Acacia Research Corp. - Acacia Technologies Q4 2008 Earnings Call Transcript

Feb.19.09 | About: Acacia Research (ACTG)

Acacia Research Corp. - Acacia Technologies (NASDAQ:ACTG)

Q4 2008 Earnings Call

February 19, 2009 4:30 pm ET

Executives

Paul Ryan - Chairman and CEO

Clayton Haynes - SVP of Finance and CFO

Analysts

Bennett Notman - Davenport

Jeremy Hellmen - Singular Research

John Henderson - JBH

Rob Ammann - RK Capital

Operator

Good afternoon and welcome, ladies and gentlemen, to the Acacia Research fourth quarter earnings release conference call. (Operator Instructions).

I will now turn the conference over to Mr. Paul Ryan. Go ahead, sir.

Paul Ryan

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.

With us today is 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, and Clayton Haynes will provide you with an analysis of our financial results. We will then open the call for questions.

Acacia Research fourth quarter 2008 revenues were $18.3 million compared to $12 million in the year ago period. This was our second highest revenue quarter to-date. During the fourth quarter, Acacia generated revenues from 20 new licensing agreements covering 15 different technologies, including initial revenues from five new licensing agreements.

Cash and investments increased during the quarter by $6.1 million to $51.5 million at the end of the year.

Acacia's second half 2008 revenues of $32.1 million set a new record for revenues in the six-month period. During the second half, we began generating revenues from 13 new licensing programs, which was also a record for a six-month period, and represents starting a new licensing program on average every two weeks.

Full year revenues were $48.2 million in 2008 compared to $52.6 million in 2007. During 2008, Acacia acquired control of 20 new patent portfolios for future licensing and ended the year with over 100 active patent portfolios, up from 88 at the end of the prior year.

Acacia started generating revenues from 20 new licensing programs in 2008 and have begun generating revenues from 48 licensing programs by the end of the year, up 71% compared to 20 licensing programs at the end of the prior year.

We entered 2009 with the largest numbers of licensing opportunities in our history. We expect continued growth in new licensing programs and the acquisition of new patent portfolios for future licensing, as we continue to build our leadership position in technology licensing.

We plan to grow the company while controlling our cost structure. During the past year, we have brought down our cost structure slightly and have reduced our cash breakeven to approximately $48 million per year or $12 million per quarter, assuming our historical 43% gross margins. Acacia is also fortunate to be in a business which is not only uncorrelated with the current problems in the economy, but it can actually benefit from some of these economic pressures.

On the business development side, we are seeing a heightened level of interest from technology companies wanting to monetize their patents, and on the licensing side, we are seeing an increased level of interest by some companies to engage in licensing discussions at an earlier stage to save unnecessary legal expenses. These circumstances give us the opportunity to partner with more tech companies to expand our asset base and to shorten the time required to generate revenues from those portfolios.

Acacia is at an early stage in growing its business, and our success to-date in completing over 620 licensing agreements covering 48 different technologies is generating interest from technologies companies, universities and research centers wanting us to partner with them and take over the licensing of their patented technologies.

Our success is the result of the efforts of our business development, engineering and licensing executives who are doing an exceptional job in creating value for both our shareholders and our business partners. This success is enhancing our position in the marketplace and increasing opportunities for strategic initiatives.

With that, I would like to turn the call over to our Chief Financial Officer, Clayton Haynes.

Clayton Haynes

Thank you, Paul, and thank you to everyone joining us for today's earnings call.

As indicated in today's earning press release, fourth quarter 2008 license fee revenues totaled $18.3 million as compared to $12 million in the fourth quarter of 2007. Fourth quarter 2008 revenues included license fees from 20 new licensing agreements covering 15 of our technology licensing programs, including initial license fee revenues for our Medical Image Stabilization technology, Storage technology, Ecommerce Pricing technology, Location Based Services technology and File Locking in Shared Storage Networks technology.

Fourth quarter 2008 license fee revenues also included: fees from the licensing of our DMT technology, Telematics technology, Portable Storage Devices with Links Technology, Audio Video Enhancement and Synchronization technology, Pop-up Internet Advertising technology, Audio Communications and Fraud Detection technology, Picture Archiving & Communication Systems technology, Remote Management of Imaging Devices technology, Projector technology and High Quality Image Processing technology. To-date, on a consolidated basis, our operating subsidiaries have generated revenues from 48 of our technology licensing programs.

License fee revenues continue to fluctuate from period to period, based primarily on fluctuations in: one, the dollar amount of agreements executed each period, which is primarily driven by the nature and characteristics of the technology being licensed and the magnitude of infringement or use associated with a specific license fee; two, the specific terms and conditions of license agreements executed each period and the periods of infringement contemplated by the respective license fee payments; and three, fluctuations in the total number of agreements executed each period, which can be influenced by a number of factors, including the timing and results of patent filings, ongoing negotiations and enforcement proceedings related to our intellectual property rights.

Consolidated trailing 12-month revenues, which is one of the measures used by management to assess performance, totaled $48.2 million as of December 31, 2008 as compared to $42 million at September 30, 2008, $37.7 million as of June 30, 2008, $36.5 million as of March 31, 2008 and $52.6 million as of December 31, 2007.

Our average margin for the fourth quarter of 2008 defined as gross license fees less inventor royalties expense and contingent legal fees for the portfolios generating revenues during the period was approximately 43% as compared to 49% for the fourth quarter of 2007.

Quarterly average margins fluctuate period to period based on the mix of patent portfolios that generate revenues each period and the related economics associated with the underlying inventor agreements and contingent legal fee arrangement if any.

The fourth quarter 2008 versus fourth quarter 2007 gross margin variance was due primarily to lower average inventor royalty percentages associated with certain of the portfolios generating revenues in the fourth quarter of 2007 as compared to the fourth quarter of 2008.

For the fourth quarter of 2008, Acacia reported a GAAP net loss from continuing operations of $1.8 million or $0.06 a share versus $3.5 million or $0.12 a share in the fourth quarter of 2007 as illustrated in our comparative income statements provided in today's press release and related 8-K filed with the SEC.

Excluding the impact of non-cash patent amortization charges of $2.3 million, non-cash stock compensation charges of $1.6 million and non-cash impairment charges of $236,000, we reported fourth quarter 2008 net income of $2.4 million as compared to being nearly breakeven, excluding non-cash charges of $3.6 million for the fourth quarter of 2007.

Operating expenses for the fourth quarter of 2008 and 2007 included inventor royalty expenses of $6.4 million and $2.3 million respectively and contingent legal fees expenses of $3.9 million and $3.7 million respectively.

As indicated earlier, inventor royalties and contingent legal fees expenses fluctuate period to period based on the amount of revenues recognized each period and the mix of specific patent portfolios with varying economic terms generating revenues each period.

Certain portfolios generating revenues in the fourth quarter of 2008 had contingent legal arrangements with lower applicable contingent fee rates, which are typically based on the stage of the related litigation at the time that the license agreement is executed as compared to those patent portfolios generating revenues in the fourth quarter of 2007, resulting in the 5% increase in contingent legal fees expenses in the fourth quarter of 2008 versus the fourth quarter of 2007 as compared to the 52% increase in license fee revenues during the same periods.

Additionally, certain patent portfolios generating revenues in the fourth quarter of 2007 had inventor agreements with lower than average inventor royalty rates as compared to those patent portfolios generating revenues in the fourth quarter of 2008, resulting in the 180% increase in inventor royalties expense in the fourth quarter of 2008 versus the fourth quarter of 2007 as compared to the 52% increase in license fee revenues during the same periods.

In addition, the lower contingent legal fee rates for certain patent portfolios generating revenue in the fourth quarter of 2008 also contributed to the quarter-over-quarter increase in inventor royalties expenses as a percentage of license fee revenues recognized.

Fourth quarter 2008 and 2007 marketing, general and administrative expenses, excluding non-cash stock compensation charges as discussed earlier, remains relatively flat quarter-over-quarter at $3.9 million.

Patent-related legal expenses decreased to $1.7 million in the fourth quarter of 2008 from $2.6 million in the fourth quarter of 2007. Patent-related legal expenses include prosecution and enforcement cost incurred by outside patent attorneys engaged on an hourly basis and the out-of-pocket expenses incurred by law firms engaged on a contingent fee basis.

In the fourth quarter of 2007, we incurred increased litigation support related out-of-pocket expenses, third-party technical consulting expenses and professional expert expenses, in connection with certain of our patent portfolios that were further along in the prosecution of the related litigation and certain of our enforcement actions that proceed to trial and concluded resulting in increase patent-related legal expenses in the fourth quarter of 2007 as compared to 2008.

In the fourth quarter of 2008, none of our ongoing enforcement actions went to trial despite an increase in the overall number of outstanding enforcement actions in the period. We continue to expect patent-related legal expenses to fluctuate quarter-to-quarter based on the factors summarized earlier in connection with current and future patent commercialization and enforcement programs.

Next, I will provide a brief summary of results for the full fiscal year that ended December 31, 2008. As Paul indicated, fiscal 2008 license fee revenues were $48.2 million as compared to $52.6 million in 2007. During 2008, we generated revenues from 30 of our technology licensing programs.

Our average margin for 2008 was approximately 43% as compared to 44% for 2007. We reported a fiscal 2008 GAAP net loss from continuing operations of $13.7 million or $0.47 a share versus $7.4 million or $0.26 a share in 2007, again, as illustrated in our comparative income statements provided in today's press release and the related 8-K filed with the SEC.

Excluding the impact of non-cash patent amortization charges of $6 million, non-cash stock compensation charges of $7.4 million and non- cash impairment charges of $486,000, results from continuing operations for 2008 were slightly above breakeven as compared to net income of $4.1 million for 2007.

Operating expenses for 2008 and 2007 included inventor royalties expenses of $15 million and $12.1 million respectively and contingent legal fees expenses of $12.4 million and $17.2 million respectively.

Marketing, general and administrative expenses for 2008 excluding non-cash stock compensation charges increased to $16.7 million from $14.1 in the comparable 2007 period. The net increase was due primarily to the addition of licensing, business development and engineering personnel and increase in patent-related research and consulting expenses for new and ongoing licensing programs and an increase in corporate, general and administrative costs related to the continued growth and expansion of our operation.

Fiscal 2008 patent-related expenses decreased to $4.9 million from $7 million in 2007, again, reflecting higher expenses in 2007 due to increased patent-related legal expenses incurred in connection with certain of our portfolios that went to trial and concluded, despite an increase in the overall number of outstanding enforcement actions during 2008.

Looking forward, for fiscal 2009 estimated fixed cost are expected to be in the range of $13 million to $13.5 million. Fixed costs include employee salaries and benefits, facilities cost, corporate, legal accounting and other general and administrative cost, and are included in the marketing, general and administrative expense line in our income statement.

Estimated variable cost for fiscal 2009, excluding inventor royalties and contingent legal fees, are expected to be in the range of $7.5 million to $8 million. Variable costs include patent-related legal expenses, patent-related research, consulting and maintenance expenses and other patent-related development commercialization expenses. These costs fluctuate quarter-to-quarter based on business development, licensing, enforcement, research and prosecution activities each quarter.

All variable costs, excluding patent-related legal cost, are included in the marketing, general and administrative expense line in our income statement. Variable costs included in MG&A for the fourth quarter of 2008 totaled approximately $748,000 versus $650,000 in the fourth quarter of 2007. Variable costs included in MG&A for fiscal 2008 totaled approximately $2.8 million versus $1.9 million in fiscal 2007.

Moving on to a brief summary of our financial position as of the end of the year, total assets as of December 31, 2008 totaled $73.1 million compared to $71.1 million as of December 31, 2007. As of December 31, 2008 cash and investment balances totaled $51.5 million versus $51.4 million as of December 31, 2007. Positive net cash inflows from operations for 2008 totaled approximately $2.6 million versus net cash inflows from operations of $5.2 million for 2007.

Accounts receivable from license fees is totaled $7.4 million at December 31, 2008 compared to $1.4 million as of December 31, 2007. The majority of 12/31/08 AR balances have been collected or are scheduled to be collected in the first or second quarter of 2009. Net cash outflows related to patent portfolio acquisitions for fiscal 2008 totaled $2.1 million versus $3.8 million in 2007.

I will now turn the call back over to Paul Ryan to began the Q&A portion on today's conference call.

Paul Ryan

Thanks, Clayton. Operator can you open the call for questions, please?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Bennett Notman from Davenport. Please go ahead with your question

Bennett Notman - Davenport

Good afternoon, guys, and congratulations on a nice quarter.

Paul Ryan

Thank you, Bennett.

Bennett Notman - Davenport

Can you just talk a little bit about the legal expense at $1.7 million that looks a little high. I'm not aware of any particular action that would have been driving that. I am just wondering if that is because there is a bunch of stuff moving through the system or what the primary driver was.

Paul Ryan

The legal expenses cover patent prosecution; they cover all expert witnesses, arrangements that we have with law firms. So that's a pretty standard number. I don't know what number you had, but that's certainly not out of line with our expectations.

Bennett Notman - Davenport

Yes.

Paul Ryan

I think it was 2.5 in 2007, and primarily the difference was in 2007 there was an incremental amount because we did go to a trial during 2007. So I think probably you can expect that kind of level of total legal expense over the course of the year.

Bennett Notman - Davenport

Yes. It's more than 50% up over the last three quarters. So I was just thinking there might have been something driving that. Each of the last three quarters was 1.1-ish, something like that. But okay, fair enough.

You talked about how you're getting more interest from companies that have IP and want to partner with you. You added four portfolios in the quarter, but you've had other quarters where you've added more in the past.

Is it a longer lean time to get these deals done because of the types of companies you're dealing with now, or should we be expecting an acceleration in the rate of portfolios coming in as a result of what is going on?

Paul Ryan

Our target is 20 to 25 portfolios a year, and the number we have is a net number. The over 100 portfolios are the active portfolios. There's a handful that we acquired from Global that we have actually concluded the licensing of.

No, I don't thing it is taking any longer, and certainly, there are more opportunities. Obviously, tech companies, particularly the ones that we often partner with, that are either private or small public companies, really don't have access to the equity markets or debt markets right now. I think more of them are looking at this as a sale lease pact where they can generate cash for an intangible asset on their balance sheet. We can grant them a license back and split the licensing revenues.

So, certainly the economic and financial pressures on many of these smaller tech companies lead them to, I think, more so than in the past then obviously our business development teams who have been in conversations with those people, hopefully, will accrue the benefit of that over the next year or so from some of the dialogues that we have had going for sometime.

Bennett Notman - Davenport

All right. And then, you have obviously started out the year with a nice steady flow of new deals that we have not seen this early in a quarter from you guys for several quarters if ever before. Is there something that has changed, that has gotten deals to be happening a little faster or earlier in the quarter or is there any comment you have on that pattern?

Paul Ryan

As you know, last year in the first half we were getting a lot of these programs up and running and getting ready to go, and that's when the growth curve flattened out for a period of time. I think clearly in the third quarter and end of the fourth quarter and continuing now we are getting a reacceleration of the growth simply based on the number of portfolios that we have in act of licensing right now.

So I think it's just simply a matter that we have many more portfolios in act of licensing program now than ever before.

Bennett Notman - Davenport

Finally, just one housekeeping item. What is the actual total active portfolio account?

Paul Ryan

I think it is 102 or 103. We will probably upgrade it at increments of 25 or so maybe when we get to a 125 portfolios. For us, it has not become with the sheer numbers that we have not as meaningful a measure on a portfolio by portfolio basis. Really, the key things are the active portfolios that have started to begun generating money.

That's a metric, obviously, that we will continue to focus on. Hopefully, as you can see from the last six months, it has been the fastest. We brought out 13 new programs in the last six months, which is a record amount, and hopefully, with the amount of the new portfolios that are now ready for licensing, that trend will continue.

Bennett Notman - Davenport

Great. Thanks again.

Paul Ryan

Okay. Thank you.

Operator

(Operator Instructions). We have our next question coming from [Paul Berger, Hammock Investor]. Please go ahead.

Unidentified Analyst

Good afternoon, Paul. I am sorry, I got along a little late, so you may have covered it, but this morning you filed the 10-K with RPX and it sounds like it's wording a little different. Can you give a little color on what portfolio it was and exactly what you are doing?

Paul Ryan

I can't comment beyond it. We filed an 8-K this morning and we entered into a transaction with RPX, which was a license and purchase option agreement regarding a portfolio that we have. The portfolio, I think that we have generally described it on our website as a security system relating to the Blu-Ray players. It is how we describe it on our website; the little one or two sentence descriptions of the portfolio. So that is the connection between the name of the subsidiary and the technology.

But we really can't comment beyond what we did. Obviously, we did a transaction a few weeks ago with RPX on another portfolio. What I can comment on is I think there is no question that it is becoming clearer and clearer what we've indicated to investors over the last year or so that patents are clearly an emerging asset class. I think you are beginning to see the tangible manifestation in the emergence of a variety of these new buying clubs.

Intellectual Ventures started about the same time we did, and it has been reported by the Wall Street Journal that they have raised a few billion dollars with strategic partners. There was a great article. Actually, if you want to look back I think in September in the Wall Street Journal, it was predominantly about Intellectual Ventures, but it also discussed the emergence of these new buying groups like Allied Security Trust that has several tech companies.

In that article I think they talked about Google and Motorola and Ericsson becoming members of that buying club, and then RPX has made some announcements stating that they have Cisco and IBM as kind of chartered members of their group.

So, clearly, there is an emergence and an understanding and a recognition by the tax sector that there is a tremendous amount of disaggregated R&D in the economy represented by patents that have been developed by small private and public companies that need to get licensed to the large companies that are using these patented technologies. I think the market is seeking out a rational way for that licensing to occur and we think we are going to play a pivotal part of that.

Part of the market will be those companies through collective buying groups trying to, in effect, attain licenses by buying the patents directly from the owners, but I think a very large portion of the market will want to partner with us and let us go license. But as you can see from the deals with RPX, certainly if it makes sense for our shareholders and makes sense for our IT partners, we will engage in transactions with these various buying clubs.

And so, I think, hopefully, overall, it will reduce some of the excess litigation. Obviously, if we could get engaged in negotiations earlier with companies and then went to licenses, it diminishes the amount of litigation required to reach a resolution on these issues.

So, hopefully, the emergence of this asset class and the formation of these new companies will actually – hopefully, shorten the time to money for us and eliminate some of the legal access expenses for both parties.

Unidentified Analyst

Okay.

Paul Ryan

I think in context I can make that comment, but certainly I can't comment more specifically on that individual transaction.

Unidentified Analyst

Okay. But can we assume that any deal that you do with them would be bigger than if you would do it with an individual company because...

Paul Ryan

No, you can't. Obviously you should not make any assumptions; it's just a transaction and we do not comment on it for confidentiality purposes and sizes of transactions.

Unidentified Analyst

Okay. But should we assume that if you are doing a deal with them it should be somewhere around what you would think you should be able to monetize if you were going after the company themselves.

Paul Ryan

Well, certainly we would not do financial transactions with out disadvantage. Obviously, any transaction that we would do, it would have to be at an equitable basis rather than what we could do through a direct transaction.

Unidentified Analyst

Okay, thanks.

Paul Ryan

Okay, thanks for the questions.

Operator

And we have our next phone questions coming in from [Marilyn Peterson a Private Investor]. Please go ahead.

Unidentified Analyst

Hi, this is Marilyn. I did have questions in regard to what you just answered. But I also was wondering in the deal with Johnson and Johnson is mentioned a 1993 patent date, and I don't recall in past news releases that you mentioned a date. Is that date significant?

Paul Ryan

I do not know. I would guess it is probably in the negotiations on the approved press release that either we are licensing people or IT partner, or Johnson and Johnson thought that was a relevant factor. But I really do not know why that would have been in there.

Unidentified Analyst

Okay, I didn't know if you were getting fees going back a long time; if that was about an attempt at stating the date.

Paul Ryan

It is just probably one of the three interested parties; either our licensing group, our IP partner or J&J. The licensee for some reason, thought that was relevant to have it in, but I really don't know why...

Unidentified Analyst

Sure. And then I was wondering, also, you had mentioned some employees being terminated. Are these non-essential employees?

Paul Ryan

Well, none of our employees are non-essential; they wouldn't be here.

Unidentified Analyst

Right.

Paul Ryan

I can't answer your question. Just a normal course of business, we have had a certain amount of attrition and we don't comment on all that occurred, but we have cut back our cost structure slightly. We geared up a year and half ago for success and obviously, we have brought a lot of very talented people out of the industry and some fit the model better than others, so it is nothing more than normal attrition rate on a growing company.

Unidentified Analyst

Okay. Thank you so much.

Paul Ryan

Sure.

Operator

We have our next question coming in from Jeremy Hellmen from Singular Research. Please go ahead.

Jeremy Hellmen - Singular Research

Hey guys, nice quarter.

Paul Ryan

Thank you, Jeremy.

Jeremy Hellmen - Singular Research

A couple of questions. First, what was that cash flow from operations number again? I just couldn't keep up with you there with all the details.

Paul Ryan

Just about $2.5 million.

Jeremy Hellmen - Singular Research

$2.5 million for the quarter, right?

Paul Ryan

No, for the full year.

Jeremy Hellmen - Singular Research

For the year. For the full-year, okay. And do you have Q4 number too?

Paul Ryan

I think it was close to that for the quarter as well.

Jeremy Hellmen - Singular Research

Okay. And this is kind of more of a general question and just to (inaudible) it's not rooted in having heard or read anything. But with the change in administration, are you seeing anything or expecting any thing difference in out of the court system in terms of finding these two patent protection or otherwise?

Clayton Haynes

I don't think there will be any change. Obviously, the sitting judge is having major changes in the court system itself. There obviously will be new patent, head of the patent office named shortly. But again, that usually doesn't impact from a judicial standpoint.

On the legislative side, Senator Leahy has announced again and he has lobbied heavily every year. They reintroduced the so-called Patent Reform Legislation. We certainly hope that one of these areas, they will get it completed because we don't think there are any of the provisions that realistically would be approved; would have a significant impact on our business.

It may make it a little more complex, but actually that is in our favor. If enforcement of intellectual property becomes more complicated, obviously we as the leading company will probably be the recipient of more people wanting to partner with us.

So the only thing I can really say is you probably will see some talk in the spring about the reintroduction of some of the same patent reform proposals that in the past certainly, did not clear the Senate. The one last year got through the Congress, but not through the Senate.

Jeremy Hellmen - Singular Research

Okay, thanks.

Clayton Haynes

Sure.

Operator

(Operator Instructions). And our next question comes from John Henderson from JBH. Please go ahead sir.

John Henderson - JBH

Hi, guys, nice quarter.

Paul Ryan

Thank you, John.

John Henderson - JBH

Just a couple of quick questions. You guys are not providing any 2009 guidance at this point?

Paul Ryan

No, we are not. Not on the revenue side. No.

John Henderson - JBH

Okay. And looking ahead till later in the year, do you guys have a date for when the Verizon trials are scheduled?

Paul Ryan

I believe the location based cell phone services there; there are a couple of venues where the litigation is progressing. I think the first one, the current first trial date, I believe, is in the beginning of December.

John Henderson - JBH

Okay.

Paul Ryan

But actually the case is split and there are a couple of cases, but I think that is the current date that's been established.

John Henderson - JBH

Great. And what's your confidence level there in terms of that trial? And I think there are three other big ones slated for 2010. How do you guys feel about those cases in general?

Paul Ryan

Well, obviously, we feel good about them. Yes, we have chosen to partner with the companies that held these portfolios. One of the benefits is we get to do the due diligence and be objective about the portfolios that we choose to license and enforce, which is the distinct advantage over a company that may have developed their own patent of technology.

They go out with what they have and so I think we are certainly very discerning and the more opportunities we keep seeing, the greater opportunity we have to screen through for what we think are very compelling licensing programs.

And most of them, again, to remind the people on the call, the National Historical Statistics are only about 3% of patent litigation or even get to a district court trial. It's usually a backdrop for negotiations, so we expect over time probably only a handful of ours will actually go to trial; hopefully most of these matters will get negotiated and settled.

And it's also a historical fact that no one is able to predict the outcome based on jury trials and the national statistics are pretty close to 50/50 irrespective of how strongly either side feels about their case. And that is why quite frankly many of them do settle, because it is not very predictable.

So, obviously, we like the portfolios that we have partnered on. We think they are strong portfolios. We think the patents are valid and in French. But if do get that far, obviously, it is always a risk of going to trial for both sides.

John Henderson - JBH

Sure. And looking at the balance sheet with regard to non-cash stock compensation charges. You guys are thinking that those are going to probably dissipate by the end of this year, or is there a timeline when you think that's going to come off?

Clayton Haynes

Our non-cash stock compensation charges relate to the outstanding stock options and restricted stock awards that we do have and our employees still do hold outstanding option shares that they are investing over a two or three-year period. And so, our stock compensation charges will continue as long as those equity-based awards are investing.

John Henderson - JBH

Okay. All right, great. Thanks, guys. Keep up the good work.

Paul Ryan

Thank you.

Operator

(Operator Instructions). It looks like our next question in queue comes from [Paul Berger, Hammock Investor]. Please go ahead, sir.

Unidentified Analyst

Paul, did you give any update or can you on the DMT situation?

Paul Ryan

We did not. The case is still progressing in the claims construction stage. We are hoping at some point this year to get the claims construction up on appeal to the affiliate court. But until we accomplish that, there is probably not going to be an expectation of more licensing activity. We continue to take in the revenues from our existing licensees. The litigation has taken an extensive amount of time in the claims construction.

We had our supposedly last claims construction hearings later last year, and hopefully, we'll be getting those out in the spring and be able to get the whole thing up on appeal to the affiliate court sometime around midyear would be my hope.

Unidentified Analyst

You're just waiting to see its final ruling, but everybody realizes it is going to go to appeal.

Paul Ryan

Yes.

Unidentified Analyst

Okay.

Paul Ryan

Okay.

Operator

It looks like we have our next question in queue coming from Rob Ammann from RK Capital. Please go ahead.

Rob Ammann - RK Capital

Okay. Can you give a little more color on the accelerated amortization expense in the quarter related to the patent that you terminated your rights to license?

Clayton Haynes

Yes. There was a portfolio that we've got a significant amount of licensing. It was the multi-dimensional bar code, and we basically completed the licensing program for that, and so, we did not have additional companies to license, so we gave the rights back to the company, which is an operating company, using it in the wrong business, but there was no longer a need for us to do that.

As a result of turning it back, we then took an accelerated charge on the remaining balance. It was a portfolio that we acquired back in 2005 when we acquired Global. So it was certainly a very profitable portfolio for us, generated a lot of revenue, but we were done with the licensing, and therefore, we accelerated the remaining carrying value in the fourth quarter.

Rob Ammann - RK Capital

Okay. So given that acceleration, should we look for ongoing amortization patents to fall at a level nicely below where you were earlier in the year even?

Clayton Haynes

Yes. The scheduled amortization, for example, for 2009 is roughly around 4 million as far as the year is concerned. So, yes, amortization outside of additional patent purchases during 2009 should begin to fall.

Rob Ammann - RK Capital

Where did you end the year in terms of headcount?

Paul Ryan

42 I believe. Right?

Clayton Haynes

Right. 42 full time employees.

Rob Ammann - RK Capital

42 full time. Okay. Thank you.

Paul Ryan

Thanks, Rob.

Operator

Okay. This will conclude the question-and-answer session. So I will now turn the call back over to Mr. Ryan.

Paul Ryan

Okay. I want to thank you all for being with us today. I look forward to our next conference call with you. In the meantime, if you do have any questions, please give myself or Rob Stewart a call and we'll be happy to help you. Thanks for being with us.

Operator

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 888-346-3949, or if calling from outside the US or Canada, 404-260-5385, then enter the pin code 9168590, then dial 4 for replays and enter the following confirmation number, 20081120190933.

This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.

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