Acacia Research Reports Second Quarter Financial Results
Aug. 08, 2018
NEWPORT BEACH, Calif.--(BUSINESS WIRE)--Aug 8, 2018--Acacia Research Corporation (1) ("Acacia" or "the Company") (Nasdaq: ACTG) today reported results for the three months ended June 30, 2018.Revenues for the second quarter of 2018 were $6,485,000, as compared to $16,457,000 in the comparable prior year quarter. GAAP and non-GAAP results for the second quarter of 2018 included an unrealized gain on our equity investment in Veritone, Inc. ("Veritone") (Nasdaq: VERI) totaling $11,347,000, as compared to a net unrealized loss of $5,411,000 in the comparable prior year quarter. GAAP results for the second quarter of 2018 included impairment charges of $29,210,000. GAAP net loss for the second quarter of 2018 was $28,427,000, or $0.57 per diluted share, as compared to a GAAP net loss of $14,252,000, or $0.28 per diluted share for the comparable prior year quarter. Non-GAAP net income for the second quarter of 2018 was $6,582,000, or $0.13 per diluted share, as compared to a non-GAAP net loss of $7,232,000, or $0.14 per diluted share for the comparable prior year quarter. See below for information regarding non-GAAP financial measures. Cash and short-term investments totaled $134,844,000 as of June 30, 2018, as compared to $136,604,000 as of December 31, 2017.
Board Composition Update
The Company today announced that C. Allen Bradley will be joining the Board as an independent director. Mr. Bradley - the former Executive Chairman of Amerisafe, Inc. (NASDAQ:AMSF) - has served for over 24 years in corporate leadership positions with great success, and has extensive financial, legal and operational expertise.
Furthermore, the Company announced that Joseph E. Davis, Fred A. deBoom and James F. Sanders have resigned from the Board, effective immediately.
Acacia also announced that Marc Booth has re-joined the Company as Chief Intellectual Property Officer. Marc was previously an Executive Vice President at Acacia handling the Company’s patent portfolio until he left the Company last year.
Additionally, Robert B. Stewart Jr., President, Edward J. Treska, Executive Vice President, General Counsel and Clayton J. Haynes, Chief Financial Officer, SVP Finance, Treasurer, are transitioning out of their roles at Acacia effective August 10, 2018, pursuant to a board approved transition arrangement. Ed and Clayton have agreed to provide consulting services to the Company to aid in the transition of their duties subsequent to August 10, 2018. Clayton’s departure as CFO was not based on any disagreement with the Company’s accounting principles, practices or financial statement disclosures. This transition will facilitate the achievement of the Company’s cost saving goals.
Statement from Alfred V. Tobia Jr. and Clifford Press
Newly-elected directors Alfred V. Tobia Jr. and Clifford Press issued the following statement updating stockholders on Acacia’s business and strategy going forward:
“We are fully committed to implementing the plans we outlined ahead of the 2018 Annual Meeting of Stockholders, including cutting costs, protecting stockholder capital, improving corporate governance, methodically stabilizing the business and reconstituting Acacia’s Board with highly-credentialed, independent directors with demonstrated governance and investment skills. We believe that with the right strategy in place, Acacia can drive real value creation for its stockholders - and we look forward to working with the Company’s dedicated employees to achieve this goal.
In our short time on the Board, we have made tangible progress in executing on our strategic plan and these efforts are ahead of schedule. Operating expenses have been reduced significantly, decreasing Acacia’s general and administrative run rate from $13 million per year to approximately $4.5 million per year. We are also creating a better system to handle capital allocation decisions in our current investments and new investments.
We are pleased that Allen Bradley has agreed to join as a director. Allen brings deep expertise and experience to the Board. He will be a highly-qualified, independent voice for stockholders. We are committed to adding additional independent directors in the near term, with the goal of returning the Board to five members.
Additionally, we are carefully evaluating the patent business to ensure we are making decisions that are in the best interests of stockholders. We are excited that Marc Booth has agreed to return to Acacia as Chief Intellectual Property Officer. This is in line with our plan to bring in competent, capable people to assess this business. Marc will play a vital role in managing and monetizing the patents portfolio. He is deeply familiar with the Acacia’s patent portfolio and will be a safe pair of hands to manage these assets.
We would like to thank Ed Treska and Clayton Haynes for their contributions and service to Acacia over the years. We appreciate their work and their gracious assistance to us as we shift the management of the company to be more aligned with the size of its operations.”
Statement from Marc Booth, Chief Intellectual Property Officer:
“I am excited to be returning to Acacia to oversee the Company’s patent business. I intend to conduct a careful, methodical review of this part of the business to assess what the opportunities are for delivering increased value for our stockholders, and I look forward to drawing on my past experience at Acacia to guide these efforts.”
Biography of C. Allen Bradley, Jr.
C. Allen Bradley, Jr. served as executive chairman of Amerisafe, Inc. from 2005 to 2016. He served at Amerisafe as Chief Executive Officer from 2003 to 2015, president from 2002 to 2008, and Executive Vice President from 2000 to 2002. Mr. Bradley was Amerisafe’s Executive Vice President and General Counsel from 1996 to 2000. As Executive Vice President-Operations from 1994 to 1996, he managed operations for Mor-Tem Systems, Inc.
Mr. Bradley practiced law in Louisiana from 1976 to 1992 and was elected to the Louisiana House of Representatives, where he served as a state representative from 1984 to 1992. He also served on the board of the National Council on Compensation Insurance, Inc. from 2012 to 2016, and is a past board member of Amerisafe, Inc. He earned his Bachelor of Arts at Southeastern Louisiana University. He was awarded his Juris Doctor degree from Louisiana State University.
Consolidated Financial Results - Overview
Financial highlights and operating activities during the periods presented included the following:
Summary Consolidated Financial Results
Three months ended June 30, 2018 compared with the three months ended June 30, 2017
Revenues (in thousands):
In the second quarter of 2018, two licensees individually accounted for 48% and 42% of revenues recognized. In the second quarter of 2017, one licensee individually accounted for 85% of revenues recognized.
Cost of Revenues (in thousands):
Second quarter 2018 inventor royalties and contingent legal fees expense decreased primarily due to the decrease in related revenues quarter to quarter. Second quarter 2018 total revenues, less inventor royalties expense and contingent legal fees expense was $4,207,000, or 65% of second quarter 2018 revenues, as compared to $8,948,000, or 54% of revenues recognized in the comparable prior year quarter.
Second quarter 2018 litigation and licensing expenses decreased primarily due to a net decrease in litigation support and third-party technical consulting expenses associated with ongoing licensing and enforcement programs and an overall decrease in portfolio related enforcement activities.
General and Administrative Expenses (in thousands):
Second quarter 2018 general and administrative expenses increased 12%, primarily due to an increase in proxy related legal and consulting fees, partially offset by a reduction in personnel and severance costs in connection with headcount reductions in 2017.
Non-cash stock compensation expense decreased due to a decrease in expense for market-based performance stock options expensed in the second quarter of 2017. Non-cash stock compensation expense related to Veritone profits interests increased due to the increase in the fair value of our Veritone related profits interest units, consistent with the increase in the underlying Veritone stock price during the second quarter of 2018. Profits interest related non-cash stock compensation expense is adjusted each reporting period for changes in estimated fair value, which is primarily based on the quoted market price of Veritone common stock.
Impairment of Patent-Related Intangible Assets (in thousands):
Impairment charges for the second quarter of 2018 primarily reflects the impact of a reduction in estimated future net cash flows for certain patents. These impairment charges consisted of the excess of the asset’s carrying value over its estimated fair value as of June 30, 2018. These impairment charges only impacted certain patents that we incurred acquisition costs for when initially acquired in prior periods. These impairment charges did not impact any portfolios that we did not incur acquisition costs for when initially acquired, which are not reflected on our balance sheet pursuant to U.S. Generally Accepted Accounting Principles.
Investments at Fair Value
Our investment in Veritone consists of 4,119,521 shares of Veritone common stock and 1,120,432 common stock warrants and is accounted for at fair value. As such, our investment is marked to market at each balance sheet date, primarily based on fluctuations in Veritone's stock price each period, with related unrealized investment gains and losses reflected in the consolidated statement of operations. Second quarter 2018 results included an unrealized investment gain totaling $11,347,000, related to the application of the fair value method of accounting to our equity investment in Veritone. Total net investment loss for the second quarter of 2017 totaled $5,411,000 primarily comprised of an unrealized loss related to the application of the fair value method of accounting to our equity investment in Veritone, partially offset by an unrealized gain on the exercise of the Veritone warrant and the conversion of our Veritone loans to equity.
Provision for Income Taxes (in thousands):
Tax expense for the periods presented primarily reflects the impact of foreign withholding taxes incurred on certain revenue agreements executed with third-party licensees domiciled in foreign jurisdictions.
Financial Condition (in thousands)
Summary Balance Sheet Information:
Summary Cash Flow Information:
Financing Activities. In May 2018, we repurchased 1,190,420 shares of common stock at a weighted average price of $3.89 for a total of $4,634,000.
INFORMATION ABOUT NON-GAAP FINANCIAL MEASURES
As used herein, “GAAP” refers to accounting principles generally accepted in the United States of America. To supplement our consolidated financial statements prepared and presented in accordance with GAAP, this earnings release includes financial measures, including (1) non-GAAP net income and (2) non-GAAP Earnings Per Share (“EPS”), that are considered non-GAAP financial measures as defined in Rule 101 of Regulation G promulgated by the Securities and Exchange Commission. Generally, a non-GAAP financial measure is a numerical measure of a company’s historical or future performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
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