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Edited Transcript of ACTG earnings conference call or presentation 6-Aug-19 3:00pm GMT

Q2 2019 Acacia Research Corp Earnings Call

NEWPORT BEACH Sep 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Acacia Research Corp earnings conference call or presentation Tuesday, August 6, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alfred V. Tobia

Acacia Research Corporation - Director

* Clifford Press

Acacia Research Corporation - Director

* Rob Fink

FNK IR - Managing Partner

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Conference Call Participants

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* Brett Reiss

Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor

* William Tennent Gibson

ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Good day and welcome, ladies and gentlemen, to the Acacia Research 2019 Second Quarter Earnings Call. At this time, I would like to inform you that this conference is being recorded. (Operator Instructions) I will now turn the conference over to Mr. Rob Fink. Please go ahead, sir.

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Rob Fink, FNK IR - Managing Partner [2]

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Thank you. Hosting the call today are Board members Al Tobia and Clifford Press.

Before beginning, I would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives and expectations for future operations and are based on current estimates and projections, future results or trends. Actual results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see the risk factors described in Acacia's annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC.

In addition, during the call, the company will present non-GAAP financial measures. Please refer to its disclosures regarding the presentation of non-GAAP financial measures and other notes that were included in yesterday's earnings release as well as the 8-K filed with the SEC.

I would like to remind everyone that a press release disclosing the company's financial results was issued yesterday after the market closed. This release may be accessed on the company's website at acaciaresearch.com under the News and Events tab.

With all that said, I'd like to turn the call over to Al. Al, the call is yours.

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Alfred V. Tobia, Acacia Research Corporation - Director [3]

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Thank you, Rob, and good morning, everyone. During the second quarter, Acacia's Board implemented a comprehensive set of governance reforms to complete the transformation that began at last year's Annual Shareholder Meeting. In preparing this initiative, we met with nearly all of our large shareholders, soliciting input on the company, which shaped Acacia's strategy and drove the actions of the past year. Our shareholders expressed the view that the IP business is deeply dislocated, offering attractive potential returns for a well-capitalized company with a prudent asset allocation strategy.

In response, our new Board of Directors made the strategic decision to invest in Acacia's IP business, rationalizing our cost structure and directing wasteful corporate spending to productive licensing assets. With solid capitalization, significant net operating loss carryforwards and a highly relevant Board that includes investors and professionals, we are uniquely positioned to pursue investments that are capable of producing absolute returns over the long term. We are also evaluating a number of opportunities where we have identified value in the public markets and can capitalize on them opportunistically with the money and skills now represented in Acacia.

We have initiated a 5.1% position in Immersion Corporation. On August 1, we filed a Form 13D. In this filing, we stated that we purchased this position because we believe Immersion to be trading at a discount to intrinsic value owing to missteps and errors of strategy that can be corrected to realize the value of Immersion's assets. This investment is consistent with our absolute return strategy and provides us with significant optionality. We will keep our shareholders apprised of future actions here.

Turning to the balance sheet, specifically the other investments line. Accounting rules require us to write off the investment in Miso Robotics given the company's financial position and current cash burn. They are currently pursuing strategic partnerships.

I'd like to now turn the call over to Clifford for a review of our Q2 results and a discussion of our progress on our go-forward strategy.

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Clifford Press, Acacia Research Corporation - Director [4]

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Thanks, Al. Good morning, everyone. I will provide an overview of the second quarter financial results, with more details available in the press release issued last night and also in the upcoming quarterly report on Form 10-Q, which we will file with the SEC. As a reminder, our focus is on growing Acacia's book value over time.

Cash and short-term investments totaled $164.9 million at June 30, 2019 as compared to $165.5 million as of December 31 last year. Revenues for the second quarter were $5.5 million.

On the 5th of August, Acacia's Board of Directors approved the buyback of up to 10 million in Acacia common stock over the next 12 months, which could be used, among other purposes, to offset dilution from equity-based incentive plans.

For the full year, we expect revenues of approximately $25 million and net cash from operations of around $5 million before investing a budgeted $20 million in new IP.

I'd now like to open the call for questions.

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Alfred V. Tobia, Acacia Research Corporation - Director [5]

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Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Mr. Brett Reiss from Janney.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [2]

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Could you update us? Did we intake any patent portfolios this quarter? And how does the pipeline look the next couple of quarters?

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Clifford Press, Acacia Research Corporation - Director [3]

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The pipeline looks good. This quarter, we actually only closed on around 600,000 of new intake, but we do expect that we will get to approximately 20 million by the end of the year. There's a fair amount of material that's currently in the view.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [4]

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Okay. When we're selecting patent portfolios for intake, are we trying to find portfolios that the revenue flow will start at a quicker time line than the typical patent portfolios in the past?

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Clifford Press, Acacia Research Corporation - Director [5]

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Brett, I'm not sure what you're considering the typical patent portfolio in the past, but we've made a decision not to buy anything simply because it fills a short-term revenue opportunity. We've been looking at these portfolios strictly on the basis of the return available over the complete monetization of the assets. And in general, it takes at least a year to 2 years until we start to see licensing coming in as a rule, but it's all over the map.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [6]

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Okay. Any movement on the pharma royalty business that you're looking to develop?

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Clifford Press, Acacia Research Corporation - Director [7]

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The pharma royalties are an IP opportunity that actually do represent current revenue and income just by the nature of them, and we are looking at those opportunities as well.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [8]

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With respect to the 5%-plus position in Immersion, if you could wave a magic wand and get your maximum best wish on that, what would you like to see happen there? And just some more color. What attracts you to the Immersion situation?

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Clifford Press, Acacia Research Corporation - Director [9]

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So Brett, we're a little bit constrained because now that we're public with our Form 13D filing, it would be difficult to go beyond what was stated in the filing. But we made it clear that we felt it was a good asset. It's trading at a discount and represents an attractive value for us to buy at this stage. And we also said that there are probably some actions that the Board of the company could take to correct the undervaluation. So I don't know if that's what you're thinking of in terms of the magic wand, but we would like to see them address that.

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Brett Reiss, Janney Montgomery Scott LLC - SVP of Private Client Group & Financial Advisor [10]

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Great. One last one. What's our remaining position in Veritone both with the stock and the warrants?

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Alfred V. Tobia, Acacia Research Corporation - Director [11]

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The warrant position remains the same as it was. That's unchanged. And the stock position were public on the 13D filings. So that's all disclosed publicly right now. There's no news there.

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Operator [12]

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(Operator Instructions) We're taking our next question from William Gibson from ROTH Capital Partners.

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William Tennent Gibson, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [13]

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I would like to follow up a little bit on Brett's probing and just in regard to the type of IP you are looking for. With investment in a public company, it implies that you're thinking the return in a practicing entity could be better than nonpracticing. What's sort of your sense of going for the IP because some of the NPEs have been hard to monetize?

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Clifford Press, Acacia Research Corporation - Director [14]

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Yes. I don't think -- I understand the question -- I don't think we're necessarily looking at it as an NPV -- an NPE versus a non-NPE situation. We actually think that issue is probably fading a little bit now. It's been dealt with. And in this case, it's -- the company that you're referring to, Immersion, it's got some very solid assets. They're well tested. They've been litigated. The question there is how the asset is being monetized. It's no different than when we take in assets of the same nature and how we go about monetizing them.

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Alfred V. Tobia, Acacia Research Corporation - Director [15]

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And just to add, look we just went to that. Remember, we have a $200 million plus NOL. So when you look at adding productive assets to the company, we are -- we have an efficient cost structure and we have an NOL.

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William Tennent Gibson, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [16]

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Good point.

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Operator [17]

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It appears that there are no further questions at this moment. Please -- I will turn the conference back to the management for any closing or additional remarks.

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Rob Fink, FNK IR - Managing Partner [18]

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Thank you all for joining us today.

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Operator [19]

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Ladies and gentlemen, this concludes your conference for today. Thank you for participating and have a nice day. All parties may now disconnect.