Marvin Key - Chief Executive Officer Clayton Haynes - Chief Financial Officer Ed Treska - General Counsel

Good afternoon and welcome ladies and gentlemen to the Acacia Research Fourth Quarter and Year End Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions] I will now turn the conference over to Mr. Marvin Key. Please go ahead, sir.

Good afternoon and thank you for joining today’s fourth quarter and year end 2016 shareholder conference call. I am Marvin Key, CEO of Acacia Research. With me this afternoon are Clayton Haynes, CFO and Ed Treska, our General Counsel. Today, Clayton will review our financial performance and then I will provide an overview of 2016 and a brief business update. First, our Safe Harbor statement. Today’s call may involve what the SEC considers to be forward-looking statements. Please refer to our earnings release filed with the SEC today as an exhibit to our 8-K 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 patent rights acquisitions, development, licensing and enforcement activities are conducted solely by certain of Acacia Research Corporation’s wholly and majority-owned operating subsidiaries. Now, I will hand the call off to Clayton Haynes for the financial review.

Thank you, Marvin and thank you to those joining us for today’s fourth quarter and year end 2016 earnings conference call. Today, I will provide a summary of the quarterly results and full year 2016 results and provide an update of our financial condition and 2017 expense outlook. Fourth quarter 2016 revenues totaled $22 million as compared to $37.5 million in the comparable prior year quarter. Three licensees individually accounted for 48%, 19% and 18% of revenues recognized in Q4 2016 as compared to two licensees individually accounting for 64% and 19% of revenues recognized in Q4 2015. We continue to expect license fee revenues to be uneven from period-to-period. For the fourth quarter of 2016, we reported a GAAP net loss of $10.6 million or $0.21 per share versus a GAAP net loss of $115.9 million or $2.33 per share for the comparable prior year quarter. On a non-GAAP basis, excluding non-cash stock compensation, patent amortization and patent impairment charges totaling $11.7 million, we reported fourth quarter 2016 net income of $1.1 million or $0.02 per share as compared to non-GAAP net income of $4.5 million or $0.09 per share for the comparable prior year quarter. Please refer to our disclosures regarding the presentation of non-GAAP financial measures and other note in today’s earnings release and 8-K filed with the SEC. Fourth quarter 2016 inventor royalties expense decreased 57% compared to prior year quarter relatively consistent with the related 41% decrease in revenues quarter-to-quarter. Fourth quarter 2016 contingent legal fees expense increased 9% as compared to the 41% decrease in related revenue due to higher average contingent legal fee rates for the portfolios generating revenues in the fourth quarter of 2016 as compared to the portfolios generating revenues in the fourth quarter of 2015. As a result, average margins…

Thank you, Clayton. The team at Acacia Research continues to maximize the value of our patent assets for the benefit of our shareholders and our patent partners. In 2016, thanks to the hard work of our employees, Acacia achieved the following; for the year, Acacia generated over $152 million in revenue, an increase of 22% over 2015. Additionally, Acacia was able to cut costs and increase operational efficiencies. The net result was Acacia was able to generate non-GAAP cash flow of over $31 million, one of the best pro forma annual financial results in the company’s history. As previously stated in past calls, the challenge for 2017 remains finding high quality patent portfolios in a current environment that meet our time and risk and financial return metrics. In 2016, Acacia brought in two new portfolios covering technologies such as semiconductor chips for power management, system on chip architecture and microprocessors and packaging technology in memory and semiconductors along with patents covering circuits used in DRAM and flash memory. Additionally, there were a number of positive events for Acacia in 2016. First was our patent trial victory versus Apple from our CCE portfolio obtained from the Nokia Networks. On September 14, the jury awarded CCE over $22 million in damages and also found Apple willfully infringed our patent. Because the jury found willful infringement, the judge has the option of increasing the award. The post trial motions addressing enhanced damages for willful infringement and certain other issues raised by CCE and Apple were argued to the District Court in late-January and are awaiting a ruling. Second, the license agreement announced with SK Hynix of Korea in Q3 was a soft license. Soft license is significant, because it means the license agreement was reached through direct negotiation without the need for any…

Ladies and gentlemen, this concludes our conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.