Greetings and welcome to the Acacia Research Fourth Quarter and Full Year Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Rob Fink of Investor Relations. Thank you. You may begin.

Thank you, operator. Hosting the call today are Clifford Press, Acacia’s Chief Executive Officer; Al Tobia, Chief Investment Officer; and Rich Rosenstein, Chief Financial Officer. Before beginning, I would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company’s plans, objectives and expectations for future operations and are based on the current estimates and projections, future results or trends. Actual results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see the risk factors described in Acacia’s annual report on Form 10-K and quarterly reports on Form 10-Q that are filed with the SEC. I would like to remind everyone that a press release disclosing the company’s financial results was issued this morning before the market opened. This release maybe accessed on the company’s website at acaciaresearch.com under the News and Events tab.

Thank you, Rob and good morning everyone. This has been a year of significant transformation for Acacia. On the strength of an opportunistic life sciences transaction, we added $117.5 million or approximately $2 per share to our book value, an increase of 67% and positioned the company for a wide range of value creation opportunities. We remain focused on executing the strategy that we adopted as the foundation of our strategic alliance with Starboard Value LP. With a strong balance sheet, including $165.5 million of cash and access to approximately $700 million in committed capital, we have the flexibility to pursue potential transactions in a variety of directions. We continue to believe that we have several important advantages, including ready access to significant committed capital, enabling us to rapidly execute transactions that we develop; expertise in corporate governance and operational restructuring, which can help us to resolve structural impediments to value creation; a willingness to invest in out-of-favor industries or businesses that suffer from a complexity discount; our proven ability to resolve complex multifactor situations can be important as we take advantage of market inefficiencies. Finally, we have a very astute and nimble Board of Directors. Our Board members not only bring relevant expertise to our company, but we have also created robust processes which involve the Board in transactions early when opportunities are identified. Each step of the way, the Board is engaged with the process of approving a transaction is accelerated and streamlined as the Board’s oversight has been ongoing and all relevant questions have been answered by the time we get to a point of a final decision. As previously stated, our business is to acquire operating companies, divisions or other assets, where we believe we can realize significant value following an operational or strategic restructuring. Our primary focus is on companies operating in mature technology, healthcare, industrial and certain financial services segments. I will now turn the call over to Al Tobia, our Chief Investment Officer.

Thank you, Clifford. As a reminder, in the second quarter, Acacia acquired 18 public and private life sciences companies for a total consideration of $282 million or £224 million. This acquisition originated from our process of identifying and evaluating a potential acquisition candidate. To-date, we have recovered approximately $189 million and hold public positions worth an additional $104.8 million and private positions worth approximately $162.5 million, representing holdings of $267.3 million. So, this portfolio represents more than $450 million in cash and equity value on our balance sheet, which is a gain of approximately 60% over our initial investment.

Thank you, Al. Our book value at December 31, 2020 was $292.5 million or $5.94 per basic share compared to $202 million or $4.17 per basic share at September 30 and at $164.7 million or $3.36 per share at June 30. It is important to note that this book value reflects the GAAP treatment of our non-cash warrant and embedded derivative liabilities. Given the volatility in our share price, those warrant and embedded derivative liabilities increased in value during the quarter and are now recorded on our balance sheet at an aggregate value of in excess of $59 million or $1.22 per share. Those liabilities reflect the GAAP value of all warrants outstanding recognized as non-cash charges for potential issuance of shares. Upon exercise and/or expiration, these liabilities will be eliminated and reclassified to equity. For the quarter, our financial results included cash and short-term investments totaling $274.6 million at December 31 compared to $168.3 million at December 31, 2019. Debt was $115 million in senior secured notes issued to Starboard. And in the fourth quarter, we had revenue of $4.4 million. Let me spend a moment discussing our current capital structure. We currently have 49.2 million diluted shares outstanding. Book value at December 31, 2020 was $5.94 per share, as I mentioned a moment ago. We have issued $115 million in notes to Starboard Value and we have $35 million in Series A preferred shares outstanding. These notes and preferred shares can each be converted into common shares at $3.65 per share. If all of these notes and preferred shares were converted, it would add 41 million shares to our share count. The net result of this is we would have a total of 90 million shares, but we would eliminate $150 million in notes liability and preferred stock and the liabilities associated with those instruments.

Thanks, Rich. In conclusion, Acacia continues to execute on its investment strategy. As always, our focus continues to be on improvement in our book value and a strong balance sheet with which we can make additional investments. Our flexibility remains a key asset in today’s economy. Together with Starboard, we are well-positioned to pursue strategic transactions of greater scale and flexibility. We are now happy to answer questions. Operator?

Thank you. Our first questions come from the line of Anthony Stoss with Craig-Hallum. Please proceed with your questions.

Good morning, guys. I think I have three questions in total. And maybe this is for Rich. Rich, can you layout what the book value would be as of maybe the close of Friday with public securities, etcetera both on a basic share basis and on a fully diluted basis? And then I guess, maybe for Clifford, any thoughts on the Oxford Nanopore potential filing for an IPO, what you have heard or any thoughts on the timeline on that? And then lastly, somebody wants to field this one as well, maybe more difficult to talk about, but any update on where you stand with Starboard in terms of finding a operating business acquisition? Thanks.

Rich, do you want to answer the first part of that question, and then I’ll answer the other two.

Sure. So, the only change since 12/31 would be the change in stock price for Arix, Sensyne and Immunocore, which is now trading publicly. So I’d have to look at precisely how much that’s increased in value, but Immunocore alone has increased in value since 12/31 by approximately $32 million. And Sensyne and Arix, I would need to check, call it, in total, about $40 million higher. So, on our current share count that will be another $0.80 a share and on a fully diluted basis, that would be about $0.25 a share?

Okay. With regard to Nanopore, that’s a very dynamic company with a lot of options available to it. We are extremely supportive shareholders and we will see what they decide to do, but they have a lot of options and I don’t know anything more than that. With regard to potential transactions with Starboard, there is a range of things that we are looking at and the particular type of transaction we would like to do is going to probably best illustrated when we do one, which I hope to do shortly and then I think that will clarify what we are looking at.

Thank you.

Thank you. Our next questions come from the line of Brett Reiss with Janney Montgomery Scott. Please proceed with your questions.

Good morning gentlemen. Thanks for a well crafted press release with all the information. Good job on that. I guess the first question, until you run through the tax loss carry-forward, Starboard, so that you don’t jeopardize the net operating loss carry-forward, will not convert the notes and preferred into common for the time being?

Yes, Brett. These documents are public. And so they are available for people to see that the restriction on Starboard’s conversion is in the documents.

Okay. I will…

And thank you for your compliment on the press release we’ve had very explicit requests from you and others on a number of these subjects, and we try to make sure that it was all in there.

Yes. Yes. No, good show on that. And just on the 68.5 million warrants at 5.25%, I thought in the past for Starboard to be entitled to that they would have had to provide the additional $350 million or so in stop GAAP financing. That’s – is that still the case or not? I’m a little unclear on that.

Yes, I’ll take that. So these warrants are exercisable in two ways. One is if we issue notes and Starboard were to finance an approved transaction proof investment that we would do, then those notes could be exchangeable through the warrants into equity at $3.65 a share. If we do not issue those notes, those warrants still have an exercise feature at $5.25 a share, independent of any note issuance. And those – that feature is available until August 2022. So up until August ‘22, if we haven’t issued any additional notes, Starboard could exercise those 68.5 million warrants for $525 million in cash, which would be the $360 million in cash that will come into the company.

Okay. I appreciate that. With all of the stack issuance, I mean, there are just so many competitors in the market looking for the operating company that you’re looking for. Supposed in a year or so, you can’t find something, would you with all the available cash, would you get more aggressive in the patent intake portfolio business? Would you consider declaring a special dividend? What happens if we can’t find an operating company at a decent price?

Well, that’s a highly hypothetical question. I think so far, we’ve shown that we are able to find assets that have good value. We do not intend to change that approach now. We will not be relaxing our discipline on these things. But I also think that with the mandate that we have, it’s very, very different than specs and these other vehicles that are at the specs can only by – cannot by public companies, and we can buy – we have a whole range of transactions we can do. I would say, Brett, I think it’s highly unlikely that the time will come a year from now where we haven’t found constructive ways to invest our capital.

Thank you. Our next questions come from the line of Dominic Marshall with Pacific Ridge Capital. Please proceed with your questions.

Good morning. Just – most of my questions have already been asked, but wanted to follow-up kind of on the last one. Just, I guess, ask a little bit different way. I was hoping you could kind of just talk about to the extent that you can, what you’re seeing both on the operating company front, what is your due diligence pipeline look like there? Obviously, we all know what’s happening with valuations. But as you just got done describing you guys are maybe looking in a little different space, but if you can kind of just talk about where you’re at on that front. And then secondly, on the IT business, hoping you could just maybe give a little bit more color there, kind of what your expectations are for intake and then with what you already have over the course of the next year or two, just a little more detail on that side of the business?

Thanks, Dominic. So I’ll take the beginning of the question, and then Rich can talk a little bit about the IP business. What I would say is that we’ve always looked at this as a market, when we’re doing our research, to look at public companies in the – whatever you want to call, micro-cap range. So we’ve said at the time, sub-$2 billion. It’s probably going to be more like sub-$1 billion. And we’ve seen often when companies come public there is a pressure on them to grow revenue. And oftentimes, you find companies that have been public for a while that may be hit the gas too much on the inorganic growth versus actually the return on equity side. And often, we find that this theme continues in all markets, up, down and sideways. But just depends on which sector you’re looking at. And so back to Clifford’s point before versus specs, our mandate is to try to operate at the intersection of sort of public and private equity and use an array of instruments, whether it’s looking at the division of the company, whether it’s recapitalization of a balance sheet or just a straight up take private. And so those are the kind of tools we’re looking at in terms of utilizing them. And we will see opportunities in all markets. We just have to look in different sectors and different areas, but we’ll stay focused on that sort of micro-cap public marketplace.

Dominic, I’ll add a little bit to what Al has described. One thing is as I said earlier it’s a difficult type of transaction to describe conceptually. It will be much clearer, I think, once we start doing these transactions. And secondly, we have a very active working collaboration with the Starboard. This is a very interesting type of format that we have here. And I feel very excited about what we have in the pipeline, even in this market. Obviously, a lot of things we were looking at before have gone away, but there are new things now. So we’re seeing – we still have a lot that we’re working on, and it will, I think, speak for itself when it comes out. I think the point that I’ll make is we are very different than a SPAC. We’re very different than a lot of other entities out there, and we intend to prove that out.

Thank you. That’s helpful before you move on to the IP question, just following up on that a little bit more. I think you used the term there acquisitions. So that kind of goes to my other question, which is, Al, you talked about the high end, maybe $1 billion or $2 billion. But I guess how small are you willing to go? And how many companies might you be willing to go after on the operating front, if multiple is the answer, how many small deals might you potentially do and over what time frame? Obviously, you don’t have an exact answer, but if you can kind of just ballpark it a little bit.

So you want to obviously maximize your opportunities and also be efficient, right? We don’t want to do a lot of tiny deals. And what I mean by tiny, we’re looking at probably, on the low end, you’re talking about $100 million to $200 million would be a small deal. And I think the sweet spot is probably $500 million to $600 million is sort of where we would I think like to operate. I think that’s where we’ll probably see the most opportunity. With that said, if something comes along that’s larger, we have the ability to scale up and we can also work collaborating with Starboard to do that as well. So the sweet spot is going to be, I think, in that sort of $500 million plus or minus range. And we have the – we’re going to have to process a lot of business on the front end because your hit rates are obviously not going to be extremely high. So we’re looking at utilizing our overhead as efficiently as possible.

Sounds good. That makes sense. Given that sweet spot size then, it sounds like one or two over the course of the next year or two is probably more likely than a number, much bigger than that?

Yes. I’ll tell you that’s where our incentive comp parameters have been drawn by the Board in that type of range. And just to answer your question on the IP environment, that’s been very interesting. You may recall, when we first became involved here, we said that it appeared to have been, the IP business appeared to have gone through was essentially a distressed business with very little capital being provided and with had gone through a period of declining outcomes. That has gone 100%, 180 degrees the other way. There have been some astounding IP settlements and judgments recently that have been upheld. I’d say that it’s almost transformed in terms of the outlook. Our group seems to be doing a very good job in a – it’s a wind in their sales. And I think we will see some interesting opportunities there.

Great. Well, certainly we would love more detail, but I appreciate that and appreciate all your answers.

Thank you. Our next questions come from the line of Investment Partners. Please proceed with your questions.

Hi. Thank you for taking the questions. The Starboard deal had a rights offering component in it. I just wanted to hear thoughts from you guys on any potential timing of a rights offering. Thanks.

It is something that we particularly negotiated to have available for our shareholders. And I think it’s an important feature. And when we get the first, what I consider to be true Starboard-type of transaction. We very much look forward to making distributing those rights and giving existing Acacia shareholders an opportunity to invest in the transaction on exactly the same terms as Starboard.

Thank you very much.

Thank you. There are no further questions at this time. We appreciate your participation. This does conclude today’s teleconference. You may disconnect your lines at this time. Have a great day.