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Acacia Research Reports Third Quarter 2021 Financial Results

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Company Recognizes Substantial Realized and Unrealized Gain from Oxford Nanopore IPO

NEW YORK, November 15, 2021--(BUSINESS WIRE)--Acacia Research Corporation (Nasdaq: ACTG) today reported results for the three- and nine-month periods ended September 30, 2021.

Clifford Press, Chief Executive Officer, stated, "This was a milestone quarter highlighted by the IPO of Oxford Nanopore Technologies Limited. Oxford Nanopore represented a nearly $120 million realized and unrealized gain in the quarter, between the sale of a small portion of our stake and the increased value in our remaining position. As a result, our pro forma book value at September 30, 2021 increased to $6.31 per share. In addition, subsequent to the end of the quarter, we completed our first operating company acquisition, as we welcome Printronix to the Acacia family."

"Acacia’s recently completed and proposed M&A activity represents our mature business model coming into focus," continued Mr. Press. "Over the past year, we have expanded our team, bolstered our capital base and positioned Acacia as a corporate acquirer, with the flexibility, capability and expertise to pursue multiple public and private opportunities, including complex transactions, avoiding large, competitive auctions, while evaluating a diverse set of situations. Our highly collaborative partnership with Starboard Value LP and our strong capital base, comprised of cash, public and private investments, IP assets and the addition of the profitable Printronix business, facilitates a healthy pipeline of potential attractive operating company investments."

During the third quarter, Acacia recognized $101 million in realized and unrealized gains in the value of the life sciences portfolio acquired in June 2020. To date, based on the current value of the remaining positions, Acacia has recovered $256 million of the aggregate portfolio purchase price of $282 million. As of September 30, 2021, Acacia holds the following positions in its life sciences portfolio:

Public Securities

Based on Market Value (at September 30, 2021)

Company

Ticker

Number of Shares

Value

Oxford Nanopore Technologies 1

LSE: ONT

35.1 mm

$267.8 mm

Arix Bioscience plc

LSE: ARIX

25.8 mm

$52.8 mm

Immunocore 2

IMCR

0.68 mm

$25.2 mm

Induction Healthcare Group plc

AIM: INHC

4.2 mm

$2.9 mm

Total Public Holdings 3

$348.7 mm

Private Securities

Carried at Cost (at September 30, 2021)

Company

Ownership Percentage

Value

Viamet Pharmaceuticals

26% \

AMO Pharma

24% }

$25.7 mm

NovaBiotics

4% /

Total Private Holdings

$25.7 mm

1 Sold 3.9 mm shares in Q3, balance carried at discount due to lockup.

2 Sold 0.75 mm shares in Q3.

3 Remaining value following $44 mm of sale proceeds.

Third Quarter 2021 Financial Summary:

  • Cash, cash equivalents and equity investments at fair value totaled $605.1 million at September 30, 2021, compared to $274.6 million at December 31, 2020.

  • Equity securities without readily determinable fair value totaled $5.8 million at September 30, 2021; compared to $143.3 million at December 31, 2020, which such reduction reflects the initial public offerings of two previously private portfolio companies in 2021.

  • Investment securities representing equity method investments totaled $31.8 million (before $11.9 million in noncontrolling interests), compared to $30.7 million (before $11.0 million in noncontrolling interests) at December 31, 2020.

  • Debt, which represents the Senior Secured Notes issued to Starboard Value LP, was $182.9 million at September 30, 2021.

  • Book value totaled $235.9 million, or $4.82 per share, as of September 30, 2021, compared to $292.5 million, or $5.94 per share, at December 31, 2020. Acacia’s current book value reflects the impact of the increase in the Company’s share price on its warrant and embedded derivative liabilities. Assuming full exercise of all issued derivatives, Acacia’s pro forma book value would rise to $1.0 billion, or $6.31 per share, up from $882.5 million, or $5.39 per share, as of December 31, 2020.[1]

  • Gross revenues were $1.6 million, compared to $19.5 million in the third quarter of last year.

  • General and administrative expenses were $10.3 million, compared to $7.7 million in the third quarter of last year due to increased business development and personnel expenses as we build out our capacity to identify, evaluate and execute acquisitions.

  • Operating loss was $12.7 million, compared to a loss of $2.8 million in the third quarter of last year.

  • GAAP net income to common stockholders was $80.2 million, or $0.86 per diluted share, compared to net income of $29.2 million, or $0.32 per diluted share, in the third quarter of last year.

Pro Forma Book Value and Changes to Derivative Valuations

As of September 30, 2021, book value was $235.9 million and there were 48.9 million weighted-average shares of common stock outstanding in the third quarter of 2021, for a book value per share of $4.82, up from $3.02 at June 30, 2021 and down from $5.94 at December 31, 2020. The decline since December 31, 2020 is due to the impact of the increase in non-cash liabilities associated with the warrants and preferred stock held by Starboard Value LP. This was driven by the increase in Acacia’s share price from $3.94 at December 31, 2020 to $6.79 at September 30, 2021. Total liabilities for these warrants and preferred stock stood at $289.6 million at September 30, 2021. All of these derivative liabilities would be eliminated upon exercise or expiration of all such warrants and preferred stock.

Book value at September 30, 2021 reflects the impact of the following:

  • $180 million of face value of Notes issued to Starboard Value LP, $115 million of which may be used to exercise Series B warrants at $3.65 per share;

  • $35 million in face value of Series A preferred stock issued to Starboard Value LP; and

  • $289.6 million of warrants and embedded derivative liabilities associated with all preferred stock and warrants held by Starboard Value LP, to be eliminated upon exercise or expiration of all such warrants and preferred stock.

Assuming Starboard Value LP converted all preferred stock and exercised all warrants:

  • $115 million of liabilities attributable to the Notes would be eliminated, and 31.5 million shares of common stock would be issued;

  • $35 million in face value of preferred stock would be eliminated, and 9.6 million shares of common stock would be issued;

  • $289.6 million embedded derivative liabilities attributed to the warrants would be eliminated; and

  • $378 million of cash would be added upon exercise of the remaining Series B warrants and Series A warrants, and 73.5 million shares of common stock would be issued

The expected impact of this would be an incremental $796.1 million in book value, and an incremental 114.6 million shares outstanding. Assuming such conversion and exercise, pro forma book value would be $1,032 million, and diluted shares outstanding would be 163.5 million, for book value per share of $6.31, up from $5.77 at June 30, 2021 and from $5.39 at December 31, 2020.

_____________________

[1] Under generally accepted accounting principles, or GAAP, book value reflects the impact of the liabilities associated with potential issuance of shares related to the Company’s warrants and convertible preferred stock. As the value of those liabilities varies with fluctuations in our share price, we believe a presentation of book value assuming full exercise of all warrants and preferred presents a useful measure of book value for investors. This non-GAAP measure does have its limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results under GAAP.

Investor Conference Call:

The Company will host a conference call today, November 15, 2021 at 4:30 p.m. ET/ 1:30 p.m. PT.

To access the live call, please dial 888-506-0062 (U.S. and Canada) or 973-528-0011 (international). The conference call will also be simultaneously webcasted on the investor relations section of the Company’s website at http://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 Acacia Research Corporation

Acacia Research (NASDAQ: ACTG) seeks to acquire undervalued businesses and pursues opportunities for value creation. We leverage our (i) access to flexible capital that can be deployed unconditionally, (ii) expertise in corporate governance and operational restructuring, (iii) willingness to invest in out of favor industries and businesses that suffer from a complexity discount and untangle complex, multi-factor situations, and (iv) expertise and relationships in certain sectors, to complete strategic acquisitions of businesses, divisions, and/or assets with a focus on mature technology, healthcare, industrial and certain financial segments. We seek to identify opportunities where we believe we are advantaged buyers, where we can avoid structured sale processes and create the opportunity to purchase businesses, divisions and/or assets of companies at an attractive price due to our unique capabilities, relationships, or expertise, or where we believe the target would be worth more to us than to other buyers. 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 implement our strategic plan, 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 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 foregoing, 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 from period to period.

ACACIA RESEARCH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

September 30,

December 31,

2021

2020

ASSETS

Current assets:

Cash and cash equivalents

$

217,957

$

165,546

Restricted cash

761

-

Equity securities at fair value

387,120

109,103

Equity securities without readily determinable fair value

5,816

143,257

Investment securities - equity method investments

31,840

30,673

Investment at fair value

-

2,752

Accounts receivable

412

506

Other receivable

21,539

-

Prepaid expenses and other current assets

3,986

5,832

Total current assets

669,431

457,669

Long-term restricted cash

35,424

35,000

Patents, net of accumulated amortization

39,826

16,912

Leased right-of-use assets

671

951

Other non-current assets

4,482

4,988

Total assets

$

749,834

$

515,520

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

2,196

$

1,019

Accrued expenses and other current liabilities

5,586

3,707

Accrued compensation

4,019

2,265

Royalties and contingent legal fees payable

1,793

2,162

Accrued patent investment costs

8,000

-

Senior Secured Notes Payable

182,855

115,663

Total current liabilities

204,449

124,816

Series A warrant liabilities

18,527

6,640

Series A embedded derivative liabilities

41,411

26,728

Series B warrant liabilities

229,637

52,341

Long-term lease liabilities

671

951

Other long-term liabilities

5,591

591

Total liabilities

500,286

212,067

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 September 30, 2021 and December 31, 2020; aggregate liquidation preference of $35,000 as of September 30, 2021 and December 31, 2020

13,686

10,924

Stockholders' equity:

Common stock, par value $0.001 per share; 300,000,000 shares authorized; 49,591,852 and 49,279,453 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

50

49

Treasury stock, at cost, 4,604,365 shares as of September 30, 2021 and December 31, 2020

(43,270

)

(43,270

)

Additional paid-in capital

649,349

651,416

Accumulated deficit

(382,215

)

(326,708

)

Total Acacia Research Corporation stockholders' equity

223,914

281,487

Noncontrolling interests

11,948

11,042

Total stockholders' equity

235,862

292,529

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

$

749,834

$

515,520

ACACIA RESEARCH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Revenues

$

1,582

$

19,466

$

24,785

$

25,399

Patent portfolio operations:

Inventor royalties

280

5,772

823

6,843

Contingent legal fees

285

6,609

5,735

6,855

Litigation and licensing expenses - patents

782

1,001

4,881

3,497

Amortization of patents

2,612

1,174

7,086

3,522

Other patent portfolio income

-

-

-

(308

)

Patent portfolio expenses

3,959

14,556

18,525

20,409

Net patent portfolio (loss) income

(2,377

)

4,910

6,260

4,990

General and administrative expenses

10,345

7,692

23,014

18,089

Operating loss

(12,722

)

(2,782

)

(16,754

)

(13,099

)

Other income (expense):

Change in fair value of investment, net

-

(3,081

)

(2,752

)

3,704

Gain (loss) on sale of investment

-

-

3,591

(2,762

)

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

619

20,672

(203,866

)

(46,612

)

Gain on sale of prepaid investment and derivative

-

2,845

-

2,845

Change in fair value of equity securities

66,502

20,488

115,509

99,449

Gain (loss) on sale of equity securities

37,688

2,737

53,124

(4,272

)

Earnings on equity investment in joint venture

-

-

2,737

-

Loss on foreign currency exchange

(17

)

(48

)

(193

)

(4,938

)

Interest expense on Senior Secured Notes

(2,531

)

(2,410

)

(5,601

)

(3,178

)

Interest income and other

76

10

135

811

Total other income (expense)

102,337

41,213

(37,316

)

45,047

Income (loss) before income taxes

89,615

38,431

(54,070

)

31,948

Income tax (expense) benefit

(11

)

(83

)

(531

)

1,257

Net income (loss) including noncontrolling interests in subsidiaries

89,604

38,348

(54,601

)

33,205

Net income attributable to noncontrolling interests in subsidiaries

-

-

(906

)

-

Net income (loss) attributable to Acacia Research Corporation

$

89,604

$

38,348

$

(55,507

)

$

33,205

Net income (loss) attributable to common stockholders - Basic

$

72,984

$

30,529

$

(59,054

)

$

24,838

Basic net income (loss) per common share

$

1.49

$

0.63

$

(1.21

)

$

0.51

Weighted average number of shares outstanding - Basic

48,949,504

48,467,885

48,759,873

48,949,706

Net income (loss) attributable to common stockholders - Diluted

$

80,171

$

29,204

$

(59,054

)

$

21,380

Diluted net income (loss) per common share

$

0.86

$

0.32

$

(1.21

)

$

0.36

Weighted average number of shares outstanding - Diluted

93,081,502

90,624,702

48,759,873

60,153,773

View source version on businesswire.com: https://www.businesswire.com/news/home/20211115006210/en/

Contacts

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