geodan
7 years ago
SA article Leonard
https://seekingalpha.com/article/4175151-wall-street-missing-networkminus-1-technologies-glad
Wall Street Is Missing Out On Network-1 Technologies, And I'm Glad
May 17, 2018 1:43 PM ET|19 comments | About: Network-1 Technologies, Inc. (NTIP)
Robert Leonard
Robert Leonard
Value, long/short equity, small-cap, special situations
(318 followers)
Summary
First quarter results met, and exceeded, estimates discussed in my previous article.
Network-1 continues to trade at a significant discount to their intrinsic value, with no debt and minimal downside risk.
Stock is currently trading at about $2.75, with about $2.70 ($2.30 net cash) in cash per share on the balance sheet.
In today's market environment, it is very difficult to find a true value play, with a large margin of safety. Network-1 Technologies (NTIP) provides investors with just that opportunity. Wall Street hasn't caught on yet, which I am glad about - it allows me to obtain a sizable position before they catch on. I am happy to have the opportunity to continue to add to my position at today's price of $2.75, so far below its intrinsic value of at least $6-$7, before Wall Street catches on.
ChartNTIP data by YCharts
First quarter results for Network-1 were outstanding, as expected. I wrote in my last article that I expected Network-1 to have a great quarter, with my revenue estimate of about $18 million and about $10-$12 million going directly to cash, cash equivalents, or short-term investments.
They actually beat both my estimates by posting revenues of $19.46 million, and adding a total of $15.31 million to cash, cash equivalents, or short-term investments. Operating and net margins for the quarter were both significantly above their five year average, with 55.92% and 44.19%, respectively. On $19.46 million in revenue, Network-1 booked $10.88 million in operating income, and $8.60 million in net profits ($0.34 in diluted earnings per share). They generated just under $17 million in net cash from operating activities, and about $16.75 million in free cash flow.
The $15.31 million that was added to cash, cash equivalents, or short-term investments was an increase of 28.28% from the December 31, 2017 levels. They now hold $56.68 million in cash and cash equivalents, and $12.79 million in short-term investments, for a total of $69.47 million in liquid assets.
Their total liabilities are up to about $10.65 million as of this quarter, but this is no concern as they still have $59.31 million in net working capital.
Network-1 spent about $400,000 buying back their stock at an average price of $2.57 during the quarter. They expect to spend another $2.5 million buying back shares in the future.
Why This Quarter's Results Are So Impressive
Excluding their two major outlier years (2010 and 2016, which I've written about in the past, where they received significant extraordinary one-time income) this quarter by itself will make 2018 their best year yet in terms of revenue, operating income, net income, EPS, net cash from operating activities and free cash flow generation. Not only would this quarter alone prove to be one of their best years yet, but revenue, net income, and free cash flow, would be up 22.50%, 115%, and 179%, respectively, from last year. That is assuming they don't even earn another dollar at all this year (which is unlikely).
Source: Data, Morningstar. Graph, self-created.
You may be thinking about how these results could be ruined throughout the year from poor results, which is possible, but unlikely. Once revenue is earned, it won't be taken away, so they will at least see growth in revenue year-over-year. They have a very minimal burn rate of a few million dollars per year (further discussed in my previous article), which would still leave them with a profitable, free cash flow positive year.
HP Litigation
There have not been any material changes in the HP litigation, yet. A hearing was held yesterday, May 14, 2018, and the decision is currently pending.
Due to licensing agreements prior to the HP case ruling in November, Polycom was required to pay Network-1 three installments of $1 million each October starting in 2017. The October 2018 and 2019 installments will not be paid if the HP case ruling is upheld, but is expected to be paid if the ruling is overturned.
Also, if the ruling is overturned, Network-1 is expecting to collect all payments owed to them from companies that have not made payments due to the HP case ruling. That includes Polycom, HP, NetGear, Dell, and Cisco.
Facebook Litigation
There also have not been any material changes related to the Mirror Worlds Facebook litigation. However, Facebook did file a motion this quarter for summary judgement on non-infringement and a hearing has been scheduled for July 18, 2018.
As mentioned in previous articles, Network-1 has successfully defended, or settled, with Microsoft (2015) and Apple (2016) with relation to Mirror Worlds patents.
The Opportunity
Network-1's stock is up about 20% since I initiated my position, but there is still significant upside at today's price of $2.75. With Network-1, investors have the opportunity to buy a great business at a discount to its intrinsic value - a true value play in today's market. Investors are getting an able and honest management team, a business with a moat, a business priced at a large discount to its intrinsic value, a high degree of confidence in the valuation, and a business that can be understood relatively easily.
My previous article shows an in-depth analysis illustrating why I value the company's stock at $8-9 per share if the HP ruling is overturned, and about $6-7 per share if the HP ruling is not overturned. This quarter's results further my conviction towards this valuation. With no debt on the balance sheet and over $2.71 in cash per share ($2.30 net cash per share, cash - total liabilities), there is minimal downside from today's price, with an asymmetric upside potential. Their cash position alone can value the stock between $4.50-$6, with a high degree of certainty. Investors are getting the rest of the business, all of their patent portfolios, and huge potential upside from the HP case, for free.
Right now the stock is off of Wall Street's radar, which has allowed me to obtain a sizable position at reasonable prices. As this stock gains more awareness, more investors become aware of the value of company, and they continue to generate and save tons of cash, I expect the stock price to continue to climb. This opportunity is certainly a play that Buffett would have taken back in his partnership days. I plan to continue buying the stock, and recommend a strong buy rating for other investors as well.
As famed value investor Mohnish Pabrai says, "Heads, I win; Tails, I don't lose much."
lakingsphan0427
7 years ago
Nice read from SA...
Small But Mighty: Network-1 Security Solutions
Jan. 12, 2018 1:40 PM ET
4 comments
About: Network-1 Technologies, Inc. (NTIP)
Robert Leonard
Value, small-cap, special situations, long/short equity
Summary
•An overreaction in the market has lead to a significant discrepancy between price and value for Network-1.
•Network-1 is greatly undervalued with no debt and a lot of cash.
•Although Network-1 is small, they continue to prove their patent protection abilities by winning cases against behemoths.
•Minimal downside potential, with over 100% upside potential.
The current valuation of Network-1 Security Solutions (NTIP) makes this company very attractive in today's market environment of generally elevated equity prices. Undervalued equities are difficult to find right now, but Network-1 appears to be a diamond in the rough.
Photo Credit
Network-1 Security Solutions is a micro-cap ($56 million) firm that focuses on developing, licensing and protecting intellectual property assets for corporate and academic patent owners, as well as individual inventors. The firm currently owns over fifty patents in total, covering three main portfolios: Power Over Ethernet, Mirror Worlds and Content Monetization. The Power Over Ethernet portfolio includes technologies that allow the transmission of power through local area network cabling, rather than running new power cables. The Mirror Worlds portfolio covers technologies enabling search and indexing, displaying, and archiving of documents in a computer system (Network-1 Portfolio Descriptions). The Content Monetization portfolio includes technologies relating to the identification and tagging of online content, allowing businesses to act based on these identifications. This portfolio also covers technologies relating to the identification of plagiarism and copyright infringement through online media.
The management team has been a part of the organization for a significant period of time; Corey M Horowitz has been a board member since April 1994, Chairman of the Board since January 1996, and Chief Executive Officer since December 2003. Executive Vice President Jonathan M Greene has been working with Network-1 since December 2004, and Chief Financial Officer David C Kahn has been with the company since January 2004. The management team's interests are also closely aligned with that of shareholders, as they currently own about 14% of the company.
Morningstar
Financial Fundamentals
Although not linearly, the company has been a strong financial performer. They have seen their revenues grow from about $1 million to a normalized level of about $19 million in 2017 (according to their TTM) - providing them a compounded annual growth rate of about 44% for their revenues. Their gross margins have been declining over the past eight years, but are still a healthy 60%. One of the most important financial and valuation metrics of a non-industrial company is its book value growth and price-to-book-value. Network-1 has been able to obtain a compounded annual growth rate just over 45% for their book value, since 2009. In the past nine years (2009-2017), Network-1 solutions has had positive free cash flow in all years but three. In the three years in which they had negative cash flow, the amounts were rather minimal in comparison to other years positive cash flow and the cash level on their balance sheet.
Click to enlarge
Morningstar
The most exciting part of Network-1 isn't their income statement, it is their balance sheet - more specifically, their cash position. Since 2012, they have been able to maintain a relatively stable and healthy cash position, with very little to no debt. After a very successful 2016, they have been able to more than double their cash position, bringing their total cash to over $50 million. For a large-cap company like Apple (AAPL), this amount would be insignificant, but for a micro-cap company like Network-1, this amount is very large. Remember, their market cap is only about $56 million, yet they are holding over $50 million in cash on their balance sheet. According to their September 2017 10Q filing, they have amassed $53,329,000 in cash and cash equivalents. While significantly adding to their cash position over the years, they have aggressively bought back more than 19% of their stock since 2011.
Click to enlarge
Morningstar
None of their important financial metrics follow a smooth linear path, but they are all stable, if not increasing - the same goes for their free cash flow. Over the past five years, from 2012-2016, they had one year with negative free cash flow. Although it appears 2017 will be another down year for their free cash flow, it is not official yet, and looks to be rather minimal. In general, the company has strong free cash flow generation and is producing cash annually.
Click to enlarge
Morningstar
Valuation
What makes this company intriguing is their intrinsic value in relation to their current stock price. Even using conservative figures to arrive at a valuation, this appears to be a great opportunity in today's market environment.
With a market cap just above $56 million, the cash on their balance sheet is almost equal to their market cap. With total cash and cash equivalents of $53,329,000 on their balance sheet, and 26,000,000 shares outstanding, that gives them about $2.05 in cash per share. The current stock price is about $2.30 - meaning you can buy the rest of the business for just $0.25!
If we remove the total liabilities outstanding from their cash holding, that leaves Network-1 with a net cash position of $50,213,000, or $1.93 per share - meaning you still only pay about $0.37 for the rest of the business, with all liabilities paid off.
Remember, this isn't including any growth in net income, free cash flow or book value. Using very conservative numbers (estimated year 1 free cash flow of $3 million, a growth rate of 1% for the first five years, a growth rate of 0% for the proceeding five years, discount rate of 10%, a multiple of 7.5x free cash flow at the time of sale, and 26,000,000 shares outstanding) to compute a discounted cash flow analysis, the present value of future estimated cash flows of the business add about $2.09 per share of value (this could prove to be even higher if the company continues to repurchase stock).
By adding the value of future cash flows to their current cash holdings, their intrinsic value is $4.02 per share. With the stock currently trading around $2.30, we have a 75% margin of safety - giving a significant margin for error in our estimations and computations.
Another valuation metric that is among my favorites is the Acquirer's Multiple. Although this valuation tool is generally used for industrial type businesses, it still gives a good illustration as to just how undervalued this firm is. The Acquirer's Multiple takes the market cap of a business, adds their debt, minority interest and preferred shares, then removes cash and cash equivalents to get the business's enterprise value. The enterprise value is then divided by operating earnings (similar to EBIT, but without one time/special income). I prefer to use operating earnings instead of EBIT due to the reasons Tobias Carlisle explains in his book The Acquirer's Multiple, "Operating earnings differ from EBIT because the operating earnings figure is worked out from the top of the income statement down, and EBIT is worked out from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries, and sectors possible. By excluding special items - income that a company does not expect to recur in future years - ensures that these earnings are related only to operations … Operating earnings allows an apples-to-apples comparison between stocks with different mixes of debt and equity." (Carlisle 75).
The lower the Acquirer's multiple, the more undervalued a business is. "Think of the enterprise value as the price you pay and operating earnings as the value you get. The lower the Acquirer's Multiple, the more value you get for the price you pay and the better the stock." (Carlisle 67). An Acquirer's Multiple of 0.47 is extremely low, especially in this market environment.
Another valuation metric that is common to use for a firm like this is book value; the firm is trading at about 1x their book value - a very reasonable and undervalued amount in today's market conditions. As seen below, competitors in Network-1's industry tend to trade at an average of 2.4x book value; the average for the S&P 500 is over 3x book value.
The table below also shows other metrics that illustrate the stocks undervaluation. On a Price/Earnings basis, the stock is trading at a significantly lower multiple than the industry average, the S&P 500 average, and Network-1's own five year average.
Morningstar
Also shown in this table is the company's dividend yield; their current dividend yield is a healthy 4%, well above industry peers and the S&P 500 average.
Recommendation
In the market environment we are currently experiencing, and the current valuation of Network-1 Security Solutions, this company is rated a buy, with a price target of $4.00 within 1-3 years. On November 13, 2017 the stock was trading at $4.40, only to be cut nearly in half over the next month on news of a lost lawsuit that had been pending. This does appear to be a bump in the road for the firm, but will likely not have a long-term impact on the business's fundamentals. The firm continues to acquire new business, having acquired a new patent to add to their Cox Patent Portfolio, and recently purchasing an entire portfolio of patents from M2M and IoT Technologies, LLC. According to a Yahoo! Finance report, "The acquired portfolio includes 12 issued United States patents relating to, among other things, the enabling technology for authenticating and using embedded SIM cards in next generation IoT, Machine-to-Machine, and other mobile devices, including smartphones, tablets and computers as well as automobiles and drones. It is estimated that the annual sales of devices making use of embedded SIM technology will exceed 500 million units by 2024 as they are used in an extremely wide assortment of connected devices." Investors will want to continually watch Network-1's new acquisitions of IP/patents, as well as their increasing cash holding. Not only has the company been proving they are able to obtain new intellectual property, but they also have a very solid track record for winning patent infringement cases against some of the world's largest companies. They have taken on patent infringement cases against Google/YouTube (GOOG), Facebook (FB) and Apple (AAPL).
With this firm being a micro-cap, it can take more time for markets to realize it's true value, causing investors to remain patient. If investors can remain patient, this position has over 100% upside potential, with minimal 16% potential downside. While investors wait for the stock to reach its intrinsic value, they will be able to collect a healthy ~4% dividend. Although the stock is already priced for worst case scenario, if things did get worse, the company has net cash at $1.93, putting a floor on the stock price just $0.37 below the stock's current price. "A good price implies a lopsided bet: a small downside and a big upside. The downside is small because the price already assumes the worst-case scenario. This creates a margin for error. If we're wrong, we won't lose much. If we're right, we'll make a lot. An upside bigger than the downside means we breakeven, even if we err more often than we succeed. If we manage to succeed as often as, or more often than we err, we'll do well," (Carlisle 137). As successful value investor Mohnish Pabrai frequently says, "Heads, I win; tails, I don't lose much!"
Additional Disclosure: Everything included in this article is not to be taken as investing advice because I am not your investment advisor. Also, I have not considered your specific situation as your fiduciary. Investors are expected to do their own due diligence before making any investments, and should consult with an investment professional who knows their objectives and constraints.
The opinions and any recommendations expressed in this commentary are those of the author. Although it is my goal to provide completely accurate data, I am not always right with my predictions or recommendations. That also applies to my grammar. Please excuse any typos, and be assured that I will do my best to correct any errors that were overlooked. None of the information or opinions expressed in this article constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this commentary constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. The information contained in this report does not purport to be a complete description of the securities market, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Expressions of opinion are as of this date and subject to change without notice.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in NTIP over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
geodan
7 years ago
NEW YORK, NY -- (Marketwired) -- 01/10/18 -- Network-1 Technologies, Inc.(NTIP) announced today that it sold its allowed general unsecured claim against Avaya, Inc. ("Avaya") for $6,320,000.
As previously announced in September 2017, Network-1(NTIP) agreed to settle its patent litigation against Avaya, Inc. ("Avaya") pending in the United States District Court for the Eastern District of Texas, Tyler Division, for infringement of Network-1's(NTIP) Remote Power Patent (U.S. Patent No. 6,218,930). As part of the settlement Avaya entered into a Settlement Agreement and non-exclusive License Agreement for the full term of the Remote Power Patent, which expires in March, 2020. Under the terms of the license, Avaya paid a lump sum amount for sales of certain designated Power over Ethernet ("PoE") products, and a running royalty for other designated PoE products. The products covered by the licenses include those PoE products which comply with the Institute of Electrical and Electronic Engineers ("IEEE") 802.3af and 802.3at Standards.
On January 19, 2017, Avaya, and certain of its affiliates, as debtors (the "Debtors"), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court of the Southern District of New York (the "Bankruptcy Court"). As part of the settlement, Avaya also agreed that Network-1(NTIP) shall have an allowed general unsecured claim ("Allowed Claim") in the amount of $37,500,000, as amended, relating to all acts occurring on or before January 19, 2017.
Under the Debtors' Second Amended Joint Chapter 11 Plan of Reorganization of Avaya Inc. and Its Debtor Affiliates (the "Plan") which was approved by the Bankruptcy Court on November 28, 2017, which became effective on December 15, 2017, the Debtors estimated that the total amount of general unsecured claims that will ultimately be allowed will total approximately $305,000,000 ($305 million) which, based on the treatment of general unsecured creditors therein, would result in estimated recoveries for the holders of general unsecured claims of approximately 18.9%. The Debtors acknowledged in the Plan that depending on its ability to successfully prosecute or otherwise reduce the remaining outstanding claims, the total amount of the general unsecured claims could be substantially higher which would decrease the percentage recoveries to the holders of general unsecured claims, including the Company. In such an event, the amount recovered by Network-1(NTIP) under its Allowed Claim could have been substantially lower than 18.9%.
geodan
8 years ago
(New High)NEW YORK,NY 03/20/17--Network-1 Technologies, Inc.(NTIP), a company specializing in the development, licensing, and protection of its intellectual property assets, today announced financial results for the year ended December 31, 2016.
Network-1 (NTIP) had revenue of $65,088,000 for the year ended December 31, 2016 ("2016") as compared to revenue of $16,565,000 for the year ended December 31, 2015 ("2015"). The increase in revenue of $48,523,000 for 2016 was due primarily to an increase in new licensing revenue of $30,360,000 from license agreements entered into with respect to litigation settlements as well as a $17,500,000 settlement of a professional liability claim.
Network-1 (NTIP) reported net income of $23,223,000 or $1.00 per share (basic) and $0.93 per share (diluted) for 2016 compared with net income of $4,107,000 or $0.17 per share (basic and diluted) for 2015. Included in the results for 2016 and 2015 are non-cash stock-based compensation expenses of $509,000 and $272,000, respectively, and non-cash amortization expense of $813,000 and $1,655,000, respectively.
At December 31, 2016, Network-1's(NTIP) principal sources of liquidity consisted of cash and cash equivalents of $50,918,000 and working capital of $51,415,000. Based on its cash position, Network-1(NTIP) continually reviews opportunities to acquire additional intellectual property for development and licensing as well as evaluates other strategic alternatives.
Network-1 (NTIP) exhausted its utilization of its net operating loss carry-forwards during the three-month period ended September 30, 2016. Current federal, state and local income taxes of $4,187,000 were recorded for the year ended December 31, 2016.
"It was a record year for Network-1(NTIP)", commented Corey M. Horowitz, Chairman and CEO of Network-1(NTIP). "We now have twenty-six (26) licensees for our patent portfolios, sixteen (16) of which generate on-going royalties for Network-1(NTIP). During the year, we added new licensees for our Remote Power Patent, successfully licensed our Mirror Worlds Portfolio to Apple and the validity of several of our patents from the Cox Portfolio was affirmed by United States Patent and Trademark Office in five separate proceedings, which we believe will facilitate licensing opportunities for the Portfolio". "In addition, the development of the Cox Portfolio is proceeding very well and we expect to proceed to trial against Google and YouTube on the portfolio. The combination of our cash position, our profitable royalty stream and our diverse and valuable IP portfolio positions us very well going forward in the IP development and monetization space," he continued. "Significantly, we have also instituted a dividend policy which reflects our ongoing commitment to increasing shareholder value and return on investment."
The following are financial and strategic highlights:
In June 2016, Network-1(NTIP) reached a settlement with Sony Corporation and affiliated entities ("Sony"). With respect to the settlement, Sony received a non-exclusive fully-paid license for Network-1's(NTIP) Remote Power Patent for its remaining life (March 2020).
In July 2016, Network-1(NTIP) reached a settlement with Dell, Inc. Under the terms of the settlement, Dell received a non-exclusive license for the Remote Power Patent for its full term. Dell paid a license initiation fee of $6,000,000 and agreed to pay quarterly royalties based on its sales of Power over Ethernet (PoE) products.
In April 2016, Mirror Worlds Technologies, LLC ("MWT"), Network-1's(NTIP) wholly-owned subsidiary, entered into an agreement pursuant to which it received $17,500,000 in connection with the settlement of a professional liability claim relating to services rendered in 2008-2010. Network-1(NTIP), through MWT, acquired the claim in May 2013 as part of its acquisition of the Mirror Worlds Patent Portfolio.
In October 2016, Network-1(NTIP) entered a settlement agreement with Polycom, Inc. ("Polycom"). Under the terms of the settlement, Polycom entered into a non-exclusive license for the Remote Power Patent for its full term and is obligated to pay a license initiation fee of $5,000,000 for past sales of its PoE products and ongoing royalties based on its sales of PoE products. $2,000,000 of the license initiation fee was paid and the balance will be paid in three annual installments of $1,000,000 beginning in October, 2017. Payments due in October 2018 and October 2019 need not be paid by Polycom if all asserted claims of the Remote Power Patent have been found invalid. Such payments in October 2018 and October 2019 have not been included in Network-1's(NTIP) revenue for the year ended December 31, 2016.
In July 2016, Network-1(NTIP) also reached settlement agreements with Alcatel-Lucent USA, Inc. and Alcatel-Lucent Holdings Inc. (collectively, "Alcatel") and ALE, USA, Inc. ("ALE"). Under the terms of the settlement agreements, Alcatel and ALE received a non-exclusive fully paid license for the Remote Power Patent for its remaining life. The aggregate consideration to be received by Network-1(NTIP) from Alcatel and ALE for the fully-paid license is $4,200,000 of which $1,900,000 has been paid and the balance of $2,300,000 is payable in three equal quarterly payments beginning sixty (60) days after a ruling (which is pending) by the Court confirming the report and recommendation rendered by the Magistrate which found all the asserted claims of the Remote Power Patent were not invalid.
In July 2016, Network-1(NTIP) entered into a settlement agreement with Apple Inc. in connection with litigation in the United States District Court for the Eastern District of Texas, for infringement of its '227 Patent. Under the terms of the settlement agreement, Apple received a fully paid non-exclusive license to the Mirror Worlds Portfolio for its full term (which expired in June 2016), along with certain rights to other patents in Network-1's(NTIP) patent portfolio. Network-1(NTIP) received $25,000,000 from Apple for the settlement and fully paid non-exclusive license.
Network-1 (NTIP) continues to develop the Cox Patent Portfolio, which now consists of seventeen (17) patents relating to technology for identifying media content on the Internet. Since the acquisition of the portfolio in February 2013, Network-1(NTIP) filed eighteen (18) additional patent applications (twelve (12) of which have been issued and six (6) of which are pending). On April 4, 2014 and December 3, 2014, Network-1(NTIP) initiated litigation against Google Inc. and YouTube, LLC in the United States District Court for the Southern District of New York for infringement of several of its patents within the Cox Patent Portfolio. The lawsuit alleges that Google and YouTube have infringed and continue to infringe the patent by making, using, selling and offering to sell unlicensed systems and products and services related thereto, which include YouTube's content ID system. Currently, the litigations are subject to a stay as a result of the proceedings at the United States Patent Office as described below.
In June 2016, the Patent Trial and Appeal Board (PTAB) of the United States Patent Office issued its Final Written Decisions in the four pending Inter Partes Review Proceedings (IPRs) filed by Google with respect to certain patents within Network-1's(NTIP) Cox Patent Portfolio. The PTAB found eighty-six (86) claims "not unpatentable" (valid) and in total, one hundred nineteen (119) out of one hundred and twenty-nine (129) or 92% of the challenged claims of the patents survived. None of our asserted claims in the pending litigations against Google and YouTube were found invalid. In August 2016, Google filed Notices of Appeal to appeal the PTAB's Final Written Decisions on the IPRs to the United States Court of Appeals for the Federal Circuit and the appeal is pending.
In October 2016, the PTAB issued its Final Written Decision in favor of Network-1(NTIP) with respect to Google's Petition for Covered Business Method Review (CBM) seeking to invalidated claims contained in Network-1's(NTIP) patent (US Patent No. 8,48,484) asserted by Network-1(NTIP) in its litigation with Google and YouTube in December 2014 as referred to above. The PTAB ruled that Google had failed to show that any of the thirty-four (34) claims of our U.S. Patent 8,904,464 were unpatentable. In December 2016, Google filed a Notice of Appeal to appeal the PTAB's Final Written Decision on the CBM to the United States Court of Appeals for the Federal Circuit and the appeal is pending.
In December 2016, Nework-1 announced that its Board of Directors approved the initiation of a dividend policy. The policy provides for the payment of regular semi-annual dividends of $0.05 per common share ($0.10 per common share annually) which are anticipated to be paid in March and September of each year. It is anticipated that the semi-annual dividend will continue to be paid through March 2020 (expiration of the Remote Power Patent) provided that Network-1(NTIP) continues to receive royalties from licensees of its Remote Power Patent. On February 2, 2017, Network-1's(NTIP) Board of Directors declared an initial semi-annual dividend $0.05 per common share which will be paid on March 24, 2017 to all shareholders of record on March 3, 2017.
Consistent with its activities over the past several years, Network-1(NTIP) plans on continuing its licensing activities relating to its Remote Power Patent and the development and monetization of its Mirror Worlds Patent Portfolio and the Cox Patent Portfolio. In addition, Network-1(NTIP) may acquire additional intellectual property assets in the future to develop, commercialize, license or otherwise monetize such intellectual property. In this regard, Network-1(NTIP) continually reviews opportunities to acquire or license additional intellectual property for the purpose of pursuing licensing opportunities related to its existing intellectual property portfolio or otherwise. Network-1's(NTIP) strategy includes working with inventors and patent owners to assist in the development and monetization of their patented technologies. Network-1(NTIP) may also enter into strategic relationships with third parties to develop, commercialize, license or otherwise monetize their intellectual property. The form of such relationships may differ depending upon the opportunity and may include, among other things, a strategic investment in such third party, the provision of financing to such third party or the formation of a joint venture with such third party or others for the purpose of monetizing their intellectual property assets.
ABOUT NETWORK-1 TECHNOLOGIES, INC.(NTIP)
Network-1 Technologies, Inc. (NTIP) is engaged in the development, licensing and protection of its intellectual property and proprietary technologies.
geodan
8 years ago
Great article on SeekingAlpha about NTIP today
http://seekingalpha.com/article/4046282-networkminus-1-technologies-catalysts-horizon
Network-1 has a strong balance sheet and a record of consistent profitability.
Despite a recent run-up, the valuation is still compelling.
Possible catalysts are visible on the horizon.
Network-1 CEO and Chairman Corey M. Horowitz
Several event-driven catalysts seem to be emerging on the horizon for Network-1 Technologies Inc. (NYSEMKT:NTIP). This article will describe these possible catalysts and evaluate the merits of an investment in this microcap intellectual property firm. First, let's take a look at the fundamentals.
Despite the lofty valuations of most US stocks these days, Network-1 Technologies is one company that is profitable, growing, debt free and trading at a P/E under 4. Here are some other basic metrics:
Market Cap: 87.5M
Cash and cash equivalents: 57.8M
Price/Book: 1.7
Price/Sales: 1.4
Price/Cash Flow: 2.3
Forward dividend yield: 2.7%
Debt: 0
TTM ROE: 64%
Insider Ownership: 32.8%
Interested?
Network-1 develops, licenses and protects intellectual property assets. Put another way, Network-1 is in the business of acquiring high-quality patents on cutting edge inventions and then monetizing them by selling usage licenses. Since Network-1 owns technology patents, their licensees are often well-known tech companies such as Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Cisco (NASDAQ:CSCO). The interesting part is that historically, most or all of Network-1's licensees have been unwilling customers.
This is where the "protect" part of the firm's mission statement comes in as a bulk of the operating expenses consist of legal consulting fees. Essentially, Network-1's CEO and Chairman, Corey M. Horowitz, has developed a consistent track record of dragging Fortune 500 tech companies into court and extracting multimillion-dollar licensing deals from them. If this business model sounds unscrupulous at first glance, consider that Network-1 actually is supporting technological innovation, which makes the world a better place, by providing inventors with a credible way to monetize their ideas.
In the fiercely competitive IP industry, Network-1 isn't the biggest in terms of financial resources or staff, but unlike most of its competitors, the firm has reported a solid profit almost every quarter for the past six years. A brief overview of the competition will demonstrate just how tough the IP industry is:
-RPX Corporation (NASDAQ:RPXC). Market cap: 579M. EPS has declined for four years straight mostly due to equity dilution.
-Acacia Research Corporation (NASDAQ:ACTG). Market cap: 295M. About to post its fourth straight year of negative earnings.
-Wi-Lan Inc. (NASDAQ:WILN). Market cap: 206M. Earnings are spotty. ROE hasn't been above 5% since 2011.
-VirnetX Holdings Corp. (NYSEMKT:VHC): Market cap: 130M. Book value per share is in free fall from 1.42 per share in 2011 to .22 per share today.
-Marathon Patent Group, Inc. (NASDAQ:MARA). Market cap: 30M. Negative free cash flow every year since the 2012 IPO.
To be fair, I have not done a deep dive on any of the companies listed above and some of them may be sound investments. However, after a cursory review of their financial statements, I am happy to pass on all of them.
Looking at the weak fundamentals of the competition, one might be inclined to forego investing in the IP industry altogether. On the other hand, Network-1 stands out as an outlier and a consistent performer in this industry.
With that overview out of the way, let's have a look at what's been happening with Network-1 lately. Over the past year, the stock has almost doubled. The 85% capital gain has coincided with two blowout quarters in both Q2 and Q3. In Q3 2016, Network-1 set all-time records in almost every operating metric and year-over-year operating income growth for the quarter was 2251%.
At this point, savvy SA readers will start to wonder whether the recent performance is sustainable. No matter how impressive, past performance is only useful to the extent that it may hold clues to what the future may hold.
Network-1 is a relatively easy company to understand because the firm owns four main assets with revenue generating potential. These intangible assets are portfolios of patents known as (1) Mirror Worlds, (2) Remote Power, (3) Cox, and (4) QoS. A detailed description of each of these assets can be found at Network-1's website. I will discuss each of these four assets and their monetization potential. The chart below provides a quick snapshot of what follows.
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In addition to the 12M-15M in recurring royalty revenues that we can expect from the Remote Power asset through March 2020, litigation related to this patent portfolio is still pending and investors should expect future revenue-generating settlements related to this litigation. Network-1 initiated this legislation with 16 defendant tech firms in September 2011, and as of this writing, only 12 of the 16 have settled with Network-1. Of note, the courts have consistently ruled in Network-1's favor in this litigation, so the writing is probably on the wall for the remaining four holdouts.
So what can we expect from the future settlements with these firms? Perhaps the recent example of Polycom Inc. (NASDAQ:PLCM) can offer some insight. Polycom capitulated in October 2016 and agreed to pay a one-time license initiation fee of 5M for past use in addition to ongoing royalties.
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