Acacia Research Corporation (ACTG) on Q1 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the Acacia Research First Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rob Fink of FNK IR. Thank you sir, you may begin.
Rob Fink: Thank you, operator. Hosting the call today are Clifford Press, Chief Executive Officer; Al Tobia, President and Chief Investment Officer; and Rich Rosenstein, Chief Financial Officer. Before beginning, I'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 Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives, and expectations for future operation and are based on current estimates and projections, future results or trends. Actual 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's annual report on Form 10-K and quarterly reports on Form 10-Q, both of which are filed with the SEC.
Clifford Press: Thank you, Rob, and good morning, everyone. We remain focused on executing the strategy that we adopted as the foundation of our strategic alliance with Starboard Value LP. This strategy leverages our strong balance sheet and ready-access to committed capital also benefits from the inherent flexibility we have created enabling us to pursue a range of potential transactions. We continue to work with Starboard Value evaluating potential acquisitions within the small cap value sector. Our primary opportunity set remains the sub $2 billion public equity market. As we have said in the past, we view this segment as the least efficient area of the market and one that favors our primary research approach and permanent capital structure. Over the last year the robust market performance has slowed our top of funnel idea flow, however the -- with validity and interest rate concerns increasing. We are beginning to see an increase in the number of public market opportunities, again. We have added two private equity executives to our team to assist us in public and selected private transactions. Our goal is to acquire operating companies in mature technology, healthcare, industrial and certain financial services segments. As we evaluate new opportunities, we continue to maximize the value in return on our existing holdings. There are two recent developments to highlight. On April 30, Arix Bioscience, one of our public assets announced the outcome of its strategic implementation review culminating in a number of immediate Board changes. This review was part shareholder engagement in which we were heavily involved. As a result of this review Rob Lyne, Formerly Chief Operating Officer and General Counsel of Arix was named Interim CEO and appointed to the Board. Arix is now recruiting a permanent CEO. In addition to Acacia nominees, Maureen O'Connell and Isaac Kohlberg were appointed to the Board of Arix as Non-Executive Directors. Finally, Peregrine Moncreiffe joined the Board as Non-Executive Chairman. Peregrine has established a distinguished record as Chairman of another listed investment company over an extended period, and we are very fortunate to have him as Chairman of Arix. We are very supportive of these corporate governance improvements and believe these changes ensure that the company is served by our Board that is responsive to its shareholders. And earlier this month, Oxford Nanopore raised GBP195 million or $275 million in new investment at a valuation of $3.5 billion. As part of this transaction, Oxford Nanopore also announced plans to complete an initial public offering. This follows the successful IPO by Immunocore in the first quarter as well. All of these transactions increased the options for liquidity for us and can help us to deliver enhanced value realization.
Rich Rosenstein: Thank you, Clifford. Our book value at March 31, 2021 was $128 million or $2.64 per basic share compared to $292.5 million or $594 per share at December 31, 2020. The decrease is due to the $198.9 million in expense related to the change in fair value of the Series A and Series B warrants and embedded derivatives. This non-cash expense is the result of the substantial appreciation of Acacia's share price during the quarter from $3.94 at December 31, 2020 to $6.65 at March 31, 2021, which increased the potential liabilities for the warrants and derivatives we carry. This it's important to note that this expense is entirely non-cash. As these liabilities will be eliminated upon other exercise or expiration of these warrants and preferred stock, we again believe it is useful to look at a calculation of book value as of all of these instruments were exercised. Pro forma for full exercise of all warrants and preferred stock, Acacia's book value would rise to $5.62 per share, up from $5.39 per share on a comparable basis at December 31, 2020. For the quarter, our financial results included the following. We ended the quarter with cash and equity securities at fair value totaling $325.1 million compared to $274.6 million at December 31. Debt was $116 million in senior secured notes issued to Starboard. And last Revenues for the quarter of -- first quarter of 2021 were $5.8 million. More detail on these results have been made available in the press release issued this morning and also in the upcoming quarterly report on Form 10-Q, which we will file with the SEC later today. Now, let me turn the call back to Clifford for closing comments. Clifford?
Clifford Press: Thanks, Rich. In conclusion, Acacia continues to execute its investment strategy. As always our focus continues to be on improvement in our book value and a strong balance sheet with which we can make additional investments. We are focused and working hard to identify an appropriate acquisition in collaboration with Starboard. That's said as stewards of shareholder capital valuation fit in a variety of other diligence factors are important. We will not make an acquisition for experience. We are in evaluating a large number of potential opportunities carefully.
Operator: Thank you. Our first question comes from the line of Anthony Stoss with Craig-Hallum. Please proceed with your question.
Anthony Stoss: Yes. Clifford, Alan, Rich. Thanks, Clifford, for the detail on the pipeline of potential acquisition targets in the industries that you're in. The fact that you hired two private equity execs on Board of the Acacia team, I would presume that that's going to speed up things. Is there anything to be said on just the level of interaction with Starboard? Is that still the same kind of high level or is it flowing, as a result, you needed to hire these to people? Anything you can tell us on kind of the targeted pipeline would be helpful? And I had a couple of follow-ups after that.
Clifford Press: Okay. Thanks, Tony. So we hired these two very capable additions because we are reaching the point where deal execution and analysis was becoming relevant and they've been very helpful in that regard. We had a very good research program going. But as we were getting ready to take the next steps, we thought that these two additions would help on implementation and that is as it is worked out. So we're further along towards completing execution -- transactions now than we had been before. In terms of when we will be able to announce completed acquisitions that of course of announce those upon execution, and we expect to be able to complete transaction certainly this year.
Anthony Stoss: Okay. And then, maybe for Rich, if you wouldn't mind if you had the total NOLs still available number. I'd love to hear that. And then also maybe back to you, Clifford, in the prior several quarterly press releases, if you will, you guys listed out kind of a position update. There wasn't one in today's press release. Can you give us any kind of update on what positions you're still holding?
Clifford Press: Yes. We -- the changes to the positions are as described. We do not want to get this established a precedent of listing ongoing holdings on a regular basis. We thought it was important to explain to investors what we have purchased in the previous -- in the Woodford portfolio. But from now on, we will give an update as we have done on realization. Rich, do you want to take the question on the NOL?
Rich Rosenstein: Sure. So Tony, at the end of the year our net operating loss was approximately $275 million. We had a small amount of capital loss carry forward as well. And that's the latest -- as opposed to the latest figures for two of those.
Anthony Stoss: Okay. And then my last question, Rich, I understand that the Oxford recent raise happened post March 31 unless I'm mistaken. The $3.5 billion valuation, is that accurate? And if so, kind of what would you mark up your position from where it was in March? Thanks.
Rich Rosenstein: So what Clifford described which is the $3.5 billion valuation, that is on -- that's the valuation implied by the latest round. The increase in value relative to what we have been carrying it previously is -- it's an excess of 40%.
Anthony Stoss: Okay, that's it for me. Thanks, guys.
Operator: Our next question comes from the line of David Hoff with IP Hawk Newsletter. Please proceed with your question.
David Hoff: Hi, good morning. Focusing on the patent side, is there a materiality threshold I guess floor that you can disclose? Quarter one, quarter two have seen a lot of really good developments on the patent documents, a bunch of settlements coming in. Is there a floor where AK might be triggered?
Clifford Press: Rich, do you want to take that one?
Rich Rosenstein: Yes. We, I mean, look, as you saw in the current quarter, we had approximately $6 million in revenue. For all of last year, we had approximately $30 million in revenue. We haven't disclosed individual settlements unless they're particularly large. So I would say there is a threshold, but we have across the debt. I don't want to say what that is because I don't want to necessarily suggest that you should expect regular press releases on settlements. But let's just say that we're optimistic about the pipeline that we have in the progress that our IT team has been making with the portfolios that we've acquired recently, including newer comp which we closed on just a few months ago.
David Hoff: Are there any additional defendants you expect to be adding to some of these portfolios that have been winning Markman hearings IPRs? I don't know. The Orange/France Telecom is doing very well is heading to trial for Cisco. Harris portfolio is also doing pretty well. And I know that semiconductor -- the first semiconductor portfolio is also doing very well. Are there a number of defendants still out there or might be negotiating discussions?
Clifford Press: As you know, I think in keeping with most of the IP investment funds, we are very reluctant to discuss details of particular licensing campaigns. So I know you follow public developments. And I think that's probably your best source of information.
David Hoff: Okay. Thank you very much.
Operator: Thank you. We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.
Clifford Press: Thank you very much for attending the Acacia Research earnings call, and we look forward to you speaking next quarter.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
