Yahoo Finance Acacia Research Corporation (NASDAQ:ACTG) Q1 2024 Earnings Call Transcript
Acacia Research Corporation (NASDAQ:ACTG) Q1 2024 Earnings Call Transcript May 11, 2024
Acacia Research Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the Acacia Research First Quarter 2024 Financial Results Conference Call. At this time all participants are in a listen-only mode. After managements prepared remarks there will be a question-and-answer session. I would now like to turn the call over to Rob Fink. Please go ahead.
Rob Fink : Thank you, operator. Thank you, everyone, for joining us today. Hosting the call today are MJ McNulty, Chief Executive Officer; and Kirsten Hoover, Interim 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 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 as 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. I’d also like to remind everyone that a press release disclosing the financial results was issued this afternoon just after the close of market. The release may be accessed on the company's website under the Press Release section of the Investor Relations tab at acaciaresearch.com. With all that said, I would now like to turn the call over to MJ. MJ, the call is yours.
MJ McNulty: Thanks very much, Rob. In the short time since our last call, we have continued to execute on our capital allocation strategy. We have realized gains from our IP monetization business and cash flows from Printronix, and have deployed capital into our new oil and gas business. Our focus continues to be twofold: first, growing cash flow and earnings from our current businesses and second, continuing to evaluate opportunities to acquire new businesses into our platform. Our team has been busy identifying opportunistic situations where our research, execution and operating partners can drive attractive earnings and book value per share growth. As it relates to the specifics in terms of sources of capital, our IP monetization business generated $13.6 million in gross settlements and patent license agreements in the first quarter.
These agreements further bolster our position to pursue additional licensing agreements and settlements, and our team is advancing discussions with other potential licensees. The Wi-Fi six patent portfolio continues to represent a lucrative opportunity for periodic cash events, and we believe there is significant incremental value in these patents. Additionally we continue to evaluate potential additional capital investment into this business to acquire new patent portfolios when we believe there are attractive risk-reward opportunities. Also, as you will recall Acacia acquired Printronix' operating business in October of 2021. At the time we acquired the business, we believed it represented an attractive price relative to the cash flow able to be generated and recognized there would be some level of operational and strategic restructuring required.
Beginning in early 2023, this team began the detailed work of putting the restructuring in motion by replacing the Printronix management team and bringing an operating adviser into the business to formulate and execute on continuous improvement and efficiency initiatives, including significant cost rationalization. These initiatives are bearing fruit. We've now transitioned Printronix from consuming approximately $3.8 million in cash during the LTM period ended March 31, 2023, to generating approximately $6.8 million in cash during LTM period ending March 31, 2024. We further defined and implemented the business' value proposition and go-to-market strategy for both printers and our high margin consumables business. We are pleased with the progress of Printronix, and believe its dual hardware and consumables business model combined with its streamlined operating structure, represent a nice source of cash flow for Acacia.
Turning to our capital allocation initiatives. Early in the second quarter, Benchmark our oil and gas business unit, closed its first significant acquisition, purchasing an attractive group of assets in Texas and Oklahoma. With the closing of the new acquisition now behind us, our experienced team at Benchmark has begun implementing its operational improvement plan. As we've stated previously operational improvements are a meaningful part of our strategy. Our goal is to acquire mature, long-lived assets and deploy various field enhancements, including artificial lift optimization, a more active well maintenance program and reopening previously closed wells, Benchmark's core strategy of improving the production and efficiency of its assets to maximize cash flow.
As a reminder, this acquisition significantly expands the Benchmark portfolio, adding approximately 140,000 net acres and approximately 470 operated producing wells in the Western Anadarko Basin throughout the Texas Panhandle and Western Oklahoma, including meaningful exposure to the emerging Cherokee development play via both operated acreage and non-operated arrangements with best-in-class operators. As we mentioned before, we like these assets because of their liquids-rich nature, being predominantly oil-based with a production base of approximately 6,000 barrels of oil equivalent per day, exhibiting a low decline profile. Kirsten will discuss the financial results for Benchmark specific to the first quarter before we closed the transaction.
And I would highlight that in our next earnings, you should begin to see the significant benefits we expect from the platform in terms of revenue and free cash flow generation. We expect the consolidated Benchmark entity to generate approximately $50 million in asset-level cash flow over the next 12 months at current strip pricing. As a reminder, Acacia owns 73.5% of Benchmark Energy pro forma for the transaction. Consistent with our risk management approach upon closing, Benchmark implemented hedges for over 70% of its operated oil and gas production for the next three years at attractive price levels, protecting a significant portion of the returns we have underwrote when we signed a deal in February. With Benchmark's additional scale, we've been able to bring on additional hedging counterparties that not only help us achieve the best pricing but also allow us to diversify risk.
Taking this acquisition into account, Acacia has approximately $400 million in capital to deploy into new acquisitions. We believe the oil and gas business represents an attractive complement to our acquisition initiatives in industrials, technology and health care, where we also continue to evaluate operating businesses to add to our portfolio. Overall, the M&A environment is encouraging for the Acacia strategy, and we are seeing a strong pipeline of both public and private opportunities that fit well within our desired characteristics. While Acacia is less reliant on leverage for returns than our financial buyer counterparts, the lending environment appears to be opening up, and we have seen traditional banks starting to reemerge after being on the sidelines for the last year.
This will allow us to be opportunistic in utilizing leverage, as we evaluate total cost of capital in each acquisition we make. In the public markets while valuations generally remain elevated, we are searching for and finding opportunities that are not well-understood or where we believe our ownership can unlock significantly more value. We are continuing to see more situations where the market is creating attractive opportunities for buyers willing to do the fundamental work to understand the situation and find value. As a result of these activities this quarter, our book value per share at March 31, 2024 was $5.89 per share compared to $5.90 per share at December 31, 2023. Excluding an additional accrual of $6.2 million related to the AIP Matter, which is discussed in greater detail in our 10-Q, our adjusted book value per share on March 31, 2024, would have been $5.95 a share.
As a reminder, the AIP Matter relates to an ongoing legal matter, involving a Profits Interest Plan adopted by prior members of management and the Board in 2017. The Profits Interest Plan granted a profit interest in Veritone 10% Warrants, certain members of management and the Board as compensation for services rendered. Importantly, those members of management and the Board separated from Acacia in 2018 and 2019, and the Veritone 10% Warrants were exercised in 2020 and 2021. As we mentioned before, book value per share is a metric we follow closely and is the primary metric on which our team's compensation is based. We believe this creates very close alignment with our shareholders. Finally, I'd like to note that the Board of Directors has nominated Michelle Felman, an accomplished executive with more than three decades of experience in real estate, finance and investing, to serve as an independent director for election at the company's Annual Meeting of Stockholders to be held on May 21, 2024.
Michelle is set to fill the vacancy left by Katharine Wolanyk, who has served as an Independent Director since January 2019 and who was not standing for re-election for a term which is set to expire at the annual meeting. I'd like to thank Katharine for her service to Acacia during a period of transition. Her voice and counsel have been invaluable, and on behalf of Acacia and our shareholders, I'd like to express our gratitude. Ms. Felman brings strong Board and operating expertise to Acacia, having served on several public and private company boards. She currently serves on the Board of Directors of Cushman & Wakefield, chairing the Nominating and Governance Committee and serving as a member of the Compensation Committee. In addition, she recently completed her term as an advisory director at Investcorp, a leading provider and manager of alternative investment products.
She also served as a trustee of the Partners Group, a global private equity firm, where she was Chair of the Investment Oversight Committee and a member of the Audit Committee and the Compensation and Governance Committee. More on Ms. Felman's impressive background and experience can be found in our proxy materials located in the Filings & Financials section of our website. We are confident that Ms. Felman's deep and relevant industry expertise as well as her experience on public company boards will be invaluable to Acacia going forward. I'd now like to turn the call over to Kirsten to discuss our first quarter results.
Kirsten Hoover : Thank you, MJ. Our GAAP book value at March 31, 2024, was $589.6 million or $5.89 per share. Excluding the impact of the additional accrual of $6.2 million related to the AIP Matter MJ discussed earlier, our book value per share at March 31, 2024, would have been $5.95 per share. Printronix generated $2.8 million in cash during the quarter, reflecting the changes and process improvements to optimize operational efficiencies that have taken place over the past year. We expect Printronix to continue to generate free cash flow on an annual basis. Benchmark's operating income during the quarter was $0.2 million, which included $0.4 million of non-cash depreciation, depletion and amortization and does not reflect $0.8 million of realized derivative gains.
Now let me turn to the first quarter results. Total revenues were $24.3 million compared to $14.8 million in the same quarter last year. Let me break this down between our operating segments. The intellectual property business generated $13.6 million in licensing and other revenue during the quarter compared to $4.2 million in the same quarter last year, reflecting an increase in the number of license agreements executed quarter-over-quarter and higher average license fees. Printronix our industrial operations business generated $8.8 million in revenues during the quarter compared to $10.6 million in the same quarter last year. Benchmark, our energy operations which we acquired on November 13, 2023 generated $1.9 million in revenue in the quarter which excludes gains on hedging contracts of $0.8 million.
As a reminder in April, we closed Benchmark's first acquisition following Acacia's initial investment. Results from this acquisition will be reported beginning in our second quarter. Pro forma for the acquisition, we will own 73.5% of this subsidiary. General and administrative expenses were $12.4 million compared to $12 million in the same quarter of last year, with the increase due to the increase in variable performance based compensation costs for the intellectual property segment, partially offset by a decrease in parent legal fees and a decrease in Printronix G&A. Operating loss was $2.1 million compared to an operating loss of $9.3 million in the same quarter of last year, with the decrease due to higher revenues generated in the IP business.
Printronix contributed $1.2 million in operating income, which included $0.7 million of non-cash depreciation and amortization expense. Benchmark contributed $0.2 million in operating income, which included $0.4 million in non-cash depreciation and depletion expense. GAAP net loss attributable to Acacia Research Corporation was $0.2 million or $0.00 per share compared to GAAP net income attributable to Acacia of $9.4 million or a loss of $0.07 per diluted share in the first quarter of last year. Diluted earnings per share adjust the numerator used in the basic earnings per share computation for the fair value adjustments on warrant and embedded derivative liabilities resulting in a diluted net loss attributable to common stockholders. Excluding the impact of the additional accrual relating to the AIP Matter, which represented $0.06 earnings per share.
Our earnings per share for the first quarter of 2024 would be $0.06 per share. As of March 31, 2024, our NOL totaled approximately $18 million. We will continue to evaluate the most efficient ways to maximize this asset. Turning now to the balance sheet. Cash, cash equivalents and equity securities at fair value totaled $461.7 million at March 31, 2024 compared to $403.2 million at December 31, 2023. Equity securities without readily determinable fair value totaled $5.8 million at March 31, 2024 unchanged from December 31, 2023. Investment securities, representing equity method investments net of non-controlling interests, totaled $19.9 million at March 31, 2024, unchanged from December 31, 2023. Acacia owns 64% of MalinJ1, which results in a 26% ownership stake in Viamet Pharmaceuticals for Acacia.
The company currently carries no parent debt, having paid off its senior secured notes on July 13, 2023, and $13 million in non-recourse debt at Benchmark as of March 31, 2024. We continue to believe that cash per share is an important metric for measuring our progress. As of March 31, 2024, our cash per share stood at $4.39 per share. More details on these results have been made available in the press release that was issued this afternoon and in our quarterly report on Form 10-Q, which we will file with the SEC later today. With that, we would be pleased to take your questions.
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