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. Matthew Vella. Please go ahead, sir.

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 it’s wholly and majority-owned operating subsidiaries. All intellectual property rights acquisitions, developments, licensing and enforcement activities are conducted solely by certain of Acacia Research Corporation's wholly and majority-owned operating subsidiaries. With us today are Clayton Haynes, our Chief Financial Officer; and Ed Treska, our General Counsel. Today, I will first give you an overview of our patent licensing business this past quarter. I will secondly address some of the patent reform initiatives currently underway in Washington D.C. and I will then close by outlining the changes we have been making since I first became CEO a couple of months ago. After I speak, Clayton Haynes will provide you with an analysis of our financial results. Finally, we will open the call for questions. Acacia empowers patent owners and awards invention by providing a path the patent monetization for the people and companies who have contributed valuable patented inventions to an industry but who are still not getting paid for those inventions. We call these people the patented enfranchised. In the face of unprecedented pressures being generated by those who seek to distract, dishearten and dissuade the patented enfranchised. Acacia remains confident that it has and will continue to obtain the high quality portfolios, best-in-class professionals and capital required to profitably serve this underserved and very deserving constituency. In the face of these unprecedented pressures, Acacia is also adapting. After the CEO transition of last quarter, we instituted a comprehensive review of all of Acacia’s practices and implemented changes where…

Thank you, Matt and thank you to everyone joining us for today's quarterly earnings conference call. On a consolidated basis, revenues in the third quarter of 2013 totaled $15.5 million as compared to $34.9 million in the comparable prior year quarter. Third quarter 2013 revenues included license fees from 24 new licensing agreements covering 24 of our technology licensing programs as compared to 33 new licensing agreements covering 31 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. Consolidated trailing 12 month revenues totaled $181.8 million as of September 30, 2013 as compared to $205.3 million as of the end of the comparable prior year quarter. License fee revenues continue to be uneven from period-to-period based on the various factors discussed by Matt earlier on this call and on previous earnings conference calls and in our periodic filings with the SEC. For the third quarter of 2013, we reported a GAAP net loss of $15.7 million or $0.33 per share, versus a GAAP net loss of $6.6 million or $0.14 per share for the comparable prior year quarter. Please note that earnings and loss per share amounts included in the release today are preliminary and were estimated using the two class method of computing EPS pursuant to ASC 260 accounting guidance. Management will finalize EPS calculations for the periods presented in accordance with the applicable guidance in connection with the preparation, review and filing of the company's quarterly report on form 10-Q for the third quarter of 2013. The GAAP net loss for the current quarter included the impact of non-cash stock compensation charges of $9.4 million versus $6.3 million in the prior year quarter…

Tella, could you please open up the call for questions?

Thank you, sir. (Operator Instructions) Our first question comes from Mark Argento with Lake Street Capital Markets. Please state your question.

Hi. Good afternoon.

Hi, Mark.

Hi. Just wanted to touch base on -- it sounds like you guys have reevaluated little bit of your go-to-market strategy with some of the medtech portfolios and I know you guys originally had thought about, become more of a comprehensive model where you would work kind of on a broader basis with a potential licensee and not only settle lot, maybe existing infringement activities but also kind of a go forward piece. And then you guys kind of moved away from that over the last year or so. When you relook at kind of the whole go-to-market strategy and licensing strategy, is that something that we could start to see some more of and then kind of dovetailing onto that. I know you had a couple of these type of deals that you had out there, two, three, four years ago that potentially would be up for renewal maybe you could touch on your ability to renew and use your strategy going forward?

Sure. On the medtech question and the answers about these questions, Mark, are going to be similar. When you end up pushing a large portfolio and getting a license on it and you are not paying a lot of money for that portfolio, people want some period of tranquility to be coupled with the fact that you no longer are suing them under the major portfolio at issue. And so, we have seen on many, many occasions, not always but on many occasions some notion of that protection built into our larger agreements and that hasn’t change and that will not change. I think if anything has changed, it’s the idea of what’s the tail and what’s the dog so to speak, right. The -- what’s driving everything ultimately is the patent matter before the prospective licensee. The go-forward protection which varies quiet a bit from company to company, some don’t even want it, and determines vary quite a bit, that’s the tail. And so, turning to the second part, the part about renewals again, these deals are a function of the portfolio you have in five of those companies at that point in time. If you look very closely at our docket, our litigation docket and if you go to the webpage I just described Mark, you will notice for example a flurry of lawsuits occasionally filed and all at once. And when you see that, that might tell you something about what happens as a result of a negotiation, that was occurring. So overall, again just s recap, the go-forward piece that’s the tail, the dog so to speak that -- those are the large portfolio -- the marquee portfolios often that we’re bring into bear in front of prospective licensees. And our approach consistently has been, let’s get the right price for the portfolios in front of the perspective licensing. And then if we are going to talk about go-forward protection, we see all manner, all variety of protections that are bargained for by the parties.

All right. And then in terms of, I know, you mentioned the ITC, you talked a little bit about, when you talk about using the ITC, I know historically it hadn’t been of any -- you had a spent a lot of time in just given the business model that you have and maybe talk a little bit about where you see the opportunity to use the ITC?

Well, I talk about the opportunity we have in front of us now. I think it exemplifies how we would use it and we have some pioneering 4G patterns from ADAPTIX. And we think that these patents are critical to the 4G roll out that’s occurring right now. And it’s a rollout that just starting. If you really think about it, your smartphone only began seeing 4G about a year ago. So, if you were to just pursue those -- that very significant portfolio in this record, the typical focus of one of those actions is on past damages and on the roads where you can get on past damage. Then you asked as a go-forward piece to cover future sales. But usually when we are going into district court, there is a lot of past damages involved. Well in this case we are getting to a resolution quite quickly. There will not be a lot of past damages because this technology is just starting to be deployed. It’s going to be around for years and years and years, and using the ITC for that reason, right, the ITC is not about past damages. It’s about essentially validating patents showing their infringed and then letting the parties go sort out what the license should be going forward, that’s very appealing to us. Now I can also talk about a number of things the thing the ADAPTIX patent involved in the ITC a number of things, it is not because that also is going to be a good guideline for how we plan using the ITC going forward. We want to be very selective when we go to the ITC. We don’t want the ITC to be a default enforcement mechanism and we don’t want to raise the spector of non-practicing…

Last question in terms of the buybacks, stocks in bank that will be in bid tomorrow. You guys have been acted with the buyback, any thoughts on reactivating that or potentially returning some capital shareholders here. Some point in time I have to assume instead of buying other guys IP or call in other IP it just makes sense to invest in your own IP that you already have, I know if you have any thoughts or comments on that yet?

Well, yeah, the board is constantly considering how to best allocate the company’s capital, right, including via stock buybacks, dividend payouts and off course the portfolio investments you just referenced. At present it’s just inclined to engage in buybacks but there is better capital allocation opportunities elsewhere but circumstances change. So, we will see what happens.

All right. Thank you.

Thank you.

And we will take our next question from Paul Coster with JP Morgan.

Hi, Matt. Thanks for taking the question. First off, the -- your some of your counterparties decided to test your results this quarter. What changed and never refer to you saw really explaining your situation and with stock down, why wouldn’t you make test your resolve this quarter as well?

In terms of what changed, we can only speculate and I’d rather not do that. Meaning, it’s not like, this guy send a note saying, hey, sorry, we couldn’t do the deal. Here are the five reasons we did not cut the deal, right. In terms of why we don’t think this is going to keep going on and on and on, there is court dates, and there is trial dates and there is Markman dates. So ultimately that’s the ultimate backstop. And we’ve put our lawsuits up on our web page. Everyone can see when those are coming along and in most cases that is the ultimate backstop. Now, as we keep walking away from substandard license offers. There is also psychology playing on the other side. At some point, someone is going to take a deal at a reasonable price and when they do, we’ll cut that deal and we’ll ensure the competitors that are making us taking more risk and spend more time, pay more. And so, we’re going to count on the ultimate backstop of trial events. And we are going to count on the promise that if someone test our resolve, a competitor is liable to come along, pick up the portfolio at a price point that’s going to be better than what the folks are going to keep testing our resolve are going to pay.

Okay. There is a couple of things in your strategic review. It’s just a little slide -- it didn’t quite resonate. But the first one was that, you going back and so you feel like some more discipline needs to be applied on this deployment of capital and well you haven’t -- I mean, there is one really big deployment which was Adaptix. Do you think you over paid? Is this an expression that surprised you most?

No. And in fact, I’m sorry, Paul, there is a verb in your sentence that was muffled. Can you repeat just a very first part of that question?

Yeah. I don’t know if I forget the words. You are actually right. In your strategic review, you talked of going back and sort of applying some more discipline in your processing depends and of course the most visible deployment of capital was on Adaptix is this buyers remorse with the other player…

No. No. And couple of things, one, I was talking about pricing packing licenses. Having said that, we’ve always exhibited discipline about how we price and take and we’ve always used the metrics we’ve been talking about this past 20 months. The 3x and capital backing 18 to 24 months, so that hasn’t changed and that’s not going to change. In terms of Adaptix, no, I don’t think we overpaid and I think over the time, we will see that we haven’t overpaid.

You talked about you are disappointed with the intake, but I think also on a strategic review, I kind of got big modeled up on whether it was what comes to your quality that mattered. How do I reconcile that? It sounds like it’s a quantity issue that may be is also quality issue?

It’s a bit of both. I mean, again, we’ve got especially in the past 20 months, higher thresholds that need to be crossed before we pull something in. And those thresholds are around the issues of infringement enforceability and worthy. And now once you get beyond that point, the big differentiator is market size. So obviously markets on microscope are not as large as markets on smartphones. So when I talk about disappointment and the intake, I’m still delighted with each of the portfolios we pulled in. We still think that taking an isolation, they are wonderful. They just don’t always happen to cover widely used markets or features to the same extent to say smartphones. And so that’s what I’m referencing.

This quarter, you’ve acknowledged that maybe we are sort of being a little bit too friendly with potential licensees in the medtech space. And so what it implies to me is that we do have a little bit of control over your destinies. It’s not all outside of your control. It may context them. Can you commit to us on this call now that you will post sequential growth this quarter with the more aggressive assertion that you are now planning.

Commit what, what do you mean by the post sequential growth?

Sequential revenue growth in 4Q ‘13.

No. I mean because if someone comes along and they want to start a large check on us for taking, for example our entire smartphone opportunity away and let just say our sequential quarterly revenue growth. At the expense of what we have is a far higher amount of revenues going forward, we will cut that deal. So, no, I can’t commit. It’s hypothetical.

But you can’t commit to driving revenue growth this quarter by more aggressive stance with your portfolios?

Well, if we had taken…

-- may be $15.5 million seems to me like its rock bottom surely. You can’t commit to growing from this level this current quarter.

It all depends, right and it all depends. So, one thing I’m not going to do though, Paul, is I’m not going to pull myself in anymore of a corner than I’ve already done already, right because essentially -- I mean that’s self exceeding prophecy.

No. I think it’s -- so, I just was testing it out to see if you have got any control here that I think….

We do lose control.

But you may choose not to exercise it and that maybe rights businesses.

Yeah. Yeah.

Fairly get it. But obviously well scrutinize by the public markets, this business model is not in the multiple it probably deserves. And I mean this is all obvious -- the new metrics that you plan on disclosing will help it but not much. Well, last question really is more so benign in nature and well, at least, on [Clayton] question, but maybe trying to just go back to Clayton’s comments on expenses. I just kind of miss the little bit on the below line expenses that you do. You are in a position to predict. Can you just reiterate, what is $35 billion to $36 billion this year? And in that context by the way, you said, I think 70% of the increase from 2Q to 3Q is one time in nature and yet the guidance that you issued only calls for something like a 15% or a 10% decline in MG&A sequentially, so I’m kind of bit surprised there is not a more precipitous decline this quarter?

Sure, Paul. So, yeah, the reference to 70% was just an estimate of how much of the increase in the current quarter versus the prior year quarter related to those one-time non-recurring charges. For example, the non-cash stock compensation charges associated with Paul Ryan’s severance package and other types of one-time cost that we don’t expect to incur in future quarters. But the reference to the $35 to $36 million.

Yeah. But you would expect the sequence decline in MG&A including FAS 123 to be more than 10%. You said there is $68 million. MG&A was $30 million, $31 million and FAS was $27.4 million. So it’s sort of $57 million. Yeah. Okay, I beg your pardon. I’m wrong. I’m wrong.

Okay. And then just the first part of your question, the reference of $35 million to $36 million was an reference to an estimate of what we think the full year litigation and licensing expenses would be as if at the end of the year, just based upon the ramp up in both international enforcement costs as well as the strategic pattern portfolio prosecution cost.

Okay. Thanks. Good luck with everything.

Thank you.

We’ll take our next question from Bryan Prohm with Cowen and Company.

Hey. Good afternoon, gentlemen. Thanks for taking my questions.

Hi Bryan.

Hey. A couple of quick things. First, help me clarify your commentary on pricing result amongst prospective licensees. It was unclear to me if that was a general statement or more specific to medtech?

Pricing result was more general and it applies to medtech as well but was more general.

Okay. So that gets segue into our next question. So is the lessening space in general so contentious now that the company may actually need to record many of the litigation wins to build more credibility and unlock the qui tam in some of these portfolios long term. I mean, I guess my thought here is, is the space today such where you can get more from active compelling with sticks versus persuasion with carrots for lack of a better analogy?

That’s a great question. And the answers that depends on the prospective licensee. I think there are some of that where you need sticks. There are some we need carrots and there are some where you do in transition. People come and go in these organizations and as a result of -- and circumstances change in these organizations. And so you do see some flux. Now, speaking generally, I think we’re going to find out a lot next year. We’ve got this interesting and very strong set of patents. And for example in the smartphone space, we have a number of trial dates, for example, in Japan or in Germany or in the ITC, right that are going to be triggers for activity. And if we start seeing that folks are only paying us the money we think we are to be getting when those dates approach and when those dates pass, the answer to your question generally would be yes. If we’re able to generate revenue without those dates and deadline looming, which I am not ruling out by the way, then I think the more newest answer I started out with is the one we’re going to go with.

Okay. Last question on intake, how do you use the key portfolios that you already have and your relative success in licensing them to inform your longer term strategy in decision making about future intake. I mean, maybe specifically talk to smartphones in 4G because that’s -- there is a meaningful component of patent portfolios and revenue from that space?

Sure. If you’re dealing with a prospective patent partner, you really have to get two points across in the smartphone space given where we are right now which is we have a very compelling suite of portfolio is that read on virtually every smartphone -- well every smartphone out there. And one, you obviously have to run them through fiduciary obligations that you will respect and let them know that we’re going to get the right price for their portfolio. And two, you can tell them that we have a number of matters that are going to essentially force licenses and that your time to money, if you’ve just come to the fleet so to speak at this point in time is likely to be accelerated based on past history because we’re going to have in some sense an event guard ride a bunch of forerunners that are reading on the prospective licensee that we both are seeking to grab. So it’s a little bit of those two elements and that’s what informs. That’s how -- what's going on in the licensing hemisphere and forms that’s going on in the patent acquisition hemisphere, for example, with smartphones.

Got it. All right. Thanks for the -- thanks for the time gentlemen. Good luck. And I’ll talk to you soon.

Thank you.

And we’ll take our next question from Tim Quillin with Stephens Banking.

Hi. Good afternoon.

Hi Tim.

I guess, one of the most common questions I get on Acacia is why is this company public? And it does seem like the business model does not blend itself well to consistent quarterly earnings that public investors like to see. And I am wondering if you thought about setting up targets and maybe even tying your compensation to more long term goals setting your three year out goal in terms of where you can get to in terms of earnings leaving your self, give enough time to achieve that goal, maybe having intermediate targets and kind of lying your interest with investors around that long-term target in some ways, that -- is that a consideration?

Well, first off thanks. Those are two thoughtful questions. On the second one, on the alignment that’s an interesting suggestion, it’s one I am going to definitely think about. I think again, a lot depends on what happens in the next year. If we see that the past couple of quarters have been more of a blip or bump and that we can get the revenue back on track which is our current thinking then I don’t think there is going to be a need for that kind of change but if it turns out that it is going to take trial dates to get the numbers we are talking about then that’s certainly an interesting suggestion, we will definitely think about it. Going back to the public and private piece, actually another point on your question, bear in mind right that comp right now, temporarily I guess, there might be a question right about, whether we have absolute full allocation but fundamentally there is full allocation, right because everyone is bonused off of P&L. Right. Everyone is bonused off of profit. And so I did think it was important to make that point. Coming back to the public private question, I think we are the one of the only -- I guess one or two major public companies out there and maybe we are the only one that partners with so many different patent partners. So we have Bellwether and -- but we are also an isolated data point. And so, looking at us right in isolation, you might draw a bunch of conclusions about whether or not we should be public. We already though is if you look at all patent assertion and all patent licensing companies out there, including some that have gone private very recently, and they have just been, it hadn’t been like those companies re doing spectacularly well. So, I think, we have to be careful about drawing a direct correlation between what’s going on now to the fact that we are public as opposed to private. But let me reiterate why we are public. When we get into these dry patches, there is a lot of transparency, we tell you, right. And we just don’t tell you, we tell the public. Our patent partners know, right. And potential investors know. And so that transparency has served us well and we think it will serve us well going forward. Now I have given you all the other stock responses about why we are public and not private, but I think it’s at times like these when it is important for us to be public.

Okay. And I know I tend to ask this question each quarter and I know you don’t like it exactly. But if you take out the top three licensees, you get to $2.5 million this quarter which is low as I think it has ever been in terms of that remainder. And I think if you dial it back a couple of years, it just felt like there was more breadth in terms of your licensing. And I think just in sheer number of portfolios that you have licensed in the quarter there seemingly wasn’t the breadth. And so to a certain extent you become a little bit more bit game hunters but -- are those two goals countered? Do you have to abandon the smaller patent portfolios with the more consistent revenue base in order to be a big game hunter?

No. I think first of all we are hunting for more big game that is a lot of what’s going on. Can the two co-exist? Yes. Do we want to co-exist in the same ratios as before? As I said in my prepared remarks, my answer is no. I mean, what we are really talking about is the long-term profitability, right. When we look back in hindsight and we look at what our portfolios have done, it’s clear what has put us on the map and it’s clear what has made us the company we want to be. And in my mind it’s clear, what’s going to make us the company we aspire to be and it’s going to be more of a tilt, not so much to big game per se but just the bigger portfolios. Now, bear in mind and I didn’t quite catch the details of the statistics you called out. But we are cutting agreements. For example, where we’ve -- we’ve actually amalgamated a number of portfolios into one transaction and they are showing up separate amounts, right. I’m talking about RPX. So, I think we got to bear that in mind. But again, the basic answer to your question is as I said in my prepared remarks, we are shifting, we are tilting, right. We are still going to go after the -- I guess I’m calling the smaller portfolios but we are definitely tilting because financial history tells us we should. The other thing to bear in mind is circumstances are changing, right. And in fact one reason I’m not that stressed about, what’s going on with the government is because we've been acting like it’s going to happen, is by it I mean a crackdown on -- what we are putting, it is a crackdown on patent licensing programs where your price points fall short of your litigation cost. We've been acting like that’s going to be coming for a while. We’ve been getting away from that business for a while, so that’s also part of the reason you are seeing the tilt.

And I’m a little -- I guess I’m a little bit confused in terms of the philosophy in terms of using capital to drive higher-quality patent portfolios. So you are up until 2012. I think you’ve laid a little bit more towards peer partnerships or relatively light in terms of capital. And I think that seems to be back where you are in 2013. In 2012, you put $325 million in capital to work. And I think kind of explains that maybe you needed to put capital to work to get the higher-quality patent portfolios and now you don't. I'm just -- I'm little confused about the change.

Yes. We looked at that. I mean I think there is a couple of things happening. One is, as I said candidly in this call, I think we could have been doing a better job on the business development front and part of that better job would've resulted in more capital being allocated. So in a nutshell, no, we have not changed our philosophy, 2012 to 2013. And by the way, we expect that we've addressed. We think some of the reason for that is the churn and some of the changes we’ve put in place in the last quarter. We expect to -- we maintained our philosophy. So that's one big part. The second big part is, I think we've been successful. And I've been pleasantly surprised at the success. One good thing about this year, when we look back in hindsight, I’m quite sure about this. We’ve gotten some steals. Okay, the partnering deals. At the end of the day, our partner is going to make out but we've gotten some portfolios where we haven’t had to put the capital down and we are very happy about that.

Okay. In terms of Microsoft, do you know offhand when the first scheduled trial is, that might be a forcing factor and getting some kind of multiple portfolio deal done there? You got your first opportunity I guess to get a multiple portfolio licensing deal done there.

Well, on Microsoft, right. All I can really say about that, we filed seven lawsuits I think it was around that number against on October 1. So we don’t have trial dates, right. There's a bunch of matters under Nokia handset business reps are kind of see how that plays out, right. So those might be forcing functions. But ultimately there is another forcing function. Microsoft is a savvy company and they are price sensitive and they know, right. And I guess I’m saying is that the longer they wait, the more they will pay. That’s a forcing function.

Okay. Were there any notable new patent portfolios or once that you would consider marquee or stead portfolios or pedigree portfolios that you brought on in 3Q?

No. Again, as I mentioned, the market sizes right, because that's what really distinguishes them. I wouldn't say that any of those are marquees just based on the market sizes. We certainly think they are terrific patents. We think they will get good rates. We think people will make good money of them including our patent partners. But none of them will really cover big markets at least right now. There is a couple that could become very large markets. But as of now, those are nascent markets.

Okay. And then just last question on the other expense, the $3.5 million, I was unclear what exactly that consisted of? Thank you.

There was a, I guess and I’m looking at our General Counsel here. There was a dispute and with a one of our law firms resolved it.

In terms of…

A dispute in terms of their fee, yes.

Okay. Okay. Does it related to some pass period where you didn't?

Yes. It relates to a period from our distant past where we’ve basically changed law firms.

Okay. Okay. Thank you.

This will conclude the question-and-answer session. I will now turn the call back to Mr. Vella

Well. Again, thank you for attending this call today. I’m going to repeat that last statement I made. Notwithstanding pressures that are weighing down on the patent disenfranchised, we do remain unbogged by our enthusiasm for our business and we have every confidence in the quality and technical skill of our staff. We have great confidence in the strength of our patent portfolios under management and we think -- I think we’ve never been better positioned for high-caliber long-term performance. And I’m determined to lead Acacia in realizing that opportunity. Thanks for joining us and thank you for your support.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 888-203-1112 or 719-457-0820 with the confirmation code 1100393. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.