Acacia Research Corporation (Nasdaq: ACTG) (“Acacia” or the
“Company”) today reported financial results for the three months
ended March 31, 2023.
Key Business Highlights
- Executed a Rights Offering (and concurrent private Rights
Offering), raising $79.1 million in net proceeds.
- Generated $14.8 million in consolidated revenue for the quarter
compared to $13.5 million in revenue in the first quarter of
2022.
- Recorded $2.0 million of net realized and unrealized gains
during the quarter.
First Quarter 2023 Financial
Highlights
(In millions, except per share data)
Three Months Ended March
31,
2023
2022
(unaudited)
Intellectual property operations
$
4.2
$
2.6
Industrial operations
10.6
10.9
Total revenues
$
14.8
$
13.5
Operating loss
$
(9.3
)
$
(8.5
)
Unrealized gains (losses) 1
$
3.3
$
(172.2
)
Realized (losses) gains
$
(1.4
)
$
66.9
Non-cash derivative liability gain 2
$
16.7
$
28.1
GAAP Net income (loss)
$
9.4
$
(73.3
)
GAAP Diluted loss per share
$
(0.07
)
$
(1.61
)
1 Unrealized gains and (losses) are
related to the change in fair value of equity securities as of the
end of the reported period.
2 The non-cash derivative liability gain
is related to the change in fair value of Acacia’s Series A and B
warrants and embedded derivatives.
Martin D. McNulty, Jr. “MJ”, Interim Chief Executive Officer,
stated, “We continue to accelerate our M&A function, growing
our target pipeline, methodically evaluating relevant opportunities
and advancing vetted candidates. We have ample targets and several
are moving through the stages of our refined process. Timing of
transactions remains impossible to predict, with several factors
outside our control, but we will maintain discipline in our
approach. We are motivated to make the right acquisition, in terms
of fit, valuation, and opportunity, rather than a deal for
expediencies’ sake. I am encouraged with the quantity and quality
of targets and believe we have the right team and appropriate
processes in place.”
First Quarter 2023 Financial Summary:
- Total revenues were $14.8 million, compared to $13.5 million in
the same quarter last year.
- Printronix generated $10.6 million in revenue in the
quarter.
- The Intellectual Property business generated $4.2 million in
licensing and other revenue during the quarter, compared to $2.6
million in the same quarter last year.
- General and administrative expenses were $12.0 million,
compared to $11.1 million in the same quarter of last year due to
the increased parent one-time legal expenses related to the
separation from our former CEO and costs associated with the Rights
Offering.
- Operating loss of $9.3 million, compared to an operating loss
of $8.5 million in the same quarter of last year, with the increase
due to higher cost and general and administrative expenses.
- Printronix contributed $0.6 million in operating income.
- GAAP net income of $9.4 million, or a loss of $(0.07) per
diluted share, compared to GAAP net loss of $73.3 million, or
$(1.61) per diluted share, in the first quarter of last year.
Diluted earnings per share adjusts the numerator used in the basic
earnings per share computation for the fair value adjustments on
warrant and embedded derivative liabilities, resulting in a diluted
net loss attributable to common stockholders.
- Net income included $1.4 million in realized losses and $3.3
million in unrealized gains related to the increase in share price
of certain holdings.
- The Company recognized non-cash income of $16.7 million related
to the change in fair value of the Starboard Series B warrants and
embedded derivative liabilities in the Series A Preferred Stock.
The change in fair value was primarily due to the decrease in stock
price and shortened term.
- The first quarter included $3.9 million in non-recurring
charges related to severance, legal and other professional fees
associated with the recapitalization, Rights Offering, separation
from our former CEO, and other non-recurring charges.
Life Sciences Portfolio
Acacia has generated $504.3 million in proceeds from sales and
royalties of the Life Sciences Portfolio through March 31, 2023,
which was purchased for an aggregate price of $301.4 million. At
the end of the first quarter, the remaining positions in the Life
Sciences Portfolio represent $69.0 million in book value:
- Acacia continues to hold 33.0 million shares of Arix Bioscience
plc (LSE: ARIX), valued at $43.3 million.
- Acacia holds interests in three private companies, valued at an
aggregate of $25.7 million, net of non-controlling interest,
including a 26% interest in Viamet Pharmaceuticals, Inc., an 18%
interest in AMO Pharma, and a 4% interest in NovaBiotics. Values
are based on cost or equity accounting.
Balance Sheet and Capital Structure
- Cash, cash equivalents and equity investments measured at fair
value totaled $425.0 million at March 31, 2023 compared to $349.4
million at December 31, 2022. The increase in cash was primarily
due to the completed Rights Offering.
- Equity securities without readily determinable fair value
totaled $5.8 million at March 31, 2023, which amount was unchanged
from December 31, 2022.
- Investment securities representing equity method investments
totaled $19.9 million at March 31, 2023 (net of noncontrolling
interests), which amount was unchanged from December 31, 2022.
Acacia owns 64% of MalinJ1, which results in a 26% ownership stake
in Viamet Pharmaceuticals, Inc. for Acacia.
- Total indebtedness, which represents the Senior Secured Notes
issued to Starboard, was $61.4 million at March 31, 2023.
- The Company’s book value totaled $355.7 million, or $6.07 per
share, at March 31, 2023, compared to $269.3 million, or $6.19 per
share, at December 31, 2022. Acacia’s book value reflects the
impact of the outstanding warrant and embedded derivative
liabilities. An as adjusted book value analysis can be found
below.
- Assuming the full impact of the recapitalization transactions
under the recently announced agreement with Starboard, Acacia’s
adjusted book value would rise to $508.7 million, or $5.10 per
share, as adjusted to give effect to the transactions as if they
had been completed as of March 31, 2023.
As Adjusted Book Value and Changes to Derivative
Valuations
At March 31, 2023, book value was $355.7 million and there were
58.6 million shares of common stock outstanding, for a book value
per share of $6.07, compared to $269.3 million, or $6.19 per share
at December 31, 2022. The decrease in book value per share since
December 31, 2022 is due to the $5.25 per share price of shares
issued in the Rights Offering and concurrent private Rights
Offering. Total liabilities for warrants and convertible preferred
stock to be eliminated upon exercise or expiration of all such
warrants and convertible preferred stock were $85.0 million at
March 31, 2023.
Book value and book value per share calculations are performed
in accordance with GAAP. The calculation of book value under GAAP
requires the Company to reflect the impact of liabilities
associated with potential issuances of shares related to the
exercise of the Company’s Series B warrants and conversion of the
Company’s Series A preferred stock. The value of those liabilities
varies over time based on fluctuations in the trading price of the
Common Stock. The previously announced agreement reached with
Starboard to streamline the Company’s capital structure and
strengthen its financial position (the “recapitalization
transactions”) is expected to significantly reduce or eliminate all
of these instruments over time, and should therefore eliminate the
associated liabilities.
Management believes that providing investors with a presentation
of adjusted book value and adjusted book value per share that
reflect the anticipated impact of the completion of each component
of the recapitalization transactions (as adjusted to give effect to
the transaction as if they had been completed as of March 31, 2023)
may assist investors in understanding the Company’s financial
condition and capital structure (see below for a description of the
material components of the recapitalization transactions). However,
these adjusted calculations have limitations and should not be
considered in isolation or as a substitute for the actual book
value and book value per share amounts reflected in the Company’s
balance sheet at March 31, 2023. These as adjusted calculations
have been presented for informational purposes only and do not
purport to project the future financial position of the Company.
For example, there is considerable uncertainty regarding whether
stockholders will approve at the Company’s 2023 annual meeting of
stockholders an amendment to the certificate of designations for
the Series A preferred stock to allow for Starboard’s contemplated
conversion. If stockholders do not approve the amendment, the
Series A preferred stock would remain unconverted resulting in a
material change to the Company’s as adjusted book value and book
value per share calculations described below.
Book value at March 31, 2023 reflects the following:
- $60.0 million in principal amount of Senior Secured Notes
issued to Starboard, all of which may be used to exercise Series B
warrants at $3.65 per share;
- $35.0 million in face value ($21.5 million in book value) of
Series A preferred stock issued to Starboard; and
- $85.0 million of warrants and embedded derivative liabilities
associated with all preferred stock and warrants held by Starboard,
to be eliminated upon exercise, conversion, or expiration of all
such warrants and preferred stock.
In connection with the previously announced recapitalization
transactions with Starboard:
- In the first quarter of 2023, Starboard purchased 15.0 million
new shares in a private Rights Offering, at $5.25 per share, for
total proceeds of $78.8 million;
- Assuming approval by stockholders at Acacia’s Annual Meeting of
Stockholders of the removal of the “4.89% blocker” provision
contained in Acacia’s certificate of designation for the Series A
preferred stock, $35.0 million in face value of Series A preferred
stock will be eliminated, and 9.6 million shares of common stock
will be issued in Q2 2023;
- $61.4 million of liabilities attributable to the Senior Secured
Notes will be converted into equity, and Starboard will invest an
additional $55.0 million in cash related to the Series B warrant
exercise, and 31.5 million shares of common stock will be issued in
Q3 2023;
- $85.0 million of total warrant and embedded derivative
liabilities attributable to the Series B warrants and Series A
preferred stock will be eliminated in Q2 and Q3 2023;
- Acacia will pay Starboard a total of $66.0 million as
consideration for early exercise of the Series B warrants, and
convertible preferred stock, in Q3 2023; and
- Acacia will incur transaction costs associated with the
negotiation and consummation of the recapitalization
transactions.
The expected impact of the completion of the recapitalization
transactions would be an incremental $153.0 million increase in
book value, and an incremental 41.1 million increase in shares
outstanding. Assuming such completion, adjusted book value as
adjusted to give effect to the transaction as if it had been
completed on March 31, 2023 would be $508.7 million, and diluted
shares outstanding would be 99.6 million, resulting in adjusted
book value per share of $5.10 at March 31, 2023.
See Attachment A which illustrates the anticipated sequential
impact of each component of the recapitalization transactions on
book value and book value per share as adjusted to give effect to
the transactions as if they had been completed on March 31, 2023
through the expected date of completion of such transactions
through Q3 2023.
In previous quarterly reports, prior to the approval of the
recapitalization transactions, Acacia had presented a similar
adjusted book value per share calculation assuming the exercise of
all outstanding Series A and Series B warrants, as well as the
conversion of the Series A preferred stock. This resulted in a
reported adjusted book value per share of $5.18 at December 31,
2022, $5.22 at September 30, 2022, $5.87 at June 30, 2022, $5.91 at
March 31, 2022 and $6.51 at December 31, 2021. The $5.25 per share
cash exercise feature of 68.5 million Series B warrants expired on
October 28, 2022 and 5.0 million $3.65 per share Series A warrants
were exercised on November 1, 2022.
Investor Conference Call
The Company will host a conference call today, May 11, 2023 at
4:30 p.m. Eastern Time (1:30 p.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 475927. 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 an opportunistic capital platform with a strategy to
purchase businesses based on the differentials between public and
private market valuations. Acacia leverages its (i) 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, (ii) willingness to
invest across industries and in off-the-run, often misunderstood
assets that suffer from a complexity or multi-factor discount,
(iii) relationships and partnership abilities across functions and
sectors, and (iv) 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. Acacia operates its businesses based on three
key principles of people, process and performance and has built a
management team with demonstrated expertise in research,
transactions and execution, and operations and management.
Additional information about Acacia and its subsidiaries is
available at www.acaciaresearch.com.
Additional Information and Where to Find It
This communication may be deemed solicitation material in
respect of a proposal related to an amendment to the certificate of
designations for our Series A preferred stock to allow for its
conversion as part of the recapitalization transactions between the
Company and Starboard. This communication does not constitute a
solicitation of any vote or approval. In connection with the
proposal, the Company has filed with the Securities and Exchange
Commission (the “SEC”) and mailed or otherwise provided to its
stockholders a proxy statement regarding the proposal. This
document is not a substitute for the proxy statement or any other
proxy materials that have been or may be filed by the Company with
the SEC. BEFORE MAKING ANY VOTING DECISION, THE COMPANY’S
STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT AND OTHER PROXY
MATERIALS IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT
INFORMATION. Stockholders may obtain a free copy of the proxy
statement and other proxy materials through the website maintained
by the SEC at www.sec.gov or on the Company’s investor relations
website at
https://www.acaciaresearch.com/#InvestorRelations.
No Offer or Solicitation
This communication is not intended to and shall not constitute
an offer to sell or the solicitation of an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
No offer of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended.
Participants in the Solicitation
The Company and its directors, executive officers and certain
employees and other persons may be deemed to be participants in the
solicitation of proxies from the Company’s stockholders in
connection with the proposal related to the recapitalization
transactions. Security holders may obtain information regarding the
names, affiliations and interests of the Company’s directors and
executive officers in the Company’s proxy statement relating to the
Company’s 2023 annual meeting of stockholders filed with the SEC on
April 17, 2023 (the “Proxy Statement”). To the extent the holdings
of the Company’s securities by the Company’s directors and
executive officers have changed since the amounts set forth in the
Annual Report, such changes have been or will be reflected on
Statements of Change in Ownership on Form 4 filed with the SEC.
These documents may be obtained free of charge from the SEC’s
website at www.sec.gov and the investor relations page of the
Company’s website at
https://www.acaciaresearch.com/#InvestorRelations.
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. This news release attempts to identify forward-looking
statements by using words such as “anticipate,” “believe,” “could,”
“expect,” “intend,” “may,” “plan,” “potential,” “predict,”
“project,” “seek,” “should,” “will,” or other forms of these words
or similar words or expressions or the negative thereof, although
not all forward-looking statements contain these terms. 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 to
complete the recapitalization transactions and changes to our
relationship and arrangements 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, the decrease in demand for Printronix' products,
general economic conditions, and the success of the Company’s
investments. The Company’s Annual Report on Form 10-K, and other
SEC filings discuss these and other 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)
March 31, 2023
December 31, 2022
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
364,227
$
287,786
Equity securities
60,724
61,608
Equity securities without readily
determinable fair value
5,816
5,816
Equity method investments
30,934
30,934
Accounts receivable, net
8,666
8,231
Inventories
14,725
14,222
Prepaid expenses and other current
assets
20,099
19,388
Total current assets
505,191
427,985
Property, plant and equipment, net
3,275
3,537
Goodwill
7,541
7,541
Other intangible assets, net
33,624
36,658
Leased right-of-use assets
1,614
2,005
Other non-current assets
5,359
5,202
Total assets
$
556,604
$
482,928
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
8,413
$
6,036
Accrued expenses and other current
liabilities
12,694
14,058
Accrued compensation
5,490
4,737
Royalties and contingent legal fees
payable
1,060
699
Deferred revenue
1,206
1,229
Senior secured notes payable
61,350
60,450
Total current liabilities
90,213
87,209
Deferred revenue, net of current
portion
520
568
Series A embedded derivative
liabilities
11,812
16,835
Series B warrant liabilities
73,152
84,780
Long-term lease liabilities
1,566
1,873
Deferred income tax liabilities, net
502
742
Other long-term liabilities
1,674
1,675
Total liabilities
179,439
193,682
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 March 31,
2023 and December 31, 2022; aggregate liquidation preference of
$35,000 as of March 31, 2023 and December 31, 2022
21,478
19,924
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; 58,551,798 and 43,484,867 shares
issued and outstanding as of March 31, 2023 and December 31, 2022,
respectively
58
43
Treasury stock, at cost, 16,183,703 shares
as of March 31, 2023 and December 31, 2022
(98,258
)
(98,258
)
Additional paid-in capital
740,187
663,284
Accumulated deficit
(297,342
)
(306,789
)
Total Acacia Research Corporation
stockholders' equity
344,645
258,280
Noncontrolling interests
11,042
11,042
Total stockholders' equity
355,687
269,322
Total liabilities, redeemable convertible
preferred stock, and stockholders' equity
$
556,604
$
482,928
ACACIA RESEARCH
CORPORATION
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share
and per share data)
Three Months Ended March
31,
2023
2022
Revenues:
Intellectual property operations
$
4,176
$
2,615
Industrial operations
10,627
10,892
Total revenues
14,803
13,507
Costs and expenses:
Cost of revenues - intellectual property
operations
4,738
4,564
Cost of sales - industrial operations
5,220
4,192
Engineering and development expenses -
industrial operations
216
190
Sales and marketing expenses - industrial
operations
1,913
2,016
General and administrative expenses
12,040
11,053
Total costs and expenses
24,127
22,015
Operating loss
(9,324
)
(8,508
)
Other income (expense):
Equity securities investments:
Change in fair value of equity
securities
3,343
(172,203
)
(Loss) gain on sale of equity
securities
(1,361
)
66,876
Net realized and unrealized gain
(loss)
1,982
(105,327
)
Change in fair value of the Series A and B
warrants and embedded derivatives
16,651
28,098
Gain (loss) on foreign currency
exchange
80
(813
)
Interest expense on Senior Secured
Notes
(900
)
(2,601
)
Interest income and other, net
3,441
1,007
Total other income (expense)
21,254
(79,636
)
Income (loss) before income taxes
11,930
(88,144
)
Income tax (expense) benefit
(2,483
)
14,878
Net income (loss) including noncontrolling
interests in subsidiaries
9,447
(73,266
)
Net income attributable to noncontrolling
interests in subsidiaries
—
—
Net income (loss) attributable to Acacia
Research Corporation
$
9,447
$
(73,266
)
Income (loss) per share:
Net income (loss) attributable to common
stockholders - Basic
$
5,958
$
(75,117
)
Weighted average number of shares
outstanding - Basic
47,971,931
46,544,313
Basic net income (loss) per common
share
$
0.12
$
(1.61
)
Net loss attributable to common
stockholders - Diluted
$
(6,496
)
$
(75,117
)
Weighted average number of shares
outstanding - Diluted
89,067,821
46,544,313
Diluted net loss per common share
$
(0.07
)
$
(1.61
)
Attachment A
The following table illustrates the anticipated sequential
impact of each component of the recapitalization transactions on
book value as of March 31, 2023 on an as adjusted basis to give
effect to each such component of the recapitalization as if it had
been completed as of March 31, 2023:
As Adjusted Book Value at
3/31/2023
Series A Preferred Conversion
Series B Warrant Transactions
$ Millions
Basic
Series A Preferred
Converted
Remove Liability
3/31/2023 As Adjusted
Senior Secured Notes
Converted
Series B Warrants
Exercised
Series B Payment*
Transaction Fees
Remove Liability
3/31/2023 As Adjusted
Cash and cash equivalents
364.2
364.2
(1.4
)
55.0
(66.0
)
(2.4
)
349.4
Equity securities at fair value
60.7
60.7
60.7
Equity securities without readily
determinable fair value
5.8
5.8
5.8
Investment securities - equity method
investments
30.9
30.9
30.9
Other assets
95.0
95.0
95.0
Total assets
556.6
—
—
556.6
(1.4
)
55.0
(66.0
)
(2.4
)
—
541.9
Notes payable
(61.4
)
(61.4
)
61.4
—
Warrant and derivative liabilities
(85.0
)
11.8
(73.2
)
73.2
—
Other liabilities
(33.0
)
(33.0
)
(33.0
)
Total liabilities
(179.4
)
—
11.8
(167.6
)
61.4
—
—
—
73.2
(33.0
)
Preferred stock
(21.5
)
21.5
—
$
—
Total liabilities and preferred stock
(200.9
)
21.5
11.8
(167.6
)
$
61.4
$
—
$
—
$
—
$
73.2
$
(33.0
)
Book value - stockholders equity
355.7
21.5
11.8
389.0
60.0
55.0
(66.0
)
(2.4
)
73.2
508.7
Shares outstanding - basic
58.6
9.6
—
68.1
16.4
15.1
—
—
—
99.6
Book value per share
5.10
KPIs:
Cash and cash equivalents
364.2
364.2
349.4
Cash and equity securities at fair
value
425.0
425.0
410.1
Cash and equity securities at fair
value / share
4.12
*Note: This amount reflects of the $66.0
million payment the Company intends to make to Starboard in
consideration for the early exercise of the Series B warrants, and
convertible preferred stock.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230511005885/en/
Investor Contact: FNK IR Rob Fink, 646-809-4048
rob@fnkir.com
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