Acacia Research Reports Third Quarter Financial Results

Before you go, we thought you'd like these...
Before you go close icon

Acacia Research Reports Third Quarter Financial Results

NEWPORT BEACH, Calif.--(BUSINESS WIRE)-- Acacia Research Corporation(1) (NAS: ACTG) today reported results for the three months ended September 30, 2012.

  • Revenues in the third quarter of 2012 were $34,939,000, as compared to revenues and other operating income of $63,036,000 in the comparable prior year quarter.
  • Revenues for the nine months ended September 30, 2012 were $184,463,000, as compared to revenues and other operating income of $163,912,000 in the comparable prior year period.
  • GAAP net loss in the third quarter of 2012 was $6,402,000, or $0.13 per diluted share, as compared to GAAP net income of $10,803,000, or $0.25 per diluted share for the comparable prior year quarter.
  • Non-GAAP net income in the third quarter of 2012 was $8,450,000, or $0.17 per diluted share, as compared to $18,024,000, or $0.42 per diluted share for the comparable prior year quarter. See below for information regarding non-GAAP measures.
  • Trailing twelve-month revenues and other operating income as of the end of the third quarter of 2012 increased 16% to $205,258,000, as compared to $177,014,000 as of the end of the prior year quarter.

Consolidated Financial Results

Overview

Financial highlights and operating activities during the periods presented included the following:

  Three Months Ended Nine Months Ended
September 30,September 30,
 2012    2011 2012   2011
 
Revenues and other operating income (in thousands)$34,939$63,036$184,463$163,912
Net income (loss) (in thousands)$(6,402)$10,803$49,847$25,295
Non-GAAP net income (in thousands)$8,450$18,024$97,158$45,234
Diluted earnings (loss) per share$(0.13)$0.25$1.04$0.62
Pro forma non-GAAP net earnings per common share - diluted$0.17$0.42$2.03$1.11
New revenue agreements332411188
Licensing programs generating revenues31225849
Licensing programs with initial revenues942217
New patent portfolios1384525
 

As of September 30, 2012, trailing twelve-month revenues and other operating income were as follows (in thousands):

As of Date:  

Trailing Twelve-Month
Revenues*

  % Change 
 
September 30, 2012$205,258-12%
June 30, 2012233,3555%
March 31, 2012222,61721%
December 31, 2011184,7074%
September 30, 2011177,014-

______________________________

* Includes "other operating income."

As of September 30, 2012, on a consolidated basis, we have generated revenues from 134 technology licensing and enforcement programs, as compared to 108 programs as of the end of the prior year quarter.

Summary Financial Results

For the Three Months Ended September 30, 2012 and 2011

Revenues and Other Operating Income (in thousands):

  Three Months Ended September 30,  Change
 2012   2011 $    % 
 
Revenues$34,939$50,585$(15,646)-31%
Verdict insurance proceeds - 12,451 (12,451)-100%
$34,939$63,036$(28,097)-45%
 
New revenue agreements3324
Licensing programs generating revenues3122
Licensing programs with initial revenues94
 

Revenues in the third quarter of 2012 decreased $15,646,000, or 31%, to $34,939,000, as compared to $50,585,000 in the comparable prior year quarter. In the third quarter of 2012, five licensees individually accounted for 30%, 13%, 10%, 10% and 10% of revenues recognized, as compared to two licensees individually accounting for 59% and 26% of revenues recognized during the third quarter of 2011.

Verdict Insurance Proceeds. In the third quarter of 2011, Creative Internet Advertising Corporation ("CIAC"), an operating subsidiary of Acacia, received a $12,451,000 final judgment stemming from its May 2009 trial verdict and damages award in its patent infringement lawsuit with Yahoo! Inc. Yahoo! Inc. appealed the verdict, and in April 2011, a three Judge panel of the United States Court of Appeals for the Federal Circuit reversed the District Court's judgment of infringement in a 2 to 1 decision. As a result of the reversal of the District Court's judgment, in September 2011, CIAC submitted a claim under a specific contingency insurance policy previously purchased, and received $12,451,000 in verdict insurance proceeds.

Cost of Revenues and Other Operating Income (in thousands):

   Three Months Ended September 30,  Change
 2012   2011 $   % 
 
Inventor royalties$5,017$15,592$(10,575)-68%
Contingent legal fees8,80512,328(3,523)-29%
Verdict insurance proceeds related costs-7,661(7,661)-100%
 

Third quarter 2012 total revenues, less inventor royalties expense and contingent legal fees expense was $21,117,000, or 60% of third quarter 2012 revenues, as compared to $27,455,000 or 44% (including verdict insurance proceeds and related costs) in the comparable prior year quarter. The increase in total revenues, less inventor royalties expense and contingent legal fees expense as a percentage of total revenues was due primarily to lower inventor royalty rates for the portfolios generating revenues during the three months ended September 30, 2012, as compared to the portfolios generating revenues in the comparable prior year quarter. In addition, inventor royalties expense for the third quarter of 2012 included a credit of $2,600,000 related to inventor royalties originally expensed in the second quarter of 2012, which based on certain events occurring in the third quarter of 2012, were no longer payable pursuant to the terms of the underlying agreement.

The economic terms of the patent portfolio acquisition agreements and contingent legal fee arrangements, if any, including royalty rates, contingent fee rates and other terms, vary across the patent portfolios owned or controlled by our operating subsidiaries. These expenses fluctuate period to period, based on the amount of revenues recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific patent portfolios with varying economic terms generating revenues each period.

  Three Months Ended September 30,   Change
 2012  2011 $ % 
 
Litigation and licensing expenses - patents$5,686$3,501$2,18562%
 

Litigation and licensing expenses-patents in the third quarter of 2012 increased due primarily to higher net levels of patent portfolio prosecution, litigation support, third-party technical consulting and professional expert expenses associated with our continued investment in ongoing and new licensing and enforcement programs commenced since the end of the comparable prior year quarter. We expect patent-related legal expenses to continue to fluctuate period to period in connection with our current and future patent acquisition, development, licensing and enforcement activities.

  Three Months Ended September 30,  Change
 2012  2011 $ % 
 
Amortization of patents$10,412$1,946$8,466435%
 

Third quarter 2012 non-cash patent amortization charges increased due primarily to $6.1 million of amortization expense related to new patent portfolios acquired since the end of the comparable prior year quarter, comprised primarily of non-cash patent amortization expense related to the patents acquired in connection with our acquisition of ADAPTIX, Inc. in the first quarter of 2012 and other patent portfolios acquired in the second and third quarters of 2012. The increase also reflects accelerated amortization totaling $3.0 million, related to the sale of a patent portfolio in the third quarter of 2012. The increase was partially offset by a $578,000 decrease in accelerated patent amortization related to recoupable up-front patent portfolio acquisition costs recovered in the third quarter of 2012, as compared to the prior year quarter.

Other Operating Expenses (in thousands):

  Three Months Ended September 30,  Change
 2012   2011 $  % 
 
Marketing, general and administrative expenses$5,610$5,180$4308%
Non-cash stock compensation expense - MG&A 6,285 3,568 2,71776%
Total marketing, general and administrative expenses$11,895$8,748$3,14736%
 

Third quarter 2012 marketing, general and administrative expenses increased due primarily to an increase in non-cash stock compensation charges resulting from an increase in the average grant date fair value of restricted shares expensed in the third quarter of 2012, as compared to the prior year quarter, and a net increase in licensing, business development, and engineering personnel since the end of the prior year period.

Income Taxes:

  Three Months Ended September 30,  Change
 2012    2011  $  % 
 
Benefit from (provision for) income taxes (in thousands)$1,802$(1,889)$3,691-195%
Effective tax rate22%15%
 

Tax expense for the third quarter of 2012, as compared to the prior year quarter, included the impact of the following:

  • The benefit (provision) for income taxes for interim periods is determined using an estimate of Acacia's annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant reporting period. Our estimated annual effective tax rate, excluding the impact of discrete items was approximately 40% and 26% as of September 30, 2012 and 2011, respectively. During the nine months ended September 30, 2012, discrete items were primarily comprised of $10.2 million of tax benefits recognized resulting from the release of valuation allowance on the majority of our net deferred tax assets in the first quarter of 2012.
  • For financial reporting purposes, tax expense is calculated without the excess tax benefit related to the exercise and vesting of equity-based incentive awards. Under U.S. generally accepted accounting principles, if a deduction reported on a tax return for an equity-based incentive award exceeds the cumulative compensation cost for those instruments recognized for financial reporting purposes, any excess tax benefit is recognized as a credit to additional paid-in capital, as the expense does not reflect cash taxes payable. The deductions related to the exercise and vesting of equity-based incentive awards are available to offset taxable income on our consolidated tax returns. Accordingly, the noncash tax expense calculated without the excess benefit, totaling approximately $7.7 million and $1.7 million for the nine months ended September 30, 2012 and 2011, respectively, was credited to additional paid-in capital, not taxes payable.
  • As of September 30, 2012, taxes paid or payable totaled approximately $12.4 million, primarily comprised of $11.9 million of foreign withholding taxes withheld by the applicable foreign tax authority on revenue agreements executed with third party licensees domiciled in certain foreign jurisdictions, and other state related taxes payable. The 2012 tax provision contemplates utilization of the $11.9 million in foreign taxes withheld in the first quarter of 2012 as a credit against income tax expense calculated for financial statement purposes.

Financial Condition (in thousands)

Summary Balance Sheet Information:

  September 30,    December 31,
 2012  2011 
 
Cash & cash equivalents and investments$410,798$323,286
Accounts receivable16,6352,915
Total assets693,746352,877
Accounts payable and accrued expenses16,0796,625
Royalties and contingent legal fees payable21,43523,508
Total liabilities72,43530,765
 

Summary Cash Flow Information:

 
Three Months Ended September 30,
 2012  2011 
 
Net cash provided by (used in):
Operating activities$6,278$19,020
Investing activities(37,627)(9,486)
Financing activities (1,366) 1,714 
(Decrease) increase in cash and cash equivalents$(32,715)$11,248 
 

Patent Acquisition Costs. Patent related acquisition costs in the third quarter of 2012 totaled $24,525,000, as compared to $1,000,000 during the comparable prior year quarter. See "Business Highlights and Recent Developments" below for a summary of patent portfolio acquisitions during the current quarter.

Refer to the section below entitled "Summary Financial Information" for additional summary consolidated balance sheet, statements of operations and cash flow information as of and for the applicable periods presented.

INFORMATION ABOUT NON-GAAP FINANCIAL MEASURES

As used herein, "GAAP" refers to accounting principles generally accepted in the United States of America. To supplement our consolidated financial statements prepared and presented in accordance with GAAP, this earnings release includes financial measures, including (1) non-GAAP net income and (2) non-GAAP Earnings Per Share ("EPS"), that are considered non-GAAP financial measures as defined in Rule 101 of Regulation G promulgated by the Securities and Exchange Commission. Generally, a non-GAAP financial measure is a numerical measure of a company's historical or future performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these non-GAAP financial measures for internal financial and operational decision making purposes and as a means to evaluate period-to-period comparisons of the performance and results of operations of our core business. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the performance of our core business by excluding non-cash stock compensation charges, non-cash patent amortization charges and excess

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners

Gift Finder Promo
More to Explore