A detailed analysis of Acacia’s second quarter earnings is available at A Tale Of Two Quarters – Acacia Research Illustrates Patent Play Volatility. While the patent licensing firm posted $50 M in revenue, and nearly $150 M in the first six months of 2012, details of Acacia’s 10-Q show that once you exclude their 4 largest licensing deals (out of 78 total), their remaining revenue was only $22 M.
Acacia reports a concentration of 72% of Q2 revenue attributable to a single licensee, leaving only $14 M distributed among a remaining 37 agreements. In other words, outside of this one agreement, Acacia generated an average of less than $380,000 per license. Even worse, a full 85% of the Q1 and Q2 combined revenue is attributed to just four licensees. Thus, of the $149 MM earned by Acacia in 2012, only 15% (or $22 M) worth of revenue can be attributed to 95% (or 74) of its license agreements. Therefore, outside of four major deals (representing 5% of its business in the first half of the year), Acacia generated an average of less than $300,000 per agreement.
This is obviously a serious problem for Acacia, since the overwhelming majority of their time is spent earning a very small proportion of their revenue. There are several ways Acacia could reverse this trend, which I’ll explore in some future posts.
However, Acacia’s concentration figures are interesting for another reason. Back in February, with very little information to go on, GametimeIP reported that Microsoft and Samsung combined for about $40-$65 M in licensing revenue for the ADAPTIX portfolio. From Acacia’s most recent 10-Q (with dollar amounts in brackets for convenience):
One licensee individually accounted for 72% of revenues [$36 M] recognized during the three months ended June 30, 2012, and four licensees individually accounted for 36% [$53 M], 24% [$36 M], 13% [$19 M], and 12% [$18 M] of revenues recognized during the six months ended June 30, 2012.
The 24% ($36 M) agreement came in the second quarter, which means Acacia did individual deals in Q1 of $53 M, $19 M and $18M. Of those, two of them should be the Microsoft and Samsung licensing deals, which implies a combined deal range of $37-$72 M. Of course, remaining unanswered are questions about which company paid more, and about the identity of the third large deal in the first quarter. For sure, an agreement of this size would merit an announcement by Acacia. Besides Microsoft and Samsung, first quarter deals announced by Acacia included:
- Tealeaf Technology
- Abbott Labs
- Origin Healthcare
- Comerica Bank
Most of the companies on the above list would have had enough cash on their books at end of 2011 to be able to afford an 8-figure settlement, but it would take more investigation to figure out which one had the proper motivation to enter into such a large deal. The other remaining mystery is the identity of the $36 M licensing deal Acacia struck during the second quarter. Based on Acacia’s 8-K filings, the candidates are:
- Thomson Reuters
- CMC Magnetics
- Regions Bank
Once again, several large companies appear on the list, so many are likely candidates. Verizon seems to be an unlikely candidate, since patent litigation between Adaptix and the mostly Verizon-owned Cellco Partnership remains pending. During the earnings call Q&A period, a lot of questions centered around Cisco and the possibility of broad, term license agreements. Of course, Acacia refused to reveal specifics, so the mystery remains.