Don't show againIt’s Over: URS Settles Claims With SoundBite for $4.6 Million
It looks like there will be one less distraction for management at SoundBite Communications (NASDAQ: SDBT), a leading provider of on-demand customer contact solutions that include Automated Voice Messaging, Text Messaging, and other customer contact solutions.
After the market closed on June 25th, 2008, SoundBite announced that they reached a settlement agreement with Universal Recovery Systems, Inc. (URS), the owner of the Universal Systems Right Party Contact Solution, a patented approach to maximizing right party contacts.
New to the SoundBite story?
- Read my last company update here.
or you can:
I’ll break down this report into 4 parts:
- The Lead Up: A brief rundown of how we got here in the first place
- The Resolution: What the settlement means for SoundBite
- Still Profitable: Amazingly enough, SoundBite comes out way ahead in this
- The Bottom Line: Now management can get back to righting the ship
The Lead Up
URS Delays SoundBite IPO, Stirs Up the Pot
I won’t go into laborious detail as to how this all started and what went down.
- You can read my initial explanation of the two different litigation filings from SoundBite’s latest conference call here.
or
- Read my conversation with management and their explanation of the two lawsuits that were brought against them here.
At any rate, this is the short of it:
- Part 1: A few days before SoundBite was set to go public SoundBite received a letter from Universal Recovery Systems (URS), that URS thought they (SoundBite) might infringe on an existing patent and the belief that they might also potentially infringe on an as-yet unapproved patent application.
URS never actually filed suit, they just sent a letter saying that SoundBite MIGHT infringe on the current patent and the potential patent that might be issued.
Within 3 days, URS caved, filed a statement of non-liability saying SoundBite does NOT infringe on the issued patent in question, and never sued SoundBite.
As a result of this claim and hoopla, SoundBite had to wait to file their IPO till November, about 2 weeks later, and had to lower their offering price to $8 per share, from the proposed $12-14.
SoundBite then sued URS for tortious interference, and unfair and deceptive practices.
- Part 2: In addition to this first suit, on May 1st, 2008, URS filed a complaint in federal court in Minnesota, looking to retract its statement of non-liability, from the aforementioned case.
In the new complaint, URS asserts a claim for material misrepresentation, alleging that it filed the original statement of non-liability after relying on what it characterizes as “false representations” from SoundBite concerning its non-infringement of URS’s issued patents.
URS has also asserted a claim that SoundBite’s on demand AVM products infringe on one of URS’s existing patents.
My Take: As you can see, this was starting to get messy and really added another distraction to SoundBite’s management team from their business endeavors.
I’m happy to see this resolved in an amicable, and expedient fashion, as I’ll explain more below.
The Resolution
Settlement Ends All Litigation on Both Sides
Today’s settlement announcement brings to a close the aforementioned litigation on both fronts: SoundBite vs. URS, and URS vs. SoundBite.
As part of the settlement, URS will pay SoundBite $4.6 million and grant SoundBite a worldwide, perpetual, non-exclusive license to the URS patents involved in the two lawsuits.
URS has also agreed to dismiss its claims of patent infringement and fraudulent inducement against SoundBite in the second lawsuit.
URS’s patents relate to determining whether the right party is on a call and was at the center of the second dispute brought about by URS.
As part of the settlement, the license granted to SoundBite is royalty-free and it appears that SoundBite will be off the hook for any future royalty payments or potential litigation for any perceived infringement.
However, in the press release, SoundBite does mention that the license is royalty-bearing with respect to systems that, at a first hierarchical level, use a human operator who determines whether a right party contact is available.
But, at present, SoundBite’s current systems do not employ such an operator, and SoundBite doesn’t expect to use such an operator in its automated voice messaging products in the future.
In return for the settlement amount, and granting of the special non-exclusive use of URS’s patents, SoundBite has agreed, under certain circumstances, to not contest the validity of URS’s issued patents to the extent that they apply to SoundBite’s business.
In addition, SoundBite also agreed to dismiss its business tort and unfair practices claims in the first lawsuit against URS and its CEO, Blake Rice.
My Take: It’s time to break out the candles, hold hands and start singing Kumbaya.
Seriously, it’s good to have this behind us, and settled once and for all.
Now SoundBite’s management team can focus on important stuff, you know like righting the ship after last quarter’s earnings disaster.
Still Profitable
SoundBite Comes Out Way Ahead
According the last analyst conference call, SoundBite’s management pegged the total cost of litigation against URS to be around $2.5 million by the end of 2008.
If we assume that these costs have already been incurred due to the settlement, SoundBite still came out on top by about $2.1 million.
Management always stated that they thought that this legal battle would be “profitable” for them, and it turns out they were right, even if we use the total cost outlay that they projected way before this settlement took place.
My Take: This is good news for us on two fronts: 1) SoundBite will add a little more cash to their coffers, and 2) with this legal stuff out of the way, they can now apply that capital to other resources that will improve their business, such as hiring more sales and marketing staff.
Bottom Line
SoundBite Still a Speculative Buy
I’m pleased with the end result of this litigation.
It’s one less thing for management to worry about, one less expense on the balance sheet, and even garnered SoundBite a little bit of cash to boot.
Needless to say, SoundBite still has a lot to prove to me, and has a lot of ground to make up from where it was originally recommended as a buy on multiple occasions.
Since SoundBite’s last earnings disaster, the stock has climbed nicely from about $2.70 to it’s current level of around $3.50.
I expect with the current settlement with URS that ends all past and future litigation by and against SoundBite, the stock will react somewhat positively tomorrow, and in the days ahead.
If you are a speculative investor, then SoundBite is right for you, as it is still within range of its cash value ($2.50 per share), and has already reflected the downside risk and pessimism on Wall Street.
Dip your toes into the water here, and start a small speculative position.
For those who already own shares, hold on to them, and we’ll give SoundBite one more quarter to see how the business trends are playing out and if the problems demonstrated last quarter were short term in nature.
New to the SoundBite story?
- Read my last company update here.
or you can:
|
*Variables You Should Know About SoundBite Communications (Nasdaq: SDBT) |
|
|---|---|
| Current Recommendation: |
BUY |
| The Company: | SoundBite Communications is a leading provider of on-demand automated voice messaging (AVM) solutions that are delivered through a Software as a Service (SaaS) model. |
| Why Buy Now: |
|
| Market Cap: |
$53.1 |
| Revenue (2007): |
$40 |
| Cash/Debt: |
$36/ $0 |
| Current Price: | $3.50 |
| Risk Rating (?): | 10 (Highest Possible Risk!) |
| Position Size (?): | 1/4 (2-1-08), 1/2 (2-13-08), 1/4 (5-1-08), |
| Buy Around Price (?): | $6.00 (2-1-08), $5.50 (2-13-08), $4.00 (5-1-08) |
*As of 6-25-08. Except share price, all values in millions.
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(8) comments to “It’s Over: URS Settles Claims With SoundBite for $4.6 Million”
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July 1st, 2008 at 6:54 pm
Big Deal
5m in the bank - attorney fees of $2m - money spent on travel/photocopies/other etc = approx $2m
$2m is pocket change.
Wait for other litigations to begin.
BTW - what’s your take on Varolii (formerly Par3) pulling out of their IPO?
July 1st, 2008 at 9:23 pm
Jatin,
Hey there, I know that $2.1 million might not sound like a lot, but we are talking about a company with a market cap of only $51 million!
A cash infusion like this is worth about 4% of their total market cap.
Not to mention that they were not cash flow positive last year, and the extra $2.1 million this year would go a long way towards stemming the tide until SoundBite can right the ship, and reeccelerate their business.
This doesn’t even include the bigger aspect of putting this behind them so management can focus on the business and not petty legalities.
It’s a win-win all the around, especially for such a small player.
Varolii backed out the IPO for the same reason other companies have backed out recently; the market conditions did not favor debt-ridden, speculative companies with unproven business models, of which admittedly, SoundBite is one.
SoundBite was able to make it to market, and they have no debt, and a ton of cash on the balance sheet, which was part of the reason they were able to come public at the time, not to mention the fact that their sales were accelerating rapidly also.
Chris
July 8th, 2008 at 3:55 am
Excellent!
Imagine you are CFO for a day at SoundBite
Should SoundBite buy back stock at the current low price?
OR
Should the ~$2m be used for product development and/or Sales/Marketing expenses?
Also Why have Analysts not upgraded?
July 8th, 2008 at 12:41 pm
Jatin,
I can tell you right away that SoundBite is not buying back their stock any time soon!
I feel that this next earnings release by SoundBite might not be pretty at all, and there is no way that insiders or company execs would want to own more shares of a tanking stock.
You can usually tell which direction a stock is headed by watching insider selling and/or buying.
With the extra money that SoundBite has they are going to keep it in their coffers for a rainy day and for the business since things aren’t going to be easy for the rest of 2008.
They will also most likely use the money for more R/D and sales to grow the business if anything at all.
Finally, as for upgrades, this was not really a new item worthy of analyst’s upgrades because it was not material to the business.
You would only see upgrades after earnings if things start to turn around.
We’ll have to wait and see when SoundBite reports earnings in a few more weeks.
Chris
July 11th, 2008 at 2:20 pm
Now that this has been settled when can we expect the next earnings disaster/surprise?
July 11th, 2008 at 2:43 pm
Al,
I hate to say your right, but you probably are.
I am not at all confident of any kind of “surprise” at least in a good way…
Be ready and prepared for something poor to ok, but that’s it.
I can’t see the shares falling much below the $2.50 mark, so that’s why I am holding, but I was willing to give SoundBite 1 more quarter and then we are out.
Let’s see what they pull out of the rabbit hat this time around in about 3-4 weeks.
Chris
July 22nd, 2008 at 8:30 am
Soundbites market looks to be getting a little crowded.
TCN launched a new platform and has sequential dialing, new look too. Here is the PR
http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20080722005191&newsLang=en
July 22nd, 2008 at 12:15 pm
The proof is in the pudding I suppose.
We’ll see soon enough how things are shaking out at SoundBite and what’s going on in the marketplace.
I can tell you right now that things are getting mighty tough for all the old and new players in the space.
Chris