Acacia Research Corporation (ACTG) Q3 2022 Earnings Call Transcript

Acacia Research Corporation (ACTG)

Q3 2022 Earnings Conference Call

November 10, 2022 11:00 AM ET

Company Participants

Rob Fink - FNK, IR

Martin McNulty - Interim CEO

Richard Rosenstein - CFO

Conference Call Participants

Anthony Stoss - Craig-Hallum

Brett Reiss - Janney

Adam Eagleston - Formidable Asset Management

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Acacia Research Third Quarter 2022 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation.

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

Rob Fink

Thank you, operator. Hosting the call today are MJ McNulty, Interim Chief Executive Officer; and Rich 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, 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 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 and quarterly reports on Form 10-Q that are filed with the SEC.

I would also like to remind everyone that a press release disclosing the financial results was issued this morning before the market opened. 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 like to turn the call over to MJ. MJ, the call is yours.

Martin McNulty

Thank you, Rob, and hi, everyone. Thanks for taking the time to join us this morning. 10 days ago, we announced the completion of a transaction with Starboard Value. As you may know, our partnership with Starboard began three years ago when we established a framework to evaluate a corporate acquisition strategy together.

While our initial terms provided adequate capital and validated the opportunity, we learned along the way, there were some unintended complexities in our capital structure. This new agreement provides the ability to better pair the transactional and operational talent of the Acacia team with Starboard's platform, expertise relationships and capital.

In addition, this transaction streamlines our capital structure and when complete simplifies our balance sheet without complicated derivatives. Importantly, on a go-forward basis, this new structure will provide all shareholders the ability to participate on the same footing as Starboard. Between our relationships and Starboard's networks, Acacia will have access to larger pools of capital that can use -- that we can use to fund deals. We believe this transaction establishes our long term operating model, positioning us to execute the strategy we have previously articulated.

As part of the transaction, we're pleased to add Gavin Molinelli, a Starboard Partner and Portfolio Manager, as Chair of our Board. And with this milestone transaction now in place, Clifford Press, Acacia's CEO for the past three years has resigned from both the company and our Board. Clifford played a significant role in establishing this platform, implementing the strategy and advancing us to this point with Starboard. On behalf of the company, we thank him and we wish him well.

With that, I've been named to serve as interim CEO. For those of you who don't know me, prior to joining Acacia in the second quarter of this year, I was the Chief Executive Officer and a member of the Board of Directors at Starboard Value Acquisition Corp. Prior to my role with Starboard, I had a long history in private equity, which included Star Investment Holdings, Metalmark Capital and Sun Capital Partners. Over that time, I led numerous acquisitions, including in Acacia's focus areas.

With our ownership and capital structure clarified, I look forward to advancing the robust acquisition pipeline our talented and expanded teams have established since I joined. For some time, Starboard Value and Acacia have recognized an opportunity for a corporate acquirer, operating in the space between hedge fund activism and private equity. We've seen first-hand that in some situations, activists do not have the necessary influence to create required change without the ability to control the business.

On the other hand, private equity can struggle to create catalysts and are increasingly left to participate in structured auction processes, which directly impact valuations. With Acacia, we now have a hybrid solution, a platform in vehicle that we believe brings the most effective parts of hedge fund and private equity structures together. Since I joined Acacia as Chief Operating Officer and Head of M&A, we have made significant progress implementing formal and institutional processes to enhance the scale and efficiency of the way we evaluate potential acquisitions.

First, Acacia now has a great execution team, comprising proven professionals with public and private company acquisition expertise and the experience in working with companies to enable value creation. Our in-house team is augmented by a world class network of third-party advisors.

As we scale up our team, we've refined our processes, institutionalizing our investment process from the ground up. This includes how we source potential targets, where we are benefiting from an excellent network of executive relationships augmented by an impressive set of institutional relationships. We have also clearly defined our screening process and our criteria. We now have a clear set of metrics and benchmarks we utilize when evaluating potential transactions.

Finally, we have a sophisticated institutional approach to due diligence. All of our potential acquisitions go through this rigorous process. Once we complete an acquisition, we rely on our own capabilities, but also those of the team we have built with significant operational capabilities.

This network of operating partners with proven experience enables us to identify the merits, considerations and future plans for any potential acquisitions quickly and efficiently. In addition, this network helps us drive operational improvements post-closing. We have a great deal of confidence in the professionals within this network.

As a result of this hard work, our pipeline is now well defined. In terms of quantity and quality, it is the most robust that we have seen. The recent transactions with Starboard clarifies our structure, formalizes our relationship and bolsters our capital. We now have all the pieces in place to move the strategy forward.

Currently, market conditions have this pipeline more weighted toward public targets as valuations in the private markets have been elevated as a result of increased activity from private equity. Well, that won't always be the case. It is today, and we're nimble enough to shift our focus based on market realities.

More importantly, we have a pipeline of actionable ideas that are far along in our research process and moving forward. While I would not expect any acquisitions to close before year-end, there is an urgency and multiple targets are active, actionable and moving through our well-defined process. That said, we are patient and deliberate in our pursuits and we will not sacrifice our principles for the sake of merely completing an acquisition.

We believe Acacia in partnership with Starboard has created a highly differentiated platform. We have a talented team with a wide range of skill sets and deep experience. We have a top-notch internal team executive network bringing us ideas. Acacia is well capitalized and between our relationships and Starboard's, we have the access to additional capital we can engage to scale up our efforts.

I think it's important to stress that acquisitions are only part of Acacia's strategy today. Certainly, it has been and will continue to be the primary area of focus. However, when I look at Acacia, I think it's important to note the various parts of our business.

First, we have our life sciences holdings, which comprise the assets acquired in the life sciences portfolio. We continue to harvest gains from our public assets, and we maintain significant optimism for our private holdings of this portfolio. This transaction has and we believe will continue to create significant value for us.

Second, we have public company holdings. Some of these are in the life sciences portfolio, but this also includes stock we have purchased as part of potential acquisition initiatives. We continue to actively pursue the strategy, particularly in situations where disconnected valuations present attractive opportunities.

Third, we continue to effective -- we continue to effectively manage and invest in our intellectual property portfolio. Marc Booth, our Chief Intellectual Property Officer has a talented team, and we continue to believe this business can produce attractive, uncorrelated returns....

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