Q2 2023 Acacia Research Corporation Earnings Call
Greetings and welcome to the Acacia research second quarter 2023 financial results Conference call.
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I will now turn the conference over to your host Mr. Rob Fink of F. N K IR, Sir you may begin.
Thank you operator open the call today are Ann Jamie healthy interim Chief Executive Officer, and <unk> <unk> Chief Financial Officer.
Before beginning I'd like to remind you that 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 of 1995.
These forward looking statements generally relate to the company's plans objectives and expectations for future operations and are based on the current estimates and projections future results or trends.
<unk> results may differ materially from those projected as a result of certain risk factors and uncertainties.
For a discussion of such risks and uncertainties. Please see the risk factors described in Acacia annual report on Form 10-K, and quarterly report on Form 10-Q filed with the SEC.
I'd also like to remind everyone that a press release disclosing the financial results was issued this afternoon, just after the close of market.
It may be accessed on the company's website under the press release section of the Investor Relations tab of Acacia research Dot com under the news and events tab.
But all that said I would now like to turn the call over to M. J M. J the call is yours.
Thanks, Rob and thanks to everyone for joining the call today.
So in mid July and subsequent to the end of the second quarter, we completed our recapitalization transactions with their largest shareholder starboard value as you know in many ways. This is.
This milestone signals the completion of our larger transformation of Acacia.
Since we announced this transaction in late October along with New senior leadership and new members of our board of directors, we have significantly restructured and improved Acacia.
We reorganized the team we have focusing on sourcing evaluating and executing potential transactions.
Putting in place a more defined methodology, while significantly reducing headcount and associated costs.
<unk> grip products, our IP business is now managed as a division. This means we'll consider allocating additional capital as appropriate and we're finalizing an incentive structure for our IP Division management is more aligned with dairy business.
We reorganized cardtronics energy leadership, reducing costs, improving efficiency and setting the stage for evolution of the business model.
Is there a more predictable cash flows and importantly, we put our corporate incentive plan in place for our employees a parent company to clearly aligns our teams' incentives with those of our shareholders.
I realize that many of these achievements are behind the scenes and I recognize that many shareholders are eager for us to deploy capital into our existing businesses as well as its new businesses. So let me take a second speak to that initiative.
Our pipeline of opportunities continues to grow and we're maintaining rigor in the evaluation of each of those opportunities. We have a number of late stage targets today, we have many other opportunities on deck in some of these cases, we're working with people we partnered with in the past and we have confidence in their track record of success that familiar.
Aerie is accelerating our efforts our network of referral sources also continues to grow that growth. We're encouraged by our progress and we continue to collaborate closely with our largest shareholder and through this relationship we enjoy ready access to their executive network of industry executives extensive network of industry executives.
And they help us source and evaluate appropriate acquisition opportunities.
I'm not going to make any predictions about when a transaction will occur.
Gulf of any transaction, which we've talked about in the past.
We continue to need willing counterparties evaluations that are accretive and attractive for our shareholders and discussing the status of various projects. It doesn't work to anyone's benefit here, but I hope that you appreciate the progress that we've made.
As part of this evolution of Acacia we significantly reduced our cost structure as we've mentioned previously the element of our business for which we have the greatest control.
Our annualized inherent fixed costs decreased by $6 million, an approximate 30% reduction from this time last year. The reduction is broad based and we're now positioned to cover our ongoing fixed corporate costs and interest earned from our cash and cash.
This is an important achievement safeguarding our dry powder for acquisitions.
As we mentioned in the past, where we evaluate potential opportunities in the public markets.
From time to time acquire stock in those companies.
Divisions that are new deal team have taken a public companies are up over 20% year to date, demonstrating the benefits of our targeting and evaluation process.
Our legacy life Sciences assets have been largely monetized as everyone is aware and we're anticipating monetization events with some of our remaining holdings in the not too distant future.
Intellectual property business continues to have expected quarter to quarter revenue fluctuations, but we haven't and important trial related to Wi Fi six past its expected to start in near future and we are optimistic that a favorable outcome would accelerate licensing activity.
Additionally, we have a strong pipeline of potential opportunities to further invest in attractive IP assets.
I'd now like to turn the call over to <unk> to discuss our second quarter financial results.
Thank you James.
Our GAAP book value at June 30th 2023, with $335 4 million or $5.71 per basic share compared to $269 3 million or $6 19 per share at December 31, 2022.
This value reflects the rights offering that was completed in the first quarter and the impact of the outstanding warrant an embedded derivative liabilities.
Total liabilities for warrants and convertible preferred stock to be eliminated upon the exercise or exploration of all such warrants and convertible preferred stock with $94 9 million at June 30th 2023.
S. M. J said, we expect that interest income will cover Acacia snakes parent costs. A key part of this is the elimination of approximately $6 million in annualized parent G&A costs, we expect <unk> to generate free cash flows on an annual basis.
Let me now turn to the second quarter results.
Total second quarter revenues were $7 9 million compared to $16 7 million in the same quarter last year.
<unk> generated $7 5 million in revenue in the quarter compared to $8 7 million last year.
The intellectual property business generated 400000 in licensing and other revenue during the quarter compared to $8 1 million in the same quarter last year.
It's M. J mentioned, given the nature of the IP business, we have expected fluctuations in rabbit nurse revenues quarter to quarter.
Okay.
General and administrative expenses, which includes G&A at IP and printer Onyx were $9 4 million compared to $10 7 million in the same quarter of last year due to the decrease in personnel and compensation costs related to the reduced head count and a reduction in printer.
Ex G&A.
Operating loss was $12 5 million compared to an operating loss of $5 7 million in the same quarter of last year with the reduction due to lower revenue.
Second quarter 2023, GAAP net loss attributable to Acacia research with $18 8 million or 36 cents per diluted share compared to GAAP net loss of 61 5 million or $1.44 per diluted share in the second quarter of last.
Sure.
Net loss included $8 million in realized losses, and $6 6 million in unrealized gains related to the increase in share price of certain holdings.
We also incurred a noncash expense of $9 9 million related to the change in fair value of the starboard series B warrants and embedded derivatives.
The change in fair value was primarily due to the increase in stock price.
The second quarter also included $4 3 million in noncash depreciation amortization and stock based compensation.
<unk> hundred and $49 4 million at December 31, 2022.
Equity securities without readily determinable fair value totaled $5 8 million at June 30th 2023, which amount was unchanged from December 31 2022.
Investment Securities representing equity method investments net of Noncontrolling interests totaled $919 9 million at June 30th 2023 unchanged from December 31 2022.
All milestone payments earned by Mylan G. One through its interest in biomass have been received.
<unk> owns 64% of melon J, one, resulting in a beneficial ownership of 26% environment.
Total indebtedness, which represents the senior secured notes issued to Star Board was $60 5 million at June 30th 2023. This debt was paid off on July 13th.
More details on these results have been made available in the press release issued this afternoon and in our quarterly report on Form 10-Q, which we will file with the SEC later today.
Our GAAP book value as discussed today.
Includes the impact of all warrant an embedded derivative liabilities on our balance sheet.
Which in turn reflects the impact of the increase in the company's share price over time.
These liabilities were extinguished on July 13th 2023, with the completion of the recapitalization transactions with our largest shareholder.
As a result of this recap.
Starboard purchased 15 million new shares in the rights offering at $5.25 per share for total proceeds of $78 8 million in the first quarter of 2023.
$23 2 million of series, a preferred stock was eliminated and $9 6 million.
Shares of common stock were issued in Q3 2023.
65 million of liabilities attributable to the senior secured notes were canceled and starboard invested in an additional $55 million in cash related to the series B warrant exercise and 31 5 million shares of common stock were issued in Q3 2023.
Yeah.
$94 9 million of total warrant an embedded derivative liabilities attributable to the series B warrants and series a preferred stock was eliminated in Q3 23.
Acacia paid starboard a total of $66 million as consideration for early exercise of the series B warrants and convertible preferred stock in Q3, 2023.
And Acacia incurred approximately 250000 in incremental transaction costs associated with the consummation of the recapitalization transactions.
The completion of the recapitalization transactions resulted in an incremental 166.8 million increase in book value and an incremental $41 4 million increase in shares outstanding.
Adjusted book value as adjusted to give effect to the transaction.
If it had been completed on June 30th 2023, rather than July 13th 2023 would be 502.2 million and diluted shares outstanding would be $999 9 million.
Resulting in an adjusted book value per share of $5 and three <unk> at June 30th 2023.
We continue to believe that cash per share is an important metric for measuring our progress.
As of June 30th 2023, our cash per share stood at $6.05.
On a pro forma basis, assuming completion as of June 30th 2023 of all phases of the starboard transaction, our cash per share would be approximately $3.44 per share.
With that we'd be pleased to take your questions.
Thank you at.
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One moment, please while we poll for questions.
Thank you. Our first question is coming from Anthony Stoss with Craig Hallum. Your line is life.
Thanks.
And Jay I, just wanted to circle back to actually two questions on your Wi Fi six commentary.
I'm curious if there's more than one potential licensee that you've been engaged with.
And then the second question related on the M&A side, probably more bigger picture are you seeing potential prices come down are you still leaning towards doing a series of smaller deals or larger.
Larger one love to hear your thoughts on nimble subjects.
Yes, Hey, Tony how are you doing.
Yes.
So so on the Wi Fi six.
All of our patents were working with multiple parties and all the time all the time.
So there is a.
A trial with one particular party.
I mean, we can't really say anything about it as I'm sure you can appreciate that.
There's a lot of activity on the Wifi six portfolio, we feel really confident about it as a great portfolio of standards essential.
And so we have.
A trial in its upcoming.
We are encouraged by it.
Yeah.
You still feel really confident that value the rest of the portfolio.
So that's the Wi Fi six piece on the M&A and it's a great question.
When we've talked in the past.
We talk a lot about seeing things on the public side and we're still seeing things on the public side that are really attractive and remember we're kind of on the public stuff. We're focused on some of the parts type opportunities and deep margin improvement type of opportunity.
Where you can.
We can work with the operating network that we have to really drive value in the business.
It should get a re rating from actually operating way that we believe we can have it working.
And we still see a lot of those were evaluating a lot of those.
And we're kind of engaged in some of those at the moment.
What's interesting is that we're starting to see valuations become a little more attractive on the private side, which is different than what I think we've talked about for the last couple of quarters, which was the private equity guys still have unrealistic expectations on behalf of hearing loss.
Hi.
We're starting to see that clearly.
We're still in on the private side, we're still looking at opportunities.
Some of the parts is a little bit more challenging on the private side, you just don't need that much against you.
Seeing some carve out type opportunities, which I guess would be the private technology to the public some of the archetype story.
But we're seeing some things that are.
I'd characterize as mismanaged and balance sheet constrained.
Which we think is very attractive and again that operating network. We have is very beneficial for us there because we we will go into a situation like that with somebody that we trust and respect has a plan.
And from that business.
We're also seeing things, where we're we're meeting a lot of executives that don't want to go do buy builds.
And that's interesting and that starts small and grow into a much larger business.
And we're seeing a handful of things.
We're lucky we kind of have an embarrassment of riches of having several proprietary truly proprietary things.
And then we're looking at which I always having been a longtime private equity guy nothing's really proprietary.
But we are working on a handful of things that are really interesting with folks that we have known for a long time, where we do have an opportunity to partner with them.
To to invest and acquire the business and continue to grow it. So I think I'm encouraged by valuations on the private side I think there is definitely more presenting itself. When you look at the limited partner staffs, which we look at a lot of net inflows to outflows.
Limited partners are telling their GPS that they need to start selling businesses and that's good for us generally so.
Public markets, there are always pockets valued in the public markets and finding them and having the right execution town alongside us.
Right those shifts and grow those businesses on the private side, we're starting to see more more attractive low.
Got it I don't have to tell you that shareholders are growing eager to see the outcome I'm sure you are as well.
Sanjay.
I I'm I'm, probably more eager than anybody else Tony So I appreciate the encouragement.
Thanks again.
Of course.
Thank you. Our next question is coming from breast reef with Janney Montgomery Scott Your line is life.
Hi, M J, Hi, Kirsten Hi, Rob.
Hey, Brian .
On the the patent business you know that the company gets no credit for the patent side of the business and its frustrating because you you won't some good portfolios and the people who follow the industry.
Think of Mark Booth team is is top notch.
Would you consider to help people focus and take an interest in the patent side of the business.
Making available it's as the company did years ago, when it was solely a patent company.
A spreadsheet of pending cases.
Most importantly, any firm trial dates.
So that shareholders do not have to search on their own you know for these public record filings.
Look I think it's a good question we were encouraged by it.
As we look at the patent business.
One we have a great team and I appreciate you reiterating that Brad because we do believe we have a great team.
But it's always nice to your third party validation that the team hasn't hasn't really nice set.
Patents in our portfolio and the pipeline is actually pretty interesting there.
The underlying economics of the individual portfolios are really attractive.
And they're there as a key metric there is.
The number of lines that we have in the water any given time and the progress on those lines.
Look I think we can take that into consideration.
I don't I don't know if that gives you an answer right now on that point.
Respect.
<unk> and we can take it into consideration.
Oh, great Great and one other question its probably for a cure.
Kirsten.
The June 30th cutoff date shows the cash.
At $355 million. So then ramp up the plant yeah, hi, So subsequent to that you paid off the $60 million in notes. So the cash yeah I have to take $60 million off the $355 million you know what what's the arithmetic on that.
Correct. So.
In our 8-K that was just recently released.
Go to the final page of it.
<unk>, a you'll see the walk from the June 30 cash balance of 355 point to two posts to recap of 343.4.
Okay I'll I'll.
Hum.
19 of homework.
Yep.
Exactly yeah, so that that that will walk you through each step of the recap transaction.
To give you the cash on a pro forma basis.
Okay, Great alright, thanks for taking my questions.
Sure.
Yeah.
Thank you everyone as we have no further questions in queue. At this time I will hand, it back to Mr. Mcnulty for any closing comments.
Thanks Ali.
Nothing in particular, just to thank everyone for joining the call and we look forward to talking to you in a quarter with further updates.
Thanks, so much.
This concludes today's conference and you may disconnect your lines at this time and we thank you for your participation.
Okay.