Bruce Davis - Chairman and CEO Charles Beck - CFO and Treasurer

Josh Nichols - B. Riley & Company Ethan Potasnick - Needham & Company Jeff Bernstein - Cowen & Company Jeff Van Rhee - Craig-Hallum Ilya Grozovsky - National Securities

Good afternoon and thank you for participating in today's conference call. Now I will turn the call over to Bruce Davis, Chairman and CEO of Digimarc. Mr. Davis, please proceed.

Thank you and good afternoon. Welcome to our conference call. Charles Beck, our CFO is with me. On the call today, we'll review Q3 financial results, discuss significant business developments and market conditions, and provide an update on execution strategy. We will archive this webcast in the Investor Relations section of our website. Please note that during the course of this call, we will be making certain forward-looking statements, including those regarding revenue recognition matters, results of operations, investments, initiatives, perspectives on business partners, customers, prospects, industry trends, and growth strategies. We also will discuss from time-to-time information provided to us by channel partners and actual potential customers about their business activities. We are providing this information as we understand it was represented to us. We do not verify nor vouch for such information. Such forward-looking statements and statements of our partners and customers are subject to many assumptions, risks, uncertainties, and changes in circumstances. Any assumptions we share about future performance represent a point of time estimate. Our actual results may vary materially from those expressed or implied by such statements. We expressly disclaim any obligation to revise or update any assumptions, projections, or other forward-looking statements to reflect events or circumstances that may arise after the date of this conference call. For more information about risk factors that may cause actual results to differ from expectations, please see the company's filings with the SEC including the Form 10-Q that we expect to file shortly. Charles will begin by commenting on our financial results, I’ll then discuss significant business developments, market conditions and execution strategy. Charles?

Thanks Bruce. Good afternoon, everyone. Revenue for the quarter was $8.7 million, up from $5.6 million in the third quarter of last year due to higher license revenue. License revenue included a $3.5 million license fee from an existing licensee. An exchange for the upfront license fee we wait any future royalty obligations from this licensee at one of the licensed fields of use. The license fee is due in two equal installments of $1.75 million in October 2017 and January 2018. Service revenue was down slightly due to timing of program works with the central banks which we anticipate making up for in Q4. Subscription revenue was lower reflecting lower earning revenue offset by higher Digimarc Barcode revenue. Digimarc Discovered and Barcode bookings were $100,000 during the third quarter, versus $900,000 in Q3 of last year. As you will recall we have looked at three year enterprise deals in Q3 of last year which accounted for the majority of the bookings. Notably though bookings so far this quarter are over $1 million with most of it coming from growth and in existing relationships. We continue to expect lumpiness in quarterly bookings in the early stages of market development, due to timing and varying provisions effecting bookings. Gross margin was 76% in the third quarter, up 15 points from Q3 last year reflecting the impact of the $3.5 million license fee which has an indirect cost. Operating expenses were $2.3 million higher than the third quarter of last year. The increase primarily reflects previously noted increases in staffing for sales, marketing, engineering and operations to expand our capabilities, and selling and delivering the Digimarc Barcode to retailers and brands. Net loss for the third quarter was $4.2 million or $0.39 per diluted share versus a net loss of $5.2 million or $0.55 per diluted share in the same quarter last year. We invested $6.9 million of working capital during Q3 including $5.7 million of fund operations and $700,000 for capital expenditures. We ended the quarter with over $60 million in cash and marketable securities. We anticipate cash usage will be between 5.5 million and 6.5 million in the fourth quarter. Our Q4 cash projection factors in collection of the first installment payment of 1.75 million under the paid up license fee we entered into during the third quarter which has already been received. We are in the process of finalizing our annual operating plan for 2018 and wanted to share with you our preliminary budget assumptions. For budgeting purposes we are assuming service revenue will be flat as 2017 included some non-recurring project work. We met earlier this week with the leadership group for the program. We have carried out excellent alignment on the current state of the program and strategic direction. The program is solid and there are possibilities for growth that we have not yet quantified. We expect the year-over-year trend in license revenue to be down significantly reflecting the impact of the paid up license we entered into during Q3 which increases 2017 revenue significantly and reduces what would have been 2018 revenues. We expect subscription revenue to grow significantly in 2018 reflecting new bookings for Digimarc Discover and Barcode. There is a large range of possible outcomes for revenue in this emerging area of our business. The amount of bookings and revenue recognized during 2018 will largely be dependent upon the pace of adoption by industry leading retailers and brands and the effectiveness of delivery and support by our partners in the supply chain which is inherently difficult to predict. We expect gross margins to grow as we generate more Discover and Barcode revenue with some of the improvement offset by lower license revenue as explained earlier. Operating expenses are expected to increase reflecting the first full year of stocking increases in 2017 and potential additional hiring in 2018 to support projected account activities and R&D. We anticipate entering 2018 with cash consumption running in the range of $5 million to $6 million per quarter. Cash consumption may fluctuate significantly quarter-to-quarter due to timing of customer receipts and vendor payments. For further discussion of our financial results and risks and prospects for our business please see our Form 10-Q that we expect to file shortly. Bruce will now provide his comments on significant business developments, market conditions, and execution and strategy.

Thanks Charles. First, kudos to our licensing team for making a significant contribution in working capital in a challenging environment for licensing IT. This was a good year for both parties, we liquidated some future years royalties -- market and credit risk for us while providing our licensee freedom to operate in the field for reasonable cost. Another good news regarding bookings and cash flow as Charles noted, our Q4 bookings are already over $1 million. We expect the bookings will continue to be lumpy though but it is a nice way to start the final quarter of the year and with evidence of progress in our business with the source of the booking. We are continuing efforts to tighten our focus on implementation of key accounts resulting in better internal alignment of resources and improving operational efficiency. Now that we have effectively established the basic value proposition for Digimarc Barcode we need to get everyone comfortable with scaling our platform as a successor to conventional barcodes in mission critical applications. As we discussed in our last call the retail industry is undergoing a major transformation where the major trends are favorable to us. As you know our platform is intended to mitigate -- to offer low prices on the one hand and high engagement and convenience on the other. We have told all the retailers to provide pleasant and efficient shopping experience at the lowest possible cost. The viable efficient auto identification permeates both these goals. We are aligning our sales and marketing and client services and development teams with early adopters and certain other highly engaged developing customers and their suppliers to do case studies of successful implementation of scale. The technical focus of our company is now on the tools of training and oversight of support deliveries of scale, listening carefully to the advice of these key early customers and their suppliers. Publicly acknowledged early adopters include Wegmans, New Seasons, McCormick and Walmart. On shelf availability of Wegmans' continues to increase. Our goal for Wegmans is to demonstrate the benefits of enterprise wide implementation of our platform including full enhancement of the prior brand portfolio, enhancement of fresh product labels and marketing materials and store associate and consumer applications built on this foundation. Wegmans continues to be an extraordinary partner leading the industry in modernization of Auto ID for retail. We will help them to earn the right place in history as the pioneer in a multi-industry transformation of auto identification. It's apparent that we're dedicating substantial resources to stay on our business at Walmart. Details of the work remain confidential. Walmart has become more supportive of technical innovation and general items. We intend to demonstrate significant value to Walmart with suppliers and the rest of the industry via our collaboration there. They have been and continue to be tadpole [ph] strategy. I noted earlier today a news article of interest in the Northwest Arkansas Democrat Gazette and by the expansion of testing of Bossa Nova Robots at 50 Walmart stores. Those of you who attended -- last year may recall the centerpiece demonstration in our booth showing how Digimarc Barcode can assist automation of shelf compliance activities using Bossa Nova. With respect to the other large retailer that we referred to in our last call our efforts to demonstrate technical feasibility and supply chain readiness have been successful. We are beginning production with a small number of SKUs as related to the stores in the next few months and we have a plan to scale production from there. We had witnessed strong growth and interest among others leading retailers during the quarter here and abroad across a range of applications related to Digimarc Barcode and our retail label solution. CPG leaders profess great interest are continuing struggle with technical innovation as the industry wrestles with strategies to address stagnating sales and commoditization of their brands. Private brands are gaining share and the global brands are struggling to find answers. Retailers have become more open to innovation and unlike for CPG products, private brand sales and associated investments are growing. Given these observations our near-term buyer [ph] is working with leading retailers. We welcome CPG's like McCormick and another unnamed category leader who are committed to real progress. We are tired of doing free work for CPG's lack of direction and commitment that these companies demonstrate. More importantly we are letting all customers and prospects know we're no longer providing free trials and that we expect to be paid for what we provide. Those companies that are unwilling to do and wait for us to demonstrate successful implementation scale with their competitors. Focusing our limited resources on more innovative and fair amount of retailers private brands and CPGs should shorten the past implementation and orchestration of suppliers. Applications of most interest to CPGs today center around manufacturing and quality control in partnership with the leading machine vision systems supplier and product transparency as evidenced by our growing involvement in the Grocery Manufacturers Association smart label initiative. Some opportunities presented CPG manufacturers to collaborate with leading retailers and a variety initiatives are also being discussed. We are busy delivering the first tranche of enhanced McCormack products to the market and developing business with a few other global CPG leaders in the geographies in which we are operating. As a retailer we're looking to establish collaboration that will lead others in the industry to raise the platform. We did business last week by some DMP Executives regarding the study group activities in Japan. It seems we are making good progress there. We use the opportunity to introduce our country manager for Japan, Ted Takahashi is a seasoned executive with over 30 years experience in the printing industry. He most recently was General Manager of Ricoh's commercial printing business group. Ricoh is the Japanese multinational imaging and electronics company with nearly $20 billion in annual sales. Ted's top priority is to enhance our support for the "Shopping for the Future" of study group as they prepare for commercial launch of our platform. We are looking forward to Ted's leadership in developing the business model for Japan and improving our communication with and support for the group's initiatives. The group is preparing for several important trade shows in the territory in Q1 2018. We also added former L'Oréal and Mondelez executive Claudius Jaeger to our European leadership team. Claudius brings an abundance of energy and experience in selling to the leading German retailers where we are nurturing adoption of Digimarc Barcode and retail labels. These talented and experienced new Digimarc leaders will help us to deliver timely, efficient, and effective development in our initial foreign market expansions on the way to globalization of the Digimarc Intuitive Computing Platform. Including supply chain support as well our own internal business processes will foster more speed and scale in accomplishing these goals. Our work on these matters are defining the standard operating procedures for globalization for the next generation of automatic identification pioneering by the original barcode. The near-term focus is on nurturing enhancement of private brands and deployment of our scalable solution both supporting fast checkout, consumer engagement, associate productivity, and other applications among early adopters. All of these as case studies and successful implementation running best practices from our experiences with them and applying these practices to scaling industry leaders. We believe this is the optimal near term revenue growth. The basic building blocks are in place to work with industry leaders in the U.S., Germany, and Japan to begin scaling the market. Our balance sheet is in good shape, we are making good progress, expanding our institutional knowledge, and implementing requisite software training and support services to foster progress and key performance indicators of increasing bookings and providing other evidence of growing adoption to the industry and to the financial markets. We enter our show [ph] and Needham Conference in January are less than 100 days away. We are working hard to put on an impressive show there with customers, partners and investors. That's it for our prepared remarks. We will now open the floor to questions.

[Operator Instructions]. Your first question comes from the line of Josh Nichols of B. Riley.

Yeah, hi and thanks for taking the question. I just want to ask, I think it was on the last quarterly call you mentioned that you delivered a proposal to a large retailer that you've been in discussions with for a while. Any updates you could provide us on that or the other two MSAs that we've discussed before a little bit on this call?

I don't recall exactly what you are referring to Josh. We have two MSAs in place with two large retailers. I don't recall talking about making a proposal there, it is not inconsistent with our general posture here. We have made several proposals to several large retailers and not just one.

And then could you talk a little bit about, I know you mentioned that there was an increase in interest following Amazon's acquisition of Whole Foods. Are you seeing that as a continuing level of high interest or has that dropped off a bit, any feedback you could provide?

Yes, retailers is really shaken up. I think that all the retailers are going to survive or going to embrace technical innovation to just much larger degree than they have in the past decade. So I think the effect is enduring there. You can sense a little bit of frustration in my remarks about some of the CPGs. They also want to well to move forward but they're evidencing less clarity strategically about how they should do that whereas the retailers appreciate that they have as a limited result that I have stated in my remarks and that is if you are going to have physical retailer needs to be a convenient and enjoyable experience but it has to be also low priced because online and Amazon has led the way in those and all of those things. Alright, and so that becomes a challenge, so you want to have a Wegmans like experience at the lowest possible cost. And most of the retailer is not there and it has been a prime motivator for Wegmans to become the collaborator that come with us because they obviously have a wonderful shopping experience and they want to have the lowest possible cost structures to apply against that. And so our primary initial value to bring to them is improving operational efficiency.

And then last question and then I will pass it on, over the years you have built up a good number of partnerships to a number of verticals throughout the supply chain. And now you're investing heavily in Walmart it seems like, do you as it stands today believe that you have the infrastructure in place to be able to deliver these types of solutions at scale or if not is there one or two pieces that you're looking to add and what might those be?

Well we are continuously improving the support for the supply chain. Our strategy as you know is in more mature stage of market development where we reside mostly in the backgrounds and most of the work that needs to be done is done by the existing suppliers in relationships with the customer. So, that will go on forever. It has been in the formative stages and that's where we have made a lot of progress and continue to invest in tools, training, and other elements of support for the suppliers. And so what we have been doing in the last couple of quarters here is again getting more refined and more efficient in the use of our own resources applied against the major opportunities as opposed to building our awareness and support generally in the supply chain. So in the first couple of years of market development we were sort of taking all comers so to speak of the major players and now we're trying very hard to just focus on those that will deliver near-term effect on the top line. Those that are supporting the major customer prospects not necessarily those prominent suppliers but the ones that are important to that goal.

No, that's helpful. Thank you Bruce and Charles, I will hop back in the queue.

Your next question comes from the line of Ethan Potasnick of Needham and Company.

Yeah, hi guys. This is Ethan Potasnick filling in for Jim Ricchuiti. I was wondering if you could provide I guess a little more color on this existing license fee and maybe any thoughts on how that played out and if you could provide which vertical or market that comes from?

There's some competitive sensitivity and other limitations on our disclosure. We discussed the rate of disclosure with our licensee buyer to doing our filings and our call here, and so we set up all that they're comfortable with us saying so I don’t think I can add anything more in respect to our relationship with them.

There is one area, they are continuing to be a licensee roughly bearing relationship. This was a particular field of use if they wanted some freedom to operate and as my remarks indicated in those circumstances we can agree upon the fair prices mutually beneficial because obviously we enjoy having the money in the banks as opposed to quarterly reports on the what will be sent to us.

Okay, got it and then you talked about moving to an account based marketing strategy in previous calls, is there anything tangible that you can share with us with respect to that recent shift?

Yes, the remarks today are evidence of continuing commitment and progress with respect to that shift. So, as we entered the year we were still thinking that we needed to create demand and awareness of demand. Generally we can't conclude some of that. We do not need to do that anymore but more of that we needed to focus more resources on the most promising opportunities so that we could deliver as scale and then use those deliveries as the demonstration that we can do it for others. I think that is a more efficient means of developing the market than spreading ourselves thinner across a number of opportunities. And so the account based marketing is now really account based orientation of all of our resources. So we have built account teams against the major opportunities and the account teams are cross functional. They are lead by the accounts executives in sales. There is a partner, in essence a total leader who is a program manager and then those two leaders define in their team that service of particular interest of the customer. And that team includes marketing client services, development, anything that is needed to make significant progress with the account.

Okay, got it. And then your comment on no longer providing free trials is that due to I guess any other retailers or CPG's where activity levels have picked up and are you seeing increased buzz so to speak and if so does that I guess warrant or will warrant new resources being dedicated going forward?

I guess the -- I will be as straightforward as I can be about the meaning of those remarks. We in our first few years of market development are seeing large companies who are willing to engage in extensive testing and trial as long as they are not paying for it. And of course they are dedicating their own resources, so with real cost to them but there is no real revenue to us. And in the beginning of course it was important for us to consent to those and to participate to the best of our ability. But in the resource constrained environment that we find ourselves in today with an excess of demand, we intend to put up a financial criterion and those that are sincere enough to want to pay us to do work with us we are happy to work with and those that don't feel like doing that can wait, that's what I was saying. It was just a statement to industry but I want to make you guys aware that we are changing our posture and this is in effect now. And it should have a salutary effect on the relationship between revenues and cost obviously. So we will continue adding costs without revenues. We will be trying to add revenues and then see if additional costs are justified.

Okay, great. Thank you.

Your next question comes from the line of Jeff Bernstein of Cowen.

Hi guys, just a couple of questions. One I was wondering you mentioned Walmart doing more tests with robots for inventory, any other applications that you think are sort of driving people most at this point, are the scan and go, or curb side pickup programs that a lot of retailers are talking about, are those motivators now?

Sort of both side is surprising and execution strategy thus far has been with retail labels. Well, we need to prove it to you over the course of next several quarters but when we begin our market development we begin with packaging for consumer products and we are continuing with that and we're making progress in that areas that will inspire work with Wegmans, Walmart, McCormick and others. But along the way we discovered a lot of serious problems with the ability to read the barcodes on labels on fresh products and bakery and deli meat departments and so forth to run the trimmer [ph] of the stores. So you can think as we starting to do the core of the store lot of the growth and lot of the interest in fresh on the perimeter of the store and we thought well we will get to that some day. But then we learn more about the problems from some of our customers and we determined that we could deliver an effective solution to many of those problems. And so we are now in beta [ph] test with a number retailers on scalable solution which we think will be quite successful and if it is it may be surprising upside to the business model because we have heard some very large numbers from some of the retailers as to the size of the problem and the question becomes to your earlier question of what sort of mitigation account are solution provided to those problems and we think it will be a significant mitigation.

And Bruce the economic model there, how does that vary versus the sort of SKU model?

We have a recurring license fee models for that. It is not only a price for SKU or for the label because the accounting will be challenging for that. So, it is based on the presumed number of printers and scale of printing in a model that we have built, that we believe confirms balance of the structure of the industry. So, it is a volume based recurring license model.

Great, and then just want to make sure that I heard correctly, did you say that you were now starting to roll out with the second retailer in stores in terms of just getting some products into production?

We are in productions, the products will get to the stores over the course of several months in the normal course of the supply chain.

Got you, so that is beside Walmart, that is the other new retailer?

Yes.

Got you and then I just was sort of wondering, I know you don't spend money lightly and now you've added a couple of high end people in both Japan and Europe, if you carry handy cap which one of those you think you will have a customer win in first?

That is a very, very good question. I am afraid I think I will flip the coin.

Really, wow.

That will serve optimism about both geographies. As I have explained previously they are different business models so that is why I chuckled a little bit because we have the highly efficient group sharing model in Japan and we have some serious entrepreneurs in Germany. And I don't know who wins the race. But both move very well and so I am optimistic that we'll get some breakthroughs in those areas. The work in Japan is different than in Germany. In Japan we hired Ted who is a very seasoned general manager of a large corporation division. Ted also ran the business unit in America for a while so he's a very bilingual entrepreneurial executive. And his job there is to build the business model. So it's really a much larger role than selling to accounts. It's really orchestrating our support for the Study Group and providing support for the leadership of the Study Group there and figuring out what the best business model is for Japan. And we are open minded about the Japan business model could be somewhat different than the domestic model if it's helpful to us and to the industry for rapid adoption. And so I will leave it on for now. I don’t really have a theory on it but I am interested to see what comes of his early work with the Study Group. And I will report that to you guys once I have some ideas formulated. In Europe just one, obviously they are going to partner for some time now and that has done a great job working with our staff in forming opportunities. So, there is a bunch of opportunities that is in development over there. So they are perhaps ready to get going pretty soon. We haven’t been to one of the areas where we have made specific parsing proposals and there is a great deal of interest and we have been working through that model I just described a moment ago on building account teams that can require at first support from a distance and then determine once there are contracts in place of staffing that can be supported by the contracts that we enter into. So we're not putting the cart in front of the horse in Europe or telling the customers that if you want to embrace this platform and enter into an agreement with us and then we will provide appropriate local support. So we're building a kernel of capability there but we are not going ramp them so we got paying customer serving us help to support the cost.

Great, and then lastly I read some commentary about the Japanese market saying that part of the attraction there had to do with some kind of security function, I don’t know if it was anti-counterfeiting or if it was for shrinkage purposes or whatever, any thoughts about that?

Yeah. The -- I haven't seen that but I can tell you where the sweet spot is in Japan because I just had an update especially with the leader of the Study Group. It is in the convenience industry and it is unique to Japan and this is part of why I am open to figuring out this small and moves quickly there. They have a labor shortage crisis in Japan and it is affecting the convenience store industry because they can't find people willing to work as cashiers. And it's a very serious or prominent problem there. So it is not so much speed of checkout improving operational business generally it's more about how can we get by with fewer cashiers and ultimately with no cashiers. And so that's where the action is, it is in the convenience stores and convenience stores of course are heavy users of labels and so that fits right in with this little upside that is emerging in our portfolio with the label solution. So that is why these things will get the most lift in Japan but again I'm trying to be cautious here because I have just hired an experienced country manager who is one who exactly can work with the nuances of the opportunity and ideas of about how to exploit the opportunities most effectively.

Perfect, thanks for taking my questions.

Your next question comes from the line of Jeff Van Rhee of Craig-Hallum.

Great, thanks. Bruce, just a couple for you, as you look at this bulk of booking, you mentioned you had already hearing in Q4 of a million, is this -- should we think of this as a booking to an existing MSA?

Yes.

Okay, and with respect to the structuring of it, you touched on the fresh labeling opportunity which may have a different model versus a traditional skew model versus a number of others where you're building option in various things, how was this, can you give us a flavor for how this one was structured and maybe what that tells you about future contracting if anything?

No, I can't give you any details about it. It is a confidential relationship and obviously we are sending it from a single source, so I can't identify the source or the nature as a means of trying to find the source. So, it is what it is. What it teaches us is what you and I have talked about on occasions and that our goal here is to skew the uncertainties of the upside. And that is to have these kinds of things pop up to that. We can't predict and you can't either but it kind of surprises your mind. So we expect volatility, we expect that there will be big bookings in some quarter that are small in numbers for a while. And so we build the customer base that naturally -- the volatility naturally subsides. So, this one is in October and there can be more coming at anytime in any month and when they -chooses to enter into a large financial obligation then it will have a big impact where they choose to sort of pay as you go and have less impact. And so there is not much I can say about the details of this particular booking other than that.

Maybe then from just sort of down in the nuts and bolts of our projections as we all have models and are going to be revising things forward, how should we think about this rolling in from a revenue recognition standpoint, that million rolls in over to whatever degree you can share, what kind of duration are we thinking, cause the guidance on the subscriptions was by your own admission, they are very wide, it could be big growth not sure, lot of variable but at least with respect to this one how can we think about its flow through on revenues?

Jeff this is Charles. This particular booking get recognized over one year annual period.

Okay, got it. And let me see if I had anything else, the -- I guess Bruce you talked in a number of places about training oversight tools, can you just spend 30 seconds, I just want to -- I am juggling a lot of stuff here, maybe I missed it because I know you touched on it a few times, just your best clear examples of what that means tools training oversight, what are you doing there?

Yeah, you will see more of this merging on our website. We also have a private website for our supplier partners to where things are. But if you just reflect on the sort of casual level on how barcodes operate but if you become more exclusive with barcodes. Over the course of 40 years a lot of our performance characterization and quality assurance have been built in. And so our ambition here, our mission is a grand one which is to supply that, to do what they do. Well to do what they do we have to assure all supply chain that we are going to be as reliable and safe as the Barcode. So we are building quality assurance tools, grading tools, verification tools. We are building our business process with suspenders to backup the safety. It is all that stuff which is about this -- business because of looking intimately in ROID. And then the flow with your supply chain which means from enhancement side and the enhancement tools and the prepress process and the printing process and then on the reading side and the sale scanners and the machine billing systems, and smart columns and other -- and the robots and everybody else. So that is a lot of work and that is the work that we're doing now. And as we invest in that we will get to a point where we are really mature in various elements of this. We're still pretty early in the game. There's plenty of work to do there and that's where the support of some industry leaders is very helpful because it motivates the suppliers to collaborate and to share investment. And to get these things done in a way that is very trustworthy for the supply chain. So, it is because of the importance that we will have that we must do all these things. So it's not merely an just slightly -- barcode on the packet reading it, it is supported by transactions, inventory management, labor utilization, all kinds of mission critical activities. So, that is where the work is. And that is what the work has been and it is hard to articulate and hard to visualize properly for most investors.

Right, got it, thanks. Well congratulations on the follow on order. Thanks for taking my question.

Your next question comes from the line of Ilya Grozovsky of National Securities.

Thanks, I just want to do a follow-up a little bit on the 3.5 million one time, the field of use that this was coming from, how much other revenue potentially could be subject to a one time from other clients where they would essentially buy out of it?

Yeah, well good question Ilya but we don’t know until we get there, that is the way these things work. So, this is an interesting relationship, there are other fields of use not yet liquidated and the expansion of various globalization that trigger a conversation like this, like we had and successful outcome as I said for both parties. And so there was an end user trigger that is more what do they need, what do we need. We have recurring discussions around the times of renewals or explorations. And then we try to come up with a model and it has always been our approach in terms of our ethical basis. What we are supporting is what is fair and in this case they were willing to pay what would be the equivalent of multiple years of expected royalty and the freedom to operate in an area that had risk and opportunity for them. And so we were happy to engage in the conversation. For us obviously it has the working capital, no credit or market risk. And for theme it gives them the opportunity to work the market without having to worry about the burden of the continuing cost to us. So, that's how the deal come by. I think they are probably pretty comfortable with it and I am too.

Alright, so just a follow up then, in terms of on a quarterly basis what is the whole, had this never happened what do you think your revenues would have been in the quarter in terms they would have obviously been paying the license fee, I mean in other words what kind of a whole, because it looks like it's about 5.2 million without this one time, what would it have been had this been business as usual?

Yes, so they are basically paying us in quarterly royalties ranging anywhere from 200,000 to 300,000 was the kind of range of royalties. And we did royalties --

On this used case, for this use case?

And we did get the royalties for Q3 as well.

Oh, got it. Thank you very much.

At this time this concludes our question-and-answer session. I would now like to turn the call back over to Bruce Davis. Sir, please proceed.

Alright, thank you very much. Thank you everyone for participating in the call. We as always appreciate your support and trust in the company. Our next public invitation on a large scale will be MRS [ph] in January and closer to line to that is the Needham Growth Conference in January. We have one other event in the month, I had mentioned we think it is a significant event and that is the GMA Executive Conference, mid-leader executive conference in Miami later in January. So it is going to be a very, very busy month. We don’t have a very good finish to the year and a start to the new one. So we look forward to talking to you again soon. Thank you.

This concludes today's call. Thank you ladies and gentlemen for joining us today for our presentation. You may now disconnect.