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Acacia Research Reports Second Quarter 2022 Financial Results
[August 11, 2022]

Acacia Research Reports Second Quarter 2022 Financial Results


Acacia Research Corporation (Nasdaq: ACTG) ("Acacia" or the "Company") today reported financial results for the three and six months ended June 30, 2022.

Key Business Highlights

  • Generated $16.7 million in consolidated revenue for the quarter, down from $17.4 million in revenue in the second quarter of 2021.
  • Recorded $11.5 million in realized gains during the quarter, including $5.2 million from the Life Science Portfolio.
  • Repurchased 6.1 million shares at an average price of $4.64 as part of $40.0 million repurchase authorization. The Company completed this buyback subsequent to the end of the quarter.
  • In April 2022, Mycovia Pharmaceuticals received FDA approval on its drug VIVJOA™ (otesecanazole) for the treatment of recurrent vulvovaginal candidiasis, triggering a $26.7 million milestone payment to Acacia for its share of ownership of Viamet Pharmaceuticals, anticipated to be received later in 2022.
  • Repaid $50 million in debt owed to Starboard Value LP, during the quarter.
  • Realized and unrealized gains from the Life Science portfolio totaled $267 million at June 30, 2022, based on the value of public holdings and the carrying value of the Private Securities.




Second Quarter 2022 Financial Highlights

(In millions, except per share data)

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

 

(unaudited)

 

(unaudited)

Intellectual property operations

$

8.1

 

 

$

17.4

 

 

$

10.7

 

 

$

23.2

 

Industrial operations

 

8.7

 

 

 

-

 

 

 

19.5

 

 

 

-

 

Total revenues

$

16.7

 

 

$

17.4

 

 

$

30.2

 

 

$

23.2

 

Operating (loss) income

$

(5.7

)

 

$

1.6

 

 

$

(14.2

)

 

$

(4.0

)

Unrealized gains (losses) 1

$

(57.6

)

 

$

11.2

 

 

$

(229.9

)

 

$

49.0

 

Realized gains

$

11.5

 

 

$

14.6

 

 

$

78.4

 

 

$

15.4

 

Non-cash derivative liability (loss) 2

$

(35.1

)

 

$

(5.6

)

 

$

(7.0

)

 

$

(204.5

)

GAAP Net (loss) income

$

(61.5

)

 

$

19.7

 

 

$

(134.8

)

 

$

(144.8

)

GAAP Diluted (loss) income per share

$

(1.44

)

 

$

0.23

 

 

$

(3.06

)

 

$

(3.02

)


1

Unrealized gains and (losses) are related to the change in fair value of Acacia's equity securities as of the end of the reported period.

2

The non-cash derivative liability (loss) is related to the change in fair value of Acacia's Series A and B warrants and embedded derivatives.

 

Clifford Press, Chief Executive Officer, stated, "Our strategic partnership with Starboard Value LP has generated significant value since it was initiated two and a half years ago. We have formed a Special Committee of the Board of Directors that is being advised by independent advisors to review the Starboard relationship with the objective of establishing a simplified capital structure with increased capital resources for the next phase of the Company's growth."

"Recent economic conditions, including rising interest rates, have increased the quantity and quality of companies in our pipeline," added Mr. Press. "We evaluate ongoing transactions in light of changing business conditions and adjusted valuations and maintain a strong capital base to act on opportunities."

Second Quarter 2022 Financial Summary:

  • Total revenues were $16.7 million, compared to $17.4 million in the same quarter last year.
    • Printronix generated $8.7 million in revenue in the quarter.
    • The Intellectual Property business generated $8.1 million in licensing and other revenue during the quarter, compared to $17.4 million in the same quarter last year.
  • General and administrative expenses were $10.7 million, compared to $6.5 million in the same quarter of last year due to the inclusion of Printronix operating expenses, as well as increased business development and personnel expenses related to the Company's transaction organization. Deal costs are expensed as incurred, and not capitalized.
  • Operating loss of $5.7 million, compared to operating income of $1.6 million in the same quarter of last year, primarily as a result of the Company's acquisition infrastructure buildout.
    • Printronix contributed $1.1 million in operating loss, a reflection of seasonality.
  • GAAP Net loss of $61.5 million, or $1.44 per diluted share, compared to net income of $19.7 million, or $0.23 per diluted share, in the second quarter of last year.
    • Net loss included $11.5 million in realized gains, offset by $57.6 million in unrealized losses, related to the decline in share price of certain holdings, as well as the reversal of unrealized gains previously recorded for shares sold during the quarter for realized gains.
    • The Company recognized a non-cash expense of $35.1 million related to the change in fair value of the Starboard warrants and embedded derivative liabilities due to the appreciation in Acacia's stock price during the quarter.

Balance Sheet and Capital Structure

  • Cash, cash equivalents and equity investments measured at fair value totaled $390.3 million as of June 30, 2022 compared to $670.7 million as of December 31, 2021.
  • Equity securities without readily determinable fair value totaled $5.8 million at June 30, 2022, compared to $5.8 million at December 31, 2021.
  • Investment securities representing equity method investments totaled $48.0 million at June 30, 2022 (net of noncontrolling interests), compared to $19.9 million at December 31, 2021. The increase relates to milestone payments during the quarter earned by MalinJ1 through its interest in Viamet, but not yet received. Acacia owns 64% of MalinJ1.
  • Total indebtedness, which represents the Senior Secured Notes issued to Starboard Value LP, was $115.8 million at June 30, 2022. During the second quarter, the Company repaid $50 million in Starboard Notes. Subsequent to the end of the quarter, the Company repaid an additional $55 million in Starboard Notes.
  • The Company's current book value totaled $268.2 million, or $6.60 per share, as of June 30, 2022, compared to $345.5 million, or $7.42 per share, as of March 31, 2022, and $430.5 million, or $8.80 per share, as of December 31, 2021. Acacia's current book value reflects the impact of the outstanding warrant and the embedded derivative liabilities. Assuming full exercise of all issued derivatives, Acacia's pro forma book value would rise to $911.3 million, or $5.87 per share, down from $952.2 million, or $5.91 per share, as of March 31, 2022, and $1.1 billion, or $6.51 per share, as of December 31, 2021. Pro forma book value per share has declined by 10% during the first half of the year primarily due to the decline in the value of the Company's Oxford Nanopore Technologies holding.

Acacia has generated $407.9 million in proceeds from sales and royalties of the Life Science Portfolio through June 30, 2022, which was purchased for an aggregate price of $297 million. The remaining positions in the Life Science Portfolio represent $155.9 million in book value as shown below:

Public Securities

Based on Market Value (at June 30, 2022)

 

Company

Ticker

Number of
Shares

 

Value

 

 

 

 

 

Oxford Nanopore Technologies plc 1

 

LSE: ONT

13.8 mm

 

$46.2 mm

Arix Bioscience plc

 

LSE: ARIX

29.0 mm

 

$38.9 mm

Immunocore Holdings plc 2

 

NASDAQ: IMCR

0.46 mm

 

$17.0 mm

Total Public Holdings

 

 

 

$102.1 mm

(1)

Sold 300,000 shares in the second quarter of 2022 for approximately $1.2 million of gross proceeds.

(2)

Sold 225,000 shares in the second quarter of 2022 for approximately $7.8 million of gross proceeds.

 

Private Securities

Based on Cost or Equity Accounting Value (at June 30, 2022)

 

Company

Ownership Percentage

Value

 

 

 

Viamet Pharmaceuticals, Inc. 3

26%

 

AMO Pharma

24%

-

$53.8 mm

NovaBiotics

4%

 

 

 

 

Total Private Holdings

 

$53.8 mm

(3)

Viamet value is based on equity method accounting value, reflecting Acacia's share of Viamet through ownership of MalinJ1.

 

Pro Forma Book Value and Changes to Derivative Valuations

As of June 30, 2022, book value was $268.2 million and there were 40.6 million shares of common stock outstanding, for a book value per share of $6.60, down from $7.42 as of March 31, 2022, and $8.80 as of December 31, 2021. The decrease since December 31, 2021 is due to the decrease in our asset values, primarily cash and equity securities at fair value. Total liabilities for warrants and preferred stock to be eliminated upon exercise or expiration of all such warrants and preferred stock were $115.3 million as of June 30, 2022. All of these derivative liabilities would be eliminated upon exercise or expiration of all such warrants and preferred stock.

Under GAAP, book value reflects the impact of the liabilities associated with potential issuance of shares related to the exercise of the Company's warrants and conversion of the Company's convertible preferred stock. As the value of those liabilities varies with fluctuations in the Company's stock price, management believes a presentation of book value assuming full exercise of all warrants and conversion of all preferred stock presents a useful measure of book value for investors. However, this calculation has its limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of book value calculated in accordance with GAAP.

Book value as of June 30, 2022 reflects the impact of the following:

  • $115.8 million of face value of Notes issued to Starboard Value LP, all of which may be used to exercise Series B warrants at $3.65 per share;
  • $35.0 million in face value of Series A preferred stock issued to Starboard Value LP; and
  • $115.3 million of warrants and embedded derivative liabilities associated with all preferred stock and warrants held by Starboard Value LP, to be eliminated upon exercise or expiration of all such warrants and preferred stock.

Assuming Starboard Value LP converted all preferred stock and exercised all warrants:

  • $115.0 million of liabilities attributable to the Notes would be eliminated, and 31.5 million shares of common stock would be issued;
  • $35.0 million in face value of preferred stock would be eliminated, and 9.6 million shares of common stock would be issued;
  • $115.3 million of embedded derivative liabilities attributable to the warrants and preferred stock would be eliminated; and
  • $377.8 million of cash would be added upon exercise of the remaining Series B warrants and Series A warrants, and 73.5 million shares of common stock would be issued.

The expected impact of this would be an incremental $643.1 million in book value, and an incremental 114.6 million of shares outstanding. Assuming such conversion and exercise, pro forma book value would be $911.3 million, and diluted shares outstanding would be 155.2 million, resulting in book value per share of $5.87, as compared to $5.91 as of March 31, 2022, and $6.51 as of December 31, 2021. The $5.25 per share cash exercise feature of 68.5 million Series B warrants will expire on August 25, 2022.

Share Repurchase Program

As previously reported, effective March 31, 2022, the Company's Board of Directors approved a new stock repurchase program for up to $40.0 million of shares of common stock. During the quarter, the Company repurchased 6.1 million shares at an average price of $4.64 per share, for a total of $28.5 million. Subsequent to the end of the quarter, the Company completed the $40 million authorization. As of August 8, 2022, the number of shares outstanding was 38.3 million. The Board will continue to evaluate uses of capital in the future.

Investor Conference Call:

The Company will host a conference call today, August 11, 2022 at 11 a.m. Eastern Time (8 a.m. Pacific Time).

To access the live call, please dial 888-506-0062 (U.S. and Canada) or 973-528-0011 (international) and if requested, reference conference ID 536777. The conference call will also be simultaneously webcasted on the investor relations section of the Company's website at http://www.acaciaresearch.com under Events & Presentations. Following the conclusion of the live call, a replay of the webcast will be available on the Company's website for at least 30 days.

About the Company

Acacia is a permanent capital platform with a strategy to purchase businesses based on the differentials between public and private market valuations. Acacia leverages its (i) access to flexible capital that can be deployed opportunistically as a result of its strategic partnership with Starboard Value LP, (ii) disciplined focus on identifying opportunities where it can be an advantaged buyer, initiate a transaction opportunity spontaneously, avoid a traditional sale process and complete the purchase of a business, division or other asset at an attractive price, (iii) willingness to invest across industries and in off-the-run, often misunderstood assets that suffer from a complexity or multi-factor discount, (iv) relationships and partnership abilities across functions and sectors, and (v) strong expertise in corporate governance and operational transformation. Acacia seeks to identify opportunities where it believes it is an advantaged buyer, where it can avoid structured sale processes and create the opportunity to purchase businesses, divisions and/or assets of companies at an attractive price due to Acacia's unique capabilities, relationships or expertise, or Acacia believes the target would be worth more to it than to other buyers. Additional information about Acacia and its subsidiaries is available at www.acaciaresearch.com.

Safe Harbor Statement

This news release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon the Company's current expectations and speak only as of the date hereof. The Company's actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including the Company's ability to successfully implement its strategic plan, the ability of the Company to renegotiate the terms of its relationship with Starboard Value LP, the ability to successfully identify and complete strategic acquisitions of businesses, divisions, and/or assets, the ability to successfully develop licensing programs and attract new business, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments addressing licensing and enforcement of patents and/or intellectual property in general, general economic conditions, including the impact of the COVID-19 pandemic and the success of the Company's investments. The Company's Annual Report on Form 10-K, and other SEC filings discuss some of the important risks and uncertainties that may affect the Company's business, results of operations and financial condition. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

The results achieved by the Company in prior periods are not necessarily indicative of the results to be achieved by us in any subsequent periods. It is currently anticipated that the Company's financial results will vary, and may vary significantly, from quarter to quarter.

 

ACACIA RESEARCH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

 

 

 

 

 

June 30, 2022

 

December 31, 2021

 

 

(Unaudited)

 

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

263,945

 

 

$

308,943

 

Equity securities at fair value

 

126,345

 

 

 

361,778

 

Equity securities without readily determinable fair value

 

5,816

 

 

 

5,816

 

Investment securities - equity method investments

 

73,020

 

 

 

30,934

 

Accounts receivable, net

 

13,692

 

 

 

9,517

 

Inventories, net

 

12,056

 

 

 

8,930

 

Prepaid expenses and other current assets

 

5,291

 

 

 

4,764

 

Total current assets

 

500,165

 

 

 

730,682

 

 

 

 

 

Long-term restricted cash

 

-

 

 

 

418

 

Property, plant and equipment, net

 

3,883

 

 

 

4,183

 

Goodwill

 

7,470

 

 

 

7,470

 

Other intangible assets, net

 

42,725

 

 

 

48,793

 

Leased right-of-use assets

 

2,415

 

 

 

2,027

 

Other non-current assets

 

5,041

 

 

 

5,283

 

Total assets

$

561,699

 

 

$

798,856

 

 

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

5,484

 

 

$

5,440

 

Accrued expenses and other current liabilities

 

6,841

 

 

 

6,227

 

Accrued compensation

 

4,108

 

 

 

3,698

 

Royalties and contingent legal fees payable

 

2,581

 

 

 

2,463

 

Deferred revenue

 

1,378

 

 

 

1,114

 

Senior secured notes payable

 

115,828

 

 

 

181,248

 

Total current liabilities

 

136,220

 

 

 

200,190

 

 

 

 

 

Deferred revenue, net of current portion

 

623

 

 

 

581

 

Series A warrant liabilities

 

12,785

 

 

 

11,291

 

Series A embedded derivative liabilities

 

23,599

 

 

 

18,448

 

Series B warrant liabilities

 

96,781

 

 

 

96,378

 

Long-term lease liabilities

 

2,254

 

 

 

2,027

 

Deferred income tax liabilities, net

 

3,052

 

 

 

18,552

 

Other long-term liabilities

 

1,066

 

 

 

6,161

 

Total liabilities

 

276,380

 

 

 

353,628

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Series A redeemable convertible preferred stock, par value $0.001 per share; stated value $100 per share; 350,000 shares authorized, issued and outstanding as of June 30, 2022 and December 31, 2021; aggregate liquidation preference of $35,000 as of June 30, 2022 and December 31, 2021

 

17,145

 

 

 

14,753

 

 

 

 

 

Stockholders' equity:

 

 

 

Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; no shares issued or outstanding

 

-

 

 

 

-

 

Common stock, par value $0.001 per share; 300,000,000 shares authorized; 40,622,465 and 48,807,748 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

41

 

 

 

49

 

Treasury stock, at cost, 13,877,003 and 5,388,469 shares as of June 30, 2022 and December 31, 2021, respectively

 

(86,781

)

 

 

(47,281

)

Additional paid-in capital

 

646,352

 

 

 

648,389

 

Accumulated deficit

 

(316,493

)

 

 

(181,724

)

Total Acacia Research Corporation stockholders' equity

 

243,119

 

 

 

419,433

 

 

 

 

 

Noncontrolling interests

 

25,055

 

 

 

11,042

 

 

 

 

 

Total stockholders' equity

 

268,174

 

 

 

430,475

 

 

 

 

 

Total liabilities, redeemable convertible preferred stock, and stockholders' equity

$

561,699

 

 

$

798,856

 

 

ACACIA RESEARCH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2022

 

2021

 

2022

 

2021

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

Intellectual property operations

$

8,062

 

 

$

17,400

 

 

$

10,677

 

 

$

23,203

 

Industrial operations

 

8,655

 

 

 

-

 

 

 

19,547

 

 

 

-

 

Total revenues

 

16,717

 

 

 

17,400

 

 

 

30,224

 

 

 

23,203

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of revenues - intellectual property operations

 

4,634

 

 

 

9,253

 

 

 

9,198

 

 

 

14,566

 

Cost of sales - industrial operations

 

4,592

 

 

 

-

 

 

 

8,784

 

 

 

-

 

Engineering and development expenses - industrial operations

 

145

 

 

 

-

 

 

 

335

 

 

 

-

 

Sales and marketing expenses - industrial operations

 

2,294

 

 

 

-

 

 

 

4,310

 

 

 

-

 

General and administrative expenses

 

10,722

 

 

 

6,503

 

 

 

21,775

 

 

 

12,669

 

Total costs and expenses

 

22,387

 

 

 

15,756

 

 

 

44,402

 

 

 

27,235

 

Operating (loss) income

 

(5,670

)

 

 

1,644

 

 

 

(14,178

)

 

 

(4,032

)

 

 

 

 

 

 

 

 

Other (expense) income:

 

 

 

 

 

 

 

Equity securities investments:

 

 

 

 

 

 

 

Change in fair value of equity securities

 

(57,647

)

 

 

11,158

 

 

 

(229,850

)

 

 

49,007

 

Gain on sale of equity securities

 

11,498

 

 

 

14,617

 

 

 

78,374

 

 

 

15,436

 

Earnings on equity investment in joint venture

 

42,085

 

 

 

7

 

 

 

42,085

 

 

 

2,737

 

Net realized and unrealized (loss) gain

 

(4,064

)

 

 

25,782

 

 

 

(109,391

)

 

 

67,180

 

Change in fair value of investment

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,752

)

Gain on sale of investment

 

-

 

 

 

-

 

 

 

-

 

 

 

3,591

 

Change in fair value of the Series A and B warrants and embedded derivatives

 

(35,146

)

 

 

(5,576

)

 

 

(7,048

)

 

 

(204,485

)

Loss on foreign currency exchange

 

(1,814

)

 

 

(152

)

 

 

(2,627

)

 

 

(176

)

Interest expense on Senior Secured Notes

 

(1,859

)

 

 

(1,607

)

 

 

(4,460

)

 

 

(2,764

)

Interest income and other, net

 

863

 

 

 

85

 

 

 

1,870

 

 

 

59

 

Total other (expense) income

 

(42,020

)

 

 

18,532

 

 

 

(121,656

)

 

 

(139,347

)

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(47,690

)

 

 

20,176

 

 

 

(135,834

)

 

 

(143,379

)

 

 

 

 

 

 

 

 

Income tax benefit (expense)

 

200

 

 

 

(510

)

 

 

15,078

 

 

 

(520

)

 

 

 

 

 

 

 

 

Net (loss) income including noncontrolling interests in subsidiaries

 

(47,490

)

 

 

19,666

 

 

 

(120,756

)

 

 

(143,899

)

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interests in subsidiaries

 

(14,013

)

 

 

(6

)

 

 

(14,013

)

 

 

(906

)

 

 

 

 

 

 

 

 

Net (loss) income attributable to Acacia Research Corporation

$

(61,503

)

 

$

19,660

 

 

$

(134,769

)

 

$

(144,805

)

 

 

 

 

 

 

 

 

(Loss) income per share:

 

 

 

 

 

 

 

Net (loss) income attributable to common stockholders - Basic

$

(63,443

)

 

$

15,234

 

 

$

(138,560

)

 

$

(147,099

)

Weighted average number of shares outstanding - Basic

 

43,988,677

 

 

 

48,729,020

 

 

 

45,259,435

 

 

 

48,662,897

 

Basic net (loss) income per common share

$

(1.44

)

 

$

0.31

 

 

$

(3.06

)

 

$

(3.02

)

Net (loss) income attributable to common stockholders - Diluted

$

(63,443

)

 

$

18,928

 

 

$

(138,560

)

 

$

(147,099

)

Weighted average number of shares outstanding - Diluted

 

43,988,677

 

 

 

83,086,980

 

 

 

45,259,435

 

 

 

48,662,897

 

Diluted net (loss) income per common share

$

(1.44

)

 

$

0.23

 

 

$

(3.06

)

 

$

(3.02

)

 


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