Acacia Research Reports Record Fourth Quarter and Record Year End Financial Results

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Acacia Research Reports Record Fourth Quarter and Record Year End Financial Results

NEWPORT BEACH, Calif.--(BUSINESS WIRE)-- Acacia Research Corporation(1) (NAS: ACTG) today reported results for the three months and year ended December 31, 2012.

Fourth Quarter 2012 Results

  • Revenues in the fourth quarter of 2012 were a record $66,264,000, as compared to $20,795,000 in the comparable prior year quarter.
  • GAAP net income in the fourth quarter of 2012 was $9,823,000, or $0.20 per diluted share, as compared to a GAAP net loss of $4,189,000, or $0.10 per diluted share for the comparable prior year quarter.
  • Non-GAAP net income in the fourth quarter of 2012 was $41,849,000, or $0.86 per diluted share, as compared to a Non-GAAP net loss of $221,000, or $0.01 per diluted share for the comparable prior year quarter. See below for information regarding non-GAAP measures.
  • During the fourth quarter of 2012 we acquired control of 9 patent portfolios.

Fiscal Year 2012 Results

  • Revenues in fiscal year 2012 were a record $250,727,000, as compared to revenues and other operating income of $184,707,000 in the comparable prior year.
  • GAAP net income in 2012 was $59,453,000, or $1.24 per diluted share, as compared to $21,106,000, or $0.51 per diluted share for the comparable prior year.
  • Non-GAAP net income in 2012 was $137,339,000, or $2.86 per diluted share, as compared to $45,013,000, or $1.09 per diluted share for the comparable prior year. See below for information regarding non-GAAP measures.
  • Trailing twelve-month revenues, including other operating income, as of the end of 2012 increased to $250,727,000, as compared to $184,707,000 as of the end of the prior year.
  • During fiscal year 2012 we acquired control of a record 55 patent portfolios.

"Acacia generated the second highest revenue quarter in company history in the 4th Quarter of 2012, capping another record year in revenues, profits and new patent portfolios for future licensing," commented CEO, Paul Ryan. "These results reflect Acacia's growing industry leadership in patent licensing and are accelerating new opportunities to partner with patent owners."

Consolidated Financial Results
Overview

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

    
Three Months EndedYears Ended
December 31,December 31,
2012 20112012 2011
 
Revenues and other operating income (in thousands)$66,264$20,795$250,727$184,707
Net income (loss) (in thousands)$

9,823

$(4,189)$

59,453

$21,106
Non-GAAP net income (loss) (in thousands)$

41,849

$(221)$

137,339

$45,013
Diluted earnings (loss) per share$

0.20

$(0.10)$

1.24

$0.51
Pro forma non-GAAP net earnings (loss) per common share - diluted$

0.86

$(0.01)$

2.86

$1.09
New revenue agreements2737138125
Licensing programs generating revenues27266856
Licensing programs with initial revenues943121
New patent portfolios9155540
 

As of December 31, 2012, trailing twelve-month revenues and other operating income were as follows (in thousands):

As of Date:

   

Trailing Twelve-
Month Revenues*

 % Change 
 
December 31, 2012$250,72722%
September 30, 2012205,258-12%
June 30, 2012233,3555%
March 31, 2012222,61721%
December 31, 2011184,707-

______________________________
* Includes "other operating income."

As of December 31, 2012, on a consolidated basis, we have generated revenues from 143 technology licensing and enforcement programs, as compared to 112 programs as December 31, 2011.

Summary Financial Results
For the Three Months and Fiscal Years Ended December 31, 2012 and 2011

Revenues and Other Operating Income (in thousands):

    
Three Months EndedYears Ended
December 31,December 31,
2012 20112012 2011
 
Revenues$66,264$20,795$250,727$172,256
Verdict insurance proceeds - - - 12,451
$66,264$20,795$250,727$184,707
 
New revenue agreements2737138125
Licensing programs generating revenues27266856
Licensing programs with initial revenues943121
 

Fourth Quarter 2012 compared to Fourth Quarter 2011. Revenues in the fourth quarter of 2012 increased $45,469,000, or 219%, to $66,264,000, as compared to $20,795,000 in the comparable prior year quarter. In the fourth quarter of 2012, two licensees individually accounted for 38% and 37% of revenues recognized, as compared to one licensee individually accounting for 58% of revenues recognized during the fourth quarter of 2011.

Fiscal Year 2012 compared to Fiscal Year 2011. Revenues in fiscal year 2012 increased $66,020,000, or 36%, to $250,727,000, as compared to $184,707,000 in the prior year. In fiscal year 2012, four licensees individually accounted for 21%, 14%, 10% and 10% of revenues recognized, as compared to three licensees individually accounting for 26%, 17% and 15% of revenues recognized in fiscal year 2011.

In fiscal year 2012 $41,247,000 or 16% of revenues were generated from our patent portfolios in the medical technology industry area, as compared to $8,772,000 or 5% in fiscal year 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 EndedYears Ended
December 31,December 31,
2012 20112012 2011
 
Inventor royalties$3,829$6,458$26,028$46,614
Contingent legal fees5,4635,54724,65144,247
Verdict insurance proceeds related costs---808
 

Fourth Quarter 2012 compared to Fourth Quarter 2011. Fourth quarter 2012 revenues, less inventor royalties expense and contingent legal fees expense totaled $56,972,000, or 86% of related quarterly revenues, as compared to $8,790,000 or 42%, in the comparable prior year quarter. The increase in fourth quarter revenues, less inventor royalties expense and contingent legal fees expense as a percentage of related quarterly revenues was due primarily to a higher percentage of revenues generated in the fourth quarter of 2012 having no inventor royalty obligations and lower overall average inventor royalty and contingent legal fee rates for the portfolios generating revenues in the fourth quarter of 2012, as compared to the fourth quarter of 2011.

Fiscal Year 2012 compared to Fiscal Year 2011. Fiscal year 2012 revenues, less inventor royalties expense and contingent legal fees expense totaled $200,048,000, or 80% of related fiscal year 2012 revenues, as compared to $93,038,000 or 50% (including verdict insurance proceeds and related costs) in the prior year. The increase in revenues, less inventor royalties expense and contingent legal fees expense as a percentage of related fiscal year revenues was due primarily to a higher percentage of revenues generated in fiscal year 2012 having no inventor royalty obligations, and lower overall average inventor royalty and contingent legal fee rates for the portfolios generating revenues in fiscal year 2012, as compared to fiscal year 2011.

The economic terms of the patent portfolio acquisition agreements and contingent legal fee arrangements, if any, including royalty obligations, if any, royalty rates, contingent fee rates and other terms and conditions, 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 EndedYears Ended
December 31,December 31,
2012 20112012 2011
 
Litigation and licensing expenses - patents$6,969$2,205$21,591$13,005
 

Fourth quarter and fiscal year 2012 litigation and licensing expenses-patents 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 prior year. 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 EndedYears Ended
December 31,December 31,
2012 20112012 2011
 
Amortization of patents$18,088$1,427$39,019$9,745
 

Fourth quarter and fiscal year 2012 non-cash patent amortization charges increased due primarily to $6,575,000 and $19,930,000, respectively, of increased amortization expense related to new patent portfolios acquired since the end of the comparable prior year periods, 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 fiscal year 2012. The change also reflects a fourth quarter 2012 and fiscal year 2012 increase in accelerated amortization related to recoupable up-front patent portfolio acquisition costs recovered totaling $10,065,000 and $7,463,000, respectively.

Other Operating Expenses (in thousands):

    
Three Months EndedYears Ended
December 31,December 31,
2012 20112012 2011
 
Marketing, general and administrative expenses$8,253$4,974$28,426$22,114
Non-cash stock compensation expense - MG&A 8,282 3,688 25,657 13,579
Total marketing, general and administrative expenses$16,535$8,662$54,083$35,693
 

Fourth quarter and fiscal year 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 and an increase in restricted shares expensed in the 2012 periods, as compared to the respective prior year periods, a net increase in licensing, business development, and engineering personnel costs since the end of the prior year period and an increase in variable performance-based compensation costs.

Income Taxes:

The income tax provision for the three months and year ended December 31, 2012 is preliminary and subject to adjustment resulting from finalization of the income tax provision in connection with the completion of our year end audit and the filing of our 2012 annual report on form 10-K. We do not expect any final adjustments to be material to the financial information contained herein.

    
Three Months EndedYears Ended
December 31,December 31,
2012 20112012 2011
 
Benefit from (provision for) income taxes (in thousands)$

(5,757

)$635$

(22,060

)$(8,708)
Effective tax rate

37

%13%

27

%29%
 

Fourth Quarter 2012 compared to Fourth Quarter 2011. The fourth quarter 2012 increase in our effective tax rate primarily reflects the increase in pre-tax income, as compared to the prior year quarter.

Fiscal Year 2012 compared to Fiscal Year 2011. The effective tax rate for fiscal 2012 was relatively flat, compared with fiscal 2011.

Tax expense for the periods presented primarily reflects the impact of the following:

  • For financial reporting purposes, tax expense is calculated without the excess tax benefits 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 tax benefits, totaling approximately $5.7 million and ($1.1 million) for the fourth quarter of 2012 and 2011, respectively, and $13.2 million and $583,000 for fiscal year 2012 and 2011, respectively, was credited (debited) to additional paid-in capital, not taxes payable.
  • Foreign withholding taxes withheld by the applicable foreign tax authority on payments in connection with certain licensing arrangements executed in fiscal year 2012 and 2011, totaling $11.9 million and $7.5 million, respectively. The tax provisions for the periods presented reflects utilization of foreign taxes withheld as a credit against income tax expense calculated for financial statement purposes.

Financial Condition (in thousands)

Summary Balance Sheet Information:

    
December 31,December 31,
20122011
 
Cash & cash equivalents and investments$311,279$323,286
Accounts receivable9,8432,915
Total assets

668,717

352,877
Accounts payable and accrued expenses / costs9,4856,625
Royalties and contingent legal fees payable12,50823,508
Total liabilities

50,239

30,765
 

Summary Cash Flow Information:

    
Three Months EndedYears Ended
December 31,December 31,
2012 20112012 2011
 
Net cash provided by (used in):
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