UNWIRED PLANET, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge) Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements are based upon current
expectations and beliefs of management and are subject to risks and
uncertainties that may cause actual events, results or performance to differ
materially from those indicated by these statements. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify forward-looking statements. Forward-looking
statements include, among other things, statements regarding our ability to
effectively pursue strategic alternatives for our products business, our ability
to attract and retain customers, our ability to obtain and expand market
acceptance for our products and services, our expectations concerning our future
financial performance and potential or expected competition and growth in our
markets and markets in which we expect to compete, our business strategy,
projected plans and objectives, anticipated cost savings from restructurings,
our ability to realize anticipated benefits of our acquisitions on a timely
basis, our estimates with respect to future operating results, including,
without limitation, earnings, cash flow and revenue and any statements of
assumptions underlying the foregoing. These forward-looking statements are only
predictions. Risks and uncertainties that could cause actual results to differ
materially from those indicated in the forward-looking statements include the
limited number of potential customers, the highly competitive market for our
products and services, technological changes and developments, potential delays
in software development and technical difficulties that may be encountered in
the development or use of our software, patent litigation, our ability to retain
management and key personnel, and the other risks discussed under the subheading
"Risk Factors" in Item 1A, Part II of this Quarterly Report on Form 10-Q, as
well as elsewhere in this report. The occurrence of the events described in
"Risk Factors" could harm our business, results of operations and financial
condition. These forward-looking statements are made as of the date of this
Quarterly Report on Form 10-Q and we undertake no obligation to revise or
publicly release the results of any revision to these forward-looking statements
except as required by law. Readers should carefully review the risk factors
described in this section and in "Risk Factors" below and other risks identified
from time to time in our public statements and reports filed with the Securities
and Exchange Commission.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes, and Management's Discussion and Analysis of
Financial Condition and Results of Operations, included in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2012, which was filed with the
Securities and Exchange Commission on September 7, 2012, and the unaudited
condensed consolidated financial statements and related notes contained in this
Quarterly Report on Form 10-Q.
Overview of Our Business
Unwired Planet, Inc. (referred to as "Unwired Planet", "our", "we" or "us") is
an intellectual property and technology licensing company. Over the years, we
have amassed a patent portfolio of approximately 200 issued United States and
foreign patents and approximately 75 pending applications, many of which are
considered formative to mobile communications.
Unwired Planet, formerly known as Openwave Systems Inc., was incorporated in
1994 as a Delaware corporation, and we completed our initial public offering in
June 1999. Our principal executive offices are located at 170 South Virginia
Street, Suite 201, Reno, Nevada 89501. Our telephone number is (775)_980-2345 .
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to the
Securities Exchange Act of 1934, are available free of charge through our
website at www.unwiredplanet.com , as soon as reasonably practicable after we
file or furnish such material with the Securities and Exchange Commission (SEC).
Information contained on our website is not incorporated by reference to this
Unwired Planet is focused on pursuing a multi-pronged strategy to realize the
value of our patent portfolio, which ranges from direct licensing or sale of our
patents, litigation, joint ventures, and partnering with one or more
intellectual property specialists. We generate revenue by licensing our patented
innovations and technologies to companies that develop mobile communications
software infrastructure or hardware and/or develop mobile communications
products. Our goal is to continue to create additional licensing opportunities.
Until recently, we were primarily a software company delivering mediation and
messaging solutions to communication service providers. On January 12, 2012, we
announced our pursuit of strategic alternatives for our product operations, and
sold our product businesses as of April 30, 2012 - See Note 3 of Notes to
Condensed Consolidated Financial Statements for further information.
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Overview of Financial Results During the Three Months Ended September 30, 2012
The following table represents a summary of our operating results from
continuing operations for the three months ended September 30, 2012, compared
with the three months ended September 30, 2011 (dollars in thousands):
Three Months Ended
2012 2011 Change
Revenues $ 3 $ 15,021 -100 %
Operating expenses 9,885 4,336 128 %
Operating income (loss) (9,882 ) 10,685 -192 %
Interest and other income, net 50 62 -19 %
Net income (loss) from continuing operations $ (9,832 ) $ 10,747 -191 %
Revenues decreased during the three months ended September 30, 2012, compared to
the corresponding period of the prior year. See discussion of Revenues below
under the "Summary of Operating Results."
Overall, operating expenses increased during the three months ended
September 30, 2012, compared with the corresponding period of the prior year.
These increases are primarily due to increased spending on patent licensing, as
discussed in further detail under "Summary of Operating Results" below.
Critical Accounting Policies and Judgments
We believe that there are several accounting policies that are critical to
understanding our business and prospects for our future performance, as these
policies affect the reported amounts of revenue and other significant areas that
involve management's judgment and estimates. These significant accounting
• Revenue recognition;
• Stock-based compensation;
• Valuation of investments; and
• Restructuring-related assessments.
There have been no material changes to our critical accounting policies and
estimates since our fiscal year end on June 30, 2012.
For further discussion of our critical accounting policies and judgments, please
refer to the Notes to our condensed consolidated financial statements included
in this Form 10-Q and to our Management's Discussion and Analysis of Financial
Condition and Results of Operations and audited consolidated financial
statements and accompanying notes thereto included in our Annual Report on Form
10-K for the fiscal year ended June 30, 2012.
Summary of Operating Results
Three Months Ended September 30, 2012 and 2011
We generate patent revenue, which is derived from licensing our intellectual
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To date our patent revenues have been from two customers, as shown in the
Three Months Ended
% of Total Revenue
Three Months Ended
Microsoft - 100 %
Mobixell Networks 100 % 0 %
Although we intend to broaden our customer base, there can be no assurance that
this objective will be achieved.
The following table presents key revenue information (dollars in thousands):
Three Months Ended
September 30, Percent
2012 2011 Change
Patents $ 3 $ 15,021 -100 %
Total Revenues $ 3 $ 15,021 -100 %
Percent of revenues:
Patents 100 % 100 %
Total Revenues 100 % 100 %
During the first quarter of fiscal 2012, we entered into a license agreement
with a third-party whereby we licensed rights to the majority of our patents for
a fee of $15.0 million which was received during the second quarter of fiscal
2012. Additonally, we receive royalties related to patent license agreement
entered into in the first quarter of fiscal 2011. We intend to continue to seek
monetization opportunities for our intellectual property; however, there can be
no guarantee that our efforts will be successful.
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The following table represents operating expenses for the three months ended
September 30, 2012 and 2011, respectively (dollars in thousands):
Three Months Three Months
Ended September 30, Ended September 30, Percent
2012 2011 Change
Sales and marketing expense $ 78 $ 375 -79 %
Patent licensing expenses 5,559 1,724 222 %
General and administrative 3,791 1,686 125 %
Restructuring and other related costs 457 551 -17 %
Total Operating Expenses $ 9,885 $ 4,336 128 %
Percent of Revenues:
Sales expense *nm 2 %
General and administrative *nm 11 %
Patent initiative expenses *nm 11 %
Sales and marketing expense
Sales and marketing expenses include salary and benefit expenses and travel
expenses for our marketing personnel, as well as any commissions related to our
patent revenues. Sales and marketing expenses also include the costs of public
relations, promotional materials and other market development programs.
Sales and marketing expense decreased by approximately 79% in the first quarter
of fiscal 2013 as compared with the prior year's period. This decrease was
primarily due to the fact that the expense in fiscal 2012 related to a
commission on the patent deal signed during the quarter, with no such comparable
payment made in the first quarter of fiscal 2013.
Patent licensing expenses
Patent licensing expenses include legal and consulting costs related to
licensing our patents, which includes litigation expenses to protect our patents
and our licensing business when necessary, as well as labor costs for employees
engaged in these activities on a full-time basis. Litigation, when necessary,
forms the substantial majority of the expense.
During the three months ended September 30, 2012, patent licensing expenses
increased by 222% compared with the corresponding period in the prior year. This
increase is primarily due to a $3.6 million increase in legal expenses
associated with patent litigation, which includes legal fees supporting the ITC
and Delaware District Court cases filed and announced in August 2011, as well as
the patent infringement cases filed against each of Apple Inc. and Google Inc.
filed in Federal Court in Nevada in September 2012. Additionally, there was an
increase of approximately $0.2 million related to labor and related
administrative costs in the first quarter of fiscal 2013 as compared to the
prior year's period.
General and Administrative Expenses
General and administrative expenses consist principally of salary and benefit
expenses, travel expenses, and facility costs for our finance, legal,
information services and executive personnel. General and administrative
expenses also include outside accounting fees.
During the three months ended September 30, 2012, general and administrative
costs increased 125% compared with the corresponding period in the prior year.
This increase is primarily due to an increase of $0.6 million in labor costs,
mainly due to a $0.3 million increase in stock-based compensation related to
option grants made since the prior year, as well as to an increase in bonus
costs to key employees. We also experienced a $0.2 million increase in temporary
resources assigned to the continuing operation to facilitate transitioning
systems and processes suitable to a smaller company. Legal and professional fees
increased $0.6 million which primarily related to assistance with potential
strategic alternatives. Recruiting and travel fees increased by $0.3 million due
to increased activity.
Restructuring and Other Related Costs
Restructuring and other related costs for the three months ended September 30,
2012, remained relatively consistent with the prior year's period. The prior
year's restructuring expense primarily consisted of a $0.5 million severance
charge for an executive, while the current year's period contained a $0.3
million charge related to estimated severance as a result of our announced
relocation to Reno, Nevada.
Refer to Note 9 in the notes to the condensed consolidated financial statements
for more information.
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Interest income was approximately $0.1 million for both the three months ended
September 30, 2012 and for the three months ended September 30, 2011.
Interest expense was approximately $3,000 for the three months ended
September 30, 2012, which was a decrease from the prior year's period primarily
due to a decline in the outstanding amounts for our letters of credit.
We completed the sale of our location product line on February 1, 2012. On
April 30, 2012, we completed the disposition of the mediation and messaging
product lines, which completed the divestiture of the product business. We
classified the product business' financial results as discontinued operations in
our condensed consolidated financial statements for all periods presented.
Unwired Planet and Openwave Mobility also entered into a transition services
agreement ("TSA") under which we provided accounting and other services to
Openwave Mobility until October 2012. Openwave Mobility paid a flat fee for
these services per month. Costs of providing these services that were
incremental to the flat fee are reflected in discontinued operations on the
statement of operations.
Net loss from discontinued operations decreased by $3.6 million in the three
months ended September 30, 2012 as compared with the three months ended
September 30, 2011. This was a result of the $37.4 million decline in revenues,
offset by corresponding reductions in costs due to no longer operating the
business. The costs during the three months ended September 30, 2012 primarily
relate to the excess cost of providing the TSA services and facilities beyond
the fees received, as well as severance payments triggered in periods following
the sale of the product business, and professional service costs in connection
with the transaction. These costs are expected to continue for a portion of our
second fiscal quarter. See Note 3 of Notes to Condensed Consolidated Financial
Statements for further information regarding the classification of these
businesses as a discontinued operation.
Liquidity and Capital Resources
Working Capital and Cash Flows
The following table presents selected financial information and statistics as of
September 30, 2012 and June 30, 2012, and for the three months ended
September 30, 2012 and 2011, which includes cashflows from discontinued
operations, (dollars in thousands):
September 30, June 30, Percent
2012 2012 Change
Working capital $ 48,866 $ 60,451 -19 %
Cash and investments: Cash and cash equivalents $ 31,139 $ 39,709
Short-term investments 38,836 43,860 -11 %
Long-term investments 7,305 9,423 -22 %
Total cash and cash investments $ 77,280 $ 92,992
Three Months Ended
Cash used for operating activities $ (14,834 ) $ (17,454 )
Cash provided by investing activities $ 4,993 $ (5,949 )
Cash provided by financing activities $ 1,271 $ 119
We have obtained a majority of our cash and investments through public offerings
of common stock, including a common stock offering in December 2005 which raised
$277.8 million in net proceeds. In fiscal 2008, we sold Musiwave and our Client
operations, resulting in $56.0 million of net proceeds in fiscal 2008, $11.7
million in fiscal 2009, $4.5 million in fiscal 2010 and $2.2 million in fiscal
2011. Additionally, in fiscal 2012, we sold our product businesses which
resulted in $51.4 million of net proceeds in fiscal 2012. In the first quarter
of fiscal 2013, we settled all working capital adjustments related to the sale
of the product businesses, and a loss on
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the sale of discontinued operations of $0.8 million was recorded.
We have an $18.0 million secured revolving credit facility with Silicon Valley
Bank which expires on April 28, 2013. Although we plan to extend the maturity
beyond this date, there can be no guarantee of an extension. Failure to extend
the line of credit would require letters of credit to have cash collateral,
which would be reflected as Restricted cash as opposed to Cash and equivalents
As of September 30, 2012 and June 30, 2012, we had letters of credit outstanding
against the revolving credit facility totaling $17.4 million and $17.5 million,
respectively, reducing the available borrowings on the revolving credit
facility. Our letters of credit expire between October 2012 and June 2013. The
majority of the letters of credit relate to facilities that will be exited by
June 30, 2013. The revolving credit line is secured by a blanket lien on all of
our assets and contains financial and reporting covenants customary to these
types of credit facilities agreements which we are required to satisfy as a
condition of the agreement. In particular, the revolving credit facility
requires that we meet a specified minimum monthly liquidity ratio. In addition,
the revolving credit facility requires us to provide to the bank annual
financial projections, promptly report any material legal actions, and timely
pay material taxes and file all required tax returns and reports. Further,
without the bank's consent, we cannot take some material actions, such as change
any material line of business, sell our business, acquire other entities, incur
liens, make capital expenditures beyond a specified threshold, or engage in
transactions with affiliates. As of September 30, 2012, we were in compliance
with all debt covenants.
While we believe that our current working capital and anticipated cash flows
from operations will be adequate to meet our cash needs for daily operations and
capital expenditures for at least the next 12 months, we may elect to raise
additional capital through the sale of additional equity or debt securities, or
sell or license some assets. The sale of additional equity securities could
result in additional dilution to our stockholders. We also may pursue
contingency arrangements and/or alternative financing contracts to increase our
available cash and fund our litigation and prosecution expenses.
If additional funding is necessary and we are unable to obtain the additional
financing, we may be required to reduce the scope of our planned intellectual
property initiatives and marketing efforts, which could harm our business,
financial condition and operating results. In the meantime, we will continue to
manage our cash and investment portfolio in a manner designed to facilitate
adequate cash and cash equivalents to fund our operations for the next twelve
months as well as future acquisitions, if any.
Our working capital, defined as current assets of the continuing operations less
current liabilities of the continuing operations, decreased by approximately
$11.6 million, or 19%, from June 30, 2012 to September 30, 2012. The decrease in
working capital balances can primarily be attributed to the use of $13.6 million
of cash and cash equivalents and short term investments, primarily as a result
of cash used for operations of $14.8 million.
Cash used for operating activities
Cash used for operating activities was $14.8 million during the three months
ended September 30, 2012. This use of cash is primarily a result of the
operating results of both the continuing and discontinued operations for the
period. Additionally, there was a decline in accrued restructuring costs of $3.7
million, primarily related to facility payments, and a decline in accrued
liabilities of $1.6 million.
Cash provided by investing activities
Net cash provided by investing activities during the three months ended
September 30, 2012 was $5.0 million, which primarily was due to the $6.9 million
of maturities or sales of investments, net of purchases of investments,
partially offset by the $1.9 million of payments made related to transaction
costs for the sale of the product business.
Cash flows provided by financing activities
Net cash provided by financing activities during the three months ended
September 30, 2012 was $1.3 million, resulting from the exercise of stock
options during the period.
Operating Lease Obligations and Contractual Obligations
Aside from us entering a lease for offices in Reno, Nevada, for the next three
years at an average base rent of $93,000, there has been no material change to
our contractual obligations during the first three months of fiscal 2013. As
such, see our Annual Report on Form 10-K for the fiscal year ended June 30, 2012
for a description of our facility leases and Note 9 in the notes to the
condensed consolidated financial statements. We currently have subleased all but
one of our restructured facilities which will generate
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contractual sublease income in aggregate of approximately $5.9 million,
resulting in a net future obligation on these properties of approximately $9.9
million through our fiscal 2015. The decrease in our liability for restructured
facilities since the fiscal year ended June 30, 2012, relates primarily to
payments made in the normal course of business.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
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