Acacia Research Corp (ACTG) 2015 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Acacia Research First Quarter Earnings Release Conference Call. At this time I would like to inform you that the 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. Matthew Vella. Please go ahead, sir.

Thanks, Don. Good afternoon. 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.

In today's call, the terms "we," "us," and "our," refer to Acacia Research Corporation and its wholly and majority owned operating subsidiaries. All patent rights, acquisitions, development, licensing, and enforcement activities are conducted solely by certain of Acacia Research Corporation's wholly and majority owned operating subsidiaries.

With me to today are Clayton Haynes, our Chief Financial Officer; Jaime Siegel, our Executive Vice President of Licensing; and David Rossman, our Executive Vice President of Strategic Licensing, who is with us to field questions about his team's fine progress in licensing our Voice/Age portfolio.

Clayton will start our call by taking you through the numbers for this past quarter. Clayton?

Thank you, Matt, and thank you to those joining us for today's earnings conference call.

As detailed in our earnings release today, Q1 2015 revenues totaled $34.2 million as compared to $12.6 million in the comparable prior-year quarter. Q1 2015 revenues were comprised primarily of 23 new license agreements executed in the quarter as compared to 20 new license agreements executed in the comparable prior-year quarter.

As we have discussed on previous conference calls, license fee revenues continue to be uneven from period to period.

For the first quarter of 2015, we reported a GAAP net loss of $13.1 million, or $0.27 per share versus a GAAP net loss of $24.4 million, or $0.51 per share for the comparable prior-year quarter. On a non-GAAP basis, we reported net income of $3.2 million, or $0.06 per share as compared to a non-GAAP net loss of $5.2 million, or $0.11 per share for the comparable prior-year quarter.

As discussed on previous conference calls, non-GAAP net income or loss excludes the impact of certain noncash charges and noncash tax benefits. Please refer to our disclosures regarding the presentation of non-GAAP financial measures in today's earnings release and 8-K filed with the SEC.

On a combined basis inventor royalties and contingent legal fees expense increased primarily due to the 172% increase in related revenues quarter to quarter and, on average, higher average inventor royalty rates primarily due to lower average levels of cost recovery related preferred returns for the specific portfolios generating revenues during the first quarter of 2015 as compared to the prior-year quarter.

As a result, average margins for the first quarter of 2015 were 59% as compared to 80% in the comparable prior-year quarter.

Litigation and licensing expenses were relatively flat quarter-to-quarter, down 4% reflecting comparable net levels of licensing, litigation, support, and strategic patent prosecution activities period-to-period. These expenses will fluctuate period-to-period based on future activity levels occurring in those periods.

MG&A expenses excluding noncash stock compensation charges increased 6% quarter-to-quarter due primarily to an increase in variable performance-based compensation costs consistent with the increase in revenues quarter-to-quarter.

Q1 2015 noncash stock compensation charges decreased $1.5 million, or 32% due to an overall decrease in grant date fair value for the shares' expense during the quarter and a decrease in the number of shares vesting for current employees.

First quarter 2015 noncash patent amortization expense decreased $1.4, or 10% due primarily to a reduction in patent portfolio impairment charges in the current quarter, which was partially offset by scheduled amortization on new patent portfolio investments made since the end of the prior-year quarter.

From a cash flow perspective, we ended Q1 2015 with $165.6 million of cash and investments versus $193 million as of December 31, 2014. Q1 2015 patent investment-related up-front advances and scheduled milestone payments totaled $16.9 million as compared to $1 million in the comparable prior-year quarter.

Cash outflows for Q1 2015 also reflect quarterly cash dividends paid to shareholders totaling $6.4 million.

Looking forward for fiscal 2015, we continue to expect fixed MG&A excluding noncash stock compensation charges to be in the range of $28 million to $30 million. Based on current outstanding grants or restricted stock, we expect scheduled noncash stock compensation charges for fiscal 2015 to be approximately $13 million.

For fiscal 2015 we expect patent-related litigation and licensing expenses to be in the range of $35 million to $37 million depending on net patent portfolio litigation, international enforcement, and strategic patent prosecution activities occurring during the remainder of 2015.

Excluding future 2015 patent portfolio investments, scheduled fiscal year 2015 patent amortization expense is expected to be approximately $52.2 million.

Thank you again for joining us today. I will now turn the call back over to Matt Vella.

Thanks, Clayton. Acacia continued its mission of charting for its patent partners a path to financial returns for the unauthorized use of their patented technologies. To date, we earned well over $1 billion of license revenue and have returned nearly $691 million to our partners, our customers.

We remain confident in our strategy and operating focus and continue to expect revenue to ramp through 2015.

For the past year and a half, we have consistently told you, our shareholders, that the rapid onset of approaching trial dates for many of our most important portfolios historically results in significantly enhanced revenues. Heading into 2015, Acacia was optimistic that California February trial dates for our Adaptix handset portfolio would lead the way to exciting new licensing opportunities in the first quarter.

The postponement of the California handset case for Adaptix, however, resulted in the March German trial dates for our Voice/Age portfolio leading the way to new licensing opportunities and that same portfolio being the revenue driver in the first quarter.

The results from the initial German Voice/Age trials have been very encouraging. Acacia prevailed on our first Voice/Age trial in March leading to several new license agreements. Some of those agreements commanded up-front license fees that accounted for much of the $34 million of revenues we recognized this quarter.

Significantly, some of those agreements commanded ongoing royalties, which still not significant contributors to our revenues or earnings this quarter, are expected to be significant contributors to our financial results for many quarters to come.

As our various portfolio licensing programs develop and progress towards trials, pricing around each of our portfolios becomes more established. Acacia therefore continues its commitment to provide enhanced licensing information to facilitate improved modeling of our financial outlook.

Specifically, since our Voice/Age trial win using rate tables we have already posted to our website and publicly available market data, we can provide the following Voice/Age information along with some associated implications applicable to other portfolios.

Number one, we are licensing the Voice/Age portfolio at rates ranging from $0.20 a unit to $0.40 a unit, depending on several factors including the application being licensed and the applicability of various discount factors to these early adopter discounts and volume discounts. As unit pricing on our other eight-plus marquee handset portfolios begin to solidify, we should also endeavor to share that pricing with you.

Number two, we believe the Voice/Age portfolio will cover roughly 120 million units, licensed and unlicensed, in 2015 in covered countries outside China. We think that annual coverage will increase past 700 million units, licensed and unlicensed, by 2019. Again, with patent coverage excluding China as high-def voice begins to appear in virtually all handsets shipping in America, Western Europe, and Japan.

In one sense, as in the case with the rest of our smart phone portfolios, the foregoing unit count scenario is a worst-case outcome for us since it assumes static market shares being maintained by smart phone vendors, which is not our operating assumption given what we anticipate will be a significant rise in the market share of Chinese smart phone vendors in developed nations in the coming years.

Specific coverage rates for other handset portfolios will vary according to their individual features and trial outcomes. [What will also] be made known is our litigations for those portfolios mature.

Number three, the major patents of the Voice/Age portfolio have four to seven years of life remaining. The amount of time left on the major patents of our other portfolios will vary but can be presently determined by looking at patents that are the subjects of present and future litigation for each of these other portfolios. We think the foregoing information is helpful in modeling the value of our smart phone marquee portfolios, going forward.

Turning to our portfolio sourcing activities, though we did not acquire rights to any new portfolios this quarter, the opportunity to source additional portfolios remains excellent. Our pipeline is presently filled with several large and promising opportunities for the technology, automotive, and energy verticals.

We still expect the intake of marquee patent portfolios to continue, and we are still targeting 15 to 17 marquee portfolios by the end of 2015.

Turning to our revenue outlook, Acacia's trial calendar remains well populated notwithstanding the litigation delays our Company experienced this past quarter. We think our major trial dates remain basically on track, and as we showed again this past quarter with our Voice/Age portfolio, trial dates tend to be correlated with licensing revenue opportunities.

Accordingly, the regular cadence of trial dates in our litigation calendar bodes well for our return to a much-improved revenue outlook. As we have mentioned before, the overall quality of our trial calendar and, therefore, our confidence in our Company's future including strong revenue growth in 2015 and beyond has not fundamentally changed.

We are also pleased with this quarter's emerging mix of ongoing royalty and up-front license agreements, which, if it continues to emerge will provide Acacia shareholders smoother quarter-to-quarter revenues and income.

We have spent some time on prior calls describing the collective strength of our marquee portfolios such as Adaptix and Voice/Age by describing the significant ramp in a number of patent cases Acacia has coming to trial in 2015. That information remains available for you to see at the portfolio page of our website. A glance at this page shows that our trial calendar and outlook remain strong.

This means that even when litigation delays occur, as happened to us this past quarter with our Adaptix portfolio, Acacia's business is diverse and resilient enough to absorb such delays. Acacia is not beholden to any one patent portfolio a set back in packing a substantive defendants in one portfolio in no way lessens the opportunity regarding other defendants on the same portfolio let alone the opportunity for either completely separate portfolios.

In short, Acacia has amassed a rich and broad set of high-quality patent portfolios, each having a material degree of depth and robustness and each contributing to one of the deepest most diverse and most resilient collections of patents in the industry.

On the regulatory front, new patent legislation and the patent into law of the Goodlad bill seems to have slowed down at least for the time being. We think that the current regulatory environment is successfully addressing abusive and frivolous patent litigation; that is, the assertion of weak or questionable patents against vulnerable licensees at shakedown prices.

Our stance remains the same with respect to any additional legislative or judicial initiatives. We generally support changes that will eradicate abusive and frivolous patent litigation even when such changes make it more challenging to consistently source high-quality marquee portfolios. Acacia has always benefited from any change, the unintended effect of which is to increase the complexity, expense, and financial risk of patent litigation. In such an environment, patent owners will choose to de-risk legally and financially by turning to Acacia as a preferred patent licensing partner.

In conclusion, over the past several quarters, Acacia has continued to pursue its marquee portfolio strategy honing in on a smaller number but ultimately more financially rewarding set of patent portfolios. This strategy remains in place. We continue to believe that these marquee portfolios with highly defensible claims reading on high-revenue markets will be significantly more rewarding for our customers as well as for Acacia and our shareholders. And we continue to believe that Acacia remains well positioned for high-caliber, long-term performance.

Thank you for your ongoing interest in and support of Acacia. Operator, we can now open the call up for questions.

Thank you, sir. The question-and-answer session will now begin. (Operator Instructions) Mark Argenton, Lake Street Capital Markets.

Good afternoon, guys.

Hey, Mark.

Congrats on a pretty solid quarter. Maybe you could talk a little bit about the ongoing royalty stream going forward, and I know you obviously want to stay away from specifics. At the same time, help us understand from a modeling perspective, are these one-year, three-year or five-year deals? Any type of incremental information you could provide around how we should think about these ongoing pieces of licensing revenue? And then also, Clayton, if you could maybe walk us through how this gets accounted for on the balance sheet or the cash flow statements.

The agreements we concluded are going to really keep going for the life of the portfolio. In the case of Voice/Age, that really averages out to about five years. So that's the answer to the first question. We expect to keep collecting royalties throughout that period as long as people keep selling high-def phones, which we obviously think is going to happen.

As for the accounting question, Clayton?

Sure, sure. With respect to the accounting as part of the component of some of those agreements there are reporting requirements that the licensee has, and we will account for the revenues based upon those reports as we receive them throughout the life of the agreement.

Do you have to carry deferred revenue on the balance sheet line? Or maybe walk us through anything you could point to on the financials.

Sure, sure. So with respect to these types of running royalties, there will not be deferred revenue. Basically, we're booking the revenue for the previous quarter as of the end of each quarter. And so as we get those reports, those revenue dollars are going to be earned and recorded at that point in time. There will not be a deferral and amortization of amounts into the future.

All right. And then, Matt, you had said that these royalty rates is $0.20 to $0.40 a unit, 120 million units, kind of, the TAM or applicable market in 2015, most likely growing to $700 million-plus. So I think you're telling us that there's the opportunity for growth in this recurring -- or running royalty line?

Absolutely. That's why we're so happy with David's work on this portfolio.

All right, last question for me, and then I'll hop back in the queue. In terms of the strategy on the running royalty piece and these types of licenses, obviously, are we going to -- should we anticipate additional deals that look like this, in particular, in the handset space?

I think so, yes. And I know that David thinks so. I think our execs working on these marquee portfolios think so, and they're not all going to be like this, or a lot will be like this because when the amounts get bigger, companies start to think twice about lumping everything into a fixed fee that assumes static market shares. And so they're going to want to be able to hedge a little bit in case their shares come down, and so that's why I think you're going to see a shift to these running royalty agreements.

Do you think if you shift towards more of these ratably recognized running royalty agreements, do you see any anticipation in terms of lower litigation or legal expenses running in in anticipation of reaching these types of agreements, meaning could you get to an end point sooner rather than later and maybe save some expense?

I think the analysis is decoupled, and what I mean is you have to get someone to pay, and that has a certain cost, right? And then once they agree to pay, they'll choose an up-front fee agreement or a running royalty agreement. So if I treat those just two very different costs, two very different activities, the two are quite disconnected.

So -- if that's where you're going with the question then, no, the answer is going to be that you're not going to really see a change in cost. Now, with Voice/Age, just to make an example, we've had revenues where they've come in almost right away with no costs. And we've also had revenues where we've had to spend a modest amount of money on German litigation.

Coming to Voice/Age specifically, we think it's going to be a very high-margin portfolio for us, not so much because they're running royalty deals but because litigation has gone very well in Germany, which is a relatively lower-cost avenue for us. And that successful litigation is going to lead to faster deals. So that's why we think we're going to have great margins on that portfolio, not so much running versus fixed-fee deals.

Bryan Prohm, Cowen & Company.

Hey, good afternoon, everybody, good job on the quarter.

Thanks, how are you?

I'm fine, thanks, I have a couple of questions. First of all, following up on Voice/Age since that's going to be the topic du jour, I think. So Huawei, Sony, Amazon have all settled, there are another three, I think, still to come. How should we look at that cadence of potential settlements through the end of the quarter? I mean, I see you have some restricted cash on the balance sheet. I assume that's for the injunction and that -- I mean, are you confident -- in your opening remarks you said that Voice/Age was the key driver in the quarter just reported, and you expected a revenue to ramp through 2015. I mean, does that -- is the takeaway from those comments that we're confident we can get those Voice/Age deals done between now and the end of June?

I'll turn the question over to David, but before then I will say one thing -- the restricted cash is from the bonding requirements associated with the injunction. David?

Yes, we've actually entered into five settlements -- substantial settlement agreements on the Voice/Age front over the past three months, and we're continuing to work on a whole number of additional settlements. We're engaged with several companies and actively in reaching license agreements. And, certainly, as we gain momentum with the first players it makes it much easier to continue that momentum on with the others. And so we expect that momentum to continue.

We've had one decision out of Germany. Our first trial went forward early in the year. The court came back and gave us a very good result and issued an injunction on the first of six patents to go forward. Those remaining five patents are actually going to be going forward over the next two or three months. So those activities have a tendency to focus companies on really engaging in substantive licensing discussions, and we actually are engaged in those discussions pretty deeply.

Okay, so it seems like there's a lot of near-term activity here that could result in some deals. The second question, then, for you, Matt -- there's been a pretty healthy M&A trend in tech from the beginning of the year. Specifically, given the fact that Nokia is a strategic partner, what's the read-through on the potential impact of their M&A activity that we've heard about in the last several weeks? And also the potential break of the Company selling the HERE mapping business, the old [Maptech] business. Does that expedite the resolution? Potentially, the Alcatel-Lucent trial on Adaptix on the base station side?

The mapping transaction, take the easy one out, that is neither here nor there for us.

No pun intended, right?

Well played. The Alcatel-Lucent merger has no impact on our forecasting, our expectation for the portfolio. You can imagine, however, how interesting it would be for us to be moving forward with an assertion using the Nokia-Siemens patents against what apparently is going to be a subsidiary of Nokia-Siemens. Nothing that necessarily leads to resolution, but it certainly is an interesting fact pattern that tends to lead to resolutions.

Understood. That's great color, thanks. Last question from me -- you had several adverse summary judgments in the first quarter. Could you give us a quick heads-up on where things stand on the Adaptix trials in [ED] Texas on the handset and on the base station side, Ericsson and Algae specifically. I think there's a summary judgment ruling pending on one of those. Thanks.

We think it's all systems go on all those trials. Some rejudgment motions, that's the norm. You're going to see those leading up to a trial, and we don't think that any of those trial dates are going to effectively get impacted by as a result comes in those summary judgment motions.

Understood. Some of those trials have actually split from Q2 to Q3. Is there any potential risk that they split further or are you pretty confident that these are going to go to trial in Q3? If they don't --

We're confident. You never know because scheduling is subject to so many vicissitudes and changes, but from the information we have, we expect these trials to go forward in the Q2/Q3 timeframe.

Darrin Peller, Barclay's.

Congrats on the quarter and congratulations on Voice/Age. Just a couple of quick questions -- this is James [Berkeley], by the way, for Darrin. Could you just, given the comments you made around Germany and Adaptix and whatnot, could you just elaborate on what you've done in Japan in terms of increasing your investment there and why Japan, maybe, versus other markets and what other markets you're considering beyond that, if any globally? And just how we should think about just the global market, in general?

Yes. Japan has been a very, very pleasant -- I wouldn't say surprise, but it's been a very pleasant outcome for us, so far. Our team did a wonderful job (inaudible) out and engaging with Japanese prospective customers, and they've done a terrific job continuously sourcing the patents from Renasas, which is the amalgam of Mitsubishi attaching any [scene]. So we're very excited by the progress they're making there, and we think that Japan is an especially interesting market for us because it's gone from being a net importer of IP to a net exporter of IP.

And so with fiscal pressures in place in Japan, along with, more importantly, the Japanese record of brilliant innovation that tends to be captured in patents, we're very bullish on that market, and we're very glad that we've built up our team there, and our leader in Asia, [Hiroseki] deserves much of the credit, the bulk of the credit for our progress there.

Speaking about patent markets worldwide, my view is there are importers of IP and exporters of IP on a country-by-country basis. The exporters of IP are where the customers exist and, obviously, America is one, Japan is one, and Western Europe certainly has a number of them as well.

Over time, we're starting to get a sense that that might be shifting, which obviously more interesting IP coming out of China, and so that is a very exciting avenue of growth, and the three-year, five-year, seven-year period for us. But as of right now, we are focused on primarily America, Japan, and Western Europe.

That's great, thank you. I guess just lastly, just talking -- thinking about any additional plans for cost takeout. I know your guidance implies some savings on the MG&A line excluding stock comp there. I just thought, maybe, just speak to the progression that you've made there. I know you added, like, $5 million worth of savings last year, and your market key portfolios keep increasing, and I think you spoke to productivity and efficiency gains as well as more complex environment helping to drive your future revenue opportunity, going forward. And I'm just trying to think about all those moving parts.

As I mentioned last quarter, and I think Darrin or yourself might have asked a similar question, we love our model from a cost perspective because we can leverage it quite successfully. We think that SG&A costs are at a high-water mark, at least in terms of how we're configured. We think the litigation costs are at or near a high-water mark but, most importantly, we think with that exact cost structure, we can drive our revenues to much, much higher levels. And so we expect to be able to ramp up revenues and, accordingly, ramp up earnings in the coming quarters, and we're very excited by that.

(Operator Instructions) Jeff Goldfarb, Endicott Group.

Hi, Matt.

Hi.

I'm sort of scratching my head here. You trumpet returning $290 million to your partners or customers. Your shares are down about 50% year-to-date, that includes 25% 2Q hosted the Adaptix call in January where you appeared to express your view that the market was over-reacting to the ruling at that point. And so please excuse my frustration, but I'm finding it kind of hard to get amped up about how much cash return to your IP counterparties here. And Acacia is not Amazon.com where a happy customer creates a happy shareholder.

Your business is under a lot of pressure. You've lost the confidence of many of your shareholders, and I, too, believe your shares are extremely undervalued, but, to be honest, you're losing real credibility here by focusing on returns of your partners but without even a passing acknowledgement of the shareholder value destroyed in the last few months.

If you could, just try to help me understand how you think about potential capital return or some other sense of enhanced value for your holders, in particular, how you can, with the possibility of returning capital of your true partners. I do understand you need to maintain some cash in the balance sheet, especially with the potential for reform on the horizon, but just explain why it's not feasible to consider with shares at the current levels including a buyback of even a third of your cash to your balance sheet?

And, in addition, if you could just speak to how you might consider providing some guidance. You put a lot of detail on the cost structure, (inaudible) the cost structure for the year, but is there a reason why you couldn't provide, even in a wide range or bracket, the revenue potential for next year or 18 months? Because the guidance that you're currently providing, it's just not sufficient to demonstrate to holders that you're doing anything here but destroying shareholder value?

Well, let me answer what I think are a number of questions. I think I've caught them all with four points -- five points. One, I do think the market is overreacting, but that's my thought, and so our job is to convince the market otherwise.

Two, we have been returning cash, quite a bit of it through dividends.

Three, we are actively -- the Board is actively considering a buyback.

Four, and perhaps most importantly, we've been on a journey the last two years where we've told you what we're going to do, and we're doing exactly what we said we were going to do. We found ourselves without a lot of trial dates a couple of years ago, and we have to build the trial calendar back up before we collected given the current regulatory environment.

We told everyone that we didn't expect the trial dates to start collecting and resulting in revenue until the first quarter of this year, the quarter that just passed, and, yes, we did have an unexpected setback on one matter. It was a big one, but it was a delay. But, overall, the plan is still on track as far as we can see internally, so, effectively, the cash streams that we expected to generate, we still expect to generate, and we still expect them to be generated in the near term.

As for the revenue potential, we're doing our very best to give you that information. The constraint we run up against is if we give you revenue potential, we run into the issues with that messaging being used in litigation against us. And just to reiterate, because this is something that people have been asking the leaders of our Company for many, many years, and we've given responses consistently the same way every time, and here comes the same response again.

I've already told you that we can get $2 a handset. What I'm doing basically is I'm capping the number we can put up at litigation to $2 a handset. And, unfortunately, the way litigation works in this country is we have to put up a number, the other side puts up a number, and juries tend to come up with a number in between. For us to put a forecast you can rely upon would be, in effect, shooting ourselves in the foot, which we can't really do.

Now, what we've done is we've laid out, where possible, and we did this in the earnings call that just passed, if you look closely at what we told you about Voice/Age, we positioned it as one of seven or eight smart phone portfolios. We put pricing out there on that portfolio, which should help you model what should happen on Voice/Age, and we're telling you how much years of life are left in that portfolio. And we're also signaling that Voice/Age is kind of like a middle-of-the-road portfolio.

It's not our most valuable, it's not our least valuable marquee, and so, effectively, we're doing our very best to give you the information that I agree you do want, that you do want to use to model, but we have to give it to you in a way we don't shoot ourselves in the foot and what becomes, effectively, a self-defeating move to give you information that eventually becomes -- immediately almost becomes garbage because if you use the [gains such] in trial.

Okay, Matt, I do appreciate that, that you can't say things are going to bind you -- your trials -- I get that. But the few folks who are out there modeling your earning the revenues, they have no idea, and if I look at 2015 consensus that I think $165 million in revenues. I mean, if you were to simply put out a bracketed range -- let's just say you thought you would do somewhere between $150 million and $300 million, you don't want to say -- put out, you know, dollars per handset. But if you put out $300 million at the high end of the range, how could your defendant use that against you in a case that could harm you? I'm failing to understand that.

Well, I've got a really simple answer for that. We plan on putting up a royalty rate on several trials this year that would result in a royalty flow of more than $300 million. So if I put up $300 million, I can't put that rate up.

Okay, okay, I appreciate that. Thank you, Matt.

We'll take our next question from David Huff, a private investor.

Hi, a great quarter with really, really good stuff with Voice/Age. A quick question on the Voice/Age. Is there a second trial in Germany with different defendants? I see some U.S. cases that were filed, and I haven't seen documents from Germany. I just want to confirm that.

Yes, there are. And there are -- the panelists have been divided up into multiple trials. The trial on the first two patents in Mannheim went forward early in the year. We have trials in Mannheim on the other four patents going forward over the next two months, in May and June.

We also have trials scheduled for Dusseldorf in next January, and we have a trial that we believe is going to proceed in Munich on -- as early as August of this year.

So in the very near term, we have multiple trials against multiple parties proceeding forward. All but one of the really affected parties in Mannheim have actually settled. So even though we have remaining trials scheduled, we may actually be done with our activities in Mannheim and moving on to our trials in Dusseldorf and Munich.

Is there a [nullity] trial scheduled as of yet -- for the first one?

I don't have nullity trials scheduled yet but they're, of course, as you know, in Germany, there's a liability trial that goes forward and the nullity proceedings, which proceed through a different mechanism, and those are going forward. They lag -- they've been significantly far behind.

It's worth noting that in the one decision that we've received out of Mannheim, the court, in reviewing the merits of the case, has decided that not to stay the injunction in that case based upon the nullity threat. So in that case, the judge did not feel that the nullity threat to that patent was significant enough in order to stay. And he, in fact, ordered an injunction.

And we feel pretty good about the second patent that was tried, as well, based on the trial. So there are the nullity proceeding activities typically lag significantly the infringement findings. But there's a lot of activity in Germany definitely.

If someone, I guess, if they would play "chicken," and wait for a final nullity ruling and they lose, is that when we're going to see someone at the top of the range, the $0.40 range?

I think that's right because what we try to do in order to facilitate settlements and encourage the parties that we're settling with is we will provide discounts to those folks if they're willing to settle early. If someone decides it's in their interest to take us to the very end, then that discount just isn't going to be available to them.

So, yes, we will provide a discount to reflect an early settlement as well as for other factors. But if someone does take us to the bitter end, those discounts simply won't be available.

Do you plan on continuing to post the translated documents on the website?

Yes, we're going to provide as much information as we can. And typically what we do is we get these decisions, and then they have to go through an extensive translation, but we're trying to provide as much transparency as possible on all the activities in Germany.

Okay. I don't know if it's possible. Is there a way to get an alert so when something new is posted on the website that might be important, you know, German injunctions, that it will actually notify shareholders that this happened? It seems like, with German litigation and different market opinions, you're not going to put out a press release for everything. But I think investors do need to know that some of these things actually exist.

David, in the 21st century, with all of this technology, that's the first time I've heard the suggestion. That's pretty interesting. My gut is, yes, but let me run it through the control procedures here. But that's a good idea.

Right, okay. Yes, it's just I see (inaudible) opinions with Biomet last week. And a party review that came out very favorable yesterday in The Boston Scientific portfolio, it's kind of frustrating that there's only price discovery in a case four times a year when you have all these different events that affect the business, and it's mostly ignored or no one really knows about it.

Very, very interesting suggestion and, for some reason, I keep thinking about Twitter. But let's see what we do.

Okay. That's it for me, thank you.

This will conclude the question-and-answer session. I'll now turn the call back to Mr. Matthew Vella.

Again, thanks for your support. We're very excited about the next couple of quarters. We look forward to doing this again in three months. Thanks, everyone.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 888-203-1112 or 719-457-0820 with confirmation code 6091098. That's 6091098. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.