Acacia Research Corporation (ACTG) Q3 2011 Earnings Report, Transcript and Summary

Good afternoon and welcome ladies and gentlemen to the Acacia Research Third Quarter Earnings Release Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mr. Paul Ryan. Please go ahead, sir. Paul Ryan – Chairman and Chief Executive Officer: Thank you for being with us today. Today’s call may involve what the SEC considers to be forward-looking statements. Please refer to our 8-K, which was filed with the SEC today for our forward-looking statement disclaimer. In today’s call, the terms we, us and our, refer to Acacia Research Corporation and/or it’s wholly and majority-owned operating subsidiaries. All intellectual property acquisitions, development, licensing, and enforcement activities are conducted solely by certain of Acacia Research Corporation’s wholly and majority-owned operating subsidiaries. With us today are Chip Harris, President of Acacia; Dooyong Lee, Executive Vice President; and Clayton Haynes, our Chief Financial Officer. Today, I will give you an overview of the progress we are making in building the business; Clayton Haynes will provide you with an analysis of our financial results; and we will then open the call for questions. Acacia had a great third quarter, as we continued to build our leadership position in patent licensing. Acacia generated third quarter revenues and other operating income of $63 million, the second highest grossing quarter in our company’s history. Revenues and other operating income for the first nine months were a record $164 million, an increase of 38% over last year’s previous record of $119 million. Acacia completed 24 new licensing agreements in the third quarter including agreements with Advanced Micro Devices, Bank of America, Boston Scientific, Siemens, T-Mobile, and multiple agreements with Research in Motion and RPX Corporation. Acacia generated revenues from 22 different licensing programs in the quarter including four new licensing programs generating initial revenue and we have now generated revenues from 108 different licensing programs. Acacia also acquired control of eight new patent portfolios for future licensing in the quarter by partnering with patent owners, including 3G and 4G wireless patents from a major telecommunications company; a patent portfolio relating to mobile applications for use in smartphones and wireless computing devices; a patent portfolio relating to semiconductor packaging technology; over 50 patents relating to semiconductor manufacturing processing technology from a major technology company; patents for heart valve technology from a major medical device company; and patents relating to document assembly for printers, domain name registration technology, and computer-aided design technology. We continue to increase future shareholder value by partnering with patent owners and now control a record 192 different patent portfolios. Acacia also increased its cash and investments to a record $319 million at the end of the quarter. Acacia has built its business by partnering with patent owners, taking control of licensing enforcement activities, and splitting the net licensing revenues 50:50. Our successful track record in generating revenues for patent owners is accelerating new business opportunities. We are fortunate to have built a market leadership position as the number one outsource patent licensing company at a time when patents are rapidly becoming a new asset class. We continue to see rapidly growing interest in patents as a asset class from both corporations and the investment community and think Acacia is extremely well-positioned to expand its leadership role given the breadth of our business model. We are seeing three major trends which are accelerating business for us. The first trend is the growing number of large companies worldwide who are deciding to generate revenues from their patent portfolios. There is a rapidly increasing awareness in boardrooms across the world that their managements need to generate returns on investment from shareholder capital that has been invested in research and development. We are also observing that large companies are becoming focused on their IP balance of payments and realized they need to generate financial returns from their own R&D investments to offset their growing payment obligations to other companies. The recent sale of the Nortel patent portfolio for $4.5 billion and Google’s $12.5 billion bid for Motorola Mobility has served as a further wakeup call to large companies and is accelerating this new trend. As a result of this trend, we are seeing a significant increase in partnering opportunities with large companies. Over the past year, a growing percentage of our new patent portfolios are coming from large companies as evidenced in the press releases we have issued. Acacia’s partnering business model is very attractive to large companies, who want to generate financial returns from their patents without having to create a distraction to their core business, be involved in litigation, or have to make additional investments of capital on human resources to earn those returns. Our corporate partners recognized that we have built a highly specialized company for patent licensing and have built a proven track record and generating revenues for these corporate partners. The second trend we are observing is the increasing amount of sales of patents in the marketplace as the emergence of this new asset class begins to take shape. Many of these patent sales create a situation, where certain companies want to acquire and control the patents rather than having a competitor control them and assert them against them. This is providing Acacia with new partnering opportunities to participate in these patent acquisitions, grant licenses to our partners in the purchase, and then control the ongoing licensing activity of the patents and share the ongoing revenues with our purchasing partners. Acacia can take the lead in acquiring these patent assets and turn potential problems for companies into profits for our corporate partners. So, for large corporate partners, Acacia can first monetize their non-performing assets, secondly acquire third-party patents that impact our business and turn potential problems into profits, and third, be a very cost efficient aggregator of needed in licenses for the patents that we control. The third trend which is accelerating our business is the increasing interest of small entities such as universities, individual inventors, research centers and small companies wanting Acacia to take control of the licensing of their patented technologies. This is being driven by both our successful track record and the growing complexity in cost that is required for small entities to be able to effectively enforce and license patents on their own. As a result of a number of recent court rulings as well as the recent patent legislation, we are seeing increasing partnering opportunities with these small entities who now more than ever need an expect partner who is able to generate licensing revenues from their patents. We have consistently delivered great results for these small entities often after their own efforts were unsuccessful, which has repeatedly demonstrated our value to these patent partners. As a result of these three trends along with the hard work of our experienced teams at Acacia, we currently have the largest pipeline of potential new partnerships and patent portfolios in our company’s history. As the leader in outsource patent licensing, we have the potential for significant growth as it appears we are in the very early stages of the emergence of this new asset class. Our quarterly revenues will continue to be uneven, our key internal performance metrics, our growth in patent assets, growth in new revenue generating licensing programs, growth in 12-month trailing revenues, and growth in annual profits. With that, I would like to turn the call over to our Chief Financial Officer, Clayton Haynes. Clayton Haynes – Chief Financial Officer: Thank you, Paul and thank you to everyone joining us for today’s third quarter 2011 earnings conference call. As indicated in today’s earnings press release on a consolidated basis, Acacia reported third quarter 2011 revenues and other operating income of $63 million as compared to $63.9 million in the third quarter of 2010. Third quarter of 2011 revenues included license fees from 24 new licensing agreements covering 22 of our technology licensing programs as compared to 51 new licensing agreements covering 36 of our technology licensing programs in the comparable prior year quarter. For more details, please refer to today’s earnings press release for a summary of technology licensing programs contributing to revenues during the quarter. We continued our trend of strong trailing 12-month revenue and operating income growth over the prior year quarter with consolidated trailing 12-month revenues totaling $177 million as of September 30, 2011, as compared to $138.6 million as of the end of the prior year quarter. Currently to-date on a consolidated basis, our operating subsidiaries have generated revenues from 108 of our technology licensing programs, up from 87 technology licensing programs as of the end of the comparable prior year quarter. License fee revenues continue to fluctuate from period-to-period based on the various factors discussed on previous earnings conference calls and in our periodic filings with the SEC. For the third quarter of 2011, Acacia Research reported GAAP net income of $12.5 million or $0.29 per fully diluted share versus GAAP net income of $24.7 million or $0.70 per fully diluted share for the comparable prior year quarter. Excluding non-cash stock compensation and non-cash patent amortization charges, we reported non-GAAP net income of $18 million or $0.42 per diluted share versus net income of $28.3 million or $0.80 per diluted share on a non-GAAP basis for the comparable prior year quarter. Please refer to our disclosures regarding the presentation of non-GAAP financial measures in today’s earnings release and 8-K filed with the SEC. Net results for the third quarter of 2011 as compared to the third quarter of 2010 included the impact of the following items. First, in September 2011, Creative Internet Advertising Corp, a subsidiary of Acacia Research submitted a claim under its verdict insurance policy related to its $12.5 million final judgment stemming from its May 2009 trial verdict and damages award involved in its patent infringement lawsuit with Yahoo! Inc, which Yahoo! appealed and prevailed. In connection with the submitted claim, Acacia subsidiary received $12.5 million in verdict insurance proceeds. Verdict insurance proceeds are reflected in the income statement as other operating income. Inventor royalties, contingent legal fees, and other costs associated with the verdict insurance proceeds received total $7.7 million and are included in operating expenses in the line item entitled verdict insurance proceeds related costs. Net results also reflect a 38% increase in other marketing, general, and administrative expense due primarily to a $1.9 million increase in non-cash stock-based compensation charges, resulting from an increase in the average grant date fair value of restricted shares expensed in the third quarter of 2011 as compared to the prior year quarter. In addition, our average margin defined as gross license fees including other operating income and related costs, less inventor royalties, non-controlling interests, and contingent legal fees for the portfolio is generating revenues during the period was approximately 44% for the third quarter of 2011 as compared to 57% for the comparable prior year quarter. Average margins continue to fluctuate period-to-period based on the mix of patent portfolios that generate revenues each period, the terms and conditions of license agreements execute each period and the related economics associated with the underlying inventor agreements and contingent legal fee arrangements if any. Inventor royalty’s expense including inventor royalties related to the verdict insurance proceeds and non-controlling interest for the third quarter of 2011 increased to $18.5 million versus $17.6 million for the comparable prior year quarter. Contingent legal fees including contingent legal fees related to the verdict insurance proceeds for the third quarter of 2011 increased to $16.3 million versus $9.7 million for the comparable prior year quarter. On a combined basis, inventor royalties and contingent legal fees as a percentage of total revenues and other operating income increased to 56% as compared to 43% in the comparable prior year quarter primarily due to in the aggregate higher contingent legal fee expenses associated with the patent portfolio programs generating revenues and other operating income in the third quarter of 2011 versus the comparable prior year quarter. Third quarter 2011 litigation and licensing expenses related to patents increased to $3.5 million as compared to $2.9 million in the comparable prior year quarter due primarily to an increase in litigation and licensing expenses incurred in connection with our continued investment in new licensing and enforcement programs commenced since the end of the prior year quarter. Looking forward for fiscal 2011, we expect MG&A excluding non-cash stock compensation charges to be in the range of $21.5 million to $22.5 million, including an estimate of the impact of variable performance based compensation costs described earlier and on previous earnings conference calls. For fiscal 2011, we continue to estimate patent related litigation and licensing expenses to be between approximately $13.5 million to $14 million. From a balance sheet perspective, cash and cash equivalents and investments totaled $319.1 million as of September 30, 2011 as compared to $301.4 million as of June 30, 2011 and $104.5 million as of December 31, 2010. Working capital increased to $306.4 million as of September 30, 2011 as compared to $291.4 million as of June 30 and $92.3 million as of December 31, 2010. Net cash inflows from operations for the third quarter of 2011 totaled $20.7 million versus net cash inflows of $14.2 million for the third quarter of 2010. Net cash inflows from operations totaled $45.8 million for the nine-month period ended September 30, 2011 as compared to $30.3 million for the nine-month period ended September 30, 2010. In the third quarter, we acquired eight additional patent portfolios as compared to four new patent portfolios in the comparable prior year quarter. Third quarter patent-related acquisition costs totaled $1 million as compared to $795,000 in the third quarter of 2010. Again, thank you for joining us for today’s earnings conference call. And I will now turn the call back over to Mr. Paul Ryan. Paul Ryan – Chairman and Chief Executive Officer: Thanks, Clayton. Operator, you can open the call for questions.

Thank you, sir. The question-and-answer session will begin. (Operator Instructions) Your first question comes from the line of Mark Argento of Craig-Hallum Capital. Please go ahead. Mark Argento – Craig-Hallum Capital: Hi, good afternoon guys.

Hi, Mark. Mark Argento – Craig-Hallum Capital: I know on the quarter on the IP intake side, you guys brought in a healthcare, I think it’s a heart valve portfolio. And I think it’s the first time I remember you guys calling out that you have been doing a deal with a large med-tech or healthcare company. You talk a little bit more about the progress you are making on outside of the business?

Sure. Yeah, as you know, we bought in broker to help with our existing group to expand the medical technology market. Chip and I have addressed this before. We think we have an opportunity over a three-year period to build the business such as big as our technology business, which took us about five years to build. It’s a very large market, generally much higher loyalty rates than in the tech sector, so a very lucrative market. And we are finding a great deal of receptivity amongst major medical companies and availing themselves of partnering on certain non-core and certain non-performing assets that they have and certainly our indications are that looks like this can grow into a very large market for us.

Yeah, Mark, I think we have got another five portfolios as part of this new emphasis for us, would be another five I think under auction right now that we are going through. Mark Argento – Craig-Hallum Capital: Is the market dynamic a little different, do you find that in the healthcare vertical, where there is maybe two or three large players within a specific technology versus maybe traditional technology or you might have dozen guys making a similar type of product or?

It looks like obviously the barriers to entry given federal regulations and long lead times, probably if you had a portfolio in the tech side that it has 12 potential licensees looks like the med-tech might behalf although be the margins in the profitability are in many times larger and more significant in the healthcare side than they are in outside of maybe software on the tech side. Mark Argento – Craig-Hallum Capital: Great. And then just shifting gears on the – I know on the quarter the big changes in terms of patent legislation, any initial thoughts on how that might impact your business or how you might have changed your ways of operating as a result?

Yeah. We think it’s going to have a very large positive impact. And as a matter of fact, one of our executives gave and addressed that the LES, the licensing conference earlier this week to a packed house and he was introduced by the Chairperson of that committee saying that the law of unintended consequences, the large companies have now fully put Acacia on the map to be a major player in this sector. They realized that the many of the new regulations are just making it more complex, more sophisticated for an individual patent owner or university to transverse all of the levels of these new requirements and legislation and we are ideally suited to do that. And we are already seeing a pickup in the interest and we think it’s going to be – create a lot of tailwind for us with the small entities. Mark Argento – Craig-Hallum Capital: Great, thanks guys. Congrats on the quarter.

Sure.

Your next question comes from the line of Paul Coster of JPMorgan. Please go ahead. Mark Strouse – JPMorgan: Good afternoon. It’s Mark Strouse on behalf of Paul.

Hi Mark. Mark Strouse – JPMorgan: Hi. Just wanted to dig a little deeper on the verdict insurance, so the policies account for the Yahoo! judgment, was that kind of a one-off thing or is that something that you guys do every time that you receive a judgment?

We will be dependent. If we get judgments, we will certainly look into the availability, but in certain cases we may, certain cases we may not. It depends on the individual circumstances and the pricing obviously. Mark Strouse – JPMorgan: Got it. Okay. Mark asked a good question about healthcare, but with regard to smartphones, can you just give us an update on the access portfolio, how we should think about when that could potentially be monetized?

Well, we’ve already begun that. We have licensed without litigation in Microsoft. We have also licensed now Nokia, Research in Motion this quarter as well as Motorola, Samsung. We have several large potential licenses to go namely companies like Apple and HTC, so some of the very biggest players remained to be licensed. So, that’s a great revenue potential for us going forward. Mark Strouse – JPMorgan: Just filed a case against?

Actually, and we also just expanded with the Amazon new product that now infringes our patented technology, so that’s opening up that market as well. So, we recently filed against Amazon with those patents. Mark Strouse – JPMorgan: Got it. Okay, that’s it for us. Thank you very much.

Thank you.

(Operator Instructions) Your next question comes from the line of Jonathan Skeels of Davenport. Please go ahead. Jonathan Skeels – Davenport: Hey guys. Congrats on the quarter.

Thanks Jonathan. Jonathan Skeels – Davenport: Couple of questions. First, so clearly the pipeline of new partnership opportunities is strong and we see you signing partnerships with large companies, can you at all try to help us to quantify what that looks like? I mean, how many more opportunities are you seeing now versus a year ago? Is there anyway to kind of put a number on that? I mean, is it two times, is it five times?

I’d say it’s in order of magnitude. I mean, we are just booked with meetings right now, both with companies, very well-known companies that want us to come in and take a look at their non-core assets. Many companies are interested in strategically partnering on patent acquisitions. We are in discussions with. So, I would say from a year ago, it’s an order of magnitude.

We are in discussions with companies who are in the midst of M&A transactions that may want to have us take control of IP pre that closure. So, it’s not to have the IP fall into their cross licenses. So, I mean, it’s…

Yeah, there is…

We are talking about things that two years ago we didn’t even know existed. And what’s interesting is people are calling us and asking us into the negotiations.

We are also seeing opportunities to partner on third-party patent acquisitions and there are some real structural benefits that Acacia can provide as a freestanding legitimate independent public company. We passed that test. And many companies are not looking when they acquire assets not necessarily to give a free cross license to all of their existing cross licensees. So, they can structure transactions where they are buying an important asset that they need without necessarily giving away a large value of that to existing cross licensees. There is also obviously situations, where you’ve got anti-trust issues going that we think we can play the key roles in independent licensing company and other partners as non-controlling investors can achieve their strategic competitive and financial goals. We believe without those kind of risk inherent. So, we provide a lot of structural benefits in addition to our great track record. The companies respect what we have done. We have negotiated against them and many other meetings that we have quite frankly our result of there being impressed with our teams that have negotiated transactions with them, they know that we have created a very specialized company as a matter of fact very large sophisticated companies are having us come in and evaluate certain of their patent portfolios with views toward us and forcing those. So, we have clearly carved in this year that not only from a level of expertise and execution, but just from a structural standpoint can be very beneficial to these companies. Jonathan Skeels – Davenport: Great. And then on the structure term licenses obviously given all of the partnership opportunities you have in the new portfolio as you see. The opportunity cost assigning them is going up which is a bullish sign for your business. I mean, I guess how should we think about the number of these deals you can sign or how active you will be in signing these deals on a go-forward basis? And then more importantly, what is the criteria for deciding who you partner with or who you sign a structure term license with?

Sure, great question. We’re going to continue to do these transactions certainly when it makes sense. However, our growth is not dependent at all on these types of transactions. As you can see over the last two quarters, we had $100 million in revenue with no structure term transaction, which is great for our shareholders, because we haven’t taken any of those opportunities off the table. In the third quarter, you will observe there was one company, where three of our subsidiaries concurrently entered into licensing transactions with a very large company. But that transaction did not include a forward license, which has been the component of other structured term licenses. So, there is kind of going to be a hybrid deals here as well. Certain companies were going to concurrently have subsidiaries to settle all matters and then we’ll grab them a small forward license. In other cases we won’t and it comes down to pricing and you are right with the pipeline accelerating with the growth of assets we have – we have to reassess the opportunity cost of these types of transactions. In hindsight, I think the ones we did, the companies we negotiated these deals with the hindsight got a pretty good deal given the pipeline we have. So, look if we can get the right price for shareholders on the term value, we will do it, in other cases, we may just settle all existing litigation with the independent subsidiaries without the forward graph. But I think the important thing that takeaway is we realize because it’s a metric kind of the only metric that we have put out there as the people have logically focused on it, but again our company is not dependent on these types of deals to continue its growth rate.

Well, (indiscernible) virtually, the vast majority of the companies we work with that we have had litigation with multiple times always ask about it. They know – and it’s just a function of the bid they ask intersecting, but our ask has moved up significantly. So, when those lines intersect, you’ll see those types of deals. We could do just as many as we always have to do or we could do half as many of twice the amount, but I mean, the opportunity costs we take into account and we price it accordingly. Jonathan Skeels – Davenport: Thanks.

Your next question comes from the line of Walter Ramsley from Walrus Partners. Please go ahead. Walter Ramsley – Walrus Partners: Thanks very much. Congratulations another great quarter Paul and Chip. I appreciate them. I was going to ask about those structure deals myself do have one additional question about it? The free to you have on already in house, do they continue to pay as you add to your portfolio or I mean what would happens all these new patents that you add, did they get access to that or they have to pay extra forward or what’s been…

Generally, that is part of the payment is that they get a forward license to the new portfolios we take in over a short period of time. And then obviously that then becomes subject to, it’s a guillotine license that becomes subject to renewal licensing. But to give some relief to a company if we have 8 or 9 licensing matters with them. And we can currently settle all of those matters then we can in some cases we chose to in addition to that grant a forward license as Chip said if the price is right. And there wouldn’t be additional payments during that stub period by that company not until we got to the renewal period. Walter Ramsley – Walrus Partners: Okay. I think now when you are quite bit smaller as a company, the idea was to build up to three structured deals this year for next year and then just kind of keep going. One every quarter something along that line off into the future, is that no longer really what you are aiming for, because the value is going up so much, if you kind of price?

I think for lot of people were just putting that out there. And I think people have assumed that it’s some kind of rigid goal or metric of our company. Our goal is the three key things, bringing in assets, turning them into revenue producing, and increasing 12-month trailing revenues, but we’ll keep doing them at the same phase, it’s a matter of getting them priced. A lot of companies, we see what we brought in and furthermore we know what our potential pipeline is of deals we have under contract we can close on. And so we are building that pricing and so it’s getting the other side to agree to where we are now as opposed to the level of portfolios we had two or three years ago on pricing. So, we’ve got to get them up to that level on pricing and if we get them at the appropriate level, we will do the deals.

It’s still a goal, I mean, we have the right price, so it’s not…

Hello. Your train is leaving not getting, just a matter of pricing that’s all. Now, we are in discussions with companies right now. And hopefully, you can get to the right price, we’ll close them and shareholders like the deals so the way, because the time value has high margins. Walter Ramsley – Walrus Partners: Okay. Just one last thing, I guess, you guys started up that hedge fund a little while ago and you put in what was $20 million. You didn’t put it in, but you bought an investor in, have you added any more capital there or what’s going on?

We’ve just been deploying we have a lead very large institutional investor. And I think we have deployed a substantial portion of their capital that they have invested. And we are starting to generate returns on that. Given the capital that we have been building that’s being thrown off by our operations in our cash, I doubt we are going to go to the outside certainly not in the near term to raise on the outside capital, but opportunistically, with the fund in place and with the track required if down the road, we decided we wanted to do some off balance sheet capital, we’d have a structure in place to do it. But right now, we don’t intend to raise any more money in that fund in the short-term. Walter Ramsley – Walrus Partners: Okay. Well, it looks like you guys have a phenomenal future ahead. So, congratulations and keep it up, I guess. Thanks.

Thank you.

(Operator Instructions) Your next question comes from the line of the Darrin Peller of Barclays Capital. Please go ahead.

Hey, guys how are you? This is actually Adam here stepping in for Darrin.

Hi, Adam.

Just have a couple of questions for you. One, Paul, you were recently at a conference and you kind of discussed how you guys are looking to move into the energy sector. What kind of wondering if you could help frame the market there kind of how it’s high in comparison to other traditional tech and the med tech and what kind of opportunity you guys are seeing there?

Yeah, that’s a further all opportunity. We are beginning to take a look at it, but we are not very active at the moment. We are trying to get in touch and put some people in place who are very knowledgeable in that industry. If we do as we have done in the medical practice, we will put a team together to do that. So, it looks like a potential one, but it’s one certainly that over the next six months we are going to be very active in. We are going have our hands full with the tech and the medical tech if it’s something that maybe in the second half of next year that we might start exploring. I mean, we may do a couple of deals, but we are not going to have a dedicated effort in that direction probably for at least six months.

Got it, okay. And then just quick follow-up just a question in terms of looking at the inventor royalties and the contingent legal fees as a percentage of revenue, is this kind of a level that we should expect going forward. I know that obviously it will vary depending on which patterns are involved in deals, but I was wondering if you could provide anymore color around that?

Well, if you are using it for your model, I wouldn’t, because I don’t think it doesn’t today’s inventor royalties and contingent legal have not varied on next quarters.

It’s going to be very highly variable and now we have actually, we purchased a few assets directly ourselves. We are obviously, well, we have much higher margins and potential we are developing corporate relationships, where I think going forward, we may able to enter into licensing transactions with no litigation. So, obviously, the margins could be very large if you own the portfolio outright or have 90% economics with no litigation pay-out on a contingency basis. But again it’s going to very widely depending on portfolios and there maybe opportunity, it’s not a focus or a goal or a metric of our company, because look you can get a portfolio that has a huge potential opportunity and hundreds of millions, where we might be earning 30% margins. And for the degree of effort and SG&A we need to put out, that’s a great return for our shareholders, and on another portfolio maybe 70%. So, we have to look at it in terms of the kind of profits they can generate for our shareholders relative to the manpower and SG&A cost. So, looking at an average percentage rate just has been the key metric for us.

Yes. But there is no relationship between whatever those percentages were this quarter and what the percentages will be next quarter?

Yeah, shortly it’s very widely depending on the portfolio.

Yeah, understood. Thanks guys. I appreciate it.

Okay.

Your questionnaire has withdrawn his question. I am sorry, he is back. Your next question is a follow-up from Jonathon Skeels of Davenport. Jonathon Skeels – Davenport: Hi guys. Just a follow-up, on the structured term relationships that you have, you’ve talked in the past about partnering with some of those companies to license their own patent. So, you are starting to see those opportunities?

Yes. Jonathon Skeels – Davenport: Okay. So, there is traction on that front?

Yes. Jonathon Skeels – Davenport: And is that a key determinant for the companies you choose to partner or enter into structured term deals with, how important role does that play?

Yes, yes and yes. Jonathon Skeels – Davenport: Okay. Alright, and then lastly just on the, there was a question before asked about patent reform, can you just talk about the new disjointer rules and how that impacts your business and what impact do you think it will have on maybe other licensing entities out there?

Well, we can have Ed who is our General Counsel making few more sophisticated comments, that’s kind of from a businessman’s perspective, there is two major things. One is that’s very positive for us and that there is not joint defense now. One of the tactics that often times was used with the patent owner, particularly small entities, who have multiple infringers who wanted to put them in one case. The defendants would pull their resources generally, financially, and that’s no longer the case. So, it’s more expensive on the defense side. We certainly think we are uniquely suited based on the scale and the amount of portfolios we have to navigate through this and not have it be a significant impact to us. I don’t know Ed, if you want to give any more specific comments on that or not?

Well, I think that’s basically Ed, I mean the new role requires a certain amount of nexus between defendants in order to bring them in an individual suite. So, as Paul alluded to earlier, we are having to bring probably separate suites, which in many cases is driving inventors to Acacia to navigate those complexities. Jonathon Skeels – Davenport: Okay. Does it impact many of the current cases you have filed?

No, it’s not retroactive. So, it doesn’t impact the current cases. There is still some unresolved issues with respect to adding other defendants to existing cases, whether it would apply, the law doesn’t readily address that. So, there are few unknown issues, but for the most part it won’t impact existing cases. Jonathon Skeels – Davenport: Thanks a lot.

Okay. Thanks Jonathan.

This will conclude the question-and-answer session. I will now turn the call back to Mr. Ryan. Paul Ryan – Chairman and Chief Executive Officer: Okay. I want to thank you all for being with us here today and look forward to being with us on our next call. In the meantime, if you have any questions you can direct those to Rob Stewart, our Senior VP of Investor Relations or you can give me a call. Thanks so much.

Ladies and gentlemen, if you wish to access the replay for this call you may do so by dialling 855-859-2056 or 404-537-3406 with confirmation code 12464198. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.