Acacia Research Corp (ACTG) Q3 2021 Earnings Call Transcript

Image source: The Motley Fool.

Acacia Research Corp (ACTG -1.81%)
Q3 2021 Earnings Call
Nov 15, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Acacia Research Third Quarter Financial Results. [Operator Instructions]

It is now my pleasure to turn the floor over to Rob Fink. Sir, the floor is yours.

Rob Fink -- Investor Relations

Thank you, operator. Hosting the call today are Clifford Press, Chief Executive Officer; and Richard Rosenstein, 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 as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, and 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 a discussion of such risks and uncertainties, please see the risk factors described in Acacia's Annual Report on Form 10-K, quarterly reports on Form 10-Q that are filed with the SEC.

I'd like 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 at acaciaresearch.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.

Clifford Press -- Chief Executive Officer

Thank you, Rob. Good afternoon, everyone. This has been an active period for Acacia. During the quarter we essentially completed our planned monetization of the Woodford Life Science's portfolio with the IPO of Oxford Nanopore Technologies at the end of September on the London Stock Exchange. Oxford Nanopore is the largest single position in that portfolio and we were the fourth largest shareholder pre-IPO. As a result of the IPO, 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 million and our remaining position represent just over 35 million shares was valued at $267.8 million at September 30, 2021. We have entered into a six-month lockup for our remaining shares and because of this agreement, we are valuing our remaining position with a slight discount until the expiry of 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 four public companies, including Arix Biosciences, Immunocore and Oxford Nanopore valued at $348.7 million. We also continue to hold meaningful positions in three private Life Science's companies and we believe there is significant potential for these companies.

Looking ahead, we are actively working to complete acquisitions of companies through a tightly coordinated research process, leveraging our team's 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 that are under $2 billion in 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 potential 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, where we have built meaningful positions and have made offers to bank [Phonetic].

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 stellar 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 Limited relating to our Wi-Fi 6 standards essential patents. Terms of this agreement are confidential. The completion of the first license related to this Wi-Fi 6 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 acquire additional portfolios.

Just after the quarter ended, we acquired Printronix. A company that provides Printing Solutions on unique formats and in certain industrial settings where laser and other printers are not feasible. Printronix' solutions have been integrated into long-standing workflows where they provide specialized capabilities. This has resulted in strong recurring revenue for consumables and ongoing maintenance. Printronix generate substantial operating and free cash flow. We couldn't be more pleased with this acquisition. We've been impressed by the management team at Printronix to bring with them many years of experience in this highly specialized field and we are excited to welcome the customers and employees of Printronix to the Acacia family.

Acacia today 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. If Starboard value were to exercise the remainder of the 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 at cost.

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

Richard Rosenstein -- Chief Financial Officer

Thank you, Clifford. First, I'd like to note that the acquisition of Printronix closed in early October subsequent to the end of the quarter. Accordingly, the results reported today, do not include any contribution from this business nor reflect the $33 million in cash paid for this business.

Our GAAP book value at September 30, 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 and 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 would be extinguished upon exercise or expiration 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 issued derivatives, Acacia's 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 30, 2021 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 for the quarter were -- for 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 30, 2021, compared to $274.6 million at December 31, 2020. And debt was $182.9 million in senior secured notes issued to Starboard Value LP. More detail on these results have been made available in the press release issued just after the close and then our quarterly report on Form 10-Q, which we -- will be filed with the SEC, just after the close as well.

Now let me turn the call back to Clifford for closing comments. Clifford?

Clifford Press -- Chief Executive Officer

Thanks, Rich. In conclusion, during this quarter, several facets of our strategy came into focus. Acacia is uniquely positioned -- is a uniquely positioned acquirer of businesses and a compelling counterparty. Our focus continues to be on improvement in our underlying net asset value and executing our acquisition strategy.

And we would now be happy to answer any questions.

Questions and Answers:

Operator

Certainly, the floor is now open for questions. [Operator Instructions] Your first question is coming from Anthony Stoss. Please announce your affiliation and pose your question.

Anthony Stoss -- Craig-Hallum -- Analyst

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

Clifford Press -- Chief Executive Officer

Hey Tony.

Richard Rosenstein -- Chief Financial Officer

Hey Tony.

Anthony Stoss -- Craig-Hallum -- Analyst

I'm not sure how much you'll be able to say, but with both SPOK 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 to what you can say, but I'm just curious from the timing perspective? If you can shed some light on how much longer you think that'll go? And the easier one for, Rich, the G&A was up quite a bit, you've been chugging along a little over $6 million in the bounce to $10.3 million. 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?

Clifford Press -- Chief Executive Officer

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

Richard Rosenstein -- Chief Financial Officer

Sure. Thanks, Tony. So from a headcount perspective we really have not increased significantly our headcount, since the last quarter. So the expenses that you're seeing really relate to the deals that we're working on and expenses incurred and diligence in deals and pursuing those deals. So that's going to be a function in each quarter of how active we are in diligencing and working through our execution process. So, I don't want to give a specific number for the fourth quarter, because we're actively involved in a couple of situations right now, as you know 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 acquisition pipeline.

Clifford Press -- Chief Executive Officer

Thanks, Rich. And Tony with regard to your first question about the two offers that we've made. Those are obviously public company offers 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 offer is probably best indication of how things are going.

Anthony Stoss -- Craig-Hallum -- Analyst

Okay. And I just, did follow-up on your comment Clifford on this Samsung Wi-Fi patent license. Clearly Wi-Fi 6 is going to be huge. I would presume that you've maybe given notice to other companies or 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 Cisco I believe, I'm curious if you've made any progress with other customers there as well?

Clifford Press -- Chief Executive Officer

As you know, in the IP business, the first license is very important. We have had a long-standing 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 the first of a very, very long list of companies to whom these patents would apply. So I think we expect to not proceed and license these patents to the remaining users. Similar story on the Ethernet patents. We pay a lot of attention to our first counterparty as does the industry and it's an indication of where things go from there.

Anthony Stoss -- Craig-Hallum -- Analyst

Okay. And maybe if I could sneak in one more here for Rich. On Printronix, closed after the quarter. Can you maybe help us understand revenue, profitability, opex, headcount that you'd be incurring here in the December quarter?

Richard Rosenstein -- Chief Financial Officer

Yes. What I can say about Printronix as we mentioned at the time it was a $33 million acquisition, and we said that we paid approximately 3.5 times EBITDA. So that will give you a sense of the profitability. A bit under $10 million. And we'll have a lot more to say about it in the fourth quarter when we will include their results within our own.

Anthony Stoss -- Craig-Hallum -- Analyst

Okay. Thanks, Rich. Thanks guys. Good luck.

Clifford Press -- Chief Executive Officer

Thanks, Tony.

Operator

Your next question is coming from Brett Reiss with Janney Montgomery Scott. Please pose your question.

Brett Reiss -- Janney Montgomery Scott -- Analyst

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

Richard Rosenstein -- Chief Financial Officer

Hello Brett.

Clifford Press -- Chief Executive Officer

Hey, Brett.

Brett Reiss -- Janney Montgomery Scott -- Analyst

Hi. The NOL was about $285 million and you booked $100 million plus in realized gains from the Woodford portfolio. So is the NOL now down to about $185 million? Is that the way that works?

Richard Rosenstein -- Chief Financial Officer

Not exactly. So you're right, we had between net operating loss carry forwards and capital loss carry-forwards at the end of 2020, we had $285 million of both combined. We have sold and realized some gains during the course of the year, including in the third quarter when we sold a small part of our Oxford Nanopore position and we sold another position in the -- during the quarter, which is a part of our ownership of Immunocore, and so we did recognize some gains. But the $100 million that you're referencing is actually our realized and unrealized gains. So the impact on our NOL to use of our NOL, really relates only to the realization of gains not unrealized. So it's, quite a bit less than the $400 million.

Brett Reiss -- Janney Montgomery Scott -- Analyst

Okay. So because the NOL is still material and in place, the blocker provision that would prevent Starboard from exercising their warrants is also still at play.

Clifford Press -- Chief Executive Officer

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

Brett Reiss -- Janney Montgomery Scott -- Analyst

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 is a line item, equity securities at fair value, is that treasury bills? Is that part of the cash?

Richard Rosenstein -- Chief Financial Officer

No, no. Those are, think of those has the marketable securities. So those are the publicly traded securities $387 million.

Brett Reiss -- Janney Montgomery Scott -- Analyst

Okay. So where is the other $400 million -- when you say you have $605 million in cash, where is that?

Richard Rosenstein -- Chief Financial Officer

No, its cash and equity investments...

Brett Reiss -- Janney Montgomery Scott -- Analyst

Oh, and equity. Okay.

Clifford Press -- Chief Executive Officer

Its cash and marketable securities, Brett.

Brett Reiss -- Janney Montgomery Scott -- Analyst

Got it, got it, got it. Sorry about that.

Clifford Press -- Chief Executive Officer

That's not a problem.

Brett Reiss -- Janney Montgomery Scott -- Analyst

Now, you mentioned, you filed that you owned securities in SPOK. But I've not seen a filing on -- on the SMTL. But in your remarks, you indicated that you did buy securities in -- do you own some of the SMTL and you just haven't filed?

Clifford Press -- Chief Executive Officer

Well, as you know, Brett, the filing threshold is 5%. So we are obviously under 5% in our ownership.

Brett Reiss -- Janney Montgomery Scott -- Analyst

Okay. I will -- thank you for answering my questions. I'll drop back in queue because there may be others on the call.

Richard Rosenstein -- Chief Financial Officer

Thanks, Brett.

Operator

There appear to be no further questions in queue at this time. I'd like to turn the floor back over to Clifford Press for any closing comments.

Richard Rosenstein -- Chief Financial Officer

Clifford?

Clifford Press -- Chief Executive Officer

Sorry. Thank you very much for attending. 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 and assemble 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.

Rob Fink -- Investor Relations

Okay, thank you all for joining us today. Operator?

Operator

[Operator Closing Remarks]

Duration: 19 minutes

Call participants:

Rob Fink -- Investor Relations

Clifford Press -- Chief Executive Officer

Richard Rosenstein -- Chief Financial Officer

Anthony Stoss -- Craig-Hallum -- Analyst

Brett Reiss -- Janney Montgomery Scott -- Analyst

More ACTG analysis

All earnings call transcripts