyear.

Okay.

Can you give us some perspective if you were to have just the sensitivity of the business model.

If you were to have $50 million in revenue, which given the growth we just had the past year, to $36 million, $37 million, would seem very conservative.

But using that as a base, what type of EBITDA would that equate to for the company?

So as a framework or a benchmark, this year we did operations, or cash flow from operations, which is a comparable in the $10.2 million range.

The -- because of the sensitivity in our business and a relatively static overhead, more will fall to the bottom line.

So on $36 million this year, we did approximately 33%.

I would anticipate if we did $50 million, that number would be 38%, 39%, 40% on an operating cash basis.

Okay.

So hypothetically we hit that?

It looks like if I'm doing the math correctly, based on the market cap of $18 million, $19 million and a similar amount of debt, we'd turn roughly 2 times that if I'm doing the math correctly.

Effectively, yes.

Okay.

Thank you very much.

Our next question comes from the line of [Jim Jacob], a private investor.

My question, and I don't know if you mentioned it or not, but what is the current clarity that we all can have on 3D Nanocolor and what your plans are with that?

Jim, so we're actually in discussions right now with some investors to essentially buy that company, the subsidiary from us.

I can't really get into the terms.

We are prohibited through the nondisclosure and confidentiality provisions that we've signed.

But we've been actively pursuing -- we want that to grow.

We don't want to fund the growth.

And we think we have a unique set of investors to help us do that.

But at this point, we really are limited as to what we can say based on the NDAs that we've already signed.

Well, would that possibly be just an outright sale?

Or could there be a revenue stream going forward like some sort of a royalty stream to Marathon?

It would be kind of a combination of both, we believe.

But again, it's -- we're not through those negotiations.

So it's hard to say what will happen in the future.

But that's certainly our -- we don't want to cap our upside, let me say that.

Okay.

I mean, would you consider this if it was a sale or whatever you do, I understand the confidentiality, would this be a material item?

Not immediately, but hopefully over time, it would be.

Okay.

All right.

Well, thank you for the conference call and being available.

Our next question comes from the line of [Matt Rockman], a private investor.

There was a talk in the past about expanding into China.

Just wanted to see if you guys had any color or any updates on the company's position in China, whether or not we're going to continue to pursue that territory, with respect to patent enforcement and monetization?

Thanks, Matt.

As a matter of fact, we are working -- quote-unquote, working in China.

I mean, we're not physically there, but we're working through some consultants -- some legal consultants in China on a daily basis.

A lot of our soft licensing discussions had started, I don't know, 4 months ago -- 3, 4 months ago and are continuing on a daily basis, including today.

So we are already active in China.

We have not yet filed suits in China, but we are actively pursuing license outside of litigation.

And like all conversations that we have both in the U.S. and in Europe, if those soft licensing discussions slow down or we don't think are materializing at the pace that we believe they need to be, then we always have the ability to file suit.

But, so far, those conversations have been going at a pace that we believe we -- that, obviously, we don't have to file suit, but if they -- if that changes, then we certainly are prepared.

And we have a legal team in place and engagement agreements in place to do just that.

But so far, we've been able to have meaningful conversations and avoid filing litigation.

Got it.

All right.

Great, thanks.

Also, I guess, same type of question with respect to trademarks.

I know we had talked in the past about exploring opportunities with trademarks.

Are we going to continue to explore those?

Or is the company really now, for the short term, laser-focused on monetizing the patents we do have rather than exploring kind of new alternative revenue streams?

Yes, so through our daily conversation with corporations who are looking to monetize intellectual property, oftentimes, the conversation will include trademarks and brands, which is another form of intellectual property.

And we had conversations with a large company, I guess, probably started about a year ago, that included a potential brand and trademark sale.

That deal kind of slowed down towards the end of the year and then it kind of picked back up again just about 30 days ago.

And while we're not out -- I mean, look, we're not out aggressively exploring those opportunities.

Those do come to us, and when they come, we will definitely have that conversation.

That particular trademark and brand, we're still having that conversation, and we're hopeful that something will conclude, but we're not quite at the finish line with that one.

And as far as other opportunities, when they're brought to us, we definitely take a look at it.

And if it makes financial sense, we will potentially pursue it, but we're not actively pursuing those opportunities like we are with patents.

But we're certainly open to those opportunities, and we think it's a great -- look, there's a lot of similarities in licensing IP whether it's a patent or a trademark, and we think that our skill sets can be transferred from one to the other.

And as those opportunities present, when the right one presents itself, and it doesn't require a large capital outlay, we will move forward with that opportunity.

We just haven't gotten the one from last year over the finish line, albeit we're close, and we don't have anything else really in the queue that is nearly as close to finished as that particular one.

And if that does close, that would obviously be something that we would announce publicly.

And we're hopeful that we get there, but nothing to report at this point.

Great, thanks.

Last question.

The projected $40 million to $50 million for 2017, do you have a rough number of kind of licenses that the company will do to achieve that?

I guess, what I'm getting at is, are we looking at kind of 2 or 3 big licenses in the oil and gas and the Dynamic Advances portfolios?

Or do you think it's going to be -- or 10 to 12?

Is there any kind of projection you can give us in terms of kind of the number of overall deals that you anticipate doing?

So we can get there a number of different ways.

It's not -- I mean, we don't need -- it's not the bottom of the ninth, we need a home run to win the game.

I mean, we can get there through a number of different vehicles.

We have, obviously, a lot of assets that will help us achieve those numbers.

So yes, look, we could get there with a single license and we can get there with 10 license.

And there's combinations within those -- between those numbers as well.

So it's not a path.

There are multiple paths that can get us to that number -- that range, I should say, which gives us the comfort to give you that range.

All right, great.

Good luck this year.

(Operator Instructions) Our next question comes from the line of Hugh Cohen with Applied Financial Research.

Can I talk to you a little bit about the $40 million to $50 million in revenue?

Now you've mentioned that you're going -- you're changing how you're doing business.

You're going to a recurring revenue scheme.

How much of that do you think is going to be in the recurring nature?

It's really hard to predict, Hugh.

I mean, our goal would be for a majority of that number to be recurring, but at the end of the day, the recurring element could still be within a calendar year.

It could be on a quarterly basis.

So it's tough to give you guidance on that.

I mean, our -- my expectation is that about maybe 50%, maybe slightly more will be recurring in nature, which helps to set up, obviously, for the next calendar year.

But again, it's difficult to give you guidance beyond the 50% to 60% range.

So really where I'm getting at is, the contracts that you anticipate signing, will likely be a lot more than $40 million to $50 million.

That's correct.

And do you have any estimate of what the total contract value would be because it doesn't seem that it would be all that difficult for it to be twice that number?

That would be correct.

So you're really talking about a very conservative number when you say $40 million to $50 million in revenue this year when these contracts are multiyear?

It depends on -- I mean, look, I want to be careful here because we haven't signed multiyear contracts.

I think we had one that we've done in the past.

And that was really on a parts per piece or per parts made basis.

So yes, but you're right.

Look, we think that the booked revenue versus revenue, obviously, is going to be higher.

How much higher depends on whether we're stretching that out over multiple years or whether we're stretching that out over multiple quarters.

And for accounting purposes, you're not counting the revenue until you actually receive it, not when you sign the contract?

That's correct.

Okay.

So really your announcement today is a lot more than just what you're saying is what really it strikes me to be.

So it really is a substantial announcement.

Where are we on cash today?

We ended the year at $5 million in cash versus $2.6 million the prior year and --

And do you have an idea where we are right now?

I do.

We haven't announced it.

We'll be announcing it in 6 weeks with the 10-Q.

But we do anticipate as a base or a framework that cash flow from operations and existing cash on hand will suffice to make it through the year.

Okay.

Now the company has a line of credit, doesn't it?

It does.

And does that provide -- do we have access to it?

What's going on with that?

The line of credit is with Fortress.

We talk to them on a weekly basis.

But look, our goal is not to -- my goal is not to bring on any more debt.

My goal is to simply operate the company and generate cash flow to pay down the debt.

So -- but, look, if we see great opportunities and we absolutely want to close on something, we'll figure out a way to finance it.

But at this point, we have filled our coffers with patents.

We have a lot of opportunities ahead of us.

And it's -- and frankly, there was a comment made earlier today that I said that it is time to harvest what we have.

And so we are buckling down, and we're focused on licensing and generating revenue through those license and generating free cash flow through our operations.

But yes, we do have a line of credit with Fortress.

And in the event that you needed it, that would be a lifeline if the company should need it?

It's one lifeline that we have access to.

Correct.

In previous call, you were asked to compare the Siemens portfolio with the GE portfolio.

And I think you said you preferred the Siemens, but you hadn't had a good chance to look at it.

Is that still your feeling?

I don't think I said that.

If I did -- I like all of our portfolios equally for different reasons.

So I'm not sure -- I'm not sure anybody can really draw a comparison between 2 portfolios.

If you think about it, those -- patents are very unique from one another or they wouldn't be a patent.

So it's tough to really compare.

They're just -- they're very different.

One has got obvious mass with it.

The other has Standard Essential Portfolios that read on very specific products.

So it's just -- it's hard to really compare.

And when you think about the 2 companies that actually innovated and invented those assets, I mean, Siemens is a 100-year plus company as is GE.

So you can't, I mean, it's just really difficult to compare between those 2.

Okay.

One last question.

All of these patents that you have, the Dynamic patent, the Signal patent, just to name 2 that you've started off.

You put them into different portfolios, into different subsidiaries.

Why is that?

Well there's tax reasons, accounting reasons, legal reasons.

There is -- ease of tracking, who gets what payment based on settlement.

There is reasons for settlement discussions when you have defendants that might be sued from one or multiple portfolios.

There is a plethora of reasons for doing that.

And just -- there's almost no reason not to do it any other way.

Would it provide any protections to the company in the event of a bankruptcy?

I don't --

At the subsidiary level, yes, theoretically.

We maintain corporate standards for each of the subs, separate bank accounts, all that sort of thing.

So to the extent that there were a truly adverse ruling in one of them, it is designed and would reasonably be expected to provide protection to the rest of the subsidiaries and the parent company.

But if the parent were bankrupt, I don't know how that would necessarily provide any protection.

Thanks.

That's it.

Appreciate it.

Our next question comes from the line of Jeff Feinberg with Feinberg Investments.

Just a couple follow-up questions.

I know going back a few years ago, at the initiation of the entity, there was a perspective given in terms of cumulative revenues.

Obviously, the portfolio has grown dramatically since then.

Do we have any perspective upon sort of cumulative revenues at this point in time?

We haven't really looked at it on a cumulative basis, Jeff.

I mean, we're looking obviously, 1 and maybe 2 years out.

It's hard, I mean and here's the reason is that -- for example, natural language processing, 3 years ago, when we started the suit against Apple, there wasn't a lot of companies in this space.

And if you look at the growth of some of the products and some of the companies that are now in -- whether they call themselves artificial intelligence or whatever the term is that they're using to market themselves, that industry has grown tremendously, not just from a handset and a consumer standpoint, but also into industry, supply chain, customer relations management, software systems.

I mean, it's starting to really pervade multiple industries.

So it's hard for us to sit here and say we think our assets will generate X millions of dollars over Y years because we don't know how far that -- we don't know how big the industries can grow to become.

But I feel comfortable in saying that we're certainly going to be -- we certainly think over the next 3 years, 4 years, we should be generating $200 million, $250 million in accumulative revenue, just based off where we think the industries are growing.

So -- but we don't really sit here and say, okay, let's project and predict the growth of oil and services or the growth of Internet of Things or the growth of artificial intelligence and natural language processing.

It's very hard to do.

I mean, I know Gartner and other companies out there make a living doing that, but I'm not sure I can -- I'm not sure I'm smarter than they are, frankly.

And for us, we really look -- we don't look -- we don't take the top-down approach.

We really take the bottom-up approach.

We look at a specific patent.

We look at specific products that are using our invention, and we figure out what a royalty rate is and a damages model and a fair settlement value is from the ground up.

It's a much easier way to manage the business than to really kind of take a top-down approach.

But I mean, we think we have --

That's very helpful.

You've, obviously, just by the magnitude of growth that you've been very conservative in your estimates here.

Correct.

Okay.

Well, you've got some extraordinary partners in GE and Siemens.

And a lot of people who've come to support you in the past (technical difficulty) like myself.

I'm very excited and looking forward to doing so prospectively.

Thank you, Jeff.

Our next question comes from the line of Bill Nasgovitz with Heartland Fund.

What's your NOL and exactly how many shares do you have outstanding?

So we have 19.3 million shares outstanding.

And the answer to your NOL question is twofold; book and tax.

So for the year ended 12/31/16, we took a full valuation allowance against the NOL on -- for book purposes.

To the extent that book and tax differ, as it does in this instance, the tax NOL is in the $15 million range.

Okay.

(Operator Instructions) We have reached the end of our Q&A session.

I'd now like to turn the floor over to Doug Croxall for closing remarks.

Well, I'd just like to say thank you to everybody, who has stood by the company over the years.

We're really proud of what we did in 2016.

We look forward to delivering even better results in 2017.

And we will hopefully be speaking to everybody in a matter of 6 to 7 weeks on our Q1 conference call sometime in mid-May.

Thank you.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time and thank you for your participation.