Acacia Research Reports Fourth Quarter 2023 Financial Results

Rhea-AI Summary

Acacia Research Corporation (Nasdaq: ACTG) reported strong Q4 financial results with $92.3 million in revenue, driven by $82.8 million from intellectual property operations. The company acquired oil and gas assets, increasing book value per share to $5.90. Acacia's strategic acquisitions and IP initiatives are poised to generate future cash flows and shareholder value.

Insights

Financial Analyst

The reported financial results from Acacia Research Corporation indicate a substantial increase in revenue, primarily driven by the Intellectual Property (IP) operations which surged from $2.5 million to $82.8 million in the fourth quarter year-over-year. This remarkable growth in IP revenue is a strong indicator of the company's successful licensing initiatives, particularly concerning their WiFi-6 technology. The sale of Arix Bioscience Plc shares and the subsequent capital gain reflect a strategic divestment that has contributed to the company's liquidity, enhancing its ability to pursue further acquisitions.

From an investment perspective, the company's shift towards acquiring cash flow-generating oil and gas assets is a noteworthy diversification strategy that could hedge against the volatility of IP income. However, the energy sector's inherent risks, such as fluctuating commodity prices and regulatory challenges, must be taken into account. The company's zero total indebtedness at the parent company level and the minimal non-recourse debt at Benchmark are positive signs of a strong balance sheet, which is crucial for supporting future growth and withstanding industry downturns.

Market Research Analyst

The significant increase in book value per share, from $5.04 to $5.90, signals a robust financial position and could be attractive to investors seeking companies with a strong equity base. The company's strategic acquisitions, especially in the oil and gas sector, suggest a pivot towards stable, long-term asset growth. This move may appeal to investors looking for companies with diversified revenue streams beyond their core IP business. The entry into the energy market, particularly the Western Anadarko Basin, is a calculated step into a mature and prolific resource play, potentially offering steady cash flows and growth opportunities.

However, the energy sector's performance is tied to geopolitical and environmental factors which could introduce volatility to the company's earnings. Investors should also consider the scalability of Acacia's business model and its ability to integrate and manage its diverse portfolio, which now spans IP, industrial operations and energy.

Legal Expert

The substantial revenue from IP licensing suggests that Acacia has a strong portfolio of patents, especially in the WiFi-6 space, that are highly marketable and legally robust. The ability to generate significant income from these assets indicates effective intellectual property management and a strategic approach to licensing. The legal landscape for IP is complex and constantly evolving, so Acacia's success in this area could be seen as a testament to their legal and strategic expertise.

Moreover, the company's involvement in various settlements and licensing agreements requires careful legal navigation to avoid potential disputes and litigation, which can be costly and time-consuming. Investors should appreciate the legal acumen required to manage such a diverse and potentially litigious portfolio.

Intellectual Property Licensing and Settlement Agreements Drive Q4 Income; Company Continues to Advance Capital Allocation and Business Strategy, Announced Agreement to Acquire Cash Flow-Generating Oil and Gas Assets with a Goal of Driving Book Value per Share

NEW YORK--(BUSINESS WIRE)-- Acacia Research Corporation (Nasdaq: ACTG) (“Acacia” or the “Company”) today reported financial results for the three months and full year ended December 31, 2023.

Martin (“MJ”) D. McNulty, Jr., Chief Executive Officer, stated, “Through the last quarter of 2023 and into the beginning of 2024 we continued to meaningfully advance our business strategy in an effort to drive earnings and book value per share growth in disciplined and unique ways. For example, in the fourth quarter our Intellectual Property team generated $82 million in gross revenue from its WiFi-6 licensing initiatives. We were able to commit a portion of this income as well as proceeds from the sale of a life science asset into a highly attractive near-team addition to our oil and gas business, which we expect to close in Q2. We expect to execute on additional acquisitions, including in the oil and gas space, and anticipate further IP-related income setting the stage for meaningful future cash flows while preserving our capital base. Our scale, including more than $430 million in cash as of today, gives us significant advantages as we seek to acquire future cash flows to continue to drive value for shareholders.”

Mr. McNulty continued, “I am pleased with the progress we have made. In particular, our book value increased from $5.04 per share at September 30, 2023 to $5.90 at December 31, 2023. Additional opportunities are moving forward, including both public and private targets, demonstrating the significant optionality built into our model, and enabling us to exploit inefficiencies and unlock value from a diverse variety of assets. I believe we enter 2024 with accelerating momentum in our existing stable of businesses and our M&A activity.”

Key Business Highlights

• Generated $92.3 million in consolidated revenue for the quarter compared to $13.1 million in revenue in the fourth quarter of 2022, including $82.8 million in license fee revenue from the Company’s intellectual property operations.
• Entered into an agreement to sell our shares of Arix Bioscience Plc for a cash purchase price of $57.1 million (which represents a purchase price of 1.43 British pounds (or GBP) per share, based on the exchange rate on the date that the parties agreed to the purchase price). The share sale closed on January 19, 2024.
• Recorded $11.9 million of net realized and unrealized gains during the quarter, inclusive of unrealized gains as of December 31, 2023 related to the Arix shares.
• Acquired a majority stake in Benchmark Energy II LLC, an independent oil and gas company engaged in the acquisition, production and development of oil and gas assets in mature resource plays in Texas and Oklahoma. On February 16, 2024, Benchmark entered into a Purchase and Sale Agreement to acquire certain upstream assets and related facilities in Texas and Oklahoma from a private seller (the “Transaction”), which will expand the Benchmark portfolio by adding approximately 140,000 net acres and approximately 470 operated producing wells in the prolific Western Anadarko Basin throughout the Texas Panhandle and Western Oklahoma.

Fourth Quarter and Full Year 2023 Financial Highlights
(In millions, except per share data)
	Three Months Ended December 31,								Years Ended December 31,
		2023				2022				2023				2022
	(unaudited)								(unaudited)
Intellectual property operations	$	82.8			$	2.5			$	89.2			$	19.5
Industrial operations		8.6				10.6				35.1				39.7
Energy operations		0.8				—				0.8				—
Total revenues	$	92.3			$	13.1			$	125.1			$	59.2
Operating income (loss)	$	55.9			$	(14.5	)		$	20.9			$	(40.1	)
Unrealized gains (losses)1	$	12.6			$	2.5			$	31.4			$	(263.7	)
Realized (losses) gains	$	(1.6	)		$	10.9			$	(10.9	)		$	125.3
Non-cash derivative liability gains (losses)2	$	—			$	(21.5	)		$	8.2			$	13.1
GAAP Net income (loss)	$	74.8			$	(18.4	)		$	67.1			$	(125.1	)
GAAP Diluted net income (loss) per share	$	0.75			$	(0.50	)		$	0.58			$	(3.13	)
1 Unrealized gains and (losses) are related to the change in fair value of equity securities as of the end of the reported period.
2 The non-cash derivative liability gains and (losses) are related to the change in fair value of Acacia’s Series A and B warrants and embedded derivatives and gains and (losses) from the exercise of warrants.

Fourth Quarter 2023 Financial Summary:

• Total revenues were $92.3 million, compared to $13.1 million in the same quarter last year.
  • The Intellectual Property business generated $82.8 million in licensing and other revenue during the quarter, compared to $2.5 million in the same quarter last year.
  • Printronix generated $8.6 million in revenue during the quarter, compared to $10.6 million in the same quarter last year.
  • Benchmark generated $0.8 million in revenue in the quarter subsequent to the completion of the acquisition of Benchmark that closed on November 13, 2023.
• General and administrative expenses were $10.6 million, compared to $15.9 million in the same quarter of last year, with the decrease due to the decrease in expenses related to the agreement with Starboard Value LP to streamline the Company’s capital structure and strengthen its financial position (the “recapitalization transactions”) and a decrease in severance expense.
• Operating income of $55.9 million, compared to operating loss of $14.5 million in the same quarter of last year, with the increase due to higher revenues generated.
  • Printronix contributed $0.5 million in operating income which included $0.7 million of non-cash depreciation and amortization expense.
  • Benchmark contributed $0.1 million in operating loss which included $0.3 million of non-cash charges.
• GAAP net income of $74.8 million, or $0.75 per diluted share, compared to GAAP net loss of $18.4 million, or $0.50 per diluted share, in the fourth quarter of last year.
  • Net income included $12.6 million in unrealized gains related to the increase in share price of certain holdings and the gain for the forward sale agreement with for the shares of Arix.
  • The fourth quarter included $2.5 million in non-recurring charges.

Full-Year 2023 Financial Summary:

• Total revenues were $125.1 million, compared to $59.2 million last year.
  • The Intellectual Property business generated $89.2 million in licensing and other revenue, compared to $19.5 million last year.
  • Printronix generated $35.1 million in revenue, compared to $39.7 million last year.
  • Benchmark generated $0.8 million in revenue for the year (subsequent to the completion of the acquisition on November 13, 2023).
• General and administrative expenses were $43.7 million, compared to $52.7 million last year due to the decrease in expenses related to the recapitalization transactions and a decrease in severance expense.
• Operating income was $20.9 million, compared to an operating loss of $40.1 million last year.
  • Printronix contributed $0.7 million in operating income.
  • Benchmark contributed $0.1 million in operating loss which included $0.3 million of non-cash charges.
• GAAP net income was $67.1 million, or $0.58 per diluted share, compared to GAAP net loss of $125.1 million, or $3.13 per diluted share, last year.
  • Net income included $10.9 million in realized loss, offset by $31.4 million in unrealized gain, related to the increase in share price of certain holdings and the gain for the forward sale agreement for the shares of Arix.
  • The Company recognized non-cash income of $8.2 million related to the change in fair value of the Series A and B warrants and embedded derivatives.

Life Sciences Portfolio

Acacia has generated $507.1 million in proceeds from sales and royalties of the Life Sciences Portfolio, which was purchased for an aggregate price of $301.4 million in 2020. At the end of the fourth quarter, the remaining positions in the Life Sciences Portfolio represented $82.8 million in book value, inclusive of the Company’s holdings in Arix Bioscience Plc:

• On November 1, 2023, Acacia through its wholly owned subsidiary entered, into an agreement with RTW Biotech Opportunities Ltd. to sell its Arix shares to RTW Bio for a purchase price of $57.1 million in aggregate (representing £1.43 per share at an exchange rate of 1.2087 USD/GBP).
• On January 19, 2024, the Company completed its sale of Arix shares. Following the completion of the share sale, the Company and its subsidiaries no longer own any shares of Arix.
• Acacia holds interests in three private companies, valued at an aggregate of $25.7 million, net of non-controlling interest, including an approximately 26% interest in Viamet Pharmaceuticals, Inc., an approximately 18% interest in AMO Pharma, Ltd., and an approximately 4% interest in NovaBiotics Ltd. Values are based on cost or equity accounting.

Balance Sheet and Capital Structure

• Cash, cash equivalents and equity investments measured at fair value totaled $403.2 million at December 31, 2023 compared to $349.4 million at December 31, 2022. The increase in cash was primarily due to the completed Rights Offering and concurrent Private Rights Offering and the proceeds from the exercise of the Series B warrants.
• Equity securities without readily determinable fair value totaled $5.8 million at December 31, 2023, which amount was unchanged from December 31, 2022.
• Investment securities representing equity method investments totaled $19.9 million at December 31, 2023 (net of noncontrolling interests), which amount was unchanged from December 31, 2022. Acacia owns 64% of MalinJ1, which results in a 26% indirect ownership stake in Viamet Pharmaceuticals, Inc. for Acacia.
• The parent company’s total indebtedness was zero at December 31, 2023 following the conversion of the Senior Secured Notes issued to Starboard in July 2023. On a consolidated basis, Acacia’s total indebtedness was $10.5 million at December 31, 2023, which includes $10.5 million in non-recourse debt at Benchmark.

Book Value as of December 31, 2023

At December 31, 2023, book value was $589.6 million and there were 99.9 million shares of common stock outstanding, for a book value per share of $5.90. Acacia’s book value reflects the exercise of the Series B warrants and conversion of the Series A Redeemable Convertible Preferred Stock, which occurred on July 13, 2023 as part of the recapitalization transactions.

Investor Conference Call

The Company will host a conference call today, March 14, 2024 at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time). To access the live call, please dial 888-506-0062 (U.S. and Canada) or 973-528-0011 (international) and if requested, reference conference ID 248690. 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 publicly traded (Nasdaq: ACTG) company that is focused on acquiring and operating attractive businesses across the industrial, healthcare, energy, and mature technology sectors where it believes it can leverage its expertise, significant capital base, and deep industry relationships to drive value. Acacia evaluates opportunities based on the attractiveness of the underlying cash flows, without regard to a specific investment horizon. Acacia operates its businesses based on three key principles of people, process and performance and has built a management team with demonstrated expertise in research, transactions and execution, and operations and management. 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. This news release attempts to identify forward-looking statements by using words such as “anticipate,” “believe,” “could,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” or other forms of these words or similar words or expressions or the negative thereof, although not all forward-looking statements contain these terms. The Company’s actual results may differ materially and adversely from those expressed or implied in any forward-looking statements as a result of various factors and uncertainties, including the Company’s ability to successfully implement its strategic plan, changes to the Company’s relationship and arrangements with Starboard Value LP, the Company’s ability to successfully identify and complete strategic acquisitions of businesses, divisions, and/or assets, the performance of businesses, divisions, and/or assets the Company acquires, 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, the decrease in demand for Printronix' products, Benchmark’s ability to execute on its business strategy, risks relating to price and other fluctuations in the oil and gas market, environmental liability risk, regulatory changes related to the oil and gas industry, other risks inherent in the ownership and operation of oil and gas assets, Benchmark’s ability to close the Transaction, general economic conditions, and the success of the Company’s investments. The Company’s Annual Report on Form 10-K, and other SEC filings discuss these and other important risks and uncertainties that may materially affect the Company’s business, results of operations and financial condition. In addition, actual results may differ materially as a result of additional risks and uncertainties of which the Company is currently unaware or which the Company does not currently view as material. Except as otherwise required by applicable law, the Company undertakes 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.

ACACIA RESEARCH CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
	December 31, 2023				December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	340,091			$	287,786
Equity securities		63,068				61,608
Equity securities without readily determinable fair value		5,816				5,816
Equity method investments		30,934				30,934
Accounts receivable, net		80,555				8,231
Inventories		10,921				14,222
Prepaid expenses and other current assets		23,127				19,388
Total current assets		554,512				427,985
Property, plant and equipment, net		2,356				3,537
Oil and natural gas properties, net		25,117				—
Goodwill		8,990				7,541
Other intangible assets, net		33,556				36,658
Operating lease, right-of-use assets		1,872				2,005
Deferred income tax assets, net		2,915				—
Other non-current assets		4,227				5,202
Total assets	$	633,545			$	482,928
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	3,261			$	6,036
Accrued expenses and other current liabilities		8,405				14,058
Accrued compensation		4,207				4,737
Royalties and contingent legal fees payable		10,786				699
Deferred revenue		977				1,229
Senior secured notes payable		—				60,450
Total current liabilities		27,636				87,209
Deferred revenue, net of current portion		458				568
Series A embedded derivative liabilities		—				16,835
Series B warrant liabilities		—				84,780
Long-term lease liabilities		1,736				1,873
Deferred income tax liabilities, net		—				742
Revolving credit facility		10,525				—
Other long-term liabilities		3,581				1,675
Total liabilities		43,936				193,682
Commitments and contingencies
Series A redeemable convertible preferred stock, par value $0.001 per share; stated value $100 per share; zero and 350,000 shares authorized, issued and outstanding as of December 31, 2023 and 2022, respectively; aggregate liquidation preference of zero and $35,000 as of December 31, 2023 and 2022, respectively		—				19,924
Stockholders' equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; no shares issued or outstanding		—				—
Common stock, par value $0.001 per share; 300,000,000 shares authorized; 99,895,473 and 43,484,867 shares issued and outstanding as of December 31, 2023 and 2022, respectively		100				43
Treasury stock, at cost, 16,183,703 shares as of December 31, 2023 and 2022		(98,258	)			(98,258	)
Additional paid-in capital		906,153				663,284
Accumulated deficit		(239,729	)			(306,789	)
Total Acacia Research Corporation stockholders' equity		568,266				258,280
Noncontrolling interests		21,343				11,042
Total stockholders' equity		589,609				269,322
Total liabilities, redeemable convertible preferred stock, and stockholders' equity	$	633,545			$	482,928

ACACIA RESEARCH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data)
	Three Months Ended December 31,								Years Ended December 31,
		2023				2022				2023				2022
	(unaudited)				(unaudited)
Revenues:
Intellectual property operations	$	82,826			$	2,511			$	89,156			$	19,508
Industrial operations		8,637				10,610				35,098				39,715
Energy operations		848				—				848				—
Total revenues		92,311				13,121				125,102				59,223
Costs and expenses:
Cost of revenues - intellectual property operations		18,946				3,549				34,164				18,029
Cost of revenues - industrial operations		4,479				5,927				18,009				19,359
Cost of production - energy operations		656				—				656				—
Engineering and development expenses - industrial operations		142				135				735				626
Sales and marketing expenses - industrial operations		1,523				2,192				6,908				8,621
General and administrative expenses		10,623				15,867				43,694				52,680
Total costs and expenses		36,369				27,670				104,166				99,315
Operating income (loss)		55,942				(14,549	)			20,936				(40,092	)
Other income (expense):
Equity securities investments:
Change in fair value of equity securities		12,640				2,507				31,423				(263,695	)
(Loss) gain on sale of equity securities		(1,570	)			10,884				(10,930	)			125,318
Earnings on equity investment in joint venture		792				(404	)			4,167				42,531
Net realized and unrealized gain (loss)		11,862				12,987				24,660				(95,846	)
Change in fair value of the Series A and B warrants and embedded derivatives		—				(21,488	)			8,241				13,102
Gain (loss) on foreign currency exchange		28				1,208				53				(3,324	)
Interest expense on Senior Secured Notes		—				(900	)			(1,930	)			(6,432	)
Interest income and other, net		5,523				2,351				15,466				5,442
Total other income (expense)		17,413				(5,842	)			46,490				(87,058	)
Income (loss) before income taxes		73,355				(20,391	)			67,426				(127,150	)
Income tax benefit		2,145				1,812				1,504				16,211
Net income (loss) including noncontrolling interests in subsidiaries		75,500				(18,579	)			68,930				(110,939	)
Net (income) loss attributable to noncontrolling interests in subsidiaries		(744	)			193				(1,870	)			(14,126	)
Net income (loss) attributable to Acacia Research Corporation	$	74,756			$	(18,386	)		$	67,060			$	(125,065	)
Income (loss) per share:
Net income (loss) attributable to common stockholders - Basic	$	74,611			$	(20,528	)		$	55,140			$	(133,035	)
Weighted average number of shares outstanding - Basic		99,697,447				41,361,988				75,296,025				42,460,504
Basic net income (loss) per common share	$	0.75			$	(0.50	)		$	0.73			$	(3.13	)
Net income (loss) attributable to common stockholders - Diluted	$	74,611			$	(20,528	)		$	53,208			$	(133,035	)
Weighted average number of shares outstanding - Diluted		99,932,858				41,361,988				92,411,818				42,460,504
Diluted net income (loss) per common share	$	0.75			$	(0.50	)		$	0.58			$	(3.13	)

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240314485401/en/

Investor Contact:

FNK IR

Rob Fink, 646-809-4048

rob@fnkir.com

Source: Acacia Research Corporation

FAQ

What were Acacia Research Corporation's Q4 revenues and where did the majority come from?

Acacia reported $92.3 million in Q4 revenues, with $82.8 million from intellectual property operations.

What was Acacia's book value per share at the end of December 2023?

Acacia's book value per share was $5.90 at the end of December 2023.

What did Acacia acquire in the oil and gas sector in Q4?

Acacia acquired Benchmark Energy II LLC, an independent oil and gas company.

How much cash did Acacia have as of December 31, 2023?

Acacia had more than $430 million in cash as of December 31, 2023.

What was the GAAP net income for Acacia in Q4 2023?

Acacia reported GAAP net income of $74.8 million, or $0.75 per diluted share, in Q4 2023.

What is the ticker symbol for Acacia Research Corporation?

The ticker symbol for Acacia Research Corporation is ACTG.