Q3 2021 Acacia Research Corp Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Acacia research third quarter financial results. At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments. After the presentation. It is now my pleasure to turn the floor over to Rob Fink, Sir the floor is yours.

Thank you operator.

Hosting the call today are Clifford press, Chief Executive Officer, and Richard Rosen, Chief Financial Officer.

Before beginning I would 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 by the private Securities Litigation Reform Act of 995.

These forward looking statements generally relate to the company's plan objection objectives and expectations for future operation and are based on the 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.

For a discussion of such risks and uncertainties. Please see the risk factors described in <unk> annual report on Form 10-K quarterly reports on Form 10-Q that are filed with the SEC.

To remind everyone that a press release disclosing the company's financial results issued this afternoon. After the close of market. This release may be accessed on the company's website and Acacia research Dot com under the news and events tab with all that said I'd now like to turn the call over to Clifford Press Clifford the call is yours.

Thank you Rob good afternoon, everyone.

This has been an active period for Acacia during the quarter, we essentially completed.

Planned monetization of the Woodford life Sciences portfolio with the IPO of Oxford Nanotechnologies at the end of September on the London Stock Exchange, Oxford Nano point is.

The largest single position in that portfolio and we were the fourth largest shareholder pre IPO as a result of the IPR, we recognized nearly $120 million in realized and unrealized gains for the quarter Acacia sold approximately 10% of its position in this IPO generating net proceeds of approximately 22.

Dollars at our remaining position represent just over 35 million shares was valued at 267 $8 million at September 30 of 2021, we have entered into a six month lockup for our remaining shares because of this agreement we are valuing our remaining position at a slight discount until the expiry.

The lockup.

We have now recovered $256 million of our original $282 million investment in this life science portfolio as of September 30, we held positions in full public companies, including Eric's Biosciences immuno colon Occidental.

That is a $348 $7 million. We also continue to hold meaningful positions in three private life Sciences companies and we believe there is significant potential for these companies.

Looking ahead, we are actively working to.

To complete acquisitions of companies through tightly coordinated research process.

Bridging our teams experience in public and private markets with a seasoned board of directors, we focus on mature technology life Sciences, healthcare and industrials and certain segments of the financial services area, including insurance.

Our primary opportunity set remains.

With companies set up under 2 billion equity market cap.

As we have said in the past we view this segment as the least efficient area in the public markets and one that favors our primary research approach and permanent capital structure.

Our ongoing partnership with starboard value LP continues to result in a growing pipeline of potentially attractive acquisition opportunities.

Our expanded team is performing due diligence with involvement of our board of directors as we evaluate these opportunities.

And we have recently identified two public companies really adult meaningful positions and have made office Tibet.

With respect to our IP business investments made over the past year have resulted in a diversified portfolio producing revenue through a range of licensing agreements.

This was a solid quarter for us with $1 6 million in revenue down from $19 5 million in the third quarter of last year. However, subsequent to the end of the quarter. We were pleased to enter into a very important license agreement with Samsung Electronics Company Ltd relating to Wi Fi six standards essential patents.

Terms of this agreement are confidential.

<unk> of the first license related to this Wi Fi six portfolio in such a short period. Since we acquired it is indicative of the very significant value of the investment.

Beyond that our team is actively advancing a number of opportunities to monetize our existing IP assets and a clear additional portfolios.

Just after the quarter ended we acquired <unk> a company that provides printing solutions on unique formats and in certain industrial settings, where laser and other printers are not feasible.

<unk> solutions have been integrated into longstanding workflows, where they provide specialized capabilities. This has resulted in strong recurring revenue for conceivable consumables and ongoing maintenance for.

<unk> generates substantial operating and free cash flow, we couldnt be more pleased with this acquisition. We have been impressed by the management team at <unk>, who bring with them. Many years of experience in this highly specialized field and we are excited to welcome the customers and employees of <unk> to the Acacia family.

The cases, a day has substantial capital resources with $605 million in cash and public equity investments at the end of September another $35 million in restricted cash relating to our preferred stock.

Starboard value were to exercise the remainder of their warrants at $5.25 per share cash exercise price our capital available would rise to more than $1 billion. This does not include the potential value of our private holdings, which we carry a cost.

With that I'd like to turn the call over to rich Rosenstein, our CFO to discuss the results rich.

Thank you Clifford first I'd like to note that the acquisition of <unk> closed in early October subsequent to the end of the quarter. Accordingly. The results reported today do not include any contribution from this business to reflect the $33 million in cash paid for this business.

Our GAAP book value at September 30 of 2021 was $235 9 million or $4.82 per basic share compared to $292 5 million or $5.94 per basic share at December 31, 2020.

As a reminder, our GAAP book value includes the impact of our warrant an embedded derivative liabilities on our balance sheet, which in turn reflect the impact of the increase in the company's share price over the last year.

As these liabilities with the extinguished upon exercise or exploration of these warrants and convertible preferred stock. We think it is more useful to consider our book value should all of these instruments be fully converted.

On this basis, assuming full exercise of all issue derivatives Acacias pro forma book value would rise to 1 billion or $6 31 per share up from $942 8 million or $5.70 per share as of June 30th 2021 and.

And $882 5 million or $5.39 per share on the same basis as of December 31 2020.

For the quarter highlights of our financial performance include the following revenues.

Revenues for the quarter were too.

The third quarter of 2021 were 1.6 million compared to $19 5 million a year ago operating loss was $12 7 million in the quarter compared to a loss of 2.8 million a year ago.

Realized and unrealized gains totaled $104 2 million in the quarter.

Cash and equity Securities at fair value totaled $605 1 million at September 30th 'twenty, 'twenty, one compared to $274 6 million at December 31, 2020.

And that was $182 9 million in senior secured notes issued to starboard value L. P.

More detail on these results have been made available in the press release issued just after the close and in our quarterly report on Form 10-Q, which we which we filed with the FCC just after the close as well now let me turn the call back to Clifford for closing comments Clifford.

Thanks Rich in conclusion during this quarter several facets of our strategy came into focus.

<unk> is uniquely positioned as a uniquely positioned to acquire businesses and a compelling counterparty.

Our focus continues to be an improvement in our underlying net asset value and executing our acquisition strategy.

And we would not be happy to answer any questions.

Certainly the floor is now open for questions. If you have any.

Questions or comments. Please press star one on your phone at this time.

Putting a question you please pick up your handset.

On a speaker phone could provide optimum.

Please hold them on that while we poll for questions.

Your first question is coming from Anthony Stoss, Please announce your affiliation and pose your question.

Hi, Anthony Stoss, Craig Hallum, and Clifford Rich.

Hey, Charlie Hey, Tony.

I'm not sure how much you'll be able to say, but.

With both spoken and maybe Comtech is too early on are things progressing at kind of the rate that you would have expected and I know you're limited in what you can say I'm just curious from a timing perspective, if you can shed some light on how much longer you think that'll go.

The easier one for rich the G&A was up quite a bit even chug, along a little over $6 million and the balance to 10.3, I know you had a bunch of M&A transactions during the quarter, where do you think opex or G&A should look for the December quarter.

Why don't you answer that first rich and then I'll comment on the transactions.

Sure.

Tony.

So from a head count perspective, we are we are.

Really have not increased significantly our head count since the last quarter. So the expenses that you're seeing really relate to the deals that we're working on and expenses.

Expenses incurred in diligence ing deals in pursuing those deals so that's going to be a function in each quarter of how active we are in diligence sing and I'm working through our execution process. So I don't want to give a specific number for the for the fourth quarter. Because we are actively involved in a couple of situations right now as you know and and then.

And then others that we continue to work on but that's going to vary quarter to quarter based upon our level.

Of activity in our in our acquisition pipeline.

Thanks, Rich and Tony with regards to your first question about the two offers that we've made those up obviously public company office and.

It remains to be seen what happens there I would say that we have not been surprised by any of the developments to date in either of those situations I think the trading price of both of those securities relative to the Alpha is probably the best indication of how things are going.

Okay.

To follow up on your comment Clifford on the Samsung Wi Fi patent license.

Clearly Wifi six is going to be huge.

I would presume that you may be given notice to other companies or how do you. How do you think this will play out with other customers and then maybe a similar question on the Ethernet patents that I think you guys had disclosed a license with with Cisco I believe I'm curious if you've made any progress with other customers there as well.

As you know in the IP business.

The first license is very important.

We haven't.

Had a longstanding relationship with Samsung in the past.

And we think this is critical.

Transaction for monetizing this portfolio and as for the future.

Samsung is one of them.

First a very very long list of companies to whom these Pat.

Patents would apply so I think we expect to.

Not proceed and license these patents to the remaining users.

Similar story on.

Pete.

Ethernet patents.

We pay a lot of attention to our first counterparty.

As the industry.

And it's an indication of where things go from there.

Okay, and maybe if I could sneak in one more here for rich.

On the <unk> of the closed after the quarter can you maybe help us understand.

Revenue profitability.

Opex headcount that you'll be incurring here in the December quarter.

Yeah, what I can say about print products system, we mentioned at the time it was a $33 million acquisition and we said that we paid approximately three and a half times EBITDA. So that'll give you a sense of the profitability that under 10 million.

And.

We'll have a lot more to say about it in the fourth quarter. When we will include their results are within our own.

Okay. Thanks, rich thanks, guys. Good luck.

Thanks, Tony.

Your next question is coming from Brett <unk> with Janney Montgomery Scott. Please post your question.

Thank you, operator, Hi, Clifford Hi, Richard.

Hello, Brett Hey, Brad Hi.

The NOL was about $285 million in your book.

Wondered million plus.

Realized gains from the Woodford portfolio, so as the NOL now down to about 100.

$85 million is that the way that works.

Not exactly so youre right, we had between net operating loss carryforwards and capital loss carryforwards at the end of 'twenty 'twenty. We had 202 hundred 85 million of both combined we have sold and realize some gains during the course of the year, including.

And the in the in the third quarter when we.

Sold a small part of our Oxford, not a poor position and we sold another position in the in the during the quarter, which is a part of our ownership of immuno core.

And so we did recognize some gains but the 100 billion that you are referencing is actually a realized and unrealized gains so the impact on our NOL. The use of our NOL really relates only to the realization of Gamestop unrealized. So it's it's a it's quite a bit less than the 400 billion.

Okay.

So.

Because the NOL is still material and in place the blocker provision that would prevent star board from exercising their Warren.

Is also still still at play.

The document speaks for itself Brett in the blocker is in the document it's not tied to the existence of the NOL.

Okay.

Now the $605 million in cash.

On the balance sheet in the release, you show $217 9 million in cash and equivalents.

And then there's an IDE.

A line item equity securities at fair value.

That treasury bills is that part out of cash.

No no those are think of those as the marketable securities. So those are the publicly traded securities 387 million.

Okay. So so.

The other 400, but you know when you say you have $605 million in cash.

Where is that no. It's it's cash and an equity investment and equity that was cash and marketable securities, but got it got it got it sorry about that now.

In.

You filed that you own securities in S. P O K, but have not seen a filing an S on the U S.

S M T al but in your remark.

You indicated that you did buy some.

<unk>.

Well.

Do you own some of the S. N T. Alan you just haven't filed.

Whereas you know Brett that finding threshold is 5% so.

We're obviously under 5% in our ownership.

Okay.

I will thank you for answering my questions and I'll drop back in in Q, because there may be others on the call.

Thanks, Brett.

There appear to be no further questions in queue. At this time I would like to turn the floor back over to Clifford press for any closing comments.

Yeah.

But first.

Okay.

Sorry.

Thank you very much for attending.

We.

We look forward to explaining the rest of the Acacia strategy as it comes into focus going forward as you know it's been a while to prepare it and assemble the.

The company to start executing and we think that the best way to make it clear what our strategy is will be to demonstrate by example, and execute on transactions. We look very much forward to having that happen and being able to report on that as we proceed.

Okay.

Yeah.

Okay. Thank you all for joining us today.

Operator thank.

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

Yes.