Acacia Research's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Acacia Research Corporation (ACTG)

Q2 2012 Earnings Call

July 19, 2012 4:30 p.m. ET

Executives

Paul Ryan – Chief Executive Officer and President
Clayton J. Haynes – Chief Financial Officer
Matthew Vella – Executive Vice President

Analysts

Timothy Quillin – Stephens Inc.

Mark Argento – Craig-Hallum Capital Group LLC
Paul Coster – JPMorgan Securities LLC
Jonathon Skeels – Davenport & Company LLC
Doug Thomas of JET Investment Research

Presentation

Operator

Good afternoon, and welcome ladies and gentlemen to the Acacia Research Second Quarter Earnings Release Conference Call. At this time, I would like to inform you that this conference is being recorded and all participants are in a listen-only mode. At the request of the Company, we will open up the conference for questions and answers after the presentation.

I’ll 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, developments, licensing, and enforcement activities are conducted solely by certain of Acacia Research Corporation’s wholly and majority-owned operating subsidiaries.

With me today are Chief Financial Officer, Clayton Haynes; General Counsel, Ed Treska; and Executive Vice Presidents, Dooyong Lee and Matt Vella.

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 your questions.

Acacia continues to build its leadership position in patent licensing. Acacia generated second quarter revenues of $50.5 million, an increase of 27% over last year’s second quarter revenues of $39.7 million. Acacia grew its key performance metric of trailing 12-month revenues to a new record $233 million and completed the quarter with $431 million in cash and investments.

We generated the $50.5 million in second quarter revenues from 38 new revenue agreements including new licensing agreements with American Express, Cisco, Freescale, Fujitsu, Fuji Film, IBM, Hewlett Packard, Panasonic, and Regions Bank. The 38 new revenue agreements covered 27 different licensing programs including 7 new licensing programs generating initial revenue. Acacia has now generated revenues from 125 different licensing programs.

Acacia invested $48.3 million in new patent portfolios during the quarter bringing our total investments and patents over the first six months of this year to $200.4 million. During the second quarter, Acacia acquired control of a record 27 new patent portfolios. These new portfolios included patents originally issued to Polaroid, six prominent patent portfolios of 68 patent covering a wide range of software technologies, five patent portfolios with 156 patents from a major semiconductor company, four patent portfolios with 48 patents from a major technology company, and seven Medtech patent portfolios with over 150 patents and pending applications relating to medical devices, biologics, and diagnostics techniques.

We continue to increase future shareholder value by acquiring control of significant patent portfolios and now control 238 different patent portfolios. We continue to see an acceleration and opportunities for both partnering and acquisition of new patent portfolios. Acacia has built its business by partnering with patent owners, taking control of licensing 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 in patent licensing at a time when patents are rapidly becoming a new asset class. There are two major market trends, which are accelerating our business. The first trend is the growing number of companies worldwide who are deciding to generate revenues from their patent portfolios.

There is 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. The recent sale of AOL's patent portfolio to Microsoft for a billion and last year's sale of the Nortel patent portfolio for $4.5 billion and Google's subsequent $12.5 billion acquisition of Motorola Mobility has served as wake-up calls to all companies and is accelerating this new trend.

We are also observing the large companies are becoming focused on their IP balance of payments and realized they need to generate financial returns on their own R&D investments to offset their growing IP payment obligations to other companies. As a result of this trend, we are seeing a significant increase in partnering opportunities with large companies.

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

The second major trend which is accelerating our business is the growing complexity and cost that is required for small entities such as individual inventors, research centers, universities, and small companies to be able to license and assert patents on their own. As a result of a number of recent court rulings and the recently passed patent legislation, we are seeing increased partnering opportunities with these small entities who need an expert partner to generate licensing revenues from their patents.

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