Three straight disappointing quarters for Acacia Research Corp. has zapped 45% of the company’s market value, leaving it at $789 million as of late last week, but executives say they’re confident it will bounce back through pending patent lawsuits.
The Newport Beach-based services firm, which licenses technology from its own portfolios and for other companies, has been hit with a rash of challenges, including investor churn, a tougher pricing climate, and a glut of underperforming, smaller portfolios that are costly to manage.
The hurdles, which curtailed revenue and fueled a $56.4 million loss last year, are playing out against a backdrop of patent reform proposals in Washington that have also kept investors at bay.
“We are in a revenue trough,” said Chief Executive Matthew Vella. “In some ways we’re paying for the acquisition sins of three or four years ago.”
Acacia’s revenue fell 48% last year to $130.5 million, a steep descent considering it’s long been among the fastest-growing public companies in Orange County.
But its recent balance sheet troubles could be alleviated over the next few years as a string of patent lawsuits it has filed near litigation. Acacia sues companies it believes are infringing on patents but can’t come to terms on a licensing deal. The lawsuits typically end in settlements that are lucrative for the company and the patent holders it represents.
Trial Dates
“We have a deluge of trial dates early next year,” Vella said. “We’ll have six or seven this year. I think we’ll come out of it.”
The company had only three trial dates in 2013, all of which came in the first few months of the year.
The settlements largely accounted for its $76.8 million in revenue in the first quarter, beating Wall Street expectations.
Acacia typically splits sales, licensing fees and court settlements with patent holders.
The company expects 15 to 20 trial dates in the first six months of 2015 involving some marquee portfolios related to 4G connections, Nokia Siemens technology, high-definition voice patents, and Palm Pilot software, which covers some of the building blocks in the modern smartphone.
Arriving at an agreement amenable for both sides is another matter.
“As we’re telling investors, we’ve got better portfolios than ever before, but it’s difficult to transact when you have larger portfolios and you’re not willing to compromise on term deals,” Vella said.
That’s another shift playing out at Acacia as the company has moved away from a large quantity of smaller deals to a smaller quantity of higher quality, more lucrative portfolios.
One portfolio in the trial pipeline, in particular, could change the company’s outlook.
Its 2012 buy of Adaptix Inc. for $160 million brought key 4G technology implemented more than a decade ago, well before the widespread rollout of the latest generation of wireless connectivity. The Dallas-area company holds some 230 issued and pending patents in 13 countries, including ones for transmitting large amounts of digital data over radio waves.
Some of Acacia’s recent troubles stem from its heavy bets made in the medical sector in the past year or so.
The move into medical technology portfolio purchases was part a larger acquisition strategy that included pouring $328.3 million into patent buys in 2012, up 2,133% over 2011. That number plummeted to $25.1 million last year.
Its 2012 deal with Massachusetts-based Boston Scientific Corp. added more than 1,900 patents and applications alone.
Too Optimistic
Vella, after a lengthy review of Acacia’s business model and portfolios, said in October that the company was “too optimistic” on how much medical tech companies would pay in licensing fees without the threat of patent litigation.
“We did not get rewarded for this kinder, gentler approach in the medical technology space,” he said. “Instead, we had two to three quarters of underproductive discussions that ultimately did not lead to the early license agreements we hope to close,” he said at the time.
Vella said he views 2014 as a transition year for Acacia as several of these developments play out.
“The reality is we could rebound tomorrow,” he said. “There are a lot of negotiations happening right now.”
