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Item 7. Management’s Discussion and Analysis

2024-03-15 compared with 2023-03-17 · 274 added, 234 removed, 274 unchanged (65% of the section changed)

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Our actual results could differ materially from those anticipated in these “forward-looking statements” as a result of various factors including the risks we discuss in Item 1A “Risk Factors,” and elsewhere herein.

For additional information, refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

We are an opportunistic capital platform that purchases businesses based on the differentials between public and private market valuations.

We use a wide range of transactional and operational capabilities to realize the intrinsic value in the businesses that we acquire.

For additional information, refer to the section above entitled “Cautionary Note Regarding Forward-Looking Statements.”

We are focused on acquiring and managing companies across industries – including but not limited to the industrial, energy, technology, and healthcare verticals.

We focus on identifying, pursuing and acquiring businesses where we are uniquely positioned to deploy our differentiated strategy, people and processes to generate and compound shareholder value.

We have a wide range of transactional and operational capabilities to realize the intrinsic value in the businesses that we acquire.

Our ideal transactions include the acquisition of public or private companies, the acquisition of divisions of other companies, or structured transactions that can result in the recapitalization or restructuring of the ownership of a business to enhance value.

We are particularly attracted to complex situations, where value is not fully recognized in the public markets, where values of certain operations are masked by a diversified business mix, or where private ownership has not invested capital necessary to drive long-term value.

We aim to operate a transactional platform through which we can initiate a strategic block position in public companies as a path to complete whole company acquisitions or strategic transactions that unlock value.

We are particularly attracted to complex situations where we believe value is not fully recognized, the value of certain operations are masked by a diversified business mix, or where private ownership has not invested the capital and/or resources necessary to support long-term value.

Through our public market activities, we aim to initiate strategic block positions in public companies as a path to complete whole company acquisitions or strategic transactions that unlock value.

We believe this business model is differentiated from private equity funds, which do not typically own public securities prior to acquiring companies, hedge funds, which do not typically acquire entire businesses, and other acquisition vehicles such Special Purpose Acquisition Companies, which are narrowly focused on completing one singular, defining acquisition.

We have a strategic relationship with Starboard that has provided, and we expect will continue to provide, us with industry expertise, and operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired.

Starboard has provided ready access to its extensive network of highly successful industry executives and, as part of our relationship, Starboard assists with sourcing and evaluating appropriate acquisition opportunities.

Our focus is companies with market values in the sub-$2 billion range and particularly on businesses valued at $1billion or less.

We are, however, opportunistic, and may pursue acquisitions that are larger under the right circumstance.

Our business is described more fully in Item 1.

"Business," of this annual report.

We believe the Company has the potential to develop advantaged opportunities due to its:

• disciplined focus on identifying opportunities where the Company can be an advantaged buyer, initiate a transaction opportunity spontaneously, avoid a traditional sale process and complete the purchase of a business, division or other asset at an attractive price;

• willingness to invest across industries and in off-the-run, often misunderstood assets that suffer from a complexity discount;

• relationships and partnership abilities across functions and sectors;

• strong expertise in corporate governance and operational transformation

Our long-term focus positions our businesses to navigate economic cycles and allows sellers and other counterparties to have confidence that a transaction is not dependent on achieving the types of performance hurdles demanded by private equity sponsors.

We consider opportunities based on the attractiveness of the underlying cash flows, without regard to a specific fund life or investment horizon.

People, Process and Performance

Our Company is built on the principles of People, Process and Performance.

We have built a management team with demonstrated expertise in Research, Transactions and Execution, and Operations and Management of our targeted acquisitions.

We believe our priorities and skills underpin a compelling value proposition for operating businesses, partners and future acquisition targets, including:

• the flexibility to consummate transactions using financing structures suited to the opportunity and involving third-party transaction structuring as needed;

• the ability to deliver ongoing financial and strategic support;

• the financial capacity to maintain a long-term outlook and remain committed to a multi-year business plan.

Relationship with Starboard Value, LP

Our strategic relationship with Starboard provides us access to industry expertise, and operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired.

Starboard has provided, and we expect will continue to provide, ready access to its extensive network of industry executives and, as part of our relationship, Starboard has assisted, and we expect will continue to assist, with sourcing and evaluating appropriate acquisition opportunities.

Intellectual Property Operations

We invest in IP and related absolute return assets and engage in the licensing and enforcement of patented technologies.

Through our Patent Licensing, Enforcement and Technologies Business, operated under Acacia Research Group, LLC and its wholly-owned subsidiaries ("ARG"), we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining the rights in the patent portfolio or purchasing the patent portfolio outright.

The Company through its Patent Licensing, Enforcement and Technologies Business invests in IP and related absolute return assets and engage in the licensing and enforcement of patented technologies.

Through our Patent Licensing, Enforcement and Technologies Business, operated under our wholly owned subsidiary, Acacia Research Group, LLC, and its wholly-owned subsidiaries (collectively, “ ARG ” ), we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining the rights in the patent portfolio or purchasing the patent portfolio outright.

While we, from time to time, partner with inventors and patent owners, from small entities to large corporations, we assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program, and when applicable, share net licensing revenue with our patent partners as that program matures, on a pre-arranged and negotiated basis.

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We generate revenues and related cash flows from the granting of IP rights for the use of patented technologies that our operating subsidiaries control or own.

We have established a proven track record of licensing and enforcement success with over 1,600 license agreements executed to date, across nearly 200 patent portfolio licensing and enforcement programs.

We have established a proven track record of licensing and enforcement success with over 1,600 license agreements executed as of December 31, 2023, across nearly 200 patent portfolio licensing and enforcement programs.

As of December 31, 2023, we have generated gross licensing revenue of approximately $1.8 billion, and have returned $865.2 million to our patent partners.

During the past five calendar years ending on December 31, 2023, we generated gross licensing revenue of approximately $225.7 million and returned approximately $84.9 million to our patent partners.

For more information related to our Intellectual Property Operations, refer to additional detailed patent business discussion below.

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Printronix has a manufacturing site located in Malaysia and third-party configuration sites located in the United States, Singapore and Holland, along with sales and support locations around the world to support its global network of users, channel partners and strategic alliances.

This acquisition was made at what we believe to be an attractive purchase price, and we are now supporting existing management in its execution of strategic partnerships to generate growth.

We acquired all of the outstanding stock of Printronix, for a cash purchase price of approximately $37.0 million, which included an initial $33.0 million cash payment and a $4.0 million working capital adjustment.

The Company's consolidated financial statements include Printronix's consolidated operations from October 7, 2021 through December 31, 2022.

This acquisition was made at what we believe to be an attractive purchase price, and we are now supporting existing management in its initiative to reduce costs and operate more efficiently and in its execution of strategic partnerships to generate growth.

For more information related to our Industrial Operations, refer to the section entitled “ Industrial Operations Business ” below.

Energy Operations

In November 2023, we invested $10.0 million to acquire a 50.4% equity interest in Benchmark.

Headquartered in Austin, Texas, Benchmark is an independent oil and gas company engaged in the acquisition, production and development of oil

and gas assets in mature resource plays in Texas and Oklahoma.

Benchmark is run by an experienced management team led by Chief Executive Officer Kirk Goehring, who previously served as Chief Operating Officer of both Benchmark and Jones Energy, Inc.

Benchmark’s existing assets consist of over 13,000 net acres primarily located in Roberts and Hemphill Counties in Texas, and an interest in over 125 wells, the majority of which are operated.

Acacia has made a control investment in Benchmark and intends to utilize its significant capital base to acquire predictable and shallow decline, cash-flowing oil and gas properties whose value can be enhanced via a disciplined, field optimization strategy, with risk managed through robust commodity hedges and low leverage.

Through its investment in Benchmark, the Company, along with the Benchmark management team, will evaluate future growth and acquisitions of oil and gas assets at attractive valuations.

The Company’s consolidated financial statements include Benchmark’s consolidated operations from November 13, 2023 through December 31, 2023.

Refer to Note 3 to the consolidated financial statements elsewhere herein for additional information.

For more information related to our Industrial Operations, refer to the section entitled "Industrial Printing Solutions" below.

For more information, refer to the section entitled “ Energy Operations ” below.

Recent Business Developments and Trends

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On October 30, 2022, the Company entered into a Recapitalization Agreement with the Investors, pursuant to which, among other things, the Company and Starboard agreed to enter into a series of transactions to restructure Starboard’s existing investments in the Company in order to simplify the Company’s capital structure.

Under the Recapitalization Agreement, the Company and Starboard agreed to take certain actions in connection with the Recapitalization.

For a detailed description of the Recapitalization and the actions taken and contemplated to be taken in connection therewith, see Note 8 to the consolidated financial statements elsewhere herein.

Change of Chief Executive Officer

Since 2021, we have announced various changes to our Board and senior management, including

• Effective November 1, 2022, Clifford Press resigned as the Chief Executive Officer and President of the Company, and as a member of the Board.

Press’ resignation was not due to any disagreement with the Company on any matter relating to its operations, policies, practices or otherwise known to any executive officer of the Company.

• Effective November 1, 2022, Martin D.

McNulty Jr., the Company’s current Chief Operating Officer and Head of M&A, was appointed interim Chief Executive Officer of the Company and will serve as the Principal Executive Officer of the Company.

The Board intends to commence a search for a permanent successor.

In addition, there have been other changes to the Company’s management and the Board, as discussed in “Item 1A.

Risk Factors — Risks Related to Our Business, Business Strategy, and Platform — Recent changes in the Company’s management team and board of directors, as well as ongoing litigation related to the Company’s former Chief Executive Officer, may be disruptive to, or cause uncertainty in, the Company’s business, results of operations and the price of the Company’s common stock.” Changes in leadership and key management positions have inherent risks, and there are no assurances that any of our recent changes will not affect our operations and financial condition.

In October 2021, we consummated our first operating company in connection with our acquisition of Printronix.

Subsequently, and in accordance with the terms contained in the Series A Redeemable Convertible Preferred Stock, as amended, and the Recapitalization Agreement, on July 13, 2023, Starboard completed the Preferred Stock Conversion.

Further to the terms of the Recapitalization Agreement and in accordance with the terms of the Series B Warrants, on July 13, 2023, Starboard completed the Series B Warrants Exercise, the cancellation of $60.0 million aggregate principal amount of the Senior Secured Notes held by Starboard and the receipt by the Company of aggregate gross proceeds of approximately $55.0 million.

Starboard beneficially owns 61,123,595 shares of our common stock as of March 11, 2024, representing approximately 61.2% of the common stock based on 99,895,473 shares of common stock issued and outstanding as of such date and no shares of Series A Redeemable Convertible Preferred Stock, no Series B Warrants, nor any Senior Secured Notes remain outstanding.

For a detailed description of the Series B Warrants Exercise, and the cancellations of the Senior Secured notes, the Recapitalization, the Recapitalization Agreement, and the Recapitalization Transactions, see Notes 1 and 10 to the consolidated financial statements.

Change of Chief Executive Officer and Litigation Settlement

Since 2021, we have announced various changes to our Board and senior management .

Changes in leadership and key management positions have inherent risks, and there are no assurances that any of our recent changes or future changes will not affect our operations and financial condition.

On September 19, 2023, the Company together with ARG amicably settled with Clifford Press, former President and Chief Executive Officer of the Company, all claims, including counterclaims filed by Mr.

Press, in connection with the arbitration demand previously filed by the Company against Mr.

As part of the settlement, and, in exchange for, among other things, a release of claims by Mr.

Press in favor of the Company and agreements by Mr.

Press related to non-interference and cooperation, the Company paid to Mr.

Press a total of $770,000 along with reimbursement of certain counsel fees and expenses in the amount of $480,000.

In February 2024, after over one year of service from Mr.

McNulty as the Company’s Interim Chief Executive Officer, the Board appointed Mr.

McNulty as Chief Executive Officer of the Company on a permanent basis.

In addition, the Board expanded the size of the Board from six to seven directors and the Board appointed Mr.

as a director of the Company to serve until the Company’s 2024 annual meeting of stockholders and until his successor is duly elected and qualified.

Life Sciences Portfolio

In June 2020 we acquired a portfolio of investments in 18 public and private life sciences companies (the “Life Sciences Portfolio”).

That purchase was funded with a combination of available cash and capital from Starboard, for a total of approximately $282.0 million at the time of acquisition.

Through the end of 2023, we have received proceeds of $507.1 million as we monetized the Life Sciences portfolio.

We retained an investment in the Life Sciences Portfolio consisting of public and private securities valued at $82.8 million at December 31, 2023.

On January 19, 2024, we completed the sale of our 33,023,210 shares of Arix Bioscience PLC (“Arix”) to RTW Biotech Opportunities Operating Ltd, a subsidiary of RTW Biotech Opportunities Ltd, for $57.1 million in aggregate (representing £1.43 per share at an exchange rate of 1.2087 USD/GBP).

Following the completion of the share sale, we no longer own any shares of Arix.

Additionally, some of the businesses in which we continue to hold an interest generate income through the receipt of royalties and milestone payments.

Refer to Note 4 to the consolidated financial statements elsewhere herein for more information.

In October 2021, we consummated our first operating company acquisition in connection with our acquisition of Printronix.

The Company's consolidated financial statements include Printronix's consolidated operations from October 7, 2021 through December 31, 2022.

The Company's consolidated financial statements include Printronix's consolidated operations.

Refer to Note 1 to the consolidated financial statements elsewhere herein for additional information.

In June 2020 we acquired the Life Sciences Portfolio.

In connection with the purchase of the equity securities in the Life Sciences Portfolio, we issued to the Investors $115.0 million principal amount of our senior secured notes, or Notes.

As of December 31, 2020, all of the equity securities in the Life Sciences Portfolio were transferred to the Company.

As of December 31, 2022, we have monetized a majority of the portfolio while retaining an interest in a number of operating businesses, including a controlling interest in one of the companies in the portfolio.

Further, some of the businesses in which we continue to hold an interest generate income through the receipt of royalties and milestone payments.

Refer to Note 3 to the consolidated financial statements elsewhere herein for more information.

In November 2023, we invested $10.0 million to acquire a 50.4% equity interest in Benchmark.

Headquartered in Austin, Texas, Benchmark is an independent oil and gas company engaged in the acquisition, production and development of oil and gas assets in mature resource plays in Texas and Oklahoma.

On February16, 2024, Benchmark entered into a Purchase and Sale Agreement.

Pursuant to the Purchase and Sale Agreement, Benchmark has agreed to purchase and Revolution has agreed to sell the Assets, which include approximately 140,000 net acres and approximately 470 operated producing wells in the Western Anadarko Basin throughout the Texas Panhandle and Western Oklahoma.

Under the terms and conditions of the Purchase and Sale Agreement, which has an economic effective date of March 1, 2024, the aggregate consideration to be paid to Revolution in the Revolution Transaction will consist of $145 million in cash, subject to customary post-closing adjustments.

Benchmark expects the Revolution Transaction to close in the second quarter of 2024 subject to customary closing conditions, as more fully described below.

The Company’s expected contribution to Benchmark to fund its portion of the Purchase Price for the Revolution Transaction is $57.5 million which the Company anticipates will be funded from cash on hand.

The remainder of the Purchase Price is expected to be funded by a combination of borrowings by Benchmark under a new revolving credit agreement of approximately $72.5 million and the remaining being funded through a cash contribution of approximately $15 million from McArron Partners, the other investor in Benchmark.

Following the Revolution Transaction, the Company’s interest in Benchmark is expected to be approximately 73.1%.

Business Strategy

We intend to grow our company by acquiring additional operating businesses and intellectual property assets.

We intend to grow our Company by acquiring additional operating businesses, energy assets and intellectual property assets.

However, we may not complete any acquisitions, and any acquisitions that we complete will be costly and could negatively affect our results of operations, and dilute our stockholders’ ownership, or cause us to incur significant expense, and we may not realize the expected benefits of acquisitions.

Historically, inflation has not had a significant impact on us or any of our subsidiaries.

While insignificant to our consolidated enterprise, during the year ended December 31, 2023, our Printronix subsidiary experienced some inflation from higher cost of raw materials than in previous years due to higher electronic and electrical and metal components.

While Printronix inventory costs have been impacted by these inflationary pressures, up to this point Printronix has generally been able to adjust selling prices in response to these higher costs.

Printronix have also implemented cost rationalization measures to combat the rising cost that is driven by inflation and currency pressures.

Additionally, our Energy Operations Business may experience inflation.

The oil and natural gas industry and the broader U.S.

experienced higher than expected inflationary pressures in recent years related to increases in oil and natural gas prices, continued supply chain disruptions, labor shortages and geopolitical instability, among other pressures.

Patent Licensing and Enforcement

Patent Litigation Trial Dates and Related Trials

As of the date of this report, our operating subsidiaries have four pending patent infringement cases with scheduled trial dates in the next twelve months.

Patent infringement trials are components of our overall patent licensing process and are one of many factors that contribute to possible future revenue generating opportunities for us.

As of the date of this Annual Report, our Patent Licensing, Enforcement and Technologies Business has one pending patent infringement case with scheduled trial dates in the next twelve months.

Patent infringement trials are components of its overall patent licensing process and are one of many factors that contribute to possible future revenue generating opportunities.

Scheduled trial dates, as promulgated by the respective court, merely provide an indication of when, in future periods, the trials may occur according to the court’s scheduling calendar at a specific point in time.

A court may change previously scheduled trial dates.

In fact, courts often reschedule trial dates for various reasons that are unrelated to the underlying patent assets and typically for reasons that are beyond our control.

While scheduled trial dates provide an indication of the timing of possible future revenue generating opportunities for us, the trials themselves and the immediately preceding periods represent the possible future revenue generating opportunities.

In fact, courts often reschedule trial dates for various reasons that are unrelated to the underlying patent assets and typically for reasons that are beyond the control of our Patent Licensing, Enforcement and Technologies Business.

While scheduled trial dates provide an indication of the timing of possible future revenue generating opportunities, the trials themselves and the immediately preceding periods represent the possible future revenue generating opportunities.

These future opportunities can result in varying outcomes.

Refer to Item 1A “Risk Factors — Risks Related to our Intellectual Property Business and Industry ” for additional information regarding patent litigation and related risks.

Refer to Item 1A “Risk Factors — Risks Related to our Intellectual Property Business and Industry ” of this Annual Report for additional information regarding patent litigation and related risks.

Litigation and Licensing Expense

We expect patent-related legal expenses to continue to fluctuate from period to period based on the factors summarized herein, in connection with future trial dates, international enforcement, strategic patent portfolio prosecution and our current and future patent portfolio investment, prosecution, licensing and enforcement activities.

Refer to Item 1A “Risk Factors” for additional information regarding litigation and licensing expense risk.

Refer to Item 1A “Risk Factors” of this Annual Report for additional information regarding litigation and licensing expense risk.

Investments in Patent Portfolios

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One of the significant challenges in the intellectual property industry continues to be quality patent intake due to the challenges and complexity associated with the current patent environment.

During the year ended December 31, 2022, we did not acquire any new patent portfolios.

During 2021, we acquired one new patent portfolio consisting of Wi-Fi 6 standard essential patents.

During the years ended December 31, 2023 and 2022, we did not acquire any new patent portfolios.

Dur ing 2021, we acquired one new patent portfolio consisting of Wi-Fi 6 standard essential patents.

In 2020, we acquired five new patent portfolios consisting of (i) flash memory technology, (ii) voice activation and control technology, (iii) wireless networks, (iv) internet search, advertising and cloud computing technology and (v) GPS navigation.

The patents and patent rights acquired in 2021 and 2020 have estimated economic useful lives of approximately five years.

Industrial Printing Solutions

Industrial Operations Business

Our Printronix subsidiary is a worldwide leader in multi‐technology supply‐chain printing solutions for a variety of industries, including manufacturing, transportation and logistics, retail distribution, food and beverage distribution, and pharmaceutical distribution.

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Printronix’s products are primarily sold through Printronix’s global network of channel partners, such as dealers and distributors, to end‐users.

Recent Business Matters

Recapitalization Agreement

In order to establish a strategic and ongoing relationship between the Company and Starboard, on November 18, 2019, the Company and Starboard entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), which provided the terms of Starboard’s initial capital commitment in the Company (the “2019 Transaction”).

As a result of the 2019 Transaction, which was approved by the Company’s stockholders for purposes of NASDAQ Rules 5635(b) and 5635(d) at a stockholder meeting held on February 14, 2020, Starboard acquired the following securities and ownership positions in the Company:

(i) 350,000 shares of Series A Preferred Stock, (ii) Series A Warrants to purchase up to 5,000,000 shares of common stock (the “Series A Warrants”) and (iii) Series B Warrants to purchase up to 100,000,000 shares of common stock.

The Securities Purchase Agreement also established the terms of certain senior secured notes issued by the Company.

On November 12, 2021, the Board formed a Special Committee comprised of directors not affiliated or associated with Starboard in order to explore the possibility of simplifying the Company’s capital structure.

Management of the Company believes that the Company’s capital structure, with multiple different series of securities, makes it difficult for investors to understand and value the Company and is an impediment to new public investment.

Further to this purpose and following ongoing negotiations with Starboard, on October 30, 2022 the Company entered into a Recapitalization Agreement with Starboard, pursuant to which, among other things, the Company and Starboard agreed to enter into a series of transactions to restructure Starboard’s existing investments in the Company in order to simplify the Company’s capital structure.

Under the Recapitalization Agreement, the Company and Starboard agreed, among other things, to take all of the following actions in connection with restructuring Starboard’s existing investments in the Company:

• Series A Warrants .

Within five (5) business days following the date of the Recapitalization Agreement, Starboard exercised all of the Series A Warrants for cash, and the Company issued to Starboard 5,000,000 shares of common stock in accordance with the terms of the Series A Warrants and paid to Starboard an aggregate amount of $9,000,000 representing a negotiated settlement of the foregone time value of the Series A Warrants (which amount was paid through a reduction in the exercise price of the Series A Warrants).

• Preferred Stock .

Subject to the receipt of stockholder approval at the Company’s next annual meeting of stockholders, (i) the Company will cause the Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, dated as of January 7, 2020 (the “Certificate of Designations”) to be amended and

restated in the form attached to the Recapitalization Agreement in order to remove the “4.89% blocker” provision and (ii) on or prior to July 14, 2023, Starboard will convert an aggregate amount of 350,000 shares of Series A Preferred Stock into common stock in accordance with the terms of the Certificate of Designations.

• Series B Warrants .

On or prior to July 14, 2023, Starboard will irrevocably exercise 31,506,849 of the Series B Warrants (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction relating to the common stock occurring after the date of the Recapitalization Agreement), through a “Note Cancellation” (as defined in the Series B Warrants) or a combination of a “Note Cancellation” and a “Limited Cash Exercise” (as defined in the Series B Warrants) in accordance with the terms of the Series B Warrants, as determined by Starboard (the “Series B Warrants Exercise”).

The remaining Series B Warrants will be cancelled immediately following the completion of the Rights Offering.

• Rights Offering .

The Company agreed to launch the Rights Offering described in further detail in the section titled “ Rights Offering and Concurrent Private Rights Offering ” below.

In connection with the Rights Offering, the Company agreed to provide Starboard with rights to purchase 28,647,259 shares of common stock and Starboard committed to purchase a minimum of 15,000,000 shares of common stock.

• Recapitalization Payment .

At the closing of the Series B Warrants Exercise, the Company will pay to Starboard an aggregate amount of $66,000,000 (the “Recapitalization Payment”) representing a negotiated settlement of the foregone time value of the Series B Warrants and the Series A Preferred Stock (which amount will be paid through a reduction in the exercise price of the Series B Warrants).

If stockholder approval for the amendment to the Certificate of Designations to remove the “4.89% blocker provision” is not obtained, the Recapitalization Payment will be reduced by $12,700,000.

• Governance .

Under the Recapitalization Agreement, the parties agreed that for a period from the date of the Recapitalization Agreement until May 12, 2026 (the “Applicable Period”), the Board of the Company will include at least two (2) directors that are independent of, and not affiliates (as defined in Rule 144 of the Securities Exchange Act of 1934, as amended) of, Starboard, with current Board members Maureen O’Connell and Isaac T.

Kohlberg satisfying this initial condition under the Recapitalization Agreement.

The parties also agreed that Katharine Wolanyk would continue to serve as a director of the Company until at least May 12, 2024 (or such earlier date if Ms.

Wolanyk is unwilling or unable to serve as a director for any reason or resigns as a director).

Additionally, the Company appointed Gavin Molinelli as a member and as Chair of the Board.

The Company and Starboard also agreed that, following the closing of the Series B Warrants Exercise until the end of the Applicable Period, the number of directors serving on the Board will not exceed 10 members.

Effective as of the later of the Closing and the date on which none of the Notes (as defined in Note 8 to the accompanying consolidated financial statements) remain outstanding, the existing Governance Agreement will be automatically terminated.

Refer to Note 8 to the consolidated financial statements elsewhere herein for more information.

Rights Offering and Concurrent Private Rights Offering

On February 14, 2023, the Company commenced the Rights Offering.

Under the terms of the Rights Offering, the Company distributed non-transferable subscription rights to record holders (“Eligible Securityholders”) of the Company’s common stock held as of 5 p.m.

Eastern time on February 13, 2023, the record date for the Rights Offering.

The subscription period for the Rights Offering terminated at 5 p.m.

Eastern time on March 1, 2023 (the “Expiration Time”).

Pursuant to the Rights Offering, Eligible Securityholders received one non-transferable subscription right (a “Subscription Right”) for every four shares of common stock owned by such Eligible Securityholders.

Each Subscription Right entitled an Eligible Securityholder to purchase, at such Eligible Securityholder’s election, one share of common stock at a price of $5.25 per share (the “Subscription Price”).

Starboard received private subscription rights to purchase common stock at the Subscription Price pursuant to a concurrent private rights offering (the “Concurrent Private Rights Offering”) in connection with their ownership of common stock and, on an as-converted basis, the Company’s Series B Warrants and shares of the Series A Preferred Stock.

The private subscription rights provided to Starboard pursuant to the Concurrent Private Rights Offering were on substantially the same terms as the Subscription Rights, and were distributed substantially concurrently with the distribution of the Subscription Rights and expired at the Expiration Time.

The Company received aggregate gross proceeds of approximately $361,000 from the Rights Offering and aggregate gross proceeds of approximately $78.8 million from the Concurrent Private Rights Offering and issued an aggregate of 15,068,753 shares of common stock.

Industrial Operations Acquisition

Refer to “Recent Business Developments and Trends – Acquisitions ” above for information related to our Printronix acquisition.

Energy Operations Business

Benchmark is run by an experienced management team led by Chief Executive Officer Kirk Goehring, who previously served as Chief Operating Officer of both Benchmark and Jones Energy, Inc.

Benchmark’s existing assets consist of over 13,000 net acres primarily located in Roberts and Hemphill Counties in Texas, and an interest in over 125 wells, the majority of which are operated.

Through its investment in Benchmark, the Company, along with the Benchmark management team, will evaluate future growth and acquisitions of oil and gas assets at attractive valuations.

Operating Activities

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Industrial Operations

Refer to "Industrial Printing Solutions" above for information related to Printronix's operating activities.

In addition to the following results of operations discussion, more information related to our Intellectual Property Operations and Industrial Operations segment revenues and cost of revenues, may be found in Note 2 to the consolidated financial statements elsewhere herein.

Refer to "Industrial Operations Business" above for information related to Printronix's operating activities.

Energy Operations

Refer to "Energy Operations Business" above for information related to Benchmark's operating activities.

In addition to the following results of operations discussion, more information related to our Intellectual Property Operations, Industrial Operations and Energy Operations segment revenues, cost of revenues and cost of production may be found in Notes 2 and 19 to the consolidated financial statements.

Results of Operations

The results reflected in this section with respect to Printronix include results for the full year ended December 31, 2022 compared to an approximate three month period ended December 31, 2021 following our acquisition of Printronix.

The results reflected in this section with respect to Benchmark for the year ended December 31, 2023 include results for the period from November 13, 2023 to December 31, 2023 following our acquisition of Benchmark.

Summary of Results of Operations

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Total costs and expenses 104,166 99,315 4,851 5 %

Operating (loss) income (40,092) 14,545 (54,637) (376 %)

Total other (expense) income (87,058) 160,107 (247,165) (154 %)

(Loss) income before income taxes (127,150) 174,652 (301,802) (173 %)

Income tax benefit (expense) 16,211 (24,287) 40,498 (167 %)

Net (loss) income attributable to Acacia Research Corporation (125,065) 149,197 (274,262) (184 %)

Operating income (loss) 20,936 (40,092) 61,028 (152 %)

Total other income (expense) 46,490 (87,058) 133,548 (153 %)

Income (loss) before income taxes 67,426 (127,150) 194,576 (153 %)

Income tax benefit 1,504 16,211 (14,707) (91 %)

Net income (loss) attributable to Acacia Research Corporation 67,060 (125,065) 192,125 (154 %)

Results of Operations - year ended December 31, 2023 compared with the year ended December 31, 2022

Total revenues decreased $28.8 million to $59.2 million for the year ended December 31, 2022, as compared to $88.0 million for the year ended December 31, 2021, due to a decrease in our Intellectual Property Operations revenues.

ARG executed 17 new license agreements during 2022, a decrease of six versus the comparable prior period, which contributed to Intellectual Property Operations revenues decreasing by $56.5 million.

Total revenues increased $65.9 million to $125.1 million for the year ended December 31, 2023, as compared to $59.2 million for the year ended December 31, 2022 , primarily due to an increase in our Intellectual Property Operations revenues partially offset by a decrease in Industrial Operations revenues.

ARG revenues increased due to one patent portfolio that generated license revenue in the fourth quarter of 2023, which contributed to Intellectual Property Operations revenues increasing by $69.6 million.

Refer to “Investments in Patent Portfolios” above for additional information regarding the impact of portfolio acquisition trends on current and future licensing and enforcement related revenues.

The decrease was offset by the additional net revenues contributed from Printronix of $27.7 million.

Refer to "Revenues" below for further detailed discussion.

Loss before income taxes was $127.2 million for the year ended December 31, 2022, as compared to income of $174.7 million in the prior year.

The net decrease was comprised of the change in total revenues described above and other changes in operating expenses and other income or expense as follows:

• Inventor royalties increased $70,000, from $1.1 million to $1.2 million in 2022, primarily due to license agreement activity and related revenues generated with inventor royalty obligations.

Refer to "Cost of Revenues – Intellectual Property Operations " below for further discussion.

• Contingent legal fees decreased $9.6 million, from $12.1 million to $2.4 million in 2022, primarily due to the decrease in Intellectual Property Operations revenues described above.

Refer to "Cost of Revenues – Intellectual Property Operations " below for further discussion.

• Litigation and licensing expenses decreased $1.5 million, from $5.5 million to $4.0 million in 2022, primarily due to a net decrease in litigation support and third-party technical consulting expenses associated with ongoing litigation.

Refer to "Cost of Revenues – Intellectual Property Operations " below for further discussion.

• Amortization of patents expense from our intellectual property operations increased $552,000, from $9.9 million to $10.4 million in 2022, due to an increase in scheduled amortization resulting from the new portfolio acquired in 2021.

Refer to "Cost of Revenues – Intellectual Property Operations " below.

• Printronix cost of sales, engineering and development expenses, and sales and marketing expenses for 2022 added a total of $19.5 million to our consolidated operating expenses.

Refer to "Cost of Revenues – Industrial Operations " and "Operating Expenses" below for further discussion.

• We recognized other patent portfolio expense of $162,000 in 2021 for settlement and contingency expenses.

• General and administrative expenses increased $17.0 million, from $35.7 million to $52.7 million in 2022, primarily due to higher parent company and Intellectual Property Operations costs including, parent company consulting and legal fees related to the Recapitalization Agreement and the Life Sciences Portfolio, severance expense, compensation expense for share-based awards, personnel costs and board fees, accounting fees, and $7.2 million from our Industrial Operations general and administrative costs and amortization expense.

The decrease in Industrial Operations revenue of $4.6 million is due to lower units of printers sold.

Refer to “Industrial Operations – Revenues ” below for further detailed discussion.

In addition, post-acquisition revenues from Benchmark for the period from November 13, 2023 to December 31, 2023 contributed $848,000.

Refer to “Energy Operations – Revenues ” below for further discussion.

Income before income taxes was $67.4 million for the year ended December 31, 2023, as compared to loss of $127.2 million in the prior year.

The net increase was comprised of the change in total revenues described above and other changes in operating expenses and other income or expense as follows:

• Inventor royalties decreased $187,000, from $1.2 million to $1.0 million in 2023, primarily due to license agreement activity and related revenues generated in 2023 with no inventor royalty obligations.

Refer to "Intellectual Property Operations – Cost of Revenues " below for further discussion.

• Contingent legal fees increased $8.6 million, from $2.4 million to $11.0 million in 2023, primarily due to the change in Intellectual Property Operations revenues described above.

Refer to "Intellectual Property Operations – Cost of Revenues " below for further discussion.

• Litigation and licensing expenses increased $6.8 million, from $4.0 million to $10.8 million in 2023, primarily due to a net increase in litigation support and third-party technical consulting expenses associated with ongoing litigation.

Refer to "Intellectual Property Operations – Cost of Revenues " below for further discussion.

• Printronix cost of sales, engineering and development expenses, and sales and marketing expenses decreased approximately $3.0 million, from $28.6 million to $25.7 million in 2023.

Refer to "Industrial Operations – Cost of Revenues " and "Operating Expenses" below for further discussion.

• Post-acquisition cost of production from Benchmark for the period from November 13, 2023 through December 31, 2023 added operating expenses in the amount of $656,000 in 2023.

Refer to "Energy Operations – Cost of Production" below for further discussion.

• General and administrative expenses decreased $9.0 million, from $52.7 million to $43.7 million in 2023, primarily due to lower parent company and Intellectual Property Operations costs including, compensation expense for share-based awards, personnel costs, severance costs and our Industrial Operations general and administrative costs, offset partially by an increase in variable performance-based compensation costs and the addition of $264,000 expenses from our Energy Operations related to post-acquisition general and administrative costs from Benchmark for the period from November 13, 2023 through December 31, 2023.

Refer to " General and Administrative Expenses " below for further detail and discussion.

• Compensation expense for share-based awards, included in general and administrative expenses above, increased $1.8 million, from $2.1 million to $3.8 million in 2022, primarily due to restricted stock and option grants issued to employees and the Board in 2022 and 2021, which includes a partial offset by forfeitures for terminated employees.

• Unrealized loss from the change in fair value of our equity securities was $263.7 million in 2022, as compared to an unrealized gain of $87.5 million in the prior year.

The unrealized loss and gain were derived from our Life Sciences Portfolio and trading securities portfolio.

The current period unrealized loss primarily relates to the reversal of prior period unrealized gains for Life Sciences Portfolio securities that were sold for a realized gain in 2022.

• Compensation expense for share-based awards, included in general and administrative expenses above, decreased $523,000, from $3.8 million to $3.3 million in 2023, primarily due to forfeitures for terminated employees, which was partially offset by restricted stock and option grants issued to employees and the Board in 2023 and 2022.

• Unrealized gain from the change in fair value of our equity securities was $31.4 million in 2023, as compared to an unrealized loss of $263.7 million in the prior year.

The unrealized gain and loss were derived from our Life Sciences Portfolio and trading securities portfolio.

The prior year unrealized loss primarily relates to the reversal of unrealized gains previously recorded for shares sold during the year for realized gains.

Refer to " Equity Securities Investments " below for further discussion.

• Realized gain from the sale of our equity securities increased $9.2 million, from $116.1 million to $125.3 million in 2022.

The realized gains were derived from our Life Sciences Portfolio and trading securities portfolio.

The current period realized gain primarily relates to sales activity from two Life Sciences Portfolio securities and one trading security.

• Realized loss from the sale of equity securities was $10.9 million in 2023, as compared to a realized gain of $125.3 million in the prior year.

The realized gains and losses were similarly derived from the sales activity from our Life Sciences Portfolio and trading securities portfolio.

Refer to " Equity Securities Investments " below for further discussion.

• Earnings on equity investment in joint venture was $42.5 million in 2022, as compared to $3.5 million in the prior year.

• Earnings on equity investment in joint venture decreased $38.4 million, from $42.5 million to $4.2 million in 2023.

The current year includes the earnings on equity investment in joint venture from two milestone payments while the prior year included higher milestone payment amounts with related accrued interest and earnings on equity investment in the joint venture.

Refer to " Equity Securities Investments " below for a detailed discussion.

• We recognized an unrealized loss of $2.8 million on the fair value investment and a realized gain on sale of investment of $3.6 million in 2021 related to our former investment in Veritone.

Refer to " Equity Securities Investments " below for further discussion.

• Unrealized gain from the Series A and Series B warrants and the embedded derivative fair value measurements was $13.1 million in 2022, as compared to an unrealized loss of $40.4 million in the prior year.

We recognized an unrealized gain of $15.1 million from the fair value measurements of the Series A and Series B warrants and the embedded derivative in 2022, partially offset by a loss of $2.0 million upon the exercise of the Series A warrants in November 2022.

Refer to Note 8 to the consolidated financial statements elsewhere herein for additional information regarding the Starboard Securities.

• Loss on foreign currency exchange increased $3.2 million, from $89,000 to $3.3 million in 2022.

The increase was primarily derived from our foreign cash accounts exposed to fluctuations in foreign currency exchange rates between the U.S.

• Unrealized gain from the Series B warrants and the embedded derivative fair value measurements was $8.2 million in 2023, as compared to an unrealized gain of $13.1 million from the Series A and Series B warrants and embedded derivative fair value measurements in the prior year.

Refer to Notes 10 and 11 to the consolidated financial statements elsewhere herein for additional information regarding the Starboard Securities and fair value measurements.

• Gain on foreign currency exchange was $53,000 in 2023, as compared to a loss on foreign currency exchange of $3.3 million in the prior year.

The gains and losses were primarily derived from our foreign cash accounts exposed to fluctuations in foreign currency exchange rates between the U.S.

dollar and the British Pound.

• Interest expense on Senior Secured Notes decreased $1.5 million, from $7.9 million to $6.4 million in 2022, due to decreased interest expense related to recent Note activity.

• Interest expense on Senior Secured Notes decreased $4.5 million, from $6.4 million to $1.9 million in 2023, due to the cancellation of the remaining $60.0 million aggregate principal amount outstanding of the Senior Secured Notes on July 13, 2023, pursuant to the Series B Warrants Exercise.

Refer to Note 10 to the consolidated financial statements elsewhere herein for additional information regarding the Starboard Senior Secured Notes.

• Interest income and other, net was $5.4 million in 2022, as compared to $501,000 in the comparable prior period, mainly due to an increase in dividend income from our cash equivalents and equity security investments.

• Interest income and other, net was $15.5 million in 2023, as compared to $5.4 million in the prior year, mainly due to an increase in interest income from our cash equivalents, offset partially by an increase in the write off of the remaining limited unsecured notes of Adaptix Limited.

Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding our cash and cash equivalents and investments in equity securities.

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generating revenues 7 8 (1) (13 %)

Licensing and enforcement programs

with initial revenues — 4 (4) (100 %)

New patent portfolios — 1 (1) (100 %)

For the periods presented above, the majority of the revenue agreements executed provided for the payment of one-time, paid-up license fees in consideration for the grant of certain IP Rights for patented technology owned by our operating subsidiaries.

For the periods presented above, the majority of the revenue agreements executed during the relevant period provided for the payment of one-time, paid-up license fees in consideration for the grant of certain IP Rights for patented technology owned by our operating subsidiaries.

These rights were primarily granted on a perpetual basis, extending until the expiration of the underlying patents.

Paid-up revenue decreased $55.8 million due to a decrease in the number of agreements executed and a decrease in the average revenue per agreement.

Paid-up revenue increased $70.0 million due to one patent portfolio that generated license revenue in the fourth quarter of 2023.

Recurring revenue, that provides for quarterly sales-based license fees, decreased $399,000 from various on-going license arrangements.

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Refer to “Investments in Patent Portfolios” above for information regarding the impact of portfolio acquisition trends on current and future licensing and enforcement related revenues.

Industrial Operations

Printronix's net revenues for the periods presented included the following:

Year Ended December 31, 2022 October 7, 2021 to December 31, 2021 $ Change % Change

(In thousands, except percentage change value)

Printers and parts $ 16,118 $ 4,961 $ 11,157 225 %

Consumable products 19,314 5,973 13,341 223 %

Services 4,283 1,070 3,213 300 %

Total $ 39,715 $ 12,004 $ 27,711 231 %

Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Printronix's revenue arrangements and related concentrations.

Refer to “Industrial Printing Solutions” above for additional information related to Printronix's operating activities.

Cost of Revenues

Intellectual Property Operations

2023 2022 $ Change % Change

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Amortization of patents 11,370 10,403 967 9 %

Other patent portfolio expense — 162 (162) (100 %)

Total $ 34,164 $ 18,029 $ 16,135 89 %

Refer to detailed change explanations above for the year ended December 31, 2022 cost of revenues from our Intellectual Property Operations.

Refer to detailed change explanations above for the year ended December 31, 2023 and 2022 regarding cost of revenues for our Intellectual Property Operations.

The economic terms of patent portfolio related partnering agreements and contingent legal fee arrangements, if any, including royalty obligations, if any, royalty rates, contingent fee rates and other terms and conditions, vary across the patent portfolios owned or controlled by our operating subsidiaries.

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Industrial Operations

Printronix's cost of sales for the years ended December 31, 2022 and 2021 was $19.4 million and $7.4 million, respectively.

Printronix's cost of sales figures include the full year ended December 31, 2022 compared to an approximate three month period ended December 31, 2021 following our acquisition of Printronix.

Printronix's net revenues for the periods presented included the following:

2023 2022 $ Change % Change

(In thousands, except percentage change value)

Printers and parts $ 12,513 $ 16,118 $ (3,605) (22 %)

Consumable products 19,091 19,314 (223) (1 %)

Services 3,494 4,283 (789) (18 %)

Total $ 35,098 $ 39,715 $ (4,617) (12 %)

For the periods presented above, the majority of the contract agreements executed in the relevant period include various combinations of tangible products (which include printers, consumables and parts) and services.

Revenue from printers and parts decreased $3.6 million due to a decrease in the number of printer units sold.

Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Printronix's revenue arrangements and related concentrations.

Refer to “Industrial Operations Business” above for additional information related to Printronix's operating activities.

Cost of Revenues

2023 2022 $ Change % Change

(In thousands, except percentage change values)

Cost of revenues - industrial operations $ 18,009 $ 19,359 $ (1,350) (7 %)

Refer to detailed change explanations above for the years ended December 31, 2023 and 2022 regarding cost of revenues for our Industrial Operations.

The decrease in Printronix's cost of revenues for the year ended December 31, 2023 is due to change in revenue described above.

Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Printronix's cost of sales.

Energy Operations

Benchmark's revenues from November 13, 2023 through December 31, 2023 included the following (in thousands):

Oil sales $ 256

Natural gas sales 372

Natural gas liquids sales 220

Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Benchmark's revenue arrangements and related concentrations.

Cost of Production

Benchmark's cost of production from November 13, 2023 through December 31, 2023 was $656,000.

Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Benchmark's cost of production.

Operating Expenses

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General and administrative costs - industrial operations 8,722 9,986 (1,264) (13 %)

General and administrative costs - energy operations 264 — 264 n/a

Parent general and administrative expenses 27,306 37,266 (9,960) (27 %)

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The operating expenses table above includes the Company's general and administrative expenses by operation and Printronix's engineering and development expenses and sales and marketing expenses.

The periods presented above include Printronix's operating expenses for the full year ended December 31, 2022 compared to an approximate three month period

ended December 31, 2021 following our acquisition of Printronix.

The table includes Benchmark's general and administrative costs for the post acquisition period from November 13, 2023 through December 31, 2023.

Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Printronix's operating expenses.

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General and administrative costs - industrial operations (1,264)

Amortization of industrial operations intangible assets 1,333

General and administrative costs - energy operations 264

Compensation expense for share-based awards (523)

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General and administrative expenses include employee compensation and related personnel costs, including variable performance based compensation and compensation expense for share-based awards, office and facilities costs, legal and accounting professional fees, public relations, stock administration, business development, fixed asset depreciation, amortization of Industrial Operations intangible assets, state taxes based on gross receipts and other corporate costs.

The table above includes our Industrial Operations general and administrative expenses for the full year ended December 31, 2022 compared to an approximate three month period ended December 31, 2021 following our acquisition of Printronix.

The increases in personnel cost and board fees for the periods presented were primarily due to an increase in headcount and related costs.

The decrease in variable performance-based compensation costs was primarily due to fluctuations in performance-based compensation accruals.

The increases in other general and administrative costs, which relates to our parent company and Intellectual Property Operations business, were primarily due to parent company consulting and legal fees related to the Recapitalization Agreement and the Life Sciences Portfolio and higher accounting fees.

Compensation expense for share-based awards increased primarily due to restricted stock and option grants issued to employees and the Board in 2022 and 2021.

The table above includes our Energy Operations general and administrative expenses for the post acquisition period from November 13, 2023 through December 31, 2023.

The decrease in personnel cost and board fees and compensation expense for share-based awards was primarily due to a decrease in headcount and related costs.

The increase in variable performance-based compensation costs was primarily due to fluctuations in performance-based compensation accruals.

The decrease in other general and administrative costs, which relates to our parent company and Intellectual Property Operations business, were primarily due to lower legal fees.

Refer to Note 2 to the consolidated financial statements elsewhere herein for the additional information regarding the limited unsecured notes.

The decrease in general and administrative costs of Industrial Operations is due to Printronix's initiative to reduce costs and operate more efficiently.

Non-recurring employee severance costs fluctuate based on the severance arrangements of terminated employees.

In addition, our Industrial Operations related general and administrative costs and amortization contributed to the increased expenses in 2022.

In addition, our Energy Operations related general and administrative costs increased from post-acquisition expenses from Benchmark for the period from November 13, 2023 through December 31, 2023.

Refer to additional general and administrative change explanations above.

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Change in fair value of equity securities $ 31,423 $ (263,695) $ 295,118 (112 %)

Gain on sale of equity securities 125,318 116,129 9,189 8 %

(Loss) gain on sale of equity securities (10,930) 125,318 (136,248) (109 %)

Earnings on equity investment in joint venture 4,167 42,531 (38,364) (90 %)

Net realized and unrealized (loss) gain (95,846) 207,186 (303,032) (146 %)

Change in fair value of investment — (2,752) 2,752 (100 %)

Gain on sale of investment — 3,591 (3,591) (100 %)

Total net realized and unrealized (loss) gain $ (95,846) $ 208,025 $ (303,871) (146 %)

Total net realized and unrealized gain (loss) $ 24,660 $ (95,846) $ 120,506 (126 %)

Our equity securities investments, including the Life Sciences Portfolio and trading securities portfolio, are recorded at fair value at each balance sheet date.

During the fourth quarter of 2022, Acacia fully exited its position in Oxford Nanopore.

Refer to periodic change explanations above.

Refer to Notes 2 and 4 to the consolidated financial statements elsewhere herein for additional information regarding our investment in the Life Sciences Portfolio and other equity securities.

Our results included an unrealized loss from the change in fair value of our equity securities as compared to an unrealized gain in the prior period, while realized gains from the sale of our equity securities increased, as compared to the prior period.

Our results included an unrealized gain from the change in fair value of our equity securities as compared to an unrealized loss in the prior year, and included realized loss from the sale of our equity securities as compared to a realized gain in the prior year.

These changes were derived from our Life Sciences Portfolio and trading securities portfolio.

The current period unrealized loss primarily relates to the reversal of prior period unrealized gains for Life Sciences Portfolio securities that were sold for a realized gain in 2022.

The current period realized gain primarily relates to sales activity from two Life Sciences Portfolio securities and one trading security.

During 2021, we began to recognize earnings on our equity investment in joint venture, which is part of the Life Sciences Portfolio.

In April 2022, such investment received a certain drug approval from the United States Food and Drug Administration.

On a consolidated basis, we were due a milestone payment in the amount of $40.0 million, with interest accrued at 8.5% per year.

Our portion of that milestone payment in the amount of $27.2 million, which includes accrued interest, was received in November 2022.

In June 2022, in connection with the submission to the European Medicines Agency, on a consolidated basis, we were due an additional milestone payment in the amount of $1.8 million.

Our portion of that milestone payment was received in July 2022.

During 2022, we recorded consolidated earnings on equity investment of $42.5 million, including the two milestones and accrued interest.

The current period unrealized gain primarily relates to our Life Sciences Portfolio and trading securities portfolio.

The current period realized loss primarily relates to sales activity from trading securities portfolio.

During 2023, we recorded consolidated earnings on equity investment in joint venture, which is part of the Life Sciences Portfolio, of $4.2 million for two milestones earned during the period.

During 2022, we recorded consolidated earnings on equity investment of $42.5 million, including two milestones and accrued interest that were due in 2022.

Refer to Note 4 to the consolidated financial statements elsewhere herein for additional information.

Our prior year results included an unrealized loss on the fair value investment in Veritone, while we recognized a realized gain on sale of the equity investment in Veritone.

Acacia no longer has an investment in Veritone common stock and warrants.

Refer to additional change explanations above.

Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding our former investment in Veritone.

2023 2022 $ Change % Change

(In thousands, except percentage change values)

Income tax benefit (expense) $ 16,211 $ (24,287) $ 40,498 (167 %)

Income tax benefit $ 1,504 $ 16,211 $ (14,707) (91 %)

Effective tax rate (2) % (13) % n/a 11 %

Our income tax benefit for the year ended December 31, 2023 is primarily attributable to the use of tax attributes against 2023 earnings and the release of valuation allowance on the remaining federal net operating losses.

Our income tax benefit for the year ended December 31, 2022 primarily reflects the decrease in deferred tax liabilities attributable to the unrealized losses recorded, expiration of foreign tax credits and changes in the valuation allowance.

Our income tax expense for the year ended December 31, 2021 is primarily comprised of foreign taxes withheld and refunded on revenue agreements with licensees in foreign jurisdictions, state taxes, and the impact of valuation allowance changes.

Our 2022 effective tax rates were lower than the U.S.

federal statutory rate primarily due to expiration of foreign tax credits and changes in valuation allowance.

Our 2021 effective tax rates were lower than the U.S.

Our 2023 effective tax rate was lower than the U.S.

federal statutory rate primarily due to utilization of foreign tax credits, changes in valuation allowance, as well as non-deductible items.

Our 2022 effective tax rate was lower than the U.S.

federal statutory rate primarily due to the change in valuation allowance, as well as non-deductible items.

The effective tax rate may be subject to fluctuations during the year as new information is obtained which may affect the assumptions used to estimate the effective tax rate, including factors such as expected utilization of net operating loss carryforwards, changes in or the interpretation of tax laws in jurisdictions where the Company conducts business, the Company’s expansion into new states or foreign countries, and the amount of valuation allowances against deferred tax assets.

The effective tax rate may be subject to fluctuations during the year as new information is obtained which may affect the assumptions used

to estimate the effective tax rate, including factors such as expected utilization of net operating loss carryforwards, changes in or the interpretation of tax laws in jurisdictions where the Company conducts business, the Company’s expansion into new states or foreign countries, and the amount of valuation allowances against deferred tax assets.

The Company has recorded a partial valuation allowance against our net deferred tax assets as of December 31, 2023 and 2022.

Refer to Notes 2 and 17 to the consolidated financial statements elsewhere herein for additional income tax information.

Historically, inflation has not had a significant impact on us or any of our subsidiaries.

While insignificant to our consolidated enterprise, during the year ended December 31, 2022, our Printronix subsidiary experienced some inflation from higher freight costs and in the cost of raw materials than in previous years.

While Printronix inventory costs have

been impacted by these inflationary pressures, up to this point Printronix has generally been able to adjust selling prices in response to these higher costs.

Liquidity and Capital Resources

Our foreseeable material cash requirements as of December 31, 2023, are recognized as liabilities or generally are otherwise described in Note 13, "Commitments and Contingencies," to the consolidated financial statements included elsewhere herein.

Our most significant liabilities as reflected on our balance sheet as of December 31, 2022 include the Senior Secured Notes and, because of certain provisions in the related agreements that provide for net cash settlement upon a change in control, the Series B Warrants.

For additional information, see Note 8, "Starboard Investment" to the consolidated financial statements included elsewhere herein.

The Senior Secured Notes mature on July 14, 2023.

In accordance with the terms of the Recapitalization Agreement, on or prior to July 14, 2023, a portion of the Series B Warrants are expected to be exercised for common stock through the Series B Warrants Exercise.

In addition to the foregoing, we will be required to make the Recapitalization Payment at the closing of the Series B Warrants Exercise.

Cash requirements are generally derived from our operating and investing activities including expenditures for working capital (discussed below), human capital, business development, investments in equity securities and intellectual property, and business combinations.

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At December 31, 2023, we had unrecognized tax benefits, as further described in Note 17 to the consolidated financial statements.

On July 13, 2023, in accordance with the terms of the Recapitalization Agreement, Starboard completed the Series B Warrants Exercise and pursuant to the Series B Warrants Exercise, the Company cancelled $60.0 million aggregate principal amount of Senior Secured Notes held by Starboard and received aggregate gross proceeds of approximately $55.0 million.

At the closing of the Series B Warrants Exercise, the Company effectively paid to Starboard an aggregate amount of $66.0 million representing a negotiated settlement of the foregone time value of the Series B Warrants and the Series A Redeemable Convertible Preferred Stock (which amount was paid through a reduction in the exercise price of the Series B Warrants).

This effectively modified the exercise price of the Series B Warrants.

Upon the Series B Warrants Exercise, the Investors exercised the Series B Warrants at a reduced price and Company issued an aggregate of 31,506,849 shares of the Company's common stock to the Investors in consideration of their cash payment and cancellation of any outstanding Senior Secured Notes.

No shares of Series A Redeemable Convertible Preferred Stock, no Series B Warrants, nor any Senior Secured Notes remain.

For additional information, see Note 10, "Starboard Investment" to the consolidated financial statements.

Certain of our operating subsidiaries are often required to engage in litigation to enforce their patents and patent rights.

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In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material.

Our primary sources of liquidity are cash and cash equivalents on hand generated from our operating activities, and as deemed appropriate by management from our availability of Senior Secured Notes (discussed in Note 8 to the consolidated financial statements elsewhere herein).

We expect to satisfy our obligations under the existing Senior Secured Notes that mature on July 14, 2023 and make the Recapitalization Payment with cash on hand.

At December 31, 2023, our primary sources of liquidity are cash and cash equivalents on hand and cash generated from our operating activities.

Our cash and cash equivalents on hand includes proceeds of the completed Rights Offering and Concurrent Private Rights Offering (each as defined in Note 10 to the consolidated financial statements).

The Company’s expected contribution to Benchmark to fund its portion of the Purchase Price for the Revolution Transaction is $57.5 million, which the Company anticipates will be funded from cash on hand.

Furthermore, we intend to grow our company by acquiring additional operating businesses and intellectual property assets.

We expect to finance such acquisitions through cash on hand or by engaging in equity or debt financing.

Our management believes that our cash and cash equivalent balances, anticipated cash flows from operations and the transactions taken and contemplated to be taken in connection with the Recapitalization, and our availability of Senior Secured Notes will be sufficient to meet our cash requirements through at least twelve months from the date of this report and for the foreseeable future.

Our management believes that our cash and cash equivalent balances and cash flows from operations will be sufficient to meet our cash requirements through at least twelve months from the date of this Annual Report and for the foreseeable

We may, however, encounter unforeseen difficulties that may deplete our capital resources more rapidly than anticipated, including those set forth under Item 1A, “Risk Factors”.

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Cash, Cash Equivalents and Investments

Our consolidated cash, cash equivalents, equity securities and long-term restricted cash totaled $349.4 million at December 31, 2022, compared to $671.1 million at December 31, 2021.

Our consolidated cash, cash equivalents and equity securities totaled $403.2 million at December 31, 2023, compared to $349.4 million at December 31, 2022.

Cash Flows Summary

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(In thousands)

Net cash (used in) provided by:

Net cash provided by (used in):

Operating activities $ (22,506) $ (37,336)

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Effect of exchange rates on cash and cash equivalents 1 (2,566)

(Decrease) increase in cash and cash equivalents and restricted cash $ (21,575) $ 108,815

Increase (decrease) in cash and cash equivalents $ 52,305 $ (21,575)

Cash Flows from Operating Activities

Cash flows from operating activities were comprised of the following for the periods presented:

Years Ended December 31,

(In thousands)

Net income (loss) including noncontrolling interests in subsidiaries $ 68,930 $ (110,939)

Adjustments to reconcile net income (loss) including noncontrolling interests in

subsidiaries to net cash used in operating activities:

Depreciation, depletion and amortization 14,728 13,514

Amortization of debt discount and issuance costs — 90

Change in fair values Series A redeemable convertible preferred stock embedded derivatives, Series A warrants and Series B warrants (6,716) (15,106)

Loss on exercise of Series A warrants — 2,004

Gain on exercise of Series B warrants (1,525) —

Compensation expense for share-based awards 3,297 3,820

(Gain) loss on foreign currency exchange (53) 3,324

Change in fair value of equity securities (31,423) 263,695

Loss (gain) on sale of equity securities 10,930 (125,318)

Unrealized gain on derivatives (781) —

Earnings on equity investment in joint venture (4,167) (42,531)

Deferred income taxes (3,657) (17,810)

Changes in assets and liabilities:

Accounts receivable (70,313) 998

Inventories 3,301 (5,291)

Prepaid expenses and other assets (820) (5,986)

Accounts payable and accrued expenses (4,651) (136)

Royalties and contingent legal fees payable 751 (1,764)

Deferred revenue (337) 100

Net cash used in operating activities $ (22,506) $ (37,336)

Cash receipts from ARG's licensees totaled $12.2 million and $16.6 million for the years ended December 31, 2023 and 2022, respectively.

Cash receipts from Printronix's customers totaled $40.5 million and $11.7 million for the year ended December 31, 2022 and the period from October 7, 2021 through December 31, 2021, respectively.

Cash receipts from Printronix's customers totaled $37.3 million and $40.5 million for the years ended December 31, 2023 and 2022, respectively.

Cash receipts from Benchmark's customers totaled $1.8 million for the post acquisition period from November 13, 2023 through December 31, 2023.

The fluctuations in cash receipts for the periods presented primarily reflects the corresponding fluctuations in revenues recognized during the same periods, as described above, and the related timing of payments received from licensees and customers.

Our reported cash used in operations for the year ended December 31, 2022 was $37.3 million, compared to $13.3 million cash provided by operations in the prior year.

Our 2022 cash used in operations was due to net outflows from the total changes in assets and liabilities (refer to Working Capital discussion below), most notably from a patent cost related payment of $6.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for additional information), inventory related purchases and royalties and contingent legal fees related payments, and by the total change in net loss (described above) and related noncash adjustments.

Our reported cash used in operations for the year ended December 31, 2023 was $22.5 million, compared to $37.3 million in the prior year.

The decrease in cash used in operations was primarily due to net outflows from the total changes in assets and liabilities (refer to Working Capital discussion below), increase in accounts receivable and inventory related sales, and by the total change in net income (described above) and related noncash adjustments.

Working Capital

Our working capital related to cash flows from operating activities at December 31, 2022 decreased to $15.1 million, compared to $4.3 million at December 31, 2021, which was comprised of the changes discussed below.

Accounts receivable decreased to $8.2 million at December 31, 2022, compared to $9.5 million at December 31, 2021.

Refer to the related cash receipts discussion above.

Printronix's inventories increased to $14.2 million at December 31, 2022, compared to $8.9 million at December 31, 2021.

Prepaid expenses and other current assets increased to $19.4 million at December 31, 2022, compared to $4.8 million at December 31, 2021, primarily due to certain patent related costs incurred of $15.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for additional information).

Accounts payable, accrued expenses and other current liabilities and accrued compensation increased to $24.8 million at December 31, 2022, compared to $15.4 million at December 31, 2021, primarily due to accrued patent costs of $9.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for additional information), severance accruals in the fourth quarter of 2022 and higher accounting fees.

Royalties and contingent legal fees payable decreased to $699,000 at December 31, 2022, compared to $2.5 million at December 31, 2021 due to the reversal of a previously recorded accrual.

Printronix's current deferred revenue increased to $1.2 million at December 31, 2022, compared to $1.1 million at December 31, 2021.

Our working capital related to cash flows from operating activities at December 31, 2023 increased to $87.0 million, compared to $15.1 million at December 31, 2022, which was comprised of the changes in assets and liabilities presented above.

The increase is primarily due to change in accounts receivable, which is related to the timing of the cash receipts related to Intellectual Property Operations Business.

Cash Flows from Investing Activities

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(In thousands)

Acquisition, net of cash acquired $ — $ (33,250)

Acquisition, net of cash acquired (Note 3) $ (9,409) $ —

Cash reinvested 9,965 —

Patent acquisition (6,000) (5,000)

Sale of investment at fair value — 3,591

Purchases of equity securities (13,072) (112,142)

Sales of equity securities 32,106 273,934

Cash distributed for notes receivable — (4,021)

Distributions received from equity investment in joint venture 2,777 28,404

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Net cash provided by investing activities $ 16,178 $ 184,464

Cash flows from investing activities for the year ended December 31, 2022 increased to $184.5 million, as compared to cash flow of $35.8 million in the prior year, primarily due to net cash inflows from our Life Sciences Portfolio and trading securities portfolio equity securities transactions in 2022.

Refer to “Other Income/Expense – Equity Securities Investments ” above for additional information.

Cash flows from investing activities for the year ended December 31, 2023 decreased to $16.2 million, as compared to cash flow of $184.5 million in the prior year, primarily due to net cash inflows from our Life Sciences Portfolio, trading securities portfolio equity securities transactions and Acacia's acquisition of Benchmark in 2023.

Refer to “Other Income/Expense – Equity Securities Investments ” and “Recent Business Developments and Trends - Acquisitions ” above and Notes 3 and 4 to the consolidated financial statements elsewhere herein for additional information related to Acacia's acquisition of Benchmark and Life Sciences Portfolio, respectively.

Cash Flows from Financing Activities

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Repurchase of common stock $ — $ (50,988)

Issuance of Senior Secured Notes, net of lender fee — 115,000

Paydown of Revolving Credit Facility (7,700) —

Paydown of Senior Secured Notes (60,000) (120,000)

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Taxes paid related to net share settlement of share-based awards (614) (1,600)

Proceeds from Rights Offering 79,111 —

Proceeds from exercise of Series A warrants — 9,250

Proceeds from exercise of Series B warrants 49,000 —

Proceeds from exercise of stock options 235 —

Net cash (used in) provided by financing activities $ (166,137) $ 59,738

Cash outflows from financing activities for the year ended December 31, 2022 increased to $166.1 million, as compared to cash flow of $59.7 million in the prior year, primarily due to activity related to our Senior Secured Notes and our common stock repurchases (refer to Note 12).

Refer to Note 8 to the consolidated financial statements elsewhere herein for additional information related to the Senior Secured Notes.

Net cash provided by (used in) financing activities $ 58,632 $ (166,137)

Cash inflows from financing activities for the year ended December 31, 2023 increased to $58.6 million, as compared to cash outflow of $166.1 million in the prior year, primarily due to activity related to the Rights Offering and Concurrent Private Rights Offering.

On October 30, 2022, the Company entered into a Recapitalization Agreement with Starboard and the Investors.

Refer to Note 8 to the consolidated financial statements elsewhere herein for additional information.

On July 13, 2023, Starboard completed the Series B Warrants Exercise through a combination of a "Note Cancellation" and a "Limited Cash Exercise." Refer to Note 10 to the consolidated financial statements elsewhere herein for additional information.

Critical Accounting Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.

In preparing these financial statements, we make assumptions, judgments and estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

financial condition or results of operations.

We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances.

Actual results could differ materially from

these estimates under different assumptions or conditions.

Actual results could differ materially from these estimates under different assumptions or conditions.

On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly.

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• revenue recognition;

• estimates of crude oil and natural gas reserves

• valuation of long-lived assets, goodwill and other intangible assets;

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For additional information regarding Printronix's net revenues, refer to Note 2 to the consolidated financial statements.

Benchmark recognizes revenue when performance obligations are satisfied at the point control of the product is transferred to the customer.

Virtually all of Benchmark's contracts' pricing provisions are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of the oil and natural gas products and prevailing supply and demand conditions.

As a result, the price of the oil and natural gas fluctuate to remain competitive with other available oil and natural gas supplies.

To the extent actual volumes and prices of oil and natural gas products are unavailable at the time of reporting, Benchmark will estimate the amounts.

For additional information regarding Benchmark's revenues, refer to Note 2 to the consolidated financial statements.

The differences between such estimates and actual amounts of oil and natural gas sales are recorded in the following month upon receipt of payment from the customer and any differences have historically been insignificant.

Estimate of Crude Oil and Natural Gas Reserves

Estimates of crude oil and natural gas reserves, as determined by independent petroleum engineers, are continually subject to revision based on price, production history and other factors.

Estimated crude oil and natural gas reserves affect the

carrying value of oil and gas properties, depreciation, depletion and amortizations, asset retirement obligations, and evaluation of impairment of oil and natural gas properties.

Changes in the estimated reserves could have a significant impact on future results of operations.

Valuation of Long-lived Assets, Goodwill and Other Intangible Assets

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Significant judgment by management is required in estimating the fair value of a reporting unit and in performing impairment reviews.

Due to the inherent subjectivity and uncertainty in forecasting future

cash flows and earnings over long periods of time, actual results may vary materially from the forecasts.

Due to the inherent subjectivity and uncertainty in forecasting future cash flows and earnings over long periods of time, actual results may vary materially from the forecasts.

If the carrying value of a reporting unit exceeds the estimated fair value of the reporting unit, then the excess, limited to the carrying amount of goodwill, will be charged to operations as an impairment loss.

The Company's goodwill balance relates to Printronix, which was acquired on October 7, 2021, refer to Note 1 to the consolidated financial statements for additional information.

The Company's goodwill balance relates to primarily Printronix, which was acquired on October 7, 2021, and Benchmark, which was acquired on November 13, 2023, refer to Notes 1 and 3 to the consolidated financial statements for additional information.

The Company did not record any goodwill impairment charges for the years ended December 31, 2023 and 2022.

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Of the assumptions used in the Black-Scholes option-pricing model, volatility changes would have the most significant impact on the fair value.

As of December 31, 2022, a hypothetical 10% increase in the volatility would have resulted in an increased liability balance of approximately $133,000 in our Series B Warrants.

As of December 31, 2023, the fair value of the Series B Warrants is zero.

Refer to Note 10 to the consolidated financial statements for more information.

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Embedded derivatives that are required to be bifurcated from their host contract are valued separately from the host instrument.

An as-converted value is currently used to estimate the fair value of the embedded derivative in the Series A Redeemable Convertible Preferred Stock.

An as-converted value was used to estimate the fair value of the embedded derivative in the Series A Redeemable Convertible Preferred Stock when it was outstanding.

Refer to Note 11 to the consolidated financial statements for detailed information related to this fair value measurement.

Of the assumptions used in the as-converted model, discount rate changes would have the most significant impact on the fair value.

As of December 31, 2022, a hypothetical 1% increase in the discount rate would have resulted in an increased liability balance of approximately $959,000.

Of the assumptions used in the as-converted model, discount rate changes had the most significant impact on the fair value.

As of December 31, 2023, the fair value of the embedded derivative in the Series A Redeemable Convertible Preferred Stock is zero because it is no longer outstanding.

Refer to Note 10 to the consolidated financial statements for more information.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis