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 Acacia Research Reports Fourth Quarter and Year End Financial Results, Announces Increased Focus on High-Growth and Disruptive Technology Companies and Announces Stock Repurchase Program
   Tuesday, February 13, 2018 4:00:00 PM ET

Acacia Research Corporation(1) (ACTG ) today reported results for the three months and year ended December 31, 2017, and also announced an increased focus on partnering with high-growth and potentially disruptive technology companies.

Fourth Quarter 2017 Results

-- Revenues were $3,458,000, as compared to $21,969,000 in the comparable prior year quarter.

-- GAAP and non-GAAP results for the fourth quarter of 2017 included an unrealized loss on our equity investment in Veritone, Inc. ("Veritone") (VERI ) totaling $104,042,000.

-- GAAP net loss was $110,203,000, or $2.18 per diluted share, as compared to a GAAP net loss of $10,611,000, or $0.21 per diluted share for the comparable prior year quarter.

-- Non-GAAP net loss was $103,749,000, or $2.04 per diluted share, as compared to non-GAAP net income of $1,094,000, or $0.02 per diluted share for the comparable prior year quarter. See below for information regarding non-GAAP measures.

-- Cash and cash equivalents totaled $136,604,000 as of December 31, 2017.

Fiscal Year 2017 Results

-- Revenues were $65,402,000, as compared to revenues of $152,699,000 in the comparable prior year.

-- GAAP and non-GAAP results for fiscal year 2017 included an unrealized gain on our equity investment in Veritone totaling $42,239,000.

-- GAAP net income was $22,180,000, or $0.44 per diluted share, as compared to a GAAP net loss of $54,067,000, or $1.08 per diluted share for the comparable prior year.

-- Non-GAAP net income was $52,426,000, or $1.03 per diluted share, as compared to non-GAAP net income of $31,543,000, or $0.62 per diluted share for the comparable prior year. See below for information regarding non-GAAP measures.

-- GAAP results for fiscal year 2017 and 2016 included noncash patent related impairment charges totaling $2,248,000 and $42,340,000, respectively.

Business Outlook and Growth Strategy

We continue to experience challenges in the existing patent and licensing environment, including challenges in identifying and acquiring new high-quality patent assets which will reduce future revenue generating opportunities from new IP portfolios in the future. Despite these challenges, we will continue to invest in and monetize our existing quality patent assets.

While Acacia Research Corporation will continue to invest in and monetize its existing quality patent assets, we are announcing an increased focus on partnering with high-growth and potentially disruptive technology opportunities which will include:

-- An increased focus on leveraging our experience, expertise, data and relationships developed as a leader in the IP industry to partner with high-growth and potentially disruptive technology companies.

-- Examples of these opportunities include those in the areas of Artificial Intelligence (AI) and machine learning, machine vision, robotics and blockchain technologies and other potentially disruptive technologies that we believe can benefit from our IP expertise and experience.

Our team’s expertise in identifying and evaluating complex IP, and in developing and cultivating long-term business relationships, provides us a unique window into innovation and technological advancement. We are increasing our efforts to leverage our expertise and experience to create new avenues which we believe will lead to increased shareholder value.

In this regard, and in addition to monetizing our existing IP assets, we will increase our focus on opportunities to partner with high-growth and potentially disruptive technology companies. We will leverage our experience, expertise, data and relationships developed as a leader in the IP industry to pursue these opportunities and enhance shareholder value.

Examples of some of these technology areas include Artificial Intelligence (AI) and machine learning, machine vision, robotics and blockchain technologies.

An example of our early execution of this strategy is our investment in Veritone. Veritone completed its initial public offering in May of 2017. We continue to be excited about Veritone’s business and the future of the AI technology space. Veritone is a leading artificial intelligence company that has developed a platform offering orchestrated, cognitive computing to transform and analyze structured and unstructured data for clients in a variety of markets, including media and entertainment, legal, compliance and government.

Our investment in Miso Robotics ("Miso") is another example of our early execution of this strategy. We are very pleased with the progress and achievements that Miso has made since our initial investment in June of 2017. Miso leverages robotics and AI technology to increase productivity, reduce costs and drive profitability in the restaurant and food service industries.

Since our investments in Veritone and Miso, we have continued to build and cultivate our business development pipeline. We are currently evaluating a variety of new opportunities where we believe we can leverage our IP expertise to collaborate and partner with high-growth companies with potentially disruptive technology.

Acacia has a long history of adapting its business model to capitalize on changing technologies and macro environments. In 1993, Acacia began as a technology incubator company. On the heels of the tech downturn in early 2001, Acacia began to license its own IP. We rapidly transitioned from the incubator model into the first public pure play outsourced patent licensing company, and Acacia soon emerged as a leader in the patent licensing and enforcement ecosystem.

"We believe that we can best leverage our capital and our tax assets, and positively impact shareholder value by utilizing our IP experience, expertise and relationships forged while building and leading the patent licensing industry, to identify opportunities to partner with exciting high-growth and potentially disruptive technology companies," commented Rob Stewart, President of Acacia. "Our investments in Veritone and Miso Robotics announced in 2016 and 2017 represent our initial execution of our growth strategy in AI and robotics."

Stock Repurchase Program

Acacia’s Board of Directors has authorized the repurchase of up to $20 million of our outstanding common stock in open market purchases, from time to time, in amounts and at prices to be determined by the Board of Directors at its discretion. In determining whether or not to repurchase any shares of Acacia’s common stock, our Board of Directors will consider such factors 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.

Consolidated Financial Results - Overview

Financial results and operating activities during the periods presented included the following:

                                                                                                            
                                                                                            Three Months Ended                                                          Year Ended
                                                                                               December 31,                                                            December 31,
                                                                            --------------------------------------------------                     ----------------------------------------------------
                                                                                 2017             2016                             2017             2016
                                                                            ---------------                     --------------                     ----------                     ---------------------
                                                                                                                                                                                   
Revenues (in thousands)                                                      $    3,458                          $  21,969                          $ 65,402                           $ 152,699
GAAP net income (loss) (in thousands)                                        $ (110,203 )                        $ (10,611 )                        $ 22,180                           $ (54,067 )
Non-GAAP net income (loss) (in thousands)                                    $ (103,749 )                        $   1,094                          $ 52,426                           $  31,543
GAAP diluted earnings (loss) per share                                       $    (2.18 )                        $   (0.21 )                        $   0.44                           $   (1.08 )
Non-GAAP diluted earnings (loss) per share                                   $    (2.04 )                        $    0.02                          $   1.03                           $    0.62
New agreements executed                                                               2                                  9                                20                                  39
Licensing and enforcement programs generating revenues                                6                                 11                                13                                  28
                                                                                                                                                                                   

Summary Consolidated Financial Results

For the Three Months and Fiscal Years Ended December 31, 2017 and 2016

Revenues:

                                                                     
                                                         Three Months Ended                                                      Year Ended
                                                            December 31,                                                        December 31,
                                             ------------------------------------------                     -----------------------------------------------------
                                                2017        2016                            2017              2016
                                             ----------                     -----------                     ----------                     ----------------------
                                                                                                                                            
Revenues (in thousands)                        $ 3,458                        $ 21,969                       $ 65,402                               $    152,699
                                                                                                                                            

Fourth Quarter 2017 compared to Fourth Quarter 2016. Revenues in the fourth quarter of 2017 decreased $18,511,000, or 84%, to $3,458,000, as compared to $21,969,000 in the comparable prior year quarter. In the fourth quarter of 2017, two licensees individually accounted for 43% and 36% of revenues recognized, as compared to three licensees individually accounting for 48%, 19% and 18% of revenues recognized during the fourth quarter of 2016.

Fiscal Year 2017 compared to Fiscal Year 2016. Fiscal year 2017 revenues decreased $87,297,000, or 57%, to $65,402,000, compared to $152,699,000 in fiscal year 2016. In fiscal year 2017, three licensees individually accounted for 54%, 21% and 10% of revenues recognized, as compared to three licensees each individually accounting for 26%, 23% and 11% of revenues recognized in fiscal year 2016.

Cost of Revenues (in thousands):

                                                                                                                               
                                                                                                   Three Months Ended                                                                                    Year Ended
                                                                                                      December 31,                                                                                      December 31,
                                                                        -------------------------------------------------------------------------                     ---------------------------------------------------------------------------------
                                                                                  2017                        2016                                             2017                            2016
                                                                        -------------------------                     ---------------------------                     ----------------------------                     --------------------------------
                                                                         
Inventor royalties                                                                         $  13                                         $ 3,313                                         $  4,952                                         $     22,730
Contingent legal fees                                                     646                        4,238                        16,682                            26,474
                                                                        -------------------- ---                      -------------------- -----                      -------------------- ------                      -------------------- ----------
Total inventor royalties and contingent legal fees                                         $ 659                                         $ 7,551                                         $ 21,634                                         $     49,204
                                                                        ==================== ===                      ==================== =====                      ==================== ======                      ==================== ==========
                                                                                                                                                                                                                        

Fourth quarter 2017 revenues, less inventor royalties expense and contingent legal fees expense totaled $2,799,000, or 81% of related quarterly revenues, as compared to $14,418,000, or 66% of quarterly revenues, in the comparable prior year quarter.

Fiscal year 2017 revenues, less inventor royalties expense and contingent legal fees expense totaled $43,768,000, or 67% of related fiscal year 2017 revenues, as compared to $103,495,000, or 68% of related fiscal year 2016 revenues.

Inventor royalties and contingent legal fees expenses fluctuate period to period, based on the amount of revenues recognized each period and the economic terms of the patent portfolio partnering arrangements and contingent legal fee arrangements, if any, associated with the specific patent portfolios generating revenues each period.

                                                                                        
                                                                            Three Months Ended                                                      Year Ended
                                                                               December 31,                                                        December 31,
                                                                 -----------------------------------------                     -----------------------------------------------------
                                                                    2017        2016                           2017              2016
                                                                 ----------                     ----------                     ----------                     ----------------------
                                                                                                                                                               
Litigation and licensing expenses - patents                        $ 4,826                        $ 5,463                       $ 19,419                               $     27,858
                                                                                                                                                               

Fourth quarter and fiscal year 2017 litigation and licensing expenses-patents decreased 12% and 30%, respectively, due primarily to a net decrease in litigation support and third-party technical consulting expenses associated with ongoing licensing and enforcement programs and an overall decrease in portfolio related enforcement activities. We expect litigation and licensing expenses to continue to fluctuate period to period in connection with our patent licensing and enforcement activities.

                                                                    
                                                        Three Months Ended                                                      Year Ended
                                                           December 31,                                                        December 31,
                                             -----------------------------------------                     -----------------------------------------------------
                                                2017        2016                           2017              2016
                                             ----------                     ----------                     ----------                     ----------------------
                                                                                                                                           
Amortization of patents                        $ 5,443                        $ 6,222                       $ 22,154                               $     34,208
                                                                                                                                           

Fourth quarter and fiscal year 2017 non-cash patent amortization charges decreased 13% and 35%, respectively, reflecting a decrease in scheduled amortization on existing patent portfolios. For the fiscal year periods presented the decrease was due primarily to various patent portfolio impairment charges previously recorded in the second quarter of 2016.

General and Administrative Expenses (in thousands):

                                                                                                                                                             
                                                                                                                         Three Months Ended                                                                                              Year Ended
                                                                                                                            December 31,                                                                                                December 31,
                                                                                      -----------------------------------------------------------------------------------------                     -------------------------------------------------------------------------------------
                                                                                                    2017                                2016                                                 2017                              2016
                                                                                      --------------------------------                     ------------------------------------                     ----------------------------                     ------------------------------------
                                                                                                                                                                                                                                                      
General and administrative expenses                                                                      $  3,848                                             $          5,748                                         $ 17,145                                         $         23,857
Non-cash stock compensation expense - G&A                                                                   1,011                                                        3,308                                            5,844                                                    9,062
Non-cash stock compensation expense - Veritone profits interests                        (5,194 )                          --                         3,041                        --
                                                                                      -------------------- ------ ---                      -------------------- --------------                      -------------------- ------                      -------------------- --------------
Total general and administrative expenses                                                                $   (335 )                                           $          9,056                                         $ 26,030                                         $         32,919
                                                                                      ==================== ====== ===                      ==================== ==============                      ==================== ======                      ==================== ==============
                                                                                                                                                                                                                                                      

General and administrative expenses, excluding non-cash stock compensation expense, decreased $1,900,000 or 33% for the quarterly periods presented, and $6,712,000 or 28% for the fiscal periods presented. The decrease for the periods presented was due primarily to a reduction in personnel costs in connection with headcount reductions in 2016 and 2017, a decrease in variable performance based compensation costs consistent with the decrease in revenues for the periods presented and a decrease in corporate, general and administrative costs.

General and administrative non-cash stock compensation expense decreased $2.3 million or 69% for the quarterly periods presented and $3.2 million or 36% for the fiscal periods presented, due to reductions in headcount and a reduction in scheduled non-cash stock compensation expense related to options with market-based performance conditions with graded vesting features that resulted in higher non-cash stock compensation expense in the 2016 periods, as compared to 2017 periods.

Fourth quarter 2017 non-cash stock compensation expense included a credit of $5.2 million reflecting the reversal of previously recorded expense for our Veritone related profits interests liability, which is adjusted each reporting period for changes in the estimated fair value of the liability based in part on the quoted market price of Veritone common stock. The credit reflects a reduction in the estimated fair value of the profits interests liability consistent with the net decrease in Veritone’s stock price during the fourth quarter of 2017. Fiscal year 2017 non-cash stock compensation expense included $3.0 million of expense related to the fair value of our Veritone related profits interests liability, reflecting the net increase in Veritone’s stock price during the period from May 17, 2017, Veritone’s initial public offering date, and December 31, 2017.

Impairment of Patent-Related Intangible Assets (in thousands):

                                                                                                    
                                                                                    Three Months Ended                                                          Year Ended
                                                                                       December 31,                                                            December 31,
                                                                    --------------------------------------------------                     ----------------------------------------------------
                                                                           2017             2016                          2017              2016
                                                                    -------------------                     ----------                     ---------                     ----------------------
                                                                                                                                                                          
Impairment of patent-related intangible assets                        $ --                        $ 2,175                       $ 2,248                               $     42,340
                                                                                                                                                                          

Patent impairment charges decreased for the fourth quarter and fiscal 2017. The impairment charges for the periods presented reflect the impact of reductions in expected estimated future net cash flows for certain portfolios and certain patent portfolios for which the underlying licensing programs were concluded. The impairment charges consisted of the excess of the asset’s carrying value over its estimated fair value as of the applicable measurement date.

Investment Gains (Losses)

Upon Veritone consummation of its initial public offering on May 17, 2017 (the "IPO"), Acacia’s Loans and Bridge Facilities provided to Veritone, including accrued interest, were automatically converted into 1,969,186 shares of Veritone common stock. In addition Acacia exercised its Primary Warrant, acquiring 2,150,335 shares of Veritone common stock. As of the IPO date, Acacia’s investment in Veritone was recorded utilizing the fair value option, and is therefore marked to market at each balance sheet date, with related unrealized investment gains and losses reflected in the consolidated statement of operations. Total unrealized investment losses totaled $104,042,000 for the fourth quarter of 2017 and unrealized investment gains totaled $42,239,000 for fiscal 2017 related to the application of the fair value method of accounting to our equity investment in Veritone.

Income Taxes:

                                                                                                    
                                                                                 Three Months Ended                                                              Year Ended
                                                                                    December 31,                                                                December 31,
                                                               -------------------------------------------------------                     ------------------------------------------------------
                                                                       2017               2016                              2017              2016
                                                               ---------------------                     -------------                     ------------                     ---------------------
                                                                                                                                                                             
Provision for income taxes (in thousands)                       $            (20 )                        $ (2,414 )                       $ (2,955 )                            $ (18,188 )
Effective tax rate                                                -- %                              29 %                            (12 )%                                  50 %
                                                                                                                                                                             

Tax expense for the periods presented reflects foreign taxes withheld on revenue agreements with licensees in foreign jurisdictions and other state taxes, and the impact of full valuation allowances recorded for foreign tax credit related tax assets generated, and for fiscal 2017, net operating loss related tax assets generated. As such, no tax benefit was recognized for net operating loss and foreign tax credit related tax benefits generated during the applicable periods presented.

Financial Condition (in thousands)

Summary Balance Sheet Information:

                                                                          
                                                                           December 31, 2017                          December 31, 2016
                                                                          ------------------                     --------------------------
                                                                           
Cash and cash equivalents and short-term investments                             $  136,604                               $        158,495
Accounts receivable                                                                     153                                         26,750
Investments                                                                         106,949                                 --
Total assets                                                                        308,768                                        296,003
Accounts payable and accrued expenses                                                 7,956                                         14,283
Royalties and contingent legal fees payable                                           1,601                                         13,908
Total liabilities                                                                    13,109                                         28,560
                                                                                                                  

Summary Cash Flow Information:

                                                                                   
                                                                    Three Months Ended                                                          Year Ended
                                                                       December 31,                                                            December 31,
                                                     ------------------------------------------------                     ------------------------------------------------------
                                                           2017           2016                             2017              2016
                                                     ----------------                     -----------                     ------------                     ---------------------
                                                                                                                                                            
Net cash provided by (used in):
   Operating activities                                $ (21,957 )                          $ 10,842                      $  24,478                             $  34,061
   Investing activities                                   57,425                                 655                        (16,114 )                             (40,630 )
   Financing activities                                       55                                  27                            700                                (1,114 )
                                                                                                                                                            

Refer to the section below entitled "Summary Financial Information" for additional summary consolidated balance sheet, statements of operations and cash flow information as of and for the applicable periods presented.

INFORMATION ABOUT NON-GAAP FINANCIAL MEASURES

As used herein, "GAAP" refers to accounting principles generally accepted in the United States of America. To supplement our consolidated financial statements prepared and presented in accordance with GAAP, this earnings release includes financial measures, including (1) non-GAAP net income and (2) non-GAAP Earnings Per Share ("EPS"), that are considered non-GAAP financial measures as defined in Rule 101 of Regulation G promulgated by the Securities and Exchange Commission. Generally, a non-GAAP financial measure is a numerical measure of a company’s historical or future performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these non-GAAP, or pro forma, financial measures for internal financial and operational decision making purposes and as a means to evaluate period-to-period comparisons of the performance and results of operations of our core business and strategic partnerships. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the performance of our core business and strategic partnerships by excluding non-cash stock compensation charges (excluding non-cash stock compensation for Veritone investment related profits interests) and non-cash patent amortization charges (including impairment charges) that may not be indicative of our recurring core business and strategic partnerships operating results. These non-GAAP financial measures also facilitate management’s internal planning and comparisons to our historical performance and liquidity. We believe these non-GAAP financial measures are useful to investors as they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and are used by our institutional investors and the analyst community to help them analyze the performance and operational results of our core business and strategic partnerships.

Non-GAAP Net income and EPS. We define non-GAAP net income as net income calculated in accordance with GAAP, plus non-cash stock compensation charges and non-cash patent amortization charges. Non-GAAP EPS is defined as non-GAAP net income divided by the weighted average outstanding shares, on a fully-diluted basis, calculated in accordance with GAAP, for the respective reporting period.

Due to the inherent volatility in stock prices, the use of estimates and assumptions in connection with the valuation and expensing of share-based awards and the variety of award types that companies can issue under FASB ASC Topic 718, management believes that providing a non-GAAP financial measure that excludes non-cash stock compensation allows investors to make meaningful comparisons between our recurring core business and strategic partnerships operating results and those of other companies period to period, as well as providing our management with a critical tool for financial and operational decision making and for evaluating our own period-to-period recurring core business and strategic partnerships operating results. Non-cash stock compensation for our Veritone investment related profits interests are not excluded as the related liability is marked to market along with our equity investment in Veritone, and therefore, the liability will fluctuate consistent with increases or decreases in the fair value of our Veritone equity investment.

Similarly, due to the variability associated with the timing and amount of patent acquisition payments and estimates inherent in the capitalization and amortization of patent acquisition costs, management believes that providing a non-GAAP financial measure that excludes non-cash patent amortization charges allows investors to make meaningful comparisons between our recurring core business and strategic partnerships operating results and those of other companies, and also provides our management with a useful tool for financial and operational decision making and for evaluating our own period-to-period recurring core business and strategic partnerships operating results.

There are a number of limitations related to the use of non-GAAP net income and EPS versus net income and EPS calculated in accordance with GAAP. For example, non-GAAP net income excludes the impact of significant non-cash stock compensation charges and non-cash patent amortization charges that are or may be recurring, and that may or will continue to be recurring for the foreseeable future. In addition, non-cash stock compensation is a critical component of our employee compensation programs and non-cash patent amortization reflects the cost of certain patent portfolio acquisitions, amortized on a straight-line basis over the estimated economic useful life of the respective patent portfolio, and may reflect the acceleration of amortization related to recoupable up-front patent portfolio acquisition costs. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and EPS and evaluating non-GAAP net income and EPS in conjunction with net income and EPS calculated in accordance with GAAP.

The accompanying table below provides a reconciliation of the non-GAAP financial measures presented to the most directly comparable financial measures prepared in accordance with GAAP.

_____________________________________________

A conference call is scheduled for today. The Acacia Research presentation will start at 1:30 p.m. Pacific Time (4:30 p.m. Eastern).

To listen to the presentation by phone, dial (888) 791-4321 for callers in the U.S. and Canada and (719) 325-4778 for international callers, both of whom will need to enter the conference ID 2677155 when prompted.

There will be a live webcast hosted by NASDAQ that will be available for 30 days and may be accessed at Acacia’s website at www.acaciaresearch.com.

Please contact Rob Stewart, President of Acacia Research Corporation, for questions about this earnings release or other inquiries regarding Acacia Research Corporation. For additional details regarding the information contained herein, please refer to our Annual Report on Form 10-K for the year ended December 31, 2017, anticipated to be filed with the SEC on or before March 9, 2018.

ABOUT ACACIA RESEARCH CORPORATION

Founded in 1993, Acacia Research Corporation (ACTG ) is an industry leader in patent licensing and partners with inventors and patent owners to unlock the financial value in their patented inventions. Acacia bridges the gap between invention and application, facilitating efficiency and delivering monetary rewards to the patent owner. Acacia also leverages its patent expertise and background to partner with potentially disruptive technologies such as Artificial Intelligence and robotics.

Information about Acacia Research Corporation and its subsidiaries is available at www.acaciaresearch.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This news release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of the date hereof. Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including our ability to successfully develop licensing programs and attract new business, rapid technological change in relevant markets, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments relating to the licensing and enforcement of patent rights, our ability to identify new investment and partnership opportunities and effectively implement our new growth strategy, the success of our current and future investments and partnership opportunities, and/or intellectual property rights in general and general economic conditions. Our Annual Report on Form 10-K, recent and forthcoming Quarterly Reports on Form 10-Q, recent and forthcoming Current Reports on Form 8-K, and other SEC filings discuss some of the important risks that may affect our business, results of operations and financial condition. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

The results achieved in the most recent quarter are not necessarily indicative of the results to be achieved by us in any subsequent quarters, as it is currently anticipated that Acacia Research Corporation’s financial results will vary, and may vary significantly, from quarter to quarter. This variance is expected to result from a number of factors, including risks affecting our results of operations and financial condition referenced above, and the particular structure of our licensing transactions, which may impact the amount of inventor royalties and contingent legal fees expenses we incur period to period.

 
                                                                                                                                                                                  ACACIA RESEARCH CORPORATION
                                                                                                                                                                                 SUMMARY FINANCIAL INFORMATION
                                                                                                                                                                    (In thousands, except share and per share information)
                                                                                                                                                                                          (Unaudited)
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
                                                                                                                                  Three Months Ended                                                                                                                           Year Ended
                                                                                                                                                        December 31,                                                                                                                                                December 31,
                                                                                           ---------------------------------------------------------------------------------------------------------------------------------------                     ---------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     2017                                                       2016                                                                          2017                                                       2016
                                                                                           ---------------------------------------------------------                     ---------------------------------------------------------                     ---------------------------------------------------------                     ---------------------------------------------------------
                                                                                                                                                                                                                                                                                                                                      
Revenues                                                                                                      $          3,458                                           $         21,969                                           $         65,402                                           $        152,699  
                                                                                           -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
Operating costs and expenses:
      Cost of revenues:
      Inventor royalties                                                                                                    13                                                                         3,313                                                                         4,952                                                                        22,730
      Contingent legal fees                                                                                                646                                                                         4,238                                                                        16,682                                                                        26,474
      Litigation and licensing expenses - patents                                                                        4,826                                                                         5,463                                                                        19,419                                                                        27,858
      Amortization of patents                                                                                            5,443                                                                         6,222                                                                        22,154                                                                        34,208
   General and administrative expenses (including non-cash stock                                                          (335 )                                                                       9,056                                                                        26,030                                                                        32,919
   compensation expense (credit) of ($4,183) and $8,885 for the three
   months and year ended December 31, 2017, respectively, and $3,308
   and $9,062 for the three months and year ended December 31, 2016,
   respectively)
   Other expenses - business development                                                                                   195                                                                           557                                                                         1,189                                                                         3,079
   Impairment of patent-related intangible assets                                                               --                                                                         2,175                                                                         2,248                                                                        42,340
   Other                                                                                     --                          --                          --                                     500  
                                                                                           -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
         Total operating costs and expenses                                                          10,788                                  31,024                                  92,674                                 190,108  
                                                                                           -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
         Operating loss                                                                                                 (7,330 )                                                                      (9,055 )                                                                     (27,272 )                                                                     (37,409 )
                                                                                                                                                                                                                                                                                                                                      
Other income (expense):
   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                                                                            (104,042 )                                                              --                                                                        42,239                                                                --
   Equity in earnings (losses) of investee                                                                                 (90 )                                                              --                                                                          (220 )                                                              --
   Other income                                                                                                          1,000                                                                --                                                                         1,000                                                                --
   Interest income                                                                                      182                                     592                                   1,605                                     798  
                                                                                           -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
         Total other income (expense)                                                              (102,950 )                                                      592                                  51,911                                     798  
                                                                                           -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
Income (loss) from operations before provision for income taxes                                                       (110,280 )                                                                      (8,463 )                                                                      24,639                                                                       (36,611 )
Provision for income taxes                                                                              (20 )                                                   (2,414 )                                                   (2,955 )                                                  (18,188 )
                                                                                           -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
Net income (loss) including noncontrolling interests in operating                                                     (110,300 )                                                                     (10,877 )                                                                      21,684                                                                       (54,799 )
subsidiaries
Net loss attributable to noncontrolling interests in operating                                           97                                     266                                     496                                     732  
subsidiaries
                                                                                           -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
Net income (loss) attributable to Acacia Research Corporation                                                 $       (110,203 )                                                            $        (10,611 )                                                            $         22,180                                           $        (54,067 )
                                                                                           ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                      
Net income (loss) attributable to common stockholders - basic and                                             $       (110,203 )                                                            $        (10,611 )                                                            $         22,146                                           $        (54,067 )
diluted
                                                                                           ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                      
Basic and diluted earnings (loss) per common share                                                            $          (2.18 )                                                            $          (0.21 )                                                            $           0.44                                           $          (1.08 )
                                                                                           ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                      
Weighted average number of shares outstanding, basic                                             50,590,460                              50,237,784                              50,495,119                              50,075,847  
                                                                                           ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
Weighted average number of shares outstanding, diluted                                           50,590,460                              50,237,784                              50,692,012                              50,075,847  
                                                                                           ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                      
 
Reconciliation of GAAP Net Income (Loss) and EPS to Non-GAAP Net
Income (Loss) and EPS
(In thousands, except share and per share data)
 
                                                                                                                                         Three Months Ended                                                                                                           Year Ended
                                                                                                                                                               December 31,                                                                                                                                December 31,
                                                                                                    -----------------------------------------------------------------------------------------------------------------------------------                     ----------------------------------------------------------------------------------------------------------
                                                                                                                              2017                                                     2016                                                            2017                                        2016
                                                                                                    ---------------------------------------------------------                     -----------------------------------------------------                     --------------------------------                     -----------------------------------------------------
                                                                                                                                                                                                                                                                                                                  
GAAP net income (loss)                                                                                                 $       (110,203 )                                                            $    (10,611 )                                                            $     22,180                                         $    (54,067 )
                                                                                                    -------------------- -------------- --------------------                      -------------------- ---------- --------------------                      -------------------- ----------                      -------------------- ---------- --------------------
                                                                                                                                                                                                                                                                                                                  
Add back:
Non-cash stock compensation expense (excluding Profits Interests                                                                  1,011                                                                     3,308                                                                     5,844                                                9,062
related non-cash stock compensation)
Patent amortization expense                                                                                                       5,443                                                                     6,222                                                                    22,154                                               34,208
Impairment of patent-related intangible assets                                                        --                               2,175                               2,248                            42,340  
                                                                                                    -------------------- -------------- --------------------                      -------------------- ---------- --------------------                      -------------------- ----------                      -------------------- ---------- --------------------
                                                                                                                                                                                                                                                                                                                  
Pro forma non-GAAP net income (loss)                                                                                   $       (103,749 )                                                            $      1,094                                           $     52,426                                         $     31,543  
                                                                                                    ==================== ============== ====================                      ==================== ========== ====================                      ==================== ==========                      ==================== ========== ====================
                                                                                                                                                                                                                                                                                                                  
Pro forma non-GAAP net income (loss) attributable to common                                                            $       (103,749 )                                                            $      1,089                                           $     52,348                                         $     31,303  
stockholders - diluted
                                                                                                    ==================== ============== ====================                      ==================== ========== ====================                      ==================== ==========                      ==================== ========== ====================
                                                                                                                                                                                                                                                                                                                  
Pro forma non-GAAP net earnings (loss) per common share -- diluted                                         $          (2.04 )                                                            $       0.02                                           $       1.03                                         $       0.62  
                                                                                                    ==================== ============== ====================                      ==================== ========== ====================                      ==================== ==========                      ==================== ========== ====================
GAAP weighted-average shares -- diluted                                                       50,750,021                          50,938,633                          50,692,012                        50,317,372  
                                                                                                    ==================== ============== ====================                      ==================== ========== ====================                      ==================== ==========                      ==================== ========== ====================
                                                                                                                                                                                                                                                                                                                  
 
                                                                            ACACIA RESEARCH CORPORATION
                                                                    SUMMARY FINANCIAL INFORMATION, (CONTINUED)
                                                                                  (In thousands)
                                                                                    (Unaudited)
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
                                                                              December 31,                          December 31,
                                                                                                     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                                                                                         104,754                                           --
Investment - equity method                                                                                         2,195                                           --
Loan receivable and accrued interest                                                                      --                                                   18,616
Investment in warrants and shares                                                                         --                                                    1,960
Patents, net of accumulated amortization                                                                          61,917                                                   86,319
Other assets                                                                                      207                                   618
                                                                                     -------------------- --------------                      -------------------- --------------
                                                                                                        $        308,768                                         $        296,003
                                                                                     ==================== ==============                      ==================== ==============
                                                                                                                                               
 LIABILITIES AND STOCKHOLDERS’ EQUITY
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
      Total stockholders’ equity                                   295,659                               267,443
                                                                                     -------------------- --------------                      -------------------- --------------
                                                                                                        $        308,768                                         $        296,003
                                                                                     ==================== ==============                      ==================== ==============
                                                                                                                                               
 
                                                                                                                                                                                   ACACIA RESEARCH CORPORATION
                                                                                                                                                                           SUMMARY FINANCIAL INFORMATION, (CONTINUED)
                                                                                                                                                                                         (In thousands)
                                                                                                                                                                                           (Unaudited)
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                                                                                                                    Three Months Ended                                                                                                                           Year Ended
                                                                                                                                                          December 31,                                                                                                                                                December 31,
                                                                                             ---------------------------------------------------------------------------------------------------------------------------------------                     ---------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                 2017                                                       2016                                                                          2017                                                       2016
                                                                                             ---------------------------------------------------------                     ---------------------------------------------------------                     ---------------------------------------------------------                     ---------------------------------------------------------
Cash flows from operating activities:
Net income (loss) including noncontrolling interests in operating                                               $       (110,300 )                                                            $        (10,877 )                                                            $         21,684                                                              $        (54,799 )
subsidiaries
Adjustments to reconcile net income (loss) including
noncontrolling interests in operating 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                                                                            104,042                                                                --                                                                       (42,239 )                                                              --
      Depreciation and amortization                                                                                        5,463                                                                         6,250                                                                        22,243                                                                        34,355
      Non-cash stock compensation                                                                                         (4,183 )                                                                       3,308                                                                         8,885                                                                         9,062
      Impairment of patent-related intangible assets                                                              --                                                                         2,175                                                                         2,248                                                                        42,340
      Other                                                                                                                   99                                                                          (396 )                                                                        (374 )                                                                        (477 )
   Changes in assets and liabilities:
      Restricted cash                                                                                             --                                                                         2,529                                                                        11,512                                                                          (787 )
      Accounts receivable                                                                                                    147                                                                        26,950                                                                        26,597                                                                         6,750
      Prepaid expenses and other assets                                                                                      739                                                                           402                                                                          (135 )                                                                       1,593
      Accounts payable and accrued expenses / patent costs                                                                   259                                                                        (8,398 )                                                                      (6,349 )                                                                      (3,006 )
      Royalties and contingent legal fees payable                                                     (18,223 )                                                  (11,101 )                                                  (12,307 )                                                     (970 )
                                                                                             -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                        
      Net cash provided by (used in) operating activities                                             (21,957 )                                                   10,842                                  24,478                                  34,061  
                                                                                             -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                        
Cash flows from investing activities:
      Investment in Investee                                                                                      --                                                                --                                                                       (31,514 )                                                              --
      Advances to Investee                                                                                        --                                                                       (10,000 )                                                                      (4,000 )                                                                     (20,000 )
      Purchases of property and equipment                                                                                     (2 )                                                              --                                                                            (2 )                                                                          (4 )
      Purchase of available-for-sale investments                                                                         (23,443 )                                                              --                                                                      (448,388 )                                                                     (62,633 )
      Maturities and sales of available-for-sale investments                                                              80,870                                                                        10,880                                                                       467,790                                                                        43,232
      Patent portfolio investment costs                                                        --                                    (225 )                                           --                                  (1,225 )
                                                                                             -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                        
      Net cash provided by (used in) investing activities                                              57,425                                     655                                 (16,114 )                                                  (40,630 )
                                                                                             -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                        
Cash flows from financing activities:
      Repurchases of common stock                                                                                            (10 )                                                                         (57 )                                                                         (45 )                                                                         (82 )
      Distributions to noncontrolling interests in operating subsidiary                                           --                                                                --                                                                --                                                                        (1,358 )
      Proceeds from exercises of stock options                                                             65                                      84                                     745                                     326  
                                                                                             -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                        
      Net cash provided by (used in) financing activities                                                  55                                      27                                     700                                  (1,114 )
                                                                                             -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                        
Increase (decrease) in cash and cash equivalents                                                                          35,523                                                                        11,524                                                                         9,064                                                                        (7,683 )
                                                                                                                                                                                                                                                                                                                                        
Cash and cash equivalents, beginning                                                                  101,081                                 116,016                                 127,540                                 135,223  
                                                                                             -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                        
Cash and cash equivalents, ending                                                                               $        136,604                                           $        127,540                                           $        136,604                                           $        127,540  
                                                                                             ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                        

Business Highlights and Recent Developments(2)

Business highlights of the fourth quarter of 2017 and recent developments include the following:

-- Cellular Communications Equipment LLC entered into a settlement and license agreement with Cellco Partnership d/b/a Verizon Wireless. This agreement resolved patent litigation, Civil Action No. 2:17-cv-00078, pending in the United States District Court for the Eastern District of Texas.

_______________________

(1) As used herein, "Acacia Research Corporation," "we," "us," and "our" refer to Acacia Research Corporation and/or its wholly and majority-owned operating subsidiaries. All intellectual property investment, development, licensing and enforcement activities are conducted solely by certain of Acacia Research Corporation’s wholly and majority-owned operating subsidiaries.

(2) Cellular Communications Equipment LLC is a wholly owned operating subsidiary of Acacia Research Corporation.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20180213006539r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20180213006539/en/

SOURCE: Acacia Research Corporation

Acacia Research Corporation 
Rob Stewart, +1 (949) 480-8311 
rs@acaciares.com


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