Acacia Research Corporation(1) (Nasdaq: ACTG) today reported
results for the three months ended September 30, 2017.
- Revenues for the third quarter of 2017
were $36,633,000, as compared to $64,658,000 in the comparable
prior year quarter.
- GAAP and non-GAAP results for the third
quarter of 2017 included an unrealized gain on our equity
investment in Veritone (Nasdaq: VERI) totaling $158,979,000.
- GAAP net income for the third quarter
of 2017 was $158,465,000, or $3.13 per diluted share, as compared
to GAAP net income of $7,082,000, or $0.14 per diluted share for
the comparable prior year quarter.
- Non-GAAP net income for the third
quarter of 2017 was $167,610,000, or $3.31 per diluted share, as
compared to non-GAAP net income of $16,093,000, or $0.32 per
diluted share for the comparable prior year quarter. See below for
information regarding non-GAAP financial measures.
- Cash and short-term investments totaled
$158,568,000 as of September 30, 2017, as compared to
$158,495,000 as of December 31, 2016.
Consolidated Financial Results - Overview
Financial highlights and operating activities during the periods
presented included the following:
Three Months EndedSeptember 30, Nine Months
EndedSeptember 30, 2017 2016
2017 2016 Revenues (in thousands) $
36,633 $ 64,658 $ 61,944 $ 130,730
GAAP net income (loss) (in thousands)
$ 158,465 $ 7,082 $ 132,383 $ (43,456 )
Non-GAAP net income (in thousands)
$ 167,610 $ 16,093 $ 156,175 $ 30,449
GAAP diluted earnings (loss) per share
$ 3.13 $ 0.14 $ 2.61 $ (0.87 )
Non-GAAP diluted earnings per share
$ 3.31 $ 0.32 $ 3.08 $ 0.60 New agreements executed 3 11 18 30
Licensing and enforcement programs generating revenues 7 14 13 27
Summary Consolidated Financial
Results
Three months ended September 30, 2017
compared with the three months ended September 30, 2016
Revenues (in thousands):
Three Months EndedSeptember 30,
Change 2017 2016 $
% Revenues $ 36,633 $ 64,658 $ (28,025 ) (43 )%
Third quarter 2017 revenues decreased $28,025,000, or 43%, to
$36,633,000, as compared to $64,658,000 in the comparable prior
year quarter. In the third quarter of 2017, one licensee
individually accounted for 96% of revenues recognized. In the third
quarter of 2016, two different licensees individually accounted for
60% and 27% of revenues recognized.
Cost of Revenues (in thousands):
Three Months EndedSeptember 30, Change
2017 2016 $ %
Inventor royalties $
—
$ 17,844 $ (17,844 ) (100 )% Contingent legal fees 12,173
7,709 4,464 58 % Total inventor royalties and
contingent legal fees $ 12,173 $ 25,553 $ (13,380 )
(52 )%
Third quarter 2017 inventor royalties expense decreased to zero,
from $17,844,000 in the comparable prior year quarter, primarily
due to no contractual inventor royalty obligations due on revenues
recognized in the third quarter of 2017. Third quarter 2017
contingent legal fees expense increased 58%, as compared to a 43%
decrease in related revenues, due to lower average contingent legal
fee rates for the portfolios generating revenues in the third
quarter of 2016, as compared to the portfolios generating revenues
during the third quarter of 2017.
Third quarter 2017 total revenues, less inventor royalties
expense and contingent legal fees expense was $24,460,000, or 67%
of third quarter 2017 revenues, as compared to $39,105,000, or 60%
of revenues recognized in the comparable prior year quarter.
Three Months EndedSeptember 30,
Change 2017 2016 $
% Litigation and licensing expenses - patents $ 4,073
$ 7,348 $ (3,275 ) (45 )%
Third quarter 2017 litigation and licensing expenses decreased
45%, due primarily to a net decrease in litigation support and
third-party technical consulting expenses associated with ongoing
licensing and enforcement programs and an overall decrease in
portfolio related enforcement activities. We expect litigation and
licensing expenses to continue to fluctuate period to period in
connection with our patent licensing and enforcement
activities.
Three Months EndedSeptember 30,
Change 2017 2016 $
% Amortization of patents $ 5,625 $ 6,467 $ (842 )
(13 )%
Third quarter 2017 non-cash patent amortization charges
decreased 13%, reflecting a decrease in scheduled amortization on
existing patent portfolios due primarily to various patent
portfolio impairment charges previously recorded in the fourth
quarter of 2016.
General and Administrative Expenses (in
thousands):
Three Months EndedSeptember 30, Change
2017 2016 $ % General and
administrative expenses $ 3,262 $ 5,790 $ (2,528 ) (44
)%
Non-cash stock compensation expense -
G&A
1,272
2,544
(1,272
)
(50
)%
Non-cash stock compensation expense -
Veritone profits interests
8,181
—
8,181
100
%
Total general and administrative expenses $ 12,715 $ 8,334
$ 4,381 53 %
Third quarter 2017 general and administrative expenses decreased
44% due primarily to a reduction in personnel costs in
connection with headcount reductions in 2016 and 2017, a decrease
in variable performance based compensation costs and a decrease in
corporate, general and administrative costs. Non-cash stock
compensation expense increased due to the increase in the fair
value of our Veritone related profits interest units, consistent
with the increase in the underlying Veritone stock price during the
period, and the impact of the full vesting of the profits interest
units during the third quarter of 2017. Compensation expense for
the profits interests is adjusted each reporting period for changes
in estimated fair value, which is primarily based on the quoted
market price of Veritone common stock.
Impairment of Patent-Related Intangible
Assets (in thousands):
Three Months EndedSeptember 30, Change
2017 2016 $ %
Impairment of patent-related intangible assets $ 2,248 $ — $ 2,248
100 %
Impairment charges for the third quarter of 2017 primarily
reflect reductions in expected estimated future net cash flows for
certain patent portfolios that management determined it would no
longer allocate resources to in future periods. The impairment
charges consisted of the excess of the asset’s carrying value over
its estimated fair value as of the applicable measurement date.
Investment Gains (Losses)
Upon Veritone Inc.'s ("Veritone") consummation of its initial
public offering on May 17, 2017 ("IPO"), Acacia's Loans and Bridge
Facilities provided to Veritone, including accrued interest, were
automatically converted into 1,969,186 shares of Veritone common
stock. In addition, Acacia exercised its Primary Warrant, acquiring
2,150,335 shares of Veritone common stock. As of the IPO date,
Acacia's investment in Veritone was recorded utilizing the fair
value option, and therefore is marked to market at each balance
sheet date, with related unrealized investment gains and losses
reflected in the consolidated statement of operations. Total
unrealized investment gains for the third quarter of 2017 totaled
$158,979,000 related to the application of the fair value method of
accounting to our equity investment in Veritone.
Provision for Income Taxes (in
thousands):
Three Months EndedSeptember 30, Change
2017 2016 $ %
Provision for income taxes
$ (216 ) $ (9,655 ) $ 9,439 (98 )%
Tax expense for the three months ended September 30, 2016
primarily reflected the impact of foreign withholding taxes
incurred on certain revenue agreements executed with third-party
licensees domiciled in foreign jurisdictions in the third quarter
of 2016.
Financial Condition (in
thousands)
Summary Balance Sheet Information:
September 30, 2017 December 31, 2016
Cash and short-term investments
$ 158,568 $ 158,495 Accounts receivable 300 26,750 Investments
211,080 — Total assets 441,210 296,003 Accounts payable and accrued
expenses 7,691 14,283 Royalties and contingent legal fees payable
19,824 13,908 Total liabilities 36,267 28,560
Summary Cash Flow Information:
Three Months EndedSeptember 30, Nine
Months EndedSeptember 30, 2017 2016
2017 2016 Net cash provided by (used
in): Operating activities $ 40,250 $ (14,574 ) $ 46,435 $ 23,219
Investing activities (2,420 ) (8,066 ) (73,539 ) (41,285 )
Financing activities 31 (1,116 ) 645 (1,141 )
INFORMATION ABOUT NON-GAAP FINANCIAL MEASURES
As used herein, “GAAP” refers to accounting principles generally
accepted in the United States of America. To supplement our
consolidated financial statements prepared and presented in
accordance with GAAP, this earnings release includes financial
measures, including (1) non-GAAP net income and (2) non-GAAP
Earnings Per Share (“EPS”), that are considered non-GAAP financial
measures as defined in Rule 101 of Regulation G promulgated by the
Securities and Exchange Commission. Generally, a non-GAAP financial
measure is a numerical measure of a company’s historical or future
performance, financial position, or cash flows that either excludes
or includes amounts that are not normally excluded or included in
the most directly comparable measure calculated and presented in
accordance with GAAP. The presentation of this non-GAAP financial
information is not intended to be considered in isolation or as a
substitute for, or superior to, the financial information prepared
and presented in accordance with GAAP.
We use these non-GAAP, or pro forma, financial measures for
internal financial and operational decision making purposes and as
a means to evaluate period-to-period comparisons of the performance
and results of operations of our core business and strategic
partnerships. Our management believes that these non-GAAP financial
measures provide meaningful supplemental information regarding the
performance of our core business and strategic partnerships by
excluding non-cash stock compensation charges (excluding non-cash
stock compensation for Veritone investment related profits
interests) and non-cash patent amortization charges (including
impairment charges) that may not be indicative of our recurring
core business and strategic partnerships operating results. These
non-GAAP financial measures also facilitate management’s internal
planning and comparisons to our historical performance and
liquidity. We believe these non-GAAP financial measures are useful
to investors as they allow for greater transparency with respect to
key metrics used by management in its financial and operational
decision making and are used by our institutional investors and the
analyst community to help them analyze the performance and
operational results of our core business and strategic
partnerships.
Non-GAAP Net income and EPS. We define non-GAAP net income
as net income calculated in accordance with GAAP, plus non-cash
stock compensation charges and non-cash patent amortization
charges. Non-GAAP EPS is defined as non-GAAP net income divided by
the weighted average outstanding shares, on a fully-diluted basis,
calculated in accordance with GAAP, for the respective reporting
period.
Due to the inherent volatility in stock prices, the use of
estimates and assumptions in connection with the valuation and
expensing of share-based awards and the variety of award types that
companies can issue under FASB ASC Topic 718, management believes
that providing a non-GAAP financial measure that excludes non-cash
stock compensation allows investors to make meaningful comparisons
between our recurring core business and strategic partnerships
operating results and those of other companies period to period, as
well as providing our management with a critical tool for financial
and operational decision making and for evaluating our own
period-to-period recurring core business and strategic partnerships
operating results. Non-cash stock compensation for our Veritone
investment related profits interests are not excluded as the
related liability is marked to market along with our equity
investment in Veritone, and therefore, the liability will fluctuate
consistent with increases or decreases in the fair value of our
Veritone equity investment. Similarly, due to the variability
associated with the timing and amount of patent acquisition
payments and estimates inherent in the capitalization and
amortization of patent acquisition costs, management believes that
providing a non-GAAP financial measure that excludes non-cash
patent amortization charges allows investors to make meaningful
comparisons between our recurring core business and strategic
partnerships operating results and those of other companies, and
also provides our management with a useful tool for financial and
operational decision making and for evaluating our own
period-to-period recurring core business and strategic partnerships
operating results.
There are a number of limitations related to the use of non-GAAP
net income and EPS versus net income and EPS calculated in
accordance with GAAP. For example, non-GAAP net income excludes the
impact of significant non-cash stock compensation charges and
non-cash patent amortization charges that are or may be recurring,
and that may or will continue to be recurring for the foreseeable
future. In addition, non-cash stock compensation is a critical
component of our employee compensation programs and non-cash patent
amortization reflects the cost of certain patent portfolio
acquisitions, amortized on a straight-line basis over the estimated
economic useful life of the respective patent portfolio, and may
reflect the acceleration of amortization related to recoupable
up-front patent portfolio acquisition costs. Management compensates
for these limitations by providing specific information regarding
the GAAP amounts excluded from non-GAAP net income and EPS and
evaluating non-GAAP net income and EPS in conjunction with net
income and EPS calculated in accordance with GAAP.
The accompanying table below provides a reconciliation of the
non-GAAP financial measures presented to the most directly
comparable financial measures prepared in accordance with GAAP.
______________________________________________
A conference call is scheduled for today. The Acacia Research
presentation will start at 1:30 p.m. Pacific Time (4:30 p.m.
Eastern).
To listen to the presentation by phone, dial (800) 930-1344 for
callers in the U.S. and Canada and (719) 325-4933 for international
callers, both of whom will need to enter the conference ID 3196872
when prompted.
There will be a live webcast hosted by NASDAQ that will be
available for 30 days and can be accessed at Acacia’s website at
www.acaciaresearch.com.
ABOUT ACACIA RESEARCH CORPORATION
Founded in 1993, Acacia Research Corporation (ACTG) is the
industry leader in patent licensing. An intermediary in the patent
marketplace, Acacia partners with inventors and patent owners to
unlock the financial value in their patented inventions. Acacia
bridges the gap between invention and application, facilitating
efficiency and delivering monetary rewards to the patent owner.
Information about Acacia Research Corporation and its
subsidiaries is available at www.acaciaresearch.com.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995
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 our
current expectations and speak only as of the date hereof. Our
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 ability to successfully
develop licensing programs and attract new business, rapid
technological change in relevant markets, 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 and
general economic conditions. Our Annual Report on Form 10-K, recent
and forthcoming Quarterly Reports on Form 10-Q, recent Current
Reports on Form 8-K, and any amendments to the forgoing, and other
SEC filings discuss some of the important risk factors that may
affect our 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 in the most recent quarter are not
necessarily indicative of the results to be achieved by us in any
subsequent quarters, as it is currently anticipated that Acacia
Research Corporation’s financial results will vary, and may vary
significantly, from quarter to quarter. This variance is expected
to result from a number of factors, including risk factors
affecting our results of operations and financial condition
referenced above, and the particular structure of our licensing
transactions, which may impact the amount of inventor royalties and
contingent legal fees expenses we incur period to period.
ACACIA RESEARCH CORPORATION SUMMARY
FINANCIAL INFORMATION (In thousands, except share and per
share information) (Unaudited) CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS Three Months
EndedSeptember 30, Nine Months EndedSeptember
30, 2017 2016 2017
2016 Revenues $ 36,633 $ 64,658 $
61,944 $ 130,730 Operating costs and expenses: Cost
of revenues: Inventor royalties — 17,844 4,939 19,417 Contingent
legal fees 12,173 7,709 16,036 22,236 Litigation and licensing
expenses - patents 4,073 7,348 14,593 22,395 Amortization of
patents 5,625 6,467 16,711 27,986 General and administrative
expenses (including non-cash stock compensation expense of $9,453
and $13,068 for the three and nine months ended September 30, 2017
and $2,544 and $5,754 for the three and nine months ended September
30, 2016, respectively) 12,715 8,334 26,365 23,863 Research,
consulting and other expenses - business development 241 666 994
2,522 Impairment of patent-related intangible assets 2,248 — 2,248
40,165 Other expense — — — 500 Total
operating costs and expenses 37,075 48,368 81,886
159,084 Operating income (loss) (442 ) 16,290 (19,942
) (28,354 ) Other income (expense): Gain on conversion of loans and
accrued interest — — 2,671 — Gain on exercise of Primary Warrant —
— 4,616 — Change in fair value of investment, net 158,979 — 146,281
— Equity in earnings (losses) of investee (116 ) — (130 ) —
Interest income 134 285 1,432 303 Other income (expense) 30
(24 ) (9 ) (97 ) Total other income (expense) 159,027 261
154,861 206 Income (loss) before provision for
income taxes 158,585 16,551 134,919 (28,148 )
Provision for income taxes
(216 ) (9,655 ) (2,935 ) (15,774 ) Net income (loss) including
noncontrolling interests in operating subsidiaries 158,369 6,896
131,984 (43,922 ) Net loss attributable to noncontrolling interests
in operating subsidiaries 96 186 399 466
Net income (loss) attributable to Acacia Research
Corporation $ 158,465 $ 7,082 $ 132,383 $
(43,456 ) Net income (loss) attributable to common
stockholders - basic $ 158,326 $ 7,043 $ 132,142
$ (43,456 ) Net income (loss) attributable to common
stockholders - diluted $ 158,326 $ 7,043 $ 132,143
$ (43,456 )
Basic income (loss) per common share
$ 3.13 $ 0.14 $ 2.62 $ (0.87 )
Diluted income (loss) per common share
$ 3.13 $ 0.14 $ 2.61 $ (0.87 ) Weighted
average number of shares outstanding, basic 50,554,234
50,124,302 50,462,990 50,024,047 Weighted
average number of shares outstanding, diluted 50,599,974
50,618,757 50,684,725 50,024,047
Reconciliation of GAAP Net Income (Loss) and EPS to
Non-GAAP Net Income and EPS (In thousands, except share and
per share data) Three Months EndedSeptember
30, Nine Months EndedSeptember 30, 2017
2016 2017 2016
GAAP net income (loss)
$ 158,465 $ 7,082 $ 132,383 $ (43,456 )
Non-cash stock compensation (excluding Profits Interests related
non-cash stock compensation) 1,272 2,544 4,833 5,754 Non-cash
patent amortization 5,625 6,467 16,711 27,986 Impairment of
patent-related intangible assets 2,248 — 2,248
40,165
Pro forma non-GAAP net income
$ 167,610 $ 16,093 $ 156,175 $ 30,449
Pro forma non-GAAP net earnings per common
share - diluted(3)
$ 3.31 $ 0.32 $ 3.08 $ 0.60 GAAP
weighted-average shares — diluted 50,599,974 50,618,757
50,684,725 50,127,427
ACACIA RESEARCH CORPORATION SUMMARY FINANCIAL
INFORMATION, (CONTINUED) (In thousands)
(Unaudited) CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2017 December 31,
2016 ASSETS Current assets: Cash and cash equivalents
$ 101,081 $ 127,540 Restricted cash — 11,512 Short-term investments
57,487 19,443 Accounts receivable 300 26,750 Prepaid expenses and
other current assets 3,520 3,245 Total current assets
162,388 188,490 Investment at fair value 208,796 — Investment -
equity method 2,284 — Loan receivable and accrued interest — 18,616
Investment in warrants — 1,960 Patents, net of accumulated
amortization 67,360 86,319 Other assets 382 618 $ 441,210
$ 296,003
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: Accounts payable and accrued expenses $ 7,691
$ 14,283 Royalties and contingent legal fees payable 19,824
13,908 Total current liabilities 27,515 28,191 Other
liabilities 8,752 369 Total liabilities 36,267 28,560 Total
stockholders’ equity 404,943 267,443 $ 441,210 $
296,003
ACACIA RESEARCH CORPORATION
SUMMARY FINANCIAL INFORMATION, (CONTINUED) (In
thousands) (Unaudited) CONSOLIDATED STATEMENTS OF
CASH FLOWS Three Months EndedSeptember 30,
Nine Months EndedSeptember 30, 2017
2016 2017 2016 Cash flows from
operating activities: Net gain (loss) including noncontrolling
interests in operating subsidiaries $ 158,369 $ 6,896 $ 131,984 $
(43,922 ) Adjustments to reconcile net gain (loss) including
noncontrolling interests in operating subsidiaries to net cash
provided by (used in) operating activities: Gain on conversion of
loans and accrued interest — — (2,671 ) — Gain on exercise of
Primary Warrant — — (4,616 ) — Change in fair value of investment,
net (158,979 ) — (146,281 ) — Depreciation and amortization 5,646
6,501 16,780 28,105 Non-cash stock compensation 9,453 2,544 13,068
5,754 Impairment of patent-related intangible assets 2,248 — 2,248
40,165 Other 125 (99 ) (473 ) (81 ) Changes in assets and
liabilities: Restricted cash — (5 ) 11,512 (3,316 ) Accounts
receivable 13,945 (49,375 ) 26,450 (20,200 ) Prepaid expenses and
other assets 600 537 (874 ) 1,191 Accounts payable and accrued
expenses (1,554 ) 11,272 (6,608 ) 5,392 Royalties and contingent
legal fees payable 10,397 7,155 5,916 10,131
Net cash provided by (used in) operating activities
40,250 (14,574 ) 46,435 23,219 Cash
flows from investing activities: Investments in Investees — —
(31,514 ) — Advances to Investee — (10,000 ) (4,000 ) (10,000 )
Purchase of available-for-sale investments (93,533 ) (12,956 )
(424,945 ) (62,633 ) Maturities and sales of available-for-sale
investments 91,113 14,890 386,920 32,352 Patent portfolio
investment costs — — — (1,000 ) Purchases of property and equipment
— — — (4 ) Net cash used in investing
activities (2,420 ) (8,066 ) (73,539 ) (41,285 ) Cash flows
from financing activities: Distributions to noncontrolling
interests in operating subsidiary — (1,358 ) — (1,358 ) Repurchased
restricted common stock — — (35 ) (25 ) Proceeds from exercises of
stock options 31 242 680 242 Net
cash provided by (used in) financing activities 31 (1,116 )
645 (1,141 ) Increase (decrease) in cash and cash
equivalents 37,861 (23,756 ) (26,459 ) (19,207 ) Cash and
cash equivalents, beginning 63,220 139,772 127,540
135,223 Cash and cash equivalents, ending $
101,081 $ 116,016 $ 101,081 $ 116,016
Business Highlights and Recent
Developments(2)
Third quarter 2017 business highlights and recent developments
include the following:
- Cellular Communications Equipment LLC
and Parthenon Unified Memory Architecture LLC entered into an
agreement with Apple Inc. to resolve patent litigation.
- Teleconference Systems LLC entered into
a settlement and patent license agreement with Genband, Inc. This
agreement resolved patent litigation, Civil Action No.
6:17-cv-00139, pending in the United States District Court for the
Eastern District of Texas.
___________________________
(1) As used herein, “Acacia Research Corporation,” “we,”
“us,” and “our” refer to Acacia Research Corporation and/or its
wholly and majority-owned operating subsidiaries. All intellectual
property acquisition, development, licensing and enforcement
activities are conducted solely by certain of Acacia Research
Corporation’s wholly and majority-owned operating subsidiaries.
(2) Cellular Communications Equipment LLC, Parthenon Unified
Memory Architecture LLC and Teleconference Systems LLC are wholly
and majority-owned operating subsidiaries of Acacia Research
Corporation. (3) Calculated based on pro forma non-GAAP net
income (loss) attributable to common stockholders - diluted, not
shown.
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Acacia Research CorporationRob StewartTel 1+ (949)
480-8311rs@acaciares.com
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