Acacia Research Corp (ACTG) 2015 Q4 法說會逐字稿

Good afternoon. Welcome, ladies and gentlemen, to the Acacia Research fourth quarter and year end earnings release conference call. At this time I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode. At the request of the company we will open up the conference for question and answers after the presentation. I would like to turn the conference over to Mr. Marvin key. Please go ahead, sir.

Thank you, Operator. Good afternoon and thank you for joining us.

Today's call may involve what the SEC considers to be forward-looking statements. Please refer to our earnings release which was filed with the SEC today as an exhibit to our 8-K for our forward-looking statements 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.

I'm Marvin Key the CEO of Acacia Research. With me today is Clayton Haines, CFO and Ed Treska, General Counsel. The call will be opened up for questions after Clayton's financial review.

Acacia Research continues with its goal of representing patent owners in their fight against patent infringers worldwide. Patent owners deserve a voice and they deserve a level playing field against infringing corporations. 2015 was a challenging year for patent licensing companies in general and for Acacia Research as well. But we believe the more challenging the operating environment becomes the greater the need for a company with Acacia's expertise.

Our company is committed to maximizing the value of our patent assets for the benefit of our shareholders and for our patent partners. Acacia has quality patent assets. We have an excellent and talented staff and a healthy balance sheet. Unfortunately, over the past several years, Acacia's expenses have risen and our revenues have declined. The Company is committed to reversing both of those trends. The fourth quarter operating results were mixed. Acacia generated over $37 million in revenue for the period, resulting from our continued success monetizing the VoiceAge portfolio.

Our licensing team also negotiated licenses for the Adaptix and the Nokia networks portfolios. As well, during the fourth quarter, the company lost its Adaptix trial versus Alcatel Lucent in Texas. We are currently are studying the immediate and future impact of that loss on the Adaptix portfolio. Over three years ago Acacia made the strategic decision to focus on higher profile marquee patent assets. The company began to deploy shareholder capital to acquire new patent assets and invested in what were believed to be undervalued and outsized licensing and enforcement opportunities.

In anticipation of higher licensing revenues down the road, the company's expense structure and head count increased to address the expanded and complex task of bringing to trial multiple infringement cases. Despite higher quality patents achieving higher revenues has become more difficult. The use of inter parties review or IPRs by defendants is major contributor. IPRs arose out of the America invents act of 2011 which permits anyone, including unrelated third parties, to challenge a patent's validity and request a review by the patent office.

This review can result in infringement litigation being delayed by 18 to 24 months. Acacia is focused on becoming sustainably profitable and is taking steps on both the revenue and expense sides to achieve profitability. From a revenues perspective Acacia is concentrated on attracting a larger more diverse set of revenue opportunities. Both from an individual portfolio perspective and business development as well from -- as well from a potential licensee perspective on the licensing side. And therefore, a more predictable and profitable company. On the expense side, our team has worked to identify inefficiencies in our business to lower our cost structure. In 2016, we have reduced our headcount from 44 at the year end in 2015 to only 31 today. A 30% reduction.

We are also studying other expense items that can be lowered or eliminated to reduce our corporate break-even. From a topline perspective Acacia continues to pursue revenues in a number of different patent portfolios which should contribute to revenues in 2016 and beyond. Acacia has a healthy pipeline of revenue opportunities including portfolios from VoiceAge, Nokia networks, Rambus, Renaissance and Silicon Image, also we believe we can add new high quality patent portfolios with little or no initial capital advanced. As an example on the intake or business development side during the fourth quarter, our BD team brought in another semi-conductor portfolio from our long standing business partner Renaissance of Japan

This portfolio includes 74 issued US patents plus foreign counterparts relating to D-RAM and flash memory fabrication processes and packaging. So far a In 2016 our team announced a new business relationship for a patent portfolio including ninety issued US patents plus foreign counter parts covering flash memory components and controllers, SSD drives and other systems containing flash memory. After a great deal of deliberation, the board and management have decided to eliminate the cash dividend for the following reasons.

First, Acacia was a very different company when we instituted the dividend in early 2013. Revenues in 2012 were $250 million versus $125 million in 2015. The market capitalization of Acacia's stock at that time was $1.4 billion. And our cash balance was $311 million as compared to today. Second, dividends are intended to be paid out of corporate profits. And Acacia has not been profitable for several years. And lastly Acacia does not believe it prudent to pay a dividend while the company continues to lose money.

Although the current operating environment presents significant challenges and we are disappointed by recent results we are working toward profitability and maximizing the value of our patent assets. We have already made significant steps towards reducing our costs and we will continue to evaluate where other expenses can be reduced or eliminated in order to maximize the profitability of our assets and enhance shareholder value. I will now turn the call over to our CFO, Clayton Haynes.

Thank you, Marvin. And thank you to those joining us today for today's conference call. As detailed in the earnings release today, fourth quarter 2015 revenues totaled $37.5 million as compared to $31 million in the compare and prior year quarter. Fourth quarter 2015 revenues were comprised primarily of 12 new license agreements executed in the quarter as compared to 33 new license agreements executed in the comparable prior year quarter.

In the fourth quarter of 2015 two licensees individually accounted for 64% and 19% of revenues recognized as compared to three licensees individually accounting for 35% percent, 19% and 10% of revenues recognized during the fourth quarter of 2014. We continue to expect license fee revenues to be uneven from period to period. For the fourth quarter of 2015, we reported a GAAP net loss including non cash impairment charges of $115.9 million or $2.33 per share versus a GAAP net loss of $16.2 million or $0.34 per share for the comparable prior year quarter.

On a non-GAAP basis excluding goodwill impairment charges of $30.1 million, patent portfolio impairment charges of $74.7 million and scheduled non cash stock compensation and patent amortization charges of $15.6 million we reported net income of $4.5 million or $0.09 per share as compared to non-GAAP net income of $1.6 million or $0.03 per share for the comparable prior year quarter. Please refer to our disclosures regarding the presentation of non-GAAP financial measures and other notes in today's earnings release and 8-K filed with the SEC. As I mentioned, the fourth quarter and full year 2015 net results reflect a goodwill impairment charge totaling $30.1 million.

Pursuant to accounting standard ASC 350 which addresses the accounting for goodwill and other intangibles it is our policy to test goodwill for impairment at our single reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not, reduce the fair value of our single reporting unit below its carrying value. From an accounting policy standpoint, factors considered important when assessing the impairment of goodwill include a significant sustained decline in our stock price and or, a significant adverse change in legal factors including adverse litigation results and regulatory actions or assessments.

Due to the sustained decline in our stock price and related market cap below the carrying value of our net assets as of December 31, 2015 which, among other factors, reflects the impact of the unfavorable jury verdict in the Adaptix v. Alcatel Lucent trial in the fourth quarter of 2015 we were required to perform a goodwill impairment analysis as of December 31, 2015. Due to the reduction in market value as measured primarily by the reduction in our market cap as of December 31, 2015 it was determined that the implied fair value of our goodwill was less than the carrying value of the goodwill resulting in a non cash goodwill impairment charge of $30.1 million in the fourth quarter of 2015.

In connection with our quarterly patent impairment review process, we recorded $74.7 million of non cash patent impairment charges reflecting, one, the estimated impact of the unfavorable trial verdict in our Adaptix v. ALU matter in December Two, changes in estimates of cash flows and realization rates for other portfolios. And three, the termination of certain programs due to resource reallocation decisions made in the fourth quarter of 2015.

The goodwill and patent impairment analyses are preliminary at this time and will be completed in connection with the finalization of our year end audit and filing of the 2015 annual report on Form 10-K. Any final adjustments or amendments to the impairment charges will be reflected in the Statement of Operations included in our 2015 Form 10-K, which is due to be filed on or before March 15, 2016.

on a combined basis, inventor royalties and contingent legal fees expense were relatively flat quarter-to- quarter despite the 21% increase in revenues. Primarily due to an increase in inventor royalty expense due to higher royalty rates for the portfolios generating revenues into Q4 2015 which was partially offset by a decrease in contingent legal fee expense due to lower contingent fee rates for the portfolios generating revenues in Q4 2015. As a result, average margins for the fourth quarter of 2015 were 69% as compared to 62% in the comparable prior year quarter.

Litigation and licensing expenses increased 38% quarter-to-quarter primarily reflecting an increase in costs in connection with patent portfolio trials occurring in the fourth quarter of 2015 and preparation for upcoming patent portfolio trials in 2016. These expenses will continue to fluctuate period to period based on future activity levels in those periods. Fourth quarter 2015 marketing, general and administrative expenses, excluding non cash stock compensation expense, decreased $1.8 million or 23%. The decrease was due primarily to a decrease in variable performance based compensation costs a decrease in personnel costs resulting from net staff reductions occurring during the year and a decrease in corporate administrative costs.

Fourth quarter non cash stock compensation expense decreased due to a decrease in the average grant days fair value for the shares expense in the period and a decrease in the number of shares expensed resulting from a net reduction in employee head count and a reduction in the number of shares vesting for current employees. Next, I would like to provide a brief summary of the results for the full 2015 fiscal year. Fiscal 2015 revenues were $125 million as compared to $130.9 million for fiscal year 2014. Including the impact of impairment-related non cash charges discussed earlier we reported a fiscal 2015 net loss of 160 million or $3.25 per share versus a GAAP net loss of $66 million or $1.37 per share for fiscal 2014.

Excluding the impact of $74.7 million in patent portfolio impairment charges, $30.1 million of non cash goodwill impairment charges and $64.1 million in non cash stock compensation and scheduled patent amortization charges fiscal 2015 non-GAAP net income was $9 million or $0.18 per share as compared to non-GAAP net income of $9.3 million or $0.18 per share for fiscal 2014. Our average margin for fiscal 2015 was approximately 72% as compared to 66% for fiscal 2014. 2015 marketing, general and administrative expenses excluding non-cash stock compensation expense decreased $3.3 million or 11% year-over-year. Fiscal 2015 non-cash stock compensation expense decreased $7.1 million or 39%.

The decreases were due to similar factors affecting the quota-to-quota variances for the same line item discussed earlier. 2015 litigation and licensing expenses increased $1.8 million or 5% due to a net increase in expenses, associated with patent litigation trials occurring during 2015 and trials scheduled to occur in 2016. Tax expense for fiscal 2015 reflects the impact of foreign taxes withheld on revenue agreements executed with foreign licensees in foreign jurisdictions and the impact of full valuation allowances recorded for net operating loss carry forward and foreign withholding tax credit related tax assets generated during the period.

As of the end of 2015 our net operating loss carry forward totaled approximately $160 million and foreign tax credits available for use in future periods totaled approximately $34 million. From a cash flow perspective we ended 2015 with $145.9 million of cash and investments versus $193 million as of December 31, 2014. Cash outflows for 2015 included patent related investment costs totaling $19.5 million as compared to $42.7 million in 2014 and quarterly cash dividends paid to shareholders totaling $25.4 million.

Looking forward, with respect to our cost structure as Marvin indicated we continue to work diligently with respect to lowering our operational cost structure. In this report we have reduced our head count from 57 full time employees as of the beginning of the 2015 to 31 full time employees as of today an approximate 46% reduction which results in annual savings of $4 million excluding non-cash stock compensation. As a result we expect the 2016 fixed MG&A expense excluding non-cash stock compensation in variable performance based compensation to be in the range of $17 million to $17.5 million representing an approximate 30% decrease from 2015 MG&A levels.

Consistent with our focus on extending cost savings to all areas of our operations, we continue to assess and analyze our litigation and licensing expenses for potential cost reductions and expect to realize lower costs in 2016 relative to 2015. Currently, for fiscal 2016 we expect patent related litigation and licensing expenses to be in the range of $28 million to $30 million depending on net patent portfolio litigation international enforcement, IPR and strategic patent prosecution activities occurring in 2016. We are continuing our efforts to identify additional cost savings with respect to litigation and licensing activities and we will update you as we make progress in this regard. Thank you again for joining us today.

I will now turn the call back over to Marvin Key.

Thanks, Clayton. Operator, you may now open the call to questions, please.

Thank you, sir. (Operator Instructions). We will go first to Mark Argento with Lake Street Capital Markets.

Good afternoon, guys.

Hi, Mark.

Kind of a two part question. First, in terms of the cost structure I know you kind of quantified some of the reductions obviously head count down, almost 50% off of its peak. Could you talk a little bit about when you guys are thinking about the cost structure, you know, how you are, how are you setting it up in terms of thinking about break-even, thinking about the spend in terms of the portfolio or the patent litigation at what point trying to get to profitability what revenues does the cost structure suggest you will be able to break even or kind of start making money?

Mark, I would say it is probably premature to zero in on a particular number. We have made a number of positive changes already. And we have a lot more to make and we are going to continue to do so. And I am talking about -- I am talking about things like not just head count reduction but scrubbing legal budgets and increasing efficiencies by, you know, standardizing management of IPRs as I mentioned in my earlier comments. Patent prosecution, maintenance fees, the use of consultants, travel, essentially every single line item. So, some where in the neighborhood of $120 million is probably from a cash perspective, probably a pretty good number to zero in. But I think that number should reasonably continue to come down.

Got you. In terms of the 31 employees you currently, you know, maybe talk a little bit about the mix. Is it mostly licensing people? Or to you still have some business development people? Sounds like you brought a couple of portfolios in. How are you still able to operate that business at kind of the staffing levels you are at now?

Well, you know, as I mentioned earlier, standing pat was not an option. The staff over the past several years climbed, the staff climbed in anticipation of revenues that we failed to realize. So, it was necessary to make some changes. So, the head count reductions have come across every business specialization within the company. We had downsizing on the licensing side. We have had downsizing in engineering as well as business development. The downsizing has been across the board. But certainly as you downsize it requires a much more collaborative kind of effort. And you know, more people contributing to the cause. So, you know, I think in some respects people are looking at this as an opportunity to work together and hopefully collectively improve how this place operates.

All right. And then last piece of my question or last second part here. In terms of the portfolio as it sits today, obviously Adaptix, you have to go through some kind of an appeals process there. Looking at other functioning portfolios VoiceAge, Nokia and Rambus, Renaissance, a couple of others. Obviously, VoiceAge has been very productive portfolio.

Could you talk about, you know, the calendar, legal calendar over the next 6-9 months, next few quarters regarding some of the productive portfolios so we can better get a feel for kind of the pipeline of activity here going into 2016?

Sure. And I am not going to do a deep dive here. I will do kind of a high level pass. You are correct, we have had pretty good success to date on the VoiceAge portfolio which is largely being driven by trial efforts in Germany. And in that particular case in the Mannheim case versus Deutsche Telecom, we had very good success and the number of different patents in that portfolio and we are waiting for an injunction.

Basically, the injunction is under appeal and we are waiting only some kind of announcement coming out and that may be as early as April on that. Another important component of VoiceAge is against Dusseldorf trial against Vodafone and we were actually expecting a pronouncement out of the court this morning and we were hoping to be able to give some news but the Court came out earlier in the week and said they would be making an announcement on that trial on March 31, 2016.

But, we recently also filed suit in VoiceAge against Apple that's in Dusseldorf and against Motorola and CTE in Mannheim but it's too early in the process to give anymore information there. We do have I told you on Adaptix we are making an assessment currently of the immediate and future impact of our trial loss in December on the balance of that portfolio but we do currently have a trial scheduled against Erickson on May 23, 2016 in Texas. So we'll see how that goes. The third quarter is a largely a CCE quarter. These are Nokia Siemens patents against defendants like Apple and Amazon and HTC and ZTE as well as some of the telecom carriers.

So that makes up the bulk of the trial activity for the third quarter. Wrapping up the year for the fourth quarter a few more Nokia Siemens trials versus Samsung in November and then we have the portfolio we call Kuma against Apple and HTC and LGE and CTE and then we wrap up the year in December with some more VoiceAge patents in the US district of Texas against HTC, Motorola and Samsung.

I hope that is thorough enough for you on the trial calendar.

That is helpful. I will hop back in queue. Thank you.

You bet, thank you.

The next question from David Huff. A Private Investor.

Hi, good afternoon.

Hi, David.

A couple of quick questions.

Hello. Try to run through a couple of quick questions. Adaptix Germany any thoughts of that going forward? I know there has been a patent recently issued there and some older patents that have been issued in Europe. I know I have asked this question before. Is it time to cut out the US nonsense and go over to a venue that you can get more predictable results?

Thanks, David. Well, there is certainly no question that we have had greater recent success in Germany than we have domestically that is unquestioned. But you are right because of the loss and what you call the nonsense in the Us, let be fair. We were not expecting to lose the Adaptix case in Texas. I would consider that a devastating blow for us and was very painful for the company and that has impact on the value of the rest of that portfolio going forward. The extent to which is not clear at this time. So the answer is I can't answer your question. But we are looking at all angles of that and trying to reach a reasonable conclusion in that very area.

Okay. I was at the trial. I think the margin of error was very razor thin and you could have just as easily walked away with a $50 million to a $100 million jury verdict. Hopefully, there is an upgrade in counsel and hopefully we will see new legal teams come in for the high profile cases. I guess my next question is in regards to attending more investor -- or investor conferences and industry conferences and building awareness around the company. It seems like without the dividend or with the dividend being cut, I am really I guess, nervous obvious that no premium will ever come into the stock and it will just trade you know a little over cash, that there is not really any education for most investors how the company actually works. And any kind of multiple on earnings is kind of questionable with the analysis that I see.

Was that is a statement, David?

No, it was a question. Yeah, basically are you going to attend more investor conferences throughout 2016?

I would say where there is interest and if we are to receive invitations we are certainly open to doing that. My experience has been as your operating results deteriorate and as your market share declines, excuse me your market cap declines, there tends to be less investor interest and you tend to receive fewer conference invites. However, as we begin to slowly change the direction of this company and focus on costs and maximizing revenues and have some positive news, I would love to be able to communicate that more actively than we have over the past 12 months.

You probably might know this once the jury verdict was read my e-mail box has exploded and there has been more investor interest probably in the last three or four years than I have ever seen. The interest is there. There are people looking to figure out what is in the company and it seems like no one knows how to do it and I know the company is limited in what this they can say. The think effort needs to be spent there.

That is encouraging and I appreciate the comment.

Thank you.

That is it for me, thank you.

Go to Mike Latimore with Northland Capital Markets for our next question.

I guess, Marvin, did you say that the break even level the way you look at it is about $120 million roughly? I just wanted to clarify that?

Yes, yes, yes.

That's correct.

And I guess you said you hoped that comes down. I guess is that something you know you will evaluate sort of on a quarterly basis or something that maybe more mid year you would have an update on that?

Yes, we totally expect to be able to update that number as we continue with our cost structure reduction activities on a quarterly basis.

Okay. Got it. And then you know despite the kind of revenue volatility on a quarterly basis you have been at $125 million, $130 million of revenue the last three years. As you look at the current strategy meaning, you know, cutting costs some but perhaps less emphasis on marquees, how do you think -- how do you view the sort of the give and take from the revenue perspective given the new strategy? The revenues have been consistent in the $125 million to $130 million range?

Our revenues have been consistent. But certainly more chunky than we had intended. We are hopeful -- I would think of our business kind of this way. I think at one point in our early in our corporate history we tended to be in the volume licensing business which means I would describe it as working on a lot of smaller opportunities to build up to you know a nice revenue number. And then the pendulum swung and we made a conscious decision to work on fewer but what we believed would be larger opportunities. So the pendulum swung from one side all the way over to the other side. I think that part of the challenge has been that with our both metrics from the qualitative side as well as a revenue side the thresholds we have been looking for, it has been difficult to bring in the number of portfolios from a business development standpoint than we would have liked. We haven't done as well in that area as we would like.

I think a lot of that is because we had set such a high bar particularly on the revenues side. We are hoping in kind of readjusting and recalibrating with the business development team that we can still find quality portfolios that simply don't have a revenue opportunity that you might characterize as a marquee level. And what that means is would be easier to license a potential licensee, say, 10 licensees at $2 million to $3 million each than it is to go after two, three, or four licensees for $50 million each.

And so we are hoping that while we are still open, we are absolutely still open to attracting big strong marquee like portfolios we are hopeful that by bringing in an increasing level of smaller but quality opportunities that might help smooth out and make the revenue stream less chunky on a quarterly basis. And so it is hard for me to suggest or make any prognostication of what that ultimately does for the total revenue number on an annual basis. But we are hoping that that coupled with continued and ongoing progress on the cost side as I said that we can start to generate some consistent or more consistent free cash.

And how quickly can you bring down the litigation and licensing expense? Is that something that comes down over a couple of quarters or maybe were in a new year and you can adjust some of the contracts right away or how does that work?

You know what, that is still -- it is a big line item on the P&L needless to say. That is a work in progress and something that we are constantly working on. But I can't zero in on a real number but I can assure you that is something that we are in constant contact between our licensing guys and our legal representation that we do, weekly.

I guess the last question. You talked about bringing in portfolios that maybe aren't marquee and but you can kind of do higher volumes more quickly or something. Is there a way to sort of work with the patents you currently have to adopt that kind of model before having to bring in new patents?

Interesting question. Probably in some -- in some respect. You know, historically our company was a negotiate and settle and license business. And the last few years as we worked on bigger opportunities, sometimes it meant that the potential licensee had no incentive to settle. The numbers we thought were reasonable were high and they thought it worth the risk to go to trial. I would say there is probably some component of what we currently control that what we currently own, that might be conducive to that. But it will also be part of the new portfolios that we are seeking to bring in.

Okay. Great. Thanks.

Thank you, Mike

We will take the next question from Thomas O'Neill. A Private Investor.

Hi. Hi, guys. I have a few different things. I have been [INAUDIBLE] longer than I want to remember at this point in time. But revenues have been consistent the last three years at a level low but significantly lower than I know what company management envisioned and certainly what many of us investors envisioned so you have been at this $120 whatever million and it has been very disappointing. The portfolios that you have purchased over time I know you have very lofty ambitions about what kind of returns on those portfolios. Some multiples of what you had paid. Just had a very significant impairment charge to the portfolio and what you paid for them. How much do you expect the existing patent portfolios to garner over and above what you paid for them versus those lofty ambitions of multiples of three and four times what you paid?

Thomas, you are correct, everything you said is accurate. And you are also correct that not only have the shareholders been disappointed, but in management has been disappointed at the results that we have been able to produce not just last year but the prior couple years also. I am unable and am in no position to project any kind of revenue what we believe the ultimate revenue opportunity or profitability opportunity for the balance of the patent assets that we control. It is very, very clear that because of the operating environment that we are in not just for Acacia but all of our private and public competitors that the patent licensing business has gone through or is in the midst of a major shaking out and almost everyone in our industry has been under some operating distress and we are no exception. I would say that while we continue to work as hard as we can, we absolutely believe there is value. And we are doing -- we are working daily and consistently too maximize that value. And to start generating free cash profitably. That is all we can do.

Related to the that you eliminated the dividends. You have cash. You are trying to get to cash break even which hopefully you will be at this year. Why would the board not want to authorize a buyback when you are selling below book value if you have any confidence at all in what you are going to do from here?

You know, in the past three years Acacia has returned over $100 million in dividends and share repurchases to shareholders. But right now it is very very clear that cash is king. We have one large competitive advantage against everyone else in the industry and that is a robust balance sheet. We think it is much more prudent, right now, makes more sense to preserve our capital. However, in the future if it makes sound financial sense the board is open to evaluating either a dividend or a share repurchase but we are not planning on any kind of a share repurchase at this time.

So you -- so the board doesn't believe that even some small portion of your cash makes sense investing in your company at this very, very depressed price relative as you mentioned about garnering cash to increase shareholder returns basically the company has destroyed value over the last few years because of things beyond your control and things within your control. But how can you not have the confidence to buy your own stock at a price that looks ridiculously low relative to what the company is supposed to have going for it after a period like this that should not impair your prestige balance sheet. For instance, if you took $25 million and put it into a buyback at these prices it is not going to change whether the company is going to ultimately succeed or not but give a lot better message to people sitting out there that have seen nothing but a slow moving train wreck.

I said earlier that we believe cash is King. I would argue that the reason that we have $180 million, $190 million market capitalization is because we have $145 million in cash on the balance sheet. And that if we had a significantly lower level of cash on the balance sheet, that our stock would probably be commensurately lower. So we believe the valuation of our company is in the cash balance. Do we believe that our patent assets are undervalued? Yes, we do. Do we believe that we have an opportunity to generate some significant free cash off that to help shareholders from this depressed level? Yes, we do. But at this time, we would prefer to preserve our cash levels, rather than pay a dividend or pursue a share repurchase. We are willing to --

And you realize you are -- you have just made a very condemning statement of fact about having management, management at this company over the past five years have created a situation in addition to an adverse environment where the only true value you see in what exists in that organization right now is cash?

I believe it is very important now, in this environment and this operating environment to have a strong cash balance. And that is what management and what the board believes. And as I said earlier, we will and are willing to revisit that in the future as we regain sustainable profitability. We are not going to do that while the company continues to lose money.

I am done.

Thank you, sir.

Our next question from Brett Reiss with Janney Montgomery Scott.

Hi gentlemen. Trying times. Marvin, are you going to be the Chief Executive Officer going forward or still searching for someone else?

There is no permanent search going on. I am in an interim role. The board will likely retain an executive search firm shortly to identify internal and external candidates for the permanent position but there is not a search going on at this time.

Okay. Now the change in the operating environment that resulted in, you know, challenging revenues and opponents, you know, opting for a scorched earth policy rather than settling, was there anything that we could have done to have seen that occurring? I mean you have attorneys litigating in the various Courts. There is no mechanism where they in the trenches communicate back to management that, you know, they are running into impediments? It just seems as an outside owner things you business model was humming along and then all of a sudden got blind-sided by a change in the operating environment. How did that happen? And you know, will that be reduced, you know, in the future?

I think that the Acacia as an operating entity was not, did not realize over the last three years the severity of the operating environment. We failed to appreciate what the America Invents Act would lead to and I think in the midst of it we didn't appreciate all the challenges.

As well, I think that the defendants were emboldened and that they felt like from a legislative and regulatory perspective they were emboldened by the fact it was becoming harder for patent owners to enforce their patents.

I think what has happened to us is relatively consistent with what has happened to a lot of other companies in the space, private and public. It is not an excuse. It is simply a fact. I like to think that things are as bad as they are going to about he from an operating perspective and that we can look forward to a more encouraging operating environment going forward. But I every time I thought that for the last 6, 12, 18 months they figured out a way to make it tougher. So, I don't really know. Do I wish that we had identified the challenges earlier than we have been able to do so? Of course, I do.

In hindsight that is easy to identify. All I can say is that we are analyzing and digging into our business on a daily basis trying to figure out where we can improve and where we can become more efficient, where we can become a better operator and that is what we are striving to do and that is my mandate from the board.

If the operating environment improves or even takes a turn for the worse, are there structures in place that management is corralling this input from your various legal teams at the various courts in use so that you can make a determine to adjust the strategy going forward? It seems that was missing. Is that going to be better going forward?

Well, you know, one of the , once again in hindsight, we had a corporate wide decision to work on larger opportunities. But the fact of the matter is and what we have discovered is that when you are attempting to license somebody for $50 million or $100 million regardless of the quality of the patents, you know, you have already mentioned in your comments the scorched earth policy of some of these companies.

Right.

And we underestimated how hard it would be to license and monetize some of the larger opportunities and in every single case they are saying we are going to trial. And one of the benefits of working on portfolios that are of a more modest size from a revenue perspective is that we expect that there will be less of an incentive for them do that. Right? In other words, it will make more financial sense for them to settle smaller opportunities rather than litigate every single one and that is why we expect modifying the kind of patent we bring in will help smooth out our quarterly results.

Right, right. Now, we not withstanding your efforts which I appreciate, to reduce costs you did after the payment of the dividend hemorrhage $15 million in cash in the fourth quarter. This is not the Veteran's Administration or IBM. Why -- why is it such a challenge to in a more expeditious quicker way get the cash down to the hemorrhaging of cash stops and there be a target date that everybody is pulling the oars in the company in the same direction.

This a Clayton Haynes here. With respect to the quarter I think you are referencing the cash inflows and outflows for the quarter. Certainly on a non-GAAP basis, the quarterly results are reflected of $4.5 million positive non-GAAP number. If you are referring to the cash flow statement included in the press release today, the cash flow statement really takes a look at the balance sheet changes and a lot of that is the timing associated with payments of royalties and contingent legal fees out to our partners as well as the timing associated with when accounts receivable may be received by the company. And so if you are referring to the cash flow statement itself that takes into account the timing of the receipt and payment of cash but certainly from a non-GAAP standpoint which tries to adjust the GAAP number to more of a cash number, we were $4.5 million positive for Q4 2015.

Help me out. You had $168 million in the third quarter and ended with $146 million and paid $6.35 million in the dividend. So, there is $15.5 million less in cash but you are saying we really had $4.5 million more?

I think you are referring to the cash flow statement which takes into account the timing of when we receive accounts receivable from the licensees and when we are making payments out to the law firms and patent partners. From a physical cash standpoint you are accurate. But as far as the result for the quarter, which does not take into account the timing of when payments are actually made or received from licensees, it was $4.5 million positive.

I see the accounts receivable went from $20.1 million to $33.5 million and that is part of what you are talking to me about.

Yes. It is the difference between what the cash flow statement is reflecting and taking a look at as a results on a cash basis by look at the P&L and converting it.

Okay. One last point. Look, we all know there has one an evisceration of shareholder value here. I just would hope that when the compensation committee puts out the proxy material that they are sensitive to that and that, you know, there is a sense of shared sacrifice because shareholders are really taking it on the chin here. Can I ask, you know, hope for, you know, some sort of good faith commitment on the board's part there?

Your message is heard loud and clear and I think that you will be pleased with what you see.

Great.

Thank you for answering my questions.

Certainly, thank you.

Unfortunately, we have run out of time and this will now conclude the question and answer session. I will now turn the conference back to Mr. Key.

Thank you, operator. And appreciate everyone's attendance today. If anyone has additional questions feel free to contact us at the office.

Thank you.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.