Acacia Research Corporation ( ACTG)

Q3 2011 Earnings Conference Call

October 20, 2011 16:30 ET


Paul Ryan – Chairman and Chief Executive Officer

Chip Harris – President

Dooyong Lee – Executive Vice President

Clayton Haynes – Chief Financial Officer


Mark Argento – Craig-Hallum Capital

Mark Strouse – JPMorgan

Jonathan Skeels – Davenport

Paul Ryan – Chairman and Chief Executive Officer

Walter Ramsley – Walrus Partners



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 – Chairman and Chief Executive Officer

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 it’s 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; and Clayton Haynes, our Chief Financial Officer.

Today, I will give you an overview of the progress we are making in building the business; Clayton Haynes will provide you with an analysis of our financial results; and we will then open the call for questions.

Acacia had a great third quarter, as we continued to build our leadership position in patent licensing. Acacia generated third quarter revenues and other operating income of $63 million, the second highest grossing quarter in our company’s history. Revenues and other operating income for the first nine months were a record $164 million, an increase of 38% over last year’s previous record of $119 million.

Acacia completed 24 new licensing agreements in the third quarter including agreements with Advanced Micro Devices, Bank of America, Boston Scientific, Siemens, T-Mobile, and multiple agreements with Research in Motion and RPX Corporation. Acacia generated revenues from 22 different licensing programs in the quarter including four new licensing programs generating initial revenue and we have now generated revenues from 108 different licensing programs.

Acacia also acquired control of eight new patent portfolios for future licensing in the quarter by partnering with patent owners, including 3G and 4G wireless patents from a major telecommunications company; a patent portfolio relating to mobile applications for use in smartphones and wireless computing devices; a patent portfolio relating to semiconductor packaging technology; over 50 patents relating to semiconductor manufacturing processing technology from a major technology company; patents for heart valve technology from a major medical device company; and patents relating to document assembly for printers, domain name registration technology, and computer-aided design technology.

We continue to increase future shareholder value by partnering with patent owners and now control a record 192 different patent portfolios. Acacia also increased its cash and investments to a record $319 million at the end of the quarter. Acacia has built its business by partnering with patent owners, taking control of licensing enforcement activities, and splitting the net licensing revenues 50:50.

Our successful track record in generating revenues for patent owners is accelerating new business opportunities. We are fortunate to have built a market leadership position as the number one outsource patent licensing company at a time when patents are rapidly becoming a new asset class. We continue to see rapidly growing interest in patents as a asset class from both corporations and the investment community and think Acacia is extremely well-positioned to expand its leadership role given the breadth of our business model.

We are seeing three major trends which are accelerating business for us. The first trend is the growing number of large companies worldwide who are deciding to generate revenues from their patent portfolios. There is a rapidly increasing awareness in boardrooms across the world that their managements need to generate returns on investment from shareholder capital that has been invested in research and development. We are also observing that large companies are becoming focused on their IP balance of payments and realized they need to generate financial returns from their own R&D investments to offset their growing payment obligations to other companies. The recent sale of the Nortel patent portfolio for $4.5 billion and Google’s $12.5 billion bid for Motorola Mobility has served as a further wakeup call to large companies and is accelerating this new trend.

As a result of this trend, we are seeing a significant increase in partnering opportunities with large companies. Over the past year, a growing percentage of our new patent portfolios are coming from large companies as evidenced in the press releases we have issued.

Acacia’s partnering business model is very attractive to large companies, who want to generate financial returns from their patents without having to create a distraction to their core business, be involved in litigation, or have to make additional investments of capital on human resources to earn those returns. Our corporate partners recognized that we have built a highly specialized company for patent licensing and have built a proven track record and generating revenues for these corporate partners.

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