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Acacia Research Reports Third Quarter Financial Results

NEWPORT BEACH, Calif.--(BUSINESS WIRE)--

Renewed Focus on Patent Business Yields Encouraging Results

Acacia Research Corporation(1) (“Acacia” or “the Company”) (ACTG) today reported results for the three months ended September 30, 2018.

Statements from Alfred V. Tobia Jr. and Clifford Press

“We took immediate steps to safeguard and enhance Acacia’s corporate assets,” commented Director Alfred V. Tobia Jr. “Cash has been consolidated, verified, and secured in a short-term liquidity program at Morgan Stanley. We addressed critical pending issues in the patent portfolio, resulting in $13.7 million in third quarter revenue, with another $25 million in revenue realized in the fourth quarter already. The appointment of Marc Booth as Chief IP Officer was the first step in rebuilding what we believe is a very viable business.”

Clifford Press, Director, added, “Simultaneously, we carefully evaluated Acacia’s legacy liabilities and its investment risk and established a reserve of approximately $3 million, net of litigation releases, in the third quarter. Consistent with our previous statements, we reduced the holdings in Veritone at our earliest opportunity, selling one million shares at $10.44 per share and registering the remaining 3.1 million shares held by Acacia. During the quarter, we appointed independent directors to the Boards of Veritone and Miso Robotics who we believe are highly qualified and will judiciously manage these investments going forward.”

Business Update

Mr. Tobia added, “We have completed an analysis of the performance of Acacia’s underlying patent business since the regulatory and other changes in the post-2012 period. Excluding the two ‘marquee’ transactions that were not consistent with the ongoing strategy, Acacia’s portfolio of 20 investments produced very substantial returns. We expect to be able to demonstrate this investment record to shareholders in a subsequent presentation. We are evaluating capital allocation opportunities to our patent business. It operates in a severely dislocated market – one which is capable of providing significant uncorrelated returns to tactical investors. With a reduced cost structure and rebuilt IP team, we are well positioned to capitalize on this upside optionality.”

Governance Update

“As a result of the work done during the quarter, we believe Acacia is now a clean, attractive asset with a strong legacy business,” added Mr. Press. “We are now in a position to attract a Board comprised of highly talented and capable directors who are well qualified in the requisite fields. We retained Korn Ferry in August and they are well along in the search and we look forward to announcing significant additions to the Board. We plan to continue to engage with holders during this search process.”

“We are extremely grateful to the current team at Acacia, led by our Chief IP Officer Marc Booth, for rising to the occasion and operating the business without disruption. Marc had a prior 12-year career at Acacia, and he has hit the ground running and is working with us to assemble a dynamic and highly qualified new team. Acacia’s long-standing corporate counsel at Stradling has been exceptional, providing comprehensive legal support and guidance. The team at Morgan Stanley quickly helped us establish appropriate cash management facilities and facilitate trades. We owe a special debt of gratitude to Allen Bradley, who has provided steady advice on governance and corporate operations.”

Third Quarter Financial Summary:

  • Cash and short-term investments totaled $143.4 million as of September 30, 2018, as compared to $136.6 million as of December 31, 2017.
  • GAAP and non-GAAP results for the third quarter of 2018 included an unrealized loss on our equity investment in Veritone, Inc. (“Veritone”) (VERI) totaling $22.4 million, as compared to a net unrealized gain of $159.0 million in the comparable prior year quarter. During the third quarter of 2018, Acacia sold one million shares of Veritone for $10.4 million, and realized a loss of $5.5 million from the sale.
  • Total general and administrative expenses, excluding non-cash stock compensation charges totaled $6.1 million in the third quarter of 2018, compared to $5.9 million in the prior quarter. Total general and administrative expenses in the third quarter of 2018 included $3.2 million in non-recurring and non-operational charges, including proxy-related expenses of $1.0 million and $2.2 million in costs related to severance for former officers. Adjusted for these non-recurring and non-operational charges, total general and administrative expenses totaled $2.9 million
  • Total proxy-related costs for the nine months ended September 30, 2018 were $4.2 million.

Conference Call:

A conference call is scheduled for today. The Acacia Research presentation will start at 4:30 PM (EDT) / 1:30 PM (PDT).

To listen to the presentation by phone, dial (800) 239-9838 for callers in the U.S. and Canada, and (323) 994-2087 for international callers, both of whom will need to enter the conference ID 1228224 when prompted.

There will be a live webcast hosted by NASDAQ that will be available for 30 days and may be accessed at Acacia’s website here: http://acaciaresearch.com/events/.

INFORMATION ABOUT NON-GAAP FINANCIAL MEASURES

As used herein, “GAAP” refers to accounting principles generally accepted in the United States of America. 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.

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. Additional information regarding these non-GAAP measures is available in previously disclosed SEC filings.

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. 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 table below titled “Reconciliation of GAAP Net Income (Loss) and EPS to Non-GAAP Net Income (Loss) and EPS (In thousands, except share and per share data)” provides a reconciliation of the non-GAAP financial measures presented to the most directly comparable financial measures prepared in accordance with GAAP.

Due to uncertainties related to our ability to utilize certain deferred tax assets in future periods, we have recorded a full valuation allowance against our net deferred tax assets for the periods presented herein. Tax expense for the periods presented reflects foreign taxes withheld on revenue agreements with licensees in foreign jurisdictions and other state taxes, and the impact of the full valuation allowance recorded for net operating loss and foreign tax credit related tax assets generated during the periods. As such, no tax benefit was recognized for net operating loss and foreign tax credit related tax benefits generated during the applicable periods presented. Accordingly, there are no income tax effects related to our adjustments to arrive at our non-GAAP measures included herein.

______________________________________________

ABOUT ACACIA RESEARCH CORPORATION

Founded in 1993, Acacia Research Corporation (ACTG) is an industry leader in patent licensing and 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, general economic conditions and the success of our investments. 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 Ended
September 30,
Nine Months Ended
September 30,
2018       2017 2018       2017
 
Revenues $ 13,725   $ 36,633   $ 82,303   $ 61,944  
Operating costs and expenses:
Cost of revenues:
Inventor royalties 1,181 24,166 4,939
Contingent legal fees 2,949 12,173 19,745 16,036
Other patent acquisition costs 4,000

Litigation and licensing expenses – patents

1,231 4,073 6,106 14,593
Amortization of patents 4,952 5,625 15,560 16,711
General and administrative expenses 6,089 12,715 16,566 26,365

Other expenses – business development

84 241 577 994
Impairment of patent-related intangible assets and other

2,248 29,210 2,248
Other expense 2,202     2,202    
Total operating costs and expenses 18,688   37,075   118,132   81,886  
Operating loss (4,963 ) (442 ) (35,829 ) (19,942 )
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 (22,377 ) 158,979 (52,127 ) 146,281
Realized loss on sale of investment (5,539 ) (5,539 )
Equity in earnings (losses) of investee (116 ) (130 )
Other income 321   164   796   1,423  
Total other income (expense) (27,595 ) 159,027   (56,870 ) 154,861  
Income (loss) before provision for income taxes (32,558 ) 158,585 (92,699 ) 134,919
Provision for income taxes (306 ) (216 ) (782 ) (2,935 )
Net income (loss) including noncontrolling interests in subsidiaries (32,864 ) 158,369 (93,481 ) 131,984
Net (income) loss attributable to noncontrolling interests in subsidiaries (331 ) 96   (179 ) 399  
Net income (loss) attributable to Acacia Research Corporation $ (33,195 ) $ 158,465   $ (93,660 ) $ 132,383  
 

Net income (loss) attributable to common stockholders – basic and diluted

$ (33,195 ) $ 158,326   $ (93,660 ) $ 132,142  
Basic and diluted income (loss) per common share $ (0.67 ) $ 3.13   $ (1.87 ) $ 2.62  
Weighted average number of shares outstanding, basic 49,557,748   50,554,234   50,080,234   50,462,990  
Weighted average number of shares outstanding, diluted 49,557,748   50,599,974   50,080,234   50,684,725  
 
 
           

Reconciliation of GAAP Net Income (Loss) and EPS to Non-GAAP Net Income (Loss) and EPS

(In thousands, except share and per share data)

 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2018       2017 2018       2017
 
GAAP net income (loss) $ (33,195 ) $ 158,465   $ (93,660 ) $ 132,383
Non-cash stock compensation (excluding Profits Interests related non-cash stock compensation) 566 1,272 1,791 4,833
Non-cash patent amortization 4,952 5,625 15,560 16,711
Impairment of patent-related intangible assets and other   2,248   29,210   2,248
Pro forma non-GAAP net income (loss)(2) $ (27,677 ) $ 167,610   $ (47,099 ) $ 156,175

Pro forma non-GAAP net loss per common share – diluted(3)

$ (0.56 ) $ 3.32   $ (0.94 ) $ 3.10

GAAP weighted-average shares – diluted

49,557,748   50,499,248   50,080,234   50,416,611
 
 
                       

ACACIA RESEARCH CORPORATION

SUMMARY FINANCIAL INFORMATION (CONTINUED)

(In thousands)

(Unaudited)

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 
September 30,
2018
December 31,
2017
ASSETS
Current assets:
Cash and cash equivalents $ 109,562 $ 136,604
Short-term investments 33,848
Accounts receivable 10,572 153
Prepaid expenses and other current assets 3,121   2,938
Total current assets 157,103 139,695
Investment at fair value 36,648 104,754

Investment – other

8,195 2,195
Patents, net of accumulated amortization 18,147 61,917
Other assets 183   207
$ 220,276   $ 308,768
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 9,067 $ 7,956
Royalties and contingent legal fees payable 7,193   1,601
Total current liabilities 16,260 9,557
 
Other liabilities 1,874   3,552
Total liabilities 18,134 13,109
Total stockholders’ equity 202,142   295,659
$ 220,276   $ 308,768
 
 
           

ACACIA RESEARCH CORPORATION

SUMMARY FINANCIAL INFORMATION (CONTINUED)

(In thousands)

(Unaudited)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2018       2017 2018       2017
Cash flows from operating activities:
Net income (loss) including noncontrolling interests in subsidiaries $ (32,864 ) $ 158,369 $ (93,481 ) $ 131,984
Adjustments to reconcile net income (loss) including noncontrolling interests in 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 22,377 (158,979 ) 52,127 (146,281 )
Realized loss on sale of investment 5,539 5,539
Depreciation and amortization 4,955 5,646 15,582 16,780
Non-cash stock compensation

(10

) 9,453

172

 

13,068
Impairment of patent-related intangible and other assets 2,248 29,210 2,248
Other (193 ) 125 (506 ) (473 )
Changes in assets and liabilities:
Accounts receivable (4,943 ) 13,945 (5,877 ) 26,450
Prepaid expenses and other assets 388 600 (183 ) (874 )
Accounts payable and accrued expenses

191

(1,554 )

1,052

(6,608 )
Royalties and contingent legal fees payable 2,428   10,397   3,864   5,916  
 
Net cash provided by (used in) operating activities

(2,132

) 40,250  

7,499

  34,923  
 
Cash flows from investing activities:
Sale of investment 10,440 10,440
Investments in Investees (7,000 ) (31,514 )
Advances to Investee (4,000 )
Purchase of available-for-sale investments (15,988 ) (93,533 ) (65,883 ) (424,945 )
Maturities and sales of available-for-sale investments 17,108   91,113   32,508   386,920  
 
Net cash provided by (used in) investing activities 11,560   (2,420 ) (29,935 ) (73,539 )
 
Cash flows from financing activities:
Proceeds from sale of common stock, net of issuance costs (4,634 )
Repurchased restricted common stock (222 ) (229 ) (35 )
Proceeds from exercises of stock options 206   31   257   680  
 
Net cash (used in) provided by financing activities (16 ) 31   (4,606 ) 645  
 
Increase (decrease) in cash and cash equivalents

9,412

37,861

(27,042

) (37,971 )
 
Cash and cash equivalents, beginning 100,150   63,220   136,604   139,052  
 
Cash and cash equivalents, ending $

109,562

  $ 101,081   $

109,562

  $ 101,081  
 

Footnotes:

(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) Due to uncertainties related to our ability to utilize certain deferred tax assets in future periods, we have recorded a full valuation allowance against our net deferred tax assets for the periods presented herein. Tax expense for the periods presented reflects foreign taxes withheld on revenue agreements with licensees in foreign jurisdictions and other state taxes, and the impact of the full valuation allowance recorded for net operating loss and foreign tax credit related tax assets generated during the periods. As such, no tax benefit was recognized for net operating loss and foreign tax credit related tax benefits generated during the applicable periods presented. Accordingly, there are no income tax effects related to our adjustments to arrive at our non-GAAP measures included herein.
 
(3) Calculated based on pro forma non-GAAP net income (loss) attributable to common stockholders – diluted, not shown.
 

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