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.
Within patent circles, observers and practitioners commonly accept, as fact, that really valuable patents are few and far between. Thus, the fact that Acacia's patent revenue includes a large proportion of low-value license agreements hardly comes as a surprise to most. However, a patent-licensing specialist privately observed in a conversation that $14 million of revenue from a diversified portfolio should be unacceptable in any quarter for a company with Acacia's resources. Stated another way, if license agreements are analogous to sales, Acacia spent 95% of its resources to generate less than 15% of its income.
This is an except from the Seeking Value piece the other day. The bigger numbers are paid by the big tech players, because they have the most exposure. The fact is that many other smaller entities infringe here and there. So smaller collections are expected to be more plentiful than the larger type. The other thing is that the big settlements with big companies are really a combination of many license fees covering different portfolios. So the total of these payments, which includes past, present and future licenses for multiple portfolios, is larger by far than the settlements that cover a single patent or portfolio. Many of the smaller deals are also the result of IP taken in years ago. Perhaps some these would not have been taken today. What matters is going forward. Now Acacia is serving a much larger and important function in clearing the market for key IP. So the numbers are going to get bigger, as we have heard with Adaptix, Access, etc.
The future will depend on what is going into the pipeline now. Big tech will renew their term deals based on what is added from here. In that regard the intake is breathtaking this year. Adaptix seems to the big one so far, but there are many others as well. AS these are added to what is already on board, those with infringement exposure will have to pay more. There are so many portfolios that apply. So if people are selling because they stripped out the Cisco settlement and focued only on the $14 million of other licenses, i think they are looking in the wrong place for what is important to the valuation and are misunderstanding the progress that is being made. The number to focus on in the report was the 27 portfolios added, and the addition of Cisco to the customers. Acacia is building their position for the long run. Shareholders' patience will be rewarded.
Not as simple as that tex if they went to trail and exhausted preious resouces on those 95%(or 74) of its license agreements i would agree with u. This Company is not a Greenhorn in this space they understand this market and are in a position to cherry pick the best patents / IP to represent. What they look for is the best value proposition to represent / bring inhouse , the formula comes down to hours put in / payout. Unless u understand the time to represent verse payout it is difficult to cast dispersions. Historically anywhere from 1 to 3 settlements in each quarter going back several year has represented the lion share of revenue. Their pipline today has never been deeper , balance sheet is flush with cash $400 plus million $8 per share ; in first half of this year company invested $200 million of their own Capitol very selectively / opportunistically.
Cohen is too enamored with "managment". ACTG does NOT have the resources to "cherry" pick the patents nor does management have any clairvoyance on where the Patent industry is headed or how investment managers will buy-in to the "PATENT AS AN ASSET CLASS". This is still a highly speculative investment.
On the contrary, ACTG is a microcap company. ACTG has a model that is very favorable to both the small and large patent holders. ACTG has made a business by presenting reasonable licensing schemes to the potential licensees and getting buy-in from other companies due to thier licensing approach, which is the ACTG special sauce.
In fact the recent legal and congressional discussion around SEP's is probably the largest contributing factor to ACTG's price weakness.