Acacia Research Corp (ACTG) 2009 Q2 法說會逐字稿

Good afternoon and welcome, ladies and gentlemen, to the Acacia Research Second Quarter Earnings Release Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mr. Paul Ryan. Please go ahead, sir.

Thank you for being with us today. Today's call may involve what the SEC considers to be forward-looking statements. Please refer to our 8-K, which was filed with the SEC today, for our forward-looking statement disclaimer.

With us today are Chip Harris, President of Acacia; Dooyong Lee, Executive Vice President; and Clayton Haynes, our Chief Financial Officer. Today I will give you an overview of the progress we're making in building the business and Clayton Haynes will provide you with an analysis of our financial results. We will then open the call for questions.

Acacia Research revenues for the second quarter of 2009 were $15.031 million, an increase of 111% compared to $7.116 million in the year-ago period. Cash and investments increased during the quarter by $5.2 million to $59.2 million. Acacia generated second quarter revenues from 21 new licensing agreements covering 16 different technologies including initial revenues from one new licensing program. With two new licensing programs generating initial revenues since the end of the quarter, Acacia has now generated revenues from 55 different technologies.

During the quarter, Acacia acquired control of eight new patent portfolios for future licensing. This was the second best quarter in our history for acquiring new portfolios. Acacia Research reported a second quarter net loss of $2.6 million including non-cash patent amortization and non-cash stock compensation charges totaling $3.2 million.

Acacia Research trailing 12-month revenues set a new record at $59.744 million, an increase of 58% compared to $37.7 million at the end of the second quarter of 2008. Acacia's trailing 12-month revenues have now increased for six consecutive quarters. Acacia's revenues of $45.9 million over the past three quarters also set a new record for a nine-month period.

During the last four quarters, Acacia has regained the momentum in its revenue growth following the flat first half of 2008 when we were transitioning to the new generation of licensing programs. We currently have the largest number of licensing opportunities in our history. The new licensing programs we have been developing over the past couple of years have the potential to further accelerate future revenue growth. Many of our licensing and enforcement programs are now moving toward trial dates over the next year which could increase the number of settlement and licensing agreements.

For those companies who decide not to take a license prior to trial, we are hopeful that we will have many more jury verdicts like the one our subsidiary, Creative Internet Advertising, had with Yahoo in the second quarter. In the trial with Yahoo, our subsidiary received a unanimous jury verdict of infringement and awarded damages of $6.6 million based on Yahoo's revenue related to the invention through November of 2008.

The jury also returned a unanimous verdict that Yahoo's infringement was willful. Our subsidiary has asked the court to enter a judgement in the amount of the verdict and for enhancement of damages, pre-judgement interest, and attorney fees. Yahoo has asked the court to limit the damages on the basis of laches. A hearing on these and other post-trial motions is set for August 3.

In addition, the parties were ordered to brief the court on the issues related to ongoing royalty rate after the verdict and any supplemental damages based on Yahoo's use of the invention between November 2008 and the date of the verdict. An evidentiary hearing on the issue of ongoing royalty is currently scheduled for September 30.

On the business development side, our successful track record of now generating over 670 licensing agreements covering 55 different technologies is generating increasing interest from technology companies, universities, research centers, and individual inventors wanting us to take over the licensing of their patented technologies.

The current economic climate is driving a heightened level of interest, particularly from technology companies wanting to generate revenues from their patents. We are very fortunate to be in the business which is actually benefiting from current economic pressures.

A great barometer of our Company's performance are the testimonials we receive from inventors and companies who have partnered with us. I encourage you to go to our website and read some of the 50 plus testimonials we have received. They are a strong verification of both our business model and of the exceptional efforts of Acacia's business development, engineering and licensing executives who are creating value for our business partners and Acacia's shareholders.

This success continues to enhance our position as a market leader and it is expanding opportunities to grow our business. With that, I would like to turn the call over to our Chief Financial Officer, Clayton Haynes.

Thank you, Paul, and thank you to everyone joining us for today's second quarter of 2009 earnings conference call. As indicated in today's earnings press release, on a consolidated basis, second quarter 2009 license fee revenues totaled $15.031 million, as compared to $7.116 million in the second quarter of 2008.

Second quarter 2009 revenues included license fees from 21 new licensing agreements covering 16 of our technology licensing programs as compared to 16 new licensing agreements covering 11 of our technology licensing programs in the second quarter of 2008.

License fee revenues continued to fluctuate from period to period based on the various factors discussed on previous earnings calls and in our periodic filings with the SEC. Consolidated trailing 12-month revenues totaled $59.7 million as of June 30, 2009, as compared to $51.8 million as of March 31, 2009, $48.2 million as of December 31, 2008, and $37.7 million as of June 30, 2008.

Second quarter 2009 revenues included initial license fee revenues for our database access technology. For a summary of additional technology licensing programs generating revenues during the second quarter of 2009, please refer to today's press release and 8-K filing with the SEC.

Currently, on a consolidated basis, our operating subsidiaries have generated revenues from 55 of our technology licensing programs. Our average margin, defined as gross license fees less inventor royalties and other payments to patent owners and contingent legal fees for the portfolios generating revenues during the period, was approximately 49% for the second quarter of 2009, as compared to 42% for the second quarter of 2008.

Average margins continue to fluctuate period to period based on the mix of patent portfolios that generate revenues each period and the related economics associated with the underlying inventor agreements and contingent legal fee arrangements, if any.

For the second quarter of 2009, Acacia Research reported a GAAP net loss from operations of $2.6 million, or $0.09 a share, versus $5 million, or $0.17 a share, in the second quarter of 2008, as illustrated in today's press release and related 8-K filed with the SEC.

Excluding the impact of non-cash patent amortization charges of $1.1 million and non-cash stock compensation charges of $2.2 million, we've reported second quarter of 2009 net income of $593,000, compared to a net loss, excluding non-cash charges, of $1.9 million for the second quarter of 2008.

Inventor royalties for the second quarter of 2009 were $2.4 million, as compared to $2.2 million in the prior-year period. Contingent legal fees for the second quarter of 2009 were $3.3 million, as compared to $1.9 million in the prior-year period.

In addition, other payments to patent owners included net income attributable to non-controlling interest in operating subsidiaries, which is reflected in the income statement, which represents the portion of net proceeds from the licensing and enforcement activities of one of our majority-owned operating subsidiaries that are distributable to the operating subsidiary's non-controlling interest holders.

Other payments to patent owners totaled $2.121 million in the second quarter of 2009. Inventor royalties, other payments to inventors, and contingent legal fees fluctuate period to period based on the amount of revenues recognized each period and the mix of specific patent portfolios with varying economic terms generating revenues each period.

Second quarter 2009 inventor royalties, together with other payments to patent owners, increased 105% as compared to the second quarter of 2008, consistent with the 111% increase in license fee revenues for the same period.

Second quarter 2009 contingent legal fees expenses increased 69% due to certain patent portfolios with lower contingent fee rates generating revenues during the second quarter of 2009 compared to the patent portfolios generating revenues during the second quarter of 2008.

Marketing, general, and administrative expenses for the second quarter of 2009 increased to $6.195 million, including non-cash stock compensation charges of $2.181 million from $5.511 million, including non-cash stock compensation charges of $1.938 million in the comparable 2008 period.

The increase was primarily due to an increase in business development-related research and consulting expenses in the current period and an increase in non-cash stock compensation charges resulting from the issuance of restricted stock incentive awards to new and existing employees subsequent to the end of the second quarter of 2008, in accordance with our customary incentive compensation practices.

Patent-related legal expenses increased to $2.1 million in the second quarter of 2009 from $1 million in the second quarter of 2008. The increase is primarily due to patent-related legal expenses incurred on new licensing and enforcement programs commenced since the end of the prior-year period and an increase in legal expenses related to certain of our ongoing enforcement actions that are further long in the litigation process.

Patent-related research, consulting and other expenses increased to $618,000 in the second quarter of 2009 from $495,000 in the second quarter of 2008. Patent-related research, consulting and other expenses include third-party patent-related research, development, consulting, licensing and enforcement, and patent maintenance costs incurred in connection with the development and licensing and enforcement and maintenance of patent portfolios.

These costs fluctuate period to period based on patent-related research, licensing and enforcement, and maintenance activities in each period. The quarter-to-quarter increase in patent-related research, consulting and other expenses is due to expenses incurred in connection with new patent-related licensing and enforcement programs commenced since the end of the prior-year period.

Looking forward, for fiscal 2009, we expect MG&A, excluding non-cash stock compensation charges, to be in the range of $13.5 million to $14 million. For fiscal 2009, estimated patent-related legal expenses, together with patent-related research, consulting, and other costs, are expected to be in the range of $8.5 million to $9 million.

From a balance sheet perspective, total assets as of June 30, 2009 totaled $75.6 million, compared to $73.1 million as of December 31, 2008. As of the end of the second quarter, cash and investment balances totaled $59.2 million versus $51.5 million as of December 31, 2008.

Positive net cash inflows from operations for the second quarter of 2009 totaled $6.6 million versus cash flow break-even for the second quarter of 2008. Net cash inflows from operations for the six months ended June 30, 2009 totaled $9.2 million versus net cash outflows from operations of $3.9 million for the six months ended June 30, 2008. Accounts receivable from licensees totaled $2.5 million as of the end of the second quarter of 2009, compared to $7.4 million as of December 31, 2008.

Again, thank you for joining us for today's earnings conference call and I will now turn the call back over to Paul Ryan.

Thank you, Clayton. Operator, can you open up the call for questions, please?

The question-and-answer session will now begin. (Operator Instructions). And our first question is coming in from Dan Katz from Apex Capital. Please go ahead.

Hello, gentlemen, and congrats on continued good business momentum.

Thank you.

Can you explain why you had such good cash generation in the quarter, please?

Well, the margins, as Clayton said, expanded to 48%. I think we're beginning to get licensing deals done in many cases earlier in the life cycle of the licensing program before we bring in legal action, which improves our margins and our partners' margins. And part of it is just timing. We did some licensing deals toward the end of the quarter and received it, so part of it is a timing issue, bringing in the cash, and part of it's margins.

That's pretty good. And then in terms of the Yahoo case, can you go through the possible outcomes of that August 3 date that you referred to, and then would you expect Yahoo to try and negotiate a one-time payment rather than pay that royalty over the remaining nine years of the patent?

Well, anything is possible. The August 3 hearing is -- we've asked the court to enter the verdict for the damages as well as enhanced damages based on the willful infringement as well as other matters before the court, including the usage of the technology from the original November 2008 date to the present.

So the court will rule on those either before or at the latest by August 3 and that certainly will set any negotiating tone, I would think. It will give additional information to both parties upon which to base their discussions.

The later period relates to the royalty rate that the jury awarded and that would also be the ongoing discussions and that issue really isn't scheduled to be resolved by the court until September 30th.

So that's a -

As you know, with these particular type of cases, Danny, there's a variety of potential solutions including settlements and/or a combination of that and ongoing royalties.

Okay. And then can you give an update on the environment or different jurisdictions, different venues, that you've chosen? I know at one point you had been headed in one direction; you've sort of diversified that. Just what's your strategy and what the general environment for that -- the choosing of those jurisdictions at this stage?

It's really driven by the partners to have the patented technologies often times in their location and where a preponderance of the evidence would be. For instance, just by way of example, our location-based cell phone case in the state of Ohio is based there because our partner was a cell phone company based in Ohio. So just a logical place for it to do.

So we're very spread out in I don't know how many districts now, but probably over 20 different judicial districts, based on where it makes sense. Primarily from where our IP partner is based and where the historical development took place and the operations of that company.

Thank you.

Paul Ryan. Sure. Thank you.

(Operator Instructions). And we have our next question coming in from [Harry Haskell], a private investor. Please go ahead, sir.

Hey, Paul, anything new on Comcast?

Well, actually we have a variety of litigations. You're probably referring to our original video-on-demand, our digital media transmission case?

Yes.

That is still in the northern district of California. It's still in the claims construction phase, which we're hoping we will get through this year and be able to move into discovery and move the case forward. But we've had no progress since the last quarter on that case of a fundamental nature; we're still in the claims construction process.

Sir, does that conclude your question?

Yes.

Thank you, Harry.

Thank you. (Operator Instructions). This will conclude the question-and-answer session. I will now turn the call back over to Mr. Ryan.

Thank you very much. I want to thank you all for being on the call with us today. If you have additional questions, please feel free to give myself or Rob Stewart, our Head of Investor Relations, a call with any follow-up questions, and I look forward to speaking to you next quarter. Thanks again.

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This concludes our conference for today. Thank you for participating and have a nice day. All parties may now disconnect.