SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | ACACIA RESEARCH CORPORATION | |
| | |
Dated: March 14, 2024 | By: | | | /s/ Martin D. McNulty Jr. |
| Dated: | March 7, 2018By: | /s/ Robert Stewart | Martin D. McNulty Jr. |
| | | Robert Stewart | |
| | | President
(AuthorizedChief Executive Officer (Principal Executive Officer and Duly Authorized Signatory)
| |
POWER OF ATTORNEY
We, the undersigned directors and officers of Acacia Research Corporation, do hereby constitute and appoint Robert StewartMartin D. McNulty Jr. and Clayton J. Haynes,Kirsten Hoover, and each of them, as our true and lawful attorneys-in-fact and agents with power of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorney-in-fact and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments hereto; and we do hereby ratify and confirm all that said attorney-in-fact and agent, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and the capacities and on the dates indicated.
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Signature | | Title | | Date |
| | | | |
/s/ Martin D. McNulty Jr. | | Chief Executive Officer and Director | | | | March 14, 2024 |
Signature Martin D. McNulty Jr. | | Title | | Date |
| | | | | |
/s/ | Robert Stewart | | President | | March 7, 2018 |
| Robert Stewart | | (Principal Executive Officer) | | |
| | | | | |
/s/ Kirsten Hoover | | Clayton J. Haynes | Interim Chief Financial Officer and Treasurer | | March 7, 201814, 2024 |
Kirsten Hoover | | Clayton J. Haynes | (Principal Financial and Accounting Officer) | | |
| | | | |
/s/ Gavin Molinelli | | Director | | March 14, 2024 |
Gavin Molinelli | | | | |
| | | | |
/s/ Isaac Kohlberg | | Director | | | March 14, 2024 |
Isaac Kohlberg | | | | |
| | | | |
/s/ Maureen O'Connell | | Fred A. de BoomDirector | | Director | | March 7, 201814, 2024 |
Maureen O'Connell | | Fred A. de Boom | | |
| | | | |
/s/ Geoffrey Ribar | | Director | | | March 14, 2024 |
Geoffrey Ribar | | | | |
| | | | |
/s/ Ajay Sundar | | Director | | | March 14, 2024 |
Ajay Sundar | | | | |
| | | | |
/s/ Katharine Wolanyk | | Edward W. FrykmanDirector | | Director | | March 7, 201814, 2024 |
Katharine Wolanyk | | Edward W. Frykman | | | |
| | | | | |
/s/ | G. Louis Graziadio, III | | Executive Chairman and Director | | March 7, 2018 |
| G. Louis Graziadio, III | | | | |
| | | | | |
/s/ | William S. Anderson | | Director | | March 7, 2018 |
| William S. Anderson | | | | |
| | | | | |
/s/ | Frank E. Walsh, III | | Director | | March 7, 2018 |
| Frank E. Walsh, III | | | | |
| | | | | |
/s/ | James F. Sanders | | Director | | March 7, 2018 |
| James F. Sanders | | | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Acacia Research Corporation
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Acacia Research Corporation (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 7, 2018 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2007.
Newport Beach, California
March 7, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Acacia Research Corporation
Opinion on internal control overthe financial reporting
statements
We have audited the internal control over financial reportingaccompanying consolidated balance sheets of Acacia Research Corporation and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established2023 and 2022, the related consolidated statements of operations, Series A redeemable convertible preferred stock and stockholders’ equity, and cash flows for each of the two years in the 2013 Internal Control-Integrated Framework issued byperiod ended December 31, 2023, and the Committee of Sponsoring Organizations ofrelated notes (collectively referred to as the Treadway Commission (“COSO”“financial statements”). In our opinion, the Company maintained,financial statements present fairly, in all material respects, effective internal control overthe financial reportingposition of the Company as of December 31, 2017,2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
our audits. We also have audited, in accordanceare a public accounting firm registered with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017, and our report dated March 7, 2018 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effectivethe financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting was maintained in all material respects. Our audit included obtainingreporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting assessingbut not for the riskpurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a material weakness exists, testingtest basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the designaccounting principles used and operating effectivenesssignificant estimates made by management, as well as evaluating the overall presentation of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
Critical audit matter
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reportingThe critical audit matter communicated below is a process designed to provide reasonable assurance regardingmatter arising from the reliabilitycurrent period audit of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertainwas communicated or required to be communicated to the maintenance of recordsaudit committee and that: (1) relates to accounts or disclosures that in reasonable detail, accurately and fairly reflectare material to the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effectany way our opinion on the financial statements.statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value measurement of the embedded derivative in the Series A Redeemable Convertible Preferred Stock
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subjectAs described further in Note 10 and Note 11 to the risk that controls may become inadequate becauseconsolidated financial statements, certain features of changes in conditions, orthe Series A Redeemable Convertible Preferred Stock should be bifurcated and accounted for as a derivative. The Company determined that the degreeembedded features would continue to be bifurcated from the host Series A Redeemable Convertible Preferred Stock and accounted for separately as a compound derivative until its conversion to common stock on July 13, 2023 in connection with Recapitalization agreement. We identified the fair value measurement of compliance with the policies orembedded derivative in the Series A Redeemable Convertible Preferred Stock as a critical audit matter.
The principal consideration for our determination that the fair value measurement of the embedded derivative in the Series A Redeemable Convertible Preferred Stock as a critical audit matter is as follows. There is limited observable market data available for the embedded derivative as it is a complex financial instrument and, as such, the fair value measurement requires management to make complex judgments in order to identify and select the significant assumptions, which include, among other things, the credit-risk adjusted discount rate. In addition, the fair value measurement of the embedded derivative requires the use of complex financial models. As a result, obtaining sufficient appropriate audit evidence related to the fair value measurement requires significant auditor subjectivity.
Our audit procedures may deteriorate.related to the fair value measurement of the embedded derivative included the following, among others.
•With the assistance of our firm valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and assumptions by: (1) comparing selected assumptions against available market data and historical amounts and (2) validating the mathematical accuracy of the model by developing an independent calculation and comparing to management’s concluded valuations.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2022.
Newport Beach, CaliforniaNew York, New York
March 7, 2018
14, 2024
ACACIA RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 2017 and 2016
(In thousands, except share and per share information)data)
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| | | | | | | | |
| | 2017 | | 2016 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 136,604 |
| | $ | 127,540 |
|
Restricted cash | | — |
| | 11,512 |
|
Short-term investments | | — |
| | 19,443 |
|
Accounts receivable | | 153 |
| | 26,750 |
|
Prepaid expenses and other current assets | | 2,938 |
| | 3,245 |
|
Total current assets | | 139,695 |
| | 188,490 |
|
Investment at fair value(1) | | 104,754 |
| | — |
|
Investment - equity method(1) | | 2,195 |
| | — |
|
Loan receivable and accrued interest(1) | | — |
| | 18,616 |
|
Investment in warrants and shares(1) | | — |
| | 1,960 |
|
Patents, net of accumulated amortization | | 61,917 |
| | 86,319 |
|
Other non-current assets | | 207 |
| | 618 |
|
| | $ | 308,768 |
| | $ | 296,003 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
| | |
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Current liabilities: | | |
| | |
|
Accounts payable and accrued expenses | | $ | 7,956 |
| | $ | 14,283 |
|
Royalties and contingent legal fees payable | | 1,601 |
| | 13,908 |
|
Total current liabilities | | 9,557 |
| | 28,191 |
|
Other liabilities | | 3,552 |
| | 369 |
|
Total liabilities | | 13,109 |
| | 28,560 |
|
Commitments and contingencies (Note 11) | |
|
| |
|
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Stockholders’ equity: | | |
| | |
|
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; no shares issued or outstanding | | — |
| | — |
|
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 50,639,926 shares issued and outstanding as of December 31, 2017 and 50,476,042 shares issued and outstanding as of December 31, 2016 | | 51 |
| | 50 |
|
Treasury stock, at cost, 1,729,408 shares as of December 31, 2017 and 2016 | | (34,640 | ) | | (34,640 | ) |
Additional paid-in capital | | 648,996 |
| | 642,453 |
|
Accumulated comprehensive loss | | (88 | ) | | (76 | ) |
Accumulated deficit | | (320,018 | ) | | (342,198 | ) |
Total Acacia Research Corporation stockholders’ equity | | 294,301 |
| | 265,589 |
|
Noncontrolling interests in operating subsidiaries | | 1,358 |
| | 1,854 |
|
Total stockholders’ equity | | 295,659 |
| | 267,443 |
|
| | $ | 308,768 |
| | $ | 296,003 |
|
(1) Refer to Note 7 for additional information.
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| December 31, |
| 2023 | | 2022 |
| | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 340,091 | | | $ | 287,786 | |
Equity securities | 63,068 | | | 61,608 | |
Equity securities without readily determinable fair value | 5,816 | | | 5,816 | |
Equity method investments | 30,934 | | | 30,934 | |
| | | |
Accounts receivable, net | 80,555 | | | 8,231 | |
Inventories | 10,921 | | | 14,222 | |
Prepaid expenses and other current assets | 23,127 | | | 19,388 | |
Total current assets | 554,512 | | | 427,985 | |
| | | |
| | | |
Property, plant and equipment, net | 2,356 | | | 3,537 | |
Oil and natural gas properties, net | 25,117 | | | — | |
Goodwill | 8,990 | | | 7,541 | |
| | | |
Other intangible assets, net | 33,556 | | | 36,658 | |
Operating lease, right-of-use assets | 1,872 | | | 2,005 | |
Deferred income tax assets, net | 2,915 | | | — | |
Other non-current assets | 4,227 | | | 5,202 | |
Total assets | $ | 633,545 | | | $ | 482,928 | |
| | | |
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 3,261 | | | $ | 6,036 | |
Accrued expenses and other current liabilities | 8,405 | | | 14,058 | |
Accrued compensation | 4,207 | | | 4,737 | |
Royalties and contingent legal fees payable | 10,786 | | | 699 | |
| | | |
Deferred revenue | 977 | | | 1,229 | |
Senior secured notes payable | — | | | 60,450 | |
Total current liabilities | 27,636 | | | 87,209 | |
| | | |
Deferred revenue, net of current portion | 458 | | | 568 | |
| | | |
Series A embedded derivative liabilities | — | | | 16,835 | |
Series B warrant liabilities | — | | | 84,780 | |
Long-term lease liabilities | 1,736 | | | 1,873 | |
Deferred income tax liabilities, net | — | | | 742 | |
Revolving credit facility | 10,525 | | | — | |
Other long-term liabilities | 3,581 | | | 1,675 | |
Total liabilities | 43,936 | | | 193,682 | |
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Commitments and contingencies | | | |
| | | |
Series A redeemable convertible preferred stock, par value $0.001 per share; stated value $100 per share; zero and 350,000 shares authorized, issued and outstanding as of December 31, 2023 and 2022, respectively; aggregate liquidation preference of zero and $35,000 as of December 31, 2023 and 2022, respectively | — | | | 19,924 | |
| | | |
Stockholders' equity: | | | |
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; no shares issued or outstanding | — | | | — | |
Common stock, par value $0.001 per share; 300,000,000 shares authorized; 99,895,473 and 43,484,867 shares issued and outstanding as of December 31, 2023 and 2022, respectively | 100 | | | 43 | |
Treasury stock, at cost, 16,183,703 shares as of December 31, 2023 and 2022 | (98,258) | | | (98,258) | |
Additional paid-in capital | 906,153 | | | 663,284 | |
Accumulated deficit | (239,729) | | | (306,789) | |
Total Acacia Research Corporation stockholders' equity | 568,266 | | | 258,280 | |
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Noncontrolling interests | 21,343 | | | 11,042 | |
| | | |
Total stockholders' equity | 589,609 | | | 269,322 | |
| | | |
Total liabilities, redeemable convertible preferred stock, and stockholders' equity | $ | 633,545 | | | $ | 482,928 | |
The accompanying notes are an integral part of these consolidated financial statements.
ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2017, 2016 and 2015
(In thousands, except share and per share information)data)
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| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
Revenues | | $ | 65,402 |
| | $ | 152,699 |
| | $ | 125,037 |
|
Operating costs and expenses: | | |
| | |
| | |
|
Cost of revenues: | | |
| | |
| | |
|
Inventor royalties | | 4,952 |
| | 22,730 |
| | 18,462 |
|
Contingent legal fees | | 16,682 |
| | 26,474 |
| | 16,169 |
|
Litigation and licensing expenses - patents | | 18,219 |
| | 27,858 |
| | 39,373 |
|
Amortization of patents | | 22,154 |
| | 34,208 |
| | 53,067 |
|
General and administrative expenses (including non-cash stock compensation expense of $8,885 in 2017, $9,062 in 2016 and $11,048 in 2015) | | 26,030 |
| | 32,919 |
| | 38,176 |
|
Other expenses - business development | | 1,189 |
| | 3,079 |
| | 3,391 |
|
Impairment of patent-related intangible assets | | 2,248 |
| | 42,340 |
| | 74,731 |
|
Impairment of goodwill | | — |
| | — |
| | 30,149 |
|
Other | | 1,200 |
| | 500 |
| | 4,141 |
|
Total operating costs and expenses | | 92,674 |
| | 190,108 |
| | 277,659 |
|
Operating loss | | (27,272 | ) | | (37,409 | ) | | (152,622 | ) |
Other income (expense): | | | | | | |
Gain on conversion of loans and accrued interest(1) | | 2,671 |
| | — |
| | — |
|
Gain on exercise of Primary Warrant(1) | | 4,616 |
| | — |
| | — |
|
Change in fair value of investment, net(1) | | 42,239 |
| | — |
| | — |
|
Equity in losses of investee(1) | | (220 | ) | | — |
| | — |
|
Other income | | 1,000 |
| | — |
| | — |
|
Interest income | | 1,605 |
| | 798 |
| | (56 | ) |
Total other income (expense) | | 51,911 |
| | 798 |
| | (56 | ) |
Income (loss) from operations before provision for income taxes | | 24,639 |
| | (36,611 | ) | | (152,678 | ) |
Provision for income taxes | | (2,955 | ) | | (18,188 | ) | | (4,800 | ) |
Net income (loss) including noncontrolling interests in subsidiaries | | 21,684 |
| | (54,799 | ) | | (157,478 | ) |
Net (income) loss attributable to noncontrolling interests in subsidiaries | | 496 |
| | 732 |
| | (2,558 | ) |
Net income (loss) attributable to Acacia Research Corporation | | $ | 22,180 |
| | $ | (54,067 | ) | | $ | (160,036 | ) |
Net income (loss) attributable to common stockholders - basic and diluted | | $ | 22,147 |
| | $ | (54,067 | ) | | $ | (160,730 | ) |
Basic and diluted income (loss) per common share | | $ | 0.44 |
| | $ | (1.08 | ) | | $ | (3.25 | ) |
Weighted-average number of shares outstanding, basic | | 50,495,119 |
| | 50,075,847 |
| | 49,505,817 |
|
Weighted-average number of shares outstanding, diluted | | 50,692,012 |
| | 50,075,847 |
| | 49,505,817 |
|
Cash dividends declared per common share | | $ | — |
| | $ | — |
| | $ | 0.50 |
|
(1) Refer to Note 7 for additional information.
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | | | 2023 | | 2022 |
| | | | | | | |
Revenues: | | | | | | | |
Intellectual property operations | | | | | $ | 89,156 | | | $ | 19,508 | |
Industrial operations | | | | | 35,098 | | | 39,715 | |
Energy operations | | | | | 848 | | | — | |
Total revenues | | | | | 125,102 | | | 59,223 | |
| | | | | | | |
Costs and expenses: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Cost of revenues - intellectual property operations | | | | | 34,164 | | | 18,029 | |
Cost of revenues - industrial operations | | | | | 18,009 | | | 19,359 | |
Cost of production - energy operations | | | | | 656 | | | — | |
Engineering and development expenses - industrial operations | | | | | 735 | | | 626 | |
Sales and marketing expenses - industrial operations | | | | | 6,908 | | | 8,621 | |
General and administrative expenses | | | | | 43,694 | | | 52,680 | |
Total costs and expenses | | | | | 104,166 | | | 99,315 | |
Operating income (loss) | | | | | 20,936 | | | (40,092) | |
| | | | | | | |
Other income (expense): | | | | | | | |
Equity securities investments: | | | | | | | |
Change in fair value of equity securities | | | | | 31,423 | | | (263,695) | |
(Loss) gain on sale of equity securities | | | | | (10,930) | | | 125,318 | |
Earnings on equity investment in joint venture | | | | | 4,167 | | | 42,531 | |
Net realized and unrealized gain (loss) | | | | | 24,660 | | | (95,846) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Change in fair value of the Series A and B warrants and embedded derivatives | | | | | 8,241 | | | 13,102 | |
Gain (loss) on foreign currency exchange | | | | | 53 | | | (3,324) | |
Interest expense on Senior Secured Notes | | | | | (1,930) | | | (6,432) | |
Interest income and other, net | | | | | 15,466 | | | 5,442 | |
Total other income (expense) | | | | | 46,490 | | | (87,058) | |
| | | | | | | |
Income (loss) before income taxes | | | | | 67,426 | | | (127,150) | |
| | | | | | | |
Income tax benefit | | | | | 1,504 | | | 16,211 | |
| | | | | | | |
Net income (loss) including noncontrolling interests in subsidiaries | | | | | 68,930 | | | (110,939) | |
| | | | | | | |
Net income attributable to noncontrolling interests in subsidiaries | | | | | (1,870) | | | (14,126) | |
| | | | | | | |
Net income (loss) attributable to Acacia Research Corporation | | | | | $ | 67,060 | | | $ | (125,065) | |
| | | | | | | |
Income (loss) per share: | | | | | | | |
Net income (loss) attributable to common stockholders - Basic | | | | | $ | 55,140 | | | $ | (133,035) | |
Weighted average number of shares outstanding - Basic | | | | | 75,296,025 | | | 42,460,504 | |
Basic net income (loss) per common share | | | | | $ | 0.73 | | | $ | (3.13) | |
Net income (loss) attributable to common stockholders - Diluted | | | | | $ | 53,208 | | | $ | (133,035) | |
Weighted average number of shares outstanding - Diluted | | | | | 92,411,818 | | | 42,460,504 | |
Diluted net income (loss) per common share | | | | | $ | 0.58 | | | $ | (3.13) | |
The accompanying notes are an integral part of these consolidated financial statements.
ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2017, 2016 and 2015SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(In thousands)thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| Series A Redeemable Convertible Preferred Stock | | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Noncontrolling Interests in Operating Subsidiaries | | Total Stockholders' Equity |
| Shares | | Amount | | | Shares | | Amount | | | | | |
Balance at December 31, 2022 | 350,000 | | | $ | 19,924 | | | | 43,484,867 | | | $ | 43 | | | $ | (98,258) | | | $ | 663,284 | | | $ | (306,789) | | | $ | 11,042 | | | $ | 269,322 | |
Net income including noncontrolling interests in subsidiaries | — | | | — | | | | — | | | — | | | — | | | — | | | 67,060 | | | 1,870 | | | 68,930 | |
Distributions to noncontrolling interests in subsidiaries | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | (1,390) | | | (1,390) | |
Accretion of Series A Redeemable Convertible Preferred Stock to redemption value | — | | | 3,230 | | | | — | | | — | | | — | | | (3,230) | | | — | | | — | | | (3,230) | |
Dividend on Series A Redeemable Convertible Preferred Stock | — | | | — | | | | — | | | — | | | — | | | (1,400) | | | — | | | — | | | (1,400) | |
Conversion of Series A Redeemable Convertible Preferred Stock to common stock | (350,000) | | | (23,154) | | | | 9,616,746 | | | 10 | | | — | | | 36,023 | | | — | | | — | | | 36,033 | |
| | | | | | | | | | | | | | | | | | |
Exercise of Series B warrants | — | | | — | | | | 31,506,849 | | | 32 | | | — | | | 129,462 | | | — | | | — | | | 129,494 | |
Stock options exercised | — | | | — | | | | 67,500 | | | — | | | — | | | 235 | | | — | | | — | | | 235 | |
Issuance of common stock from the Rights Offering | — | | | — | | | | 15,068,753 | | | 15 | | | — | | | 79,096 | | | — | | | — | | | 79,111 | |
Issuance of common stock for vesting of restricted stock units | — | | | — | | | | 327,684 | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock for unvested restricted stock awards, net of forfeitures | — | | | — | | | | (34,167) | | | — | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of share-based awards | — | | | — | | | | (142,759) | | | — | | | — | | | (614) | | | — | | | — | | | (614) | |
Compensation expense for share-based awards | — | | | — | | | | — | | | — | | | — | | | 3,297 | | | — | | | — | | | 3,297 | |
| | | | | | | | | | | | | | | | | | |
Acquisition of Benchmark | — | | | — | | | | — | | | — | | | — | | | — | | | $ | — | | | $ | 9,821 | | | $ | 9,821 | |
Balance at December 31, 2023 | — | | | $ | — | | | | 99,895,473 | | | $ | 100 | | | $ | (98,258) | | | $ | 906,153 | | | $ | (239,729) | | | $ | 21,343 | | | $ | 589,609 | |
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Net income (loss) including noncontrolling interests in subsidiaries | $ | 21,684 |
| | $ | (54,799 | ) | | $ | (157,478 | ) |
Other comprehensive income (loss): | | | | | |
Unrealized gain (loss) on short-term investments, net of tax of $0 | (40 | ) | | 40 |
| | (356 | ) |
Unrealized gain (loss) on foreign currency translation, net of tax of $0 | 58 |
| | 77 |
| | (123 | ) |
Add: reclassification adjustment for (gains) losses included in net income (loss) | (30 | ) | | 22 |
| | 617 |
|
Total other comprehensive income (loss) | 21,672 |
| | (54,660 | ) | | (157,340 | ) |
Comprehensive income (loss) attributable to noncontrolling interests | 496 |
| | 732 |
| | (2,558 | ) |
Comprehensive income (loss) attributable to Acacia Research Corporation | $ | 22,168 |
|
| $ | (53,928 | ) | | $ | (159,898 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Series A Redeemable Convertible Preferred Stock | | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Noncontrolling Interests in Operating Subsidiaries | | Total Stockholders' Equity |
| Shares | | Amount | | | Shares | | Amount | | | | | |
Balance at December 31, 2021 | 350,000 | | | $ | 14,753 | | | | 48,807,748 | | | $ | 49 | | | $ | (47,281) | | | $ | 648,389 | | | $ | (181,724) | | | $ | 11,042 | | | $ | 430,475 | |
Net (loss) income including noncontrolling interests in subsidiaries | — | | | — | | | | — | | | — | | | — | | | — | | | (125,065) | | | 14,126 | | | (110,939) | |
Distributions to noncontrolling interests in subsidiaries | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | (14,126) | | | (14,126) | |
Accretion of Series A Redeemable Convertible Preferred Stock to redemption value | — | | | 5,171 | | | | — | | | — | | | — | | | (5,171) | | | — | | | — | | | (5,171) | |
Dividend on Series A Redeemable Convertible Preferred Stock | — | | | — | | | | — | | | — | | | — | | | (2,799) | | | — | | | — | | | (2,799) | |
| | | | | | | | | | | | | | | | | | |
Exercise of Series A warrants | — | | | — | | | | 5,000,000 | | | 5 | | | — | | | 20,645 | | | — | | | — | | | 20,650 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Issuance of common stock for vesting of restricted stock units | — | | | — | | | | 646,668 | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock for unvested restricted stock awards, net of forfeitures | — | | | — | | | | 197,999 | | | — | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of share-based awards | — | | | — | | | | (372,314) | | | — | | | — | | | (1,600) | | | — | | | — | | | (1,600) | |
Compensation expense for share-based awards | — | | | — | | | | — | | | — | | | — | | | 3,820 | | | — | | | — | | | 3,820 | |
Repurchase of common stock | — | | | — | | | | (10,795,234) | | | (11) | | | (50,977) | | | — | | | — | | | — | | | (50,988) | |
Balance at December 31, 2022 | 350,000 | | | $ | 19,924 | | | | 43,484,867 | | | $ | 43 | | | $ | (98,258) | | | $ | 663,284 | | | $ | (306,789) | | | $ | 11,042 | | | $ | 269,322 | |
The accompanying notes are an integral part of these consolidated financial statements.
ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2017, 2016 and 2015CASH FLOWS
(In thousands, except share information)thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Shares | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Comprehensive Income (Loss) | | Accumulated Deficit | | Noncontrolling Interests in Operating Subsidiaries | | Total |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2014 | | 50,065,382 |
| | $ | 50 |
| | $ | (34,640 | ) | | $ | 646,595 |
| | $ | (353 | ) | | $ | (128,095 | ) | | $ | 5,491 |
| | $ | 489,048 |
|
Net loss attributable to Acacia Research Corporation | | — |
| | — |
| | — |
| | — |
| | — |
| | (160,036 | ) | | — |
| | (160,036 | ) |
Dividends paid to stockholders | | — |
| | — |
| | — |
| | (25,434 | ) | | — |
| | — |
| | — |
| | (25,434 | ) |
Stock options exercised | | 135,000 |
| | — |
| | — |
| | 938 |
| | — |
| | — |
| | — |
| | 938 |
|
Compensation expense for share-based awards, net of forfeitures | | 450,857 |
| | 1 |
| | — |
| | 11,047 |
| | — |
| | — |
| | — |
| | 11,048 |
|
Net income attributable to noncontrolling interests in subsidiaries | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,558 |
| | 2,558 |
|
Distributions to noncontrolling interests in operating subsidiary | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4,105 | ) | | (4,105 | ) |
Unrealized loss on foreign currency translation | | — |
| | — |
| | — |
| | — |
| | (123 | ) | | — |
| | — |
| | (123 | ) |
Unrealized gain on short-term investments | | — |
| | — |
| | — |
| | — |
| | 261 |
| | — |
| | — |
| | 261 |
|
Balance at December 31, 2015 | | 50,651,239 |
| | 51 |
| | (34,640 | ) | | 633,146 |
| | (215 | ) | | (288,131 | ) | | 3,944 |
| | 314,155 |
|
Net loss attributable to Acacia Research Corporation | | — |
| | — |
| | — |
| | — |
| | — |
| | (54,067 | ) | | — |
| | (54,067 | ) |
Stock options exercised | | 100,992 |
| | — |
| | — |
| | 326 |
| | — |
| | — |
| | — |
| | 326 |
|
Compensation expense for share-based awards, net of forfeitures | | (262,660 | ) | | (1 | ) | | — |
| | 9,063 |
| | — |
| | — |
| | — |
| | 9,062 |
|
Repurchase of restricted common stock | | (13,529 | ) | | — |
| | — |
| | (82 | ) | | — |
| | — |
| | — |
| | (82 | ) |
Net loss attributable to noncontrolling interests in subsidiaries | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (732 | ) | | (732 | ) |
Distributions to noncontrolling interests in operating subsidiary | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,358 | ) | | (1,358 | ) |
Unrealized gain on short-term investments | | — |
| | — |
| | — |
| | — |
| | 40 |
| | — |
| | — |
| | 40 |
|
Unrealized gain on foreign currency translation | | — |
| | — |
| | — |
| | — |
| | 99 |
| | — |
| | — |
| | 99 |
|
Balance at December 31, 2016 | | 50,476,042 |
| | 50 |
| | (34,640 | ) | | 642,453 |
| | (76 | ) | | (342,198 | ) | | 1,854 |
| | 267,443 |
|
Net income attributable to Acacia Research Corporation | | — |
| | — |
| | — |
| | — |
| | — |
| | 22,180 |
| | — |
| | 22,180 |
|
Stock options exercised | | 207,863 |
| | 1 |
| | — |
| | 744 |
| | — |
| | — |
| | — |
| | 745 |
|
Compensation expense for share-based awards, net of forfeitures | | (35,310 | ) | | — |
| | — |
| | 5,844 |
| | — |
| | — |
| | — |
| | 5,844 |
|
Repurchase of restricted common stock | | (8,669 | ) | | — |
| | — |
| | (45 | ) | | — |
| | — |
| | — |
| | (45 | ) |
Net loss attributable to noncontrolling interests in subsidiaries | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (496 | ) | | (496 | ) |
Unrealized gain on foreign currency translation | | — |
| | — |
| | — |
| | — |
| | 28 |
| | — |
| | — |
| | 28 |
|
Unrealized loss on short-term investments | | — |
| | — |
| | — |
| | — |
| | (40 | ) | | — |
| | — |
| | (40 | ) |
Balance at December 31, 2017 | | 50,639,926 |
| | $ | 51 |
| | $ | (34,640 | ) | | $ | 648,996 |
| | $ | (88 | ) | | $ | (320,018 | ) | | $ | 1,358 |
| | $ | 295,659 |
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 |
| | | |
Cash flows from operating activities: | | | |
Net income (loss) including noncontrolling interests in subsidiaries | $ | 68,930 | | | $ | (110,939) | |
Adjustments to reconcile net income (loss) including noncontrolling interests in subsidiaries to net cash used in operating activities: | | | |
| | | |
| | | |
Depreciation, depletion and amortization | 14,728 | | | 13,514 | |
Amortization of debt discount and issuance costs | — | | | 90 | |
| | | |
| | | |
| | | |
Change in fair value of Series A redeemable convertible preferred stock embedded derivatives | (3,954) | | | (1,613) | |
Change in fair value of Series A warrants | — | | | (1,895) | |
Change in fair value of Series B warrants | (2,762) | | | (11,598) | |
Loss on exercise of Series A warrants | — | | | 2,004 | |
Gain on exercise of Series B warrants | (1,525) | | | — | |
Compensation expense for share-based awards | 3,297 | | | 3,820 | |
(Gain) loss on foreign currency exchange | (53) | | | 3,324 | |
Change in fair value of equity securities | (31,423) | | | 263,695 | |
Loss (gain) on sale of equity securities | 10,930 | | | (125,318) | |
Earnings on equity investment in joint venture | (4,167) | | | (42,531) | |
Unrealized gain on derivatives | (781) | | | — | |
Deferred income taxes | (3,657) | | | (17,810) | |
Changes in assets and liabilities: | | | |
Accounts receivable | (70,313) | | | 998 | |
Inventories | 3,301 | | | (5,291) | |
Prepaid expenses and other assets | (820) | | | (5,986) | |
Accounts payable and accrued expenses | (4,651) | | | (136) | |
Royalties and contingent legal fees payable | 751 | | | (1,764) | |
Deferred revenue | (337) | | | 100 | |
| | | |
Net cash used in operating activities | (22,506) | | | (37,336) | |
| | | |
Cash flows from investing activities: | | | |
Acquisition, net of cash acquired (Note 3) | (9,409) | | | — | |
Cash reinvested | 9,965 | | | — | |
Patent acquisition | (6,000) | | | (5,000) | |
| | | |
Purchases of equity securities | (13,072) | | | (112,142) | |
Sales of equity securities | 32,106 | | | 273,934 | |
| | | |
| | | |
| | | |
Distributions received from equity investment in joint venture | 2,777 | | | 28,404 | |
| | | |
Purchases of property and equipment | (189) | | | (732) | |
| | | |
Net cash provided by investing activities | 16,178 | | | 184,464 | |
| | | |
Cash flows from financing activities: | | | |
Repurchase of common stock | — | | | (50,988) | |
Paydown of Revolving Credit Facility | (7,700) | | | — | |
Paydown of Senior Secured Notes | (60,000) | | | (120,000) | |
| | | |
Dividend on Series A Redeemable Convertible Preferred Stock | (1,400) | | | (2,799) | |
Taxes paid related to net share settlement of share-based awards | (614) | | | (1,600) | |
Proceeds from Rights Offering | 79,111 | | | — | |
Proceeds from exercise of Series A warrants | — | | | 9,250 | |
Proceeds from exercise of Series B warrants | 49,000 | | | — | |
Proceeds from exercise of stock options | 235 | | | — | |
Net cash provided by (used in) financing activities | 58,632 | | | (166,137) | |
| | | |
Effect of exchange rates on cash and cash equivalents | 1 | | | (2,566) | |
| | | |
Increase (decrease) in cash and cash equivalents | 52,305 | | | (21,575) | |
| | | |
Cash and cash equivalents, beginning | 287,786 | | | 309,361 | |
| | | |
Cash and cash equivalents, ending | $ | 340,091 | | | $ | 287,786 | |
| | | |
Supplemental schedule of cash flow information: | | | |
Interest paid | $ | 2,513 | | | $ | 7,229 | |
Income taxes paid | 831 | | | 384 | |
Noncash investing and financing activities: | | | |
| | | |
| | | |
Accrued patent costs | 4,000 | | | 9,000 | |
Distribution to noncontrolling interests in subsidiaries | 1,390 | | | 14,126 | |
The accompanying notes are an integral part of these consolidated financial statements.
ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2017, 2016 and 2015
(In thousands)statements
|
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
Cash flows from operating activities: | | | | | | |
Net income (loss) including noncontrolling interests in subsidiaries | | $ | 21,684 |
| | $ | (54,799 | ) | | $ | (157,478 | ) |
Adjustments to reconcile net income (loss) including noncontrolling interests in subsidiaries to net cash provided by (used in) operating activities: | | |
| | |
| | |
|
Gain on conversion of loans and accrued interest | | (2,671 | ) | | — |
| | — |
|
Gain on exercise of Primary Warrant | | (4,616 | ) | | — |
| | — |
|
Change in fair value of investment, net | | (42,239 | ) | | — |
| | — |
|
Depreciation and amortization | | 22,243 |
| | 34,355 |
| | 53,289 |
|
Non-cash stock compensation | | 8,885 |
| | 9,062 |
| | 11,048 |
|
Impairment of patent-related intangible assets | | 2,248 |
| | 42,340 |
| | 74,731 |
|
Impairment of goodwill | | — |
| | — |
| | 30,149 |
|
Other | | (374 | ) | | (477 | ) | | (109 | ) |
Changes in assets and liabilities: | | |
| | |
| | |
|
Restricted cash | | 11,512 |
| | (787 | ) | | (10,725 | ) |
Accounts receivable | | 26,597 |
| | 6,750 |
| | (13,332 | ) |
Prepaid expenses and other assets | | (135 | ) | | 1,593 |
| | (619 | ) |
Accounts payable and accrued expenses / patent costs | | (6,349 | ) | | (3,006 | ) | | 2,570 |
|
Royalties and contingent legal fees payable | | (12,307 | ) | | (970 | ) | | 527 |
|
Net cash provided by (used in) operating activities | | 24,478 |
| | 34,061 |
| | (9,949 | ) |
Cash flows from investing activities: | | |
| | |
| | |
|
Investment in Investees | | (31,514 | ) | | — |
| | — |
|
Advances to Investee (Note 7) | | (4,000 | ) | | (20,000 | ) | | — |
|
Purchases of property and equipment |
| (2 | ) |
| (4 | ) |
| (8 | ) |
Purchases of short-term investments |
| (448,388 | ) |
| (62,633 | ) |
| (23,296 | ) |
Sales and maturities of short-term investments |
| 467,790 |
|
| 43,232 |
|
| 82,115 |
|
Patent portfolio investment costs |
| — |
| | (1,225 | ) | | (19,504 | ) |
Net cash provided by (used in) investing activities |
| (16,114 | ) |
| (40,630 | ) |
| 39,307 |
|
Cash flows from financing activities: | | |
| | |
| | |
|
Dividends paid to stockholders | | — |
| | — |
| | (25,434 | ) |
Distributions to noncontrolling interests in operating subsidiary | | — |
|
| (1,358 | ) |
| (4,105 | ) |
Proceeds from the exercise of stock options | | 745 |
|
| 326 |
|
| 938 |
|
Repurchases of restricted common stock | | (45 | ) |
| (82 | ) |
| — |
|
Net cash provided by (used in) financing activities | | 700 |
| | (1,114 | ) | | (28,601 | ) |
Increase (decrease) in cash and cash equivalents | | 9,064 |
| | (7,683 | ) | | 757 |
|
Cash and cash equivalents, beginning | | 127,540 |
| | 135,223 |
| | 134,466 |
|
Cash and cash equivalents, ending | | $ | 136,604 |
| | $ | 127,540 |
| | $ | 135,223 |
|
Supplemental schedule of noncash investing activities: | | | | | | |
Patent portfolio investment costs included in accrued expenses / costs | | $ | — |
| | $ | — |
| | $ | 1,000 |
|
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Description of Business. As used herein, “Acacia” and the “Company” refer to Acacia Research Corporation and/(the “Company,” “Acacia,” “we,” “us,” or its wholly“our”) is focused on acquiring and majority-ownedmanaging companies across industries including but not limited to the industrial, energy, technology, and controlled operating subsidiaries, and/healthcare verticals. We focus on identifying, pursuing and acquiring businesses where we are uniquely positioned to deploy our differentiated strategy, people and processes to generate and compound shareholder value. We have a wide range of transactional and operational capabilities to realize the intrinsic value in the businesses that we acquire. Our ideal transactions include the acquisition of public or private companies, the acquisition of divisions of other companies, or structured transactions that can result in the recapitalization or restructuring of the ownership of a business to enhance value.
We are particularly attracted to complex situations where we believe value is not fully recognized, the value of certain operations are masked by a diversified business mix, or where applicable, its management.
Acacia’s operating subsidiaries investprivate ownership has not invested the capital and/or resources necessary to support long-term value. Through our public market activities, we aim to initiate strategic block positions in license and enforce patented technologies. Acacia’s operating subsidiaries partner with inventors and patent owners, applying their legal and technology expertisepublic companies as a path to patent assetscomplete whole company acquisitions or strategic transactions that unlock value. We believe this business model is differentiated from private equity funds, which do not typically own public securities prior to unlock the financial value in their patented inventions. Acacia also identifies opportunities to partner with high-growth and potentially disruptive technology companies. These partnerships usually involve an equity or debt investment by Acacia, along with entering into IP related agreements where Acacia provides IPacquiring companies, hedge funds, which do not typically acquire entire businesses, and other patent related services to these companies. Acacia leverages its experience, expertise, data and relationships developed as a leaderacquisition vehicles such Special Purpose Acquisition Companies, which are narrowly focused on completing one singular, defining acquisition.
Our focus is companies with market values in the sub-$2 billion range and particularly on businesses valued at $1 billion or less. We are, however, opportunistic, and may pursue acquisitions that are larger under the right circumstance.
Relationship with Starboard Value, LP
Our strategic relationship with Starboard Value, LP (together with certain funds and accounts affiliated with, or managed by, Starboard Value LP, “Starboard”), the Company's controlling shareholder, provides us access to industry expertise, and operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired. Starboard has provided, and we expect will continue to provide, ready access to its extensive network of industry executives and, as part of our relationship, Starboard has assisted, and we expect will continue to assist, with sourcing and evaluating appropriate acquisition opportunities. Refer to Note 10 for additional information.
Recapitalization
On October 30, 2022, the Company entered into a Recapitalization Agreement (the “Recapitalization Agreement”) with Starboard and certain funds and accounts affiliated with, or managed by, Starboard (collectively, the “Investors”), pursuant to which, among other things, the Company and Starboard agreed to enter into a series of transactions (the “Recapitalization”) to restructure Starboard’s existing investments in the Company in order to simplify the Company’s capital structure. Under the Recapitalization Agreement, the Company and Starboard agreed to take certain actions in connection with the Recapitalization. Subsequently, and in accordance with the terms contained in the Second Amended and Restated Certificate of Designations and the Recapitalization Agreement, on July 13, 2023, Starboard converted an aggregate amount of 350,000 shares of Series A Convertible Preferred Stock of the Company, par value $0.001 per share (the “Series A Redeemable Convertible Preferred Stock”) into 9,616,746 shares of common stock, which included 27,704 shares of common stock issued in respect of accrued and unpaid dividends (the “Preferred Stock Conversion”). Further to the terms of the Recapitalization Agreement and in accordance with the terms of the Company’s Series B Warrants (the “Series B Warrants”), on July 13, 2023, Starboard also exercised 31,506,849 of the Series B Warrants through a combination of a “Note Cancellation” and a “Limited Cash Exercise” (each as defined in the Series B Warrants), resulting in the receipt by Starboard of 31,506,849 shares of common stock (the “Series B Warrants Exercise” and, together with the Preferred Stock Conversion, the “Recapitalization Transactions”), the cancellation of $60.0 million aggregate principal amount of the Company’s senior secured notes held by Starboard (as described further in Note 10, the “Senior Secured Notes”) and the receipt by the Company of aggregate gross proceeds of approximately $55.0 million. As a result of the Recapitalization Transactions, Starboard beneficially owned 61,123,595 shares of common stock as of July 13, 2023, representing approximately 61.2% of the common stock based on 99,886,322 shares of common stock issued and outstanding as of such date. No shares of Series A Redeemable Convertible Preferred Stock, no Series B Warrants, nor any
Senior Secured Notes remain outstanding. Refer to Note 10 for a detailed description of the Recapitalization and the Recapitalization Transactions.
Intellectual Property Operations – Patent Licensing, Enforcement and Technologies Business
The Company through its Patent Licensing, Enforcement and Technologies Business invests in intellectual property (“IP”) industry to pursue these opportunities. In some cases, these opportunities will complement, and/or supplement Acacia’s primary licensing and enforcement business.
Acacia’s operating subsidiaries generate revenues and related cash flows from the granting of intellectual property rights for the use of patented technologies that its operating subsidiaries control or own. Acacia’s operating subsidiaries assist patent owners with the prosecutionabsolute return assets and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and, where necessary, with the enforcement against unauthorized users of their patented technologies through the filing of patent infringement litigation.
Acacia’s operating subsidiaries are principalsengages in the licensing and enforcement effort,of patented technologies. Through our Patent Licensing, Enforcement and Technologies Business, operated under our wholly owned subsidiary, Acacia Research Group, LLC, and its wholly-owned subsidiaries (collectively, “ARG”), we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining control of the rights in the patent portfolio or control ofpurchasing the patent portfolio outright. Acacia’sWhile we, from time to time, partner with inventors and patent owners, from small entities to large corporations, we assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program, and when applicable, share net licensing revenue with our patent partners as that program matures, on a pre-arranged and negotiated basis. We may also provide upfront capital to patent owners as an advance against future licensing revenue.
Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a wide variety of industries.
Neither Acacia nor ARG generates revenues and related cash flows from the granting of IP rights for the use of patented technologies that its operating subsidiaries invent new technologiescontrol or products; rather, Acaciaown.
Our Patent Licensing, Enforcement and Technologies Business depends upon the identification and investment in new patents, inventions and companies that own intellectual propertyIP through its relationships with inventors, universities, research institutions, technology companies and others. If Acacia’sARG’s operating subsidiaries are unable to maintain those relationships and identify and grow new relationships, then they may not be able to identify new technology-based opportunities for sustainable revenue and/or revenue growth.
During fiscal year 2017 Acacia obtainedthe years ended December 31, 2023 and 2022, ARG did not obtain control of oneany new patent portfolio. In fiscal year 2016, Acacia obtained controlportfolios.
Industrial Operations Acquisition
On October 7, 2021, we consummated our first operating company acquisition of two new patent portfolios, comparedPrintronix Holding Corporation and subsidiaries (“Printronix”). Printronix is a leading manufacturer and distributor of industrial impact printers, also known as line matrix printers, and related consumables and services. The Printronix business serves a diverse group of customers that operate across healthcare, food and beverage, manufacturing and logistics, and other sectors. This mature technology is known for its ability to three new patent portfolios,operate in hazardous environments. Printronix has a manufacturing site located in Malaysia and six new patent portfoliosthird-party configuration sites located in fiscal years 2015the United States, Singapore and 2014, respectively.Holland, along with sales and support locations around the world to support its global network of users, channel partners and strategic alliances. This acquisition was made at what we believe to be an attractive purchase price, and we are now supporting existing management in its initiative to reduce costs and operate more efficiently and in its execution of strategic partnerships to generate growth.
Acacia was incorporated on January 25, 1993 under the lawsWe acquired all of the Stateoutstanding stock of California. Printronix, for a cash purchase price of approximately $37.0 million, which included an initial $33.0 million cash payment and a $4.0 million working capital adjustment. The Company's consolidated financial statements include Printronix's consolidated operations.
Energy Operations Acquisition
In November 13, 2023, we invested $10.0 million to acquire a 50.4% equity interest in Benchmark Energy II, LLC ("Benchmark"). Headquartered in Austin, TX, Benchmark is an independent oil and gas company engaged in the acquisition, production and development of oil and gas assets in mature resource plays in Texas and Oklahoma. Benchmark is run by an experienced management team led by Chief Executive Officer Kirk Goehring, who previously served as Chief Operating Officer of both Benchmark and Jones Energy, Inc. Benchmark’s existing assets consist of over 13,000 net acres primarily located in Roberts and Hemphill Counties in Texas, and an interest in over 125 wells, the majority of which are operated. Benchmark seeks to acquire predictable and shallow decline, cash-flowing oil and gas properties whose value can be enhanced via a disciplined, field optimization strategy, with risk managed through robust commodity hedges and low leverage. Through its investment in Benchmark, the Company, along with the Benchmark management team, will evaluate future growth and acquisitions of oil and gas assets at attractive valuations. The Company's consolidated financial
statements include Benchmark's consolidated operations from November 13, 2023 through December 1999, Acacia changed its state of incorporation from California31, 2023. Refer to Delaware.Note 3 for additional information related to the Benchmark acquisition.
2.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Principles and Fiscal Year End.
The consolidated financial statements and accompanying notes are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP)(“U.S. GAAP”).
Principles of Consolidation. Consolidation
The accompanying consolidated financial statements include the accounts of Acacia and its wholly and majority-owned and controlled subsidiaries. MaterialAll intercompany transactions and balances have been eliminated in consolidation.
Noncontrolling interests in Acacia’s majority-owned and controlled operating subsidiaries (“noncontrolling interests”) are separately presented as a component of stockholders’ equity. Consolidated net income or (loss) is adjusted to include the net (income) or loss attributed to noncontrolling interests in the consolidated statements of operations. Refer to the accompanying consolidated statementsConsolidated Statements of stockholders’Series A Redeemable Convertible Preferred Stock and Stockholders’ Equity for noncontrolling interests activity.
In 2020, in connection with the transaction with Link Fund Solutions Limited, which is more fully described in Note 4, the Company acquired equity for total noncontrolling interests.
A wholly owned subsidiarysecurities of Acacia is the general partner of the Acacia Intellectual Property Fund, L.P. (the “Acacia IP Fund”Malin J1 Limited (“MalinJ1”), which was formed in August 2010. The Acacia IP Fund. MalinJ1 is included in the Company’s consolidated financial statements since 2010, as Acacia’s wholly owned subsidiary, asbecause the general partner,Company, through its interest in the equity securities of MalinJ1, has the ability to control the operations and activities of MalinJ1. Viamet HoldCo LLC, a Delaware limited liability company and wholly-owned subsidiary of Acacia, is the Acacia IP Fund.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition. Revenue is recognized when (i) persuasive evidencemajority shareholder of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectibility of amounts is reasonably assured.
MalinJ1.
In general, revenue arrangements provide for the payment of contractually determined feesNovember 2023, we invested $10.0 million to acquire a 50.4% equity interest in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by Acacia’s operating subsidiaries. These rights typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by Acacia’s operating subsidiaries, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. The intellectual property rights granted may be perpetual in nature, extending until the expiration of the related patents, or can be granted for a defined, relatively short period of time, with the licensee possessing the right to renew the agreement at the end of each contractual term for an additional minimum upfront payment. Pursuant to the terms of these agreements, Acacia’s operating subsidiaries have no further obligation with respect to the grant of the non-exclusive retroactive and future licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on Acacia’s operating subsidiaries’ part to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the minimum upfront payment for term agreement renewals. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectibility is reasonably assured, or upon receipt of the minimum upfront fee for term agreement renewals, and when all other revenue recognition criteria have been met.
For the periods presented herein, the majority of the revenue agreements executed by the Company provided for the payment of one-time, paid-up license fees in consideration for the grant of certain intellectual property rights for patented technology owned by Acacia’s operating subsidiaries. These rights were primarily granted on a perpetual basis, extending until the expiration of the underlying patents.
Certain of the Company’s revenue arrangements provide for future royalties or additional required payments based on future licensee activities. Additional royalties are recognized in revenue upon resolution of the related contingency provided that all revenue recognition criteria, as described above, have been met. Amounts of additional royalties due under these license agreements, if any, cannot be reasonably estimated by management.
Certain of the Company’s revenue arrangements provide for the calculation of fees based on a licensee’s actual quarterly sales or actual per unit activity, applied to a contractual royalty rate. Licensees that pay fees on a quarterly basis generally report actual quarterly sales or actual per unit activity information and related quarterly fees due within 30 days to 45 days after the end of the quarter in which such sales or activity takes place. The amount of fees due under these revenue arrangements each quarter cannot be reasonably estimated by management. Consequently, Acacia’s operating subsidiaries recognize revenue from these revenue arrangements on a three-month lag basis, in the quarter following the quarter of sales or per unit activity, provided amounts are fixed or determinable and collectibility is reasonably assured. The lag method described above allows for the receipt of licensee royalty reports prior to the recognition of revenue.
Amounts related to revenue arrangements that do not meet the revenue recognition criteria described above are deferred until the revenue recognition criteria are met.
Acacia assesses the collectibility of fees receivable based on a number of factors, including past transaction history and credit-worthiness of licensees. If it is determined that collection is not reasonably assured, the fee is recognized when collectibility becomes reasonably assured, assuming all other revenue recognition criteria have been met, which is generally upon receipt of cash.
Cost of Revenues. Cost of revenues include the costs and expenses incurred in connection with Acacia’s patent licensing and enforcement activities, including inventor royalties paid to original patent owners, contingent legal fees paid to external patent counsel, other patent-related legal expenses paid to external patent counsel, licensing and enforcement related research, consulting and other expenses paid to third-parties and the amortization of patent-related investment costs. These costs are included under the caption “Cost of revenues” in the accompanying consolidated statements of operations.
Inventor Royalties and Contingent Legal Expenses. Inventor royalties are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In certain instances, pursuant to the terms of the underlying inventor agreements, upfront advances paid to patent owners by Acacia’s operating subsidiaries are recoverable from future net revenues. Patent costs that are recoverable from future net revenues are amortized over the estimated economic useful life of
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the related patents, or as the prepaid royalties are earned by the inventor, as appropriate, and the related expense is included in amortization expense in the consolidated statements of operations. Any unamortized upfront advances recovered from net revenues are expensed in the period recovered, and included in amortization expense in the consolidated statements of operations.
Contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, Acacia’s operating subsidiaries may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement.
Fair Value Measurements. U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date, and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The three-level hierarchy of valuation techniques established to measure fair value is defined as follows:
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(i) | Level 1 - Observable Inputs: Quoted prices in active markets for identical investments;
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(ii) | Level 2 - Pricing Models with Significant Observable Inputs: Other significant observable inputs, including quoted prices for similar investments, interest rates, credit risk, etc.; and
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(iii) | Level 3 - Unobservable Inputs: Significant unobservable inputs, including the entity’s own assumptions in determining the fair value of investments.
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Whenever possible, the Company is required to use observable market inputs (Level 1 - quoted market prices) when measuring fair value. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured. At December 31, 2017, all of the Company’s investments recorded at fair value were valued utilizing Level 3 - unobservable inputs. In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. Financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
|
| | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 |
Assets as of December 31, 2017: | | | | | |
Investment at fair value (Note 7)(1) | $ | — |
| | $ | — |
| | $ | 104,754 |
|
| | | | | |
Assets as of December 31, 2016: | | | | | |
Short-term investments(1) | $ | 19,443 |
| | $ | — |
| | $ | — |
|
____________________
(1) There were no transfers between fair value hierarchy categories for the period presented.
A reconciliation of the activity for fair value measurements categorized within Level 3 for the year ended December 31, 2017 is as follows (in thousands): |
| | | | | | | | | | | |
| Investment at Fair Value |
| Common Stock | | Warrants | | Total |
Opening balance as of January 1, 2017 | $ | — |
| | $ | — |
| | $ | — |
|
Total gains and losses included in earnings for the period(1) | | | | | |
Gain on conversion of loans and accrued interest | 2,671 |
| | — |
| | 2,671 |
|
Gain on exercise of Primary Warrant | — |
| | 4,616 |
| | 4,616 |
|
Change in fair value of investment, net | 33,922 |
| | 8,317 |
| | 42,239 |
|
Purchases, issues, sales and settlements | |
| | |
| | |
Purchases and issues(2) | 54,202 |
| | 1,026 |
| | 55,228 |
|
Total recurring fair value measurements(1) | $ | 90,795 |
| | $ | 13,959 |
| | $ | 104,754 |
|
____________________
(1) All gains and losses included in earnings for the period presented relate to assets and liabilities held as of December 31, 2017.
(2) Refer to Note 7 for information regarding purchase and issues activity for the years ended December 31, 2017 and 2016.
Cash and Cash Equivalents. Acacia considers all highly liquid, short-term investments with original maturities of three months or less when purchased to be cash equivalents. For the periods presented, Acacia’s cash equivalents are comprised
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of investments in AAA rated money market funds that invest in first-tier only securities, which primarily includes: domestic commercial paper, securities issued or guaranteed by the U.S. government or its agencies, U.S. bank obligations, and fully collateralized repurchase agreements. Acacia’s cash equivalents are measured at fair value using quoted prices that represent Level 1 inputs.
Short-term Investments. Investments in securities with original maturities of greater than three months and less than one year and other investments representing amounts that are available for current operations are classified as short-term investments, unless there are indications that such investments may not be readily sold in the short-term. The fair values of these investments approximate their carrying values. For the applicable periods presented, all of Acacia’s short-term investments were classified as available-for-sale, which are reported at fair value on a recurring basis using significant observable inputs (Level 1), with related unrealized gains and losses in the value of such securities recorded as a separate component of other comprehensive income (loss) in stockholders’ equity until realized. Realized gains and losses are recorded in the statements of operations in other income (expense). Realized and unrealized gains and losses are recorded based on the specific identification method. Interest is included in other income (expense).
Impairment of Short-term Investments. Acacia evaluates its investments in marketable securities for potential impairment, employing a methodology on a quarterly basis that considers available quantitative and qualitative evidence. If the cost or carrying value of an investment exceeds its estimated fair value, the Company evaluates, among other factors, general market conditions, credit quality of instrument issuers, the duration and extent to which the fair value is less than cost, and the Company’s intent and ability to hold, or plans or ability to sell. Fair value is estimated based on publicly available market information or other estimates determined by management. Investments are considered to be impaired when a decline in fair value is estimated to be other-than-temporary. Acacia reviews impairments associated with its investments in marketable securities and determines the classification of any impairment as temporary or other-than-temporary. An impairment is deemed other-than-temporary unless (a) Acacia has the ability and intent to hold an investment for a period of time sufficient for recovery of its carrying amount and (b) positive evidence indicating that the investment’s carrying amount is recoverable within a reasonable period of time outweighs any evidence to the contrary. All available evidence, both positive and negative, is considered to determine whether, based on the weight of such evidence, the carrying amount of the investment is recoverable within a reasonable period of time. For investments classified as available-for-sale, unrealized losses that are other-than-temporary are recognized in the consolidated statements of operations.
Concentration of Credit Risks. Financial instruments that potentially subject Acacia to concentrations of credit risk are cash equivalents, short-term investments and accounts receivable. Acacia places its cash equivalents and short-term investments primarily in highly rated money market funds and investment grade marketable securities. Cash and cash equivalents are also invested in deposits with certain financial institutions and may, at times, exceed federally insured limits. Acacia has not experienced any significant losses on its deposits of cash and cash equivalents.
Three licensees individually accounted for 54%, 21% and 10%, respectively, of revenues recognized during the year ended December 31, 2017. Three licensees individually accounted for 26%, 23% and 11%, respectively, of revenues recognized during the year ended December 31, 2016. Three licensees individually accounted for 24%, 20% and 16%, respectively, of revenues recognized during the year ended December 31, 2015. One licensee individually represented 100% of accounts receivable at December 31, 2017. Four licensees individually represented approximately 39%, 22%, 16% and 15%, respectively, of accounts receivable at December 31, 2016.
For 2017, 2016 and 2015, 39%, 79% and 49%, respectively, of revenues were attributable to licensees domiciled in foreign jurisdictions, based on the jurisdiction of the entity obligated to satisfy payment obligations pursuant to the applicable revenue arrangement. The Company does not have any material foreign operations.
Acacia performs credit evaluations of its licensees with significant receivable balances, if any, and has not experienced any significant credit losses. Accounts receivable are recorded at the executed contract amount and generally do not bear interest. Collateral is not required. An allowance for doubtful accounts may be established to reflect the Company’s best estimate of probable losses inherent in the accounts receivable balance, and is reflected as a contra-asset account on the balance sheet and a charge to operating expenses in the statements of operations for the applicable period. The allowance is determined based on known troubled accounts, historical experience, and other currently available evidence. There was no allowance for doubtful accounts established for the periods presented.
Fair Value of Financial Instruments. The carrying value of cash and cash equivalents, accounts receivables, and current liabilities approximates their fair values due to their short-term maturities.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment. Property and equipment are recorded at cost. Major additions and improvements that materially extend useful lives of property and equipment are capitalized. Maintenance and repairs are charged against the results of operations as incurred. When these assets are sold or otherwise disposed of, the asset and related depreciation are relieved, and any gain or lossBenchmark. Benchmark is included in the consolidated statements of operations for the period of sale or disposal. Depreciation and amortization is computed on a straight-line basis over the following estimated useful lives of the assets:
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Furniture and fixtures | 3 to 5 years |
Computer hardware and software | 3 to 5 years |
Leasehold improvements | 2 to 5 years (Lesser of lease term or useful life of improvement) |
Rental payments on operating leases are charged to expense in the consolidated statements of operations on a straight-line basis over the lease term.
Patents. Patents include the cost of patents or patent rights (hereinafter, collectively “patents”) acquired from third-parties or obtained in connection with business combinations. Patent costs are amortized utilizing the straight-line method over their remaining economic useful lives, ranging from one to six years.
Investments at Fair Value. On an individual investment basis, Acacia may elect to account for investments in companies where the Company has the ability to exercise significant influence over operating and financial policies of the investee, at fair value. If the fair value option is applied to an investment that would otherwise be accounted for under the equity method of accounting, it is applied to all of the financial interests in the same entity that are eligible items (i.e. common stock and warrants).
Equity Method Investments. Equity investments without readily determinable fair values in companies over which the Company has the ability to exercise significant influence, are accounted for using the equity method of accounting, and classified within “Equity Method Investments” in the consolidated balance sheet. Acacia includes its proportionate share of earnings and/or losses of its equity method investees in equity in earnings (losses) of investee in the consolidated statements of operations.
Impairment of Investments. Acacia reviews its equity method investments quarterly for indicators of other-than-temporary impairment. This determination requires significant judgment. In making this judgment, Acacia considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an investment exceeds its fair value, Acacia evaluates, among other factors, general market conditions and the duration and extent to which the fair value is less than cost. Acacia also considers specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the consolidated statements of operations and a new cost basis in the investment is established.
Impairment of Long-lived Assets. Acacia reviews long-lived assets and intangible assets for potential impairment annually (quarterly for patents) and when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss is recorded equal to the excess of the asset’s carrying value over its fair value. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. In the event that management decides to no longer allocate resources to a patent portfolio, an impairment loss equal to the remaining carrying value of the asset is recorded. Refer to Note 5 for additional information.
Fair value is generally estimated using the “Income Approach,” focusing on the estimated future net income-producing capability of the patent portfolios over the estimated remaining economic useful life. Estimates of future after-tax cash flows are converted to present value through “discounting,” including an estimated rate of return that accounts for both the time value of money and investment risk factors. Estimated cash inflows are typically based on estimates of reasonable royalty rates for the applicable technology, applied to estimated market data. Estimated cash outflows are based on existing contractual obligations, such as contingent legal fee and inventor royalty obligations, applied to estimated license fee revenues, in addition to other estimates of out-of-pocket expenses associated with a specific patent portfolio’s licensing and enforcement program. The analysis also contemplates consideration of current information about the patent portfolio including, status and stage of
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
litigation, periodic results of the litigation process, strength of the patent portfolio, technology coverage and other pertinent information that could impact future net cash flows.
Contingent Liabilities. The Company, from time to time, is involved in certain legal proceedings. Based upon consultation with outside counsel handling its defense in these matters and the Company’s analysis of potential outcomes, if the Company determines that a loss arising from such matters is probable and can be reasonably estimated, an estimate of the contingent liability is recorded in its consolidated financial statements. If only a range of estimated loss can be determined, an amount within the range that, based on estimates, assumptions and judgments, reflects the most likely outcome, is recorded as a contingent liability in the consolidated financial statements. In situations where none of the estimates within the estimated range is a better estimate of probable loss than any other amount, the Company records the low end of the range. Any such accrual would be charged to expense in the appropriate period. Litigation expenses for these types of contingencies are recognized in the period in which the litigation services were provided.
Certain of Acacia’s operating subsidiaries are often required to engage in litigation to enforce their patents and patent rights. In connection with any of Acacia’s operating subsidiaries’ patent enforcement actions, it is possible that a defendant may request and/or a court may rule that an operating subsidiary has violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against Acacia or its operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material, and if required to be paid by Acacia or its operating subsidiaries, could materially harm the Company’s operating results and financial position.
Stock-Based Compensation. The compensation cost for all stock-based awards is measured at the grant date, based on the fair value of the award, and is recognized as an expense on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity award) which is generally two to four years. The fair value of restricted stock and restricted stock unit awards is determined by the product of the number of shares or units granted and the grant date market price of the underlying common stock. The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing model. Stock-based compensation expense for awards with service and/or performance conditions that affect vesting is recorded only for those awards expected to vest using an estimated forfeiture rate.
The FASB issued a new standard, effective January 1, 2017, that allows entities to make a policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. Effective January 1, 2017, the Company elected to account for forfeitures of awards as they occur. The prior standard required the Company to estimate the number of awards for which the requisite service period is expected to be rendered and base the accruals of compensation cost on the estimated number of awards that will vest.
The fair values of stock options granted during the periods presented were estimated using the Black-Scholes option-pricing model, based on the following weighted-average assumptions:
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| | | |
| For the Years Ended |
| December 31, 2017 | | December 31, 2016 |
| | | |
Risk-free interest rate | 1.77% | | 1.1% |
Term | 4.37 | | 3.06 |
Volatility | 51% | | 53% |
Dividend yield | —% | | —% |
Due to a lack of sufficient historical stock option exercise experience, the Company utilized the simplified method for estimating the expected term for stock options granted during the periods presented. Expected volatility is based on the historical volatility of the Company’s stock for the length of time corresponding to the expected term of the option. The risk-free interest rate is based on the U.S. treasury yield curve on the grant date for the expected term of the option.
Restricted stock awards and stock option awards with performance-based vesting conditions generally vest based upon the Company achieving specified cash flow performance targets over a one and two-year period from the date of grant.
Performance-based stock options awards with market-based vesting conditions vest based upon the Company achieving specified stock price targets over a four-year period. The effect of a market condition is reflected in the estimate of the grant-date fair value of the options utilizing a Monte Carlo valuation technique. Compensation cost is recognized for an option with a market-based vesting condition provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. The service period for options with a market-based vesting condition is inferred from the
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
application of the Monte Carlo valuation technique. The derived service period represents the duration of the median of the distribution of share price paths on which the market condition is satisfied. The duration is the period of time from the service inception date to the expected date of satisfaction, as determined from the valuation technique. Assumptions utilized in connection with the Monte Carlo valuation technique included: estimated risk-free interest rate; expected volatility; and expected dividend yield. The risk-free interest rate was determined based on the yields available on U.S. Treasury zero-coupon issues. The expected stock price volatility was determined using historical volatility. The expected dividend yield was based on expectations regarding dividend payments.
Profits Interest Units (“Units”) are accounted for in accordance with Accounting Standards Codification (“ASC”) 718-10, “Compensation - Stock Compensation.” The Units vest as described at Note 10, and therefore, the vesting conditions do not meet the definition of service, market or performance conditions, as defined in ASC 718. As such, the Units are classified as liability awards. Liability classified awards are measured at fair value on the grant date and re-measured each reporting period at fair value until the award is settled. Compensation expense is adjusted each reporting period for changes in fair value prorated for the portion of the requisite service period rendered. Initially, compensation expense was recognized on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity award) which was five years. Upon full vesting of the award, which occurred during the three months ended September 30, 2017, previously unrecognized compensation expense was immediately recognized in the period, and will continue to be fully recognized for any changes in fair value, until the Units are settled. Non-cash stock compensation expense related to the Units is reflected in general and administrative expense in the accompanying consolidated statements of operations.
Income Taxes. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in Acacia’sCompany's consolidated financial statements or consolidated income tax returns. A valuation allowancebecause Benchmark is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized, or if it isa variable interest entity ("VIE"). We determined that there is uncertainty regarding future realization of such assets.we have the power to direct the activities that most significantly impact Benchmark's economic performance and we (i) are obligated to absorb the losses that could be significant to Benchmark or (ii) hold the right to receive benefits from Benchmark that could potentially be significant to it.
Segment Reporting
Under U.S. generally accepted accounting principles, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold are measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement.
Segment Reporting. AcaciaThe Company uses the management approach, which designates the internal organization that is used by management for making operating decisions and assessing performance as the basis of Acacia’sthe Company’s reportable segments. Acacia’s patent licensingRefer to Note 19 for additional information regarding our three reportable business segments: Intellectual Property Operations, Industrial Operations and enforcement business constitutes its single reportable segment.Energy Operations.
Use of Estimates.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of AmericaU.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Acacia believes that, of the significant accounting policies described herein, the accounting policies associated with revenue recognition, estimates of variable consideration for revenue, including sales returns, the valuation of equity securities without readily determinable fair value, the loandetermination of excess and equity instruments discussed at Note 7,obsolete inventories, allowance for credit losses and product warranty liabilities, the valuation of Series A redeemable convertible preferred stock, embedded derivatives, and Series B warrants, estimated crude oil and natural gas reserves, fair value of assets and liabilities acquired in a business combination, stock-based compensation expense, including the valuation of profits interests, impairment of goodwill, patent-related and other intangible assets, the determination of the economic useful life of amortizable intangible assets, and income taxes and valuation allowances against net deferred tax assets, require its most difficult, subjective or complex judgments.
Income (Loss) Per Share. The Company computes net income (loss) attributable to common stockholders using the two-class method required for capital structures that include participating securities. Under the two-class method, securities that participate in non-forfeitable dividends, such as the Company’s outstanding unvested restricted stock, are considered “participating securities.”Revenue Recognition
Intellectual Property Operations
In applying the two-class method, (i) basic net income (loss) per shareARG's revenue is computed by dividing net income (loss) (less any dividends paid on participating securities)recognized upon transfer of control (i.e., by the weighted average numbergranting) of shares of common stockpromised bundled IP Rights and participating securities outstanding for the period and (ii) diluted earnings per share may include the additional effect of other securities, if dilutive, in which case the dilutive effect of such securities is calculated by applying the two-class method and the treasury stock methodcontractual performance obligations to the assumed exercise or vesting of potentially dilutive common shares. The method yielding the more dilutive result is ultimately reported for the applicable period. Potentially dilutive common stock equivalents primarily consist of
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
employee stock options, and restricted stock units for calculations utilizing the two-class method, and also include unvested restricted stock, when utilizing the treasury method.
The following table presents the weighted-average number of common shares outstanding used in the calculation of basic and diluted income per share:
|
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
Numerator (in thousands): | | | | | | |
Basic and Diluted | | | | | | |
Net income (loss) attributable to Acacia Research Corporation | | $ | 22,180 |
| | $ | (54,067 | ) | | $ | (160,036 | ) |
Undistributed earnings allocated to participating securities | | (33 | ) | | — |
| | — |
|
Total dividends declared / paid | | — |
| | — |
| | (25,434 | ) |
Dividends attributable to common stockholders | | — |
| | — |
| | 24,740 |
|
Net income (loss) attributable to common stockholders – basic and diluted | | $ | 22,147 |
| | $ | (54,067 | ) | | $ | (160,730 | ) |
| | | | | | |
Denominator: | | | | | | |
Weighted-average shares used in computing net loss per share attributable to common stockholders – basic | | 50,495,119 |
| | 50,075,847 |
| | 49,505,817 |
|
Effect of potentially dilutive securities: | | | | | | |
Common stock options and restricted stock units | | 196,893 |
| | — |
| | — |
|
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders – diluted | | 50,692,012 |
| | 50,075,847 |
| | 49,505,817 |
|
Basic and diluted net loss per common share | | $ | 0.44 |
| | $ | (1.08 | ) | | $ | (3.25 | ) |
Anti-dilutive equity-based incentive awards excluded from the computation of diluted loss per share | | 4,425,187 |
| | 3,682,532 |
| | 71,468 |
|
Treasury Stock. Repurchases of the Company’s outstanding common stock are accounted for using the cost method. The applicable par value is deducted from the appropriate capital stock account on the formal or constructive retirement of treasury stock. Any excess of the cost of treasury stock over its par value is charged to additional paid-in capital, and reflected as Treasury Stock on the consolidated balance sheets.
Recent Accounting Pronouncements - Not Yet Adopted.
In May 2014, the FASB issued a new accounting standards update addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customerslicensees in an amount that reflects the consideration we expect to which the company expects to be entitledreceive in exchange for those goodsIP Rights. Revenue contracts that provide promises to grant the right to use IP Rights as they exist at the point in time at which the IP Rights are granted, are accounted for as performance obligations satisfied at a point in time and revenue is recognized at the point in time that the applicable performance obligations are satisfied and all other revenue recognition criteria have been met.
For the periods presented, revenue contracts executed by ARG primarily provided for the payment of contractually determined, one-time, paid-up license fees in consideration for the grant of certain IP Rights for patented technologies owned or controlled by ARG. Revenues also included license fees from sales-based revenue contracts, the majority of which were originally executed in prior periods, which provide for the payment of quarterly license fees based on quarterly sales of applicable product units by licensees (“Recurring License Revenue Agreements”). Revenues may also include court ordered settlements or awards related to our patent portfolio or sales of our patent portfolio. IP Rights granted included the following, as applicable: (i) the grant of a non-exclusive, future license to manufacture and/or sell products covered by patented technologies, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. The IP Rights granted were generally perpetual in nature, extending until the legal expiration date of the related patents. The individual IP Rights are not accounted for as separate performance obligations, as (i) the nature of the promise, within the context of the contract, is to grant combined items to which the promised IP Rights are inputs and (ii) the Company's promise to grant each individual IP right described above to the customer is not separately identifiable from other promises to grant IP Rights in the contract.
Since the promised IP Rights are not individually distinct, ARG combined each individual IP Right in the contract into a bundle of IP Rights that is distinct, and accounted for all of the IP Rights promised in the contract as a single performance obligation. The IP Rights granted were “functional IP rights” that have significant standalone functionality. ARG’s subsequent activities do not substantively change that functionality and do not significantly affect the utility of the IP to which the licensee has rights. ARG’s operating subsidiaries have no further obligation with respect to the grant of IP Rights, including no express or implied obligation to maintain or upgrade the technology, or provide future support or services. The contracts provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the contract. Licensees legally obtain control of the IP Rights upon execution of the contract. As such, the earnings process is complete and revenue is recognized upon the execution of the contract, when collectability is probable and all other revenue recognition criteria have been met. Revenue contracts generally provide for payment of contractual amounts within 15-90 days of execution of the contract, or the end of the quarter in which the sale or usage occurs for Recurring License Revenue Agreements. Contractual payments made by licensees are generally non-refundable.
For sales-based royalties from Recurring License Revenue Agreements, ARG includes in the transaction price some or all of an amount of estimated variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Notwithstanding, revenue is recognized for a sales-based royalty promised in exchange for a license of IP Rights when the later of (i) the subsequent sale or usage occurs, or (ii) the performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied. Estimates are generally based on historical levels of activity, if available.
Revenues from contracts with significant financing components (either explicit or implicit) are recognized at an amount that reflects the price that a licensee would have paid if the licensee had paid cash for the IP Rights when they are granted to the licensee. In doing so,determining the Company maytransaction price, ARG adjusts the promised amount of consideration for the effects of the time value of money. As a practical expedient, ARG does not adjust the promised amount of consideration for the effects of a significant financing component if ARG expects, at contract inception, that the period between when the entity grants promised IP Rights to a customer and when the customer pays for the IP Rights will be one year or less.
In general, ARG is required to use more judgmentmake certain judgments and make more estimates in connection with the accounting for revenue contracts with customers than under existing guidance.customers. Such areas may include identifying performance obligations in the contract, estimating the timing of satisfaction of performance obligations, determining whether a promise to grant a license is distinct from other promised goods or services, evaluating whether a license transfers to a customer at a point in time or over time, allocating the
transaction price to separate performance obligations, determining whether contracts contain a significant financing component, and estimating revenues recognized at a point in time for salessales-based royalties.
License revenues were comprised of the following for the periods presented:
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | | | 2023 | | 2022 |
| | | | | (In thousands) |
Paid-up license revenue agreements | | | | | $ | 87,835 | | | $ | 17,788 | |
Recurring License Revenue Agreements | | | | | 1,321 | | | 1,720 | |
Total | | | | | $ | 89,156 | | | $ | 19,508 | |
Industrial Operations
Printronix recognizes revenue to depict the transfer of goods or usage based royalties. Under the standard, (i) an entity should account forservices to a promise to provide a customer with a right to access the entity’s intellectual property as a performance obligation satisfied over time because the customer will simultaneously receive and consume the benefit from the entity’s performance of providing access to its intellectual property as the performance occurs, and (ii) an entity’s promise to provide a customer with the right to use its intellectual property is satisfied at a point in time. In addition, revenues from contracts with significant financing components should be recognized at an amount that reflects the consideration which it expects to receive for providing those goods or services. To determine the transaction price, that a customer would have paid ifPrintronix estimates the customer had paid cashamount of consideration to which it expects to be entitled in exchange for thetransferring promised goods or services when they transferto a customer. Elements of variable consideration are estimated at the time of sale which primarily include product rights of return, rebates, price protection and other incentives that occur under established sales programs. These estimates are developed using the expected value or the most likely amount method and are reviewed and updated, as necessary, at each reporting period. Revenues, inclusive of variable consideration, are recognized to the customer (i.e. adjustment for the time value of money). For sales and usage based royalties, the new standard requires that the Company include in the transaction price some or all of an amount of estimated variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur in future periods. The provision for returns and sales allowances is determined by an analysis of the historical rate of returns and sales allowances over recent quarters, and adjusted to reflect management’s future expectations.
Printronix enters into contract arrangements that may include various combinations of tangible products (which include printers, consumables and parts) and services, which are generally capable of being distinct and accounted for as separate performance obligations. Printronix evaluates whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract has more than one performance obligation. This evaluation requires judgement, and the decision to combine a group of contracts or separate the combined or single contract into multiple distinct performance obligations may impact the amount of revenue recorded in a reporting period. Printronix deems performance obligations to be distinct if the customer can benefit from the product or service on its own or together with readily available resources (i.e. capable of being distinct) and if the transfer of products or services is separately identifiable from other promises in the contract (i.e. distinct within the context of the contract).
For contract arrangements that include multiple performance obligations, Printronix allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices for each performance obligation. In general, standalone selling prices are observable for tangible products and standard software while standalone selling prices for repair and maintenance services are developed with an expected cost-plus margin or residual approach. Regional pricing, marketing strategies and business practices are evaluated to derive the estimated standalone selling price using a cost-plus margin methodology.
Printronix recognizes revenue for each performance obligation upon transfer of control of the promised goods or services. Control is deemed to have been transferred when the uncertainty associated withcustomer has the variable consideration is subsequently resolved.
The amendments for this new accounting standard update are effective for interimability to direct the use of and annual reporting periods beginning after December 15, 2017, and are to be applied retrospectively or via the cumulative effect ashas obtained substantially all of the dateremaining benefits from the goods and services. The determination of adoption,whether control transfers at a point in time or over time requires judgment and includes consideration of the following: (i) the customer simultaneously receives and consumes the benefits provided as Printronix performs its promises, (ii) the performance creates or enhances an asset that is under control of the customer, (iii) the performance does not create an asset with an alternative use to Printronix, and (iv) Printronix has an enforceable right to payment for its performance completed to date.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
with early application not permitted. The Company expects to useRevenues for products are generally recognized upon shipment, whereas revenues for services are generally recognized over time, assuming all other criteria for revenue recognition have been met. As a practical expedient, incremental costs of obtaining a contract are expensed as incurred when the modified retrospective method of adoption and will recognize the cumulative effect of initially applying the newexpected amortization period is one year or less. Service revenue standard as an adjustmentcommissions are tied to the opening balancerevenue recognized during the current year of retained earnings inthe related sale. All taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue producing transaction and collected from a customer (e.g., sales, use, value added, and some excise taxes) are excluded from revenue.
Printronix offers printer-maintenance services through service agreements that customers may purchase separately from the printer. These agreements commence upon expiration of the standard warranty period. Printronix provides the point-of-customer-contact, dispatches calls and sells the parts used for printer repairs to service providers. Printronix contracts third parties to perform the on-site repair services at the time of sale which covers the period of initial application (first quarterservice at a set amount. The maintenance service agreements are separately priced at a stand-alone value. For those transactions in which maintenance service agreements are purchased concurrently with the purchase of 2018printers, the revenue is deferred based on the selling price, which approximates the stand-alone value for Acacia). Comparative prior year periods would not be adjusted. The preliminary estimateseparately sold maintenance services agreements. Revenue from maintenance service contracts are recognized on a straight-line basis over the period of each individual contract, which is consistent with the pattern in which the benefit is consumed by the customer.
Printronix's net revenues were comprised of the cumulative effectfollowing for the periods presented:
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | | | 2023 | | 2022 |
| | | | | (In thousands) |
Printers, consumables and parts | | | | | $ | 31,604 | | | $ | 35,432 | |
Services | | | | | 3,494 | | | 4,283 | |
Total | | | | | $ | 35,098 | | | $ | 39,715 | |
Refer to Note 19 for additional information regarding net sales to customers by geographic region.
Deferred revenue in the consolidated balance sheets represents a contract liability under Accounting Standards Codification (“ASC”) 606 and consists of initially applying the new revenue standard is an decrease to beginning accumulated deficit of $3.0 million, primarily relating to financing components of contracts executedpayments and billings in prior periods and estimates of variable consideration for sales and usage based royalty agreements executed in prior periods. Management continues to assess the impact of this new standard on the Company’s consolidated financial statements and related disclosures, including ongoing contract reviews. Preliminary estimatesadvance of the adjustment upon initial adoption may changeperformance. Printronix recognized approximately $1.4 million and $1.7 million in connection with completion of the Company’s adoption proceduresrevenue that was previously included in the first quarterbeginning balance of 2018.deferred revenue during the years ended December 31, 2023 and 2022, respectively.
Printronix's payment terms vary by the type and location of its customers and the products, solutions or services offered. The time between invoicing and when payment is due is not significant. In February 2016,instances where the FASB issued an accounting standard update which requires lessees to recognize most leases ontiming of revenue recognition differs from the balance sheet. This is expected to increase both reported assets and liabilities. The new lease standard doestiming of invoicing, Printronix has determined that its contracts do not substantially change lessor accounting. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. The requirements of this standard include a significant increasefinancing component.
Printronix's remaining performance obligations, following the transfer of products to customers, primarily relate to repair and support services. The aggregated transaction price allocated to remaining performance obligations for arrangements with an original term exceeding one year included in required disclosures. Management is currently assessingdeferred revenue was $567,000 and $681,000 as of December 31, 2023 and 2022, respectively. Printronix adopted the impact that adopting this new accounting guidance will have on its financial statements and footnote disclosures.
In May 2017,practical expedient not to disclose the FASB issued amended guidance to clarify when to accountvalue of unsatisfied performance obligations for a change to the termscontracts with an original expected length of one year or conditionsless. On average, remaining performance obligations as of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions or the classification of the award changes as a result of the change in terms or conditions. This amendment is effective prospectively for annual periods beginning on or after December 15, 2017, with early adoption
permitted. Management is currently assessing the impact that adopting this new accounting guidance will have on its financial statements and footnote disclosures.
Recently Adopted Accounting Pronouncements - Recently Adopted.
In March 2016, the FASB issued a new standard that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires all income tax effects of awards31, 2023 are expected to be recognized over a period of approximately two years.
Energy Operations
Benchmark recognizes revenues from sales of oil and natural gas products upon transfer of control of the product to the customer. Benchmark's contracts' pricing provisions are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of the oil and natural gas products and prevailing supply and demand conditions. As a result, the price of the oil and natural gas fluctuate to remain competitive with other available oil and natural gas supplies. To the extent actual volumes and prices of oil and natural gas products are unavailable at the time of reporting, Benchmark will estimate the amounts. Benchmark records the differences between such estimates and actual amounts of oil and natural gas sales in the income statementfollowing month upon receipt of payment from the customer and any differences have historically been insignificant.
Benchmark sells oil production to customers at the wellhead or other contractually agreed upon delivery locations. Revenue is recognized when control transfers to the awards vestcustomer upon delivery to the contractually agreed upon delivery point, at which the customer takes custody, title, and risk of loss of the product. Revenue is recorded based on contract pricing terms which reflect prevailing market prices, net of pricing differentials. Oil revenue is recognized during the month in which control transfers to the customer, and it is probable Benchmark will collect the consideration it is entitled to receive.
Benchmark's natural gas and natural gas liquids are sold to midstream customers at the lease location, inlet of the midstream entity’s gathering system, the tailgate of a natural gas processing plant, or are settled. It also allowsother contractual delivery point. The midstream entity gathers, processes, and remits proceeds to Benchmark for the resulting sale of natural gas and natural gas liquids, and generally includes a reduction for contractual fees and for percent of proceeds. For the contracts where Benchmark maintains control through the outlet of the midstream processing facility, Benchmark recognizes revenue on a gross basis, with gathering, transportation, and processing fees presented as an employer to repurchase more of an employee’s shares than previously allowed for tax withholding purposes without triggering liability accounting and to make a policy election for forfeitures as they occur. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those years. The adoption of this standard did not have a material impactexpense on the Company’s consolidated financial statements.statements of operations. Alternatively, where Benchmark relinquishes control at the inlet of the midstream processing facility, Benchmark recognizes natural gas and natural gas liquids revenues are based on the net amount of the proceeds received from the midstream processing entity as customer.
Benchmark's proportionate share of production from non-operated properties is generally marketed at the discretion of the operators with Benchmark receiving a net payment from the operator representing Benchmark's proportionate share of sales proceeds, which is net of costs incurred by the operator, if any. Such non-operated revenues are recognized at the net amount of proceeds to be received by Benchmark during the month in which production occurs, and it is probable Benchmark will collect the consideration it is entitled to receive. Proceeds are generally received by Benchmark within two to three months after the month in which production occurs.
3. SHORT-TERM INVESTMENTS
Short-term investments for the periods presentedBenchmark's revenue from November 13, 2023 through December 31, 2023 were comprised of the following (in thousands): |
| | | | | | | | | | | | | | | |
| December 31, 2016 |
Security Type | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. government fixed income securities | $ | 19,403 |
| | $ | 40 |
| | $ | — |
| | $ | 19,443 |
|
| | | | | | | |
| |
| | | |
| |
Oil sales | $ | 256 | | | |
Natural gas sales | 372 | | | |
Natural gas liquids sales | 220 | | | |
Total | $ | 848 | | | |
There were no short-term investments at December 31, 2017. Short-term investments at December 31, 2016Cost of Revenues and Cost of Production
Intellectual Property Operations
Cost of revenues include the costs and expenses incurred in connection with ARG’s patent licensing and enforcement activities, including inventor royalties paid to patent owners, patent maintenance and prosecution costs, contingent legal fees paid to external patent counsel, other patent-related legal expenses paid to external patent counsel, licensing and enforcement related research, consulting and other expenses paid to third-parties and the amortization of patent-related investment costs. Cost of revenues were comprised of investments in highly liquid, AAA, U.S. government fixed income securities with maturity dates in 2017.
For the years ended December 31, 2017 and 2016, proceeds from the sale of short-term investments classified as available-for-sale were $467,790,000 and $43,232,000, respectively. Gross unrealized gains and losses were not materialfollowing for the years ended December 31, 2017periods presented:
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | | | 2023 | | 2022 |
| | | | | (In thousands) |
Inventor royalties | | | | | $ | 1,025 | | | $ | 1,212 | |
Contingent legal fees | | | | | 10,998 | | | 2,444 | |
Litigation and licensing expenses | | | | | 10,771 | | | 3,970 | |
Amortization of patents | | | | | 11,370 | | | 10,403 | |
| | | | | | | |
Total | | | | | $ | 34,164 | | | $ | 18,029 | |
Inventor Royalties and 2016. ForContingent Legal Expenses
Inventor royalties are expensed in the year ended December 31, 2015, proceedsconsolidated statements of operations in the period that the related revenues are recognized. Patent costs, including any upfront advances paid to patent owners by ARG’s operating subsidiaries, that are recoverable from the sale of short-term investments were $82,115,000 and gross realized losses were $617,000.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December 31, 2017 and 2016 (in thousands):
|
| | | | | | | | |
| | 2017 | | 2016 |
| | | | |
Payroll and other employee benefits | | $ | 465 |
| | $ | 1,593 |
|
Accrued vacation | | 294 |
| | 533 |
|
Accrued legal expenses - patent | | 5,479 |
| | 6,564 |
|
Foreign taxes payable | | 15 |
| | 3,150 |
|
Accrued consulting and other professional fees | | 1,364 |
| | 1,967 |
|
Other accrued liabilities | | 339 |
| | 476 |
|
| | $ | 7,956 |
| | $ | 14,283 |
|
5. PATENTS
Acacia’s only identifiable intangible assetsfuture net revenues are patents and patent rights, with estimated remaining economic useful lives ranging from one to six years. For all periods presented, all of Acacia’s identifiable intangible assets were subject to amortization. The gross carrying amounts and accumulated amortization related to investments in intangible assets as of December 31, 2017 and 2016 are as follows (in thousands):
|
| | | | | | | | |
| | 2017 | | 2016 |
| | | | |
Gross carrying amount - patents | | $ | 444,137 |
| | $ | 444,362 |
|
Accumulated amortization - patents(1) | | (382,220 | ) | | (358,043 | ) |
Patents, net | | $ | 61,917 |
| | $ | 86,319 |
|
(1) Includes patent impairment charges foramortized over the applicable periods.
The weighted-average remaining estimated economic useful life of Acacia’sthe related patents, or as the prepaid royalties are earned by the inventor, as appropriate, and patent rightsthe related expense is 4 years. Scheduled annual aggregateincluded in amortization expense is estimatedin the consolidated statements of operations. Any unamortized upfront advances recovered from net revenues are expensed in the period recovered and included in amortization expense in the consolidated statements of operations.
Contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, ARG’s operating subsidiaries may be liable for certain out of pocket legal costs incurred pursuant to be $20,542,000 in 2018, $18,527,000 in 2019, $6,134,000 in 2020, $5,261,000 in 2021, $5,256,000 in 2022the underlying legal services agreement.
Inventor royalty and $6,197,000 thereafter.contingent legal agreements generally provide for payment by ARG of contractual amounts 30 days subsequent to the quarter end during which related license fee payments are received from licensees by ARG.
Litigation and Licensing Expenses
For the years ended December 31, 2017, 2016Litigation and 2015, Acacia paidlicensing expenses include patent-related litigation, enforcement and prosecution costs incurred by law firms and external patent investmentattorneys engaged on either an hourly basis or a contingent fee basis. Litigation and licensing expenses also includes third-party patent research, development, patent prosecution and maintenance fees, re-exam and inter partes reviews, consulting and other costs totaling $0, $1,225,000 and $19,504,000, respectively. The patents have initial estimated economic useful lives ranging from two to seven years.
Acacia recorded impairment of patent-related intangible asset charges totaling $2,248,000, $42,340,000 and $74,731,000 for the years ended December 31, 2017, 2016 and 2015, respectively. The impairment charges related to impairments of patent portfolios due to a reduction in expected estimated future net cash flows and certain patent portfolios that management determined it would no longer allocate future resources toincurred in connection with the licensing and enforcement of such portfolios, duepatent portfolios.
Industrial Operations
Included in cost of revenues are inventory costs (refer to "Inventories" below), indirect labor, overhead and warranty costs. Printronix offers both assurance-type and service-type product warranties with varying terms depending on the product, region and customer contracts. Warranty periods range from three months to two years. The provision for warranty costs is determined by applying the historical claims experience and estimated repair costs to the outstanding units under warranty.
The following is a summary of the accrued warranty liabilities, which are included in accrued expenses and other current liabilities, and other long-term liabilities in the consolidated balance sheets:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 |
| (In thousands) |
Beginning balance | $ | 131 | | | $ | 222 | |
Estimated future warranty expense | 65 | | | 25 | |
Warranty claims settled | (100) | | | (116) | |
Ending balance | $ | 96 | | | $ | 131 | |
Energy Operations
Cost of production includes production costs, including lease operating expenses, production taxes, gathering transportation, and marketing costs, are expensed as incurred.
Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk are cash equivalents and accounts receivable. The Company places its cash equivalents primarily in highly rated money market funds, investments in U.S. treasury securities and investment grade marketable securities. Cash and cash equivalents are also invested in deposits and other high quality money market instruments with certain financial institutions and majority of the bank accounts exceed federally insured limits. The Company has not experienced any significant losses on its deposits of cash and cash equivalents.
Intellectual Property Operations
Two licensees individually accounted for 59% and 26% of revenues recognized during the year ended December 31, 2023. Three licensees accounted for more than 10% of total recognized revenue, ranging from 15% to adverse litigation outcomes, potential prior art related complexities and/or27%, during the overall determination that future resources would be allocatedyear ended December 31, 2022.
Historically, ARG has not had material foreign operations. Based on the jurisdiction of the entity obligated to other licensing and enforcement programs with higher potential return profiles. The impairment chargessatisfy payment obligations pursuant to the applicable license revenue arrangement, for the periods presented consistedyears ended December 31, 2023 and
2022, 10% and 3%, respectively, of revenues were attributable to licensees domiciled in foreign jurisdictions. Refer to Note 19 for additional information regarding revenue from customers by geographic region.
Two licensees individually represented approximately 72% and 26% of accounts receivable at December 31, 2023. Two licensees individually represented approximately 57% and 43% of accounts receivable at December 31, 2022.
Industrial Operations
No single Printronix customer accounted for more than 10% of revenue for the years ended December 31, 2023 and 2022. Printronix has significant foreign operations, refer to Note 19 for additional information regarding net sales to customers by geographic region.
Two Printronix customers individually accounted for 19% and 10% of accounts receivable as of December 31, 2023, and two customers individually accounted for 15% and 11% of accounts receivable as of December 31, 2022. Exposure to credit risk is limited by the large number of customers comprising the remainder of the excessPrintronix customer base and by periodic customer credit evaluations performed by Printronix.
One Printronix vendor individually accounted for 12% of the asset’s carrying value over its estimated fair value.
In December 2015, Acacia’s subsidiary Adaptix, Inc. received a jury verdict in its case against Alcatel Lucent USA, Inc., and others. The jury returned a verdict that the asserted claims of the patent at issue were invalid and non-infringed. The Adaptix trial loss resulted in a reduction in estimated cash flows for the Adaptix portfolio expected to be realized from future licensing and enforcement activities, leading to partial impairment charges on the portfolio in the fourth quarter of 2015. Fiscal year 2016 patent impairment charges included the impairment of the remaining carrying value for the Adapitx portfolio. In addition,purchases for the year ended December 31, 2015 analysis, management considered2023 and no single Printronix vendor accounted for 10% or more of purchases for the impact of the fourth quarter 2015 adverse trial outcomes on its estimates of future cash flows that could be realized from future licensing and enforcement activities for other patent portfolios. Estimates of future cash flows for these portfolios were reduced in part in connection with the Company’s assessment of probabilities of realization given the recent adverse trial outcomes. Additionally, patent impairment charges include the carrying value of other patent portfolios for which, in 2015, the Company experienced adverse litigation or trial outcomes, leading to a reduction in or elimination of expected future cash flows. In addition, headcount reductions and internal staff optimization efforts led to changes with respect to which patent portfolios the Company intends to allocate
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
licensing and enforcement resources to in future periods. As such, certain portfolio programs were selected for termination due to a decision to no longer pursue or allocate resources, resulting in a write-off any remaining carrying value in the fourth quarter of 2015.
6. GOODWILL IMPAIRMENT CHARGE (Fiscal Year 2015)
Goodwill Impairment Testing -year ended December 31, 2015. At December 31, 2015, prior2022. Accounts payable to the completionsix vendors represented 12% to 24% of the annual goodwill impairment test, the goodwill balance totaled $30.1 million. Goodwill is tested for impairment at the Company’s single reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Factors considered important, which could trigger an impairment review, include the following:
significant consistent gradual decline in the Company’s stock price for a sustained period;
significant underperformance relative to expected historical or projected future operating results;
significant changes in the manner of use of assets or the strategy for the Company’s overall business;
significant negative industry or economic trends; and
significant adverse changes in legal factors or in the business climate, including adverse regulatory actions or assessments.
In connection with Acacia’s annual goodwill impairment testing for 2015, the Company identified several qualitative factors triggering an impairment test at December 31, 2015, as follows:
Adverse legal outcomes and changes in legal factors. In December 2015, Acacia announced that its subsidiary Adaptix, Inc. received a jury verdict in its case against Alcatel Lucent USA, et al., deciding that the claims of the applicable patents in suit were invalid and non-infringed. This adverse legal outcome and others in the fourth quarter of 2015 resulted in changes in estimates of realization related to litigation outcomes in future periods for certain patent portfolios.
Significant consistent gradual decline in the Company’s stock price. Historically, the Company’s stock price had been volatile, and the volatility continued during fiscal 2015, declining from $16.72 as of January 2, 2015, to $4.29accounts payable as of December 31, 2015, a 74% decline. In addition, subsequent to December 31, 2015, the Company’s stock price volatility has continued, trending downward. In the fourth quarter2023, and two vendors represented 21% and 13% of 2015, given the continued decline in stock price up through December 31, 2015, and the impact of the December 2015 adverse trial outcomes noted above, the gradual consistent decline in the Company’s stock price was deemed to be sustained, and hence indicative of a reduction in the estimated fair value of the Company, as reflected in its lower overall market capitalization.
Changes in Company Management and Resource Allocations. In connection with certain resource allocation changes within the organization given a change in management in the fourth quarter of 2015, headcount reductions and internal staff optimization efforts occurred, which led to changes with respect to estimates of which patent portfolios the Company intends to continue to allocate licensing and enforcement resources to in future periods. As such, certain patent portfolio programs were selected for termination due to a decision to no longer allocate resources. In addition, changes in estimates regarding the best and highest use of certain patent portfolios were made, resulting in reductions in estimated future cash flows.
At December 31, 2015, the Company utilized the following methods and assumptions in its annual goodwill impairment testing, which was prepared with the assistance of a third-party valuation specialist:
At December 31, 2015, the initial qualitative assessment included consideration of the factors described above, resulting in a conclusion thataccounts payable as of December 31, 2015,2022.
Energy Operations
Five Benchmark customers accounted for more than 10% of total revenues recognized, ranging from 11% to 29%, during the consistent gradual decline in the Company’s stock price was sustained. The Company also considered the impactperiod from November 13, 2023 through December 31, 2023. Two Benchmark customers individually accounted for 27% and 20% of the December 2015 adverse trial outcomes on the Company’s stock price and related estimates of fair value for remaining portfolio opportunities. Based on the Company’s assessment of these factors, the Company determined that it was more likely than not that goodwill was impaired, constituting a triggering event requiring a goodwill impairment testaccounts receivable as of December 31, 2015.2023. Benchmark does not have any foreign operations, refer to Note 19 for additional information regarding revenue from customers by geographic region.
Benchmark's financial condition, results of operations, and capital resources are highly dependent upon the prevailing market prices of, and supply and demand for, crude oil and natural gas. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond Benchmark's control. These factors include the level of global and regional supply and demand for the petroleum products, the establishment of and compliance with production quotas by oil exporting countries, weather conditions, the price and availability of alternative fuels, and overall
economic conditions, both foreign and domestic. Benchmark cannot predict future oil and natural gas prices with any degree of certainty.
Sustained weakness in oil and natural gas prices may adversely affect the financial condition and results of operations and may also reduce the amount of net oil and natural gas reserves Benchmark can produce economically. Similarly, any improvement in oil and natural gas prices can have a favorable impact on the Benchmark's financial condition, results of operations, and capital resources.
Cash and Cash Equivalents
The Company conductedconsiders all highly liquid securities with original maturities of three months or less when purchased to be cash equivalents. For the first stepperiods presented, Acacia’s cash equivalents are comprised of investments in U.S. treasury securities and AAA rated money market funds that invest in first-tier only securities, which primarily include domestic commercial paper and securities issued or guaranteed by the U.S. government or its agencies.
Equity Securities
Investments in equity securities are reported at fair value on a recurring basis, with related realized and unrealized gains and losses in the value of such securities recorded in the consolidated statements of operations in other income or (expense). Dividend income is included in other income or (expense). Refer to Note 4 for additional information.
Equity Securities Without Readily Determinable Fair Value
For equity securities that do not have a readily determinable fair value, the Company elected to report them under the measurement alternative. They are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the goodwill impairment testsame issuer. The fair values of the private company securities were estimated based on recent financing transactions and secondary market transactions and factoring in any adjustments for its single reporting unitilliquidity or preference of these securities. Changes in fair value are reported in the consolidated statements of operations in other income or (expense). To date, the Company has not recorded any impairments nor upward or downward adjustments on our equity securities without readily determinable fair values held as of December 31, 2015. The2023 and 2022. Refer to Note 4 for additional information.
Equity Method Investments
Equity investments in common stock and in-substance common stock without readily determinable fair values in companies over which the Company utilizedhas the market capitalization plusability to exercise significant influence, are accounted for using the equity method of accounting. Acacia includes its proportionate share of earnings and/or losses of its equity method investees in earnings on equity investment in joint venture in the consolidated statements of operations. Refer to Note 4 for additional information.
Investments in preferred stock with substantive liquidation preferences are accounted for at cost, synergies approach(subject to estimateimpairment considerations, as described below, if any), as adjusted for the impact of changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. In-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity's common stock. An investment in preferred stock with substantive liquidation preferences over common stock, is not substantially similar to common stock, and therefore is not considered in-substance common stock. A liquidation preference is substantive if the investment has a stated liquidation preference that is significant, from a fair value perspective, in relation to the purchase price of the Company. The estimated market capitalization was determined by multiplying the Company’s stock price and the common shares outstanding as of December 31, 2015. Management also consideredinvestment. A liquidation preference in an investee that has sufficient subordinated equity from a control premium in its
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
estimate of fair value perspective is substantive because, in the event of liquidation, the investment will not participate in substantially all of the investee's losses, if any. The initial determination of whether an investment is substantially similar to common stock is made on the initial date of investment if the Company has the ability to exercise significant influence over the operating and financial policies of the investee. That determination is reconsidered if (i) contractual terms of the investment are changed, (ii) there is a significant change in the capital structure of the investee, including the investee's receipt of additional subordinated financing, or (iii) the Company obtains an additional interest in an investment, resulting in the method of accounting for the Company’s single reporting unit. The cost synergies were estimatedcumulative interest being based on the cost savingscharacteristics of the investment at the date at which could be achieved if the Company was acquired by a competitor inobtains the same operating business.additional interest.
Based on the analysis utilizing the market capitalization plus cost synergies approach, the estimated fair value of the reporting unit of $252 million was below its carrying value of $344.3 million as of December 31, 2015, and therefore, goodwill was determined to be more likely than not, impaired.
The purpose of step 2 of the analysis was to determine the estimated fair value of the assets and liabilities of the Company’s reporting unit, in order to determine the implied fair value of goodwill for the reporting unit. The excess, if any, of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. Based upon the analysis performed, the fair value of the Company’s single reporting unit did not exceed the amounts assigned to its reporting unit assets and liabilities, resulting in a difference between the implied fair value of goodwill of zero and the historical carrying value of goodwill. As a result, the Company recognized a goodwill impairment charge totaling $30.1 million in the fourth quarter of 2015.
7. INVESTMENTS
Investment at Fair Value
Veritone Investment Agreement. On August 15, 2016,an individual investment basis, Acacia entered intomay elect to account for investments in companies where the Company has the ability to exercise significant influence over operating and financial policies of the investee, at fair value. If the fair value method is applied to an Investment Agreement with Veritone, Inc. (“Veritone”)investment that would otherwise be accounted for under the equity method of accounting, it is applied to all of the financial interests in the same entity that are eligible items (i.e., common stock and warrants). As part of the Company’s equity securities in the Life Sciences Portfolio, the Company has elected to apply the fair value method to one investment, refer to Note 4 for additional information.
Impairment of Investments
Acacia reviews its investments quarterly for indicators of other-than-temporary impairment. This determination requires significant judgment. In making this judgment, Acacia considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an investment exceeds its fair value, Acacia evaluates, among other factors, general market conditions and the duration and extent to which provided forthe fair value is less than cost. Acacia to invest up to $50 million in Veritone, consisting of both debt and equity components. Pursuantalso considers specific adverse conditions related to the Investment Agreement, on August 15, 2016, Acacia entered intofinancial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a secured convertible promissory note with Veritone (the “Veritone Loans”), which permitted Veritonedecline in fair value is determined to borrow up to $20 million through two $10 million advances, each bearing interest at the rate of 6.0% per annum (included in Other Income (Expense)be other-than-temporary, an impairment charge is recorded in the consolidated statements of operations). operations and a new cost basis in the investment is established.
Accounts Receivable and Allowance for Credit Losses
Intellectual Property Operations
ARG performs credit evaluations of its licensees with significant receivable balances, if any, and has not experienced any significant credit losses. Accounts receivable are recorded at the executed contract amount and generally do not bear interest. Collateral is not required. An allowance for credit losses may be established to reflect the Company’s best estimate of probable losses inherent in the accounts receivable balance, and is reflected as a contra-asset account on the balance sheets and a charge to general and administrative expenses in the consolidated statements of operations for the applicable period. The allowance is determined based on known troubled accounts, historical experience, and other currently available evidence. There was no allowance for credit losses established as of December 31, 2023 and 2022.
Industrial Operations
Printronix's accounts receivable are recorded at the invoiced amount and do not bear interest. Printronix performs initial and periodic credit evaluations on customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness. The allowance for credit losses is determined by evaluating individual customer receivables, based on contractual terms, reviewing the financial condition of customers, and from the historical experience of write-offs. Receivable losses are charged against the allowance when management believes the account has become uncollectible. Subsequent recoveries, if any, are credited to the allowance. As of December 31, 2023 and 2022, Printronix's combined allowance for credit losses and allowance for sales returns was $56,000 and $22,000, respectively.
Energy Operations
Benchmark's oil and gas accounts receivable consist of crude oil, natural gas and natural gas liquids sales proceeds receivable from purchasers. Accounts receivable – joint interest owners consist of amounts due from joint interest partners for operating costs. Benchmark's accounts receivable are recorded at the invoiced amount and do not bear interest. An allowance for credit losses may be established to reflect management's best estimate of probable losses inherent in the accounts receivable balance, and is reflected as a contra-asset account on the balance sheets and a charge to general and administrative expenses in the consolidated statements of operations for the applicable period. The allowance is determined by evaluating individual customer receivables based on known troubled accounts, historical experience, and other currently available evidence. There was no allowance for credit losses established as of December 31, 2023.
Inventories
Printronix's inventories, which include material, labor and overhead costs, are valued at the lower of cost or net realizable value. Cost is determined at standard cost adjusted on a first-in, first-out basis for variances. Cost includes shipping and handling fees and other costs, including freight insurance and customs duties for international shipments, which are subsequently expensed to cost of sales. Printronix evaluates and records a provision to reduce the carrying value of inventory for estimated excess and obsolete stocks based upon forecasted demand, planned obsolescence and market conditions. Refer to Note 5 for additional information related to Printronix's inventories.
Long-Term Notes Receivable
On August 15, 2016, Acacia fundedOctober 13, 2021, Adaptix Limited issued £2.95 million, approximately $4.0 million at the exchange rate on October 13, 2021, in limited unsecured notes due in 2026 to Radcliffe 2 Ltd., a subsidiary of the Company. The interest rate on the notes is 8.0% per year. During the years ended December 31, 2023 and 2022, we recorded $146,000 and $291,000, respectively, in interest income related to the notes. During September 2023, the Company assessed the collectability of the limited unsecured notes based on the Adaptix's capability of repaying the limited unsecured notes according to its terms. As such, of the $3.8 million limited unsecured notes and $515,000 in interest receivable, the Company collected $2 million and wrote off the remaining limited unsecured notes totaling $2.3 million which is reflected in interest income and other, net on the consolidated statements of operations. As of December 31, 2023 and 2022, the receivable including interest was zero and $3.9 million, respectively, and was included in other non-current assets in the consolidated balance sheets.
Derivative Financial Instruments
Benchmark records open derivative instruments at fair value as either commodity derivative assets or liabilities. Benchmark has not designated any derivative instruments as cash-flow hedges, but uses these instruments to reduce exposure to fluctuations in commodity prices related to production. Unrealized gains and losses, at fair value, are included in the consolidated balance sheets as prepaid expenses and other current assets or other non-current assets or liabilities based on the anticipated timing of cash settlements under the related contracts. Realized and unrealized changes in the fair value of our commodity derivative contracts are included in other income or (expense) in the consolidated statements of operations for the period as they occur. Refer to Note 11 for additional information.
Property, Plant and Equipment
Property and equipment are recorded at cost. Major additions and improvements that materially extend useful lives of property and equipment are capitalized. Maintenance and repairs are charged against the results of operations as incurred. When these assets are sold or otherwise disposed of, the asset and related depreciation are relieved, and any gain or loss is included in the consolidated statements of operations for the period of sale or disposal. Refer to Note 6 for additional information. Depreciation and amortization is computed on a straight-line basis over the following estimated useful lives of the assets:
| | | | | |
Machinery and equipment | 2 to 10 years |
Furniture and fixtures | 3 to 5 years |
Computer hardware and software | 3 to 5 years |
Leasehold improvements | 2 to 5 years (Lesser of lease term or useful life of improvement) |
Oil and Natural Gas Properties
Benchmark follows the successful efforts method of accounting for oil and natural gas producing activities. Costs to acquire oil and gas product leaseholds, to drill and equip exploratory wells that find proved reserves, to drill and equip development wells and related asset retirement costs are capitalized. Costs to drill exploratory wells are capitalized pending determination of whether the wells have found proved reserves. If Benchmark determines that the wells do not find proved reserves, the costs are charged to expense. At December 31, 2023, Benchmark had no capitalized exploratory costs that were pending determination of economic reserves. Geological and geophysical costs, including seismic studies and costs of carrying and retaining unproved properties, are charged to expense as incurred. On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depletion and depreciation are eliminated from the property accounts, and the resulting gain or loss is recognized. On the sale of a partial unit of proved property, the amount received is treated as a reduction of the cost of the interest retained. Capitalized costs of proved oil and natural gas properties are depleted based on the unit-of-production method over total estimated proved reserves, and capitalized costs of wells and related equipment and facilities are depreciated based on the unit-of-production method over the estimated proved developed reserves.
Capitalized costs related to proved oil, natural gas properties, including wells and related equipment and facilities, are evaluated for impairment based on an analysis of undiscounted future net cash flows. If undiscounted cash flows are insufficient to recover the net capitalized costs related to proved properties, then an impairment charge is recognized in income from operations equal to the difference between the net capitalized costs related to proved properties and their estimated fair values based on the present value of the related future net cash flows. Refer to Note 7 for additional information.
Goodwill
Goodwill represents the excess of the acquisition price of a business over the fair value of identified net assets of that business. We evaluate goodwill for impairment annually in the fourth quarter and on an interim basis if the facts and circumstances lead us to believe that more-likely-than-not there has been an impairment. When evaluating goodwill for impairment, we estimate the fair value of the reporting unit. Several methods may be used to estimate a reporting unit’s fair value, including, but not limited to, discounted projected future net earnings or net cash flows and multiples of earnings. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, then the excess is charged to earnings as an impairment loss. Refer to Note 8 for additional information.
Leases
The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial $10 milliondirect costs incurred, as applicable. The Company’s leases primarily consist of facility leases which are classified as operating leases. Lease expense is recognized on a straight-line basis over the lease term.
As the implicit rate in the Company's leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Company gives consideration to its credit risk, term of the lease, total lease payments and adjusts for the impacts of collateral, as necessary, when calculating its incremental borrowing rates. The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Refer to Note 13 for additional information.
Impairment of Long-lived Assets
ARG's patents include the cost of patents or patent rights acquired from third-parties or obtained in connection with business combinations. ARG's patent costs are amortized utilizing the straight-line method over their estimated useful lives, ranging from two to five years. Refer to Note 8 for additional information.
Printronix's intangible assets consist of trade names and trademarks, patents and customer and distributor relationships. These definite-lived intangible assets, at the time of acquisition, are recorded at fair value and are stated net of accumulated amortization. Printronix currently amortizes the definite-lived intangible assets on a straight-line basis over their estimated useful lives of seven years. Refer to Note 8 for additional information.
The Company reviews long-lived assets, patents and other intangible assets for potential impairment annually (quarterly for patents) and when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss is recorded in an amount equal to the excess of the asset’s carrying value over its fair value. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows.
In the event that management decides to no longer allocate resources to a patent portfolio, an impairment loss equal to the remaining carrying value of the asset is recorded. Fair value is generally estimated using the “Income Approach,” focusing on the estimated future net income-producing capability of the patent portfolios over their estimated remaining economic useful life. Estimates of future after-tax cash flows are converted to present value through “discounting,” including an estimated rate of return that accounts for both the time value of money and investment risk factors. Estimated cash inflows are typically based on estimates of reasonable royalty rates for the applicable technology, applied to estimated market data. Estimated cash outflows are based on existing contractual obligations, such as contingent legal fee and inventor royalty obligations, applied to estimated license fee revenues, in addition to other estimates of out-of-pocket expenses associated with a specific patent portfolio’s licensing and enforcement program. The analysis also contemplates consideration of current information about the patent portfolio including, status and stage of litigation, periodic results of the litigation process, strength of the patent portfolio, technology coverage and other pertinent information that could impact future net cash flows. Refer to Note 8 for additional information.
Series B Warrants
The fair value of the Series B Warrants was estimated using a Black-Scholes option-pricing model. Refer to Notes 10 and 11 for additional information related to the Series B Warrants and their fair value measurements.
Embedded Derivatives
Embedded derivatives that are required to be bifurcated from their host contract are valued separately from the host instrument. Refer to Notes 10 and 11 for additional information related to the embedded derivatives and their fair value measurements.
Revolving Credit Facility
On September 16, 2022, Benchmark entered into a credit agreement ( the "Credit Agreement") for a revolving credit facility (the "Revolver") and a term loan (the “First Loan”with a bank. The Revolver has an initial borrowing base of $25,000,000 and $75,000,000 maximum borrowing capacity. The Revolver matures on September 16, 2025. The availability under the Credit Agreement is subject to the borrowing base, which is redetermined on April 1 and October 1 of each year. On April 11, 2023, the borrowing base was reduced to $20,075,000 and a letter of credit was issued for $2,500,000. Benchmark pledged substantially all of its oil and gas properties and other assets as collateral to secure amounts outstanding under the credit agreement. The term loan had funding of $3,500,000, which was paid in full between January 1 and April 28, 2023. Benchmark’s outstanding balance on the term loan was zero as of December 31, 2023.
The Revolver contains customary financial and non-financial covenants, the most restrictive of which are (i) current assets to current liabilities of not less than 1.0 to 1.0 and (ii) total debt to EBITDAX (as defined in the Credit Agreement) of not greater than 3.5 to 1.0 for the rolling periods as defined in the Credit Agreement. As of December 31, 2023, Benchmark was in compliance with these financial covenants.
In general, the borrowings under the credit facility bear interest at either the Alternate Base Rate (“ABR”) or Secured Overnight Financing Rate (“SOFR”). Either rate is adjusted upward by an applicable margin based on Benchmark's percentage of utilization of the credit facility. As of December 31, 2023, interest rate associated with the outstanding borrowings was 9.0% for the Revolver and 11.0% for the term loan. The credit facility provides for a commitment fee of 0.5 percent on the unused borrowings. As of December 31, 2023 the outstanding balance on the Revolver was $10.5 million.
Contingent Liabilities
The Company, from time to time, is involved in certain legal proceedings. Based upon consultation with outside counsel handling its defense in these matters and the Company’s analysis of potential outcomes, if the Company determines that a loss arising from such matters is probable and can be reasonably estimated, an estimate of the contingent liability is recorded in its consolidated financial statements. If only a range of estimated loss can be determined, an amount within the range that, based on estimates, assumptions and judgments, reflects the most likely outcome, is recorded as a contingent liability in the consolidated financial statements. In situations where none of the estimates within the estimated range is a better estimate of probable loss than any other amount, the Company records the low end of the range. Any such accrual would be charged to expense in the appropriate period. Litigation expenses for these types of contingencies are recognized in the period in which the litigation services were provided. Refer to Note 13 for additional information.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivables, current liabilities and revolving credit facility and term loan approximates their fair values due to their short-term maturities or the fact that the interest rate of the revolving credit facility is based upon current market rates. Refer to Note 11 for additional information.
Fair Value Measurements
U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date, and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. Refer to Note 11 for additional information.
Treasury Stock
Repurchases of the Company’s outstanding common stock are accounted for using the cost method. The applicable par value is deducted from the appropriate capital stock account on the formal or constructive retirement of treasury stock. Any
excess of the cost of treasury stock over its par value is charged to additional paid-in capital and reflected as treasury stock in the consolidated balance sheets. Refer to Note 14 for additional information.
Engineering and Development
Engineering and development costs are expensed as incurred and consist of labor, supplies, consulting and other costs related to developing and improving Printronix's products.
Advertising
Printronix expenses advertising costs, including promotional literature, brochures and trade shows, as incurred. Advertising expense was approximately $636,000 and $315,000 during the years ended December 31, 2023 and 2022, respectively, and is included in sales and marketing expenses in the consolidated statements of operations.
Stock-Based Compensation
The compensation cost for all stock-based awards is measured at the grant date, based on the fair value of the award, and is recognized as an expense on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity award) which is currently one to four years. Compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved. The fair value of restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance based stock awards ("PSUs") are determined by the product of the number of shares or units granted and the grant date market price of the underlying common stock. The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing model. Forfeitures are accounted for as they occur. Refer to Note 15 for additional information.
Foreign Currency Gains and Losses
In connection with our Printronix business, the U.S. dollar is the functional currency for all of the foreign subsidiaries. Transactions that are recorded in currencies other than the U.S. dollar may result in transaction gains or losses at the end of the reporting period and when trade receipts and payments occur. For these subsidiaries, the assets and liabilities have been re-measured at the end of the period for changes in exchange rates, except inventories and property, plant and equipment, which have been remeasured at historical average rates. The consolidated statements of operations have been reevaluated at average rates of exchange for the reporting period, except cost of sales and depreciation, which have been reevaluated at historical rates. Although Acacia historically has not had material foreign operations, Acacia is exposed to fluctuations in foreign currency exchange rates between the U.S. dollar, and the British Pound and Euro currency exchange rates, primarily related to foreign cash accounts and certain equity security investments. All foreign currency exchange activity is recorded in the consolidated statements of operations.
Income Taxes
Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in Acacia’s consolidated financial statements or consolidated income tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized, or if it is determined that there is uncertainty regarding future realization of such assets. When the Company establishes or reduces the valuation allowance against its deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period such determination is made.
Under U.S. GAAP, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold are measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Refer to Note 17 for additional information.
Income/Loss Per Share
For periods in which the Company generates net income, the Company computes basic net income per share attributable to common stockholders using the two-class method required for capital structures that include participating securities. Under the two-class method, securities that participate in non-forfeitable dividends, such as the Company’s outstanding unvested restricted stock and Series A Redeemable Convertible Preferred Stock, are considered participating securities and are allocated a portion of the Company’s earnings. For periods in which the Company generates a net loss, net losses are not allocated to holders of the Company’s participating securities as the security holders are not contractually obligated to share in the Company’s losses.
Basic net income/loss per share of common stock is computed by dividing net income/loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income/loss per share of common stock is computed by dividing net income/loss attributable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding for the period using the treasury stock method or the as-converted method, or the two-class method for participating securities, whichever is more dilutive. Potentially dilutive common stock equivalents consist of stock options, restricted stock units, unvested restricted stock, Series A Redeemable Convertible Preferred Stock and Series B Warrants. Refer to Note 18 for additional information.
Recent Accounting Pronouncements
Recently Adopted
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” to replace the incurred loss methodology with an expected credit loss model that requires consideration of a broader range of information to estimate credit losses over the lifetime of the asset, including current conditions and reasonable and supportable forecasts in addition to historical loss information, to determine expected credit losses. Pooling of assets with similar risk characteristics and the use of a loss model are also required. Also, in April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” to clarify the inclusion of recoveries of trade receivables previously written off when estimating an allowance for credit losses. The Company adopted the update on January 1, 2023. The adoption of the update did not have a material impact on the Company's financial position, results of operations or financial statement disclosures.
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” to require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with “Revenue from Contracts with Customers (Topic 606).” At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The Company adopted the update on January 1, 2023. The adoption of the update did not have a material impact on the Company's financial position, results of operations or financial statement disclosures.
Not Yet Adopted
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” to simplify the accounting for convertible instruments by eliminating large sections of the existing guidance in this area. It also eliminates several triggers for derivative accounting, including a requirement to settle certain contracts by delivering registered shares. This update reduces the number of accounting models for convertible instruments, revises the derivatives scope exception, and provides targeted improvements for earnings per share. Upon adoption, companies have the option to apply a modified or full retrospective transition approach. The amendments in this update will currently be effective for the Company on January 1, 2024, with early adoption permitted. Management is currently evaluating the impact that the amendments in this update may have on the Company’s consolidated financial statements.
3. ACQUISITION
In November 2023, we invested $10.0 million to acquire a 50.4% equity interest in Benchmark. Headquartered in Austin, Texas, Benchmark is an independent oil and gas company engaged in the acquisition, production and development of oil
and gas assets in mature resource plays in Texas and Oklahoma. Acacia has made a control investment in Benchmark and intends to utilize its significant capital base to acquire predictable and shallow decline, cash-flowing oil and gas properties whose value can be enhanced via a disciplined, field optimization strategy, with risk managed through robust commodity hedges and low leverage. Through its investment in Benchmark, the Company, along with the Benchmark management team, will evaluate future growth and acquisitions of oil and gas assets at attractive valuations.
The following unaudited pro forma summary presents consolidated information, as if the business combination had occurred on January 1, 2022:
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | | | 2023 | | 2022 |
| | | | | (Unaudited, in thousands) |
Pro forma: | | | | | | | |
Revenues | | | | | $ | 131,712 | | | $ | 64,195 | |
Net income (loss) attributable to Acacia Research Corporation | | | | | 66,755 | | | (123,316) | |
We had material, nonrecurring pro forma adjustments directly attributable to the business combination included in the above pro forma revenues and net income. These adjustments included a decrease of $4.8 million in oil and natural gas properties related to the finalization of the valuations. In 2023, we incurred $1.7 million of acquisition-related costs. These expenses are included in general and administrative expenses for the year ended December 31, 2023.
The following table summarizes the consideration transferred to acquire Benchmark and the recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition date (in thousands):
| | | | | |
Fair value of consideration transferred: | |
Cash | $ | 10,000 | |
| |
| |
Total consideration | $ | 10,000 | |
| |
Identifiableassetsacquiredandliabilitiesassumed: | |
Cash and cash equivalents | $ | 10,556 | |
Trade receivables | 1,385 | |
| |
Prepaid expenses and other current assets | 1,644 | |
Oil and natural gas properties, net | 25,276 | |
| |
| |
| |
| |
Other assets | 361 | |
Trade and other payables | (2,349) | |
Revolving credit facility | (18,225) | |
| |
Other long-term liabilities | (276) | |
Noncontrolling interest | (9,821) | |
Total identifiable net assets | $ | 8,551 | |
Goodwill | $ | 1,449 | |
Intangible Assets and Liabilities
As of December 31, 2023, management has preliminary assessed the valuations of all acquired assets and liabilities assumed in the acquisition. The fair value of the noncontrolling interest is based on contractual terms of the purchase agreement. Goodwill of $1.4 million represents the excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed. None of the goodwill resulting from the acquisition is deductible for tax purposes. All of the goodwill acquired is allocated to the Benchmark reporting unit. Refer to Note 8 for additional information.
4. EQUITY SECURITIES
Equity securities for the periods presented were comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
Security Type | Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Fair Value |
| (In thousands) |
December 31, 2023: | | | | | | | |
Equity securities - Life Sciences Portfolio | $ | 28,498 | | | $ | 28,600 | | | $ | (20) | | | $ | 57,078 | |
Equity securities - other common stock | 4,925 | | | 1,080 | | | (15) | | | 5,990 | |
Total | $ | 33,423 | | | $ | 29,680 | | | $ | (35) | | | $ | 63,068 | |
| | | | | | | |
December 31, 2022: | | | | | | | |
Equity securities - Life Sciences Portfolio | $ | 28,498 | | | $ | 14,815 | | | $ | (617) | | | $ | 42,696 | |
Equity securities - other common stock | 34,885 | | | 4 | | | (15,977) | | | 18,912 | |
Total | $ | 63,383 | | | $ | 14,819 | | | $ | (16,594) | | | $ | 61,608 | |
Equity Securities Portfolio Investment
On April 3, 2020, the Company entered into an Option Agreement with LF Equity Income Fund, which included general terms through which the Company was provided the option to purchase the Life Sciences Portfolio for an aggregate purchase price of £223.9 million, approximately $277.5 million at the exchange rate on April 3, 2020.
For accounting purposes, the total purchase price of the Life Sciences Portfolio was allocated to the individual equity securities based on their individual fair values as of April 3, 2020, in order to establish an appropriate cost basis for each of the acquired securities. The fair values of the public company securities were based on their quoted market price. The fair values of the private company securities were estimated based on recent financing transactions and secondary market transactions and factoring in a discount for the illiquidity of these securities. Included in our consolidated balance sheets as of December 31, 2023 and 2022, the total fair value of the remaining Life Sciences Portfolio investment was $82.8 million and $68.4 million, respectively.
As part of the Company’s acquisition of equity securities in the Life Sciences Portfolio, the Company acquired an equity interest in Arix Bioscience PLC (“Arix”), a public company listed on the London Stock Exchange. As of December 31, 2023 and 2022, the Company's investment in Arix was approximately 26% of Arix. In addition, two members of the Company's Board of Directors (the “Board”) had seats on the board of Arix, which is currently made up of six board members. Although the Company was presumed to have significant influence over operating and financial policies of Arix, we have elected to account for the investment under the fair value method. To date, the Company has not received any dividends from Arix. As of December 31, 2023, this investment did not meet the significance thresholds for additional summarized income statement disclosures, as defined by the SEC. As of December 31, 2023, the aggregate carrying amount of our Arix investment was $57.1 million, and is included in equity securities in the consolidated balance sheet.
On November 25, 2016, Acacia funded1, 2023, the second $10Company, through a wholly owned subsidiary, entered into an agreement (the “Arix Shares Purchase Agreement”) with RTW Biotech Opportunities Ltd. (“RTW Bio”) to sell its shares of Arix to RTW Bio for a purchase price of $57.1 million loan (the “Second Loan”).in aggregate (representing £1.43 per share at an exchange rate of 1.2087 USD/GBP), conditioned solely upon RTW Bio receiving the necessary approval from the United Kingdom’s Financial Conduct Authority to acquire indirect control (as defined for the purposes of the UK change in control regime under the Financial Services and Markets Act 2000) in of Arix Capital Management Limited. The First LoanCompany determined that the Arix Shares Purchase Agreement met the characteristics of a forward contract and the Second Loanfair market value was adjusted by $4.0 million to reflect the purchase agreement of $57.1 million. The $4 million was recorded as other income or (expense) in "Change in fair value of equity securities" for the year ended December 31, 2023. On January 19, 2024, the Company completed such sale for $57.1 million. Following the completion of the share sale, the Company no longer owns any shares of Arix.
The following unrealized and realized gains or losses from our investment in the Life Sciences Portfolio are recorded in the change in fair value of equity securities and gain or loss on sale of equity securities, respectively, in the consolidated statements of operations:
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | | | 2023 | | 2022 |
| | | | | (In thousands) |
Change in fair value of equity securities of public companies | | | | | $ | 14,383 | | | $ | (247,126) | |
| | | | | | | |
| | | | | | | |
Gain on sale of equity securities of public companies | | | | | — | | | 111,717 | |
| | | | | | | |
| | | | | | | |
Net realized and unrealized gain (loss) | | | | | $ | 14,383 | | | $ | (135,409) | |
As part of the Company’s acquisition of equity securities in the Life Sciences Portfolio, the Company acquired a majority interest in the equity securities of MalinJ1 (63.9%), which were transferred to the Company on December 3, 2020. The acquisition of the MalinJ1 securities was accounted for as an asset acquisition as there was a change of control of MalinJ1 and substantially all of the fair value of the assets acquired was concentrated in a single identifiable asset, an investment in Viamet Pharmaceuticals Holdings, LLC (“Viamet”). As such, the cost basis of the MalinJ1 securities was used to allocate to the Viamet investment, the single identifiable asset, and no goodwill was recognized. The Company through its consolidation of MalinJ1 accounts for the Viamet investment under the equity method as MalinJ1 owns 41.0% of outstanding shares of Viamet. As of December 31, 2023 and 2022, this investment did not meet the significance thresholds for additional summarized income statement disclosures, as defined by the SEC. During the years ended December 31, 2023 and 2022, our consolidated earnings on equity investment was $4.2 million and $42.5 million, respectively, included in the consolidated statements of operations. During the year ended December 31, 2023, MalinJ1 made distributions of $2.8 million to Acacia and $1.4 million to noncontrolling interests. During the year ended December 31, 2022, MalinJ1 made distributions of $28.4 million to Acacia and $14.1 million to noncontrolling interests.
5. INVENTORIES
Printronix's inventories consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (In thousands) |
Raw materials | $ | 3,961 | | | $ | 4,335 | |
Subassemblies and work in process | 1,882 | | | 3,045 | |
Finished goods | 5,578 | | | 7,340 | |
| 11,421 | | | 14,720 | |
Inventory reserves | (500) | | | (498) | |
Total inventories | $ | 10,921 | | | $ | 14,222 | |
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (In thousands) |
Machinery and equipment | $ | 3,035 | | | $ | 3,057 | |
Furniture and fixtures | 395 | | | 585 | |
Computer hardware and software | 312 | | | 660 | |
Leasehold improvements | 1,018 | | | 1,025 | |
| 4,760 | | | 5,327 | |
Accumulated depreciation and amortization | (2,404) | | | (1,790) | |
Property, plant and equipment, net | $ | 2,356 | | | $ | 3,537 | |
Total depreciation and amortization expense in the consolidated statements of operations was $1.4 million for the years ended December 31, 2023 and 2022. Our Intellectual Property Operations and parent company include depreciation and amortization in general and administrative expenses. For the years ended December 31, 2023 and 2022, our Industrial Operations allocated depreciation and amortization totaling $1.3 million to all applicable operating expense categories, including cost of sales of $421,000 and $474,000, respectively.
7. OIL AND NATURAL GAS PROPERTIES, NET
Oil and natural gas properties consisted of the following at December 31, 2023:
| | | | | | | |
| | | |
| December 31, 2023 | | |
| (In thousands) |
| | | |
| | | |
Total proved properties costs | $ | 25,276 | | | |
Accumulated depletion and depreciation | (159) | | | |
Oil and natural gas properties, net | $ | 25,117 | | | |
Total depletion and depreciation expense in the consolidated statements of operations was $245,000 for the period from November 13, 2023 through December 31, 2023 and includes depletion and depreciation in cost of production. Benchmark determined no impairment to proved oil and natural gas properties was necessary as of December 31, 2023.
8. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Changes in the carrying amount of Printronix's goodwill consisted of the following:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 |
| (In thousands) |
Beginning balance | $ | 7,541 | | | $ | 7,470 | |
Acquisition of business | — | | | — | |
Tax adjustment | — | | | 71 | |
Impairment losses | — | | | — | |
Ending balance | $ | 7,541 | | | $ | 7,541 | |
Changes in the carrying amount of Benchmark's goodwill consisted of the following:
| | | | | | | |
| Years Ended December 31, 2023 |
| | | |
| (In thousands) |
Beginning balance | $ | — | | | |
Acquisition of business | 1,449 | | | |
Impairment losses | — | | | |
Ending balance | $ | 1,449 | | | |
The ending balance of goodwill includes no accumulated impairment losses to date. Refer to Note 3 for additional information related to the Benchmark acquisition.
Other intangible assets, net consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Weighted Average Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| | | (In thousands) |
Patents: | | | | | | | |
Intellectual property operations | 6 years | | $ | 341,403 | | | $ | (316,114) | | | $ | 25,289 | |
Industrial operations | 7 years | | 3,400 | | | (1,083) | | | 2,317 | |
Total patents | | | 344,803 | | | (317,197) | | | 27,606 | |
Customer relationships - industrial operations | 7 years | | 5,300 | | | (1,689) | | | 3,611 | |
Trade name and trademarks - industrial operations | 7 years | | 3,430 | | | (1,091) | | | 2,339 | |
Total | | | $ | 353,533 | | | $ | (319,977) | | | $ | 33,556 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Weighted Average Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| | | (In thousands) |
Patents: | | | | | | | |
Intellectual property operations | 6 years | | $ | 331,403 | | | $ | (304,744) | | | $ | 26,659 | |
Industrial operations | 7 years | | 3,400 | | | (597) | | | 2,803 | |
Total patents | | | 334,803 | | | (305,341) | | | 29,462 | |
Customer relationships - industrial operations | 7 years | | 5,300 | | | (931) | | | 4,369 | |
Trade name and trademarks - industrial operations | 7 years | | 3,430 | | | (603) | | | 2,827 | |
Total | | | $ | 343,533 | | | $ | (306,875) | | | $ | 36,658 | |
Total other intangible asset amortization expense in the consolidated statements of operations was $13.1 million and $12.1 million for the years ended December 31, 2023 and 2022, respectively. The Company did not record charges related to impairment of other intangible assets for the years ended December 31, 2023 and 2022. There was no accelerated amortization of other intangible assets for the years ended December 31, 2023 and 2022. Intellectual Property Operations amortization of patents is expensed in cost of revenues and Industrial Operations amortization is expensed in general and administrative expenses.
The following table presents the scheduled annual aggregate amortization expense (in thousands):
| | | | | |
Years Ending December 31, | |
| |
2024 | 14,830 | |
2025 | 12,485 | |
2026 | 3,173 | |
2027 | 1,733 | |
2028 | 1,335 | |
Thereafter | — | |
Total | $ | 33,556 | |
During the year ended December 31, 2022, ARG entered into an agreement granting ARG the exclusive option to acquire all rights to license and enforce a patent portfolio and all future patents and patent applications, and incurred $15.0 million of certain patent and patent rights costs, of which $6.0 million was paid in 2022 and $9.0 million paid in 2023. The patent costs are included in prepaid expenses and other current assets in the consolidated balance sheet as of December 31, 2023. During the year ended December 31, 2023, ARG accrued certain patent and patent rights acquisition costs, of which $4.0 million is due January 31, 2024. As of December 31, 2023 and payable2022, $4.0 million and $9.0 million was accrued, respectively, and included in accrued expenses and other current liabilities (see Note 9).
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (In thousands) |
| | | |
Accrued consulting and other professional fees | $ | 1,595 | | | $ | 1,173 | |
| | | |
Income taxes payable | 619 | | | 474 | |
Product warranty liability, current | 30 | | | 36 | |
Service contract costs, current | 169 | | | 280 | |
Short-term lease liability | 1,248 | | | 1,559 | |
Accrued patent cost (see Note 8) | 4,000 | | | 9,000 | |
Other accrued liabilities | 744 | | | 1,536 | |
Total | $ | 8,405 | | | $ | 14,058 | |
10. STARBOARD INVESTMENT
In order to establish a strategic and ongoing relationship between the Company and Starboard, on November 25, 2017. In conjunction18, 2019, the Company and Starboard entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), pursuant to which Starboard acquired (i) 350,000 shares of Series A Redeemable Convertible Preferred Stock with a stated value of $100 per share, (ii) Series A Warrants to purchase up to 5,000,000 shares of the Company's common stock (the “Series A Warrants”) and (iii) Series B Warrants to purchase up to 100,000,000 shares of the Company's common stock.
On November 12, 2021, the Board formed a Special Committee comprised of directors not affiliated or associated with Starboard in order to explore the possibility of simplifying the Company’s capital structure. Management of the Company believed that the Company’s capital structure, with multiple different series of securities, made it difficult for investors to understand and value the Company and created an impediment to new public investment.
As a result, on October 30, 2022, and following the unanimous recommendation of the Special Committee of the Board, the Company entered into the Recapitalization Agreement with Starboard and the Investors in order to simplify the Company’s capital structure, pursuant to which, among other things, (1) effective as of November 1, 2022, the Investors exercised the Series A Warrants in full and received 5,000,000 shares of the Company’s common stock, (2) the Investors purchased 15,000,000 shares of the Company’s common stock pursuant to the Concurrent Private Rights Offering (as
defined below) and the Unadjusted Series B Warrants (as defined below) were cancelled, and (3) on July 13, 2023, (a) Starboard converted 350,000 shares of Series A Redeemable Convertible Preferred Stock into 9,616,746 shares of the Company’s common stock, and (b) Starboard exercised 31,506,849 of the Series B Warrants through a combination of a “Note Cancellation” and a “Limited Cash Exercise” (each as defined in the Series B Warrants), resulting in the receipt by Starboard of 31,506,849 shares of common stock, the cancellation of $60.0 million aggregate principal amount of the Company’s senior secured notes held by Starboard (as described further below, the “Senior Secured Notes”) and the receipt by the Company of aggregate gross proceeds of approximately $55.0 million. As a result, Starboard beneficially owned 61,123,595 shares of common stock as of July 13, 2023, representing approximately 61.2% of the common stock based on 99,886,322 shares of common stock issued and outstanding as of such date. Accordingly, no shares of Series A Redeemable Convertible Preferred Stock, no Series B Warrants, nor any Senior Secured Notes remain outstanding.
As applicable, the following discussion of Starboard’s investments in the Company reflect the transactions effected pursuant to the Recapitalization Agreement.
Series A Redeemable Convertible Preferred Stock
Per its terms, the Series A Redeemable Convertible Preferred Stock could be converted into a number of shares of common stock equal to (i) the stated value thereof plus accrued and unpaid dividends, divided by (ii) the conversion price of $3.65 (subject to certain anti-dilution adjustments) and holders of the Series A Redeemable Convertible Preferred Stock could elect to convert the Series A Redeemable Convertible Preferred Stock into common stock at any time.
Further, the Series A Redeemable Convertible Preferred Stock accrued cumulative dividends quarterly at annual rate of 3.0% on the stated value. Upon consummation of the Printronix acquisition in October 2021, the dividend rate increased to 8.0% on the stated value. There were no accrued and unpaid dividends as of December 31, 2023 and 2022.
Under the Recapitalization Agreement, the Company and Starboard agreed to take certain actions related to the Series A Preferred Stock in connection with the First LoanRecapitalization, including submitting a proposal for stockholder approval to remove the “4.89% blocker” provision contained in the Company's Amended and Second Loan, VeritoneRestated Certificate of Designations (the "Amendment to the Amended and Restated Certificate of Designations").The Company’s stockholders approved the Amendment to the Amended and Restated Certificate of Designations at the Company’s annual meeting of stockholders held on May 16, 2023 which became effective on June 30, 2023. Subsequently, and in accordance with the terms of the Series A Redeemable Convertible Preferred Stock, as amended, and the Recapitalization Agreement, on July 13, 2023, Starboard converted an aggregate amount of 350,000 shares of Series A Redeemable Convertible Preferred Stock into 9,616,746 shares of common stock, which included 27,704 shares of common stock issued Acaciain respect of accrued and unpaid dividends.
The Company determined that certain features of the Series A Redeemable Convertible Preferred Stock should be bifurcated and accounted for as a derivative. Each of these features were bundled together as a single, compound embedded derivative.
During 2019, total proceeds received and transaction costs incurred from the issuance of three four-year $700,000the Series A Redeemable Convertible Preferred Stock amounted to $35.0 million and $1.3 million, respectively. Proceeds received were allocated based on the fair value of the instrument without the Series A Warrants and of the Series A Warrants themselves at the time of issuance. The proceeds allocated to the Series A Redeemable Convertible Preferred Stock were then further allocated between the host preferred stock instrument and the embedded derivative, with the embedded derivative recorded at fair value and the Series A Redeemable Convertible Preferred Stock recorded at the residual amount. The portion of the proceeds allocated to the Series A Warrants, embedded derivative, and Series A Redeemable Convertible Preferred Stock was $4.8 million, $21.2 million, and $8.9 million, respectively. Transaction costs were also allocated between the Series A Redeemable Convertible Preferred Stock and the Series A Warrants on the same basis as the proceeds. The transaction costs allocated to the Series A Redeemable Convertible Preferred Stock were treated as a discount to the Series A Redeemable Convertible Preferred Stock. The transaction costs allocated to the Series A Warrants were expensed as incurred.
The Company classified the Series A Redeemable Convertible Preferred Stock as mezzanine equity as the instrument would become redeemable at the option of the holder in various scenarios or otherwise on November 15, 2027. As it was probable that the Series A Redeemable Convertible Preferred Stock would become redeemable, the Company accreted the instrument to its redemption value using the effective interest method and recognized any changes against additional paid in capital in the absence of retained earnings. The Company determined that upon entering into the Recapitalization
Agreement, the Series A Redeemable Convertible Preferred Stock was not modified related to the redemption, as such action was subject to the receipt of stockholder approval at the Company’s next annual meeting of stockholders. Accordingly, the Series A Redeemable Convertible Preferred Stock continued to be classified as temporary equity and continued to be accreted to its redemption value to the earliest redemption date of November 15, 2024. Accretion for the years ended December 31, 2023 and 2022 was $3.2 million and $5.2 million, respectively.
The following features of the Series A Redeemable Convertible Preferred Stock are required to be bifurcated from the host preferred stock and accounted for separately as an embedded derivative: (i) the right of the holders to redeem the shares (the “put option”), (ii) the right of the holders to receive common stock upon conversion of the shares (the “conversion option”), (iii) the right of the Company to redeem the shares (the “call option”), and (iv) the change in dividend rate upon consummation of an approved investment or a triggering event (the “contingent dividend rate feature”).
These features are required to be accounted for separately from the Series A Redeemable Convertible Preferred Stock because the features were determined to be not clearly and closely related to the debt-like host and also did not meet any other scope exceptions for derivative accounting. Therefore, these features are bundled together and are accounted for as a single, compound embedded derivative liability.
Accordingly, we have recorded an embedded derivative liability representing the combined fair value of each of these features. The embedded derivative liability was adjusted to reflect fair value at each period end with changes in fair value recorded as other income or (expense) in the “Change in fair value of the Series A and B warrants and embedded derivatives” financial statement line item of the consolidated statements of operations. In connection with the Recapitalization Agreement, the Company determined that the embedded features would continue to be bifurcated from the host Series A Redeemable Convertible Preferred Stock and accounted for separately as a compound derivative. Following Starboard’s conversion of its of 350,000 shares of Series A Redeemable Convertible Preferred Stock into 9,616,746 shares of common stock, which included 27,704 shares of common stock issued in respect of accrued and unpaid dividends, on July 13, 2023, the Company no longer had any shares of Series A Redeemable Convertible Preferred Stock outstanding. As a result, as of December 31, 2023 and 2022, the fair value of the Series A embedded derivative was zero and $16.8 million, respectively.
Series A Warrants
On November 18, 2019, in connection with the issuance of the Series A Redeemable Convertible Preferred Stock, the Company issued detachable Series A Warrants to acquire up to 5,000,000 shares of common stock at a price of $3.65 per share (subject to certain anti-dilution adjustments) at any time during a period of eight years beginning on the instrument’s issuance date of the Series A Warrants. The fair value of the Series A Warrants was $4.8 million upon issuance. On November 1, 2022, the Series A Warrants were fully exercised, and the Company recognized the common stock issued at its fair value in equity and an approximate $2.0 million charge as a component of the change in fair value of the Series A Warrants in other expense, which resulted in a fair value of zero.
In accordance with the terms of the Recapitalization Agreement, effective as of November 1, 2022, the Investors consummated the Series A Warrants Exercise (exercising the Series A Warrants in full) and the Company issued an aggregate of 5,000,000 shares of the Company’s common stock to the Investors in consideration of their payment of the cash exercise price of $9.3 million, which amount represents a reduction in the exercise price to account for a negotiated settlement by the parties to account for the forgone time value of money of the Series A Warrants. As of December 31, 2023, no Series A Warrants were issued or outstanding.
Series B Warrants
On February 25, 2020, pursuant to the terms of the Securities Purchase Agreement with Starboard and the Investors, the Company issued Series B Warrants to purchase up to 100,000,000 shares of Veritone’sthe Company’s common stock at an exercise price (subject to certain price-based anti-dilution adjustments) of $13.6088either (i) $5.25 per share. Veritone’s initial public offeringshare, if exercising by cash payment, within 30 months from the issuance date was May 12, 2017. Upon Veritone’s consummation(i.e., August 25, 2022); or (ii) $3.65 per share, if exercising by cancellation of its public offeringa portion of its common stock on May 17, 2017 (“IPO”), all outstanding principal and accrued interest under the Veritone Loans, totaling $20.7 million, automatically converted into 1,523,746 shares of Veritone’s common stock based on a conversion price of $13.6088 per share.
In addition, in August 2016, VeritoneNotes (as defined below). The Company issued Acacia a five-year Primary Warrant to purchase up to $50 million, less all converted amounts or amounts repaid under the Veritone Loans, worth of shares of Veritone’s common stock at an exercise price of $13.6088 per share. Pursuant to an amendment to the Primary Warrant effective March 15, 2017, the Primary Warrant was exercised automatically upon the consummation of Veritone’s IPO, resulting in the purchase by Acacia of an additional 2,150,335 shares of Veritone common stock, atSeries B Warrants for an aggregate purchase price of $29.3$4.6 million. Immediately following Acacia’s exerciseThe Series B Warrants had an expiration date of the Primary Warrant in full, Veritone issued to Acacia an additional 10% Warrant that provides forNovember 15, 2027.
In connection with the issuance of an additional 809,400 sharesthe Notes on June 4, 2020, the terms of Veritone common stock at ancertain of the Series B Warrants were amended to permit the payment of the lower exercise price of $13.6088 per share, with 50%$3.65 through the payment of cash, rather than only through the cancellation of Notes outstanding, at any time until the expiration date of November 15, 2027. 31,506,849 of the shares underlyingSeries B
Warrants were subject to this adjustment with the 10% Warrant vesting asremaining balance of 68,493,151 Series B Warrants continuing under their original terms (the Series B Warrants not subject to such adjustment, the “Unadjusted Series B Warrants”).
During the third quarter of 2022, the cash exercise feature of the issuanceUnadjusted Series B Warrants expiration date of August 25, 2022 was extended to October 28, 2022. On October 28, 2022, the 10% Warrant, andcash exercise feature of the Unadjusted Series B Warrants expired, which resulted in a fair value of zero for the related 68,493,151 warrants. In March 2023, the Unadjusted Series B Warrants were cancelled immediately following the completion of the Rights Offering (as described below). During the year ended December 31, 2023, the remaining 50% of the shares underlying the 10% warrant vesting on the first anniversary of the issuance date of the 10% Warrant.31,506,849 Series B Warrants were exercised.
Veritone Bridge Loan. On March 14, 2017, Acacia entered into an additional secured convertible promissory note with Veritone (the “Veritone Bridge Loan”), which permitted Veritone to borrow up to an additional $4.0 million, bearing interest at the rate of 8.0% per annum. On March 17, 2017, Acacia funded the initial $1.0 million advance (the “First Bridge Loan”). On April 14, 2017, Acacia funded the second $1.0 million advance (the “Second Bridge Loan”). All advances and accrued interest under the Veritone Bridge Loan were due and payable on November 25, 2017. In May 2017, pursuantAs stated in Note 1 above, further to the terms of the Veritone Bridge Loan, Acacia electedRecapitalization Agreement and in accordance with the terms of the Series B Warrants, on July 13, 2023, Starboard completed the Series B Warrants Exercise. Pursuant to makethe Series B Warrants Exercise, the Company cancelled $60.0 million aggregate principal amount of Senior Secured Notes held by Starboard and received aggregate gross proceeds of approximately $55.0 million. At the closing of the Series B Warrants Exercise, the Company paid to Starboard an additional advance to Veritone totaling $2.0aggregate amount of $66.0 million (the “Recapitalization Payment”) representing all principal amounts not advanced upon Veritone’s consummationa negotiated settlement of its IPO.the foregone time value of the Series B Warrants and the Series A Redeemable Convertible Preferred Stock (which amount was paid through a reduction in the exercise price of the Series B Warrants). The Recapitalization Payment effectively modified the exercise price of the Series B Warrants. Upon consummationthe Series B Warrants Exercise, the Investors exercised the Series B Warrants at a reduced price and the Company issued an aggregate of Veritone’s IPO, the outstanding principal and accrued interest under the Veritone Bridge Loan of $4.0 million and $21,000, respectively, automatically converted into 295,44031,506,849 shares of Veritone’sthe Company’s common stock atto the Investors in consideration of their cash payment and cancellation of any outstanding Senior Secured Notes.
The Series B Warrants are classified as a conversion priceliability in accordance with ASC 480, "Distinguishing Liabilities from Equity", as the agreement provides for net cash settlement upon a change in control, which is outside the control of $13.6088 per share.
the Company. In conjunctionconnection with the Veritone Bridge Loan, Veritone issued to Acacia (i) 60,000 shares of Veritone common stock (“Upfront Shares”), (ii) 90,000 shares of Veritone common stock (the “Bridge Installment Shares”),Recapitalization Agreement and (iii) 10-year warrants to purchase up to 157,000 shares of Veritone common stock with other terms and conditions similar torelated warrant modification, the warrants described above.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All share amounts above have been adjusted to reflectCompany recognized the incremental fair value as a 0.6-for-1 reverse stock split of Veritone’s common stock, which was effected by Veritone in April 2017. The Veritone common shares are subject to a lock-up agreement that expires on February 15, 2018, subsequent to which the shares may be sold pursuant to Rule 144, subject to volume limitations and Rule 144 filing requirements, as well as other restrictions under applicable securities laws. Allcomponent of the Veritone common stock held by Acacia was unregistered aschange in fair value of the issue date and are unregisteredSeries B Warrants in other expense as of December 31, 2017.2022.
Accounting Prior to Veritone IPO. Prior to conversion, Acacia’s Investment Agreement and the Veritone Bridge Loan represented variable interests in Veritone for which Acacia was not the primary beneficiary, primarily due to a lack of a controlling interest in Veritone. In addition, the Veritone Loans and Veritone Bridge Loan (the “Loans”)The Series B Warrants were not considered in-substance common stock, the common stock purchase warrants were unexercised, and the right to receive the Upfront Shares and the Bridge Installment shares (“Veritone Shares”) were considered in-substance common stock, however, application of the equity method was not material, therefore, the equity method of accounting was not applied prior to the IPO.
Prior to conversion, the Loans and the related common stock purchase warrants and Veritone Shares were accounted for as separate units of account based on the relative estimated fair values of the separate units as of the effective date of the respective transactions, with the face amount of the loans allocated to (1) the Loans, which were accounted for as long-term loan receivables and (2) the common stock purchase warrants and Veritone Shares. The estimated relativerecognized at fair value allocation was determined using a Monte Carlo simulation model. Key inputs to the model included the estimated value of Veritone’s equity on the effective date of the transactions, related volatility of equity assumptions, discounts for lack of marketability, assumptions related to liquidity scenarios, and assumptions related to recovery scenarios on the Loans. Assumptions usedat each reporting period until exercised, with changes in connection with estimating the relative fair values included: (1) volatility ranging from 40% to 50%, (2) financing probabilities ranging from 25% to 75%, (3) marketability discount of 7% and (4) 100% investment recovery assumption. The loan discount, representing the difference between the face amount of the Loans and the relative fair value allocated to the Loans, was accreted over the expected life of the Loans, using the effective interest method, with the related interest amounts reflectedrecognized in other income or (expense) in the consolidated statements of operations. As of May 2017,December 31, 2023, no Series B warrants were issued or outstanding. As of December 31, 2023 and 2022, the unamortized loantotal fair value of the Series B Warrants was zero and $84.8 million, respectively.
Senior Secured Notes
On June 4, 2020, pursuant to the Securities Purchase Agreement dated November 18, 2019 with Starboard and the Investors, the Company issued $115.0 million in senior secured notes (the "Notes") to the Investors. Also on June 4, 2020, in connection with the issuance of the Notes, the Company entered into a Supplemental Agreement with Starboard (the “Supplemental Agreement”), as discussed further below.
On June 30, 2020, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with Merton and Starboard, on behalf of itself and on behalf of certain funds and accounts under its management, including the holders of the Notes. Pursuant to the Exchange Agreement, the holders of the Notes exchanged the entire outstanding principal amount for new senior notes (the “New Notes”) issued by Merton having an aggregate outstanding original principal amount of $115.0 million.
The New Notes bore interest at a rate of 6.00% per annum and had an initial maturity date of December 31, 2020. The New Notes were fully guaranteed by the Company and were secured by an all-assets pledge of the Company and Merton and non-recourse equity pledges of each of the Company’s material subsidiaries. Pursuant to the Exchange Agreement, the New Notes (i) were deemed to be “Notes” for purposes of the Securities Purchase Agreement, (ii) were deemed to be “June 2020 Approved Investment Notes” for purposes of the Supplemental Agreement, and with the Company agreeing to redeem $80.0 million principal amount of the New Notes by September 30, 2020 and $35.0 million principal amount of the New Notes by December 31, 2020, and (iii) were deemed to be “Notes” for the purposes of the Series B Warrants, and therefore could be tendered pursuant to a Note Cancellation under the Series B Warrants on the terms set forth in the Series B Warrants and the New Notes. Delivery of notes in the form of the New Notes could also satisfy the delivery of "Exchange Notes" pursuant to Section 16(i) of the Certificate of Designations of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Certificate of Designations”). The New Notes would not be deemed to be “Notes” for the purposes of the Registration Rights Agreement, dated as of November 18, 2019, by and among the Company, Starboard and the Investors.
Because the New Notes, as amended (as described below), were to be settled within twelve months pursuant to their terms, they are classified as current liabilities in the consolidated balance sheets. The Company capitalized $4.6 million in lender fees associated with the issuance of the Notes and amortized such fees over the approximate seven month period ended December 31, 2020, which was the initial redemption date of the Notes. There was zero and $450,000 of accrued and unpaid interest on the New Notes as of December 31, 2023 and 2022, respectively.
On January 29, 2021, the Company redeemed $50.0 million of the New Notes and on March 31, 2021, the Company reissued $50.0 million of the New Notes. On June 30, 2021, the Company issued $30.0 million in additional New Notes (the “June 2021 Merton Notes”) and amended the maturity date of the New Notes to October 15, 2021. On September 30, 2021, the Company issued $35.0 million in additional New Notes (the “September 2021 Merton Notes”) and amended the maturity date of the New Notes to December 1, 2021. The June 2021 Merton Notes and the September 2021 Merton Notes could not be used to exercise Series B Warrants issued to Starboard. On November 30, 2021, the Company amended the maturity date of the New Notes to January 31, 2022. On January 31, 2022, the Company amended the maturity date of the New Notes to April 15, 2022, and agreed to repay an aggregate of $15.0 million principal amount of the New Notes, resulting in a principal amount outstanding of $165.0 million. On April 14, 2022, the Company amended the New Notes to extend the maturity date to July 15, 2022, permit the investment in certain types of derivative instruments and permit certain guarantees in connection with such derivative instruments, each as defined therein, and agreed to repay an aggregate of $50.0 million principal amount of the New Notes, resulting in a principal amount outstanding of $115.0 million. On July 15, 2022, the Company amended the maturity date of the New Notes to July 14, 2023, and agreed to repay an aggregate of $55.0 million principal amount of the New Notes, resulting in a principal amount outstanding of $60.0 million (such remaining New Notes also referred to as the Senior Secured Notes). On July 13, 2023 pursuant to the Series B Warrants Exercise, the Company cancelled the remaining $60.0 million aggregate principal amount outstanding of the Senior Secured Notes. As of December 31, 2023, no Senior Secured Notes were issued or outstanding. As a result, the total principal amount outstanding of Senior Secured Notes as of December 31, 2023 and 2022 was zero and $60.0 million, respectively.
Modifications to Series A Redeemable Convertible Preferred Stock and Series B Warrants
The June 4, 2020 Supplemental Agreement also provided for (i) a waiver of increased dividends under the original terms of the Series A Redeemable Convertible Preferred Stock that would have otherwise accrued due to the Company’s use of the $35.0 million proceeds received from Starboard and the Investors upon the issuance of the Series A Redeemable Convertible Preferred Stock in November 2019, (ii) the replacement of original optional redemption rights for the Series A Redeemable Convertible Preferred Stock provided to both the Company and the holders that otherwise would have been nullified through the issuance of the Notes, and (iii) an amendment to the terms of the previously issued Series B Warrants to permit the payment of the lower exercise price of $3.65 through the payment of cash, rather than only through the cancellation of Notes outstanding, at any time until the expiration of the Series B Warrants on November 15, 2027. 31,506,849 of the Series B Warrants were subject to this adjustment with the remaining balance of 68,493,151 Series B Warrants continuing under their original terms.
We analyzed the amendments to the Series A Redeemable Convertible Preferred Stock and determined that the amendments were not significant. Therefore, the amendments are accounted for as a modification on a prospective basis.
The incremental fair value of the Series B Warrants associated with the modification of their terms in connection with the issuance of the Notes was $1.3 million and is recognized as a discount totaled $1.7 million. Interest income foron the Notes and will be amortized to interest expense over the contractual life of the Notes. For the year ended December 31, 2023, no amount was amortized to interest expense as the discount was fully amortized during the quarter ended September 30, 2022. For the year ended December 31, 20172022, $90,000 was $1.1 million, including accretionamortized to interest expense.
Rights Offering and Concurrent Private Rights Offering
On February 14, 2023, pursuant to the requirements of the loan discountRecapitalization Agreement and in accordance with the terms of $630,000. The effective yieldthe Series B Warrants, the Company commenced a rights offering (the “Rights Offering”). Under the terms of the Rights Offering, the Company distributed non-transferable subscription rights to record holders (“Eligible Securityholders”) of the Company’s common stock held as of 5 p.m. Eastern time on February 13, 2023, the Loansrecord date for the year ended December 31, 2017 ranged from 9%Rights Offering. The subscription period for the Rights Offering terminated at 5 p.m. Eastern time on March 1, 2023 (the “Expiration Time”). Pursuant to 53%.
Accounting Subsequent to Veritone IPO. Upon Veritone’s consummation of its IPO on May 17, 2017, the Loans were converted intoRights Offering, Eligible Securityholders received one non-transferable subscription right (a “Subscription Right”) for every four shares of Veritonecommon stock owned by such Eligible Securityholders. Each Subscription
Right entitled an Eligible Securityholder to purchase, at such Eligible Securityholder’s election, one share of common stock at a price of $5.25 per share (the “Subscription Price”).
The Investors received private subscription rights to purchase up to 28,647,259 shares of common stock at the Subscription Price pursuant to a concurrent private rights offering (the “Concurrent Private Rights Offering”) in connection with their ownership of common stock and, on an as-converted basis, the Primary WarrantCompany’s Series B Warrants and shares of the Company’s Series A Redeemable Convertible Preferred Stock. The private subscription rights provided to the Investors pursuant to the Concurrent Private Rights Offering were on substantially the same terms as the Subscription Rights, and were distributed substantially concurrently with the distribution of the Subscription Rights and expired at the Expiration Time. In connection with the Rights Offering, Starboard purchased 15,000,000 shares of common stock.
The Company determined that upon entering into the Recapitalization Agreement on October 30, 2022, the Rights Offering and Concurrent Private Rights Offering and related commitment required no recognition in the Company's financial statements. The Company recognized the proceeds received from the sale of the shares in equity when the sale occurred.
The Company received aggregate gross proceeds of approximately $361,000 from the Rights Offering and aggregate gross proceeds of approximately $78.8 million from the Concurrent Private Rights Offering and issued an aggregate of 15,068,753 shares of common stock.
The Rights Offering was automatically exercisedmade pursuant to a prospectus supplement to the Company’s shelf registration statement on Form S-3 (No. 333-249984), filed with the SEC on February 14, 2023.
Governance
Under the Recapitalization Agreement, the parties agreed that for a period from the date of the Recapitalization Agreement until May 12, 2026 (the “Applicable Period”), the Board of the Company will include at least two (2) directors that are independent of, and not affiliates (as defined in full,Rule 144 of the Securities Exchange Act of 1934, as described above, resulting inamended) of, Starboard, with current Board members Maureen O’Connell and Isaac T. Kohlberg satisfying this initial condition under the Recapitalization Agreement. The parties also agreed that Katharine Wolanyk would continue to serve as a 20% ownership interest in Veritone (excluding warrants)director of the Company until at least May 12, 2024 (or such earlier date if Ms. Wolanyk is unwilling or unable to serve as a director for any reason or resigns as a director). Based on Acacia’s representationAdditionally, the Company appointed Gavin Molinelli as a member and as Chair of the Board. The Company and Starboard also agreed that, following the closing of the Series B Warrants Exercise until the end of the Applicable Period, the number of directors serving on the Veritone boardBoard will not exceed 10 members.
Other Provisions of directorsthe Recapitalization Agreement
On February 14, 2023, the Company entered into an amended and Acacia’s 20% ownership interestrestated Registration Rights Agreement with Starboard as contemplated by the Recapitalization Agreement.
Pursuant to the amended Registration Rights Agreement, the Company has agreed to file a registration statement covering the resale of the shares of common stock, issuable or issued to Starboard pursuant to or in Veritone, Acacia management determinedaccordance with Section 1.1 of the Recapitalization Agreement, including the shares issued to Starboard in the Concurrent Private Rights Offering, within 90 days after a written request made prior to the first anniversary of the Closing Date (as defined in the Registration Rights Agreement). The Registration Rights Agreement also provides Starboard with additional rights to require that the equity methodCompany file a registration statement in other circumstances. The Registration Rights Agreement includes other customary terms.
The Recapitalization Agreement includes a “fair price” provision requiring, in addition to any other stockholder vote required by the Company’s Certificate of accounting was applicable. Upon becoming eligibleIncorporation or Delaware law, the affirmative vote of the holders of a majority of the outstanding voting stock held by stockholders of the Company other than Starboard and its affiliates, by or with whom or on whose behalf, directly or indirectly, a business combination is proposed, in order to approve such a business combination; provided, that the additional majority voting requirement would not be applicable if either (x) the business combination is approved by the Board by the affirmative vote of at least a majority of the directors who are unaffiliated with Starboard or (y) (i) the consideration to be received by stockholders other than Starboard and its affiliates meets certain minimum price conditions, and (ii) the consideration to be received by stockholders other than Starboard and its affiliates is of the same form and kind as the consideration paid by Starboard and its affiliates.
The Recapitalization Agreement also provided that, effective as of the later of the closing of the Recapitalization Transactions and the date on which no Senior Secured Notes remain outstanding, (i) the Securities Purchase Agreement and (ii) that certain Governance Agreement, dated as of November 18, 2019, as amended and restated on January 7, 2020
(the "Governance Agreement"), would be automatically terminated and of no further force and effect without any further action by any party thereto. As a result of the closing of the Recapitalization Transactions, the Securities Purchase Agreement and the Governance Agreement have been terminated and are of no further force and effect.
Services Agreement
On December 12, 2023, the Company entered into a Services Agreement with Starboard (the “Services Agreement”), pursuant to which, upon the Company’s request, Starboard will provide to the Company certain trade execution, research, due diligence and other services. Starboard has agreed to provide the services on an expense reimbursement basis and no separate fee will be charged by Starboard for the equity methodservices. During the year ended December 31, 2023 the Company reimbursed Starboard $216,000 under the Services Agreement.
11. FAIR VALUE MEASUREMENTS
U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date, and also establishes a fair value hierarchy which requires an entity to maximize the use of accounting, Acacia electedobservable inputs, where available. The three-level hierarchy of valuation techniques established to applymeasure fair value is defined as follows:
(i)Level 1 - Observable Inputs: Quoted prices in active markets for identical investments;
(ii)Level 2 - Pricing Models with Significant Observable Inputs: Other significant observable inputs, including quoted prices for similar investments, interest rates, credit risk, etc.; and
(iii)Level 3 - Unobservable Inputs: Unobservable inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Management estimates include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs, including the entity’s own assumptions in determining the fair value optionof derivatives and certain investments.
Whenever possible, the Company is required to account for its equity investment in Veritone, including alluse observable market inputs (Level 1) when measuring fair value. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The assessment of itsthe significance of a particular input requires judgment and considers factors specific to the asset or liability being measured. In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy.
The Company held the following types of financial instruments at fair value on a recurring basis as of December 31, 2023 and 2022:
Equity Securities. Equity securities includes investments in Veritonepublic company common stock and warrants, due to the availability of quoted prices in an active market for the Veritone common stock. As of December 31, 2017, Acacia’s ownership interest in Veritone, on a fully-diluted basis, was approximately 23%.
Acacia’s equity investment in Veritone common shares isare recorded at fair value based on the quoted market price of Veritone’s common stock on The NASDAQ Global Market (the “NASDAQ”)each share on the applicable valuation date, as adjusted for an estimated discount for lackdate. The fair value of marketability (“DLOM”) associated with the restricted naturethese securities are within Level 1 of the common shares acquired (Level 3 input). Acacia’s investment in Veritone warrants isvaluation hierarchy. Equity investments that do not have regular market pricing, but for which fair value can be determined based on other data values or market prices, are recorded at fair value within Level 2 of the valuation hierarchy. The Company has elected to apply the fair value method to one equity securities investment that would otherwise be accounted for under the equity method of accounting. As of December 31, 2023, the aggregate carrying amount of this investment was $57.1 million, and is included in equity securities, in the consolidated balance sheet (refer to Note 4 for additional information).
Commodity Derivative Instruments: Commodity derivative instruments are recorded at fair value using industry standard models using assumptions and inputs which are substantially observable in active markets throughout the full term of the instruments. These include market price curves, quoted market prices in active markets, credit risk adjustments, implied market volatility and discount factors. The fair value of these instruments are within Level 2 of the valuation hierarchy. During 2023, Benchmark executed derivative contracts with a single counterparty and also executed an International Swap Dealers Association Master Agreement ("ISDA") with its counterparty, the terms of which provide Benchmark and its counterparty with rights of offset. As of December 31, 2023, the aggregate fair value of the open commodity derivatives
was $2.7 million and is included in prepaid expenses and other current assets and other non-current assets, in the consolidated balance sheet (refer to Note 2for additional information).
Series B Warrants. Series B Warrants are recorded at fair value, using a Black-Scholes option-pricing model (Level 3). On October 28, 2022, the cash exercise feature of the Unadjusted Series B Warrants expired, which resulted in a fair value of zero for such warrants (refer to Note 10 for additional information). The fair value of the remaining Series B Warrants as adjusted for anof July 13, 2023 was estimated DLOM, based on the Black-Scholes option-pricing model, utilizing the following assumptions at December 31, 2017:significant assumptions: volatility of 120 percent, risk-free interest rates ranging from 1.94% to 2.37%; expected terms ranging from three to nine years; volatilities ranging from 45% to 55%;rate of 5.24 percent, term of 0.04 years and a dividend yield of zero. The DLOM for0 percent. On July 13, 2023, further to the Veritone common stockterms of the Recapitalization Agreement and warrants was estimated utilizing a Finnerty modelin accordance with the following results and assumptions: |
| | | | | | | | | | | |
| | Veritone Common Stock | | Veritone Warrants |
| | IPO Date | | December 31, 2017 | | IPO Date | | December 31, 2017 |
Estimated DLOM applied | | 5.7% | | 5% | | 5.7% | | 10% |
Volatility assumptions | | 35% | | 37% | | 35% | | 72 | % | - | 87% |
Term assumptions | | 6 months | | 2 months | | 6 months | | 5 months |
Atterms of the Series B Warrants, the remaining Series B Warrants were exercised, which also resulted in a fair value of zero as of December 31, 2017, the2023 (refer to Note 10 for additional information). The fair value of the 4,119,521 sharesremaining Series B Warrants as of VeritoneDecember 31, 2022 was estimated based on the following significant assumptions: volatility of 53 percent, risk-free rate of 4.76 percent, term of 0.54 years and a dividend yield of 0 percent. Refer to the "Embedded derivative liabilities" discussion below for additional information on assumptions.
Embedded derivative liabilities. Embedded derivatives that are required to be bifurcated from their host contract are evaluated and valued separately from the host instrument. During the quarter ended December 31, 2022 in connection with the Recapitalization Agreement, the Company changed its methodology from a binomial lattice framework to an as-converted value (Level 3), based on an expected Series A Redeemable Convertible Preferred Stock conversion date on or prior to July 14, 2023 (refer to Note 10 for additional information).
The volatility of the Company’s common stock ownedis estimated by Acacia totaled $90,795,000. Atanalyzing the Company’s historical volatility, implied volatility of publicly traded stock options, and the Company’s current asset composition and financial leverage. Prior to December 31, 2017,2022, the selected volatility, as described herein, represented a haircut from the Company’s actual realized historical volatility. A volatility haircut is a concept used to describe a commonly observed occurrence in which the volatility implied by market prices involving options, warrants and convertible debt is lower than historical actual realized volatility. Prior to December 31, 2022, the assumed base case term used in the valuation models was the period remaining until November 15, 2027, the Series A Redeemable Convertible Preferred Stock maturity date. The risk-free interest rate was based on the yield on the U.S. Treasury with a remaining term equal to the expected term of the conversion and early redemption options. The fair value of the 1,120,432embedded derivative as of July 13, 2023 was estimated based on the following significant assumptions: coupon rate of 8.00 percent, conversion ratio of 27.40, conversion date of July 14, 2023 and a discount rate of 14.80 percent. On July 13, 2023, in accordance with the terms of the Series A Redeemable Convertible Preferred Stock, as amended, and the Recapitalization Agreement, Starboard converted the Series A Redeemable Convertible Preferred Stock into common stock, purchase warrants held by Acacia totaled $13,959,000. A 10% increasewhich resulted in the DLOM assumptions utilized at all applicable valuation dates would result in an approximate 10% decrease in thea fair value of our investment in Veritone atzero as of December 31, 2017,2023 (refer to Note 10 for additional information). The fair value of the embedded derivative as of December 31, 2022 was estimated based on the following significant assumptions: coupon rate of 8.00 percent, conversion ratio of 27.40, conversion date of July 14, 2023 and a corresponding decreasediscount rate of 16.30 percent.
Financial assets and liabilities measured at fair value on a recurring basis were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (In thousands) |
Assets | | | | | | | |
December 31, 2023: | | | | | | | |
Equity securities | $ | 63,068 | | | $ | — | | | $ | — | | | $ | 63,068 | |
Commodity derivative instruments | — | | | 2,723 | | | — | | | 2,723 | |
| | | | | | | |
Total | $ | 63,068 | | | $ | 2,723 | | | $ | — | | | $ | 65,791 | |
| | | | | | | |
December 31, 2022: | | | | | | | |
Equity securities | $ | 61,608 | | | $ | — | | | $ | — | | | $ | 61,608 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liabilities | | | | | | | |
December 31, 2023: | | | | | | | |
| | | | | | | |
Series A embedded derivative liabilities | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Series B warrants | — | | | — | | | — | | | — | |
Total | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
December 31, 2022: | | | | | | | |
| | | | | | | |
Series A embedded derivative liabilities | $ | — | | | $ | — | | | $ | 16,835 | | | $ | 16,835 | |
Series B warrants | — | | | — | | | 84,780 | | | 84,780 | |
Total | $ | — | | | $ | — | | | $ | 101,615 | | | $ | 101,615 | |
Benchmark realized derivative gain of $396,000 and unrealized derivative gain of $781,000 for the period from November 13, 2023 through December 31, 2023 and the realized and unrealized derivative gain are included in the net investment gain reflectedother income or (expense) in the consolidated statements of operations. No amounts are netted under the terms of the ISDA.
The following table sets forth a summary of the changes in the estimated fair value of the Company’s Level 3 liabilities, which are measured at fair value as a on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| Series A Warrant Liabilities | | Series A Embedded Derivative Liabilities | | Series B Warrant Liabilities | | Total |
| (In thousands) |
Balance at December 31, 2021 | $ | 11,291 | | | $ | 18,448 | | | $ | 96,378 | | | $ | 126,117 | |
Exercise of warrants | (9,396) | | | — | | | — | | | (9,396) | |
Remeasurement to fair value | (1,895) | | | (1,613) | | | (11,598) | | | (15,106) | |
Balance at December 31, 2022 | — | | | 16,835 | | | 84,780 | | | 101,615 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Exercise of warrants | — | | | — | | | (82,018) | | | (82,018) | |
Conversion of redeemable convertible preferred stock | — | | | (12,881) | | | — | | | (12,881) | |
Remeasurement to fair value | — | | | (3,954) | | | (2,762) | | | (6,716) | |
Balance at December 31, 2023 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
In accordance with U.S. GAAP, from time to time, the Company measures certain assets at fair value on a nonrecurring basis. The Company reviews the carrying value of equity securities without readily determinable fair value, equity method investments and patents on a quarterly basis for indications of impairment, and other long-lived assets at least annually. When indications of potential impairment are identified, the Company may be required to determine the fair value of those assets and record an adjustment for the carrying amount in excess of the fair value determined. Any fair value determination would be based on valuation approaches, which are appropriate under the circumstances and utilize Level 2 and Level 3 measurements as required.
12. RELATED PARTY TRANSACTIONS
The Company reimbursed an aggregate amount of $123,000 and $46,000 during the years ended December 31, 2023 and 2022, respectively, to a former executive officer in connection with legal fees incurred following such officer’s departure from the Company.
During the year ended December 31, 2023 the Company entered into a Loan Facility ("Loan Facility") of $2.2 million with a private portfolio company. The Loan Facility bore an interest rate of 9.5% per annum. We recorded $97,000 in interest income during the year ended December 31, 2023. The receivable is included in other non-current assets in the consolidated balance sheets.
Refer to Note 10 for information about the Recapitalization Agreement and Services Agreement with Starboard.
13. COMMITMENTS AND CONTINGENCIES
Facility Leases
Acacia primarily leases office facilities under operating lease arrangements that will end in various years through July 2027.
On June 7, 2019, Acacia entered into a building lease agreement with Jamboree Center 4 LLC. Pursuant to the lease, we have leased 8,293 square feet of office space in Irvine, California. The lease commenced on August 1, 2019. The term of the lease is 60 months from the commencement date, provides for annual rent increases, and does not provide us the right to early terminate or extend our lease terms.
On January 7, 2020, Acacia entered into a building lease agreement with Sage Realty Corporation. Pursuant to the lease, as amended, we have leased approximately 8,600 square feet of office space for our corporate headquarters in New York, New York. The lease commenced on February 1, 2020. The term of the initial lease was 24 months from the commencement date, provides for annual rent increases, and does not provide us the right to early terminate or extend our lease terms. During August 2021, we entered into a first amendment of the New York office lease, to commence for a period of three years upon landlord's substantial completion of adequate substitution space. On January 25, 2022, the substitution space was substantially completed and the new expiration date is February 28, 2025. During July 2022, we entered into a second amendment of the New York office lease, to add space to the existing premises and increase the annual fixed rent through the existing expiration date. The new fixed rent commenced upon landlord's substantial completion of the additional space, which occurred on September 19, 2022. On June 23, 2023, the Company notified the landlord of its election to early terminate the lease effective as of March 31, 2024, pursuant to the terms set forth in the lease. In connection with such early termination election, the Company paid the landlord a termination payment as set forth in the lease. During September 2023, we entered into a fourth amendment of the New York office lease, which provides for (among other things): (a) the surrender a portion of the premises (Unit 602) effective as of March 31, 2024; (b) the rescission of the early termination election as it relates to the remaining portion of the premises (Unit 601); (c) an extension of the lease term with respect to Unit 601 for 40 months commencing on April 1, 2024 and expiring on July 31, 2027; and (d) annual rent increases, with no right to early terminate or extend the lease.
Printronix conducts its foreign and domestic operations using leased facilities under non-cancelable operating leases that expire at various dates through February 2028. Printronix has leased 73,649 square feet of facilities space, of which the significant leases are as follows:
•On November 10, 2020, Printronix entered into a building lease agreement with PPC Irvine Center Investment, LLC for 8,662 square feet of office space in Irvine, California. The lease commenced on April 1, 2021. The term of the lease is 65 months from the commencement date, provides for annual rent increases and provides the right to early terminate the lease under certain circumstances, as well as extend the lease term.
•On September 30, 2019, Printronix entered into a building lease agreement with Dynamics Sing Sdn. Bhd for 52,000 square feet of warehouse/manufacturing space in Johor, Malaysia. The lease commenced on December 29, 2019. The term of the lease is 48 months from the commencement date, has no annual rent increases and provides the right to early terminate or extend our lease term. The Malaysia factory lease has two renewal options for an additional four years and one additional renewal option for two years. On July 26, 2023, Printronix entered into a lease agreement to renew the lease for another 24 months commencing on December 29, 2023.
•On June 2, 2022, Printronix entered into a building lease agreement with HSBC Institutional Trust Services (Singapore) Limited for 4,560 square feet of office space in Singapore. The lease commenced on June 13, 2022. The term of the lease is 36 months from the commencement date, has no annual rent increases and does not provide the right to early terminate or extend the lease term.
•On November 28, 2019, Printronix entered into a building lease agreement with PF Grand Paris for 3,045 square feet of office space in Paris, France. The lease commenced on March 1, 2019. The term of the lease is 109 months from the commencement date, has no annual rent increases and provides the right to early terminate the lease under certain circumstances, however it does not provide for an extension of the lease term.
•On November 1, 2020, Printronix entered into a building lease agreement with Shanghai SongYun Enterprise Management Center for 2,422 square feet of office space in Shanghai, China. The lease commenced on November 1, 2020. The term of the lease is 48 months from the commencement date, has no annual rent increases and provides the right to early terminate or extend the lease term.
The Company's operating lease costs were $1.3 million and $1.5 million for the years ended December 31, 2023 and 2022, respectively.
The table below presents aggregate future minimum lease payments due under the Company's leases discussed above, reconciled to long-term lease liabilities and short-term lease liabilities (included in accrued expenses and other current liabilities) included in the consolidated balance sheet as of December 31, 2023 (in thousands):
| | | | | |
Years Ending December 31, | |
| |
2024 | $ | 1,228 | |
2025 | 932 | |
2026 | 581 | |
2027 | 243 | |
| |
| |
Total minimum payments | 2,984 | |
Less: short-term lease liabilities | (1,248) | |
Long-term lease liabilities | $ | 1,736 | |
Inventor Royalties and Contingent Legal Expenses
In connection with the investment in certain patents and patent rights, ARG and its subsidiaries executed related agreements which grant to the former owners of the respective patents or patent rights, the right to receive inventor royalties based on future net revenues (as defined in the respective agreements) generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios.
ARG or its subsidiaries may retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with their licensing and enforcement activities. These law firms may be retained on a contingent fee basis whereby such law firms are paid on a scaled percentage of any negotiated fees, settlements or judgments awarded based on how and when the fees, settlements or judgments are obtained.
Patent Enforcement and Legal Proceedings
The Company is subject to claims, counterclaims and legal actions that arise in the ordinary course of business. Management believes that the ultimate liability with respect to these claims and legal actions, if any, will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
Subsidiaries of ARG are often required to engage in litigation to enforce their patents and patent rights. In connection with any such patent enforcement actions, it is possible that a defendant may request and/or a court may rule that a subsidiary has violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against ARG or its subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material.
On September 6, 2019, Slingshot Technologies, LLC (“Slingshot”), filed a lawsuit in Delaware Chancery Court against the Company and ARG (collectively, the “Acacia Entities”), Monarch Networking Solutions LLC (“Monarch”), Acacia board member Katharine Wolanyk, and Transpacific IP Group, Ltd. (“Transpacific”). Slingshot alleges that the Acacia Entities and Monarch misappropriated its confidential and proprietary information, purportedly furnished to the Acacia Entities and Monarch by Ms. Wolanyk, in acquiring a patent portfolio from Transpacific after Slingshot’s exclusive option to purchase the same patent portfolio from Transpacific had already expired. Slingshot seeks monetary damages, as well as equitable and injunctive relief related to its alleged right to own the portfolio. On March 15, 2021, the Court issued orders granting Monarch’s motion to dismiss for lack of personal jurisdiction and Ms. Wolanyk’s motion to dismiss for lack of subject matter jurisdiction. The remaining parties served written discovery requests and responses, exchanged their respective document productions, and completed depositions as of October 27, 2022. On November 18, 2022, the Acacia Entities and Transpacific filed motions for summary judgment on Slingshot’s claims. Slingshot filed its opposition to the summary judgment motions on December 23, 2022, and the Acacia Entities and Transpacific filed their replies on January 10, 2023. The Chancery Court took off calendar the two-day trial on liability that had been scheduled for April 18–19, 2023, and instead set the hearing on the summary judgment motions for April 19, 2023. On April 19, 2023, the Chancery Court heard oral argument and took the summary judgment motions under advisement. On July 26, 2023, the Court held a telephonic hearing during which it delivered its ruling on the motions for summary judgment. The Court granted Transpacific’s motion and deferred ruling on the Acacia Entities’ motion pending further briefing as to whether the Court has subject matter jurisdiction. On September 14, 2023, the Acacia Entities and Slingshot filed a joint submission with the Chancery Court agreeing to proceed in Delaware Superior Court based on the Chancery Court’s apparent lack of subject matter jurisdiction over the remaining claims, and on September 21, 2023, the Chancery Court issued an order transferring the case to Delaware Superior Court. The case was subsequently assigned to Judge Eric M. Davis in the Complex Commercial Litigation Division of the Superior Court. On January 8, 2024, Judge Davis held an initial status conference, during which he instructed the Acacia Entities and Slingshot to refile their respective summary judgment briefs in Superior Court for the Court's consideration. The Court scheduled the oral argument on the Acacia Entities' motion for summary judgment to take place on March 28, 2024. In the event that the Court denies the motion, it will set the case for trial.
Guarantees and Indemnifications
Acacia and certain of Acacia’s operating subsidiaries have made guarantees and indemnities under which they may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. In connection with certain facility leases, Acacia and certain of its operating subsidiaries have indemnified lessors for certain claims arising from the facilities or the leases. Acacia indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, Acacia has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations. The majority of guarantees and indemnities do not provide any limitations of the maximum potential future payments that Acacia could be obligated to make. To date, Acacia has made no material payments related to these guarantees and indemnities. Acacia estimates the fair value of its indemnification obligations to be immaterial based on this history and therefore, have not recorded any material liability for these guarantees and indemnities in the consolidated balance sheets. Additionally, no events or transactions have occurred that would result in a material liability as of December 31, 2023.
Printronix posted collateral in the form of a surety bond or other similar instruments, which are issued by independent insurance carriers (the “Surety”), to cover the risk of loss related to certain customs and employment activities. If any of the entities that hold such bonds should require payment from the Surety, Printronix would be obligated to indemnify and reimburse the Surety for all costs incurred. As of December 31, 2023 and December 31, 2022, Printronix had approximately $100,000 of these bonds outstanding.
Environmental Cleanup
Energy Operations
Benchmark is engaged in oil and natural gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to oil and natural gas wells and the operation thereof. In connection with Benchmark's acquisition of existing or previously drilled well bores, Benchmark may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental cleanup
or restoration, Benchmark would be responsible for curing such a violation. No claim has been made, nor is management aware of any liability that exists, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations relating thereto for the year ended December 31, 2017.2023.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. STOCKHOLDERS’ EQUITY
Repurchases of Common Stock
ChangesOn December 6, 2021, the Board approved a stock repurchase program, which authorized the purchase of up to $15.0 million of the Company’s common stock through open market purchases, through block trades, through 10b5-1 plans, or by means of private purchases, from time to time, through December 6, 2022. During February 2022, we completed the December 2021 program with total common stock purchases of 3,125,819 shares for the aggregate amount of $15.0 million.
On March 31, 2022, the Board approved a stock repurchase program for up to $40.0 million of shares of common stock. The repurchase authorization had no time limit and did not require the repurchase of a minimum number of shares. The common stock may be repurchased on the open market, in block trades, or in privately negotiated transactions, including under plans complying with the fair valueprovisions of Rule 10b5-1 and Rule 10b-18 of the Exchange Act. During July 2022, we completed the March 2022 program with total common stock purchases of 8,453,519 shares for the aggregate amount of $40.0 million.
On November 9, 2023, the Board approved a stock repurchase program for up to $20.0 million, subject to a cap of 5,800,000 shares of common stock. The repurchase authorization has no time limit and does not require the repurchase of a minimum number of shares. The common stock may be repurchased on the open market, in block trades, or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Exchange Act. There have been no stock repurchases under the above mentioned repurchase program for the year ended December 31, 2023.
In determining whether or not to repurchase any shares of Acacia’s
investment in Veritone are recorded as unrealized gains or losses in the consolidated statements of operations. For the period from the IPO on May 17, 2017 to December 31, 2017, the accompanying consolidated statements of operations reflected the following (in thousands): |
| | | | |
| | 2017 |
Gain on conversion of loans and accrued interest(1) | | $ | 2,671 |
|
Gain on exercise of warrant(2) | | 4,616 |
|
Change in fair value of investment, warrants | | 8,317 |
|
Change in fair value of investment, common stock | | 33,922 |
|
Net unrealized gain on investment at fair value | | $ | 49,526 |
|
__________________________ (1) Pre-conversion difference between carrying value of Loan and accrued interest and the estimated fair value of common stock, discounted for lackthe Board considers such factors, among others, as the impact of marketability.
(2) Pre-conversion difference between carrying valuethe repurchase on Acacia’s cash position, as well as Acacia’s capital needs and whether there is a better alternative use of Primary Warrant and the estimated fair valueAcacia’s capital. Acacia has no obligation to repurchase any amount of its common stock and 10% Warrant discounted for lack of marketability.
Summarized financial information for Veritone, presented on a three month lag basis, is as follows (in thousands, except per share amounts): |
| | | | |
| | Nine Months Ended September 30, 2017 |
| | (Unaudited) |
Revenues | | $ | 10,914 |
|
Gross profit | | 10,090 |
|
Operating expenses | | 44,024 |
|
Other income (expense), net | | (12,872 | ) |
Net loss attributable to common stockholders | | (51,281 | ) |
Net loss per share attributable to common stockholders - basic and diluted | | $ | (5.94 | ) |
|
| | | | |
| | September 30, 2017 |
Current assets | | $ | 78,509 |
|
Noncurrent assets | | 1,173 |
|
Total Assets | | $ | 79,682 |
|
| | |
Current liabilities | | $ | 31,836 |
|
Noncurrent liabilities | | 14 |
|
Total liabilities | | 31,850 |
|
Preferred stock | | — |
|
Total stockholders’ equity (deficit) | | 47,832 |
|
Total liabilities, preferred stock and stockholders’ equity | | $ | 79,682 |
|
Equity Method Investment
In June 2017, Acacia made an investment in Miso Robotics, Inc. (“Miso Robotics”), an innovative leader in robotics and artificial intelligence solutions, totaling $2,250,000, acquiring a 22.6% ownership interest in Miso Robotics, and one board seat. Miso Robotics will use the fundingunder its stock repurchase programs. The authorization to deliver an adaptable AI-driven robotic kitchen assistant that will work alongside kitchen staff to improve operational efficiency for the restaurant industry. In addition, Acacia also entered into an intellectual property services agreement with Miso Robotics to help Miso Robotics drive AI-based solutions for the entire restaurant industry. Based on Acacia’s representation on the Miso Robotics board of directors, and greater than 20% ownership interest in Miso Robotics, the equity method of accounting was applied. The fair value option was not elected for Acacia’s investment in
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Miso Robotics due to the lack of a readily determinable fair market value. For the year ended December 31, 2017, equity in losses of investee related to Miso Robotics totaled $220,000.
8. STOCKHOLDERS’ EQUITY
Cash Dividends. On April 23, 2013, Acacia announced that its Board of Directors approved the adoption of a cash dividend policy that calls for the payment of an expected total annual cash dividend of $0.50 per common share, payable in the amount of $0.125 per share per quarter. Under the policy, the Company paid four quarterly cash dividends totaling $25,434,000 in 2015. On February 25, 2016, Acacia announced that its Board of Directors terminated the company’s dividend policy effective February 23, 2016. The Board of Directors terminated the dividend policy due to a number of factors, including the Company’s financial performance and its available cash resources, the Company’s cash requirements and alternative uses of capital that the Board of Directors concluded would representrepurchase shares provides an opportunity to generate a greater return on investment forreduce the Companyoutstanding share count and its stockholders.enhance stockholder value.
Tax Benefits Preservation Plan. On March 15, 2016, Acacia’s BoardCharter Provision
The Company has a provision in its Amended and Restated Certificate of Directors announcedIncorporation, as amended (the “Charter Provision”) which generally prohibits transfers of its common stock that it unanimously approved the adoption of a Tax Benefits Preservation Plan (the “Plan”).could result in an ownership change. The purpose of the PlanCharter Provision is to protect the Company’s ability to utilize potential tax assets, such as net operating loss carryforwards (“NOLs”) and tax credits to offset potential future taxable income.
The Plan is designed to reduce the likelihood that the Company will experience an ownership change by discouraging any (i) person or group from acquiring beneficial ownership of 4.9% or more of the Company’s outstanding common stock and (ii) any existing shareholders who, as of the time of the first public announcement of the adoption of the Plan, beneficially own more than 4.9% of the Company’s then-outstanding shares of the Company’s common stock from acquiring additional shares of the Company’s common stock (subject to certain exceptions). There is no guarantee, however, that the Plan will prevent the Company from experiencing an ownership change.
In connection with the adoption of the Plan, Acacia’s Board of Directors authorized and declared a dividend distribution of one right for each outstanding share of the Company’s common stock to shareholders of record at the close of business on March 16, 2016. On or after the distribution date, each right would initially entitle the holder to purchase one one-thousandth of a share of the Company’s Series A Junior Participating Preferred Stock, $0.001 par value for a purchase price of $15.00.
9. INCOME TAXES
Acacia’s provision for income taxes for the fiscal periods presented consisted of the following (in thousands):
|
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
Current: | | | | | | |
Federal | | $ | — |
| | $ | — |
| | $ | — |
|
State | | 90 |
| | 262 |
| | 379 |
|
Foreign | | 2,865 |
| | 17,926 |
| | 4,421 |
|
Total current | | 2,955 |
| | 18,188 |
| | 4,800 |
|
Deferred: | | | | | | |
Federal | | — |
| | — |
| | — |
|
State | | — |
| | — |
| | — |
|
Total deferred | | — |
| | — |
| | — |
|
Provision for income taxes | | $ | 2,955 |
| | $ | 18,188 |
| | $ | 4,800 |
|
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following at December 31, 2017 and 2016 (in thousands):
|
| | | | | | | | |
| | 2017 | | 2016 |
| | | | |
Deferred tax assets: | | | | |
Net operating loss and capital loss carryforwards and credits | | $ | 90,871 |
| | $ | 83,323 |
|
Stock compensation | | 2,635 |
| | 2,416 |
|
Fixed assets and intangibles | | 6,197 |
| | 14,343 |
|
Basis of investments in affiliates | | 984 |
| | 2,195 |
|
Accrued liabilities and other | | 167 |
| | 422 |
|
State taxes | | 35 |
| | 90 |
|
Total deferred tax assets | | 100,889 |
| | 102,789 |
|
Valuation allowance | | (90,278 | ) | | (102,627 | ) |
Total deferred tax assets, net of valuation allowance | | 10,611 |
| | 162 |
|
Deferred tax liabilities: | | | | |
Unrealized gain on investments held at fair value | | (10,587 | ) | | — |
|
Other | | (24 | ) | | (162 | ) |
Total deferred tax liabilities | | (10,611 | ) | | (162 | ) |
Net deferred tax assets (liabilities) | | $ | — |
| | $ | — |
|
A reconciliation of the federal statutory income tax rate and the effective income tax rate is as follows:
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
Statutory federal tax rate - (benefit) expense | | 35 | % | | (35 | )% | | (35 | )% |
State income and foreign taxes, net of federal tax effect | | 8 | % | | 50 | % | | 3 | % |
Foreign tax credit | | — | % | | (49 | )% | | (3 | )% |
Noncontrolling interests in operating subsidiaries | | 1 | % | | 1 | % | | (1 | )% |
Goodwill | | — | % | | — | % | | 7 | % |
Nondeductible permanent items | | 3 | % | | — | % | | — | % |
Expired capital loss carryforwards | | — | % | | — | % | | 1 | % |
Change in tax rate | | 102 | % | | — | % | | — | % |
Valuation allowance | | (137 | )% | | 83 | % | | 31 | % |
| | 12 | % | | 50 | % | | 3 | % |
For the periods presented, the Company recorded full valuation allowances against its net deferred tax assets due to uncertainty regarding future realization pursuant to guidance set forth in ASC 740, “Income Taxes.” In future periods, if the Company determines it will more likely than not be able to realize certain of these amounts, the applicable portion of the benefit from the release of the valuation allowance will generally be recognized in the statements of operations in the period the determination is made.
At December 31, 2017, Acacia had U.S. federal and state income tax net operating loss carryforwards (“NOLs”) totaling approximately $180,621,000 and $17,850,000, expiring between 2026 and 2037, and 2028 and 2037, respectively. Capital loss carryovers totaled $2,804,000 at December 31, 2017, expiring in 2019 and 2020.
At December 31, 2017, approximately $26,326,000 of the U.S. federal NOLs, acquired in connection with the acquisition of ADAPTIX, Inc. in 2012, are subject to an annual utilization limitation of approximately $14,100,000, pursuant to the “change in ownership” provisions under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).
As of December 31, 2017, Acacia had approximately $51,126,000 of foreign tax credits, expiring between 2018 and 2026. In general, foreign taxes withheld may be claimed as a deduction on future U.S. corporate income tax returns, or as a credit against future U.S. income tax liabilities, subject to certain limitations.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax expense for the periods presented primarily reflects foreign taxes withheld on revenue agreements executed with licensees in foreign jurisdictions and other state taxes. Excluding the impact of the change in valuation allowance and the impact of the federal tax rate change under the change in tax law described below, annual effective tax rates were 47%, (33)% and (28)%, for fiscal years 2017, 2016 and 2015, respectively. Results for fiscal year 2017 included an unrealized gain on Acacia’s investment in Veritone which created a deferred tax liability totaling approximately $10,587,000. The future anticipated reversal of this deferred tax liability provides for a source of taxable income that allows for the realizability of existing deferred tax assets that have been reduced by a valuation allowance for the periods presented. The effective tax rate reflects both the recognition of the deferred tax liability and the reversal of valuation allowance
Effective January 1, 2017, the Company adopted a new standard that requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. The adoption of this standard resulted in the Company recognizing gross federal and state deferred tax assets of $21,350,000 and $1,559,000, respectively, related to the impact of share-based payments to employees in prior periods. These deferred tax assets are fully offset by a valuation allowance and were impacted by the change in tax rate described below.
Acacia is subject to taxation in the U.S. and in various state jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees in certain foreign jurisdictions. With no material exceptions, Acacia is no longer subject to U.S. federal or state examinations by tax authorities for years before 2011. The California Franchise Tax Board is auditing the 2011 and 2012 California combined income tax returns. The audit is in process and no findings or adjustments have been proposed.
At December 31, 2017 and 2016, the Company had total unrecognized tax benefits of approximately $808,000. No interest and penalties have been recorded for the unrecognized tax benefits for the periods presented. At December 31, 2017, if recognized, approximately $808,000 of tax benefits, net of valuation allowance, would impact the Company’s effective tax rate. The Company does not expect that the liability for unrecognized tax benefits will change significantly within the next 12 months. The change in total unrecognized tax benefits as of December 31, 2017 was due to a lapse of the applicable statute of limitations related to an unrecognized benefit originating in a prior period.
Acacia recognizes interest and penalties with respect to unrecognized tax benefits in income tax expense. Acacia has identified no uncertain tax position for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months.
On December 22, 2017, new U.S. tax legislation was enacted that has significantly changed the U.S. federal income taxation of U.S. corporations, including by reducing the U.S. corporate income tax rate to 21%, revising the rules governing net operating losses and foreign tax credits, and introducing new anti-base erosion provisions. Many of these changes are effective immediately, without any transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service (“IRS”), any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities.
While our analysis and interpretation of this legislation is ongoing, based on our current evaluation, we have reflected a write-down of our deferred income tax assets (including the value of our net operating loss carryforwards and our tax credit carryforwards) due the reduction of the U.S. corporate income tax rate. Based on currently available information, we recorded a reduction of approximately $25,261,000 in the fourth quarter of 2017 related to the revaluation of our deferred tax assets. Given the full valuation allowance provided for net deferred tax assets as of December 31, 2017, the change in tax law did not have a material impact on our consolidated financial statements provided herein. There may be additional tax impacts identified in subsequent periods throughout 2018 in accordance with subsequent interpretive guidance issued by the SEC or the IRS. Further, there may be other material adverse effects resulting from the legislation that we have not yet identified. No estimated tax provision has been recorded for tax attributes that are incomplete or subject to change.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10.15. EQUITY-BASED INCENTIVE PLANS
Stock-Based Incentive Plans
The 2013 Acacia Research Corporation Stock Incentive Plan (“2013 Plan”) and the 2016 Acacia Research Corporation Stock Incentive Plan (“2016 Plan”) (collectively, the “Plans”) were approved by the stockholders of Acacia in May 2013 and June 2016, respectively. AllThe Plans allow grants of stock options, stock awards and performance sharesrestricted stock units with respect to Acacia common stock to eligible individuals, which generally includes directors, officers, employees and consultants. The 2013 Plan expired in May 2023, therefore, Acacia exclusively grants awards under the 2016 Plan. Except as noted below, the terms and provisions of the Plans are identical in all material respects.
Acacia’s compensation committee administers the discretionary option grant and stock issuance programs.Plans. The compensation committee determines which eligible individuals are to receive option grants, or stock issuances or restricted stock units under those programs,the Plans, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant, or stock issuance or restricted stock units and the maximum term for which any granted option is to remain outstanding. The exercise price of options is generally equal to the fair market value of Acacia’s common stock on the date of
grant. Options generally begin to be exercisable six months to one year after grant and generally expire seven to ten years after grant. Stock options with time-based vesting generally vest over two to three years and restricted shares and restricted stock units with time basedtime-based vesting generally vest in full after twoone to three years (generally representing the requisite service period). The Plans terminate no later than the tenth anniversary of the approval of the incentive plans by Acacia’s stockholders.
The Plans provide for the following separate programs:
Discretionary Option Grant Program. Under the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory options to purchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries (including employees, non-employee board members and consultants) at an exercise price not less than 85% of the fair market value of those shares on the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees at an exercise price not less than 100% of the fair market value of those shares on the grant date (not less than 110% of fair market value if such employee actually or constructively owns more than 10% of Acacia’s voting stock or the voting stock of any of its subsidiaries).
Stock Issuance Program. Under the stock issuance program, eligible individuals may be issued shares of common stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past services. Under this program, the purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance, and payment may be in the form of cash or past services rendered. The eligible individuals receiving RSAs under the 2016 Plan shall have full stockholder rights with respect to any shares of Commoncommon stock issued to them under the Stock Issuance Program once those shares are vested, and under the 2013 Plan, had full stockholder rights with respect to any shares of common stock issued to them under the Stock Issuance Program, whether or not their interest in those shares iswas vested. Accordingly, once full stockholder rights are obtained, the eligible individuals shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.
AutomaticDiscretionary Option Grant Program. EachUnder the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory options to purchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries (including employees, non-employee director will receiveboard members and consultants) at an exercise price not less than 100% of the fair market value of those shares on the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees at an exercise price not less than 100% of the fair market value of those shares on the grant date (not less than 110% of fair market value if such employee actually or constructively owns more than 10% of Acacia’s voting stock or the voting stock of any of its subsidiaries).
Discretionary Restricted Stock Unit Grant Program. Under the discretionary restricted stock unit program, Acacia's compensation committee may grant restricted stock units to eligible individuals, which vest upon the attainment of performance milestones or stock optionsthe completion of a specified period of service. During June 2023, Acacia's compensation committee adopted a long-term incentive program to incentivize and reward employees, including members of the Company's executive leadership team, for the number of shares determined by dividing the annual retainer by the grant date fair value of Acacia’s common stock on the grant date. In addition, each new non-employee director will receive restricted stock units or stock options for the number of shares determined by dividing the annual board of directors retainer by the grant date fair value of Acacia’s common stock on the commencement date. Restricted stock units and stock options vest in a series of twelve quarterly installmentsdriving Acacia's performance over the three year period followinglonger-term and to align employees and shareholders. Under the grant date,long-term incentive program, Acacia's compensation committee granted RSUs subject to immediate acceleration upon a change in control. Acacia will deliver the unrestricted shares correspondingtime-based vesting requirements and PSUs subject to the vested restricted stock units within thirty (30) days after the firstperformance-based vesting requirements to occuremployees of the following events: (i)parent company, including the fifth (5th) anniversaryCompany's Chief Executive Officer, interim Chief Financial Officer, Chief Administrative Officer and General Counsel. The grants are generally intended to cover two years of the grant date; or (ii) termination of the non-employee director’s service as a member of the Company’s Board of Directors. The non-employee directors do not have any rights, benefits or entitlements with respect to any shares unlessannual grants (fiscal years 2023 and until the shares have been delivered.
2024).
The number of shares of Common Stockcommon stock initially reserved for issuance under the 2013 Plan was 4,750,000 shares. No new additional shares will be added toThe 2013 Plan has expired, and while awards remain outstanding under the 2013 Plan, without security holder approval (except for shares subject to outstandingno new awards that are forfeited or otherwise returned tomay be granted under the 2013 Plan).Plan. The stock issued, or issuable pursuant to still-outstanding awards, under the 2013 Plan shall be shares of authorized but unissued or reacquired Common Stock,common stock, including shares repurchased by the Company on the open market. In June 2016, 625,390 shares of common stock available for issuance under the 2013 Plan were transferred into the 2016 Plan. At December 31, 2017, there were 660,000 shares available for grant under the 2013 Plan.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The number of shares of Common Stockcommon stock initially reserved for issuance under the 2016 Plan was 4,500,000 shares plus 625,390 shares of common stock available for issuance under the 2013 Plan, which were transferred into the 2016 Plan as of the effective date of the 2016 Plan. In May 2022, security holders approved an increase of 5,500,000 shares of common stock authorized to be issued pursuant to the 2016 Plan. At December 31, 2017,2023, there were 727,0001,355,726 shares available for grant under the 2016 Plan.
Upon the exercise of stock options, the granting of restricted stock,RSAs, or the delivery of shares pursuant to vested restricted stock units,RSUs, it is Acacia’s policy to issue new shares of common stock. Acacia’s board of directorsThe Board may amend or modify the Plans2016 Plan at any time, subject to any required stockholder approval. As of December 31, 2017,2023, there are 7,279,0005,853,868 shares of common stock reserved for issuance under the Plans.2016 Plan.
Stock-based award grantThe following table summarizes stock option activity for the periods presented was as follows:Plans:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Weighted Average Remaining Contractual Life |
| | | | | (In thousands) | | |
Outstanding at December 31, 2021 | 555,417 | | | $ | 5.61 | | | $ | 71 | | | 7.3 years |
Granted | 1,155,000 | | | $ | 3.61 | | | $ | — | | | |
Exercised | — | | | $ | — | | | $ | — | | | |
Forfeited/Expired | (400,000) | | | $ | 4.17 | | | $ | 148 | | | |
Outstanding at December 31, 2022 | 1,310,417 | | | $ | 4.29 | | | $ | 535 | | | 8.0 years |
Granted | 243,319 | | | $ | 4.27 | | | $ | — | | | |
Exercised | (67,500) | | | $ | 3.48 | | | $ | 57 | | | |
Forfeited/Expired | (378,049) | | | $ | 4.76 | | | $ | 72 | | | |
Outstanding at December 31, 2023 | 1,108,187 | | | $ | 4.18 | | | $ | 187 | | | 7.9 years |
Exercisable at December 31, 2023 | 309,999 | | | $ | 4.67 | | | $ | 51 | | | 6.4 years |
Vested and expected to vest at December 31, 2023 | 1,108,187 | | | $ | 4.18 | | | $ | 187 | | | 7.9 years |
Unrecognized stock-based compensation expense at December 31, 2023 (in thousands) | $ | 771 | | | | | | | |
Weighted average remaining vesting period at December 31, 2023 | 1.9 years | | | | | | |
|
| | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Shares | | Aggregate fair value (in thousands) | | Shares | | Aggregate fair value (in thousands) |
Restricted stock awards with performance-based vesting conditions | | — |
| | $ | — |
| | 138,000 |
| | $ | 431 |
|
Stock options with time-based service vesting conditions | | 1,368,000 |
| | 2,930 |
| | 3,434,000 |
| | 5,704 |
|
Stock options with market-based vesting conditions | | — |
| | — |
| | 2,250,000 |
| | 5,530 |
|
Stock options with performance-based vesting conditions | | — |
| | — |
| | 200,000 |
| | 487 |
|
Total incentive awards granted | | 1,368,000 |
| | $ | 2,930 |
| | 6,022,000 |
| | $ | 12,152 |
|
Stock options granted in 2023 are time-based and will vest in full after three years. During the year ended December 31, 20162023, the Company granted restricted stock awards and243,319 stock options (with weighted-average exercise priceat a weighted average grant-date fair value of $5.75$2.10 per share) with performance-based vesting conditions.share using the Black-Scholes option-pricing model. The awards vestfair value was estimated based uponon the following weighted average assumptions: volatility of 46 percent, risk-free interest rate of 3.67 percent, term of 6.00 years and a dividend yield of 0 percent as the Company achieving specified cash flow performance targets over a one and two-year period from the date of grant. Under the termsdoes not pay common stock dividends. The volatility of the awards,Company’s common stock is estimated by analyzing the numberCompany’s historical volatility, implied volatility of restricted shares orpublicly traded stock options, that will actually vestand the Company’s current asset composition and financial leverage (refer to Note 11 "Embedded derivative liabilities" for additional information). The risk-free rate is based on the extentterm assumption and U.S. Treasury constant maturities as published by the Federal Reserve. The Company currently uses the "simplified" method for determining the term, due to the limited option grant history, which assumes that the Company achievesexercise date of an option would be halfway between its vesting date and the specified performance targetsexpiration date. The aggregate fair value of options vested during the performance period. As ofyears ended December 31, 2017, 102,000 (net2023 and 2022 was $309,000 and $235,000, respectively.
The following table summarizes nonvested restricted stock with performance-based vesting conditions were outstandingactivity for the Plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| RSAs | | RSUs | | PSUs |
| Shares | | Weighted Average Grant Date Fair Value | | Units | | Weighted Average Grant Date Fair Value | | Units | | Weighted Average Grant Date Fair Value |
| | | | | | | | | | | |
Nonvested at December 31, 2021 | 517,569 | | | $ | 4.74 | | | 1,014,166 | | | $ | 3.73 | | | — | | | $ | — | |
Granted | 296,000 | | | $ | 3.62 | | | 709,804 | | | $ | 3.73 | | | — | | | $ | — | |
Vested | (309,567) | | | $ | 4.57 | | | (646,668) | | | $ | 2.65 | | | — | | | $ | — | |
Forfeited | (98,001) | | | $ | 4.87 | | | (235,000) | | | $ | 4.21 | | | — | | | $ | — | |
Nonvested at December 31, 2022 | 406,001 | | | $ | 4.02 | | | 842,302 | | | $ | 4.42 | | | — | | | $ | — | |
Granted | — | | | $ | — | | | 1,116,875 | | | $ | 4.34 | | | 1,981,464 | | | $ | 4.61 | |
Vested | (178,169) | | | $ | 4.10 | | | (327,684) | | | $ | 4.62 | | | — | | | $ | — | |
Forfeited | (34,167) | | | $ | 4.38 | | | (223,002) | | | $ | 4.38 | | | — | | | $ | — | |
Nonvested at December 31, 2023 | 193,665 | | | $ | 3.87 | | | 1,408,491 | | | $ | 4.31 | | | 1,981,464 | | | $ | 4.61 | |
Unrecognized stock-based compensation expense at December 31, 2023 (in thousands) | $ | 392 | | | | | $ | 4,095 | | | | | $ | — | | | |
Weighted average remaining vesting period at December 31, 2023 | 1.1 years | | | | 2.0 years | | | | zero years | | |
RSUs granted in 2023 are time-based and unvested.will vest in full after one to three years. The aggregate fair value of RSAs vested during the years ended December 31, 2023 and 2022 was $731,000 and $1.4 million, respectively. The aggregate fair value of RSUs vested during the years ended December 31, 2023 and2022 was $1.5 million and $1.7 million, respectively. During the year ended December 31, 2017, all2023, RSAs and RSUs totaling 505,853 shares were vested and 142,759 shares of common stock options with performance-basedwere withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares on the vesting conditions expired unvested. As of December 31, 2017, there was no unrecognized expense for awards with performance-based vesting conditions.date.
During the year ended December 31, 2016, the CompanyCertain RSUs granted stock optionsin September 2019 with market-based vesting conditions with a weighted-average exercise price of $5.75 per share. The options with market-based vesting conditionsthat vest based upon the Company achieving specified stock price targets over a four-yearthree-year period. UnderThe effect of a market condition is reflected in the termsestimate of the awards,grant-date fair value of the numberoptions utilizing a Monte Carlo valuation technique. Compensation expense is recognized with a market-based vesting condition provided that the requisite service is rendered, regardless of stock optionswhen, if ever, the market condition is satisfied. Assumptions utilized in connection with the Monte Carlo valuation technique, that will actually vest isresulted in a fair value of $1.42 per unit, included: risk-free interest rate of 1.38 percent, term of 3.00 years, expected volatility of 38 percent and expected dividend yield of 0 percent. The risk-free interest rate was determined based on the extent to which the Company achieves the specified market conditions during the four-year performance period.yields available on U.S. Treasury zero-coupon issues. The expected stock options vest in equal installments of 25% upon the Company’s achievement of 30-day average share prices ranging from $7.00 to $10.00. As of December 31, 2017, 1,687,500 options with market-based vesting conditions remain unvested. As of December 31, 2017, thereprice volatility was no unrecognized expense for options with market-based vesting conditions.
determined using historical volatility. The following table summarizes stock option activity for the Plans forexpected dividend yield was based on expectations regarding dividend payments. During the year ended December 31, 2017:
|
| | | | | | | | | | | | | |
| | | | Weighted-Average | | |
| | Options | | Exercise Price | | Remaining Contractual Term | | Aggregate Intrinsic Value |
Outstanding at December 31, 2016 | | 5,596,000 |
| | $ | 4.93 |
| | | | |
Granted | | 1,368,000 |
| | $ | 5.52 |
| | | | |
Exercised | | (208,000 | ) | | $ | 3.57 |
| | | | |
Expired/forfeited | | (926,000 | ) | | $ | 4.90 |
| | | | |
Outstanding at December 31, 2017 | | 5,830,000 |
| | $ | 5.13 |
| | 5.8 years | | $ | 856,000 |
|
Vested | | 1,959,000 |
| | $ | 4.84 |
| | 5.8 years | | $ | 434,000 |
|
Exercisable at December 31, 2017 | | 1,959,000 |
| | $ | 4.84 |
| | 5.8 years | | $ | 434,000 |
|
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2021, 450,000 RSUs were forfeited, leaving 450,000 units with market-based vesting conditions outstanding and unvested at prior period end. The aggregate intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $296,000, $344,000, and $751,000, respectively. The aggregate intrinsic value of optionsremaining units fully vested during the year ended December 31, 2017 was $351,000. The aggregate fair value of options granted during the year ended December 31, 2017 was $2,930,000. The aggregate fair value of options vested during the year ended December 31, 2017 and 2016 was $2,009,000 and $2,342,000, respectively. No options were granted or vested during the year ended December 31, 2015. As of December 31, 2017, the total unrecognized compensationon September 3, 2022. Compensation expense related to nonvested stock option awards was $3,654,000, which is expected to be recognized over a weighted-average term of approximately 2 years.
The following table summarizes nonvested restricted share activityfor RSUs with market-based vesting conditions for the year ended December 31, 2017:
|
| | | | | | | |
| | Nonvested Restricted Shares | | Weighted Average Grant Date Fair Value |
Nonvested restricted stock at December 31, 2016 | | 333,000 |
| | $ | 8.9 |
|
Granted | | — |
| | $ | — |
|
Vested | | (120,000 | ) | | $ | 12.95 |
|
Canceled | | (90,000 | ) | | $ | 9.10 |
|
Nonvested restricted stock at December 31, 2017 | | 123,000 |
| | $ | 4.77 |
|
The weighted-average grant date fair value of nonvested restricted stock granted during the years ended December 31, 20162023 and 20152022, was $3.12zero and $12.83,$143,000, respectively. The aggregate fair
PSUs granted in 2023 can be earned based upon the level of achievement of the Company's compound annual growth rate of its adjusted book value of restricted stock that vested during the years ended per share, measured over a three-year performance period beginning on January 1, 2023 and ending on December 31, 2017, 20162025. The number of PSUs granted in 2023 that can be earned ranges from 0% to 200% of the target number of PSUs granted (up to a maximum of 750,000 shares per recipient of Acacia's common stock). Such number of PSUs that are ultimately earned and 2015 was $1,560,000, $5,243,000 and $11,494,000, respectively. Aseligible to vest will generally become vested on the third anniversary of December 31, 2017, the total unrecognized compensationgrant date subject to continued employment through such date. The Company has not recorded any expense related to nonvested restricted stockthe PSUs based on the probability assessment performed as of December 31, 2023.
Compensation expense for share-based awards recognized in general and administrative expenses was $53,000,comprised of the following:
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | | | 2023 | | 2022 |
| | | | | (In thousands) |
Options | | | | | $ | 401 | | | $ | 488 | |
RSAs | | | | | 618 | | | 1,360 | |
RSUs | | | | | 2,278 | | | 1,972 | |
Total compensation expense for share-based awards | | | | | $ | 3,297 | | | $ | 3,820 | |
Total unrecognized stock-based compensation expense as of December 31, 2023 was $5.3 million, which is expected towill be recognizedamortized over a weighted-averageweighted average remaining vesting period of approximately 2 months.1.9 years.
The following table summarizes restricted stock unit activity for the year ended December 31, 2017:
|
| | | | | | | |
| | Restricted Stock Units | | Weighted Average Grant Date Fair Value |
Nonvested restricted stock units outstanding at December 31, 2016 | | 14,000 |
| | $ | 16.27 |
|
Vested | | (12,000 | ) | | $ | 16.18 |
|
Nonvested restricted stock units outstanding at December 31, 2017 | | 2,000 |
| | $ | 16.72 |
|
Vested restricted stock units outstanding at December 31, 2017 | | 60,000 |
| | $ | 15.38 |
|
The weighted-average grant date fair value of restricted stock units granted during the year ended December 31, 2015 was $16.72. There were no restricted units granted during the years ended December 31, 2017 and 2016. The aggregate fair value of restricted stock units that vested during the years ended December 31, 2017, 2016 and 2015 was $200,000, $324,000 and $480,000, respectively. As of December 31, 2017, the total unrecognized compensation expense related to restricted stock unit awards was $1,000, which is expected to be recognized over a weighted-average period of approximately 1 month.
Profits Interest Plan
On February 16, 2017, AIP Operation LLC, a Delaware limited liability company (“AIP”),Guarantees and an indirect subsidiary of Acacia, adopted a Profits Interest Plan (the “Plan”) that provides for the grant of membership interests in AIP to certain members of management and the Board of Directors of Acacia as compensation for services rendered for or on behalf of AIP. Each profits interest unit granted pursuant to the Plan is intended to qualify as a “profits interest” for U.S. federal income tax purposes and will only have value to the extent the fair value of AIP increases beyond the fair value at the issuance date of the membership interests. The membership interests are represented by units (the “Units”) reserved for the issuance of awards under the Plan. The Units entitle the holders to share in or be allocated certain AIP profits and losses and to receive or share in AIP distributions pursuant to the AIP Limited Liability Company Operating Agreement entered into as of February 16, 2017 (the “LLC Agreement”). In connection with the adoption of the Plan, a form of Profits Interest Agreement was approved pursuant to which Units may be granted from time to time. Units vest upon AIP’s achievement of certain performance milestones (one-third upon 150% appreciation, and the remaining two-thirds upon 300% appreciation in value of Acacia’s aggregate investment in Veritone), subject to the continued service of the recipient, and are subject to the terms and conditions of the Plan, the Profits Interest Agreement and the LLC Agreement. The Units were fully vested as of December 31, 2017.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Indemnifications
Acacia owns 60% of the membership interests in AIP and at all times will control AIP. Acacia from time to time may contribute to AIP certain assets or securities related to portfolio companies in which Acacia holds an interest. Units may be awarded as one-time, discretionary grants to recipients. As of December 31, 2017, AIP holds the Veritone 10% Warrant described at Note 7.
Profits interests totaling 400 Units, or 40% of the membership interests in AIP, were granted in February 2017, with an aggregate grant date fair value of $722,000. The fair value of the Units totaled $3,041,000 as of December 31, 2017. Upon full vesting of the units in September 2017, all previously unrecognized compensation expense was immediately recognized.
The fair value of the Units is estimated utilizing a Geometric Brownian Motion model (“GBM”) which considers probable vesting dates and values for the applicable instruments (i.e. common stock and warrants related to Acacia’s Veritone investment described at Note 7) underlying or associated with the Units. At the estimated end of the term of the underlying warrant (May 2022), the model estimates the total proceeds from the hypothetical exercise of the warrant and estimates the value of the Units by allocating the proceeds based on the waterfall described in the terms of the underlying agreement. The value of the Units on a marketable basis is the average allocation across all GBM simulation paths discounted to the applicable valuation date using the risk-free rate. This estimated value is adjusted for an estimate of a DLOM using the Finnerty model, based on a security specific volatility calculated by changing Veritone’s common stock price by 1% and measuring the corresponding change in the value of the Units. For the year ended December 31, 2017, assumptions utilized in the GBM included a term of 4.4 years, stock price of $23.20, volatility of 50%, and risk free interest rates ranging from 1.76% to 2.40% for terms ranging from one to 10 years. The estimated DLOM utilized was 30%, based on assumptions including a term of approximately 4.4 years and a volatility of 85% for Veritone’s common stock. Volatility was estimated based on the historical volatilities of a set of comparable public companies, adjusted for leverage, over a term matching the term of the underlying warrant asset, which was approximately 4.4 years.
Compensation expense for the periods presented was comprised of the following:
|
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
Restricted stock awards with time-based service conditions | | $ | 1,025 |
| | $ | 4,071 |
| | $ | 10,575 |
|
Restricted stock unit awards with time-based service conditions | | 161 |
| | 320 |
| | 473 |
|
Restricted stock awards with performance-based vesting conditions | | 121 |
| | 197 |
| | — |
|
Stock options with time-based service vesting conditions | | 2,165 |
| | 1,316 |
| | — |
|
Stock options with market-based vesting conditions | | 2,372 |
| | 3,158 |
| | — |
|
Stock options with performance-based vesting conditions | | — |
| | — |
| | — |
|
Profits interests units | | 3,041 |
| | — |
| | — |
|
Total compensation expense | | $ | 8,885 |
| | $ | 9,062 |
| | $ | 11,048 |
|
11. COMMITMENTS AND CONTINGENCIES
Operating Leases
Acacia leases certain office space under various operating lease agreements expiring at various dates from 2019 through 2020. Minimum annual rental commitments for operating leases of continuing operations having initial or remaining noncancellable lease terms in excess of one year are as follows (in thousands):
|
| | | |
Years ending December 31, | |
2018 | $ | 1,213 |
|
2019 | 1,369 |
|
2020 | 16 |
|
Total minimum lease payments | $ | 2,598 |
|
Rent expense for the years ended December 31, 2017, 2016 and 2015 approximated $1,392,000, $1,795,000 and $1,926,000, respectively. Rental payments are expensed in the statements of operations in the period to which they relate. Scheduled rent increases are amortized on a straight-line basis over the lease term.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventor Royalties and Contingent Legal Expenses
In connection with the investment in certain patents and patent rights, certain of Acacia’s operating subsidiaries executed related agreementshave made guarantees and indemnities under which grant to the former owners of the respective patents or patent rights, the right to receive inventor royalties based on future net revenues (as defined in the respective agreements) generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios.
Acacia’s operating subsidiaries may retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with their licensing and enforcement activities. These law firmsthey may be retained onrequired to make payments to a contingent fee basis whereby such law firms are paid on a scaled percentage of any negotiated fees, settlementsguaranteed or judgments awarded based on how and when the fees, settlements or judgments are obtained.
Patent Enforcement and Other Litigation
Acacia is subjectindemnified party, in relation to claims, counterclaims and legal actions that arisecertain transactions, including revenue transactions in the ordinary course of business. Management believesIn connection with certain facility leases, Acacia and certain of its operating subsidiaries have indemnified lessors for certain claims arising from the facilities or the leases. Acacia indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, Acacia has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the ultimateguarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations. The majority of guarantees and indemnities do not provide any limitations of the maximum potential future payments that Acacia could be obligated to make. To date, Acacia has made no material payments related to these guarantees and indemnities. Acacia estimates the fair value of its indemnification obligations to be immaterial based on this history and therefore, have not recorded any material liability for these guarantees and indemnities in the consolidated balance sheets. Additionally, no events or transactions have occurred that would result in a material liability as of December 31, 2023.
Printronix posted collateral in the form of a surety bond or other similar instruments, which are issued by independent insurance carriers (the “Surety”), to cover the risk of loss related to certain customs and employment activities. If any of the entities that hold such bonds should require payment from the Surety, Printronix would be obligated to indemnify and reimburse the Surety for all costs incurred. As of December 31, 2023 and December 31, 2022, Printronix had approximately $100,000 of these bonds outstanding.
Environmental Cleanup
Energy Operations
Benchmark is engaged in oil and natural gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to oil and natural gas wells and the operation thereof. In connection with Benchmark's acquisition of existing or previously drilled well bores, Benchmark may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to these claimsany environmental cleanup
or restoration, Benchmark would be responsible for curing such a violation. No claim has been made, nor is management aware of any liability that exists, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations relating thereto for the year ended December 31, 2023.
14. STOCKHOLDERS’ EQUITY
Repurchases of Common Stock
On December 6, 2021, the Board approved a stock repurchase program, which authorized the purchase of up to $15.0 million of the Company’s common stock through open market purchases, through block trades, through 10b5-1 plans, or by means of private purchases, from time to time, through December 6, 2022. During February 2022, we completed the December 2021 program with total common stock purchases of 3,125,819 shares for the aggregate amount of $15.0 million.
On March 31, 2022, the Board approved a stock repurchase program for up to $40.0 million of shares of common stock. The repurchase authorization had no time limit and legal actions, ifdid not require the repurchase of a minimum number of shares. The common stock may be repurchased on the open market, in block trades, or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Exchange Act. During July 2022, we completed the March 2022 program with total common stock purchases of 8,453,519 shares for the aggregate amount of $40.0 million.
On November 9, 2023, the Board approved a stock repurchase program for up to $20.0 million, subject to a cap of 5,800,000 shares of common stock. The repurchase authorization has no time limit and does not require the repurchase of a minimum number of shares. The common stock may be repurchased on the open market, in block trades, or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Exchange Act. There have been no stock repurchases under the above mentioned repurchase program for the year ended December 31, 2023.
In determining whether or not to repurchase any will not have a material effectshares of Acacia’s common stock, the Board considers such factors, among others, as the impact of the repurchase on Acacia’s consolidatedcash position, as well as Acacia’s capital needs and whether there is a better alternative use of Acacia’s capital. Acacia has no obligation to repurchase any amount of its common stock under its stock repurchase programs. The authorization to repurchase shares provides an opportunity to reduce the outstanding share count and enhance stockholder value.
Tax Benefits Preservation Charter Provision
The Company has a provision in its Amended and Restated Certificate of Incorporation, as amended (the “Charter Provision”) which generally prohibits transfers of its common stock that could result in an ownership change. The purpose of the Charter Provision is to protect the Company’s ability to utilize potential tax assets, such as net operating loss carryforwards and tax credits to offset potential future taxable income.
15. EQUITY-BASED INCENTIVE PLANS
Stock-Based Incentive Plans
The 2013 Acacia Research Corporation Stock Incentive Plan (“2013 Plan”) and the 2016 Acacia Research Corporation Stock Incentive Plan (“2016 Plan”) (collectively, the “Plans”) were approved by the stockholders of Acacia in May 2013 and June 2016, respectively. The Plans allow grants of stock options, stock awards and restricted stock units with respect to Acacia common stock to eligible individuals, which generally includes directors, officers, employees and consultants. The 2013 Plan expired in May 2023, therefore, Acacia exclusively grants awards under the 2016 Plan. Except as noted below, the terms and provisions of the Plans are identical in all material respects.
Acacia’s compensation committee administers the Plans. The compensation committee determines which eligible individuals are to receive option grants, stock issuances or restricted stock units under the Plans, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant, stock issuance or restricted stock units and the maximum term for which any granted option is to remain outstanding. The exercise price of options is equal to the fair market value of Acacia’s common stock on the date of
grant. Options generally begin to be exercisable one year after grant and expire ten years after grant. Stock options with time-based vesting generally vest over three years and restricted shares and restricted stock units with time-based vesting generally vest in full after one to three years (generally representing the requisite service period). The Plans terminate no later than the tenth anniversary of the approval of the incentive plans by Acacia’s stockholders.
The Plans provide for the following separate programs:
Stock Issuance Program. Under the stock issuance program, eligible individuals may be issued shares of common stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past services. Under this program, the purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance, and payment may be in the form of cash or past services rendered. The eligible individuals receiving RSAs under the 2016 Plan shall have full stockholder rights with respect to any shares of common stock issued to them under the Stock Issuance Program once those shares are vested, and under the 2013 Plan, had full stockholder rights with respect to any shares of common stock issued to them under the Stock Issuance Program, whether or not their interest in those shares was vested. Accordingly, once full stockholder rights are obtained, the eligible individuals shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.
Discretionary Option Grant Program. Under the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory options to purchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries (including employees, non-employee board members and consultants) at an exercise price not less than 100% of the fair market value of those shares on the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees at an exercise price not less than 100% of the fair market value of those shares on the grant date (not less than 110% of fair market value if such employee actually or constructively owns more than 10% of Acacia’s voting stock or the voting stock of any of its subsidiaries).
Discretionary Restricted Stock Unit Grant Program. Under the discretionary restricted stock unit program, Acacia's compensation committee may grant restricted stock units to eligible individuals, which vest upon the attainment of performance milestones or the completion of a specified period of service. During June 2023, Acacia's compensation committee adopted a long-term incentive program to incentivize and reward employees, including members of the Company's executive leadership team, for driving Acacia's performance over the longer-term and to align employees and shareholders. Under the long-term incentive program, Acacia's compensation committee granted RSUs subject to time-based vesting requirements and PSUs subject to performance-based vesting requirements to employees of the parent company, including the Company's Chief Executive Officer, interim Chief Financial Officer, Chief Administrative Officer and General Counsel. The grants are generally intended to cover two years of annual grants (fiscal years 2023 and 2024).
The number of shares of common stock initially reserved for issuance under the 2013 Plan was 4,750,000 shares. The 2013 Plan has expired, and while awards remain outstanding under the 2013 Plan, no new awards may be granted under the 2013 Plan. The stock issued, or issuable pursuant to still-outstanding awards, under the 2013 Plan shall be shares of authorized but unissued or reacquired common stock, including shares repurchased by the Company on the open market. In June 2016, 625,390 shares of common stock available for issuance under the 2013 Plan were transferred into the 2016 Plan.
The number of shares of common stock initially reserved for issuance under the 2016 Plan was 4,500,000 shares plus 625,390 shares of common stock available for issuance under the 2013 Plan, which were transferred into the 2016 Plan as of the effective date of the 2016 Plan. In May 2022, security holders approved an increase of 5,500,000 shares of common stock authorized to be issued pursuant to the 2016 Plan. At December 31, 2023, there were 1,355,726 shares available for grant under the 2016 Plan.
Upon the exercise of stock options, the granting of RSAs, or the delivery of shares pursuant to vested RSUs, it is Acacia’s policy to issue new shares of common stock. The Board may amend or modify the 2016 Plan at any time, subject to any required stockholder approval. As of December 31, 2023, there are 5,853,868 shares of common stock reserved for issuance under the 2016 Plan.
The following table summarizes stock option activity for the Plans:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Weighted Average Remaining Contractual Life |
| | | | | (In thousands) | | |
Outstanding at December 31, 2021 | 555,417 | | | $ | 5.61 | | | $ | 71 | | | 7.3 years |
Granted | 1,155,000 | | | $ | 3.61 | | | $ | — | | | |
Exercised | — | | | $ | — | | | $ | — | | | |
Forfeited/Expired | (400,000) | | | $ | 4.17 | | | $ | 148 | | | |
Outstanding at December 31, 2022 | 1,310,417 | | | $ | 4.29 | | | $ | 535 | | | 8.0 years |
Granted | 243,319 | | | $ | 4.27 | | | $ | — | | | |
Exercised | (67,500) | | | $ | 3.48 | | | $ | 57 | | | |
Forfeited/Expired | (378,049) | | | $ | 4.76 | | | $ | 72 | | | |
Outstanding at December 31, 2023 | 1,108,187 | | | $ | 4.18 | | | $ | 187 | | | 7.9 years |
Exercisable at December 31, 2023 | 309,999 | | | $ | 4.67 | | | $ | 51 | | | 6.4 years |
Vested and expected to vest at December 31, 2023 | 1,108,187 | | | $ | 4.18 | | | $ | 187 | | | 7.9 years |
Unrecognized stock-based compensation expense at December 31, 2023 (in thousands) | $ | 771 | | | | | | | |
Weighted average remaining vesting period at December 31, 2023 | 1.9 years | | | | | | |
Stock options granted in 2023 are time-based and will vest in full after three years. During the year ended December 31, 2023, the Company granted 243,319 stock options at a weighted average grant-date fair value of $2.10 per share using the Black-Scholes option-pricing model. The fair value was estimated based on the following weighted average assumptions: volatility of 46 percent, risk-free interest rate of 3.67 percent, term of 6.00 years and a dividend yield of 0 percent as the Company does not pay common stock dividends. The volatility of the Company’s common stock is estimated by analyzing the Company’s historical volatility, implied volatility of publicly traded stock options, and the Company’s current asset composition and financial position, resultsleverage (refer to Note 11 "Embedded derivative liabilities" for additional information). The risk-free rate is based on the term assumption and U.S. Treasury constant maturities as published by the Federal Reserve. The Company currently uses the "simplified" method for determining the term, due to the limited option grant history, which assumes that the exercise date of operations or cash flows. Fiscalan option would be halfway between its vesting date and the expiration date. The aggregate fair value of options vested during the years ended December 31, 2023 and 2022 was $309,000 and $235,000, respectively.
The following table summarizes nonvested restricted stock activity for the Plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| RSAs | | RSUs | | PSUs |
| Shares | | Weighted Average Grant Date Fair Value | | Units | | Weighted Average Grant Date Fair Value | | Units | | Weighted Average Grant Date Fair Value |
| | | | | | | | | | | |
Nonvested at December 31, 2021 | 517,569 | | | $ | 4.74 | | | 1,014,166 | | | $ | 3.73 | | | — | | | $ | — | |
Granted | 296,000 | | | $ | 3.62 | | | 709,804 | | | $ | 3.73 | | | — | | | $ | — | |
Vested | (309,567) | | | $ | 4.57 | | | (646,668) | | | $ | 2.65 | | | — | | | $ | — | |
Forfeited | (98,001) | | | $ | 4.87 | | | (235,000) | | | $ | 4.21 | | | — | | | $ | — | |
Nonvested at December 31, 2022 | 406,001 | | | $ | 4.02 | | | 842,302 | | | $ | 4.42 | | | — | | | $ | — | |
Granted | — | | | $ | — | | | 1,116,875 | | | $ | 4.34 | | | 1,981,464 | | | $ | 4.61 | |
Vested | (178,169) | | | $ | 4.10 | | | (327,684) | | | $ | 4.62 | | | — | | | $ | — | |
Forfeited | (34,167) | | | $ | 4.38 | | | (223,002) | | | $ | 4.38 | | | — | | | $ | — | |
Nonvested at December 31, 2023 | 193,665 | | | $ | 3.87 | | | 1,408,491 | | | $ | 4.31 | | | 1,981,464 | | | $ | 4.61 | |
Unrecognized stock-based compensation expense at December 31, 2023 (in thousands) | $ | 392 | | | | | $ | 4,095 | | | | | $ | — | | | |
Weighted average remaining vesting period at December 31, 2023 | 1.1 years | | | | 2.0 years | | | | zero years | | |
RSUs granted in 2023 are time-based and will vest in full after one to three years. The aggregate fair value of RSAs vested during the years ended December 31, 2023 and 2022 was $731,000 and $1.4 million, respectively. The aggregate fair value of RSUs vested during the years ended December 31, 2023 and2022 was $1.5 million and $1.7 million, respectively. During the year 2017 includes estimated contingency accrualsended December 31, 2023, RSAs and RSUs totaling $1,200,000.505,853 shares were vested and 142,759 shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares on the vesting date.
Certain RSUs granted in September 2019 with market-based vesting conditions that vest based upon the Company achieving specified stock price targets over a three-year period. The estimated rangeeffect of potential expensesa market condition is reflected in the estimate of the grant-date fair value of the options utilizing a Monte Carlo valuation technique. Compensation expense is recognized with a market-based vesting condition provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. Assumptions utilized in connection with the Monte Carlo valuation technique, that resulted in a fair value of $1.42 per unit, included: risk-free interest rate of 1.38 percent, term of 3.00 years, expected volatility of 38 percent and expected dividend yield of 0 percent. The risk-free interest rate was determined based on the yields available on U.S. Treasury zero-coupon issues. The expected stock price volatility was determined using historical volatility. The expected dividend yield was based on expectations regarding dividend payments. During the year ended December 31, 2021, 450,000 RSUs were forfeited, leaving 450,000 units with market-based vesting conditions outstanding and unvested at prior period end. The remaining units fully vested on September 3, 2022. Compensation expense for RSUs with market-based vesting conditions for the years ended December 31, 2023 and 2022, was zero and $143,000, respectively.
PSUs granted in 2023 can be earned based upon the level of achievement of the Company's compound annual growth rate of its adjusted book value per share, measured over a three-year performance period beginning on January 1, 2023 and ending on December 31, 2025. The number of PSUs granted in 2023 that can be earned ranges from 0% to 200% of the target number of PSUs granted (up to a maximum of 750,000 shares per recipient of Acacia's common stock). Such number of PSUs that are ultimately earned and eligible to vest will generally become vested on the third anniversary of the grant date subject to continued employment through such date. The Company has not recorded any expense related to these matters is $1,200,000 to $3,000,000. Fiscal year 2016the PSUs based on the probability assessment performed as of December 31, 2023.
Compensation expense for share-based awards recognized in general and 2015 operatingadministrative expenses included expenses for court ordered attorney fees and settlement and contingency accruals totaling $500,000 and $4,141,000, respectively.was comprised of the following:
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | | | 2023 | | 2022 |
| | | | | (In thousands) |
Options | | | | | $ | 401 | | | $ | 488 | |
RSAs | | | | | 618 | | | 1,360 | |
RSUs | | | | | 2,278 | | | 1,972 | |
Total compensation expense for share-based awards | | | | | $ | 3,297 | | | $ | 3,820 | |
Total unrecognized stock-based compensation expense as of December 31, 2023 was $5.3 million, which will be amortized over a weighted average remaining vesting period of 1.9 years.
Guarantees and Indemnifications
CertainAcacia and certain of Acacia’s operating subsidiaries have made guarantees and indemnities under which they may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. In connection with certain facility leases, Acacia and certain of its operating subsidiaries have indemnified lessors for certain claims arising from the facilities or the leases. Acacia indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, Acacia has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations. The majority of guarantees and indemnities do not provide any limitations of the maximum potential future payments that Acacia could be obligated to make. To date, Acacia has made no material payments related to these guarantees and indemnities. Acacia estimates the fair value of its indemnification obligations to be insignificantimmaterial based on this history and therefore, have not recorded any material liability for these guarantees and indemnities in the accompanying consolidated balance sheets. Additionally, no events or transactions have occurred that would result in a material liability at December 31, 2017.
Bank Guarantee
In March 2015, an operating subsidiary of Acacia entered into a standby letter of credit and guarantee arrangement (“Guarantee”) with a bank for purposes of enforcing a court ruling in a German patent court granting an injunction against the defendants in the related patent infringement case. The Guarantee was secured by a cash deposit at the contracting bank, which was classified as restricted cash in the accompanying December 31, 2016 consolidated balance sheets, totaling $11,512,000. Upon resolution of all related matters in June 2017, the Guarantee was extinguished resulting in release of the cash collateral (and related restrictions on the cash balance) by the contracting bank. As a result, currently no amounts of Acacia’s cash and investments are restricted as to use.
Other
In August 2010, a wholly owned subsidiary of Acacia became the general partner of the Acacia IP Fund, which was formed in August 2010. The Acacia IP Fund invests in, licenses and enforces intellectual property consisting primarily of patents, patent rights, and patented technologies. The Acacia IP Fund was terminated as of December 31, 2017. At 2023.
Printronix posted collateral in the form of a surety bond or other similar instruments, which are issued by independent insurance carriers (the “Surety”), to cover the risk of loss related to certain customs and employment activities. If any of the entities that hold such bonds should require payment from the Surety, Printronix would be obligated to indemnify and reimburse the Surety for all costs incurred. As of December 31, 20172023 and 2016, the Acacia IP Fund net assetsDecember 31, 2022, Printronix had approximately $100,000 of these bonds outstanding.
Environmental Cleanup
Energy Operations
Benchmark is engaged in oil and net income (loss) were primarily comprised of the following (in thousands):
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | |
| | 2017 | | 2016 |
Cash and other assets | | $ | 986 |
| | $ | 1,118 |
|
Investments - noncurrent | | 1,905 |
| | 2,933 |
|
Total assets | | $ | 2,891 |
| | $ | 4,051 |
|
| | | | |
Accrued expenses and contributions | | $ | 2,567 |
| | $ | 2,394 |
|
Net assets | | $ | 324 |
| | $ | 1,657 |
|
|
| | | | | | | | |
| | 2017 | | 2016 |
Revenues | | $ | — |
| | $ | 16 |
|
Operating expenses | | 390 |
| | 572 |
|
Loss from operations | | (390 | ) | | (556 | ) |
Net loss in equity method investments | | (943 | ) | | (1,013 | ) |
Net loss | | $ | (1,333 | ) | | $ | (1,569 | ) |
12. RETIREMENT SAVINGS PLAN AND EXECUTIVE SEVERANCE POLICY
Retirement Savings Plan. Acacia has an employee savingsnatural gas exploration and retirement plan under section 401(k) of the Code (the “Plan”). The Plan is a defined contribution plan in which eligible employeesproduction and may elect to have a percentage of their compensation contributed to the Plan,become subject to certain guidelines issued by the Internal Revenue Service. Acacialiabilities as they relate to environmental cleanup of well production and may contributebecome subject to the Plan at the discretioncertain liabilities as they relate to environmental cleanup of the board of directors. There were no contributions made by Acacia during the periods presented.
Executive Severance Policy. Under Acacia’s Amended Executive Severance Policy, full-time employees as of July 2017 and prior with the title of Senior Vice President and higher (“SVP and higher”) are entitled to receive certain benefits upon termination of employment. If employment of an SVP and higher employee is terminated for other than causewell sites or other than on account of death or disability, Acacia will (i) promptly payenvironmental restoration procedures as they relate to oil and natural gas wells and the SVP and higher employee a lump sum amount equal to the aggregate of (a) accrued obligations (i.e., annual base salary through the date of termination to the extent not theretofore paid and any compensation previously deferred (together with any accrued interest or earnings thereon) and any accrued vacation pay, and reimbursable expenses, in each case to the extent not theretofore paid) and (b) three (3) months of base salary for each full year that the SVP and higher employee was employed by the Company (the “Severance Period”), up to a maximum of twelve (12) months (eighteen (18) months for executive officers of Acacia Research Corporation) of base salary, and (ii) provide to the SVP and higher employee, Acacia paid COBRA coverage for the medical and dental benefits selected in the year in which the termination occurs, for the duration of the Severance Period.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for state income taxes totaled $181,000, $223,000 and $211,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Foreign taxes withheld totaled $2,865,000, $14,776,000 and $4,421,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Refer to Note 4 for accrued foreign taxes payable.
Refer to Note 5 for information regarding noncash investing activity related to the investment in patent portfolios for the periods presented. Refer to Note 7 for information regarding noncash investing activity related to the investment in Veritone for the periods presented.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. QUARTERLY FINANCIAL DATA (unaudited)
The following table sets forth unaudited consolidated statements of operations data for the eight quarters in the period ended December 31, 2017. This information has been derived from Acacia’s unaudited condensed consolidated financial statements that have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the information when read in conjunction with the audited consolidated financial statements and related notes thereto. Acacia’s quarterly results have been, and may in the future be, subject to significant fluctuations. As a result, Acacia believes that results of operations for interim periods should not be relied upon as any indication of the results to be expected in any future periods.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended |
| | Mar. 31, | | Jun. 30, | | Sept. 30, | | Dec. 31, | | Mar. 31, | | Jun. 30, | | Sept. 30, | | Dec. 31, |
| | 2017 | | 2017 | | 2017 | | 2017 | | 2016 | | 2016 | | 2016 | | 2016 |
| | (Unaudited, in thousands, except share and per share information) |
Revenues | | $ | 8,854 |
| | $ | 16,457 |
| | $ | 36,633 |
| | $ | 3,458 |
| | $ | 24,721 |
| | $ | 41,351 |
| | $ | 64,658 |
| | $ | 21,969 |
|
Operating costs and expenses: | | |
| | |
| | | | | | |
| | |
| | |
| | |
Cost of revenues: | | |
| | |
| | | | | | |
| | |
| | |
| | |
Inventor royalties | | 666 |
| | 4,273 |
| | — |
| | 13 |
| | 1,573 |
| | — |
| | 17,844 |
| | 3,313 |
|
Contingent legal fees | | 627 |
| | 3,236 |
| | 12,173 |
| | 646 |
| | 4,109 |
| | 10,418 |
| | 7,709 |
| | 4,238 |
|
Litigation and licensing expenses - patents | | 6,386 |
| | 4,134 |
| | 4,073 |
| | 3,626 |
| | 7,723 |
| | 7,324 |
| | 7,348 |
| | 5,463 |
|
Amortization of patents | | 5,515 |
| | 5,571 |
| | 5,625 |
| | 5,443 |
| | 10,760 |
| | 10,759 |
| | 6,467 |
| | 6,222 |
|
General and administrative expenses (including non-cash stock compensation expense) | | 6,916 |
| | 6,734 |
| | 12,715 |
| | (335 | ) | | 7,994 |
| | 7,535 |
| | 8,334 |
| | 9,056 |
|
Other expenses - business development | | 320 |
| | 433 |
| | 241 |
| | 195 |
| | 522 |
| | 1,334 |
| | 666 |
| | 557 |
|
Impairment of patent-related intangible assets | | — |
| | — |
| | 2,248 |
| | — |
| | — |
| | 40,165 |
| | — |
| | 2,175 |
|
Other | | — |
| | — |
| | — |
| | 1,200 |
| | 1,742 |
| | (1,242 | ) | | — |
| | — |
|
Total operating costs and expenses | | 20,430 |
| | 24,381 |
| | 37,075 |
| | 10,788 |
| | 34,423 |
| | 76,293 |
| | 48,368 |
| | 31,024 |
|
Operating income (loss) | | (11,576 | ) | | (7,924 | ) | | (442 | ) | | (7,330 | ) | | (9,702 | ) | | (34,942 | ) | | 16,290 |
| | (9,055 | ) |
Total other income (expense) | | 696 |
| | (4,862 | ) | | 159,027 |
| | (102,950 | ) | | (3 | ) | | (52 | ) | | 261 |
| | 592 |
|
Income (loss) before (provision for) benefit from income taxes | | (10,880 | ) | | (12,786 | ) | | 158,585 |
| | (110,280 | ) | | (9,705 | ) | | (34,994 | ) | | 16,551 |
| | (8,463 | ) |
Provision for income taxes | | (1,241 | ) | | (1,478 | ) | | (216 | ) | | (20 | ) | | (192 | ) | | (5,927 | ) | | (9,655 | ) | | (2,414 | ) |
Net income (loss) including noncontrolling interests | | (12,121 | ) | | (14,264 | ) | | 158,369 |
| | (110,300 | ) | | (9,897 | ) | | (40,921 | ) | | 6,896 |
| | (10,877 | ) |
Net (income) loss attributable to noncontrolling interests in subsidiaries | | 291 |
| | 12 |
| | 96 |
| | 97 |
| | (68 | ) | | 348 |
| | 186 |
| | 266 |
|
Net income (loss) attributable to Acacia Research Corporation | | $ | (11,830 | ) | | $ | (14,252 | ) | | $ | 158,465 |
| | $ | (110,203 | ) | | $ | (9,965 | ) | | $ | (40,573 | ) | | $ | 7,082 |
| | $ | (10,611 | ) |
Net income (loss) per common share attributable to Acacia Research Corporation: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Basic and diluted income (loss) per share | | $ | (0.24 | ) | | $ | (0.28 | ) | | $ | 3.13 |
| | $ | (2.18 | ) | | $ | (0.20 | ) | | $ | (0.81 | ) | | $ | 0.14 |
| | $ | (0.21 | ) |
Weighted-average number of shares outstanding, basic | | 50,333,056 |
| | 50,499,948 |
| | 50,554,234 |
| | 50,590,460 |
| | 49,925,550 |
| | 50,015,869 |
| | 50,124,302 |
| | 50,237,784 |
|
Weighted-average number of shares outstanding, diluted | | 50,333,056 |
| | 50,499,948 |
| | 50,599,974 |
| | 50,590,460 |
| | 49,925,550 |
| | 50,015,869 |
| | 50,618,757 |
| | 50,237,784 |
|
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SUBSEQUENT EVENTS
Investments
In January 2018, Acacia entered into a Joint Venture and Services Agreement (“Joint Venture Agreement”) with Bitzumi, Inc., a company developing macro opportunities in the cryptocurrency and blockchain industries, including a next generation decentralized exchange. Bitzumi recently filed a Regulation A Offering Statement with the Securities and Exchange Commission and a listing application with NASDAQ. Acacia made an initial $1,000,000 equity investment in Bitzumi in January 2018. Under the Joint Venture Agreement, Acacia will provide various patent-related services to Bitzumi and has the option to invest up to an additional $9,000,000 to acquire Bitzumi common stock.operation thereof. In connection with Acacia’s initial investment, Acacia receivedBenchmark's acquisition of existing or previously drilled well bores, Benchmark may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a short-term warrantliability exists with respect to purchase $4,000,000any environmental cleanup
or restoration, Benchmark would be responsible for curing such a violation. No claim has been made, nor is management aware of any liability that exists, as it relates to any environmental cleanup, restoration, or the Joint Venture Agreement, Acacia has a right to acquire up to an aggregateviolation of $10.0 million of Bitzumi common shares (inclusive of Acacia’s initial $1,000,000 equity investment and exercise of Acacia’s short-term warrant) at a price, except as paid by Acaciaany rules or regulations relating thereto for the initial investment andyear ended December 31, 2023.
14. STOCKHOLDERS’ EQUITY
Repurchases of Common Stock
On December 6, 2021, the exercise price of Acacia’s short-term warrant, of $2.50 per share. Upon meeting certain conditions set forth in the Joint Venture Agreement, Bitzumi will also issue AcaciaBoard approved a warrant for 30,000,000 shares of Bitzumi’s common stock. Acacia’s investment in Bitzumi represents its first venture in the cryptocurrency and blockchain marketplaces.
In February 2018, Acacia made an additional equity investment in Miso Robotics totaling $6,000,000, increasing its ownership interest in Miso Robotics to approximately 30%. In addition, Acacia acquired an additional board seat.
Stock Repurchase Program.
In February 2018, Acacia’s Board of Directorsstock repurchase program, which authorized the repurchasepurchase of up to $20,000,000$15.0 million of the Company’s outstanding common stock inthrough open market purchases, through block trades, through 10b5-1 plans, or by means of private purchases, from time to time, in amounts and at prices to be determined bythrough December 6, 2022. During February 2022, we completed the December 2021 program with total common stock purchases of 3,125,819 shares for the aggregate amount of $15.0 million.
On March 31, 2022, the Board approved a stock repurchase program for up to $40.0 million of Directors at its discretion (the “Stock Repurchase Program”). shares of common stock. The repurchase authorization had no time limit and did not require the repurchase of a minimum number of shares. The common stock may be repurchased on the open market, in block trades, or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Exchange Act. During July 2022, we completed the March 2022 program with total common stock purchases of 8,453,519 shares for the aggregate amount of $40.0 million.
On November 9, 2023, the Board approved a stock repurchase program for up to $20.0 million, subject to a cap of 5,800,000 shares of common stock. The repurchase authorization has no time limit and does not require the repurchase of a minimum number of shares. The common stock may be repurchased on the open market, in block trades, or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Exchange Act. There have been no stock repurchases under the above mentioned repurchase program for the year ended December 31, 2023.
In determining whether or not to repurchase any shares of Acacia’s common stock, Acacia’sthe Board of Directors will considerconsiders such factors, among others, as the impact of the repurchase on Acacia’s cash position, as well as Acacia’s capital needs and whether there is a better alternative use of Acacia’s capital. Acacia has no obligation to repurchase any amount of its common stock under its stock repurchase programs. The authorization to repurchase shares provides an opportunity to reduce the outstanding share count and enhance stockholder value.
Tax Benefits Preservation Charter Provision
The Company has a provision in its Amended and Restated Certificate of Incorporation, as amended (the “Charter Provision”) which generally prohibits transfers of its common stock that could result in an ownership change. The purpose of the Charter Provision is to protect the Company’s ability to utilize potential tax assets, such as net operating loss carryforwards and tax credits to offset potential future taxable income.
15. EQUITY-BASED INCENTIVE PLANS
Stock-Based Incentive Plans
The 2013 Acacia Research Corporation Stock Incentive Plan (“2013 Plan”) and the 2016 Acacia Research Corporation Stock Incentive Plan (“2016 Plan”) (collectively, the “Plans”) were approved by the stockholders of Acacia in May 2013 and June 2016, respectively. The Plans allow grants of stock options, stock awards and restricted stock units with respect to Acacia common stock to eligible individuals, which generally includes directors, officers, employees and consultants. The 2013 Plan expired in May 2023, therefore, Acacia exclusively grants awards under the 2016 Plan. Except as noted below, the terms and provisions of the Plans are identical in all material respects.
Acacia’s compensation committee administers the Plans. The compensation committee determines which eligible individuals are to receive option grants, stock issuances or restricted stock units under the Plans, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant, stock issuance or restricted stock units and the maximum term for which any granted option is to remain outstanding. The exercise price of options is equal to the fair market value of Acacia’s common stock on the date of
grant. Options generally begin to be exercisable one year after grant and expire ten years after grant. Stock options with time-based vesting generally vest over three years and restricted shares and restricted stock units with time-based vesting generally vest in full after one to three years (generally representing the requisite service period). The Plans terminate no later than the tenth anniversary of the approval of the incentive plans by Acacia’s stockholders.
The Plans provide for the following separate programs:
Stock Issuance Program. Under the stock issuance program, eligible individuals may be issued shares of common stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past services. Under this program, the purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance, and payment may be in the form of cash or past services rendered. The eligible individuals receiving RSAs under the 2016 Plan shall have full stockholder rights with respect to any shares of common stock issued to them under the Stock Repurchase Program.Issuance Program once those shares are vested, and under the 2013 Plan, had full stockholder rights with respect to any shares of common stock issued to them under the Stock Issuance Program, whether or not their interest in those shares was vested. Accordingly, once full stockholder rights are obtained, the eligible individuals shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.
Discretionary Option Grant Program. Under the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory options to purchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries (including employees, non-employee board members and consultants) at an exercise price not less than 100% of the fair market value of those shares on the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees at an exercise price not less than 100% of the fair market value of those shares on the grant date (not less than 110% of fair market value if such employee actually or constructively owns more than 10% of Acacia’s voting stock or the voting stock of any of its subsidiaries).
Discretionary Restricted Stock Unit Grant Program. Under the discretionary restricted stock unit program, Acacia's compensation committee may grant restricted stock units to eligible individuals, which vest upon the attainment of performance milestones or the completion of a specified period of service. During June 2023, Acacia's compensation committee adopted a long-term incentive program to incentivize and reward employees, including members of the Company's executive leadership team, for driving Acacia's performance over the longer-term and to align employees and shareholders. Under the long-term incentive program, Acacia's compensation committee granted RSUs subject to time-based vesting requirements and PSUs subject to performance-based vesting requirements to employees of the parent company, including the Company's Chief Executive Officer, interim Chief Financial Officer, Chief Administrative Officer and General Counsel. The Stock Repurchase Programgrants are generally intended to cover two years of annual grants (fiscal years 2023 and 2024).
The number of shares of common stock initially reserved for issuance under the 2013 Plan was 4,750,000 shares. The 2013 Plan has expired, and while awards remain outstanding under the 2013 Plan, no new awards may be granted under the 2013 Plan. The stock issued, or issuable pursuant to still-outstanding awards, under the 2013 Plan shall be shares of authorized but unissued or reacquired common stock, including shares repurchased by the Company on the open market. In June 2016, 625,390 shares of common stock available for issuance under the 2013 Plan were transferred into the 2016 Plan.
The number of shares of common stock initially reserved for issuance under the 2016 Plan was 4,500,000 shares plus 625,390 shares of common stock available for issuance under the 2013 Plan, which were transferred into the 2016 Plan as of the effective date of the 2016 Plan. In May 2022, security holders approved an increase of 5,500,000 shares of common stock authorized to be issued pursuant to the 2016 Plan. At December 31, 2023, there were 1,355,726 shares available for grant under the 2016 Plan.
Upon the exercise of stock options, the granting of RSAs, or the delivery of shares pursuant to vested RSUs, it is setAcacia’s policy to expire on February 28, 2019.
issue new shares of common stock. The Board may amend or modify the 2016 Plan at any time, subject to any required stockholder approval. As of December 31, 2023, there are 5,853,868 shares of common stock reserved for issuance under the 2016 Plan.
The following table summarizes stock option activity for the Plans:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Weighted Average Remaining Contractual Life |
| | | | | (In thousands) | | |
Outstanding at December 31, 2021 | 555,417 | | | $ | 5.61 | | | $ | 71 | | | 7.3 years |
Granted | 1,155,000 | | | $ | 3.61 | | | $ | — | | | |
Exercised | — | | | $ | — | | | $ | — | | | |
Forfeited/Expired | (400,000) | | | $ | 4.17 | | | $ | 148 | | | |
Outstanding at December 31, 2022 | 1,310,417 | | | $ | 4.29 | | | $ | 535 | | | 8.0 years |
Granted | 243,319 | | | $ | 4.27 | | | $ | — | | | |
Exercised | (67,500) | | | $ | 3.48 | | | $ | 57 | | | |
Forfeited/Expired | (378,049) | | | $ | 4.76 | | | $ | 72 | | | |
Outstanding at December 31, 2023 | 1,108,187 | | | $ | 4.18 | | | $ | 187 | | | 7.9 years |
Exercisable at December 31, 2023 | 309,999 | | | $ | 4.67 | | | $ | 51 | | | 6.4 years |
Vested and expected to vest at December 31, 2023 | 1,108,187 | | | $ | 4.18 | | | $ | 187 | | | 7.9 years |
Unrecognized stock-based compensation expense at December 31, 2023 (in thousands) | $ | 771 | | | | | | | |
Weighted average remaining vesting period at December 31, 2023 | 1.9 years | | | | | | |
Stock options granted in 2023 are time-based and will vest in full after three years. During the year ended December 31, 2023, the Company granted 243,319 stock options at a weighted average grant-date fair value of $2.10 per share using the Black-Scholes option-pricing model. The fair value was estimated based on the following weighted average assumptions: volatility of 46 percent, risk-free interest rate of 3.67 percent, term of 6.00 years and a dividend yield of 0 percent as the Company does not pay common stock dividends. The volatility of the Company’s common stock is estimated by analyzing the Company’s historical volatility, implied volatility of publicly traded stock options, and the Company’s current asset composition and financial leverage (refer to Note 11 "Embedded derivative liabilities" for additional information). The risk-free rate is based on the term assumption and U.S. Treasury constant maturities as published by the Federal Reserve. The Company currently uses the "simplified" method for determining the term, due to the limited option grant history, which assumes that the exercise date of an option would be halfway between its vesting date and the expiration date. The aggregate fair value of options vested during the years ended December 31, 2023 and 2022 was $309,000 and $235,000, respectively.
The following table summarizes nonvested restricted stock activity for the Plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| RSAs | | RSUs | | PSUs |
| Shares | | Weighted Average Grant Date Fair Value | | Units | | Weighted Average Grant Date Fair Value | | Units | | Weighted Average Grant Date Fair Value |
| | | | | | | | | | | |
Nonvested at December 31, 2021 | 517,569 | | | $ | 4.74 | | | 1,014,166 | | | $ | 3.73 | | | — | | | $ | — | |
Granted | 296,000 | | | $ | 3.62 | | | 709,804 | | | $ | 3.73 | | | — | | | $ | — | |
Vested | (309,567) | | | $ | 4.57 | | | (646,668) | | | $ | 2.65 | | | — | | | $ | — | |
Forfeited | (98,001) | | | $ | 4.87 | | | (235,000) | | | $ | 4.21 | | | — | | | $ | — | |
Nonvested at December 31, 2022 | 406,001 | | | $ | 4.02 | | | 842,302 | | | $ | 4.42 | | | — | | | $ | — | |
Granted | — | | | $ | — | | | 1,116,875 | | | $ | 4.34 | | | 1,981,464 | | | $ | 4.61 | |
Vested | (178,169) | | | $ | 4.10 | | | (327,684) | | | $ | 4.62 | | | — | | | $ | — | |
Forfeited | (34,167) | | | $ | 4.38 | | | (223,002) | | | $ | 4.38 | | | — | | | $ | — | |
Nonvested at December 31, 2023 | 193,665 | | | $ | 3.87 | | | 1,408,491 | | | $ | 4.31 | | | 1,981,464 | | | $ | 4.61 | |
Unrecognized stock-based compensation expense at December 31, 2023 (in thousands) | $ | 392 | | | | | $ | 4,095 | | | | | $ | — | | | |
Weighted average remaining vesting period at December 31, 2023 | 1.1 years | | | | 2.0 years | | | | zero years | | |
RSUs granted in 2023 are time-based and will vest in full after one to three years. The aggregate fair value of RSAs vested during the years ended December 31, 2023 and 2022 was $731,000 and $1.4 million, respectively. The aggregate fair value of RSUs vested during the years ended December 31, 2023 and2022 was $1.5 million and $1.7 million, respectively. During the year ended December 31, 2023, RSAs and RSUs totaling 505,853 shares were vested and 142,759 shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares on the vesting date.
Certain RSUs granted in September 2019 with market-based vesting conditions that vest based upon the Company achieving specified stock price targets over a three-year period. The effect of a market condition is reflected in the estimate of the grant-date fair value of the options utilizing a Monte Carlo valuation technique. Compensation expense is recognized with a market-based vesting condition provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. Assumptions utilized in connection with the Monte Carlo valuation technique, that resulted in a fair value of $1.42 per unit, included: risk-free interest rate of 1.38 percent, term of 3.00 years, expected volatility of 38 percent and expected dividend yield of 0 percent. The risk-free interest rate was determined based on the yields available on U.S. Treasury zero-coupon issues. The expected stock price volatility was determined using historical volatility. The expected dividend yield was based on expectations regarding dividend payments. During the year ended December 31, 2021, 450,000 RSUs were forfeited, leaving 450,000 units with market-based vesting conditions outstanding and unvested at prior period end. The remaining units fully vested on September 3, 2022. Compensation expense for RSUs with market-based vesting conditions for the years ended December 31, 2023 and 2022, was zero and $143,000, respectively.
PSUs granted in 2023 can be earned based upon the level of achievement of the Company's compound annual growth rate of its adjusted book value per share, measured over a three-year performance period beginning on January 1, 2023 and ending on December 31, 2025. The number of PSUs granted in 2023 that can be earned ranges from 0% to 200% of the target number of PSUs granted (up to a maximum of 750,000 shares per recipient of Acacia's common stock). Such number of PSUs that are ultimately earned and eligible to vest will generally become vested on the third anniversary of the grant date subject to continued employment through such date. The Company has not recorded any expense related to the PSUs based on the probability assessment performed as of December 31, 2023.
Compensation expense for share-based awards recognized in general and administrative expenses was comprised of the following:
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | | | 2023 | | 2022 |
| | | | | (In thousands) |
Options | | | | | $ | 401 | | | $ | 488 | |
RSAs | | | | | 618 | | | 1,360 | |
RSUs | | | | | 2,278 | | | 1,972 | |
Total compensation expense for share-based awards | | | | | $ | 3,297 | | | $ | 3,820 | |
Total unrecognized stock-based compensation expense as of December 31, 2023 was $5.3 million, which will be amortized over a weighted average remaining vesting period of 1.9 years.
Profits Interest Plan
Profits Interest Units (“PIUs”) were accounted for in accordance with ASC 718, “Compensation - Stock Compensation.” The vesting conditions did not meet the definition of service, market or performance conditions, as defined in ASC 718. As such, the PIUs were classified as liability awards. Compensation expense was adjusted for changes in fair value prorated for the portion of the requisite service period rendered. Initially, compensation expense was recognized on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity award) which was five years. Upon full vesting of the award, which occurred during the three months ended September 30, 2017, previously unrecognized compensation expense was immediately recognized in the period. The Company has a purchase option to purchase the vested PIUs that are not otherwise forfeited after termination of continuous service. The exercise price of the purchase option is the fair market value of the PIUs on the date of termination of continuous service. The individuals holding PIUs are no longer employed by the Company. Included in other long-term liabilities in the consolidated balance sheets as of December 31, 2023 and 2022, the PIUs totaled $1.0 million and $591,000, respectively, which was their fair value as of December 31, 2018 after termination of service including interest.
16. RETIREMENT SAVINGS PLANS AND SEVERANCE
Retirement Savings Plans
Acacia has an employee savings and retirement plan under Section 401(k) of the Internal Revenue Code. The plan is a defined contribution plan in which eligible employees may elect to have a percentage of their compensation contributed to the plan, subject to certain guidelines issued by the Internal Revenue Service. During the years ended December 31, 2023 and 2022, Acacia's total contribution to the plan was $155,000 and $173,000, respectively.
In the United States of America, Printronix has a 401(k) Savings and Investment Plan, for all eligible U.S. employees, which is designed to be tax deferred in accordance with the provisions of Section 401(k). Printronix matches employee contributions dollar-for-dollar up to the first 1 percent of compensation, and then an additional $0.50 to-the-dollar on the next 1 percent of employee compensation. Printronix's contributions have graded-vesting annually and become fully vested to the employee after four full years of employment. During the years ended December 31, 2023 and 2022, Printronix's total contribution to the plan was $61,000 and $46,000, respectively.
Printronix has statutory obligations to contribute to overseas employee retirement funds or the local social security pension funds in China, Malaysia, Singapore, France, Netherlands and the United Kingdom. During the years ended December 31, 2023 and 2022, Printronix's total contribution overseas was $641,000 and $711,000, respectively.
Severance
During the years ended December 31, 2023 and 2022, Acacia entered into separation agreements related to the termination of certain employees. The separation agreements generally provide base salary continuation payments and payments of employee and employer portions of monthly COBRA for a specified period. During the years ended December 31, 2023 and 2022, Acacia's total severance expenses was a (credit) of $(580,000) due to a reversal of a prior period accrued expense and an expense of $3.2 million, respectively.
17. INCOME TAXES
The components of income (loss) before income taxes were as follows:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 |
| (In thousands) |
Domestic | $ | 70,912 | | | $ | (126,810) | |
Foreign | (3,486) | | | (340) | |
Total | $ | 67,426 | | | $ | (127,150) | |
For purposes of reconciling the Company’s provision for income taxes at the statutory rate and the Company’s income tax (benefit) at the effective tax rate, a notional 21% tax rate was applied as follows:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 |
Statutory federal tax rate - expense (benefit) | 21 | % | | (21) | % |
| | | |
Foreign rate differential | 3 | % | | — | % |
Noncontrolling interests in operating subsidiaries | (1) | % | | (2) | % |
Nondeductible permanent items | (1) | % | | — | % |
Expired tax attributes | 6 | % | | 6 | % |
Foreign tax credits | (3) | % | | — | % |
Derivative fair value adjustment | (3) | % | | (2) | % |
Valuation allowance | (27) | % | | 7 | % |
Other | 1 | % | | (1) | % |
Effective income tax rate | (2) | % | | (13) | % |
Acacia’s income tax benefit for the periods presented consisted of the following:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 |
| (In thousands) |
Current: | | | |
Federal | $ | (215) | | | $ | (54) | |
State | 37 | | | (482) | |
Foreign | (1,975) | | | (606) | |
Total current | (2,153) | | | (1,142) | |
Deferred: | | | |
Federal | (14,041) | | | 24,789 | |
State | (925) | | | 259 | |
Foreign | 593 | | | (28) | |
Total deferred | (14,373) | | | 25,020 | |
| | | |
Change in valuation allowance | 18,030 | | | (7,667) | |
Income tax benefit | $ | 1,504 | | | $ | 16,211 | |
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (In thousands) |
Deferred tax assets: | | | |
Net operating loss and capital loss carryforwards and credits | $ | 34,595 | | | $ | 47,386 | |
Unrealized gain on investments held at fair value | 146 | | | 35 | |
Compensation expense for share-based awards | 1,095 | | | 607 | |
| | | |
| | | |
Accrued liabilities and other | 1,453 | | | 1,551 | |
Lease liability | 689 | | | 784 | |
State taxes | 37 | | | 94 | |
Total deferred tax assets | 38,015 | | | 50,457 | |
Valuation allowance | (30,219) | | | (48,250) | |
Total deferred tax assets, net of valuation allowance | 7,796 | | | 2,207 | |
Deferred tax liabilities: | | | |
ROU Asset | (680) | | | (782) | |
Fixed assets and intangibles | (1,841) | | | (2,166) | |
Basis of investment in affiliates | (2,360) | | | — | |
Other | — | | | — | |
Total deferred tax liabilities | (4,881) | | | (2,948) | |
Net deferred tax assets (liabilities) | $ | 2,915 | | | $ | (742) | |
As of December 31, 2023 and 2022, management assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, "Income Taxes," wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company's deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not that the asset will not be realized. In assessing the realization of the Company's deferred tax assets, management considers all available evidence, both positive and negative.
Based upon available evidence, it was concluded on a more-likely-than-not basis that as of December 31, 2023 a valuation allowance of $30.2 million was needed for foreign tax credits and certain state tax attributes the Company estimates will expire prior to utilization. As of December 31, 2022, the Company recorded a full valuation allowance of $48.3 million. The valuation allowance decreased by $18.0 million for the year ended December 31, 2023 as a result of the use of tax attributes used against 2023 earnings and the release of valuation allowance on the remaining federal net operating losses for which positive evidence supported the realization as of December 31, 2023. The valuation allowance increased by $7.7 million for the year ended December 31, 2022 as a result of the changes in realized/unrealized gains and losses.
At December 31, 2023, Acacia had U.S. federal, foreign and state income tax net operating loss carryforwards (“NOLs”) totaling approximately $18.3 million, $3.0 million and $26.7 million, respectively. Pursuant to the Tax Cuts and Jobs Act ("TCJA") enacted by the U.S. federal government in December 2017, for federal income tax purposes, NOL carryovers generated for our tax years beginning January 1, 2018 can be carried forward indefinitely but will be subject to a taxable income limitation. $706,000 of our foreign NOLs and all of our federal losses can be carried forward indefinitely. The remaining $3.0 million of foreign NOLs and $26.7 million of state NOLs will expire in varying amounts through 2040.
As of December 31, 2023, Acacia had approximately $28.3 million of foreign tax credits, expiring between 2024 and 2033. In general, foreign taxes withheld may be claimed as a deduction on future U.S. corporate income tax returns, or as a credit against future U.S. income tax liabilities, subject to certain limitations.
The following changes occurred in the amount of unrecognized tax benefits:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 |
| (In thousands) |
Beginning balance | $ | 760 | | | $ | 887 | |
Additions for current year tax positions | — | | | — | |
Additions included in purchase accounting for prior year positions | — | | | — | |
Reductions for prior year tax positions | (3) | | | (127) | |
Ending Balance (excluding interest and penalties) | 757 | | | 760 | |
Interest and penalties | — | | | — | |
Total | $ | 757 | | | $ | 760 | |
At December 31, 2023 and 2022, the Company had total unrecognized tax benefits of approximately $757,000 and $760,000, respectively. At December 31, 2023 and 2022, $757,000 and $760,000, respectively, of unrecognized tax benefits are recorded in other long-term liabilities. At December 31, 2023, if recognized, $757,000 of tax benefits would impact the Company’s effective tax rate.
Acacia recognizes interest and penalties with respect to unrecognized tax benefits in income tax expense (benefit). No interest and penalties have been recorded for the unrecognized tax benefits for the periods presented. Acacia has identified no uncertain tax position for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months.
Acacia is subject to taxation in the U.S. and in various state/foreign jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees in certain foreign jurisdictions. The Company’s 2019 through 2023 tax years generally remain subject to examination by federal, state and foreign tax authorities. As the Company has incurred losses in most jurisdictions, the taxing authorities can generally challenge 2015 through 2022 either the amount of carryforward deduction reported in the open year or the amount of a net operating loss deduction that is absorbed in a closed year and supports the determination of the available net operating loss deduction for the open year under examination.
Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries, as earnings are permanently reinvested, however, no deferred tax liability would be necessary as the parent entity would not be required to include the distribution into income as the amount would be tax free under current law.
TCJA subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries.The FASB Staff Q&A, Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only.We have elected to account for GILTI in the year the tax is incurred.
18. INCOME/LOSS PER SHARE
The following table presents the calculation of basic and diluted income/loss per share of common stock:
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | | | 2023 | | 2022 |
| | | | | (In thousands, except share and per share data) |
Numerator: | | | | | | | |
Net income (loss) attributable to Acacia Research Corporation | | | | | $ | 67,060 | | | $ | (125,065) | |
Dividend on Series A redeemable convertible preferred stock | | | | | (1,400) | | | (2,799) | |
Accretion of Series A redeemable convertible preferred stock | | | | | (3,230) | | | (5,171) | |
Return on settlement of Series A redeemable convertible preferred stock | | | | | (3,377) | | | — | |
Undistributed earnings allocated to participating securities | | | | | (3,913) | | | — | |
Net income (loss) attributable to common stockholders - Basic | | | | | 55,140 | | | (133,035) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Less: Change in fair value and gain on exercise of dilutive Series B warrants | | | | | (4,287) | | | — | |
| | | | | | | |
Add: Interest expense associated with Starboard Notes, net of tax | | | | | 1,518 | | | — | |
Add: Undistributed earnings allocated to participating securities | | | | | 3,913 | | | — | |
Reallocation of undistributed earnings to participating securities | | | | | (3,076) | | | — | |
Net income (loss) attributable to common stockholders - Diluted | | | | | $ | 53,208 | | | $ | (133,035) | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted average shares used in computing net income (loss) per share attributable to common stockholders - Basic | | | | | 75,296,025 | | | 42,460,504 | |
Potentially dilutive common shares: | | | | | | | |
| | | | | | | |
| | | | | | | |
Employee stock options and restricted stock units | | | | | 163,738 | | | — | |
| | | | | | | |
Series B Warrants | | | | | 16,952,055 | | | — | |
Weighted average shares used in computing net income (loss) per share attributable to common stockholders - Diluted | | | | | 92,411,818 | | | 42,460,504 | |
| | | | | | | |
Basic net income (loss) per common share | | | | | $ | 0.73 | | | $ | (3.13) | |
Diluted net income (loss) per common share | | | | | $ | 0.58 | | | $ | (3.13) | |
| | | | | | | |
Anti-dilutive potential common shares excluded from the computation of diluted net income/loss per share: | | | | | | | |
Equity-based incentive awards | | | | | 2,098,747 | | | 2,558,720 | |
| | | | | | | |
Series B warrants | | | | | — | | | 100,000,000 | |
Total | | | | | 2,098,747 | | | 102,558,720 | |
19. SEGMENT REPORTING
As of December 31, 2023, the Company operates and reports its results in three reportable segments: Intellectual Property Operations, Industrial Operations and Energy Operations.
The Company reports segment information based on the management approach and organizes its businesses based on products and services. The management approach designates the internal reporting used by the chief operating decision maker for decision making and performance assessment as the basis for determining the Company’s reportable segments. The performance measure of the Company’s reportable segments is primarily income or (loss) from operations. Income or (loss) from operations for each segment includes all revenues, cost of revenues, gross profit and other operating expenses directly attributable to the segment. Other than the Company's equity securities investments, specific asset information is not included in managements review at this time.
The Company’s Intellectual Property Operations segment invests in IP and related absolute return assets, and engages in the licensing and enforcement of patented technologies. Through our Patent Licensing, Enforcement and Technologies Business we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining the rights in the patent portfolio or purchasing the patent portfolio outright. While we, from time to time, partner with inventors and patent owners, from small entities to large corporations, we assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program. When applicable, we share net licensing revenue with our patent partners as that program matures, on a prearranged and negotiated basis. We may also provide upfront capital to patent owners as an advance against future licensing revenue. Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a variety of industries. We generate revenues and related cash flows from the granting of IP rights for the use of patented technologies that our operating subsidiaries control or own.
The Company’s Industrial Operations segment generates operating income by designing and manufacturing printers and consumable products for various industrial printing applications. Printers consist of hardware and embedded software and may be sold with maintenance service agreements. Consumable products include inked ribbons which are used in Printronix’s printers. Printronix’s products are primarily sold through channel partners, such as dealers and distributors, to end-users.
The Company's Energy Operations segment generates operating income from its wells and engages in the acquisition, exploration, development, and production of oil and natural gas resources located in Roberts and Hemphill Counties in Texas. Benchmark seeks to acquire predictable and shallow decline, cash flowing oil and gas properties whose value can be enhanced via a disciplined, field optimization strategy, with risk managed through robust commodity hedges and low leverage. The Energy Operations reporting segment did not exist prior to the acquisition of Benchmark in November 2023, accordingly, the periods presented below include Benchmark's operations from November 13, 2023 through December 31, 2023. As of and for the year ended December 31, 2022, the consolidated results represented the results of the Company's two reporting segments: Intellectual Property Operations and Industrial Operations.
The Company's segment information, including Benchmark's operations from November 13, 2023 through December 31, 2023, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| |
| | | |
| Intellectual Property Operations | | Industrial Operations | | Energy Operations | | Total | | | | | | |
| (In thousands) |
Revenues: | | | | | | | | | | | | | |
License fees | $ | 89,156 | | | $ | — | | | $ | — | | | $ | 89,156 | | | | | | | |
Printers and parts | — | | | 12,513 | | | — | | | 12,513 | | | | | | | |
Consumable products | — | | | 19,091 | | | — | | | 19,091 | | | | | | | |
Services | — | | | 3,494 | | | — | | | 3,494 | | | | | | | |
Oil sales | — | | | — | | | 256 | | | 256 | | | | | | | |
Natural gas sales | — | | | — | | | 372 | | | 372 | | | | | | | |
Natural gas liquids sales | — | | | — | | | 220 | | | 220 | | | | | | | |
Total revenues | 89,156 | | | 35,098 | | | 848 | | | 125,102 | | | | | | | |
| | | | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | | | |
Inventor royalties | 1,025 | | | — | | | — | | | 1,025 | | | | | | | |
Contingent legal fees | 10,998 | | | — | | | — | | | 10,998 | | | | | | | |
Litigation and licensing expenses | 10,771 | | | — | | | — | | | 10,771 | | | | | | | |
Amortization of patents | 11,370 | | | — | | | — | | | 11,370 | | | | | | | |
| | | | | | | | | | | | | |
Cost of sales | — | | | 18,009 | | | — | | | 18,009 | | | | | | | |
Cost of production | — | | | — | | | 656 | | | 656 | | | | | | | |
Total cost of revenues | 34,164 | | | 18,009 | | | 656 | | | 52,829 | | | | | | | |
Segment gross profit | 54,992 | | | 17,089 | | | 192 | | | 72,273 | | | | | | | |
| | | | | | | | | | | | | |
Other operating expenses: | | | | | | | | | | | | | |
Engineering and development expenses | — | | | 735 | | | — | | | 735 | | | | | | | |
Sales and marketing expenses | — | | | 6,908 | | | — | | | 6,908 | | | | | | | |
Amortization of intangible assets | — | | | 1,732 | | | — | | | 1,732 | | | | | | | |
General and administrative expenses | 7,402 | | | 6,990 | | | 264 | | | 14,656 | | | | | | | |
Total other operating expenses | 7,402 | | | 16,365 | | | 264 | | | 24,031 | | | | | | | |
Segment operating income (loss) | $ | 47,590 | | | $ | 724 | | | $ | (72) | | | 48,242 | | | | | | | |
| | | | | | | | | | | | | |
Parent general and administrative expenses | | | | | | | 27,306 | | | | | | | |
Operating income | | | | | | | 20,936 | | | | | | | |
Total other income | | | | | | | 46,490 | | | | | | | |
Income before income taxes | | | | | | | $ | 67,426 | | | | | | | |
The Company's two reportable segment information for the year ended December 31, 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | Year Ended December 31, 2022 |
| | | |
| | | | | | | | | Intellectual Property Operations | | Industrial Operations | | Total |
| | | | | | | | | (In thousands) |
Revenues: | | | | | | | | | | | | | |
License fees | | | | | | | | | $ | 19,508 | | | $ | — | | | $ | 19,508 | |
Printers and parts | | | | | | | | | — | | | 16,118 | | | 16,118 | |
Consumable products | | | | | | | | | — | | | 19,314 | | | 19,314 | |
Services | | | | | | | | | — | | | 4,283 | | | 4,283 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total revenues | | | | | | | | | 19,508 | | | 39,715 | | | 59,223 | |
| | | | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | | | |
Inventor royalties | | | | | | | | | 1,212 | | | — | | | 1,212 | |
Contingent legal fees | | | | | | | | | 2,444 | | | — | | | 2,444 | |
Litigation and licensing expenses | | | | | | | | | 3,970 | | | — | | | 3,970 | |
Amortization of patents | | | | | | | | | 10,403 | | | — | | | 10,403 | |
| | | | | | | | | | | | | |
Cost of sales | | | | | | | | | — | | | 19,359 | | | 19,359 | |
Total cost of revenues | | | | | | | | | 18,029 | | | 19,359 | | | 37,388 | |
Segment gross profit | | | | | | | | | 1,479 | | | 20,356 | | | 21,835 | |
| | | | | | | | | | | | | |
Other operating expenses: | | | | | | | | | | | | | |
Engineering and development expenses | | | | | | | | | — | | | 626 | | | 626 | |
Sales and marketing expenses | | | | | | | | | — | | | 8,621 | | | 8,621 | |
Amortization of intangible assets | | | | | | | | | — | | | 1,732 | | | 1,732 | |
General and administrative expenses | | | | | | | | | 5,428 | | | 8,254 | | | 13,682 | |
Total other operating expenses | | | | | | | | | 5,428 | | | 19,233 | | | 24,661 | |
Segment operating (loss) income | | | | | | | | | $ | (3,949) | | | $ | 1,123 | | | (2,826) | |
| | | | | | | | | | | | | |
Parent general and administrative expenses | | | | | | | | | | | | | 37,266 | |
Operating income loss | | | | | | | | | | | | | (40,092) | |
Total other expense | | | | | | | | | | | | | (87,058) | |
Loss before income taxes | | | | | | | | | | | | | $ | (127,150) | |
The Company's reportable segment information as of December 31, 2023 and 2022 is as follows:
| | | | | | | | | | | |
| |
| December 31, 2023 | | December 31, 2022 |
| (In thousands) |
Equity securities investments: | | | |
Equity securities | $ | 63,068 | | | $ | 61,608 | |
Equity securities without readily determinable fair value | 5,816 | | | 5,816 | |
Equity method investments | 30,934 | | | 30,934 | |
| | | |
Total parent equity securities investments | 99,818 | | | 98,358 | |
| | | |
Other parent assets | 218,909 | | | 156,394 | |
| | | |
Segment total assets: | | | |
Intellectual property operations | 234,254 | | | 176,119 | |
Industrial operations | 47,854 | | | 52,057 | |
Energy operations | $ | 32,710 | | | $ | — | |
Total assets | $ | 633,545 | | | $ | 482,928 | |
The Company's revenues, including Benchmark's sales from November 13, 2023 through December 31, 2023, and long-lived tangible assets by geographic area are presented below. Intellectual Property Operations revenues are attributed to licensees domiciled in foreign jurisdictions. Printronix's net sales to external customers are attributed to geographic areas based upon the final destination of products shipped. The Company, primarily through its Printronix subsidiary, has identified three global regions for marketing its products and services: Americas, Europe, Middle East and Africa, and Asia-Pacific. Assets are summarized based on the location of held assets. Benchmark's sales are only attributed to the United States of America.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Year Ended December 31, 2023 |
| | | |
| Intellectual Property Operations | | Industrial Operations | | Energy Operations | | Total | | | | | | |
| (In thousands) |
Revenues by geographic area: | | | | | | | | | | | | | |
United States | $ | 80,407 | | | $ | 14,128 | | | $ | 848 | | | $ | 95,383 | | | | | | | |
Canada and Latin America | 514 | | | 1,100 | | | — | | | 1,614 | | | | | | | |
Total Americas | 80,921 | | | 15,228 | | | 848 | | | 96,997 | | | | | | | |
| | | | | | | | | | | | | |
Europe, Middle East and Africa | — | | | 8,935 | | | — | | | 8,935 | | | | | | | |
| | | | | | | | | | | | | |
China | 8,200 | | | 3,512 | | | — | | | 11,712 | | | | | | | |
India | — | | | 2,849 | | | — | | | 2,849 | | | | | | | |
Asia-Pacific, excluding China and India | 35 | | | 4,574 | | | — | | | 4,609 | | | | | | | |
Total Asia-Pacific | 8,235 | | | 10,935 | | | — | | | 19,170 | | | | | | | |
Total revenues | $ | 89,156 | | | $ | 35,098 | | | $ | 848 | | | $ | 125,102 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | Year Ended December 31, 2022 |
| | | |
| | | | | | | Intellectual Property Operations | | Industrial Operations | | Total |
| | | | | | | (In thousands) |
Revenues by geographic area: | | | | | | | | | | | |
United States | | | | | | | $ | 18,882 | | | $ | 15,541 | | | $ | 34,423 | |
Canada and Latin America | | | | | | | 11 | | | 2,145 | | | 2,156 | |
Total Americas | | | | | | | 18,893 | | | 17,686 | | | 36,579 | |
| | | | | | | | | | | |
Europe, Middle East and Africa | | | | | | | 589 | | | 9,298 | | | 9,887 | |
| | | | | | | | | | | |
China | | | | | | | — | | | 5,207 | | | 5,207 | |
India | | | | | | | — | | | 2,957 | | | 2,957 | |
Asia-Pacific, excluding China and India | | | | | | | 26 | | | 4,567 | | | 4,593 | |
Total Asia-Pacific | | | | | | | 26 | | | 12,731 | | | 12,757 | |
Total revenues | | | | | | | $ | 19,508 | | | $ | 39,715 | | | $ | 59,223 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Intellectual Property Operations | | Industrial Operations | | Energy Operations | | Total |
| (In thousands) |
Long-lived tangible assets by geographic area: | | | | | | | |
United States | $ | 201 | | | $ | 92 | | | $ | 25,117 | | | $ | 25,410 | |
Malaysia | — | | | 1,949 | | | — | | | 1,949 | |
Other foreign countries | — | | | 114 | | | — | | | 114 | |
Total | $ | 201 | | | $ | 2,155 | | | $ | 25,117 | | | $ | 27,473 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Intellectual Property Operations | | Industrial Operations | | Total |
| (In thousands) |
Long-lived tangible assets by geographic area: | | | | | |
United States | $ | 324 | | | $ | 302 | | | $ | 626 | |
Malaysia | — | | | 2,703 | | | 2,703 | |
Other foreign countries | — | | | 208 | | | 208 | |
Total | $ | 324 | | | $ | 3,213 | | | $ | 3,537 | |
20. SUBSEQUENT EVENTS
On November 1, 2023, Merton entered into an agreement (the “Arix Shares Purchase Agreement”) with RTW Biotech Opportunities Ltd. ("RTW Bio") to sell its shares of Arix to RTW Bio for a purchase price of $57.1 million in aggregate (representing £1.43 per share at an exchange rate of 1.2087 USD/GBP), conditioned solely upon RTW Bio receiving the necessary approval from the United Kingdom’s Financial Conduct Authority to acquire indirect control (as defined for the purposes of the UK change in control regime under the Financial Services and Markets Act 2000) in of Arix Capital Management Limited (the “Condition”). On January 19, 2024, Merton completed such sale for $57.1 million in aggregate
(representing £1.43 per share at an exchange rate of 1.2087 USD/GBP). Following the completion of the share sale, Merton and the Company no longer own any shares of Arix.
On February 14, 2024, the Board appointed Mr. McNulty, the Company’s Interim Chief Executive Officer, as Chief Executive Officer of the Company on a permanent basis. In addition, the Board expanded the size of the Board from six to seven directors and the Board appointed Mr. McNulty as a director of the Company to serve until the Company’s 2024 annual meeting of stockholders and until his successor is duly elected and qualified.
On February 16, 2024, Benchmark entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Revolution Resources II, LLC, Revolution II NPI Holding Company, LLC, Jones Energy, LLC, Nosley Assets, LLC, Nosley Acquisition, LLC, and Nosley Midstream, LLC (collectively, “Revolution”). Pursuant to the Purchase and Sale Agreement, Benchmark has agreed to purchase and Revolution has agreed to sell certain upstream assets and related facilities in Texas and Oklahoma, upon the terms and subject to the conditions of the Purchase and Sale Agreement (such purchase and sale, together with the other transactions contemplated by the Purchase Sale Agreement, the “Revolution Transaction”). Under the terms and conditions of the Purchase and Sale Agreement, which has an economic effective date of March 1, 2024, the aggregate consideration to be paid to Revolution in the Revolution Transaction will consist of $145.0 million in cash, subject to customary post-closing adjustments. Benchmark expects the Revolution Transaction to close in the second quarter of 2024 subject to customary closing conditions.