Acacia Research Corporation's CEO Discusses Q4 2011 Earning Results - Earnings Call Transcript

Acacia Research Corporation (

ACTG

)

Q4 2011 Earnings Call

February 16, 2012 04:30 pm ET

Executives

Paul Ryan - CEO & President

Clayton Haynes - CFO

Chip Harris - Executive Chairman

Analysts

Tim Quillin - Stephens Inc

Paul Coster - JPMorgan

Mark Argento - Craig-Hallum Capital

Daniel Gelbtuch - Cantor Fitzgerald

Jonathan Skeels - Davenport

Darrin Peller - Barclays Capital

Jon Evans - Edmunds White Partners

Michael McCormick - Gilder Gagnon Howe

Presentation

Operator

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Good afternoon and welcome ladies and gentlemen to the Acacia Research fourth quarter and yearend 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/or its wholly and majority-owned operating subsidiaries. All intellectual property acquisitions, development, licensing, and enforcement activities are conducted solely by certain of Acacia Research Corporation’s wholly and majority-owned operating subsidiaries. With us today are Chip Harris, President of Acacia; Dooyong Lee, Executive Vice President; Clayton Haynes, our Chief Financial Officer; and Ed Treska, our General Counsel.

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 and we will then open the call for questions.

Acacia continues to build its leadership position in patent licensing and generated another year of record growth in 2011. During 2011 Acacia grew its revenue and other operating income to a record $185 million, up 40% over the prior year and acquired control of a record 40 new patent portfolios for future revenue growth. During 2011 Acacia generated 125 new revenue agreements covering 56 different licensing programs and generated initial revenues from 21 new licensing programs.

During the fourth quarter of 2011, we acquired control of a record 15 new patent portfolios in the quarter as our growth in patent assets continues to accelerate. Acacia now controls over 200 patent portfolios and we enter 2012 with the largest number of licensing opportunities in our history.

Acacia increased its cash and investments by $219 million during 2011 and ended the year with $323 million. In January of 2012 we announced that we are acquired ADAPTIX, a pioneer in the development of 4G technologies for wireless systems for $160 million in cash. ADAPTIX which owns 230 4G related patents is now a wholly-owned subsidiary of Acacia.

This morning we announced that we raised $225 million in a private offering. Following the closing of that transaction next week, we will have cash and investment position of approximately $440 million. Because of the disclosures made in the private offering, we also disclosed in our press release this morning that quote for the first quarter of 2012 Acacia expects to record its highest level of quarterly revenues to date and that Acacia has executed licensing agreements through February 1, 2012 totaling an access of $75 million.

And at the foregoing results for the first quarter of 2012, are preliminary unaudited and subject to adjustments resulting from Acacia’s quarterly review process. The disclosure of this interim revenue information was made solely because of the disclosure in the private placement and does not represent a change in the company’s continuing policy of not giving revenue guidance or providing preliminary revenue amounts.

The proceeds of the financing are for pending and future acquisitions of patents and companies with patent assets including an acquisition we are currently negotiating as well as for working capital and general corporate purposes. We anticipate that our current cash position upon the close of this financing will be more than sufficient to meet all of our capital requirements including any future acquisitions in the near term and we would likely fund any additional future acquisitions out of retained earnings.

Acacia has a long history of being very disciplined with the deployment of shareholder capital and we will continue to exhibit that discipline as we make future patent acquisitions. We will only transact when the acquisition price provides the opportunity to achieve our targeted returns.

Acacia also has a history and corporate culture of focusing on early returns of capital when we have invested shareholder capital, whether we are investing $1 million or $160 million. Acacia’s primary focus is to recover our risk capital with early introductory pricing to initial license fees and then be more patient in licensing the balance of the market. Fortunately, we are seeing an increase in the number of potential licensees that are interested in doing these early transactions with us.

Historically, we have grown our business by partnering with patent owners and sharing the net revenues 50-50. We anticipate our partnering business will continue to accelerate given our success in completing over 1080 licensing agreements covering 112 different technologies. We continue to generate growing interest from patent owners wanting to partner with us and have us take over the licensing of their patented technologies.

We’re also seeing accelerating interest from major companies as an increasing percentage of our recent partnering agreements are with major companies as more and more large companies decide to monetize their patent assets.

We have also started expanding our business platform by purchasing 100% ownership of certain patent portfolios when the patent owner would rather sell than partner. This provides an opportunity for us to expand our profit margins on portfolios where we do not need to share 50% of the net licensing revenues.

Acacia’s acquisition of ADAPTIX serves as a good prototype for the criteria we look for when investing shareholder capital in a patent portfolio. First, the patents cover a major technology, 4G wireless, already being deployed and expected to become the dominant technology platform. Two, it is a very diversified portfolio of 230 patents with 15 distinct patent families. Three, there are existing open continuation patent applications within most of the 15 patent families allowing for additional patent claims.

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