XWELL Inc (XWEL) 2011 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Vringo's second quarter 2011 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions).

As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. Darren Minton from Trilogy Capital Partners, Vringo's Investor Relations firm. Thank you, Mr. Minton, you may begin.

Thank you, Manny. And thank you to everyone who has joined us today for Vringo's second-quarter 2011 earnings conference call. I'm joined here today by Jonathan Medved, Chief Executive Officer; Andrew Perlman, President; and Ellen Cohl, Chief Financial Officer.

There are a number of items that we look forward to discussing with you this afternoon, including Vringo's financial results for the second quarter ended June 30, 2011, recent developments in Vringo's business development and contract pipeline, as well as Vringo's plans for the future. At the conclusion of this call, we'll be answering a few questions during a brief Q&A session.

I also want to bring to your attention that a webcast and replay of this conference call is available by following the link contained in the bottom of Vringo's earnings release earlier today, and will be available on Vringo's website, ir.vringo.com.

Now, before we get started, I'll take a moment to read the Safe Harbor statement regarding today's conference call. This conference call will contain forward-looking statements within the meaning of the US federal securities laws concerning Vringo, Inc., forward-looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially.

Please refer to the Company's filings with the SEC, which contain and identify important risks and other factors that may cause Vringo's actual results to differ from those contained in our forward-looking statements. All forward-looking statements are made as of today, August 15, 2011 and Vringo expressly disclaims any obligation to revise, or update any forward-looking statement after the date of this conference call.

Now with that, I'd like to start the call with a few words from Vringo's CEO, Jon Medved. Jon?

Thanks, Darren, good afternoon, everyone. And we again, really appreciate your taking time to join us in today's call, our second quarter 2011 review. I'll first provide a quick overview of Vringo for the benefit of some new followers.

Vringo provides a range of software platforms for mobile video applications and video ringtones. The mobile social and mobile video markets are really growing at a rapid rate. According to the Yankee Group, mobile video services will drive $24 billion in revenue to mobile operators worldwide by 2014. According to Cisco, mobile video data usage is expected to grow at over 100% compound annual growth rate from 2009 to 2014.

To date, we have developed four different mobile video application platforms. Our video ringtone platform, our Facetones platform, our Video ReMix platform, and our reality TV Fan Loyalty platform. While we initially started as a video ringtone company, we have leveraged our intellectual property, our technology, and partnerships to increase our product offerings to this expanded variety of mobile video product platforms addressing larger markets. We plan to develop more mobile social and video application platforms and to acquire additional product functionality and services via acquisitions.

Regarding potential acquisitions, you may have seen our recent announcement that we signed a letter of intent to acquire and merge operations with Zlango, Ltd., a global leader in visually enhanced text and mobile messaging solutions and services. This represents our further expansion into the broader context of social and mobile applications, where we are bringing together the best of mobile personalization, both for video and the phone call, as well as now for messaging and text.

Remember that mobile text and messaging are truly huge global markets that according to Portio Research are estimated to exceed $210 billion in revenues in 2011, and are supposed to be growing to over $330 billion revenues by 2015, or approximately 10 times the size of the mobile video market. We're excited about our plans to soon attack those markets.

Our current flagship product is our video ringtone platform that enables users to create, download, and share mobile entertainment content in the form of video ringtones for mobile phones. We believe that our comprehensive video ringtone service represents the next stage in the evolution of the ringtone market from standard audio ringtones to high-quality video ringtones with built-in social networking capability. Our solution enables users to create, download, and share video ringtones with ease. Furthermore, it provides our business partners with a consumer-friendly and easy-to-integrate monetization platform.

We have recently developed three additional mobile application platforms. Facetones, a visual ringtone experience based on our integration with social networking sites such as Facebook, which automatically generates a slide show each time a subscriber makes or receives a call. Video ReMix, an application that enables the user to create its own music video on a smartphone or a tablet in partnership with music, artists and brands. And reality TV mobile Fan Loyalty platform that lets users interact, vote and communicate with contestants in reality TV series, and even set their performances as video ringtones.

In the beginning of 2009, together with mobile carriers and other partners around the world, we launched our first paid video ringtone service in a subscription-based model, where users pay a monthly fee for access to our service and additional fees for premium content. As of today, we have approximately 320,000 total subscribers of our commercial video ringtone services, of which over 290,000 are paid subscribers.

On a blended rate basis, we're now averaging about $0.14 per subscriber, per month. We anticipate that our monthly monetization figure per subscriber for this video ringtone service will increase as we move to the more lucrative markets of Europe and North America.

We have built an important initial team of partners around the world for our various product platforms. We have launched our video ringtone services to date with eight partners, including leading carriers and partners, such as Orange in the UK, Maxis in Malaysia, StarHub in Singapore, Etisalat in UAE, and Hungama in India.

Our Fan Loyalty products has been initially released with Nokia and Rotana in the Middle East. The application features exclusive content and fully integrated live voting capabilities for the Blockbuster Star Academy Reality Music Show, which reaches over 300 million viewers in 17 countries in the region.

Our Video ReMix was recently launched with Heineken. Video mixes created on this platform can be played, shared, and posted across social media and the web on YouTube and Facebook. We have also recently released our new Facetones service with Telefonica in Spain and South America and with NTT DOCOMO in Japan with other important announcements expected shortly. We have a vibrant business development pipeline and we are pursuing additional agreements with mobile carriers, brands, handset manufacturers, and other partners over the coming months.

We have invested more than $25 million to design and market our product platforms. We have filed 26 patent applications for our intellectual property, two of which have already been issued to date in the US. We continue to vigorously create new intellectual property.

We are now focusing primarily on monetizing our applications and driving revenues and ultimately profits, while we are an early-stage small cap company with limited awareness in the capital markets. We believe that as we more effectively tell our story to the Street about the exciting markets that we're addressing, the differentiated product platforms that we have developed, and the deals we have already made in the mobile video arena, investors will find Vringo an ultimately compelling story. As those who have been following the Company can attest, we've been very active in signing up new deals and partnerships across various continents, as we put in place a strong platform for our future growth.

Just a few weeks ago in July, we announced that prominent venture capital firms Benchmark Capital and DAG Ventures led an investment round of $2.5 million in convertible notes to Vringo. These leading Silicon Valley venture capital firms have previously invested in such leading technology companies like eBay, Twitter, Zipcar, Juniper, RedHat, AdMob, Plaxo, Segway and Yelp.

They don't often invest in public companies such as Vringo, and we are delighted that they have chosen us as an investment partner. This investment from such leading venture capital firms not only leverages Vringo's strong portfolio of mobile social and video applications, but also validates Vringo as a new leader in the mobile social arena.

In connection with the investment, Vringo announced that it has entered into a letter of intent to acquire and merge operations with Zlango, Ltd., a mobile messaging company. Zlango's exciting media messaging services can effortlessly add icon, scenes, and images to standard text messages, creating an interactive social messaging experience for users.

Zlango has over 4 million users, who have collectively sent 8 billion icons to date. Zlango services have been primarily provided users for free, and they have not really monetized these popular services, which we think have a promising future as a potential revenue generators. The combined company intends to leverage Zlango's rich media messaging services, together with Vringo's strong portfolio of mobile social and video applications to create a new leader in the mobile social arena.

While we are not providing specific guidance on our revenues and earnings, we anticipate that our top-line revenue for the remainder of 2011 will continue to grow at a strong pace due to organic growth and increased consumer uptake -- new launches with new partners, new product introductions involve potential acquisitions, including the Zlango transaction. We intend to hold the line on operating expenses as we drive to break even and ultimately profitability.

I will now turn over this call to Andrew Perlman, Vringo's President, to summarize some of the highlights of our 2011 second quarter. Andrew, please go ahead.

Thank you, Jon, and welcome, everyone. I'm pleased to provide this business update. The number of subscribers in our 11 commercial launches totals approximately 320,000 to date, representing a 55% growth rate so far in 2011, up from over 200,000 subscribers as of December 31, 2010.

As we have successfully launched our services in markets such as the UK, as well as in the huge Indian market together with Hungama, which has relationships with 15 Indian mobile operators, and anticipate additional major near-term launches in other European, North American and Asian markets, we believe that our subscriber base and revenues will grow at a more rapid pace.

As we have discussed in previous calls, we are pleased with our success in Malaysia, where our nearly 265,000 subscribers represent an approximate 5% penetration of our partner Maxis' data connected subscriber base, and we believe that we can achieve similar results elsewhere.

We have been operating our video ringtone service with a number of other carriers such as Etisalat, Orange UK, and Hungama, the biggest aggregator of digital content in the massive Indian market. All three of these launches are experiencing solid and steady paid subscriber growth of well over 20% on a month-to-month basis. We have continued to build value for our business and our partners, and we'll continue to launch new versions of the video ringtone platform with additional partners soon.

We are particularly excited about our new Facetones social ringtone platform for the fast growing Android operating system. Vringo's innovative Facetones product represents a breakthrough in combining social networking functionalities from sites such as Facebook with video ringtones in a new and exciting way.

Facetones works by automatically synching a user's Facebook and other social network connected friends with an Android phone's address book. Then we utilize Vringo's patent pending video call handling technology to display a video slideshow of a user's friend's most recent social picture postings on the phone each time the user calls or receives a call. It's like getting a visually exciting network update each time you use your phone.

First launched on the Android market in May, Facetones has recently been integrated with multiple mobile operators, who host the application on their proprietary mobile app stores. Vringo's Facetones application was launched with BlueVia, the global developer platform for Telefonica, the largest speaking mobile operator in the world with over 290 million customers. In addition, Facetones was recently launched in Japan for Android users through the DOCOMO market, a mobile Internet portal operated by NTT DOCOMO, the largest mobile phone operator in Japan with over 50 million customers.

We believe that Facetones represents a critical new business area for Vringo, both as a paid subscription-based premium service, together with the carrier and other partners, as well as a direct-to-consumer, free-ad-supported product. We hope to soon be able to share news with you about additional exciting new partnerships, and customer uptake, and monetization for this dynamic product.

I also want to update you on our progress regarding our new Video ReMix platform. We initially launched the Video ReMix platform with Nappy Boy Enterprises, the music, and management company for the artist T-Pain. The Video ReMix platform allows the user to download an application for iOS, iPhone, iPad, and iPod, or Android, and create their own music video by tapping on a variety of music feeds and video files. Essentially, the user is able to remix this video content and add his own user-generated video to the mix, and then view this content, or share it with friends via Facebook and other social networks.

We have recently developed multiple versions of the Vringo Video ReMix app in a paid sponsorship by Heineken. This Heineken Star Mix HD product was used by Heineken to interact with customers and fans at a music festival, and we intend to continue to work with Heineken and other brands and artists to further develop our remix platform.

Vringo also recently launched the first application of its new Fan Loyalty platform via an ad-supported service tailored for Nokia mobile devices in partnership with Rotana, a diversified media company and the largest producer of music and music television in the Middle East.

The application features exclusive content and fully integrated live voting capabilities for the blockbuster Star Academy reality music show, which reaches over 300 million viewers in 17 countries in the region. Vringo's launch of the Star Academy product represents an important new business model for Vringo as we hope to integrate the Fan Loyalty platform into various products with content partners around the world. Separately, it demonstrates how we are working with handset partners to help them provide exciting and unique digital content experiences.

Let me quickly review the key financial numbers, and I'll discuss some of the key operational achievements of the second quarter. Then we'll discuss management's key goals and operational metrics as we move further into 2011.

Revenue grew at about 54% sequentially to $227,000 for the quarter ended June 30, compared with $147,000 for the quarter ended March 31. For the year-ago period, the $227,000 at June 30, 2011 represented a 416% increase compared with $44,000 in the second quarter of 2010. This growth, while significant, remains off a low base and we recognize that.

As Jon stated, the key to future growth will be to grow our existing services, particularly those where we are new to market; launch in new territories, particularly the US, which remains the world's largest commercial market; and develop and acquire new products and services. We are confident about our prospects in these key expansion areas based on the initial positive results from our early launches and customer and partner reaction to our exciting new services such as Facetones.

The gross margin for the second quarter, that is revenue less cost of revenue, was $182,000, compared to $10,000 in the second quarter of 2010. This growth reflects higher utilization of the fixed base of costs required to operate our service. We expect to continue to improve our gross margins as we scale the business and our number of commercial subscribers.

Operating loss in the second quarter remains flat at $1.7 million, as compared with the second quarter of 2010. This reflects primarily the increase of revenue, a lowering of R&D expense, and the concurrent increase of G&A expense pursuant to merger and acquisition activity, and non-cash costs relating to the fair market valuations of stock options.

In June, we entered into a settlement agreement with Vringo's lenders to reduce the amount due under the loan, which we have been carrying. We subsequently paid off the entire reduced amount of the loan, resulting in a gain of $963,000.

Our net loss in the second quarter decreased to $1.5 million, as compared to approximately $4.6 million in the same period in 2010, an improvement of 67% relating to a gain on restructuring our venture loan, operational cost reductions, and the absence of one-time non-operating expenses recorded in Q2 2010, triggered by our initial public offering.

On a per share basis, net loss fell dramatically, about 95% to a loss of $0.26 per basic and diluted share in the second quarter of 2011, compared with a loss of $5.20 per basic and diluted share for the second quarter of 2010, mostly as a result of several factors including a decrease in our net loss, an increase in the weighted average number of shares, our revenue growth as discussed, plus our almost $1 million gain deriving from the restructuring of our venture loan.

The weighted average number of shares increased dramatically due to our 2010 end-of-quarter IPO and related reverse stock split. The weighted average number of shares increasing from 887,567 in the second quarter of 2010 to approximately 5.8 million shares at June 30, 2011. We exited the second quarter with about $1.5 million in cash, or roughly $0.25 per share of cash, based on roughly 6 million shares outstanding at June 30.

Subsequent to the quarter end, we further strengthened our balance sheet by repaying the reduced amount of the venture loan in full per the settlement agreement. Our venture loan had a pre-restructuring balance of $2.7 million and a $1.5 million balance at quarter end, which amount was fully repaid in 2011. Further, in July 2011, we closed a private placement of $2.5 million of convertible notes led by leading venture capital firms, Benchmark Capital and DAG Ventures. These venture capital firms have expressed interest in participating in a future round of financing coincident with the confirmation of our acquisition of Zlango.

Now I'd like to discuss some of the recent operational accomplishments at Vringo during the second quarter. In Q2, we launched with Hungama in India, the Vringo-Hungama service is currently available to a potential 500 million subscribers with 15 Indian mobile operators, including Reliance, Bharti Airtel and Tata.

We released Vringo's Facetones product as a paid data on the Android market. We preloaded Vringo's video ringtone platform on the INQ Cloud Touch social smartphone with The Carphone Warehouse and Best Buy UK. We entered into a settlement agreement with Vringo's lenders to reduce the amount under its venture loan. We launched a version of the Video ReMix platform of Heineken, and we launched Facetones with Telefonica, the largest Spanish speaking mobile operator in the world with over 290 million customers.

Subsequent to the quarter end, we are pleased to announce several additional milestones, including the fact that we have consummated a private placement of $2.5 million led by prominent Silicon Valley venture firms, Benchmark Capital and DAG Ventures. We announced a letter of intent to acquire and merge operations with Zlango.

We repaid in full the amount outstanding on the venture loan per the settlement agreement described above. We launched the first application of Vringo's new Fan Loyalty platform, in collaboration with Rotana and Nokia. And lastly, we launched Facetones in Japan for Android with NTT DOCOMO, INC., the largest mobile phone operator in Japan with over 50 million customers.

As we look to the end of the year, we are excited about potentially closing the Zlango transaction, launching our new platforms, and expanding our reach. This is a very exciting time in Vringo's development. We believe we can leverage our existing early successes and quickly ramp-up the size of the business. We appreciate the strong support we have received from shareholders and look forward to keeping you updated on our progress and developments as we work through the year.

That wraps up our formal discussion. Operator, we will now open the call for Q&A. After the Q&A, we will provide some closing comments.

(Operator Instructions). [Mark Warnick], a private investor.

Great Company you guys. I have a question for you in terms of where the Company is marketing its products and technology. In what countries aren't you -- I'm reading through the press release as you've managed to penetrate almost every foreign market it appears. What's still on your radar screen at this point?

Well, it seems that way, Mark, but we are still not yet everywhere. In particular, you might notice that we're not really in China. We have just started in Japan. We're not in Korea. We're not yet in Taiwan. We're not in Russia. You know there are a large numbers throughout Europe other than initially now in the UK, and places like Spain with Telefonica. We're still not well-covered in Europe. Haven't done that much in Africa, which is an interesting market. Just getting started in Latin America. And US, of course, is still our big greenfield.

And so while we've been active and we're getting a lot of frequent flyer miles, and we are definitely, for a small company, I think doing quite an ambitious pipeline of business development activity, we still have a lot of territories, which we're going to be covering shortly.

Great, thank you very much.

(Operator Instructions). [AJ Lynam], a private investor.

Good afternoon, everybody. Great news on everything, and I'm proud to be an investor as well. I'm playing off that last question about the United States of America being the greenfield. There's a lot that I understand about this and certain things that I don't. But I'm an iPhone user and I keep seeing these commercials on AT&T, which allow people to talk on one thing and flip through their different applications on their iPhone on something else. I mean, does Vringo have anything that might be a solution to that for perhaps like Verizon or somebody that competes with AT&T?

Well, without getting into too much detail, let's just say that Verizon, based on our understanding is the largest provider of Android-based handsets in the US market. We all saw today the news about what's going on with Google and Motorola. There's a lot of activity and interest in the Android platform. And again, we are focusing very much on that Android operating system, which is the fastest growing operating system for smartphones in the world, and I would look to see Vringo doing interesting things with Android in the US market soon.

Yes. I mean, I was also following that news with the Motorola deal as with Google, and they kept mentioning Android, but I thought there was a big Microsoft market with these iPhones as well.

Yes. This is a very interesting time to be in the mobile business, that's all I can tell you. I think that competition is great, and it's a wide-open horse race, nobody dominates anything. And we're looking forward to playing with a lot of these various partners. We have always taken the attitude that we will provide our applications on as many of the leading platforms as we can, and I think you'll continue to see us do that.

Well, I certainly keep investing because I have a great belief in this Company. Thanks for taking my question.

(Operator Instructions). We have no further questions in queue at this time. I would like to turn the floor back over to management for closing comments.

Thank you, operator. To recap and summarize, again, let me say that we're pleased with our results for the second quarter of 2011 as believe that we have set the stage for Vringo's future growth. We have begun to monetize our software platforms with partners around the world. Our subscriber base has grown substantially. We have developed and are launching additional software platforms in addition to our original video ringtone flagship product. And with the proposed acquisition of Zlango, we are moving into the exciting mobile messaging market and establishing what we hope will become a new leader in the fast growing mobile social arena. With our robust product platforms and our partnerships in place, we believe that we are well-positioned to capitalize on this market, while remaining firmly committed to enhancing shareholder value. We thank you for your time today and we look forward to updating you on further developments soon. On behalf of the entire Vringo management team, I want to again thank you for joining us today. Thank you, operator.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.