As of December�31, 2013, trailing twelve-month revenues were as follows (in thousands):
As of December�31, 2013, on a consolidated basis, we have generated revenues from 166 technology licensing and enforcement programs, as compared to 143 programs as December�31, 2012.
Summary Financial Results
For the Three Months and Fiscal Years Ended December 31, 2013 and 2012
New agreements executed
Licensing and enforcement programs generating revenues
Licensing and enforcement programs with initial revenues
Fourth Quarter 2013 compared to Fourth Quarter 2012. Revenues in the fourth quarter of 2013 decreased $51,199,000, or 77%, to $15,065,000, as compared to $66,264,000 in the comparable prior year quarter. In the fourth quarter of 2013, two�licensees individually accounted for 35% and 11% of revenues recognized, as compared to two�licensees individually accounting for 38% and 37% of revenues recognized during the fourth quarter of 2012.
Fiscal Year 2013 compared to Fiscal Year 2012. Revenues in fiscal year 2013 decreased $120,171,000, or 48%, to $130,556,000, as compared to $250,727,000 in the prior year. In fiscal year 2013, two�licensees individually accounted for 38% and 16% of revenues recognized, as compared to four�licensees individually accounting for 21%, 14%, 10% and 10% of revenues recognized in fiscal year 2012.
Cost of Revenues (in thousands):
Fourth quarter 2013 revenues, less inventor royalties expense and contingent legal fees expense totaled $8,604,000, or 57% of related quarterly revenues, as compared to $56,972,000, or 86%, in the comparable prior year quarter.
Fiscal year 2013 revenues, less inventor royalties expense and contingent legal fees expense totaled $76,048,000, or 58% of related fiscal year 2013 revenues, as compared to $200,048,000, or 80%, in the prior year.
The decrease in fourth quarter and fiscal year 2013 revenues, less inventor royalties expense and contingent legal fees expense as a percentage of related quarterly and annual revenues, respectively, was primarily due to, on average, a higher percentage of revenues generated in the fourth quarter and 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 the fourth quarter and fiscal year 2012, as compared to the fourth quarter and fiscal year 2013. Inventor royalties and contingent legal fees expenses fluctuate period to period, based on the amount of revenues recognized each period and the economic terms of the patent portfolio acquisition agreements and contingent legal fee arrangements, if any, associated with the specific patent portfolios generating revenues each period.
Fourth quarter and fiscal year 2013 litigation and licensing expenses-patents increased due primarily to an increase in international enforcement costs, an increase in strategic patent portfolio prosecution costs, and a net increase in litigation support and third-party technical consulting expenses associated with ongoing and new licensing and enforcement programs commenced during 2013 (fiscal year period only). We expect litigation and licensing expenses to continue to fluctuate period to period in connection with our current and future patent licensing and enforcement activities.
The change in amortization expense for the periods presented was due to the following:
Three Months Ended
Other Operating Expenses (in thousands):
Fourth quarter 2013 marketing, general and administrative expenses decreased due primarily to a decrease in non-cash stock compensation charges resulting from a decrease in restricted shares expensed in the fourth quarter of 2013, and a decrease in variable performance-based compensation costs.
Fiscal year 2013 marketing, general and administrative expenses increased due primarily to a net increase in personnel costs in connection with the enhancement of our business development, licensing and engineering teams, an increase in other non-recurring personnel severance costs including the impact of non-recurring cash and non-cash charges associated with Mr. Ryan's board of directors approved retirement severance package, and a net increase in corporate legal, facilities, general and administrative costs. The increase was partially offset by a decrease in variable performance-based compensation costs.
The tax benefit for fiscal 2013 reflects the application of an annual effective tax rate to the GAAP pre-tax net loss reported for fiscal 2013. The fiscal year 2013 effective tax rate was lower than the U.S. federal statutory rate primarily due to an increase in the valuation allowance related to foreign tax credits generated in 2013 and certain nondeductible expenses.
The fiscal year 2012 effective tax rate was lower than the U.S. federal statutory rate primarily due to $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 and certain nondeductible expenses.
Financial Condition (in thousands)
Summary Balance Sheet Information:
Summary Cash Flow Information:
Patent Acquisition Costs. Patent related acquisition costs in the fourth quarter of 2013 totaled $14,645,000, as compared to $113,300,000 during the comparable prior year quarter.
Patent related acquisition costs in fiscal year 2013 totaled $25,061,000, as compared to $328,260,000 (including the $150,000,000 purchase of ADAPTIX, Inc., net of cash acquired) during the prior year.
Patent portfolio acquisitions in fiscal years 2013 and 2012 were comprised of the following:
Cash outflows from financing activities included cash dividends to shareholders totaling $6,241,000 and $18,633,000 for the fourth quarter and fiscal year ended December 31, 2013, respectively.
Fourth quarter cash outflows also included cash paid to repurchase shares of our common stock totaling $7,926,000 and $26,732,000 for the fourth quarter of 2013 and 2012, respectively.
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 benefit related non-cash tax expense, that may not be indicative of our recurring core business operating results. These non-GAAP financial measures also facilitate management's internal planning and comparisons to our historical performance and liquidity. We believe these non-GAAP financial measures are useful to investors as they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and are used by our institutional investors and the analyst community to help them analyze the performance and operational results of our core business.
Non-GAAP Net income and EPS.�We define non-GAAP net income as net income calculated in accordance with GAAP, plus non-cash stock compensation charges, non-cash patent amortization charges and excess benefit related non-cash tax expense. Non-GAAP EPS is defined as non-GAAP net income divided by the weighted average outstanding shares, on a fully-diluted basis, calculated in accordance with GAAP, for the respective reporting period.
Due to the inherent volatility in stock prices, the use of estimates and assumptions in connection with the valuation and expensing of share-based awards and the variety of award types that companies can issue under FASB ASC Topic 718, management believes that providing a non-GAAP financial measure that excludes non-cash stock compensation allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies, as well as providing our management with a critical tool for financial and operational decision making and for evaluating our own period-to-period recurring core business operating results. Similarly, due to the variability associated with the timing and amount of patent acquisition payments and estimates inherent in the capitalization and amortization of patent acquisition costs, management believes that providing a non-GAAP financial measure that excludes non-cash patent amortization charges allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies, and also provides our management with a useful tool for financial and operational decision making and for evaluating our own period-to-period recurring core business operating results. Lastly, for financial reporting purposes, tax expense is required to be calculated without the excess tax benefit related to the exercise and vesting of equity-based incentive awards, however, the deduction related to the exercise and vesting of equity-based incentive awards is available to offset taxable income on our consolidated tax returns. Accordingly, the non-cash tax expense calculated without the excess benefit for financial statement purposes is credited to additional paid-in capital, not taxes payable, and does not represent a cash tax obligation. Management believes that providing a non-GAAP financial measure that excludes excess benefit related non-cash tax expense allows investors to asses our net results and the economic impact of income taxes based largely on cash tax obligations, make more meaningful comparisons between our recurring core business net results and those of other companies, and also provides our management with a useful tool for financial and operational decision making and for evaluating our own period-to-period recurring core business net results.
There are a number of limitations related to the use of non-GAAP net income and EPS versus net income and EPS calculated in accordance with GAAP. For example, non-GAAP net income excludes significant non-cash stock compensation charges, non-cash patent amortization charges and excess benefit related non-cash tax expense that are recurring, and will continue to be recurring for the foreseeable future. In addition, non-cash stock compensation is a critical component of our employee compensation programs and non-cash patent amortization reflects the cost of certain patent portfolio acquisitions, amortized on a straight-line basis over the estimated economic useful life of the respective patent portfolio, and may reflect the acceleration of amortization related to recoupable up-front patent portfolio acquisition costs. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and EPS and evaluating non-GAAP net income and EPS in conjunction with net income and EPS calculated in accordance with GAAP.
The accompanying table below provides a reconciliation of the non-GAAP financial measures presented to the most directly comparable financial measures prepared in accordance with GAAP.
A conference call is scheduled for today. The Acacia Research presentation and Q&A will start at 1:30 p.m. Pacific Time (4:30 p.m. Eastern).
To listen to the presentation by phone, dial (877) 856-1956 for domestic callers and (719) 325-4783 for international callers, both of whom will need to enter the conference ID 5728779 when prompted. A replay of the audio presentation will be available for 30 days at (888) 203-1112 for domestic callers and (719) 457-0820 for international callers, both of whom will need to enter the Conference ID 5728779 when prompted.
The call is being webcast by CCBN and can be accessed at Acacia's website at www.acaciaresearch.com.
ABOUT ACACIA RESEARCH CORPORATION
Founded in 1993, Acacia Research Corporation (NASDAQ: ACTG) is the industry leader in patent licensing. An intermediary in the patent marketplace, Acacia partners with inventors and patent owners to unlock the financial value in their patented inventions. Acacia bridges the gap between invention and application, facilitating efficiency and delivering monetary rewards to the patent owner.
Information about Acacia Research Corporation and its subsidiaries is available at www.acaciaresearch.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This news release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of the date hereof. Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including the effect of the global economic downturn on technology companies, the ability to successfully develop licensing programs and attract new business, rapid technological change in relevant markets, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments addressing licensing and enforcement of patents and/or intellectual property in general and general economic conditions. Our Annual Report on Form 10-K, recent and forthcoming Quarterly Reports on Form 10-Q, recent Current Reports on Forms 8-K and 8-K/A, and other SEC filings discuss some of the important risk factors that may affect our business, results of operations and financial condition. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
The results achieved in the most recent quarter are not necessarily indicative of the results to be achieved by us in any subsequent quarters, as it is currently anticipated that Acacia Research Corporation's financial results will vary, and may vary significantly, from quarter to quarter. This variance is expected to result from a number of factors, including risk factors affecting our results of operations and financial condition referenced above, and the particular structure of our licensing transactions, which may impact the amount of inventor royalties and contingent legal fees�expenses we incur period to period.
Three Months Ended
Three Months Ended
Accounts payable and accrued expenses
Three Months Ended
Business Highlights and Recent Developments(2)
Business highlights of the fourth quarter of 2013 and recent developments include the following:
Revenues for the three months ended December 31, 2013 included fees from the following technology licensing and enforcement programs:
(*) Initial license fees were recorded for these licensing programs in the fourth quarter of 2013.
As used herein, "Acacia Research Corporation," "we," "us," and "our" refer to Acacia Research Corporation and/or its wholly and majority-owned operating subsidiaries. All intellectual property acquisition, development, licensing and enforcement activities are conducted solely by certain of Acacia Research Corporation's wholly and majority-owned operating subsidiaries.
Acacia Research Group LLC, Accuhale LLC, AdjustaCam LLC, American Vehicular Sciences LLC, Auto-Dimensions LLC, Automated Facilities Management Corporation, Bolt MRI Technologies LLC, Bonutti Skeletal Innovations LLC, Brandywine Communications Technologies LLC, Brilliant Optical Solutions LLC, Cell And Network Selection LLC, Computer Software Protection LLC, Express Card Systems LLC, GameTek LLC, InterCarrier Communications LLC, Optimum Power Solutions LLC , Unified Messaging Solutions LLC and Vertical Analytics LLC are wholly and majority-owned operating subsidiaries of Acacia Research Corporation.