Equity Research DAILY COMMENT 01 COMMUNIQUE LABORATORY ONE-V, $0.26 October 24, 2014 Rating: STRONG BUY Target Price: $1.25 Market Capitalization: $17.1M Risk Profile: SPECULATIVE TECHNOLOGY IP LICENSING Ralph Garcea, P.Eng, MBA Analyst 647.776.1763 ralphg@globalmci.com Chris Thompson Associate 647.776.1762 christ@globalmci.com COMPANY PROFILE 01 Communique is a technology-based company that develops and markets products and services in the remote access, web conferencing, and online collaboration markets. The Company protects its intellectual property through a number of patents, which it enforces through licensing and royalty payments. ONE s suite of products includes its remote access offering I'm InTouch, its online meeting offering I'm InTouchMeeting, and its remote support offering I'm OnCall. The Company was established in 1992 and has its head office in Mississauga, Ontario. PRICE CHART Source: BigCharts.com REVISIONS Rating/Target Revised Prior Rating Unchanged Strong Buy Target Unchanged $1.25 Revenue (F14E) Unchanged $0.29 EBITDA (F14E) Unchanged ($1.87) EPS (F14E) Unchanged ($0.03) FINANCIAL SUMMARY Last Price $0.260 Price Target $1.25, (+380.8%) Div/ Yield $0.00/0.0% 52-week Range $0.16 - $0.60 S/O Basic (M) 65.7 S/O F/D (M) 68.0 Market Float (%) 84.5 Market Cap (M) $17.1 Net Debt (M) ($1.6) Enterprise Value (M) $15.5 Avg. Weekly Vol. (M) 0.22 Fiscal YE 31-Oct ONE PROVIDES UPDATE ON CTXS PATENT LITIGATION EVENTS ONE announced that it has reached an agreement with Citrix Systems (CTXS-US, Not Rated) whereby each party will withdraw their claims against each other with respect to Citrix s GoToMeeting product and 01 Communique s I m InTouch Meeting product. IMPLICATIONS Positive. The agreement should streamline the upcoming proceedings, as they will now be focused on one product GoToMyPC which is ~25% of CTXS SaaS revenue. By removing the CTXS case in California, ONE will also save on litigation costs. ONE is now preparing for the upcoming claim construction and tutorial scheduled for November 12-13 in Ohio, and the completion of expert discovery shortly thereafter on January 16, 2015. We estimate that this case could go to trial in the spring 2015 timeframe. ONE ended FQ314 with $1.6M in cash. Cash burn is now about $350K/qtr ONE has enough cash to pursue the CTXS case and defend its IP until FQ415 without the need to raise additional capital. CTXS has no other avenues to challenge the patent (estoppel), and US$1.8B+ in cash we believe the odds of a settlement increase as a trial date moves closer. CATALYSTS The upcoming catalysts for ONE include the impending claim construction and tutorial scheduled for mid-november; the expert discovery in early January 2015; and other potential litigations initiated through partnerships. VALUATION ONE is currently trading at a F2016E EV/Sales of 1.7x versus industry comparables at 3.3x on C2015E. Thesis: 01 Communique s key patents related to Remote Access and Remote Support provide revenue opportunities from a licensing and royalties perspective. Though the LOGM verdict/appeal went against ONE, we believe that ONE can build on its Bomgar settlement to license its IP. ONE is also in the midst of litigation proceedings with CTXS. Forecasts F2011 F2012 F2013 F2014E F2015E F2016E Revenue ($M) $0.48 $0.93 $1.26 $0.29 $0.32 $10.21 EBITDA ($M) ($3.23) ($2.54) ($3.21) ($1.87) ($1.88) $6.75 EPS (FD) ($0.05) ($0.04) ($0.05) ($0.03) ($0.02) $0.11 EPS (basic) ($0.05) ($0.04) ($0.05) ($0.03) ($0.02) $0.12 CFPS ($0.04) ($0.03) ($0.03) ($0.04) ($0.02) $0.11 P/E NM NM NM NM NM 2.4x EV/Sales NM 16.4x 12.1x 52.1x 47.4x 1.7x EV/EBITDA NM NM NM NM NM 2.5x See back page for analyst certification and disclosures All figures in C$ unless otherwise noted.
ONE PROVIDES UPDATE ON CTXS PATENT LITIGATION FOCUS ON GOTOMYPC ONE announced that it has reached an agreement with Citrix Systems whereby each party will withdraw their claims against each other with respect to Citrix s GoToMeeting product and 01 Communique s I m InTouch Meeting product. The agreement should streamline the upcoming proceedings as they will now be focused on one product GoToMyPC which is ~25% of CTXS SaaS revenue. ONE is seeking past damages going back to August 9, 2005 (when the 479 Patent was issued), as well as a permanent injunction prohibiting infringement. By removing the CTXS case in California, ONE will also save on litigation costs. ONE is now preparing for the upcoming claim construction and tutorial scheduled for November 12-13 in Ohio, and the completion of expert discovery shortly thereafter on January 16, 2015. We estimate that this case could go to trial in the spring 2015 timeframe. RECENT DEVELOPMENTS IN CITRIX CASE With regards to CTXS inter partes re-examination of the 479 Patent, the US Court of Appeals for the Federal Circuit (CAFC) recently issued a Rule 36 Judgment affirming the US Patent and Trademark Office (PTO) Patent Trial and Appeal Board s (PTAB) decision that ONE s 479 Patent is valid. On May 30, 2014, CTXS filed a complaint in the US District Court Central District of California that ONE s I'm InTouch Meeting product allegedly infringes CTXS US Patent #7,219,233 which is core to the GoToMeeting product. CTXS also requested a declaratory judgment (DJ) against ONE alleging that its GoToMeeting product offering does not infringe the 479 Patent. An amended complaint was filed on July 31, 2014, dropping the request for a DJ and alleging infringement of two additional CTXS patents (#8,127,019 and #8,325,896). As part of the agreement these claims are being withdrawn by CTXS. CITRIX POTENTIAL REVENUE We estimate that ~70% of CTXS Online Services (SaaS) revenue, which is on a US$600-700M/yr run-rate (CTXS just reported Q314 SaaS revs of US$165M), could infringe ONE s patents. This includes products such as GoToMeeting and GoToMyPC. We attribute $15-30M/yr in revenue to these infringements, depending on the royalty rate, for the next nine years. For past damages, we estimate that CTXS has generated ~$1.7B in SaaS-related revenue since mid- 2005, which could result in a minimum lump sum payment to ONE of $50-150M. EXHIBIT 1 CITRIX SAAS REVENUE 2005 1 2006 1 2007 1 2008 1 2009 1 2010 1 2011 2012 2013 2014 Citrix (CTXS-US) (9-months) SaaS Revenue $99.1 $148.8 $213.7 $260.1 $308.2 $360.6 $430.2 $511.3 $582.9 $483.2 1 Online Services Source: Citrix website We continue to believe that ONE has a strong case against Citrix, which could lead to a settlement in 2016 or sooner. With no other avenues to challenge the patent (estoppel), and US$1.8B+ in cash and investments (as of September 30, 2014), the odds of a settlement increase as a trial date moves closer. 2
CASH As at July 31, 2014, ONE ended the quarter with $1.6M in cash and cash equivalents. Cash burn this quarter was ~$405K but the Company plans cost savings of $75K/qtr over the next year to help conserve cash. As part of the cost-cutting focus, directors and management have agreed to a reduction in the cash component of their compensation. Cash burn is now about $350K/qtr ONE has enough cash to pursue the CTXS case and defend its IP until FQ415 without the need to raise additional capital. RATING AND TARGET We reiterate our Strong Buy rating and maintain our target price of $1.25. EXHIBIT 2 GLOBAL IP LICENSING COMPARABLES Local Price Div. Mkt. Cap. Revenue (USD) P/E EV/Sales EV/EBITDA GLOBAL IP LICENSING COMPS Ticker 23-Oct Target Yield (US$M) C14E C15E C14E C15E C14E C15E C14E C15E 01 Communique Laboratory Inc ONE-V 0.26 1.25-15 0 2 NMF NMF NMF 7.9 NMF NMF Sensio Technologies Inc SIO-V 0.24 0.75-22 1 4 NMF 13.9 14.2 4.9 NMF 11.4 Wilan Inc WILN-US 3.21 7.00 5.6% 386 96 102 6.4 6.4 3.3 3.1 5.2 5.0 Qualcomm Inc QCOM-US 75.14 84.13 2.3% 125,936 27,326 29,526 14.0 13.2 3.9 3.7 9.9 9.1 Dolby Laboratories Inc DLB-N 40.42 39.50-4,128 953 980 21.7 21.0 3.5 3.4 8.9 9.0 Rovi Corp ROVI-US 20.16 26.09-1,913 542 560 11.7 10.6 4.8 4.7 11.4 10.9 Interdigital Inc IDCC-US 43.38 47.19 1.9% 1,728 401 359 19.1 26.0 3.2 3.5 6.1 8.4 Tessera Technologies Inc TSRA-US 26.57 34.00 1.6% 1,395 262 199 12.9 22.3 4.1 5.4 9.6 16.9 Acacia Research Corp ACTG-US 15.43 21.58 3.3% 773 133 193 56.7 12.9 4.2 2.9 NMF 19.7 Rpx Corp RPXC-US 14.49 20.17-778 259 285 14.9 12.8 1.8 1.6 2.3 2.1 Reald Inc RLD-N 11.04 14.38-552 186 208 NMF NMF 3.0 2.7 9.9 7.9 Dts Inc DTSI-US 27.90 26.67-477 140 149 19.0 16.7 3.1 2.9 9.9 9.0 Virnetx Holding Corp VHC-A 5.46 42.33-282 197 40 3.5 15.6 1.3 6.4 4.0 2.1 Vringo Inc VRNG-US 0.96 5.13-89 2 125,234 NMF NMF NMF 0.0 NMF NMF D-box Technologies Inc DBO-T 0.25 0.63-37 18 21 NMF NMF 1.8 1.5 28.0 12.6 Deq Systems Corp DEQ-V 0.22 2.70-14 N/A N/A NMF NMF NMF NMF NMF NMF Source: Thomson One, Price Targets are consensus except for SIO-V, WIN-T and ONE-T Mean (excluding ONE-V) 18.0x 15.6x 4.0x 3.3x 9.6x 9.5x Mean 18.0x 15.6x 4.0x 3.6x 9.6x 9.5x Median 14.5x 13.9x 3.3x 3.4x 9.6x 9.0x 3
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General Disclosures ONE-V The opinions, estimates and projections contained in this report are those of GMCI as of the publication date of this report and are subject to change without notice. GMCI endeavours to ensure that its research reports are compiled or derived from sources that it believes are reliable and contain information and opinions that are accurate and complete. However, GMCI makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. This report is not to be construed as an offer or solicitation to buy or sell any security. Applicable Disclosures for Issuer (01 Communique) (Yes / No ): ONE-V 1) As of the end of the month immediately preceding the date of issuance of this research report or the end of the second most recent month if the issue date is less than 10 calendar days after the end of the most recent month, GMCI and its affiliates collectively beneficially own 1% or more of any class of the issuer's equity securities. 2) The authoring analyst and/or an associate of the analyst are long/short in any of the issuer s securities directly or through derivative. 3) A GMCI partner, director or officer has provided services to the issuer for remuneration during the preceding 12 months other than investment advisory or trading services. 4) GMCI has provided investment banking services for the issuer during the 12 months preceding the date of issuance of the report. 5) List name(s) of any partner, director, officer, employee or agent of GMCI, who is also an officer, director or employee of the issuer. 6) The authoring analyst has visited the material operations of the issuer. 7) The authoring analyst received reimbursement for travel expenses. Distribution of Recommendations 25 20 20 15 10 5 0 6 3 0 0 1 Strong Buy Buy Hold Sell Under Review Suspended The particulars contained herein were obtained from sources, which we believe to be reliable, but are not guaranteed by us and may be incomplete or inaccurate. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or an offer to buy or sell the securities mentioned herein. GMCI may act as financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein, and may receive remuneration for its services. GMCI and/or its principals, officers, directors, representatives, associates may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise. This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever nor may the information, opinions or conclusions contained herein be referred to without in each case the prior written consent of GMCI. 5
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