ACTG Acacia Research Technologies

Intellectual Property Licensing and Settlement Agreements Drive Q4 Income; Company Continues to Advance Capital Allocation and Business Strategy, Announced Agreement to Acquire Cash Flow-Generating Oil and Gas Assets with a Goal of Driving Book Value per Share

Acacia Research Corporation (Nasdaq: ACTG) (“Acacia” or the “Company”) today reported financial results for the three months and full year ended December 31, 2023.

Martin (“MJ”) D. McNulty, Jr., Chief Executive Officer, stated, “Through the last quarter of 2023 and into the beginning of 2024 we continued to meaningfully advance our business strategy in an effort to drive earnings and book value per share growth in disciplined and unique ways. For example, in the fourth quarter our Intellectual Property team generated $82 million in gross revenue from its WiFi-6 licensing initiatives. We were able to commit a portion of this income as well as proceeds from the sale of a life science asset into a highly attractive near-team addition to our oil and gas business, which we expect to close in Q2. We expect to execute on additional acquisitions, including in the oil and gas space, and anticipate further IP-related income setting the stage for meaningful future cash flows while preserving our capital base. Our scale, including more than $430 million in cash as of today, gives us significant advantages as we seek to acquire future cash flows to continue to drive value for shareholders.”

Mr. McNulty continued, “I am pleased with the progress we have made. In particular, our book value increased from $5.04 per share at September 30, 2023 to $5.90 at December 31, 2023. Additional opportunities are moving forward, including both public and private targets, demonstrating the significant optionality built into our model, and enabling us to exploit inefficiencies and unlock value from a diverse variety of assets. I believe we enter 2024 with accelerating momentum in our existing stable of businesses and our M&A activity.”

Key Business Highlights

• Generated $92.3 million in consolidated revenue for the quarter compared to $13.1 million in revenue in the fourth quarter of 2022, including $82.8 million in license fee revenue from the Company’s intellectual property operations.
• Entered into an agreement to sell our shares of Arix Bioscience Plc for a cash purchase price of $57.1 million (which represents a purchase price of 1.43 British pounds (or GBP) per share, based on the exchange rate on the date that the parties agreed to the purchase price). The share sale closed on January 19, 2024.
• Recorded $11.9 million of net realized and unrealized gains during the quarter, inclusive of unrealized gains as of December 31, 2023 related to the Arix shares.
• Acquired a majority stake in Benchmark Energy II LLC, an independent oil and gas company engaged in the acquisition, production and development of oil and gas assets in mature resource plays in Texas and Oklahoma. On February 16, 2024, Benchmark entered into a Purchase and Sale Agreement to acquire certain upstream assets and related facilities in Texas and Oklahoma from a private seller (the “Transaction”), which will expand the Benchmark portfolio by adding approximately 140,000 net acres and approximately 470 operated producing wells in the prolific Western Anadarko Basin throughout the Texas Panhandle and Western Oklahoma.

Fourth Quarter and Full Year 2023 Financial Highlights

(In millions, except per share data)

 

 

Three Months Ended December 31,

 

Years Ended December 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

(unaudited)

 

(unaudited)

Intellectual property operations

$

82.8

 

 

$

2.5

 

 

$

89.2

 

 

$

19.5

 

Industrial operations

 

8.6

 

 

 

10.6

 

 

 

35.1

 

 

 

39.7

 

Energy operations

 

0.8

 

 

 

—

 

 

 

0.8

 

 

 

—

 

Total revenues

$

92.3

 

 

$

13.1

 

 

$

125.1

 

 

$

59.2

 

Operating income (loss)

$

55.9

 

 

$

(14.5

)

 

$

20.9

 

 

$

(40.1

)

Unrealized gains (losses)1

$

12.6

 

 

$

2.5

 

 

$

31.4

 

 

$

(263.7

)

Realized (losses) gains

$

(1.6

)

 

$

10.9

 

 

$

(10.9

)

 

$

125.3

 

Non-cash derivative liability gains (losses)2

$

—

 

 

$

(21.5

)

 

$

8.2

 

 

$

13.1

 

GAAP Net income (loss)

$

74.8

 

 

$

(18.4

)

 

$

67.1

 

 

$

(125.1

)

GAAP Diluted net income (loss) per share

$

0.75

 

 

$

(0.50

)

 

$

0.58

 

 

$

(3.13

)

 

 

 

 

 

 

 

 

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 gains and (losses) are related to the change in fair value of Acacia’s Series A and B warrants and embedded derivatives and gains and (losses) from the exercise of warrants.

Fourth Quarter 2023 Financial Summary:

• Total revenues were $92.3 million, compared to $13.1 million in the same quarter last year.
  • The Intellectual Property business generated $82.8 million in licensing and other revenue during the quarter, compared to $2.5 million in the same quarter last year.
  • Printronix generated $8.6 million in revenue during the quarter, compared to $10.6 million in the same quarter last year.
  • Benchmark generated $0.8 million in revenue in the quarter subsequent to the completion of the acquisition of Benchmark that closed on November 13, 2023.
• General and administrative expenses were $10.6 million, compared to $15.9 million in the same quarter of last year, with the decrease due to the decrease in expenses related to the agreement with Starboard Value LP to streamline the Company’s capital structure and strengthen its financial position (the “recapitalization transactions”) and a decrease in severance expense.
• Operating income of $55.9 million, compared to operating loss of $14.5 million in the same quarter of last year, with the increase due to higher revenues generated.
  • Printronix contributed $0.5 million in operating income which included $0.7 million of non-cash depreciation and amortization expense.
  • Benchmark contributed $0.1 million in operating loss which included $0.3 million of non-cash charges.
• GAAP net income of $74.8 million, or $0.75 per diluted share, compared to GAAP net loss of $18.4 million, or $0.50 per diluted share, in the fourth quarter of last year.
  • Net income included $12.6 million in unrealized gains related to the increase in share price of certain holdings and the gain for the forward sale agreement with for the shares of Arix.
  • The fourth quarter included $2.5 million in non-recurring charges.

Full-Year 2023 Financial Summary:

• Total revenues were $125.1 million, compared to $59.2 million last year.
  • The Intellectual Property business generated $89.2 million in licensing and other revenue, compared to $19.5 million last year.
  • Printronix generated $35.1 million in revenue, compared to $39.7 million last year.
  • Benchmark generated $0.8 million in revenue for the year (subsequent to the completion of the acquisition on November 13, 2023).
• General and administrative expenses were $43.7 million, compared to $52.7 million last year due to the decrease in expenses related to the recapitalization transactions and a decrease in severance expense.
• Operating income was $20.9 million, compared to an operating loss of $40.1 million last year.
  • Printronix contributed $0.7 million in operating income.
  • Benchmark contributed $0.1 million in operating loss which included $0.3 million of non-cash charges.
• GAAP net income was $67.1 million, or $0.58 per diluted share, compared to GAAP net loss of $125.1 million, or $3.13 per diluted share, last year.
  • Net income included $10.9 million in realized loss, offset by $31.4 million in unrealized gain, related to the increase in share price of certain holdings and the gain for the forward sale agreement for the shares of Arix.
  • The Company recognized non-cash income of $8.2 million related to the change in fair value of the Series A and B warrants and embedded derivatives.

Life Sciences Portfolio

Acacia has generated $507.1 million in proceeds from sales and royalties of the Life Sciences Portfolio, which was purchased for an aggregate price of $301.4 million in 2020. At the end of the fourth quarter, the remaining positions in the Life Sciences Portfolio represented $82.8 million in book value, inclusive of the Company’s holdings in Arix Bioscience Plc:

• On November 1, 2023, Acacia through its wholly owned subsidiary entered, into an agreement with RTW Biotech Opportunities Ltd. to sell its Arix shares to RTW Bio for a purchase price of $57.1 million in aggregate (representing £1.43 per share at an exchange rate of 1.2087 USD/GBP).
• On January 19, 2024, the Company completed its sale of Arix shares. Following the completion of the share sale, the Company and its subsidiaries no longer own any shares of Arix.
• Acacia holds interests in three private companies, valued at an aggregate of $25.7 million, net of non-controlling interest, including an approximately 26% interest in Viamet Pharmaceuticals, Inc., an approximately 18% interest in AMO Pharma, Ltd., and an approximately 4% interest in NovaBiotics Ltd. Values are based on cost or equity accounting.

Balance Sheet and Capital Structure

• Cash, cash equivalents and equity investments measured at fair value totaled $403.2 million at December 31, 2023 compared to $349.4 million at December 31, 2022. The increase in cash was primarily due to the completed Rights Offering and concurrent Private Rights Offering and the proceeds from the exercise of the Series B warrants.
• Equity securities without readily determinable fair value totaled $5.8 million at December 31, 2023, which amount was unchanged from December 31, 2022.
• Investment securities representing equity method investments totaled $19.9 million at December 31, 2023 (net of noncontrolling interests), which amount was unchanged from December 31, 2022. Acacia owns 64% of MalinJ1, which results in a 26% indirect ownership stake in Viamet Pharmaceuticals, Inc. for Acacia.
• The parent company’s total indebtedness was zero at December 31, 2023 following the conversion of the Senior Secured Notes issued to Starboard in July 2023. On a consolidated basis, Acacia’s total indebtedness was $10.5 million at December 31, 2023, which includes $10.5 million in non-recourse debt at Benchmark.

Book Value as of December 31, 2023

At December 31, 2023, book value was $589.6 million and there were 99.9 million shares of common stock outstanding, for a book value per share of $5.90. Acacia’s book value reflects the exercise of the Series B warrants and conversion of the Series A Redeemable Convertible Preferred Stock, which occurred on July 13, 2023 as part of the recapitalization transactions.

Investor Conference Call

The Company will host a conference call today, March 14, 2024 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 248690. 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 publicly traded (Nasdaq: ACTG) company that is focused on acquiring and operating attractive businesses across the industrial, healthcare, energy, and mature technology sectors where it believes it can leverage its expertise, significant capital base, and deep industry relationships to drive value. Acacia evaluates opportunities based on the attractiveness of the underlying cash flows, without regard to a specific investment horizon. 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.

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 or implied in any forward-looking statements as a result of various factors and uncertainties, including the Company’s ability to successfully implement its strategic plan, changes to the Company’s relationship and arrangements with Starboard Value LP, the Company’s ability to successfully identify and complete strategic acquisitions of businesses, divisions, and/or assets, the performance of businesses, divisions, and/or assets the Company acquires, 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, Benchmark’s ability to execute on its business strategy, risks relating to price and other fluctuations in the oil and gas market, environmental liability risk, regulatory changes related to the oil and gas industry, other risks inherent in the ownership and operation of oil and gas assets, Benchmark’s ability to close the Transaction, 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 materially affect the Company’s business, results of operations and financial condition. In addition, actual results may differ materially as a result of additional risks and uncertainties of which the Company is currently unaware or which the Company does not currently view as material. Except as otherwise required by applicable law, the Company undertakes 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

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

December 31, 2023

 

December 31, 2022

 

 

 

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

340,091

 

 

$

287,786

 

Equity securities

 

63,068

 

 

 

61,608

 

Equity securities without readily determinable fair value

 

5,816

 

 

 

5,816

 

Equity method investments

 

30,934

 

 

 

30,934

 

Accounts receivable, net

 

80,555

 

 

 

8,231

 

Inventories

 

10,921

 

 

 

14,222

 

Prepaid expenses and other current assets

 

23,127

 

 

 

19,388

 

Total current assets

 

554,512

 

 

 

427,985

 

 

 

 

 

Property, plant and equipment, net

 

2,356

 

 

 

3,537

 

Oil and natural gas properties, net

 

25,117

 

 

 

—

 

Goodwill

 

8,990

 

 

 

7,541

 

Other intangible assets, net

 

33,556

 

 

 

36,658

 

Operating lease, right-of-use assets

 

1,872

 

 

 

2,005

 

Deferred income tax assets, net

 

2,915

 

 

 

—

 

Other non-current assets

 

4,227

 

 

 

5,202

 

Total assets

$

633,545

 

 

$

482,928

 

 

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

3,261

 

 

$

6,036

 

Accrued expenses and other current liabilities

 

8,405

 

 

 

14,058

 

Accrued compensation

 

4,207

 

 

 

4,737

 

Royalties and contingent legal fees payable

 

10,786

 

 

 

699

 

Deferred revenue

 

977

 

 

 

1,229

 

Senior secured notes payable

 

—

 

 

 

60,450

 

Total current liabilities

 

27,636

 

 

 

87,209

 

 

 

 

 

Deferred revenue, net of current portion

 

458

 

 

 

568

 

Series A embedded derivative liabilities

 

—

 

 

 

16,835

 

Series B warrant liabilities

 

—

 

 

 

84,780

 

Long-term lease liabilities

 

1,736

 

 

 

1,873

 

Deferred income tax liabilities, net

 

—

 

 

 

742

 

Revolving credit facility

 

10,525

 

 

 

—

 

Other long-term liabilities

 

3,581

 

 

 

1,675

 

Total liabilities

 

43,936

 

 

 

193,682

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Series A redeemable convertible preferred stock, par value $0.001 per share; stated value $100 per share; zero and 350,000 shares authorized, issued and outstanding as of December 31, 2023 and 2022, respectively; aggregate liquidation preference of zero and $35,000 as of December 31, 2023 and 2022, respectively

 

—

 

 

 

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; 99,895,473 and 43,484,867 shares issued and outstanding as of December 31, 2023 and 2022, respectively

 

100

 

 

 

43

 

Treasury stock, at cost, 16,183,703 shares as of December 31, 2023 and 2022

 

(98,258

)

 

 

(98,258

)

Additional paid-in capital

 

906,153

 

 

 

663,284

 

Accumulated deficit

 

(239,729

)

 

 

(306,789

)

Total Acacia Research Corporation stockholders' equity

 

568,266

 

 

 

258,280

 

 

 

 

 

Noncontrolling interests

 

21,343

 

 

 

11,042

 

 

 

 

 

Total stockholders' equity

 

589,609

 

 

 

269,322

 

 

 

 

 

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

$

633,545

 

 

$

482,928

 

ACACIA RESEARCH CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

 

 

Three Months Ended December 31,

 

Years Ended December 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

(unaudited)

 

(unaudited)

 

 

 

 

Revenues:

 

 

 

 

 

 

 

Intellectual property operations

$

82,826

 

 

$

2,511

 

 

$

89,156

 

 

$

19,508

 

Industrial operations

 

8,637

 

 

 

10,610

 

 

 

35,098

 

 

 

39,715

 

Energy operations

 

848

 

 

 

—

 

 

 

848

 

 

 

—

 

Total revenues

 

92,311

 

 

 

13,121

 

 

 

125,102

 

 

 

59,223

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of revenues - intellectual property operations

 

18,946

 

 

 

3,549

 

 

 

34,164

 

 

 

18,029

 

Cost of revenues - industrial operations

 

4,479

 

 

 

5,927

 

 

 

18,009

 

 

 

19,359

 

Cost of production - energy operations

 

656

 

 

 

—

 

 

 

656

 

 

 

—

 

Engineering and development expenses - industrial operations

 

142

 

 

 

135

 

 

 

735

 

 

 

626

 

Sales and marketing expenses - industrial operations

 

1,523

 

 

 

2,192

 

 

 

6,908

 

 

 

8,621

 

General and administrative expenses

 

10,623

 

 

 

15,867

 

 

 

43,694

 

 

 

52,680

 

Total costs and expenses

 

36,369

 

 

 

27,670

 

 

 

104,166

 

 

 

99,315

 

Operating income (loss)

 

55,942

 

 

 

(14,549

)

 

 

20,936

 

 

 

(40,092

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Equity securities investments:

 

 

 

 

 

 

 

Change in fair value of equity securities

 

12,640

 

 

 

2,507

 

 

 

31,423

 

 

 

(263,695

)

(Loss) gain on sale of equity securities

 

(1,570

)

 

 

10,884

 

 

 

(10,930

)

 

 

125,318

 

Earnings on equity investment in joint venture

 

792

 

 

 

(404

)

 

 

4,167

 

 

 

42,531

 

Net realized and unrealized gain (loss)

 

11,862

 

 

 

12,987

 

 

 

24,660

 

 

 

(95,846

)

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

 

—

 

 

 

(21,488

)

 

 

8,241

 

 

 

13,102

 

Gain (loss) on foreign currency exchange

 

28

 

 

 

1,208

 

 

 

53

 

 

 

(3,324

)

Interest expense on Senior Secured Notes

 

—

 

 

 

(900

)

 

 

(1,930

)

 

 

(6,432

)

Interest income and other, net

 

5,523

 

 

 

2,351

 

 

 

15,466

 

 

 

5,442

 

Total other income (expense)

 

17,413

 

 

 

(5,842

)

 

 

46,490

 

 

 

(87,058

)

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

73,355

 

 

 

(20,391

)

 

 

67,426

 

 

 

(127,150

)

 

 

 

 

 

 

 

 

Income tax benefit

 

2,145

 

 

 

1,812

 

 

 

1,504

 

 

 

16,211

 

 

 

 

 

 

 

 

 

Net income (loss) including noncontrolling interests in subsidiaries

 

75,500

 

 

 

(18,579

)

 

 

68,930

 

 

 

(110,939

)

 

 

 

 

 

 

 

 

Net (income) loss attributable to noncontrolling interests in subsidiaries

 

(744

)

 

 

193

 

 

 

(1,870

)

 

 

(14,126

)

 

 

 

 

 

 

 

 

Net income (loss) attributable to Acacia Research Corporation

$

74,756

 

 

$

(18,386

)

 

$

67,060

 

 

$

(125,065

)

 

 

 

 

 

 

 

 

Income (loss) per share:

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders - Basic

$

74,611

 

 

$

(20,528

)

 

$

55,140

 

 

$

(133,035

)

Weighted average number of shares outstanding - Basic

 

99,697,447

 

 

 

41,361,988

 

 

 

75,296,025

 

 

 

42,460,504

 

Basic net income (loss) per common share

$

0.75

 

 

$

(0.50

)

 

$

0.73

 

 

$

(3.13

)

Net income (loss) attributable to common stockholders - Diluted

$

74,611

 

 

$

(20,528

)

 

$

53,208

 

 

$

(133,035

)

Weighted average number of shares outstanding - Diluted

 

99,932,858

 

 

 

41,361,988

 

 

 

92,411,818

 

 

 

42,460,504

 

Diluted net income (loss) per common share

$

0.75

 

 

$

(0.50

)

 

$

0.58

 

 

$

(3.13

)

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240314485401/en/

Investor Contact: FNK IR Rob Fink, 646-809-4048 rob@fnkir.com