Renewed Focus on Patent Business Yields
Encouraging Results
Acacia Research Corporation(1) (“Acacia” or “the Company”)
(Nasdaq: 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”) (Nasdaq: 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 EndedSeptember 30, Nine Months
EndedSeptember 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 EndedSeptember 30, Nine Months
EndedSeptember 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 EndedSeptember 30, Nine Months
EndedSeptember 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181025005981/en/
Investors:Hayden IRRob Fink,
646-415-8972actg@haydenir.comorMedia:Sloane & CompanyJoe
Germani / Kristen Duarte, 212-486-9500jgermani@sloanepr.com /
kduarte@sloanepr.com
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