Acacia Research Corp. (ACTG), the patent monetization company run by CEO Matthew Vella, posted a narrower net loss in the first quarter of 2015 on a more than doubling of licensing revenue and an increase in the number of new agreements.
The Newport Beach, Calif.-based company said its first quarter net loss fell to $13.13 million, or 27 cents a share, from $24.4 million, or 51 cents a share, a year ago.
Acacia also announced today that its board approved a quarterly cash dividend, payable in the amount of 12.5 cents a share, which will be paid on May 29, 2015 , to shareholders of record at the close of business on May 4, 2015 .
Shares of Acacia gained 19 cents to $10.02. They’ve traded between $9.71 and $19.93 over the pst year.
Revenue rose in the quarter to $34.2 million from $12.6 million. The company said it executed 23 new agreements in the quarter versus 20 in the year ago period.
Despite the negative price action in the stock from the adverse ruling in Acacia's Adaptix case in January in U.S. District Court in San Jose, Calif., "the model appears to be working and intact," said Mark Argento, an analyst at Lake Street Capital Markets LLC, who rates Acacia a "buy" and has a price target of $20, in a note to investors.
"With a defined strategy around tier-1 marquee portfolios and a robust court calendar, we would be buyers of the stock despite the recent pullback," Argento said.
Argento said sentiment is likely to remain negative, though it "could change fairly quickly as Acacia puts more points on the board as its court calendar lends itself to licensing activity."
The company’s number of licensing and enforcement programs generating revenue fell to 18 from 21, and the number of programs with initial revenue fell to 2 from 3.
During as conference call with investors and analysts, Vella said Acacia remains confident in its strategy and operating focus and continues to expect revenue to ramp through 2015.
“For the past year and half, we have consistently told you, our shareholders, that the rapid onset of approaching trial dates from any of our most important portfolios historically results in significantly enhanced revenues.
Vella said that heading into 2015, Acacia was optimistic that California February trial dates for its Adaptix handset portfolio would lead the way to exciting new licensing opportunities in the first quarter.
To be sure, U.S. District Court in San Jose, Calif., Judge Paul Grewal’s Jan. 20 ruling granting separate summary judgement motions from Apple, AT&T, Verizon and HTC on direct infringement threw a monkey wrench in Acacia’s plans, which Vella has described as merely a delay or a postponement of its day in court.
“The postponement of the California handset case for Adaptix, however, resulted in the March German trial dates for our VoiceAge portfolio leading the way to new licensing opportunities and that same portfolio being the revenue driver in the first quarter.
Vella said the the results from the initial German VoiceAge trials “have been very encouraging. Acacia prevailed on our first VoiceAge trial in March, leading to several new license agreements. Some of those agreements commended upfront license fees that accounted for much of the $34 million of revenues we recognized this quarter.
He said some of the agreements commanded ongoing royalties which though not significant contributors to revenues or earnings this quarter, are expected to be significant contributors to financial results for many quarters to come.
Vella said Acacia is licensing the VoiceAge portfolio at rates ranging from 20 cents a unit to 40 cents a unit, depending on several factors, including the application being license and the applicability of various discount factors, such as early adopter discount and volume discounts.
“As unit pricing on our other 8 plus marquee handset portfolios begin to solidify, we shall also endeavor to share that pricing with you.
Vella said Acacia believes the VoiceAge portfolio will cover roughly 120 million units licensed and unlicensed in 2015 and covered countries outside China.
“We think that annual coverage will increase past 700 million units licensed and unlicensed by 2019. Again with patent coverage excluding China as high def voice begins to appear in virtually all handset shipping in America, Western Europe and Japan.”
Vella said the unit count scenario may be “the worst-case outcome for us since it assumes static market shares being maintained by smartphone vendors, which is not our operating assumption given what we anticipate will be a significant rise in the market share of Chinese smartphone vendors and developed nations in the coming years.”
In addition, he noted that the major patents of the VoiceAge portfolio have four to seven years of life remaining.
Acacia didn’t purchase any patent portfolios in the quarter, after having purchased 3 a year ago.
“Though we did not acquire rights to any new portfolio this quarter, the opportunity to source additional portfolios remains excellent,” Vella said. “Our pipeline is presently filled with several large and promising opportunities for the technology, automotive and energy verticals. We still expect the intake of marquee patent portfolios to continue and we are still targeting ‘15 to ‘17 marquee portfolios by the end of 2015.”
During the quarter, Acacia cut its litigation and licensing expenses to $8.68 million from $8.99 million a year ago.
Acacia said in a filing with the Securities and Exchange Commission that its first quarter 2015 litigation and licensing expenses decreased due primarily to a minor net decrease in patent prosecution, litigation support and third-party technical consulting expenses associated with ongoing and new licensing and enforcement programs since the end of the comparable prior year quarter.
Acacia said it expects litigation and licensing expenses to continue to fluctuate period to period in connection with its current and future patent partnering, prosecution, licensing and enforcement activities.
The company said royalties it pays to inventors increased to $9.3 million from $951,000 a year ago. The company also said contingent legal fees tripled to $4.78 million from $1.53 million.
Marketing, general and administrative expenses increased to $7.3 million from $6.9 million.
Acacia ended the quarter with cash and cash equivalents and restricted cash and investments of $165.6 million, down from $193 million, at the end of 2014.
Cash outflows from financing activities for the first quarter of 2015 included a quarterly cash dividend of 12.5 cents a share, paid on March 30, 2015, to shareholders of record at the close of business on March 2, 2015, totaling $6.375 million.
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