Marathon Patent Group (MARA), the patent licensing company run by CEO Doug Croxall, posted a much wider net loss of $4.78 million in the first quarter as expenses for amortization of patents and other items outstripped lower than expected revenue.
Los Angeles-based Marathon’s loss per share of 34 cents was double the 17 cents expected by analysts, and compared with a net loss of $281,606, or 3 cents a year ago.
Expenses for patent amortization and the website totaled $2.6 million, up from $453,647, a year ago. Compensation expenses doubled to $1.58 million from $729,987. Consulting fees also doubled to $869,543 from $428,107. Professional fees tripled to $769,615 from $256,855.
Marathon CFO Frank Knuettel said on a conference call with investors that the increase in costs was linked to a flurry of activity to close discovery in a number of cases and preparations for new ones.
He said the company expects to recover the expenses when it reaches future settlements.
Revenue from settlements totaled $4.1 million, which also was less than consensus revenue estimate for the quarter of $6.35 million, versus $2.78 million, a year ago.
Marathon said licensing revenue came from 13 agreements across 25 licensees. That means on average Marathon earned only $315,384 per agreement.
The revenue figure isn't a big surprise because "no one really knows what to expect," James McIlree, an analyst at Chardan Capital Markets, said in a phone interview.
"The thing that strikes me about this company is how it's been changing over the past 12 months," McIlree said. In the past, Marathon was known for producing "home runs and singles and doubles."
Today, Marathon is "relying much more on home runs than in the past and that's risky. As we've seen this past year, the bigger the settlement, the more the defendant fights it."
In a note to investors before the earnings were released, McIlree said that over the past six quarters Marathon’s average settlement has been about $1 million.
During the quarter, Marathon announced six settlements including two by TLI Communications with Photobucket and SmugMug, two by Vantage Point with SugarSync and 14 other defendants, and one each by Selene with Alert Logic and by Signal IP with Volvo Cars of North America.
Croxall said in a statement that the first quarter revenue "represented our second best quarter to date."
"Since the beginning of the 2015, we have already had four Markman hearings covering 31 defendants. Throughout the remainder of 2015, our subsidiaries have an additional six Markman hearings covering 14 defendants, along with three US trials covering four defendants and nine German trials covering 12 defendants. We believe the current Markman and trial schedule for 2015 and 2016 have the potential to trigger significant revenue events."
Marathon said its cash and cash equivalents at the end of the quarter was $9.5 million, versus $5.1 million at the end of 2014.
“It took a lot of debt to get there,” McIlree said in the interview.
In February, Marathon announced that it received $15 million in secured debt financing from Fortress Investment Group and an option for up to $35 million more for use in patent monetization activities.
Shares of Marathon gained 24 cents or 4.62% to $5.44 in trading today.
McIlree said in his note that the TLI settlements with SmugMug and Photobucket were fortunate since U.S. District Court Judge T.S. Ellis in early February granted a consolidated motion by 20 defendants to dismiss because the image recording patent in dispute was invalid for lack of patentable subject matter. Marathon is appealing the decision.
The Selene settlement with Alert Logic was the fifth for the Marathon unit and means only 6 of the original 27 defendants are still in litigation. Three defendants are left for Vantage Point down from 37.
Volvo marked the first settlement for Signal IP, which originally was seeking some $1.4 billion to $1.6 billion against 15 car makers. The Marathon unit had sought between $13 million and $14 million from Volvo in the suit.
McIlree said the Signal IP case remains an important source of potential revenue because of the size of the remaining defendants.
The remaining defendants and amount Signal IP was originally seeking in the complaint were: American Honda Motor Co.($201 million to $223 million), Kia Motors America ($133 million to $148 million), Mazda ($63 million to $70 million), Mitsubishi Motors North America Inc. ($6 million to $7 million), Nissan North America ($151 million to $167 million), Subaru of America ($28 million to $31 million), Chrysler Group LLC ($154 million to $170 million), Ford Motor Co. ($304 million to $336 million), Jaguar Land Rover North America LLC ($20 million to $22 million), Mercedes-Benz USA LLC ($120 million to $133 million), BMW of North America ($104 million to $115 million), Volkswagen Group of America ($132 million to $146 million) and Porsche Cars North America ($23 million to $25 million).
The patents at issue in the Signal IP case cover blind spot monitoring using radar, seat weight sensors used in airbag deployment methods, object sensing in adaptive cruise control, occupant detection for air bag deployment, tire pressure monitoring and keyless entry control.
In other news, Croxall said Marathon had reached a deal to acquire a patent for a tire pressure monitor from a German seller, which will be announced tomorrow. He said the patent is scheduled to go to trial in a first case next month and a second one in September.
He said Marathon will have the ability to expand its infringement campaign to other defendants.
"In theory the tire pressure monitor patent would bolster what they have already," McIlree said. It sounds like "a very interesting patent in a very large market," he added.
To reach the reporter responsible for this story, contact Dan Lonkevich at 707 318-7899 or at firstname.lastname@example.org