Acacia(ACTG) - 2024 Q1 - Quarterly Report

FORM 10-Q General Information This Form 10-Q for Q1 2024 identifies Acacia Research Corporation as a Non-accelerated Filer with 100 million shares outstanding - The report is a Quarterly Report on Form 10-Q for the period ended March 31, 2024[1] - Acacia Research Corporation is classified as a Non-accelerated Filer and a Smaller reporting company[1] - As of May 6, 2024, the number of shares outstanding of the registrant's common stock was 100,021,951[1] Cautionary Note Regarding Forward-Looking Statements This section highlights forward-looking statements, subject to risks and uncertainties, with no obligation to update them - This Quarterly Report contains forward-looking statements that involve risks and uncertainties, intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995[13] - Forward-looking statements are subject to substantial risks and uncertainties, including inability to acquire/integrate businesses, cybersecurity incidents, patent-related legal expenses, oil and gas price fluctuations, inflationary pressures, and supply chain disruptions[13] - The company expressly disclaims any intent or obligation to update any forward-looking statements after the date of the report, except as required by applicable law[15] PART I. FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion for the quarter Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements for Q1 2024, including balance sheets, operations, equity, and cash flows Condensed Consolidated Balance Sheets The balance sheets provide a snapshot of the company's financial position, detailing assets, liabilities, and equity at quarter-end Total Equity Securities Fair Value | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Total assets | $631,725 | $633,545 | | Total liabilities | $42,121 | $43,936 | | Total stockholders' equity | $589,604 | $589,609 | | Cash and cash equivalents | $438,762 | $340,091 | | Equity securities | $22,918 | $63,068 | | Accounts receivable, net | $15,372 | $80,555 | | Total current assets | $553,147 | $554,512 | | Total current liabilities | $25,846 | $27,636 | Unaudited Condensed Consolidated Statements of Operations This statement outlines the company's revenues, expenses, and net income or loss for the three-month period Unaudited Condensed Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | % Change | | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------- | | Total revenues | $24,320 | $14,803 | $9,517 | 64% | | Intellectual property operations revenue | $13,623 | $4,176 | $9,447 | 226% | | Industrial operations revenue | $8,841 | $10,627 | $(1,786) | (17%) | | Energy operations revenue | $1,856 | $0 | $1,856 | N/A | | Total costs and expenses | $26,407 | $24,127 | $2,280 | 9% | | Operating loss | $(2,087) | $(9,324) | $7,237 | (78%) | | Change in fair value of equity securities | $(26,701) | $3,343 | $(30,044) | (899%) | | Gain (loss) on sale of equity securities | $28,861 | $(1,361) | $30,222 | (2221%) | | Legal liability fee | $(6,243) | $0 | $(6,243) | N/A | | Net (loss) income attributable to Acacia Research Corporation | $(186) | $9,447 | $(9,633) | (102%) | | Basic net income per common share | $0 | $0.12 | $(0.12) | (100%) | | Diluted net loss per common share | $0 | $(0.07) | $0.07 | (100%) | Unaudited Condensed Consolidated Statements of Series A Redeemable Convertible Preferred Stock and Stockholders' Equity This statement details changes in preferred stock and stockholders' equity, including net loss and share-based compensation Unaudited Condensed Consolidated Statements of Series A Redeemable Convertible Preferred Stock and Stockholders' Equity | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------------- | :---------------------------- | :------------------------------- | | Total Stockholders' Equity (End of Period) | $589,604 | $589,609 | | Net loss including noncontrolling interests | $(189) | N/A | | Compensation expense for share-based awards | $858 | N/A | | Common Stock Issued (Shares) | 100,021,951 | 99,895,473 | - For the three months ended March 31, 2023, key activities included accretion of Series A Redeemable Convertible Preferred Stock to redemption value ($1,554 thousand) and issuance of common stock from the Rights Offering (15,068,753 shares for $79,111 thousand)[27] Unaudited Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the period Unaudited Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | | :----------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | | Net cash provided by (used in) operating activities | $54,839 | $(4,349) | $59,188 | | Net cash provided by investing activities | $42,040 | $2,783 | $39,257 | | Net cash provided by financing activities | $1,826 | $77,995 | $(76,169) | | Increase in cash and cash equivalents | $98,671 | $76,441 | $22,230 | | Cash and cash equivalents, ending | $438,762 | $364,227 | $74,535 | - Operating activities in Q1 2024 were positively impacted by a $65,156 thousand decrease in accounts receivable, compared to a $451 thousand decrease in Q1 2023[32] - Investing activities in Q1 2024 were significantly boosted by $57,854 thousand from sales of equity securities, compared to $8,032 thousand in Q1 2023[32] - Financing activities in Q1 2023 included $79,111 thousand from the Rights Offering, which did not recur in Q1 2024[32] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Description of Business This note describes Acacia Research Corporation's strategy of acquiring and managing companies across IP, industrial, and energy operations - Acacia Research Corporation focuses on acquiring and managing companies across industrial, energy, technology, and healthcare verticals, targeting complex situations and businesses valued under $2 billion[35][36][37] - The strategic relationship with Starboard Value, LP (controlling shareholder with ~61.2% ownership as of May 6, 2024) provides access to industry expertise and assists with sourcing and evaluating acquisition opportunities[38] - Intellectual Property Operations involves investing in, licensing, and enforcing patent portfolios, assuming operational expenses and sharing net licensing revenue with partners[39] - Industrial Operations, through Printronix (acquired October 2021), manufactures and distributes industrial impact printers and related consumables/services globally[42] - Energy Operations, through Benchmark (50.4% equity interest acquired November 2023), is an oil and gas company focused on acquiring, producing, and developing assets in Texas and Oklahoma. Post-April 2024 acquisition, Acacia's interest increased to ~73.5%[43][45] 2. Summary of Significant Accounting Policies This note outlines key accounting principles applied in preparing consolidated financial statements, including revenue recognition - The consolidated financial statements include wholly and majority-owned/controlled subsidiaries, with Benchmark being a consolidated variable interest entity (VIE)[47][49] - Revenue from Intellectual Property Operations is recognized upon transfer of control of bundled IP rights, primarily from one-time paid-up license fees or sales-based recurring agreements[51][54] Intellectual Property Operations Revenue Breakdown | Type of Revenue | 3 Months Ended March 31, 2024 (in thousands) | 3 Months Ended March 31, 2023 (in thousands) | | :------------------------ | :------------------------------------------- | :------------------------------------------- | | Paid-up license revenue | $12,365 | $3,900 | | Recurring license revenue | $1,258 | $276 | | Total | $13,623 | $4,176 | - Revenue from Industrial Operations (Printronix) is recognized upon transfer of goods/services, with products generally recognized upon shipment and services over time[58][63] Industrial Operations Revenue Breakdown | Type of Revenue | 3 Months Ended March 31, 2024 (in thousands) | 3 Months Ended March 31, 2023 (in thousands) | | :------------------------ | :------------------------------------------- | :------------------------------------------- | | Printers, consumables, parts | $8,078 | $9,634 | | Services | $763 | $993 | | Total | $8,841 | $10,627 | - Revenue from Energy Operations (Benchmark) is recognized from sales of oil and natural gas products upon transfer of control at delivery points, with pricing tied to market indices[67][68] Energy Operations Revenue Breakdown (3 Months Ended March 31, 2024) | Type of Revenue | Amount (in thousands) | | :------------------------ | :-------------------- | | Oil sales | $661 | | Natural gas sales | $730 | | Natural gas liquids sales | $465 | | Total | $1,856 | - Benchmark's Revolving Credit Facility had an outstanding balance of $13.0 million as of March 31, 2024, at an 11% interest rate. A new $150 million Revolving Credit Facility was entered into on April 17, 2024, with $82.7 million drawn[86][88] - The company's effective tax rates were 85% for Q1 2024 and 20% for Q1 2023, with a partial valuation allowance against net deferred tax assets[99] - Management is evaluating the impact of recently issued ASU 2023-07 (Improvements to Reportable Segment Disclosures) and ASU 2023-09 (Improvements to Income Tax Disclosures)[102][105] 3. Equity Securities This note details equity investments, including fair value changes and proceeds from Life Sciences Portfolio monetization Total Equity Securities Fair Value | Date | Fair Value (in thousands) | | :--------------- | :------------------------ | | March 31, 2024 | $22,918 | | December 31, 2023 | $63,068 | - The Life Sciences Portfolio, acquired in 2020 for approximately $277.5 million, has generated $564.1 million in proceeds through March 31, 2024, with a remaining fair value of $25.7 million[107][108][235] - On January 19, 2024, the company completed the sale of its Arix Bioscience PLC shares for $57.1 million, resulting in a realized gain, and no longer owns any Arix shares[109][235] Net Realized and Unrealized Gain (Life Sciences Portfolio) | Metric | 3 Months Ended March 31, 2024 (in thousands) | 3 Months Ended March 31, 2023 (in thousands) | | :----------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Change in fair value of equity securities | $(28,581) | $577 | | Gain on sale of equity securities | $28,581 | $0 | | Net realized and unrealized gain | $0 | $577 | 4. Inventories This note provides a breakdown of Printronix's inventory components and their carrying amounts Printronix Inventories | Date | Amount (in thousands) | | :--------------- | :-------------------- | | March 31, 2024 | $9,880 | | December 31, 2023 | $10,921 | - As of March 31, 2024, inventories consisted of raw materials ($3,404k), subassemblies and work in process ($1,533k), and finished goods ($5,447k)[112] 5. Property, Plant and Equipment, Net This note presents the net carrying value of property, plant, and equipment, and associated depreciation Property, Plant and Equipment, Net | Date | Amount (in thousands) | | :--------------- | :-------------------- | | March 31, 2024 | $2,090 | | December 31, 2023 | $2,356 | - Total depreciation and amortization expense was $280,000 for the three months ended March 31, 2024, a decrease from $347,000 in the comparable prior period[116] 6. Oil and Natural Gas Properties, Net This note details Benchmark's net oil and natural gas properties and related depletion expenses Benchmark's Oil and Natural Gas Properties, Net | Date | Amount (in thousands) | | :--------------- | :-------------------- | | March 31, 2024 | $24,952 | | December 31, 2023 | $25,117 | - Total depletion and depreciation expense for Benchmark's oil and natural gas properties was $422,000 for the three months ended March 31, 2024[117] - No impairment to proved oil and natural gas properties was determined as of March 31, 2024[117] 7. Goodwill and Other Intangible Assets, Net This note provides goodwill by segment and other intangible assets, including amortization schedules Goodwill Carrying Amount by Segment | Segment | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------ | :---------------------------- | :------------------------------- | | Industrial Operations | $7,541 | $7,541 | | Energy Operations | $1,449 | $1,449 | | Total | $8,990 | $8,990 | Other Intangible Assets, Net | Date | Amount (in thousands) | | :--------------- | :-------------------- | | March 31, 2024 | $29,690 | | December 31, 2023 | $33,556 | - Total other intangible asset amortization expense was $3.9 million for the three months ended March 31, 2024, compared to $3.0 million for the same period in 2023[120] Scheduled Annual Aggregate Amortization Expense | Years Ending December 31, | Amount (in thousands) | | :------------------------ | :-------------------- | | Remainder of 2024 | $10,964 | | 2025 | $12,485 | | 2026 | $3,173 | | 2027 | $1,734 | | 2028 | $1,334 | | Total | $29,690 | 8. Accrued Expenses and Other Current Liabilities This note details accrued expenses and other current liabilities, primarily due to patent cost payments Accrued Expenses and Other Current Liabilities | Date | Amount (in thousands) | | :--------------- | :-------------------- | | March 31, 2024 | $3,990 | | December 31, 2023 | $8,405 | - The decrease in accrued expenses was primarily due to the payment of $4.0 million in accrued patent costs on January 31, 2024[122][123] 9. Starboard Investment This note describes recapitalization, Starboard's ownership, and related transactions including the Rights Offering - The company completed a recapitalization in 2023 to simplify its capital structure, which included the conversion of Series A Redeemable Convertible Preferred Stock and the exercise/cancellation of Series B Warrants[126][229] - On July 13, 2023, Starboard converted 350,000 shares of Series A Preferred Stock into 9,616,746 common shares; no Series A Preferred Stock remains outstanding as of March 31, 2024[127][130] - On July 13, 2023, Starboard exercised Series B Warrants, resulting in 31,506,849 common shares, cancellation of $60.0 million Senior Secured Notes, and $55.0 million gross proceeds to the company; no Series B Warrants remain outstanding[127][135][136] - As of May 6, 2024, Starboard beneficially owned 61,123,595 shares of common stock, representing approximately 61.2% of the total outstanding common stock[38][127][230] - A Rights Offering in Q1 2023 generated approximately $361,000 from public and $78.8 million from a concurrent private offering (Starboard), issuing 15,068,753 common shares[137][138][140] - A Services Agreement with Starboard (December 2023) provides trade execution, research, and due diligence on an expense reimbursement basis; no reimbursements were made in Q1 2024[145] 10. Fair Value Measurements This note explains the fair value hierarchy for financial assets and liabilities, including equity and commodity derivatives - The company categorizes fair value measurements into a three-level hierarchy: Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[146] Financial Assets Measured at Fair Value (March 31, 2024) | Instrument | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Equity securities | $22,918 | $0 | $0 | $22,918 | | Commodity derivative instruments | $0 | $2,094 | $0 | $2,094 | | Total | $22,918 | $2,094 | $0 | $25,012 | - As of March 31, 2024, there are no Level 3 liabilities, as Series B Warrants and Series A Embedded Derivatives were exercised/converted in 2023, resulting in zero fair value[150][151][152] - Benchmark's commodity derivative instruments had an aggregate fair value of $2.1 million (asset) as of March 31, 2024[148] 11. Related Party Transactions This note discloses related party transactions, including a loan facility and Starboard Services Agreement reimbursements - The company had a Loan Facility with a private portfolio company with a balance of $2.6 million as of March 31, 2024, bearing 9.5% interest per annum[154] - Interest income of $59,000 was recorded from the Loan Facility for the three months ended March 31, 2024[154] - No reimbursements were made to Starboard under the Services Agreement during the three months ended March 31, 2024[145][154] 12. Commitments and Contingencies This note outlines lease obligations, inventor royalties, and legal contingencies, including an accrued loss for the AIP Matter - The company leases office facilities under operating lease arrangements expiring through July 2027[155][156][158][159][160][161] Future Minimum Lease Payments (March 31, 2024) | Years Ending December 31, | Amount (in thousands) | | :------------------------ | :-------------------- | | Remainder of 2024 | $825 | | 2025 | $924 | | 2026 | $579 | | 2027 | $243 | | Total minimum payments| $2,571 | - The company is subject to inventor royalties and contingent legal fees based on future net revenues from patent licensing and enforcement[162][163] - An accrued loss contingency of $8.5 million as of March 31, 2024, includes an additional accrual of $6.2 million in Q1 2024 related to the AIP Matter (profit interests for former executives)[167] - The Slingshot Technologies, LLC lawsuit, alleging misappropriation of confidential information, was transferred to Delaware Superior Court, with oral arguments on summary judgment held March 28, 2024[165] 13. Stockholders' Equity This note details stock repurchase programs and a charter provision designed to protect tax assets - The company has a stock repurchase program approved in November 2023 for up to $20.0 million (capped at 5,800,000 shares); no repurchases were made under this program in Q1 2024[173] - A previous stock repurchase program (March 2022) was completed in July 2022, repurchasing 8,453,519 shares for $40.0 million[172] - A Charter Provision prohibits common stock transfers that could result in an ownership change, aiming to protect the company's ability to utilize potential tax assets like net operating loss carryforwards[176] 14. Equity-Based Incentive Plans This note describes equity-based compensation plans, including stock options, RSAs, and RSUs, and associated expenses - The company grants stock options, restricted stock awards (RSAs), and restricted stock units (RSUs) under the 2016 Acacia Research Corporation Stock Incentive Plan (the 2013 Plan expired)[177][183] - As of March 31, 2024, there were 1,457,214 shares available for grant under the 2016 Plan[184] Stock Option Activity (3 Months Ended March 31, 2024) | Metric | Options | Weighted Average Exercise Price | | :---------------------- | :-------- | :------------------------------ | | Outstanding (Dec 31, 2023) | 1,108,187 | $4.18 | | Forfeited/Expired | (45,000) | $5.40 | | Outstanding (Mar 31, 2024) | 1,063,187 | $4.12 | | Exercisable (Mar 31, 2024) | 556,481 | $4.16 | Nonvested Restricted Stock Activity (3 Months Ended March 31, 2024) | Metric | RSAs (Shares) | RSUs (Units) | PSUs (Units) | | :---------------------- | :------------ | :----------- | :----------- | | Nonvested (Dec 31, 2023) | 193,665 | 1,408,491 | 1,981,464 | | Vested | (109,330) | (275,244) | 0 | | Forfeited | 0 | (30,534) | 0 | | Nonvested (Mar 31, 2024) | 84,335 | 1,102,713 | 1,981,464 | - Total unrecognized stock-based compensation expense as of March 31, 2024, was $4.3 million, to be amortized over a weighted average remaining vesting period of 1.8 years[189] Compensation Expense for Share-Based Awards | Metric | 3 Months Ended March 31, 2024 (in thousands) | 3 Months Ended March 31, 2023 (in thousands) | | :----- | :------------------------------------------- | :------------------------------------------- | | Options | $128 | $28 | | RSAs | $106 | $209 | | RSUs | $624 | $240 | | Total | $858 | $477 | 15. Income/Loss Per Share This note presents basic and diluted net income or loss per common share and weighted average shares outstanding Net (Loss) Income Attributable to Common Stockholders | Metric | 3 Months Ended March 31, 2024 (in thousands) | 3 Months Ended March 31, 2023 (in thousands) | | :----- | :------------------------------------------- | :------------------------------------------- | | Basic | $(186) | $5,958 | | Diluted | $(186) | $(6,496) | Weighted Average Shares Outstanding | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :----- | :---------------------------- | :---------------------------- | | Basic | 99,745,905 | 47,971,931 | | Diluted | 99,745,905 | 89,067,821 | Per Share Data | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :----- | :---------------------------- | :---------------------------- | | Basic EPS | $0 | $0.12 | | Diluted EPS | $0 | $(0.07) | - Anti-dilutive potential common shares excluded from diluted EPS computation totaled 4,231,699 for the three months ended March 31, 2024[192] 16. Segment Reporting This note provides financial information by segment: Intellectual Property, Industrial, and Energy Operations - The company operates in three reportable segments: Intellectual Property Operations, Industrial Operations, and Energy Operations (new in November 2023)[192][196] Segment Operating Income (3 Months Ended March 31, 2024) | Segment | Operating Income (in thousands) | | :-------------------------- | :------------------------------ | | Intellectual Property Operations | $3,282 | | Industrial Operations | $1,212 | | Energy Operations | $156 | | Total Segment Operating Income | $4,650 | Total Revenues by Segment | Segment | 3 Months Ended March 31, 2024 (in thousands) | 3 Months Ended March 31, 2023 (in thousands) | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | | Intellectual Property Operations | $13,623 | $4,176 | | Industrial Operations | $8,841 | $10,627 | | Energy Operations | $1,856 | $0 | | Total | $24,320 | $14,803 | Revenues by Geographic Area (3 Months Ended March 31, 2024) | Geographic Area | Intellectual Property Operations (in thousands) | Industrial Operations (in thousands) | Energy Operations (in thousands) | Total (in thousands) | | :-------------------------- | :---------------------------------------------- | :----------------------------------- | :------------------------------- | :------------------- | | United States | $2,064 | $3,159 | $1,856 | $7,079 | | Asia-Pacific | $11,558 | $2,938 | $0 | $14,496 | | Europe, Middle East and Africa | $0 | $2,478 | $0 | $2,478 | | Total | $13,623 | $8,841 | $1,856 | $24,320 | 20. Subsequent Events This note discloses significant events after the balance sheet date, including Benchmark's upstream asset acquisition - On April 17, 2024, Benchmark completed the acquisition of certain upstream assets and related facilities in Texas and Oklahoma for $145 million, including approximately 140,000 net acres and an interest in approximately 470 operated producing wells[44][211] - Following the acquisition, the company's interest in Benchmark increased to approximately 73.5%[45][211] - The acquisition was funded by $59.9 million from the company's cash on hand, borrowings under a Revolving Credit Facility ($82.7 million drawn), and a cash contribution from other investors[45] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, business strategy, segment operations, recent developments, and Q1 2024 results General Business Overview Acacia Research Corporation's investment strategy focuses on acquiring and managing companies across various verticals - Acacia Research Corporation focuses on acquiring and managing companies across industrial, energy, technology, and healthcare verticals, targeting complex situations where value is not fully recognized[214][215] - The business model is differentiated from private equity and hedge funds, often initiating strategic block positions in public companies as a path to whole company acquisitions[215] - The company leverages its disciplined focus, willingness to invest in off-the-run assets, strong relationships, and expertise in corporate governance and operational transformation[216] - The strategic relationship with Starboard Value, LP provides access to industry expertise and assists with sourcing and evaluating acquisition opportunities[219] Segment Overviews This section overviews Intellectual Property, Industrial, and Energy Operations segments, highlighting core activities - Intellectual Property Operations invests in and licenses/enforces patent portfolios, having executed over 1,600 license agreements and generated approximately $1.8 billion in gross licensing revenue to date[220][221] - Industrial Operations, through Printronix, is a leading manufacturer and distributor of industrial impact printers and related consumables and services, acquired in October 2021[223] - Energy Operations, through Benchmark (50.4% equity interest acquired November 2023), is an independent oil and gas company focused on acquisition, production, and development in Texas and Oklahoma. Post-April 2024 acquisition, the company's interest is ~73.5%[226][227] Recent Business Developments and Trends This section discusses capital structure simplification, leadership changes, asset monetization, and key acquisitions - A recapitalization completed in 2023 simplified the capital structure, resulting in Starboard owning approximately 61.2% of common stock and no Series A Preferred Stock, Series B Warrants, or Senior Secured Notes outstanding[229][230] - Mr. Martin D. McNulty Jr. was appointed permanent Chief Executive Officer and a director in February 2024[234] - The company has received $564.1 million in proceeds from monetizing its Life Sciences Portfolio through March 31, 2024, including the sale of Arix Bioscience PLC shares for $57.1 million in January 2024[235] - Key acquisitions include Printronix (October 2021) and Benchmark (November 2023), with a significant follow-on asset acquisition for Benchmark completed in April 2024 for $145 million, increasing the company's interest to ~73.5%[236][237] - The business strategy involves growing through additional operating businesses, energy assets, and intellectual property assets, financed by cash on hand or external funding[238] Inflation This section addresses inflation's impact on the consolidated enterprise, particularly Printronix costs and Energy Operations - Historically, inflation has not significantly impacted the consolidated enterprise[239] - In Q1 2024, the Printronix subsidiary experienced a small increase in raw material costs, leading to price adjustments and cost rationalization measures[239] - The Energy Operations Business may also experience inflationary pressures due to increases in oil and natural gas prices, supply chain disruptions, and labor shortages[239] Patent Licensing and Enforcement This section details patent licensing activities, litigation status, legal expenses, and challenges in patent acquisition - The Patent Licensing, Enforcement and Technologies Business has no pending patent infringement cases with scheduled trial dates in the next twelve months[240] - Patent-related legal expenses are expected to fluctuate based on future trial dates, international enforcement, and strategic patent portfolio activities[241] - The business depends on identifying and investing in new patents and IP-owning companies, with quality patent intake remaining a significant industry challenge[242][244] - No new patent portfolios were acquired during Q1 2024, 2023, or 2022[244] Industrial Operations Business Printronix is a global leader in industrial impact printing solutions, serving mission-critical applications - Printronix is a worldwide leader in multi-technology supply-chain printing solutions, manufacturing industrial impact printers and related consumable products[246] - Its products are used for mission-critical applications across various industries, including manufacturing, transportation, logistics, healthcare, and banking sectors[246] - Printronix maintains manufacturing, configuration, and distribution sites in Malaysia, the United States, Singapore, China, and the Netherlands, supporting a global network[246] Energy Operations Business Benchmark focuses on acquiring, producing, and developing oil and gas assets in Texas and Oklahoma - Benchmark is an independent oil and gas company engaged in the acquisition, production, and development of assets in mature resource plays in Texas and Oklahoma[247] - Following the acquisition of Revolution, Benchmark's assets consist of approximately 153,000 net acres and an interest in approximately 605 wells, with Acacia owning 73.5%[247] - Benchmark's strategy focuses on enhancing asset value through disciplined field optimization, robust commodity hedges, and low leverage[247] Operating Activities This section discusses revenue and operational variability across Intellectual Property, Industrial, and Energy segments - Intellectual Property Operations revenues historically fluctuate significantly due to factors such as the dollar amount and terms of license agreements, litigation outcomes, and macroeconomic factors; management does not aim for smooth sequential growth[248][249][250] - Industrial Operations (Printronix) focuses on manufacturing and distributing printers and consumable products[251] - Energy Operations (Benchmark) is engaged in the acquisition, production, and development of oil and natural gas resources[252] Results of Operations This section analyzes financial performance, including revenues, expenses, operating loss, and net income or loss Summary of Results of Operations (3 Months Ended March 31) | Metric | 2024 (in thousands) | 2023 (in thousands) | $ Change | % Change | | :----------------------------------------- | :------------------ | :------------------ | :------- | :------- | | Total revenues | $24,320 | $14,803 | $9,517 | 64% | | Total costs and expenses | $26,407 | $24,127 | $2,280 | 9% | | Operating loss | $(2,087) | $(9,324) | $7,237 | (78%) | | Total other income | $789 | $21,254 | $(20,465)| (96%) | | (Loss) income before income taxes | $(1,298) | $11,930 | $(13,228)| (111%) | | Income tax benefit (expense) | $1,109 | $(2,483) | $3,592 | (145%) | | Net (loss) income attributable to Acacia Research Corporation | $(186) | $9,447 | $(9,633) | (102%) | - Total revenues increased by 64% to $24.3 million in Q1 2024, primarily driven by a 226% increase in Intellectual Property Operations revenues and $1.9 million from Energy Operations, partially offset by a 17% decrease in Industrial Operations revenues[253] - The company reported a net loss of $(186) thousand in Q1 2024, a significant decline from $9,447 thousand net income in Q1 2023, mainly due to a $(6.2) million legal liability fee and a $(26.7) million unrealized loss on equity securities, despite a $28.9 million realized gain from equity sales[257][258] - General and administrative expenses increased by $313 thousand (3%) to $12.4 million, primarily due to increased Intellectual Property Operations variable performance-based compensation and parent compensation expense for share-based awards, and $385 thousand from Energy Operations G&A costs[256][273] - Interest income and other, net, increased to $4.9 million in Q1 2024 from $3.4 million in Q1 2023, mainly due to higher interest income from cash equivalents[261] Income Tax Benefit (Expense) and Effective Tax Rate | Metric | 3 Months Ended March 31, 2024 (in thousands) | 3 Months Ended March 31, 2023 (in thousands) | % Change | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | :------- | | Income tax benefit (expense) | $1,109 | $(2,483) | (145%) | | Effective tax rate | (85%) | 20% | (105) % | Liquidity and Capital Resources This section assesses liquidity, cash flow activities, and future capital requirements for financial obligations - Primary sources of liquidity are cash and cash equivalents on hand, which totaled $461.7 million at March 31, 2024 (up from $403.2 million at Dec 31, 2023), and cash generated from operating activities[281][287] Net Cash Flow Summary (3 Months Ended March 31) | Metric | 2024 (in thousands) | 2023 (in thousands) | | :----------------------------------------------- | :------------------ | :------------------ | | Net cash provided by operating activities | $54,839 | $(4,349) | | Net cash provided by investing activities | $42,040 | $2,783 | | Net cash provided by financing activities | $1,826 | $77,995 | | Increase in cash and cash equivalents | $98,671 | $76,441 | - Cash provided by operating activities significantly increased to $54.8 million in Q1 2024 (from $(4.3) million used in Q1 2023), primarily due to net inflows from changes in accounts receivable and other working capital items[293] - Cash receipts from Intellectual Property Operations totaled $77.5 million in Q1 2024, a substantial increase from $4.4 million in Q1 2023[292] - Cash provided by investing activities increased to $42.0 million in Q1 2024 (from $2.8 million in Q1 2023), mainly driven by net cash inflows from equity securities transactions and the sale of Arix shares[295] - Cash provided by financing activities decreased to $1.8 million in Q1 2024 (from $78.0 million in Q1 2023), primarily due to the completion of the Rights Offering and Concurrent Private Rights Offering in the prior period[298] - Management believes current cash and cash equivalents, along with cash flows from operations, will be sufficient to meet cash requirements for at least the next twelve months; future acquisitions may be financed through cash on hand or equity/debt financing[283] Critical Accounting Estimates This section identifies significant accounting estimates requiring management's judgment, such as revenue recognition and asset valuations - Key critical accounting estimates include revenue recognition, estimates of crude oil and natural gas reserves, valuation of long-lived assets, goodwill and other intangible assets, and accounting for income taxes[300] - These critical accounting estimates have not materially changed from those disclosed in the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2023 Annual Report[301] Recent Accounting Pronouncements This section refers to notes for information on recently adopted and not yet adopted accounting standards - Refer to Note 2 to the consolidated financial statements for information on recently adopted and not yet adopted accounting pronouncements[302] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces interest rate, investment, and foreign currency risks; a 10% adverse change in public equity would decrease value by $2.3 million - The company's short-term investment objective is to preserve principal while maximizing income from equity securities without significantly increasing risk[304] - Exposure to investment risks related to changes in the underlying financial condition of equity investments and market price volatility[305] - As of March 31, 2024, the carrying value of equity investments in public and private companies was $59.7 million[305] - A hypothetical 10% adverse change in the market price of publicly traded common stock investments would result in a decrease of approximately $2.3 million as of March 31, 2024[306] - The company is exposed to foreign currency exchange risk related to fluctuations between the U.S. dollar, British Pound, and Euro, primarily affecting foreign cash accounts. No foreign denominated equity securities were held as of March 31, 2024[307] Item 4. Controls and Procedures Disclosure controls were effective as of March 31, 2024, with no material internal control changes, acknowledging limitations - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[308] - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the three months ended March 31, 2024[310] - Management acknowledges the inherent limitations of control systems, stating that they can provide only reasonable, not absolute, assurance that objectives will be met[311] PART II. OTHER INFORMATION This part includes legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The company is involved in legal actions, including patent enforcement, not expected to materially affect financial position - The company is subject to claims, counterclaims, and legal actions arising in the ordinary course of business, including patent enforcement activities[313] - Management believes that the ultimate liability with respect to these claims and legal actions will not have a material adverse effect on the company's consolidated financial position, results of operations, or cash flows[313] - Intellectual Property Operations frequently engages in litigation to enforce patents, which can be costly, consume significant resources, and may result in monetary sanctions or adverse outcomes[314][315][316] - Refer to Note 12 to the consolidated financial statements for additional information regarding certain pending litigation[313][316] Item 1A. Risk Factors Investors should review risks in the 2023 Form 10-K and other filings, noting no material changes - Investors should carefully review and consider the risks and uncertainties detailed in 'Item 1A. Risk Factors' of the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and other public filings[317] - There have been no material changes to the risk factors previously reported in the 2023 Annual Report[317] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities and use of proceeds to report for the period[318] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to report for the period - No defaults upon senior securities to report for the period[318] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the company[320] Item 5. Other Information No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement in Q1 2024 - During the three months ended March 31, 2024, no director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement[320] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including agreements, certifications, and iXBRL financial statements - Key exhibits include the Amended and Restated Employment Agreement for Martin D. McNulty, Jr., the Purchase and Sale Agreement for Benchmark, the Loan Agreement for BE Anadarko, certifications from the Principal Executive Officer and Principal Financial Officer, and iXBRL formatted financial statements[319] SIGNATURES The Quarterly Report was signed on May 9, 2024, by the CEO and Interim CFO - The Quarterly Report was signed on May 9, 2024, by Martin D. McNulty Jr., Chief Executive Officer, and Kirsten Hoover, Interim Chief Financial Officer[324]