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
Second Quarter 2022 Financial Highlights |
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(In millions, except per share data) |
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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:
Balance Sheet and Capital Structure
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
|
|
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:
Assuming Starboard Value LP converted all preferred stock and exercised all warrants:
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 |
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CONDENSED CONSOLIDATED BALANCE SHEETS |
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(In thousands, except share and per share data) |
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|
|
|
|
|
||||
|
|
June 30, 2022 |
|
December 31, 2021 |
||||
|
|
(Unaudited) |
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|
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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 |
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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(In thousands, except share and per share data) |
||||||||||||||||
|
|
|
|
|
||||||||||||
|
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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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