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Acacia Research Reports Third Quarter Financial Results

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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 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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