Acacia Research Corporation Q3 Earnings Call Transcript

Acacia Research Corporation Q3 Earnings Call Transcript
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Acacia Research Corporation (



Q3 2010 Earnings Call

October 21, 2010 4:30 pm ET


Paul Ryan - Chairman and CEO

Chip Harris - President

Dooyong Lee - EVP

Clayton Haynes- CFO


Mark Argento - Craig-Hallum Capital

Jonathan Skeels - Davenport & Company

Bruce Stewart - Private Investor

Walter Ramsley - Walrus Partners



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Good afternoon and welcome ladies and gentlemen to the Acacia Research Third 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.

Paul Ryan

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. In today’s call the terms we, us and our refer to Acacia Research Corporation and it’s wholly or majority-owned operating subsidiaries. All intellectual property acquisitions, development, licensing and enforcement activities are conducted solely by certain Acacia Research Corporation’s wholly and majority-owned operating subsidiaries.

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 are 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 had a great third quarter. It was our best quarter so far as we continue to build our leadership position and patent licensing. Acacia had record quarter the revenues of $63.9 million, record GAAP net income of $24.7 million and record trailing 12-month revenues of $138.6 million.

We continue to grow rapidly in all of our key performance metrics. For the first nine months of the year, we have generated $118.7 million in revenues, which is an 150% increase over the prior-year period. We have accomplished this growth while also increasing our gross margins by 39% from 46% to 64%. We have also increased our working capital since the beginning of the year by 153% to $91 million.

We have also significantly increased the diversity of our revenue base this year as we generate revenues from a larger number of our patent portfolios. Year-to-date, we have generated revenues from 52 different patent portfolios compared to 25 last year, an increase of 108%. Importantly, we have generated initial revenues for new licensing programs this year to 27, an increase of 237% over last year.

We continue to increase the rate of acquiring control of new patent portfolios for future licensing programs. Year-to-date we have acquired 27 new portfolios and we are on pace for another record year which continues to increase the potential for future revenue growth.

Having built the leading outsource patent licensing company Acacia is extremely well positioned as we see our major new trend of companies throughout the world deciding to generate revenues from their patents. During the third quarter, Acacia generated revenues from 36 different licensing programs including initial revenues from 12 new licensing programs. New programs generating initial revenues in the quarter included two of our important wireless portfolios.

Our smartphone technologies subsidiary which controls smartphone inventions created by Axis, Palm, Palmsource, Bell Communications and Geoworks completed initial license to Microsoft which was reported on in an article in the Wall Street Journal a couple of weeks ago in which I described this patent portfolio as foundational in the smartphone market.

We also began generating revenues form our Celltrace subsidiary which entered into initial licenses was Sprint Spectrum and US Cellular for patents relating to the use of short messaging and cellular telephony. During the quarter, we also entered into three new licensing agreements with IBM, two new agreements with Philips Electronics and settled litigation with Red Hat.

On the business development front, we recently issued a joint press release with Renesas Electronics that we have entered into a strategic patent licensing alliance with Renesas, the world’s third largest semiconductor company which has a portfolio of over 40,000 patents. Renesas Electronics is a Tokyo Stock Exchange listed company with over $14 billion in sales which has been formed by Mitsubishi, Hitachi and NEC. We have commenced initial licensing programs of Renesas patent portfolios and have already begun generating revenues.

During the quarter, we also announced that we have formed the Acacia Intellectual Property Fund which has $27 million initial funding commitment and is authorized to raise up to $250 million. This fund will give us the flexibility to access external capital to fund certain patent acquisition activities and licensing activities.

I thank all of the talented and very hard-working people at Acacia for another great quarter as we continue to build a great reputation as the premier date and licensing company. Acacia is beginning to benefit from major trends which are impacting our business. The first theme is the rapidly growing interest of large companies in the US, Europe and Asia and generating revenues from their patent portfolios and to earn a return on investment from their R&D and M&A activities.

As the number one outsourced patent licensing company, having built a great track record of licensing, we are seeing many new opportunities as large companies seek to generate financial returns from the patents. Acacia’s business model makes sense for companies that want to generate these returns without having to make any additional investments of capital of human resources to earn those returns.

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