Acacia Research Corporation (Nasdaq: ACTG) (“Acacia” or the “Company”) today reported financial results for the three months ended March 31, 2022. The reported results reflect the contribution of Printronix Holding Corp. (“Printronix”), which was acquired on October 7, 2021.

Key Business Highlights

• Generated $13.5 million in consolidated revenue for the quarter, up from $5.8 million in revenue in the first quarter of 2021, including $10.9 million in revenue contribution from Printronix, acquired in October 2021.
• Recorded $66.9 million in realized gains during the quarter, including $59.5 million from the Life Sciences Portfolio.
• Completed $15.0 million of share repurchase under authorization announced in December 2021, repurchasing 3.1 million shares at an average price of $4.80. Initiated additional repurchases under new $40.0 million repurchase authorization announced in April.
• In April 2022, Mycovia Pharmaceuticals received FDA approval on its drug VIVJOA™ (otesecanazole) for the treatment of recurrent vulvovaginal candidiasis, triggering a $26 million milestone payment to Acacia through its ownership of Viamet Pharmaceuticals, anticipated to be received later in 2022.
• During the quarter, Acacia sold another $69.2 million of Life Science Portfolio holdings, bringing total realizations to date to $394 million. To date, Acacia has sold 24.9 million shares of Oxford Nanopore Technologies plc, for an average realized price of £4.86 per share, and continues to hold 14.1 million shares.

First Quarter 2022 Financial Highlights

(In millions, except per share data)

Clifford Press, Chief Executive Officer, stated, “Experience has shown that dislocations in the capital markets, such as those we are currently seeing, create significant opportunities for Acacia. Our strong capital position and team of seasoned M&A professionals, working alongside our strategic partners at Starboard Value, LP, should enable us to generate attractive acquisitions. As we look for such opportunities, our own stock continues to represent an attractive value relative to our book value, and we have been repurchasing our own shares under the recently expanded $40 million buyback authorization.”

First Quarter 2022 Financial Summary:

• Total revenues were $13.5 million, compared to $5.8 million in the same quarter last year.
  • Printronix generated $10.9 million in revenue in the quarter.
  • The Intellectual Property business generated $2.6 million in licensing and other revenue during the quarter, compared to $5.8 million in the same quarter last year.
• General and administrative expenses were $11.1 million, compared to $6.2 million in the same quarter of last year, primarily due to the inclusion of Printronix operating expenses, as well as increased business development and personnel expenses related to the Company’s acquisition organization. Deal costs are expensed as incurred, and not capitalized.
• Operating loss was $(8.5) million, compared to a loss of $(5.7) million in the same quarter of last year, primarily as a result of the Company’s acquisition infrastructure build out.
  • Printronix contributed $1.6 million in operating income.
• GAAP Net Loss of $(73.3) million, or ($1.61) per diluted share, compared to net loss of $(164.5) million, or $(2.81) per diluted share, in the first quarter of last year.
  • Net loss included $(105.3) million of net realized and unrealized losses, which was comprised of $66.9 million in realized gains primarily related to the Life Science Portfolio, offset by $(172.2) million in unrealized losses. Unrealized losses relate to the decline in share price of certain remaining holdings, as well as the reversal of unrealized gains previously recorded for shares sold during the quarter for realized gains.
  • The Company recognized non-cash income of $28.1 million related to the decline in the fair value of the Starboard Warrants and embedded derivative liabilities due to the decline in Acacia’s stock price during the quarter.

Balance Sheet and Capital Structure

• Cash, cash equivalents and equity investments measured at fair value totaled $535.9 as of March 31, 2022 compared to $670.7 million as of December 31, 2021.
• Equity securities without readily determinable fair value totaled $5.8 million as of March 31, 2022 and December 31, 2021.
• Investment securities representing equity method investments totaled $30.9 million as of March 31, 2022 and December 31, 2021 (before $11.0 million in noncontrolling interests).
• Total indebtedness, which represents the Senior Secured Notes issued to Starboard Value LP, was $168.7 million as of March 31, 2022 compared to $181.2 million at December 31, 2021. The reduction is due to paying down $15 million of Notes during the quarter. Subsequent to the end of the quarter, the Company paid down an additional $50 million of Notes.
• The Company’s current book value totaled $345.5 million, or $7.42 per share, as of March 31, 2022, compared to $430.5 million, or $8.80 per share, as of December 31, 2021. Acacia’s current book value reflects the impact of the outstanding Starboard warrants and the embedded derivative liabilities. Assuming full exercise of all issued derivatives, Acacia’s pro forma book value would rise to $952.2 million, or $5.91 per share, down from $1.1 billion, or $6.51 per share, as of December 31, 2021.

Acacia has generated $394 million in proceeds from sales of the Life Science Portfolio as of March 31, 2022, which was purchased for an aggregate price of $294 million. The remaining positions in the Life Science Portfolio represent $163.7 million in book value as shown below:

Public Securities

Based on Market Value (at March 31, 2022)

Private Securities

Carried at Cost (at March 31, 2022)

Pro Forma Book Value and Changes to Derivative Valuations

As of March 31, 2022, book value was $345.5 million and there were 46.5 million weighted-average shares of common stock outstanding in the first quarter of 2022, for a book value per share of $7.42, down from $8.80 as of December 31, 2021. The decrease since December 31, 2021 is due to the decrease in our asset values, primarily cash and equity securities at fair value. Total liabilities for warrants and preferred stock to be eliminated upon exercise or expiration of all such warrants and preferred stock were $78.9 million as of March 31, 2022. All of these derivative liabilities would be eliminated upon exercise or expiration of all such warrants and preferred stock.

Under GAAP, book value reflects the impact of the liabilities associated with potential issuance of shares related to the exercise of the Company’s warrants and conversion of the Company’s convertible preferred stock. As the value of those liabilities varies with fluctuations in the Company’s stock price, management believes a presentation of book value assuming full exercise of all warrants and conversion of all preferred stock presents a useful measure of book value for investors. However, this calculation has its limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of book value calculated in accordance with GAAP.

Book value as of March 31, 2022 reflects the impact of the following:

• $168.7 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
• $78.9 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;
• $78.9 million of embedded derivative liabilities attributable to the warrants and preferred stock 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 $606.8 million in book value, and an incremental 114.6 million of shares outstanding. Assuming such conversion and exercise, pro forma book value would be $952.2 million, and diluted shares outstanding would be 161.1 million, resulting in book value per share of $5.91, as compared to $6.51 as of December 31, 2021.

Share Repurchase Program

As previously reported, effective March 31, 2022, the Company’s Board of Directors approved a new stock repurchase program for up to $40.0 million of shares of common stock.

Investor Conference Call:

The Company will host a conference call today, May 12, 2022 at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time).

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://www.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 the Company

Acacia is a permanent capital platform with a strategy to purchase businesses based on the differentials between public and private market valuations. Acacia leverages its (i) access to flexible capital that can be deployed opportunistically as a result of its strategic partnership with Starboard Value LP, (ii) disciplined focus on identifying opportunities where it can be an advantaged buyer, initiate a transaction opportunity spontaneously, avoid a traditional sale process and complete the purchase of a business, division or other asset at an attractive price, (iii) willingness to invest across industries and in off-the-run, often misunderstood assets that suffer from a complexity or multi-factor discount, (iv) relationships and partnership abilities across functions and sectors, and (v) strong expertise in corporate governance and operational transformation. Acacia seeks to identify opportunities where it believes it is an advantaged buyer, where it can avoid structured sale processes and create the opportunity to purchase businesses, divisions and/or assets of companies at an attractive price due to Acacia’s unique capabilities, relationships or expertise, or Acacia believes the target would be worth more to it than to other buyers. Additional information about Acacia and its subsidiaries is available at www.acaciaresearch.com.

Safe Harbor Statement

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 the Company’s current expectations and speak only as of the date hereof. The Company’s 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 Company’s ability to successfully implement its 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 the Company’s investments. The Company’s Annual Report on Form 10-K, and other SEC filings discuss some of the important risks and uncertainties that may affect the Company’s 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 by the Company in prior periods are not necessarily indicative of the results to be achieved by us in any subsequent periods. It is currently anticipated that the Company’s financial results will vary, and may vary significantly, from quarter to quarter.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220512005401/en/