Acacia Research Reports Second Quarter 2022 Financial Results

Rhea-AI Summary

Acacia Research Corporation (ACTG) reported a Q2 2022 revenue of $16.7 million, down from $17.4 million in Q2 2021. The company recorded $11.5 million in realized gains, including $5.2 million from its Life Science Portfolio. Acacia repurchased 6.1 million shares at an average price of $4.64 as part of a $40 million buyback program. Additionally, the company repaid $50 million in debt. However, there was a substantial GAAP net loss of $61.5 million compared to a net income of $19.7 million last year.

Positive

• Generated $11.5 million in realized gains
• Repurchased 6.1 million shares at an average price of $4.64
• Received FDA approval for Mycovia's VIVJOA™, triggering a $26.7 million milestone payment

Negative

• Revenue declined to $16.7 million from $17.4 million year-over-year
• GAAP net loss increased to $61.5 million from a profit of $19.7 million
• Operating loss of $5.7 million compared to operating income of $1.6 million in the prior year

NEW YORK--(BUSINESS WIRE)-- Acacia Research Corporation (Nasdaq: ACTG) (“Acacia” or the “Company”) today reported financial results for the three and six months ended June 30, 2022.

Key Business Highlights

• Generated $16.7 million in consolidated revenue for the quarter, down from $17.4 million in revenue in the second quarter of 2021.
• Recorded $11.5 million in realized gains during the quarter, including $5.2 million from the Life Science Portfolio.
• Repurchased 6.1 million shares at an average price of $4.64 as part of $40.0 million repurchase authorization. The Company completed this buyback subsequent to the end of the quarter.
• In April 2022, Mycovia Pharmaceuticals received FDA approval on its drug VIVJOA™ (otesecanazole) for the treatment of recurrent vulvovaginal candidiasis, triggering a $26.7 million milestone payment to Acacia for its share of ownership of Viamet Pharmaceuticals, anticipated to be received later in 2022.
• Repaid $50 million in debt owed to Starboard Value LP, during the quarter.
• Realized and unrealized gains from the Life Science portfolio totaled $267 million at June 30, 2022, based on the value of public holdings and the carrying value of the Private Securities.

Second Quarter 2022 Financial Highlights
(In millions, except per share data)
		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
		(unaudited)								(unaudited)
Intellectual property operations		$	8.1			$	17.4			$	10.7			$	23.2
Industrial operations			8.7				—				19.5				—
Total revenues		$	16.7			$	17.4			$	30.2			$	23.2
Operating (loss) income		$	(5.7	)		$	1.6			$	(14.2	)		$	(4.0	)
Unrealized gains (losses) 1		$	(57.6	)		$	11.2			$	(229.9	)		$	49.0
Realized gains		$	11.5			$	14.6			$	78.4			$	15.4
Non-cash derivative liability (loss) 2		$	(35.1	)		$	(5.6	)		$	(7.0	)		$	(204.5	)
GAAP Net (loss) income		$	(61.5	)		$	19.7			$	(134.8	)		$	(144.8	)
GAAP Diluted (loss) income per share		$	(1.44	)		$	0.23			$	(3.06	)		$	(3.02	)

1		Unrealized gains and (losses) are related to the change in fair value of Acacia’s equity securities as of the end of the reported period.
2		The non-cash derivative liability (loss) is related to the change in fair value of Acacia’s Series A and B warrants and embedded derivatives.

Clifford Press, Chief Executive Officer, stated, “Our strategic partnership with Starboard Value LP has generated significant value since it was initiated two and a half years ago. We have formed a Special Committee of the Board of Directors that is being advised by independent advisors to review the Starboard relationship with the objective of establishing a simplified capital structure with increased capital resources for the next phase of the Company’s growth.”

“Recent economic conditions, including rising interest rates, have increased the quantity and quality of companies in our pipeline,” added Mr. Press. “We evaluate ongoing transactions in light of changing business conditions and adjusted valuations and maintain a strong capital base to act on opportunities.”

Second Quarter 2022 Financial Summary:

• Total revenues were $16.7 million, compared to $17.4 million in the same quarter last year.
  • Printronix generated $8.7 million in revenue in the quarter.
  • The Intellectual Property business generated $8.1 million in licensing and other revenue during the quarter, compared to $17.4 million in the same quarter last year.
• General and administrative expenses were $10.7 million, compared to $6.5 million in the same quarter of last year due to the inclusion of Printronix operating expenses, as well as increased business development and personnel expenses related to the Company’s transaction organization. Deal costs are expensed as incurred, and not capitalized.
• Operating loss of $5.7 million, compared to operating income of $1.6 million in the same quarter of last year, primarily as a result of the Company’s acquisition infrastructure buildout.
  • Printronix contributed $1.1 million in operating loss, a reflection of seasonality.
• GAAP Net loss of $61.5 million, or $1.44 per diluted share, compared to net income of $19.7 million, or $0.23 per diluted share, in the second quarter of last year.
  • Net loss included $11.5 million in realized gains, offset by $57.6 million in unrealized losses, related to the decline in share price of certain holdings, as well as the reversal of unrealized gains previously recorded for shares sold during the quarter for realized gains.
  • The Company recognized a non-cash expense of $35.1 million related to the change in fair value of the Starboard warrants and embedded derivative liabilities due to the appreciation in Acacia’s stock price during the quarter.

Balance Sheet and Capital Structure

• Cash, cash equivalents and equity investments measured at fair value totaled $390.3 million as of June 30, 2022 compared to $670.7 million as of December 31, 2021.
• Equity securities without readily determinable fair value totaled $5.8 million at June 30, 2022, compared to $5.8 million at December 31, 2021.
• Investment securities representing equity method investments totaled $48.0 million at June 30, 2022 (net of noncontrolling interests), compared to $19.9 million at December 31, 2021. The increase relates to milestone payments during the quarter earned by MalinJ1 through its interest in Viamet, but not yet received. Acacia owns 64% of MalinJ1.
• Total indebtedness, which represents the Senior Secured Notes issued to Starboard Value LP, was $115.8 million at June 30, 2022. During the second quarter, the Company repaid $50 million in Starboard Notes. Subsequent to the end of the quarter, the Company repaid an additional $55 million in Starboard Notes.
• The Company’s current book value totaled $268.2 million, or $6.60 per share, as of June 30, 2022, compared to $345.5 million, or $7.42 per share, as of March 31, 2022, and $430.5 million, or $8.80 per share, as of December 31, 2021. Acacia’s current book value reflects the impact of the outstanding warrant and the embedded derivative liabilities. Assuming full exercise of all issued derivatives, Acacia’s pro forma book value would rise to $911.3 million, or $5.87 per share, down from $952.2 million, or $5.91 per share, as of March 31, 2022, and $1.1 billion, or $6.51 per share, as of December 31, 2021. Pro forma book value per share has declined by 10% during the first half of the year primarily due to the decline in the value of the Company’s Oxford Nanopore Technologies holding.

Acacia has generated $407.9 million in proceeds from sales and royalties of the Life Science Portfolio through June 30, 2022, which was purchased for an aggregate price of $297 million. The remaining positions in the Life Science Portfolio represent $155.9 million in book value as shown below:

Public Securities
Based on Market Value (at June 30, 2022)
Company		Ticker		Number of Shares		Value
Oxford Nanopore Technologies plc 1		LSE: ONT		13.8 mm		$46.2 mm
Arix Bioscience plc		LSE: ARIX		29.0 mm		$38.9 mm
Immunocore Holdings plc 2		NASDAQ: IMCR		0.46 mm		$17.0 mm
Total Public Holdings						$102.1 mm

(1)		Sold 300,000 shares in the second quarter of 2022 for approximately $1.2 million of gross proceeds.
(2)		Sold 225,000 shares in the second quarter of 2022 for approximately $7.8 million of gross proceeds.

Private Securities
Based on Cost or Equity Accounting Value (at June 30, 2022)
Company		Ownership Percentage		Value
Viamet Pharmaceuticals, Inc. 3		26%
AMO Pharma		24%	—	$53.8 mm
NovaBiotics		4%
Total Private Holdings				$53.8 mm

(3)		Viamet value is based on equity method accounting value, reflecting Acacia’s share of Viamet through ownership of MalinJ1.

Pro Forma Book Value and Changes to Derivative Valuations

As of June 30, 2022, book value was $268.2 million and there were 40.6 million shares of common stock outstanding, for a book value per share of $6.60, down from $7.42 as of March 31, 2022, and $8.80 as of December 31, 2021. The decrease since December 31, 2021 is due to the decrease in our asset values, primarily cash and equity securities at fair value. Total liabilities for warrants and preferred stock to be eliminated upon exercise or expiration of all such warrants and preferred stock were $115.3 million as of June 30, 2022. All of these derivative liabilities would be eliminated upon exercise or expiration of all such warrants and preferred stock.

Under GAAP, book value reflects the impact of the liabilities associated with potential issuance of shares related to the exercise of the Company’s warrants and conversion of the Company’s convertible preferred stock. As the value of those liabilities varies with fluctuations in the Company’s stock price, management believes a presentation of book value assuming full exercise of all warrants and conversion of all preferred stock presents a useful measure of book value for investors. However, this calculation has its limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of book value calculated in accordance with GAAP.

Book value as of June 30, 2022 reflects the impact of the following:

• $115.8 million of face value of Notes issued to Starboard Value LP, all of which may be used to exercise Series B warrants at $3.65 per share;
• $35.0 million in face value of Series A preferred stock issued to Starboard Value LP; and
• $115.3 million of warrants and embedded derivative liabilities associated with all preferred stock and warrants held by Starboard Value LP, to be eliminated upon exercise or expiration of all such warrants and preferred stock.

Assuming Starboard Value LP converted all preferred stock and exercised all warrants:

• $115.0 million of liabilities attributable to the Notes would be eliminated, and 31.5 million shares of common stock would be issued;
• $35.0 million in face value of preferred stock would be eliminated, and 9.6 million shares of common stock would be issued;
• $115.3 million of embedded derivative liabilities attributable to the warrants and preferred stock would be eliminated; and
• $377.8 million of cash would be added upon exercise of the remaining Series B warrants and Series A warrants, and 73.5 million shares of common stock would be issued.

The expected impact of this would be an incremental $643.1 million in book value, and an incremental 114.6 million of shares outstanding. Assuming such conversion and exercise, pro forma book value would be $911.3 million, and diluted shares outstanding would be 155.2 million, resulting in book value per share of $5.87, as compared to $5.91 as of March 31, 2022, and $6.51 as of December 31, 2021. The $5.25 per share cash exercise feature of 68.5 million Series B warrants will expire on August 25, 2022.

Share Repurchase Program

As previously reported, effective March 31, 2022, the Company’s Board of Directors approved a new stock repurchase program for up to $40.0 million of shares of common stock. During the quarter, the Company repurchased 6.1 million shares at an average price of $4.64 per share, for a total of $28.5 million. Subsequent to the end of the quarter, the Company completed the $40 million authorization. As of August 8, 2022, the number of shares outstanding was 38.3 million. The Board will continue to evaluate uses of capital in the future.

Investor Conference Call:

The Company will host a conference call today, August 11, 2022 at 11 a.m. Eastern Time (8 a.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 536777. 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 permanent capital platform with a strategy to purchase businesses based on the differentials between public and private market valuations. Acacia leverages its (i) access to flexible capital that can be deployed opportunistically as a result of its strategic partnership with Starboard Value LP, (ii) disciplined focus on identifying opportunities where it can be an advantaged buyer, initiate a transaction opportunity spontaneously, avoid a traditional sale process and complete the purchase of a business, division or other asset at an attractive price, (iii) willingness to invest across industries and in off-the-run, often misunderstood assets that suffer from a complexity or multi-factor discount, (iv) relationships and partnership abilities across functions and sectors, and (v) strong expertise in corporate governance and operational transformation. Acacia seeks to identify opportunities where it believes it is an advantaged buyer, where it can avoid structured sale processes and create the opportunity to purchase businesses, divisions and/or assets of companies at an attractive price due to Acacia’s unique capabilities, relationships or expertise, or Acacia believes the target would be worth more to it than to other buyers. 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. The Company’s actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including the Company’s ability to successfully implement its strategic plan, the ability of the Company to renegotiate the terms of its relationship with Starboard Value LP, the ability to successfully identify and complete strategic acquisitions of businesses, divisions, and/or assets, 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, general economic conditions, including the impact of the COVID-19 pandemic and the success of the Company’s investments. The Company’s Annual Report on Form 10-K, and other SEC filings discuss some of the important risks and uncertainties that may affect the Company’s business, results of operations and financial condition. We undertake 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
		June 30, 2022				December 31, 2021
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	263,945			$	308,943
Equity securities at fair value			126,345				361,778
Equity securities without readily determinable fair value			5,816				5,816
Investment securities - equity method investments			73,020				30,934
Accounts receivable, net			13,692				9,517
Inventories, net			12,056				8,930
Prepaid expenses and other current assets			5,291				4,764
Total current assets			500,165				730,682
Long-term restricted cash			—				418
Property, plant and equipment, net			3,883				4,183
Goodwill			7,470				7,470
Other intangible assets, net			42,725				48,793
Leased right-of-use assets			2,415				2,027
Other non-current assets			5,041				5,283
Total assets		$	561,699			$	798,856
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	5,484			$	5,440
Accrued expenses and other current liabilities			6,841				6,227
Accrued compensation			4,108				3,698
Royalties and contingent legal fees payable			2,581				2,463
Deferred revenue			1,378				1,114
Senior secured notes payable			115,828				181,248
Total current liabilities			136,220				200,190
Deferred revenue, net of current portion			623				581
Series A warrant liabilities			12,785				11,291
Series A embedded derivative liabilities			23,599				18,448
Series B warrant liabilities			96,781				96,378
Long-term lease liabilities			2,254				2,027
Deferred income tax liabilities, net			3,052				18,552
Other long-term liabilities			1,066				6,161
Total liabilities			276,380				353,628
Commitments and contingencies
Series A redeemable convertible preferred stock, par value $0.001 per share; stated value $100 per share; 350,000 shares authorized, issued and outstanding as of June 30, 2022 and December 31, 2021; aggregate liquidation preference of $35,000 as of June 30, 2022 and December 31, 2021			17,145				14,753
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; 40,622,465 and 48,807,748 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively			41				49
Treasury stock, at cost, 13,877,003 and 5,388,469 shares as of June 30, 2022 and December 31, 2021, respectively			(86,781	)			(47,281	)
Additional paid-in capital			646,352				648,389
Accumulated deficit			(316,493	)			(181,724	)
Total Acacia Research Corporation stockholders' equity			243,119				419,433
Noncontrolling interests			25,055				11,042
Total stockholders' equity			268,174				430,475
Total liabilities, redeemable convertible preferred stock, and stockholders' equity		$	561,699			$	798,856

ACACIA RESEARCH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
Revenues:
Intellectual property operations		$	8,062			$	17,400			$	10,677			$	23,203
Industrial operations			8,655				—				19,547				—
Total revenues			16,717				17,400				30,224				23,203
Costs and expenses:
Cost of revenues - intellectual property operations			4,634				9,253				9,198				14,566
Cost of sales - industrial operations			4,592				—				8,784				—
Engineering and development expenses - industrial operations			145				—				335				—
Sales and marketing expenses - industrial operations			2,294				—				4,310				—
General and administrative expenses			10,722				6,503				21,775				12,669
Total costs and expenses			22,387				15,756				44,402				27,235
Operating (loss) income			(5,670	)			1,644				(14,178	)			(4,032	)
Other (expense) income:
Equity securities investments:
Change in fair value of equity securities			(57,647	)			11,158				(229,850	)			49,007
Gain on sale of equity securities			11,498				14,617				78,374				15,436
Earnings on equity investment in joint venture			42,085				7				42,085				2,737
Net realized and unrealized (loss) gain			(4,064	)			25,782				(109,391	)			67,180
Change in fair value of investment			—				—				—				(2,752	)
Gain on sale of investment			—				—				—				3,591
Change in fair value of the Series A and B warrants and embedded derivatives			(35,146	)			(5,576	)			(7,048	)			(204,485	)
Loss on foreign currency exchange			(1,814	)			(152	)			(2,627	)			(176	)
Interest expense on Senior Secured Notes			(1,859	)			(1,607	)			(4,460	)			(2,764	)
Interest income and other, net			863				85				1,870				59
Total other (expense) income			(42,020	)			18,532				(121,656	)			(139,347	)
(Loss) income before income taxes			(47,690	)			20,176				(135,834	)			(143,379	)
Income tax benefit (expense)			200				(510	)			15,078				(520	)
Net (loss) income including noncontrolling interests in subsidiaries			(47,490	)			19,666				(120,756	)			(143,899	)
Net income attributable to noncontrolling interests in subsidiaries			(14,013	)			(6	)			(14,013	)			(906	)
Net (loss) income attributable to Acacia Research Corporation		$	(61,503	)		$	19,660			$	(134,769	)		$	(144,805	)
(Loss) income per share:
Net (loss) income attributable to common stockholders - Basic		$	(63,443	)		$	15,234			$	(138,560	)		$	(147,099	)
Weighted average number of shares outstanding - Basic			43,988,677				48,729,020				45,259,435				48,662,897
Basic net (loss) income per common share		$	(1.44	)		$	0.31			$	(3.06	)		$	(3.02	)
Net (loss) income attributable to common stockholders - Diluted		$	(63,443	)		$	18,928			$	(138,560	)		$	(147,099	)
Weighted average number of shares outstanding - Diluted			43,988,677				83,086,980				45,259,435				48,662,897
Diluted net (loss) income per common share		$	(1.44	)		$	0.23			$	(3.06	)		$	(3.02	)

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220811005266/en/

Investor Contact:

FNK IR

Rob Fink, 646-809-4048

rob@fnkir.com

Source: Acacia Research Corporation

FAQ

What were Acacia Research's Q2 2022 financial results?

Acacia reported $16.7 million in revenue for Q2 2022, a decline from $17.4 million in Q2 2021, and a net loss of $61.5 million.

What triggered the $26.7 million milestone payment to Acacia?

The milestone payment was triggered by the FDA approval of Mycovia Pharmaceuticals' drug VIVJOA™ for recurrent vulvovaginal candidiasis.

How many shares did Acacia Research repurchase in Q2 2022?

Acacia repurchased 6.1 million shares at an average price of $4.64 as part of a $40 million share repurchase program.

What were the unrealized gains and losses reported by Acacia?

Acacia reported unrealized losses of $57.6 million in Q2 2022, impacting its overall financial performance.

What is Acacia Research's stock symbol?

Acacia Research is traded under the stock symbol ACTG.

What was the operating loss for Acacia Research in Q2 2022?

The operating loss for Acacia in Q2 2022 was $5.7 million, compared to an operating income of $1.6 million in Q2 2021.

What significant financial events occurred in Acacia Research's Q2 2022 results?

Acacia paid down $50 million in debt and noted a significant drop in revenues and increased net losses compared to the prior year.