Q2 2021 Acacia Research Corp Earnings Call
[music].
Yeah.
These standby.
Good day, ladies and gentlemen, and welcome to your Acacia research second quarter financial results Conference. All lines have been placed in a listen only mode and the floor will be opened for your questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press Star then zero.
As a reminder, today's call is being recorded.
At this time it is my pleasure to turn the floor over to your host Geoff Stanley with F. N K I R. Sir the floor is yours.
Thank you Melinda.
Hosting the call today are Clifford press, Chief Executive Officer, Al Tobia, Chief Investment Officer, and Rich Rosenstein, Chief Financial Officer before beginning we'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 secure.
<unk> Litigation Reform Act of 1995, you spoke with looking statements generally relate to the company's plans objectives and expectations for future operation and are based on our 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 Acacias annual full annual report on Form 10-K, and quarterly reports on Form 10-Q filed with the SEC.
I would 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 at Acacia research Dot com under the news and events tab.
Clifford and I will provide a business update and rich will review the quarterly financial results with all that said I would now like to turn the call over to Clifford press Mr. Pressed the call is yours.
Thank you, Jeff and good morning, everyone.
At the end of the second quarter.
Capital base, consisting of cash private and public investments.
Availability pursuant to our partnership with starboard value LP.
Stood at $770 million.
We continue to pursue acquisitions of operating businesses through tightly coordinated research process, leveraging our team's experience in public and private markets. We focus on mature technology life Sciences, healthcare and industrials and certain segments of financial services, including insurance.
Primary opportunity set remains with companies that are sub 2 billion in equity market cap as we have said in the past we view this segment as the least efficient area of the public markets and when that favors our primary research approach and permanent capital structure.
We've now positioned Acacia and an opportune part of the market specifically, we operate at the interface between private and public market valuations, making us an ideal partner for a variety of sellers and investors.
We're able to deploy permanent capital to navigate complex multifactor transactions, where our corporate acquirer.
Well positioned to be an attractive path to counterparties, such as private equity funds and large enterprises.
This approach Leverages, our rigorous investment process with starboard strong balance sheet and ready access to committed capital we have active relationships with private equity investors, who may find underperforming public companies, where our involvement can be constructive and will.
To build this network.
In summary, we remain committed to our strategy, which benefits from the inherent flexibility, we have created enabling us to pursue a range of potential transactions or.
I'll now turn the call over to Al Tobia, Chief investment officer to speak to our existing holdings al.
Thank you Clifford as we evaluate new opportunities, we continue to maximize the value and return of our existing holdings. Our goal is to monetize our life Sciences portfolio expeditiously during the second quarter, we exited our position in Sunshine and to date, we have now recovered $212 million of our original $282 million life science.
Portfolio investment.
As a reminder, immediately following the acquisition of this portfolio, we recovered approximately $145 million through the sale of certain public equities from the portfolio. We have continued to monetize this portfolio and as of June 30th we held positions in two public companies, Eric <unk> Biosciences, and induction health care group.
These positions represented approximately $66.7 million in value.
<unk> recently completed an IPO.
Class a shares did not yet trade publicly as of June 30.
Importantly, we continue to hold meaningful positions in four additional private life Sciences companies.
Including Oxford, Nana poorer technologies, Oxford, Nana Port disclosed earlier this year that it started the process of preparing for an IPO and that while the timing of a potential IPO is dependent on market conditions and other matters not fully within its control ox.
Oxford, <unk> expects that the IPO would occur in the second half of 'twenty one.
On the London stock exchange.
In addition to Oxford Nana poor, we remain enthusiastic about the prospects for our other private holdings.
With respect to our IP business investments made over the past year have resulted in a balanced portfolio, including both soft licensing and litigation, we generated more than $17 million in revenue. This year up from 2 million in the second quarter last year.
This growth was driven by a few licenses and settlements, including one large settlement.
Our policy is not to comment publicly on the specifics of any individual settlement, including identifying counterparties given confidentiality agreements and other considerations are.
Our team is actively advancing a number of opportunities to monetize our existing IP assets and to acquire additional portfolios with that I'd like to turn the call over to rich rosenstein, our CFO to discuss the results rich.
Thank you al our book value at June 32021 was $147.1 million or $3 or two cents per basic share compared to $128.1 million or $2.64 per basic share at March 31st $292.5 million or $5.94 per.
Basic share at December 31, 2020.
Our book value reflects the impact of the increase in the company's share price over the last year on our warrant and embedded derivatives liabilities, which stood at $290.2 million at June 30th.
These liabilities will be extinguished upon exercise or exploration of these warrants and preferreds, we consider their impact should all derivatives speed convert it.
Assuming full exercise of all issue derivatives Acacias pro forma book value would rise to $942.8 billion or $5.70 per share up from $882.5 billion or $5.39 per share on the same basis as of December 31, 2020 for.
For the quarter highlights of our financial performance include the following.
Revenues for the second quarter of 2021 were $17.4 million up from $2.1 million a year ago.
Operating income was $1.6 million in the quarter reversing a loss of $6.7 million a year ago.
Realized and unrealized gains totaled $25.8 million in the quarter.
Cash and equity securities at fair value totaled $326 million at June 32021, compared to $274.6 million at December 31.
That was $145.5 million in senior secured notes issued to starboard value.
More detail on these results have been made available in the press release issued this morning and in our quarterly report on Form 10-Q, which we filed with the SEC. This morning, Let me now turn the call back to Clifford for closing comments Clifford.
Thanks, Rich and income.
<unk>.
Acacia continues to execute on its investment strategy.
As always our focus continues to be an improvement in our book value and executing our acquisition strategy, which we are focused on doing in collaboration with starboard.
As stewards of shareholder capital, we view valuation sit in a variety of other factors unimportant SEC.
Texas is important.
And we will not rush to make an acquisition for expedience.
I'm now happy to answer questions.
Thank you the floor is now open for questions. If you do have a question. Please press Star then one on your telephone keypad to join the queue. If youre using a speakerphone. Please pick up your handset to provide the best sound quality again, ladies and gentlemen, if you do have a question or comment. Please press Star then one on your telephone keypad.
At this time.
And first we go to the line of Anthony Stoss with Craig Hallum. Please go ahead.
Hey, gentlemen, a couple of quick questions for you.
Most recently you used several of patent litigation with the network equipment supplier can you confirm that.
Your June revenues were impacted by the settlement and could we expect kind of monies going forward and then I had a couple of other questions after that.
Rich why don't you take that one.
Yes, I can so Tony as we mentioned our revenues in the quarter were just over $17 million and did include.
A number of our license agreements and settlements, including one large settlement.
And so that Youll see on our balance sheet is accounts receivable.
That we would have collected in the beginning of the third quarter.
Do you expect that to continue richer or is it a kind of one and done settlement.
As Alan mentioned, we can't comment on the specifics of individual settlements, but many of our licensing agreements and settlements are are often upfront.
Upfront payment some do have recurring revenue.
Characteristics of them, but by and large our our transactions are typically up.
<unk> payments.
Okay.
I'll just I'll just add on that.
We've got some new portfolios.
They're coming to realization now we regard that settlement is inauspicious start for that portfolio and we expect a substantial follow on for that portfolio.
Meeting with other companies Clifford or with the same.
Existing with other.
With other licensees.
Okay.
And then shifting gears.
Biomet JV your partner is valuing their ownership in biomed.
On a much higher valuation and you guys are can you discuss why and maybe the differences in.
What theyre currently valuing them versus where you are and why you guys aren't I guess, maybe why you are valuing it more conservatively.
Yeah.
Uh huh.
Rich can Rick will describe the GAAP aspect of it first then I'll talk about the underlying investment.
Yeah, Okay. Good Clifford so Tony Youre right.
As we indicated in our press release.
We value SEC.
All of our private company positions volume that included.
On cost on the basis of cost and we have adopted an approach to valuing our private securities using what's called the measurement alternative under ASC 321, and that involves evaluating the privates at initial cost. We then adjust for any impairment.
That might be.
That might have taken place and then we will also adjust for any observed transactions either primary or secondary transactions and the underlying issue where shares whether they'd be the same shares that we hold different class of shares different size of amount that we own we will take all that into consideration there have been no.
<unk> transactions and buying that per se and so we continue to carry that has cut cost and you can see in our release the three of our private positions buying that pharmaceuticals, ammo pharma and Novo biotics.
<unk> at all on a GAAP basis were carrying at a value combined with $25.4 million.
So we're not I thought we have not adopted a fair value approach to each of our private holdings.
Okay.
And then shifting.
Just to just to finish on your question about the difference in evaluation.
Which explains why we do not disagree with the Maryland valuation that product is a pretty significant.
In women's health that drug and we do think that.
Mel and I have a viable basis full recording the valuation.
Okay. Thanks, Clifford, Kevin a bigger picture, one and I know you.
And I applaud. The fact that you don't want to rush into just any acquisition, but the partnership with starboard is going on almost a year and a half with new acquisitions two to show yet I know you guys have been working hard at it.
Any.
Color either you've been outbid or where are you you're very active now or you think youre getting closer now or anything would be helpful. Because I continue to get lots of calls from shareholders wondering you know a year and a half in while we still don't have anything to show yet.
Sure.
It's a legitimate question and the only way, we'd really like to answer it is that some transactions, which we're getting close to that.
In terms of where we've been so far with Starwood, where extremely instrumental in doing the Woodford portfolio acquisition.
And we've recently spent a substantial amount of time.
Due diligence on a public company.
Of significant size and decided at the end of it did not meet our criteria.
We have a very robust pipeline of late stage.
Prospects at the moment and I'd be surprised as I've said before if we didn't have.
Some significant transactions.
<unk> completed by the end of the.
Okay. Thanks for that thanks, guys.
Again, ladies and gentlemen, if you do have a question or comment. Please signal by pressing Star then one on your telephone keypad and next we go to the line of Brett Reiss with Janney. Please go ahead.
Good morning, gentlemen.
Hello, Brett.
First question is it still the company's aspiration to generate three to $4 of revenue.
On the $42.4 million.
Patton net of accumulated all amortization.
I'm not sure where.
That where you got those numbers from that.
We don't Gen.
Generally refer to.
That type of investment in terms of revenue we refer to it in terms of where we expect to build book value over time, and we would continue to emphasize that.
Okay.
Just I think maybe what you wouldn't when you're referring to that I think that may be.
If we decide to.
Partner with with someone and there is a back end when you look at some of these transactions. There is a larger kind of revenue component and then there is a profit share maybe that's where the three to four came from but the Clifford point each one of these deals.
Has its own criteria. So we're not that prescriptive on three to four per book value. We look at things in terms of their ability to generate our targeted return that we believe is acceptable.
Okay.
There's all sorts of estimate all over the map on what the.
P O value of the Oxford Nana poor.
Might be.
What do you think the.
The IPO value of Oxford Nana poor.
He is going to be.
The beds.
I don't think it'll have surprised you.
If I tell you that.
It's an active IPO, we're top five shareholder.
And it just would not be appropriate for us to make any comment whatsoever.
I forgot.
Okay Fair enough one last one.
And it's.
It's really just <unk>.
Asking the question again from the prior core.
<unk>.
In terms of on a scale of one to 10.10 being met a physical certainty and one being it's just not going to happen what what is the probability.
A deal being consummated for on an operating company before calendar year 2021 is up.
I believe you've been around for a long time and you know deals. So I think it's it would be nobody would feel comfortable predicting with certainty any transaction until it's happened, but what we can tell you with certainty is that we're working very hard we have a tremendous.
Our research collaboration with starboard and there are a number of transactions that we're looking at very closely.
Thank you for taking my questions.
Next we go to the line of Kevin Sami with Sammy capital. Please go ahead.
Good morning, Thanks for taking my question.
Just had one on your ownership stake in Oxford, Maine.
Or are.
Your stake has been 6% since you last disclosed it at year end 2020, and yet they've raised our capital how does your stake been diluted by that raise.
No we've not been diluted.
Yeah.
Okay. So you've participated in the race.
Yeah.
Okay.
Can you add some color to what that hasn't been disclosed to my knowledge.
Well, we didn't do that considering where the company is in it.
<unk>.
The transaction was done in such a way where existing shareholders could maintain their shareholding that we and we did do so.
Understood. Thank you.
This concludes our question and answer session, we turned to Clifford press for closing remarks.
Thank you everyone for your participation on today's call. We very much look forward to our next earnings call and hopefully we will have further news to report at that time.
Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
[music].