Q1 2021 Acacia Research Corp Earnings Call

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Greetings and welcome to the Acacia research first quarter 2021 financial results Conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Rob Fink, but that's on K I R. Thank you Sir you may begin.

Thank you operator hosting the call today are Clifford press, Chief Executive Officer, Al Tobia, President and Chief Investment Officer, and Rich Rosen Chief Financial Officer.

Before beginning I'd 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 from 1995.

These forward looking statements generally relate to the company's plans objectives and expectations for future operation 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 risk factors and uncertainties for.

For a discussion of such risks and uncertainties. Please see the risk factors described in Acacia to annual report on form 10-K, and quarterly reports on form 10-Q, both of which are filed with the SEC.

I'd like to remind everyone that a press release disclosing the company's financial results was issued this morning before the market opened this release may be accessed on the company's website on Acacia research under the news and events tab.

On today's call Clifford is going to provide a business update rich will review the quarterly financial results and know who's joining remotely will participate in the Q&A session.

With all that said I'd like to now turn the call over to Clifford Clifford.

Clifford the call is yours.

Thank you, Rob and good morning, everyone.

We remain focused on executing the strategy that we adopted.

Foundation of our strategic alliance with Starwood that U L. P.

This strategy Leverages, our strong balance sheet and ready access to committed capital also benefits.

Thats it from me inherent flexibility, we have created enabling us to pursue a range of potential transactions. We continue to work with starboard value evaluating potential acquisitions within the small cap value sector.

Primary opportunity set remains the sub 2 billion public equity market as we have said in the past we view this segment as the least efficient area of the market and one that favors our primary research approach on permanent capital structure.

Over the last year, the robust market performance has slowed on top of funnel idea flow. However, with volatility in interest rate concerns increasing we are beginning to see an increase in the number of public market opportunities again.

We have added two private equity executives to our team.

Assist us in public and private transactions.

Our goal is to acquire operating companies.

Technology healthcare industrial and financial services segments.

As we evaluate new opportunities, we continue to maximize the volume return on our existing holdings there.

There are two recent developments to highlight.

On April 30th Eric's Bioscience went about public assets and that's the outcome on its strategic implementation revenue, culminating in a number of immediate board changes.

View was part of us shareholder engagement.

Which we were heavily involved as a result of this review.

Rob line, formerly Chief operating Officer, and General Counsel of Eric's was named interim CEO and appointed to the board.

She is now recruiting a permanent CEO in addition to the Acacia nominees Maureen O'connell.

It's always a cold but were appointed to the board of Eric's as Nonexecutive directors finally, peregrine moncrief.

Joining the board as Nonexecutive chairman.

And has established a distinguished record as chairman of another listed investment company over an extended period on wheels.

Very fortunate to have him as chairman Alex we are very supportive of these corporate governance improvements I believe these changes to ensure that the company is a board that is responsive to its shareholders.

And earlier this month, Oxford net of poor raised 195 million pounds.

$275 million in new investment.

On a valuation of $3.5 billion as part of this transaction, Oxford now on a pool also announced plans to complete an initial public offering.

This follows the successful IPO by immuno coal.

The first quarter as well all of these transactions increase the options from liquidity for us and can help us to deliver enhanced value realization.

We continue working to maximize the value of all of our life Sciences portfolio. This can be a time consuming exercise.

As such we will continue to evaluate the most efficient options to complete the realization of value for our shareholders.

With respect to our IP business.

Investments made over the past year have resulted in a properly sized and well balance portfolio.

Cooling, but soft licensing and litigation.

Team is actively advancing a number of opportunities with that I'd like to turn the call over to rich resin steam.

Our CFO and discuss our results rich.

Thank you Clifford.

Our book value at March 31, 2021 was $128 million or $2.64 per basic share compared with $292 5 million or $5 94 per share at December 31, 2020.

The decrease is due to the $198 $9 million on expense related to the change in fair value of the series, a and series B warrants and embedded derivatives.

This noncash expense is the result of the substantial appreciation of Acacia share price during the quarter from $3.94 at December 31, $2026 65 at March 31, 'twenty, 'twenty, one which increased the potential liabilities for the warrants into residents we carry.

This it's important to note that this expense is entirely non cash I.

As these liabilities will be eliminated upon either exercise or exploration of these warrants on preferred stock. We again believe it is useful to look at our calculation of book value. That's just all of these instruments were exercised.

Pro forma for full exercise of all warrants and preferred stock Acacia is book value would rise to $5 62 per share up from $5 39 per share on a comparable basis at December 31 2020.

For the quarter, our financial results included the following.

We ended the quarter with cash and equity securities at fair value totaling $325 1 million compared to $274 6 million at December 31st debt was $116 million in senior secured notes issued to starboard and lost revenues for the quarter of.

First quarter of 2021 were $5 8 million.

More detail on these results have been made available on the press release issued this morning and also on the upcoming quarterly report on form 10-Q, which we will file with the SEC later today now let me turn the call back to Clifford for closing comments Clifford.

Thanks Rich in conclusion, Acacia continues to execute its investment strategy as always our focus continues to be on improvement in our book value on the <unk>.

Strong balance sheet with which we can make additional investments, we're focused and working hard to identify on appropriate acquisition collaborations stop on.

That said stewards of shareholder capital valuation fits on a variety of other diligence factors are important.

We'll not make.

Acquisition for Expedience on.

Valuation a large number of potential opportunities Kathleen we're now happy to answer questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is on the question queue you.

You May press Star two if you would like to remove your questions on the queue.

All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Thank you. Our first question comes from the line of Anthony Stoss with Craig Hallum. Please proceed with your question.

Yeah, Clifford Alan Rich.

Thanks for the detail on the pipeline of potential acquisition targets in the industries that you're in.

Fact that you hired to private equity exacts are on board the Acacia team.

I would presume that that's going to speed up things is there anything to be said on just the level of interaction with Star Board is that still the same kind of high level or is it flowing as a result, you needed to hire. These two people anything you can tell us on kind of the targeted pipeline would be helpful. Then I had a couple of follow ups after that.

Okay. Thanks, Tony.

Had these.

Two very capable.

Additions, because we were reaching that point with deal execution and analysis was becoming relevant and they've been very helpful. In that regard.

We had a very good research program going but as we were getting ready to take the next steps we thought that vs. Two.

<unk> would help on the implementation and that is as it has worked out so they're further along towards completing execution transactions now than we had been before.

In terms of.

On a win win we will be able to announce compete.

Completed acquisitions little close.

It announced those upon execution and we expect it to be.

Be able to.

Complete transaction certainly this year.

Okay.

Okay and then.

Maybe for rich if you wouldn't mind, if you had the total Nols still available number I'd love to hear that and then also maybe back to you Clifford.

In the prior several.

Quarterly press releases, if you will you guys list out kind of a position update there wasn't one in today's press release can you give us any kind of update on on what.

What positions are still holding.

Yep.

Tracy.

The changes to the positions are as described.

We.

It does not want to.

Get establish a precedent of listing on.

On getting holdings on a regular basis, we thought it was important to explain to investors. What we had purchased in the previous in the Woodford portfolio.

But from now on we'll give an update as we have done on realization.

Richard you want to take the question on the NOL.

Sure So Tony at the end of at the end of the year on net operating loss carry forward with two on approximately $275 million well, we had a small amount on capital loss carry forward as well and that's the that's the latest as opposed to the latest figures from the two of those.

Okay and then my last question rich.

I understand that the Oxford recent raise happened post March 31st unless I'm mistaken.

The three and a $1 billion valuation is that accurate and if so kind of what would you mark up your position on.

From where it was in March.

So what.

Clifford described which was the $3 5 billion valuation that is on that.

That's the valuation implied by the latest round.

On the.

The increase in value relative to what we had been carrying it out previously as its in excess of 40%.

Okay. That's it from me thanks, guys.

As a reminder, if you would like to ask a question press star one on your telephone keypad.

Our next question comes from the line of David Hoff with I P. Hawk newsletter. Please proceed with your question.

Hi, good morning, focusing on the patent side is there a materiality threshold I guess floor that you can disclose.

Quarter, one quarter two has seen a lot of really good developments on the package that documents a bunch of settlements coming on is there a floor where at eight 8-K might be triggered.

Yes.

Rich do you want to think about that one.

Yeah.

We I mean like as you as you saw on the current quarter, we had approximately $6 million in revenue.

Hum.

You know for all of last year, we had approximately $30 million in revenue, we haven't disclosed individual settlements unless there, particularly large so.

I would say there is there is a threshold, but we haven't crossed it yet I don't want to say what that is because I don't I don't want to necessarily suggest that you should expect regular press releases on settlements.

But let's just say that we're optimistic about the pipeline that we have and the progress that our IP team that's been making with the portfolios that we've acquired recently, including newer com, which we closed on not just a few months ago.

Are there any additional dependence do you expect to be adding to some of these portfolios that have been winning markman hearings ipr's, Idaho, the Orange Slash, France Telecom is doing very well, it's heading to trial for Cisco.

Harris portfolio is also doing pretty well.

And I know that.

The semiconductor and the first time a conductor portfolio is also doing very well. It's there are a number of dependents still out there or might be in the negotiating discussions.

10, as you know I think in keeping with most other IP investment funds.

We are very reluctant to discuss details of particular licensing campaigns so on it.

Do you follow public developments and I think that's probably your best source of information.

Okay. Thank you very much.

Yeah.

Thank you we have no further questions at this time I would now like to turn the floor back over to management for closing comments.

Thank you very much for attending the Acacia research on the school and we look forward to speaking next quarter.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.