Acacia Research Corp (ACTG) 2017 Q1 法說會逐字稿

Good afternoon, and welcome, ladies and gentlemen, to the Acacia Research First Quarter 2017 Earnings Conference Call.

At this time, I would like to inform you that this conference is being recorded (Operator Instructions).

I will now turn the conference over to Mr. Rob Stewart.

Please go ahead, sir.

Welcome, and thank you for joining today's First Quarter 2017 Shareholder Conference call.

I'm Rob Stewart, President of Acacia Research.

With me this afternoon are Clayton Haynes, our CFO; and Ed Treska, our General Counsel.

Today, Clayton will review our financial performance and Ed will review the status of some of our current licensing and enforcement programs.

I will then provide an overview, brief business update and future vision of Acacia.

First, our safe harbor statement.

Today's call may involve what the SEC considers to be forward-looking statements.

Please refer to our earnings release filed with the SEC today as an exhibit to our 8-K 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 rights, acquisitions, development, licensing and enforcement activities are conducted solely by certain Acacia Research Corporation's wholly and majority-owned operating subsidiaries.

I'd now like to turn the call over to Clayton Haynes for our financial review.

Thank you, Rob, and thank you to those joining us for today's First Quarter 2017 earnings conference call.

First quarter 2017 revenues totaled $8.9 million as compared to $24.7 million in the comparable prior year quarter.

For the first quarter of 2017, 2 licensees individually accounted for 73% and 12% of revenues recognized as compared to 4 licensees accounting for 22%, 19%, 16% and 11% of revenues recognized during the comparable prior year quarter.

We continue to expect license fee revenues to be uneven from period to period.

For the first quarter of 2017, we reported a GAAP net loss of $11.8 million or $0.24 per share versus a GAAP net loss of $10 million or $0.20 per share for the comparable prior year quarter.

On a non-GAAP basis, excluding noncash stock compensation and patent amortization charges totaling $7.6 million, we reported a first quarter 2017 net loss of $4.2 million or $0.08 per share as compared to non-GAAP net income of $2.5 million or $0.05 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.

First quarter 2017 Inventor Royalties expense decreased 58% compared to the prior year quarter, relatively consistent with the related 64% decrease in revenues quarter-to-quarter.

First quarter 2017 contingent legal fees expense decreased 85% as compared to the 64% decrease in related revenues, primarily due to lower average contingent legal fee rates, resulting from higher average levels of cost recovery related preferred returns for the portfolios generating revenues in the first quarter of 2017 as compared to the portfolios generating revenues in the comparable prior year quarter.

As a result, average margins for the first quarter of 2017 were 85% as compared to 77% in the comparable prior year quarter.

Litigation and licensing expenses decreased $1.3 million or 17% quarter-to-quarter, due primarily to a net decrease in patent prosecution and litigation expenses associated with ongoing licensing and enforcement programs.

These expenses will continue to fluctuate period to period based on future activity levels in those periods.

First quarter 2017 general and administrative expenses, excluding noncash stock compensation expense, decreased 24%, due primarily to a reduction in personnel costs in connection with our recent reductions in headcount, a decrease in variable performance-based compensation costs and a decrease in corporate, legal and administrative fees.

The decrease was partially offset by an increase in nonrecurring employee severance costs.

First quarter 2017 noncash stock compensation expense increased 23%, due primarily to the grant of stock options with market-based performance conditions with graded vesting features resulting in higher noncash stock compensation expense during the earlier stages of the applicable service period.

First quarter 2017 noncash patent amortization charges decreased 49%, reflecting a decrease in scheduled amortization on existing patent portfolios, due primarily to various patent portfolio impairment charges previously recorded in the second quarter of 2016.

Cash and investments totaled $156.8 million as of March 31, 2017, versus $158.5 million as of December 31, 2016.

Looking forward from an operations standpoint, we continue to expect our 2017 fixed SG&A expense, excluding noncash charges, severance and certain variable expenses to be in the range of $11.5 million to $12 million.

We expect 2017 scheduled patent amortization expense to be approximately $22.3 million.

We expect 2017 noncash stock compensation expense based on outstanding grants as of March 2017 to be approximately $6.2 million.

This concludes our summary of the first quarter 2017 results.

I will now turn the call over to Ed Treska for a review of the status of some of our current licensing and enforcement programs.

Thank you, Clayton.

In addition to Acacia's licensing revenues this quarter, which totaled $8.9 million, Acacia continues to pursue and have success with its existing patent portfolios.

In particular, and as we recently reported, Acacia's subsidiary, St.

Lawrence Communications LLC, received the jury verdict this past March in its patent infringement trial against Motorola.

The verdict involves 5 U.S. patents found infringed by Motorola, and the jury ordered damages of nearly $9.2 million for past infringement.

Because the infringement was found willful, St.

Lawrence Communications intends to file a motion seeking enhanced damages.

Second trial is scheduled to commence against ZTE on May 22, a few weeks from now.

Looking further ahead, St.

Lawrence has a trial scheduled against Apple in February 2018.

St.

Lawrence also found success in Q1 in corresponding patent actions in Germany.

Specifically, German courts granted injunctions and enforcement proceedings against both Motorola and ZTE, who are now appealing those orders.

Turning now to Acacia's subsidiary, Cellular Communications Equipment or CCE, we reported last September that CCE received a jury verdict of infringement and damages in excess of $22 million against Apple.

Post-trial motions filed by both parties, including CCE's motion to enhance the damages award due to the finding of willful infringement, are currently pending and awaiting rulings by the court.

We expect these rulings could issue any day, followed by entry of the final judgment.

A second CCE patent trial against Apple is set to begin on July 31 of this year.

In CCE's corresponding litigation in Germany, we were notified in April that CCE prevailed in the opposition proceeding filed by Apple.

In that opposition, Apple asserted invalidity of the European counterpart for the same U.S. patent that supported the September infringement verdict.

The related German infringement trial against Apple is scheduled to occur late this year.

From the Renesas portfolio, Acacia's subsidiary Limestone Memory Systems LLC currently has infringement cases pending against Micron and several other defendants.

Most of these cases include 4 patents, all of which have been the subject of IPR proceedings.

Limestone has been successful with the IPRs filed against 3 of the patents and is awaiting a determination on the fourth patent, which is expected early next year.

At that time, we anticipate the Limestone cases will proceed with either 3 or 4 patents, depending on the outcome of the last IPR.

Thank you, and we will continue to keep you apprised of important developments related to these and other patent portfolios going forward.

Thank you, Clayton and Ed.

First of all, I want to thank Marvin Key for his many valuable years at Acacia.

Prior to serving as Acacia's Interim CEO, Marvin ran our Texas office.

Ultimately, it was not practical for Marvin to relocate his family to California to remain as CEO.

We all wish Marvin the best of luck in the future.

2016 proved to be a great operational and financial success for Acacia.

We will continue to strive to run the company in a more efficient, effective and profitable manner.

We'll focus on IRR, return on equity and shareholder growth.

As Ed Treska previously reported, we are encouraged by our current patent assets, based in part by our recent court victories.

Unfortunately, as the nature of patent licensing, we don't know the ultimate result, nor the timing of when the value will be realized.

The challenge in 2017 continues to be quality patent intake, due to the current patent environment.

We did add 1 patent portfolio in the first quarter of 2017 from our partnership with Renesas Electronics of Japan.

These patents are comprised of 23 U.S. and 12 foreign patents covering technology such as DRAM, Flash Memory, Semiconductor Fabrication, Process and Packaging as well as power management.

As we move forward, we believe it's going to be partnerships with companies like Renesas that will deliver high quality, robust and profitable patent assets.

It is patent portfolios like the ones acquired from Renesas that can provide opportunities to allow us to do high-margin licensing deals without litigation, similar to the one we did in the third quarter of 2016 with Hynix.

In spite of the current challenges in the patent licensing business, we are bullish on patent-related opportunities and the IP space in general.

Patents continue to and will always be a very important and fundamental part of the U.S. and world economies.

Our intent is to leverage our IP expertise to further enhance Acacia shareholder value.

Acacia signed more licensing deals, generated more revenue, and has more experience analyzing, valuing and monetizing IP than just about anyone focused in the IP space.

We have been challenged by the largest, smartest, best capitalized companies and law firms in the world and have a proven track record of success.

Acacia intends to utilize our experience and proprietary data to expand our business into other areas of IP beyond just patent licensing.

Patent licensing will continue to be an important part of our business, but it is a small subset of the entire patent ecosystem and opportunities that exist today.

We're finding an increasing number of very exciting high-growth technology companies that need our patent expertise, our relationships and our knowledge.

Similar to the partnerships we've created with companies who needed our expertise and experience in licensing our IP, we tend to partner with high-growth tech companies that need our help with their patent and related business strategies.

An example of this is a partnership and investment Acacia made in Veritone during 2016.

Veritone is a leading cloud-based artificial intelligence company and has recently filed a registration statement with the SEC on Form S-1 relating to a proposed initial public offering.

Due to SEC restrictions, we're unable to comment any further about Veritone at this time.

Acacia is a believer and a champion of patents and the patent system.

Historically, we've only represented patent owners who we feel are not being fairly paid for what we believe -- and are often proven in court -- to be valid and infringed patents.

In doing so, Acacia has generated and returned over $750 million for our patent partners.

We will continue to seek high-quality patent licensing opportunities, but we believe alternative IP opportunities will be larger, less risky, more predictable and more profitable than IP licensing business alone.

We look forward to updating you next quarter on the progress of our current licensing activities as well as the roll out of our future strategies as described to you today.

I want to personally thank everyone this call for their time, their support and their interest in Acacia.

If anyone has any questions, please do not hesitate to call Clayton or myself directly.

Thank you so much.

Ladies and gentlemen, this concludes our conference for today.

Thank you, all, for participating, and have a nice day.

All parties may now disconnect.