Marathon Patent Group, Inc. Announces Second Quarter 2015 Financial Results
LOS ANGELES, CA -- (Marketwired) -- 08/14/15 -- Marathon Patent Group, Inc. (NASDAQ: MARA) ("Marathon"), a patent licensing company, announced today financial results for the second quarter ended June 30, 2015.
2015 Second Quarter Results
Marathon generated revenues of $1.4 million and $5.5 million during the three and six months ended June 30, 2015, as compared to $3.8 million and $6.6 million during the three and six months ended June 30, 2014. For the three and six months ended June 30, 2015, this represented a decrease of $2.5 million or 64% and $1.1 million or 17%, respectively. Revenue for the three and six months ended June 30, 2015 was derived from the issuance of one-time patent licenses, recurring royalties and Opus (Marathon's patent analytics system) subscription fees. For the three and six months ended June 30, 2014, revenue was derived solely from the issuance of one-time patent licenses.
Revenues from licensing a number of Marathon's patent portfolios accounted for approximately 79% and 91% of revenues for the three and six months ended June 30, 2015 and 100% and 100% for the three and six months ended June 30, 2014, respectively.
Direct cost of revenues during the three and six months ended June 30, 2015 amounted to $3.9 million and $8.2 million, respectively, and for the three and six months ended June 30, 2014, the direct cost of revenues amounted to $1.8 million and $2.9 million, respectively. For the three and six months ended June 30, 2015, this represented an increase of $2.1 million or 120% and $5.3 million or 186%. Direct cost of revenues for the quarter include contingent and non-contingent payments to patent enforcement counsel, costs associated with technical and damage experts, and other miscellaneous costs associated with enforcing our patent rights and entering into settlement and licensing agreements. Higher costs during the three and six months ended June 30, 2015 relative to the same period in 2014 are related to multiple trials in the United States and Germany during this period, preparation for upcoming trials and the close of discovery in other cases slated for trial later this year and in early 2016.
Total other operating expenses (not including direct cost of revenues) for the three and six months ended June 30, 2015, including amortization of patents, compensation and related taxes, consulting and professional fees and other general and administrative fees, were $6.1 million and $12.1 million, per the table below:
Total Other Operating Expenses
---------------------------------------------------
For the For the
Three Months Three Months For the Six For the Six
Ended Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
2015 2014 2015 2014
------------ ------------ ------------ ------------
Amortization of
intangibles $ 3,029,000 $ 938,679 $ 5,627,461 $ 1,392,326
Compensation and related
taxes 1,087,058 712,131 2,668,132 1,442,118
Consulting fees 329,081 336,447 1,225,624 764,554
Professional fees 578,920 268,616 1,348,535 525,472
Other general and
administrative 284,976 130,521 504,457 212,185
Patent impairment 766,498 - 766,498 -
------------ ------------ ------------ ------------
Total $ 6,075,533 $ 2,386,394 $ 12,140,707 $ 4,336,655
Operating expenses for the three and six months ended June 30, 2015 includes non-cash operating expenses totaling $4.5 million and $8.6 million, respectively, per the table below:
Non-Cash Operating Expenses
---------------------------------------------------
For the For the
Three Months Three Months For the Six For the Six
Ended Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
2015 2014 2015 2014
------------ ------------ ------------ ------------
Amortization of
intangibles $ 3,029,000 $ 938,679 $ 5,627,461 $ 1,392,326
Compensation and related
taxes 600,495 348,061 1,227,821 712,587
Consulting fees 141,946 191,943 965,175 508,044
Professional fees 8,528 - 17,055 -
Other general and
administrative 1,852 1,416 14,737 2,833
Patent Impairment 766,498 - 766,498 -
------------ ------------ ------------ ------------
Total $ 4,548,319 $ 1,480,099 $ 8,618,747 $ 2,615,790
For the three and six months ended June 30, 2015, Marathon reported a GAAP net loss of ($4.5) million and ($9.3) million or ($0.32) and ($0.67) per basic share, respectively, compared to a GAAP net loss of ($1.6) million and ($1.9) million or a loss of ($0.14) and ($0.17), respectively, per basic share for the same periods in 2014.
On a non-GAAP basis, for the three and six months ended June 30, 2015, Marathon reported a net loss in the amount of ($4.5) million and ($7.1) million, or ($0.32) and ($0.51), respectively, per basic share, compared to non-GAAP net income of $1.2 million and $2.0 million, or $0.11 and $0.18, respectively, per basic share for the three and six months ended June 30, 2014. A reconciliation of GAAP to non-GAAP financials can be found in the financial tables at the end of this press release.
As of June 30, 2015, cash totaled $1.5 million.
Commenting on Marathon's second quarter financial results, Doug Croxall, Founder & CEO of Marathon Patent Group, stated, "Since the beginning of the 2015, we have continued to invest in licensing opportunities that we believe have the potential of generating significant revenue events in the second half of the year. While we are yet to see many of these larger investments pay expected dividends, as we have stated, until we reach scale, our revenue will be a bit unpredictable. Despite this, we still anticipate a strong financial performance for the balance of the year."
Croxall continued, "Despite this expectation, we are clearly disappointed with second quarter revenues. It's for this reason that we make every effort to expand the scope and scale of the business to drive both increased and more frequent revenue events."
Investor Conference Call
Marathon will host a conference call on Monday, August 17, 2015 at 8:30 AM ET/5:30 AM PT with Chief Executive Officer Doug Croxall and Chief Financial Officer Frank Knuettel II. To participate in the conference call, investors from the U.S. and Canada should dial (877) 407-0784 ten minutes prior to the scheduled start time. International calls should dial (201) 689-8560.
In addition, the call will be broadcast live over the Internet and can be accessed through the Investor Relations section of the Company's website at www.marathonpg.com. The broadcast will be archived online upon completion of the conference call. A telephonic replay of the conference call will also be available until 11:59 p.m. ET on Monday, August 31, 2015 by dialing (877) 870-5176 in the U.S. and Canada and (858) 384-5517 internationally and entering the pin number: 13615843
About Marathon Patent Group
Marathon is a patent acquisition and monetization company. The Company acquires patents from a wide-range of patent holders from individual inventors to Fortune 500 companies. Marathon's strategy of acquiring patents that cover a wide-range of subject matter allows the Company to achieve diversity within its patent asset portfolio. Marathon generates revenue with its diversified portfolio through actively managed concurrent patent rights enforcement campaigns. This approach is expected to result in a long-term, diversified revenue stream. To learn more about Marathon Patent Group, visit www.marathonpg.com.
References in this press release to Marathon, we, us or our may be to Marathon Patent Group and/or its subsidiaries.
Safe Harbor Statement
Certain statements in this press release constitute "forward-looking statements" within the meaning of the federal securities laws. Words such as "may," "might," "will," "should," "believe," "expect," "anticipate," "estimate," "continue," "predict," "forecast," "project," "plan," "intend" or similar expressions, or statements regarding intent, belief, or current expectations (including for the balance of the fiscal year), are forward-looking statements. While Marathon believes these forward-looking statements are reasonable, undue reliance should not be placed on any such forward-looking statements, which are based on information available to us on the date of this release. These forward looking statements are based upon current estimates and assumptions and are subject to various risks and uncertainties, including without limitation those set forth in Marathon's filings with the Securities and Exchange Commission (the "SEC"), not limited to Risk Factors relating to its patent business contained therein. Thus, actual results could be materially different. Marathon expressly disclaims any obligation to update or alter statements whether as a result of new information, future events or otherwise, except as required by law.
MARATHON PATENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
June 30, 2015 2014
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash $ 1,487,242 $ 5,082,569
Accounts receivable - net of allowance for
bad debt of $0 and $0 for June 30, 2015 and
December 31, 2014 704,061 216,997
Bonds posted with courts 1,790,241 1,946,196
Prepaid expenses and other current assets 124,436 438,391
------------- -------------
Total current assets 4,105,980 7,684,153
------------- -------------
Other assets:
Property and equipment, net of accumulated
depreciation of $40,385 and $16,135 for
June 30, 2015 and December 31, 2014 70,738 53,828
Intangible assets, net of accumulated
amortization of $12,043,560 and $6,550,528
for June 30, 2015 and December 31, 2014 46,597,522 43,363,832
Deferred tax assets 10,257,415 4,789,293
Goodwill 4,556,291 4,894,208
------------- -------------
Total other assets 61,481,966 53,101,161
------------- -------------
Total Assets $ 65,587,946 $ 60,785,314
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,289,861 $ 3,293,746
Clouding IP earn out - current portion 883,484 2,092,000
Notes payable, net of discounts and loan
fees of $676,182 and $82,010 for 6/30/15
and 12/31/14 17,394,103 16,560,000
------------- -------------
Total current liabilities 23,567,448 21,945,746
------------- -------------
Long-term liabilities
Notes payable, net of discount and loan fees
of $1,804,517 and $64,925, for 6/30/15 and
12/31/14 15,608,198 5,403,065
Other non current liability 52,101 -
Deferred tax liability 1,256,480 1,823,884
Revenue sharing liability 1,000,000 -
Clouding IP earnout 6,264,215 7,360,000
------------- -------------
Total long-term liabilities 24,180,994 14,586,949
------------- -------------
Total liabilities 47,748,442 36,532,695
============= =============
Stockholders' equity:
Preferred stock Series B, $.0001 par value,
50,000,000 shares authorized: 982,000 and
932,000 issued and outstanding at June 30,
2015 and December 31, 2014 98 93
Common stock, $.0001 par value, 200,000,000
shares authorized: 14,024,837 and 13,791,460
issued and outstanding at June 30, 2015 and
December 31,2014 1,402 1,379
Additional paid-in capital 40,478,627 36,977,169
Accumulated other comprehensive loss (1,018,691) (388,357)
Accumulated deficit (21,621,932) (12,337,665)
------------- -------------
Total stockholders' equity 17,839,504 24,252,619
------------- -------------
Total liabilities and stockholders' equity $ 65,587,946 $ 60,785,314
============= =============
The accompanying notes are an integral part to these unaudited consolidated
financial statements.
MARATHON PATENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the
three three For the six
months months For the six months
ended ended months ended ended
June 30, June 30, June 30, June 30,
2015 2014 2015 2014
----------- ----------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue $ 1,368,986 $ 3,824,500 $ 5,462,855 $ 6,604,500
Expenses
Cost of revenues 3,860,210 1,753,833 8,188,375 2,864,412
Amortization of
patents and website 3,029,000 938,679 5,627,461 1,392,326
Compensation and
related taxes 1,087,058 712,131 2,668,132 1,442,118
Consulting fees 329,081 336,447 1,225,624 764,554
Professional fees 578,920 268,616 1,348,535 525,472
General and
administrative 284,976 130,521 504,457 212,185
Patent impairment 766,498 - 766,498 -
----------- ----------- ------------ -----------
Total operating
expenses 9,935,743 4,140,227 20,329,082 7,201,067
----------- ----------- ------------ -----------
Operating loss (8,566,757) (315,727) (14,866,227) (596,567)
----------- ----------- ------------ -----------
Other income (expenses)
Foreign exchange
gain/(loss) 1,899 - (37,503) -
Change in fair value
adjustment of
Clouding IP earnout 2,304,301 - 2,304,301 -
Other income 7,439 (2,770) 7,439 (2,770)
Interest income - 266 2 494
Interest expense (1,577,083) (20) (2,508,623) (20)
----------- ----------- ------------ -----------
Total other income 736,556 (2,524) (234,384) (2,296)
----------- ----------- ------------ -----------
Loss before provision
for income taxes (7,830,201) (318,251) (15,100,611) (598,863)
Income tax benefit 3,327,505 - 5,816,344 -
----------- ----------- ------------ -----------
Net loss (4,502,696) (318,251) (9,284,267) (598,863)
Deemed dividends
related to beneficial
conversion feature of
Series A preferred
stock - (1,271,492) - (1,271,492)
----------- ----------- ------------ -----------
Net loss attributable
to common shareholders $(4,502,696) $(1,589,743) $ (9,284,267) $(1,870,355)
Loss per common share,
basic and diluted: $ (0.32) $ (0.14) $ (0.67) $ (0.17)
=========== =========== ============ ===========
WEIGHTED AVERAGE COMMON
SHARES
OUTSTANDING - Basic
and Diluted 13,998,563 11,016,646 13,937,872 10,980,290
=========== =========== ============ ===========
Other comprehensive
income, net of tax:
Foreign currency
translation
adjustments $ 319,905 $ - $ (630,334) $ -
=========== =========== ============ ===========
The accompanying notes are an integral part to these unaudited consolidated
financial statements.
MARATHON PATENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
June 30, 2015 June 30, 2014
------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $ (9,284,267) $ (598,863)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation 3,758 2,833
Amortization of intangible assets 5,627,461 1,392,326
Non-cash equity compensation 1,413,724 1,234,983
Stock issued for services 750,334 -
Non-cash interest, discounts and financing
costs 1,625,322 -
Deferred tax liability (509,207) -
Deferred tax assets (5,307,139) -
Impairment of IP 766,498 -
Change in fair value of Clouding IP earn
out (2,304,301) -
Other non-cash adjustments 14,980 -
Changes in operating assets and liabilities
Accounts receivable (487,328) 252,050
Prepaid expenses and other current assets 51,455 (218,037)
Accounts payable and accrued expenses 2,046,662 334,294
------------- -------------
Net cash provided by (used in) operating
activities (5,592,048) 2,399,586
------------- -------------
Cash flows from investing activities:
Acquisition of patents - (5,100,800)
Purchase of property, equipment, and other
intangible assets (20,668) -
------------- -------------
Net cash provided by (used in) investing
activities (20,668) (5,100,800)
------------- -------------
Cash flows from financing activities:
Payment on note payable in connection with
the acquisition of IP Liquidity - (937,500)
Cash received upon exercise of warrant - 138,222
Proceeds received from sale of Preferred
Stock /common stock, net of issuance costs - 6,388,266
Payment on note payable in connection with
the acquisition of IP Liquidity (1,109,375) -
Payment on assumed note payable in
connection with the acquisition of
Orthophoenix (5,000,000) -
Payment on note payable in connection with
the acquisition of Dynamic Advances (2,624,375) -
Payment on note payable in connection with
the acquisition of Medtech and Orthophoenix (4,200,000) -
Payment on MdR Escrow (TLI) (50,000) -
Conversion of AP to note payable 705,093 -
Payment on note payable in connection with
the acquisition of Sarif (276,250) -
Repayment on convertible notes (5,050,000) -
Cash received upon issuance of notes payable
(net of issuance costs) 19,600,000 -
Cash received upon exercise of warrant 18,751 -
------------- -------------
Net cash provided by financing
activities 2,013,844 5,588,988
------------- -------------
Effect of exchange rate changes on cash 3,545 -
Net increase in cash (3,595,327) 2,887,774
Cash at beginning of period 5,082,569 3,610,261
------------- -------------
Cash at end of period $ 1,487,242 $ 6,498,035
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest expenses and loan fees $ 805,106 $ 20
============= =============
Taxes paid $ 14,662 $ -
============= =============
Loan fees $ 400,000 $ -
============= =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Series B Preferred Stock issued in connection
with the acquisition of Dynamic Advances, LLC $ - $ 1,403,690
============= =============
Series B Preferred Stock issued in connection
with the acquisition of IP Liqudity Ventures,
LLC $ - $ 1,403,690
============= =============
Common stock issued in connection with the
acquisition of Selene Communication
Technologies, LLC $ - $ 980,000
============= =============
Value of warrants pertaining to equity
issuance $ - $ 11,595
============= =============
Notes payable in connection with the
acquisition of Dynamic Advances, LLC, IP
Liquidity Ventures, LLC, and Selene
Communication Technologies, LLC $ - $ 6,000,000
============= =============
Common stock issued in conjunction with notes
payable $ 1,000,000 $ -
============= =============
Warrants issued in conjunction with note
payable $ 318,679 $ -
============= =============
Revenue share liability incurred in
conjunction with note payable $ 1,000,000 $ -
============= =============
Non-cash interest increase in debt assumed in
the acquisition of Orthophoenix $ 750,000 $ -
============= =============
Notes payable issued in conjunction with
acquisition of BATO patent $ 10,000,000 $ -
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
Non-GAAP Reconciliation
--------------------------------------------------
For the For the
Three Three For the Six For the Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2015 2014 2015 2014
----------- ----------- ----------- -----------
Net loss (4,502,696) (1,589,743) (9,284,267) (1,870,355)
Non-GAAP
Amortization of
intangible assets &
depreciation 3,029,000 938,679 5,627,461 1,392,326
Equity-based
compensation 750,968 554,356 2,210,051 1,234,983
Beneficial Conversion
Feature - 1,271,492 - 1,271,492
Impairment of
Intellectual Property 766,498 - 766,498 -
Change in Earn Out
Liability (2,304,301) - (2,304,301) -
Non-cash interest
expense 1,089,798 - 1,703,517 -
Deferred tax benefit (3,327,505) - (5,816,345) -
Other 1,852 1,416 3,758 2,833
----------- ----------- ----------- -----------
Non-GAAP profit (loss) (4,496,386) 1,176,200 (7,093,628) 2,031,279
Weighted average common
shares outstanding -
basic and diluted 13,998,563 11,016,646 13,937,872 10,980,290
Non-GAAP net income
(loss) per common share
- basic and diluted $ (0.32) $ 0.11 $ (0.51) $ 0.18
INFORMATION ABOUT NON-GAAP FINANCIAL MEASURES. As used herein, "GAAP" refers to accounting principles generally accepted in the United States of America. To supplement our consolidated financial statements prepared and presented in accordance with GAAP, this earnings release includes financial measures, including (1) non-GAAP net income and (2) non-GAAP Earnings Per Share ("EPS"), that are considered non-GAAP financial measures as defined in Rule 101 of Regulation G promulgated by the SEC. Generally, a non-GAAP financial measure is a numerical measure of a company's historical or future performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
We use these non-GAAP financial measures for internal financial and operational decision making purposes and as a means to evaluate period-to-period comparisons of the performance and results of operations of our core business. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the performance of our core business by excluding non-cash stock compensation charges, non-cash patent amortization charges and excess benefit related non-cash tax expense that may not be indicative of our recurring core business operating results. These non-GAAP financial measures also facilitate management's internal planning and comparisons to our historical performance and liquidity. We believe these non-GAAP financial measures are useful to investors as they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and are used by our institutional investors and the analyst community to help them analyze the performance and operational results of our core business.
Non-GAAP Net income and EPS. We define non-GAAP net income as net income calculated in accordance with GAAP, plus non-cash stock compensation charges, non-cash patent amortization charges and excess benefit related non-cash tax expense. Non-GAAP EPS is defined as non-GAAP net income divided by the weighted average outstanding shares, on a fully diluted basis, calculated in accordance with GAAP, for the respective reporting period.
Due to the inherent volatility in stock prices, the use of estimates and assumptions in connection with the valuation and expensing of share-based awards and the variety of award types that companies can issue under FASB ASC Topic 718, management believes that providing a non-GAAP financial measure that excludes non-cash stock compensation allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies, as well as providing our management with a critical tool for financial and operational decision making and for evaluating our own period-to-period recurring core business operating results. Similarly, due to the variability associated with the timing and amount of patent acquisition payments and estimates inherent in the capitalization and amortization of patent acquisition costs, management believes that providing a non-GAAP financial measure that excludes non-cash patent amortization charges allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies, and also provides our management with a useful tool for financial and operational decision making and for evaluating our own period-to-period recurring core business operating results. Lastly, for financial reporting purposes, tax expense is required to be calculated without the excess tax benefit related to the exercise and vesting of equity-based incentive awards, however, the deduction related to the exercise and vesting of equity-based incentive awards is available to offset taxable income on our consolidated tax returns. Accordingly, the non-cash tax expense calculated without the excess benefit for financial statement purposes is credited to additional paid-in capital, not taxes payable, and does not represent a cash tax obligation. Management believes that providing a non-GAAP financial measure that excludes excess benefit related non-cash tax expense allows investors to assess our net results and the economic impact of income taxes based largely on cash tax obligations, make more meaningful comparisons between our recurring core business net results and those of other companies, and also provides our management with a useful tool for financial and operational decision making and for evaluating our own period-to-period recurring core business net results.
There are a number of limitations related to the use of non-GAAP net income and EPS versus net income and EPS calculated in accordance with GAAP. For example, non-GAAP net income excludes significant non-cash stock compensation charges, non-cash patent amortization charges and excess benefit related non-cash tax expense that are recurring, and will continue to be recurring for the foreseeable future. In addition, non-cash stock compensation is a critical component of our employee compensation programs and non-cash patent amortization reflects the cost of certain patent portfolio acquisitions, amortized on a straight-line basis over the estimated economic useful life of the respective patent portfolio, and may reflect the acceleration of amortization related to recoupable up-front patent portfolio acquisition costs. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and EPS and evaluating non-GAAP net income and EPS in conjunction with net income and EPS calculated in accordance with GAAP.
The table set forth above provides a reconciliation of the non-GAAP financial measures presented to the most directly comparable financial measures prepared in accordance with GAAP.
CONTACT INFORMATION Marathon Patent Group Jason Assad 678-570-6791 [email protected]
Source: Marathon Patent Group