Q3 2024 Acacia Research Corp Earnings Call
Good morning, ladies and gentlemen, and thank you for joining us for Acacia research third quarter 2024 earnings Conference call. My name is Jenny and I'll be your conference facilitator today.
Unknown Attendee: Good morning, ladies and gentlemen, and thank you for joining us for Acacia Research's third quarter 2024 earnings conference call.
Unknown Attendee: My name is Jenny and I'll be your conference facilitator today. All lines are currently on mute to prevent any background noise. I would like to remind you that this conference is being recorded today and is also available through audio webcast on Acacia's website.
All lines are currently on mute to prevent any background noise I would like to remind you that this conference is being recorded today and is also available through audio webcast on Acacias web site. Following the Speakers' remarks, there will be time for questions questions can also be directed to Acacia at IOL.
Unknown Attendee: Following the speaker's remarks, there will be time for questions.
Brent Anderson: Questions can also be directed to Acacia at ir at acaciares.com I would now like to turn the conference over to Mr. Brent Anderson of Gagnier Communications.
At Acacia Ridge, which is a C E C. I a R E S dot com.
I would now like to turn the conference over to Mr. Brent Anderson of Kanye Communications. Mr. Anderson, you may begin the conference.
Brent Anderson: Mr. Anderson, you may begin the conference. Thank you, Operator.
Brent Anderson: Thank you operator, leading today's call are MJ, Mcnulty Acacias, Chief Executive Officer, and Kirsten Hoover Acacias interim Chief Financial Officer.
Brent Anderson: Leading today's call are M.J. McNulty, Acacia's Chief Executive Officer, and Kirsten Hoover, Acacia's Interim Chief Financial Officer.
Unknown Attendee: Before M.J. and Kirsten begin their prepared remarks, please be reminded that information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts, and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives, and expectations for future operation and are based on the current estimates and projections, future results, or trends. Actual results may differ materially from those projected as a result of certain risks and uncertainties.
Speaker Change: Before and Jan Kees didn't begin their prepared remarks, please be reminded that information provided during this call may contain forward looking statements relating to current expectations estimates forecasts and projections about future events that are forward looking as defined in the private Securities Litigation Reform Act of 1995.
Speaker Change: These forward looking statements generally relate to the company's plans objectives and expectations for future operation and are based on the current estimates and projections future results or trends actual results may differ materially from those projected as a result of certain risks and uncertainties.
Unknown Attendee: For a discussion of such risks and uncertainties, please see the risk factors described in Acacia's annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC.
Speaker Change: For a discussion of such risks and uncertainties. Please see the risk factors described indications annual report on Form 10-K quarterly reports on Form 10-Q filed with the SEC.
Unknown Attendee: Acacia issued a press release disclosing its third quarter financial results earlier this morning. The press release may be accessed on the company's website under the Press Releases section of the Investor Relations tab at AcaciaResearch.com. The company also posted its Q3 2024 earnings presentation to its website, each of which can be found under the Events and Presentations tab.
Speaker Change: Acacia issued a press release disclosing its third quarter financial results earlier. This morning. The press release may be accessed on the company's web site under the press releases section of the Investor Relations tab at Acacia research Dot Com. The company also posted its Q3 2024 earnings presentation to its web site each of which can be found under the.
Speaker Change: The events and presentations tab.
M.J. McNulty: I would now like to turn the call over to Acacia's Chief Executive Officer, MJ McNulty. Thanks, Brett. And thanks to everyone for joining us today for our third quarter earnings call. As many of you have heard me say, Acacia is a value oriented acquirer and operator of businesses across the industrial, energy and technology sector. Specifically, we're focused on acquiring and building companies that have stable cash flow generation with an ability to scale while retaining the flexibility to make opportunistic acquisitions with higher risk adjusted return characteristics.
Speaker Change: Now I'd like to turn the call over to Acacia as Chief Executive Officer, and John Mcnulty.
Speaker Change: Thanks, Brett.
Speaker Change: Thanks to everyone for joining us today for third quarter earnings call.
Speaker Change: As many of you have heard me say Acacia is a value oriented acquire and operate our businesses across the industrial energy and technology sectors.
Speaker Change: Specifically, we're focused on acquiring and building companies that have stable cash flow generation with an ability to scale, while retaining the flexibility to make opportunistic acquisitions with higher risk adjusted return characteristics.
M.J. McNulty: With that in mind, I'd like to begin our call today by talking about our investment strategy and how Deflecto, the newest addition to our stable of companies, fits our strategy to a T. After significant due diligence, negotiation, and strategic planning, we signed and simultaneously closed on our purchase of Deflecto lately. This transaction, like our acquisition of Benchmark almost a year ago, came about through adhering closely to our philosophy of building strong and like-minded relationships with business leaders. And importantly, finding opportunities to make a return owning a business rather than through selling it.
Speaker Change: With that in mind I'd like to begin our call today by talking about our investment strategy and how to <unk>. The newest addition to our stable of companies fits our strategy to a T.
Speaker Change: After significant due diligence negotiation and strategic planning, we signed and simultaneously closed on our purchase of de facto late last month.
Speaker Change: This transaction like our acquisition of benchmark almost a year ago.
Speaker Change: About through adhering closely to our philosophy of building strong and likeminded relationships with business leaders.
Speaker Change: And importantly, finding opportunities to make a return of owning a business rather than through selling of business.
M.J. McNulty: like to drill down a bit on that last point, because I think it's one of the key elements that differentiates us from others. We run several valuation models and metrics when we evaluate a business. One metric we rely heavily on is the durability and scalability of a target's annual earnings. rather than its exit burn. and the impact of these earnings on our income statement. Specifically, we underwrite to an acceptable range of unlabored and labored earnings. relative to the purchase price of the business and the related equity required to fund the acquisition.
Speaker Change: I'd like to drill down a bit on that last point, because I think it's one of the key elements that differentiates us from others.
Speaker Change: We run several valuation models and metrics when we evaluate our business one metric we rely heavily on is the durability and scalability of the targets annual earnings stream.
Speaker Change: Rather than its exit earnings.
Speaker Change: And the impact of these earnings on our income statement.
Specifically, we underwrite to an acceptable range of Unlevered and Levered earnings yields relative to the purchase price of the business and the related equity required to fund the acquisition.
M.J. McNulty: So why is this different? It's distinct from the quote, leverage buyout level, where the purchase price is heavily financed through a credit package. enabling small enhancements to earnings and potential valuation multiple expansion to generate return. Both models work as private equity is shown. However, in the private equity model, the gains are heavily back-weighted and thus carry a higher discount rate and incremental leverage. Our model instead targets similar returns without requiring an exit event for the business to generate those returns. So when we acquire a business at a quote, good multiple, it means we believe we're acquiring an attractive earning stream relative to the price we paid to acquire that business.
Speaker Change: Why is this different.
Speaker Change: It is distinct from the quote leverage buyout level, where the purchase prices heavily financed through our credit package, enabling small enhancements to earnings and potential valuation multiple expansion to generate returns.
Speaker Change: Both models work as private equity as shown however, the private equity model in the private equity model. The gains are heavily back weighted and those carry a higher discount rates and incremental leverage risk.
Speaker Change: Our model instead target similar returns without requiring an exit event for the business to generate those returns.
Speaker Change: So when we acquire a business called.
Speaker Change: Good multiple it means we believe we are acquiring an attractive earnings stream relative to the price we paid to acquire that business.
M.J. McNulty: And we believe there's an inherent valuation benefit relative to where similarly situated assets might trade in the market.
And we believe there is an inherent valuation benefit relative to where similarly, situated assets might trade in the market.
M.J. McNulty: As I've mentioned in the past, we approach our acquisitions as long-term owners. Though in our evaluation of capital allocation opportunities, we may from time to time sell a business. I'd be remiss if I didn't also mention, as part of our operating philosophy, That we endeavor through our strong network of operating partners to enhance the values of the businesses we acquire, driving both the ability to generate incremental earnings, potentially enhancing the company's valuation.
Speaker Change: As I've mentioned in the past as we approach acquisitions as long term owners.
Speaker Change: What our evaluation of capital allocation opportunities, we may from time to time sell a business.
Speaker Change: I'd be remiss if I didn't also mention as part of our operating philosophy that we endeavor through our strong network of operating partners to enhance the values of the businesses, we acquired driving both the ability to generate incremental earnings potentially enhancing the company's valuation multiple.
M.J. McNulty: The Deflecto acquisition was our third acquisition in the last 12 with two on our energy vertical and one on our industrials vertical. These acquisitions have brought enhanced scale to our business, and we continue to evaluate new platforms specifically for our technology. Within each of our platforms, we believe there are several attractive organic and margin, organic growth and margin opportunities. as well as the opportunity to be a strategic acquirer and consolidate within their respective industry. Simply put, we buy businesses and create platforms. We grow them organically and through M&A with a clear focus on free cash flow generation and defined expectations on return on invested cash.
Speaker Change: It affected acquisition was our third acquisition in the last 12 months with two what our energy vertical and one at our industrials vertical. These acquisitions have brought enhanced scale to our business and we continue to evaluate new platforms, specifically for our technology.
Speaker Change: Within each of our platforms. We believe there are several attractive organic and margin on organic growth and margin opportunities as well as the opportunity to be a strategic acquire and consolidate within their respective industries.
Speaker Change: Simply put we buy businesses and create platforms, we grow them organically and through M&A with a clear focus on free cash flow generation and defined expectations on return on invested capital.
M.J. McNulty: We then have the optionality to grow and reinvest free cash flow or look to monetize and build new platforms. You can see this in our recent acquisitions of Deflecto and Benchmark.
We then have the optionality to grow and reinvest free cash flow or look to monetize and build new platforms. You can see this in our recent acquisitions of de facto benchmark.
M.J. McNulty: Moving to the Flecta. DeFlecto is a leading specialty manufacturer of essential products serving the commercial transportation, HVAC, and office markets. This acquisition is a fantastic addition to our growing portfolio of strategic assets. DeFlecto is a market leader across each of its segments and markets, and the acquisition is aligned with our long-term strategy. The business fits within our target size range, sells diversified, and in many cases, regulatorily mandated products, and has a strong capital allocation program. We're thrilled to be partnering with the Deflecto team and I'm excited by Deflecto's strong growth potential. I believe it has attractive near and long term value creation opportunities through product and operational optimization as well as strategic efforts.
Speaker Change: Moving to the blackout.
Speaker Change: <unk> is a leading specialty manufacturer of essential products, serving the commercial the commercial transportation HVAC and all of its markets. This acquisition is a fantastic addition to our growing portfolio of strategic assets to.
Speaker Change: <unk> is a market leader across each of its segments and markets and the acquisition is aligned with our long term strategy the business fits within our target size range.
Speaker Change: <unk> diversified and in many cases regulatory mandated products.
Speaker Change: A strong capital allocation focus.
Speaker Change: We're thrilled to be partnering with the <unk> team and I'm excited by deflect that has strong growth potential I believe it has attractive near and long term value creation opportunities through product and operational optimization as well as strategic M&A.
M.J. McNulty: As you'll see in our earnings supplement, we purchased 100% of Deflecto for $103.7 million. This included $48 million in debt financing and $55.7 million in equity for Acacia's balance sheet. We anticipate DeFlecto to generate revenues in the range of $128 to $136 million and $17.5 to $19.5 million in EBITDA for 2024. The company has moderate capital needs, a diversified customer and supplier base, and has substantial market share in each one of its operating businesses.
Speaker Change: As Youll see in our earnings supplement we purchased 100% of reflective for $103 7 million missing.
Speaker Change: This included $48 million in debt financing and $55 7 million in equity <unk> balance sheet.
Speaker Change: We anticipate a flight go to generate revenues in the range of $128 million to $136 million.
Speaker Change: $17 five to $19 5 million of EBITDA for 2024.
Speaker Change: As moderate capital needs, a diversified customer and supplier base.
Speaker Change: Substantial market share in each one of its operating businesses.
Speaker Change: It very much like to acknowledge the tremendous amount of work. Our team has done this past year to successfully complete the two benchmark transactions and the acquisition of deflected I'm.
M.J. McNulty: It very much like to acknowledge the tremendous amount of work our team has done this past year to successfully complete the two benchmark transactions and the acquisition of Deflecta. I'm extremely grateful and humbled to work with such a dedicated team.
Speaker Change: I'm extremely grateful and humbled to work with such a dedicated team.
Speaker Change: Turning now to earnings.
M.J. McNulty: Learning Now To... In our ongoing effort to provide shareholders in the market with greater visibility into the financial strength of our core verticals, this quarter we disclosed Operated Segment Adjusted EBITDA as part of our We believe these adjusted results are more representative of the underlying earnings power of the business. and should help our investors normalize for certain factors, including non-cash amortization expenses, mark-to-market accounting of benchmarks hedge book, and public security. and certain non-recurring corporate level expenses.
Speaker Change: In our ongoing effort to provide shareholders and the market with greater visibility into the financial strength of our core verticals. This quarter, we disclosed the operating segment adjusted EBITDA as part of our filings.
Speaker Change: We believe these adjusted results are more representative of the underlying earnings power of the businesses and should help our investors normalized for certain factors.
Speaker Change: Noncash amortization expenses, Mark to market accounting of benchmark hedge book and public Securities.
Certain nonrecurring corporate level expenses the key takeaways for this quarter are that are operated segment adjusted EBITDA.
M.J. McNulty: The key takeaways for this quarter are that our operated segment adjusted EBITDA, which has yet to include our acquisition of Deflecto, continues to grow. IP, which we've mentioned in the past, is periodic and that we are managing our parent costs well while we largely offset those costs with interest income generated on our cash balance. I'm pleased with the team's efforts to diligently manage our parent level costs, which have generally been consistent, although up a bit this quarter because of increased accounting costs due to the growth in the company. It's a nice challenge to have.
Speaker Change: Which has yet to include our acquisition of deflected continue.
Speaker Change: <unk> continues to grow IP, which we've mentioned in the past is periodic.
Speaker Change: And that we are managing our parent cost well, what we largely offset those costs with interest income generated on our cash balances.
Speaker Change: Pleased with the team's efforts to diligently manage our parent level costs, which have generally been consistent although up a bit this quarter, because they because of increased accounting costs due to the growth in the company to a nice challenge.
Speaker Change: <unk> gone to this more in more detail, but briefly our third quarter results reflect our unwavering focus on value creation through our technology energy and industrial verticals.
M.J. McNulty: Kirsten will go into this more in more detail, but briefly, our third quarter results reflect our unwavering focus on value creation through our technology, energy and industrial The company generated $23.3 million in consolidated revenue from the quarter up 131% compared to the third quarter of last year, driven by the full quarter impact, the recent benchmark acquisition, but off slightly compared to the 25.8 million generated in Q2 due to lower intellectual property revenue, which we mentioned earlier, it comes in periodically. The company also generated $1.7 million of adjusted EBITDA in the third quarter and $12.1 million in the nine months ended September, driven by $6.9 million and $26.1 million in operated segment adjusted EBITDA and $9 million and $19.8 million in operated segment adjusted EBITDA, excluding IP operations to normalize the volatility.
Speaker Change: The company generated $23 $3 million in consolidated revenue from the quarter.
Speaker Change: Up 131% compared to the third quarter of last year, driven by the full quarter impact the recent benchmark acquisition.
Speaker Change: But off slightly compared to the $25 8 million generated in Q2 due to lower intellectual property revenue, which we mentioned earlier it comes in periodically.
Speaker Change: The company also generated $1 7 million of adjusted EBITDA in the third quarter and $12 1 million in the nine months ended September driven by $6 9 million at $26 1 million and operated segment adjusted EBITDA at 9 million and $19 8 million and operated segment adjusted EBITDA.
Leading IP operations to normalize.
Speaker Change: The volatility.
M.J. McNulty: Parent costs for the three and nine months ended September 30th were $5.2 million and $14 million, respectively, which are largely offset by $4.6 million and $14.7 million of corporate interest income, respectively. Diving into the business verticals, our energy operations generated $15.8 million in revenues during the quarter, up 12% from $14.2 million in the second quarter. reflecting the benefit of the full quarter impact of Benchmark's April acquisition. As a reminder, our energy operations revenue number excludes the impact of realized hedge gains, which is included in other income. Our industrials operation generated $7 million in revenues, up 11% from $6.3 million in the second quarter due to an increase in printer and consumable sales.
Speaker Change: Eric cost for these for the three and nine months ended September 30th were $5 2 million and.
In 2000, 14 million, respectively, which are largely offset by $4, six which are largely offset by $4 6 million or $14 $7 million of corporate interest income respectively.
Speaker Change: Diving into the business verticals, our energy operations generated $15 8 million in revenues during the quarter up 12% from $14 2 million in the second quarter, reflecting the benefit of the full quarter impact of benchmark April acquisition.
Speaker Change: As a reminder, our energy operations revenue number excludes the impact of realized hedge gains which is included in other income.
Speaker Change: Our industrials operation generated $7 million in revenues up 11% from $6 $3 million in the second quarter due to an increase in printer consumable sales.
M.J. McNulty: Our intellectual property operations delivered half a million dollars in revenue during the third quarter, down $5.3 million from the prior quarter due to no paid up licensing agreements executed this quarter. For the three and nine months ended September 30th, Acacia's energy operations generated adjusted EBITDA of $8.4 million and $16.9 million. Our industrial operations generated half a million dollars and $2.9 million and our intellectual property generated an EBITDA loss of $2.1 million and an EBITDA gain of $6.3 million.
Speaker Change: Our intellectual property operations delivered half a million dollars in revenue during the third quarter down $5 3 million in the prior calls.
Speaker Change: From the prior quarter due to no paid up licensing agreements executed this quarter.
Speaker Change: For the three and nine months ended September 30th Vacations energy operations generated adjusted EBITDA of $8 4 million at $16 9 million.
Speaker Change: Our industrial operations generated half to half a million dollars at $2 $9 million and our intellectual property generated an EBITDA loss of $2 1 million and an EBITDA gain of $6 3 million.
Speaker Change: Book value per share remains a primary metric on which our teams compensation is based and aligns management and shareholders' interests at this stage in our company life.
M.J. McNulty: Book value per share remains a primary metric on which our team's compensation is based and aligns management's and shareholders interests at this stage in our company life. Our book value per share on September 30th was $5.85 per share, compared to $5.95 per share on June 30th. excluding the impact of accruals and expenses of $14.9 million related to non-recurring legacy legal matters. The company's book value per share at September 30th would have been $6 per share.
Speaker Change: Our book value per share at September 30th was $5 85 per share compared to $5 95 per share at June 30.
Speaker Change: Excluding the impact of accruals and expenses of $14 $9 million related to nonrecurring legacy legal matters. The company's book value per share at September 30th would have been $6 per share.
Speaker Change: I'll dive deeper into each of our verticals in just a moment, but before I do I want to highlight one metric that illustrates acacias financial help and reinforces the strength of our business plan.
M.J. McNulty: I'll dive deeper into each of our verticals in just a moment, but before I do, I want to highlight one metric that illustrates Acacia's financial health and reinforces the strength of our business plan. Although we've completed three acquisitions in the last 12 months, we've successfully grown the company's current cash position to approximately $280 million, compared to $242 million as of September 30, 2022, demonstrating the company's robust financial capacity.
Speaker Change: Although we've completed three acquisitions in the last 12 months, we've successfully grown the company's current cash position to approximately $280 million.
Speaker Change: Paired to $242 million as of September 32022.
Speaker Change: Administrative the company's robust financial capacity.
M.J. McNulty: And we look forward to further cash growth as we incorporate deflecto earnings into our business starting in the fourth Turning now to our energy group. As you know, in November of 2023, Acacia acquired a majority stake in Benchmark Energy, an independent oil and gas company that acquires, produces, and develops oil and gas assets in Texas and Oklahoma. This past April, Benchmark acquired certain liquids-rich, predominantly oil-based, low-decline upstream assets and related facilities in the western Anadarko Basin. Acacia now owns 73.5% of Benchmark Energy following its most recent acquisition. Our energy operations consist of over 150,000 net acres and over 500 operated wells producing approximately 6,000 barrels of oil equivalent per day throughout the Texas Panhandle and Western Oklahoma.
Speaker Change: And we look forward to further cash growth as we incorporate deflect though earnings into our business starting in the fourth quarter.
Speaker Change: Turning now to our energy vertical.
Speaker Change: As you know in November of 2023, Acacia acquired a majority stake in benchmark energy and independent oil and gas company that acquires produces and develops oil and gas assets in Texas and Oklahoma.
Speaker Change: This past April benchmark acquired certain liquids rich predominantly oil based low decline upstream assets and related facilities in the Western Anadarko Basin, Acacia now own 73, 5% of benchmark energy.
Speaker Change: Following its most recent acquisition.
Our energy operations consists of over 150000 net acres and over 500 operated wells producing approximately 6000 barrels of oil equivalent per day throughout the Texas Panhandle and Western Oklahoma.
Benchmark is focused on acquiring predictable cash flow through shallow decline oil and gas properties with minimal capital intensity that can be enhanced through field optimization and risk managed through robust commodity hedges and low leverage.
M.J. McNulty: Benchmark is focused on acquiring predictable cash flow through shallow decline oil and gas properties with minimal capital intensity that can be enhanced through field optimizations and risk managed through robust commodity hedges at low level. During the third quarter, Benchmark's management team continued implementing operational improvements, including artificial lift optimization, active well maintenance, and the reopening of previously closed wells to take advantage of the undermanaged assets we've acquired. As a result, our energy vertical delivered consolidated revenues of $15.8 million and adjusted EBITDA of $8.4 million in the third quarter. driven in part by our edge book, which protects approximately 70% of our operated net oil and gas production over the next three years.
Speaker Change: During the third quarter benchmarks management team continued implementing operational improvements, including artificial lift optimization.
Speaker Change: Well maintenance and the reopening of previously closed wells to take advantage of the under managed assets we acquired.
Speaker Change: As a result of our energy vertical delivered consolidated revenues of $15 8 million and adjusted EBITDA of $8 4 million in the third quarter driven in part by our hedge book, which protects approximately 70% of our operated net oil and gas production over the next three years.
M.J. McNulty: I note that we have adjusted EBITDA for the impact of realized hedging gains, but they are not included in the quarter's top line revenue figure. For those of you wondering, we disclose the realized versus unrealized component of our hedges to help investors better understand the cash impact our hedge book has on the enterprise.
Speaker Change: Note that we have adjusted EBITDA for the impact of realized hedging gains, but they are not included in the quarter's topline revenue figure for those of you wondering we disclosed the realized versus unrealized component of our hedges to help investors better understand the cash impact our hedge book has on the enterprise.
Unknown Attendee: This information can be found in our regulatory.
Speaker Change: This information can be found in our regulatory filings.
M.J. McNulty: Turning now to our technology. We wanted to take the opportunity to provide a little more color on our IP business. While it's becoming a less meaningful part of the business as we go through growth through acquisition, we continue to view it as an attractive set of. We operate our IP business through our wholly owned subsidiary, Acacia Research Group, LLC. and it's wholly unsubsidiary. We are a principal in the licensing and enforcement of patent portfolios with our operating subsidiaries obtaining the rights in the patent portfolios or purchasing them. On a consolidated basis, we currently own or control the rights to multiple patent portfolios, including U.S.
Speaker Change: Turning now to our technology.
Speaker Change: We wanted to take the opportunity to provide a little more color on our IP business, while it's becoming a less meaningful part of the business as we go through growth through acquisition, we continue to view it as an attractive set of assets.
Speaker Change: We operate our IP business through our wholly owned subsidiary of Acacia Research group LLC and its wholly owned subsidiaries.
Speaker Change: We are a principal in the licensing and enforcement of patent portfolios with their operating subsidiaries obtaining the rights in the patent portfolios or purchasing them right.
Speaker Change: On a consolidated basis, we currently own or control the rights to multiple patent portfolios.
Speaker Change: <unk> U S patents and certain foreign counterparts, which cover technology is used in a wide variety of industries.
M.J. McNulty: patents and certain foreign counterparts, which cover technologies used in a wide variety of industries. We generate revenues and related cash flow from the granting of IP rights for the use of patented technologies that are operating subsidiaries control over. While we partner from time to time with inventors and patent owners ranging in size and including large corporations, we control and assume all responsibility in pursuing patent licensing and enforcement programs and for the related operating expenses. When applicable, we share licensing revenue, that of the cost. with our patent partners after we have achieved our agreed-upon minimum return threshold.
Speaker Change: We generate revenues and related cash flow from the granting of IP rights for the use of patented technologies that are operating subsidiaries control.
Speaker Change: Yeah.
Speaker Change: While we partner from time to time with inventors and patent owners ranging in size, including large corporations, we control and assume all responsibility and pursuing patent licensing and enforcement programs and for the related operating expenses.
Speaker Change: [noise] applicable we share licensing revenue net of costs with our patent partners. After we have achieved our agreed upon minimum return threshold.
M.J. McNulty: We may also provide up-front capital to patent donors as an advance against future licensing revenues. Our current active patent portfolios include Atlas Technologies, which covers Wi-Fi 6 standards essential patents. Unification Technologies, which covers flash memory technology, Monarch Networking Technologies, which covers IP networking. Stingray IP solutions, which covers wireless networks. and R2Solutions, which covers internet search, advertising, and cloud computing technology.
Speaker Change: We may also provide upfront capital to patent owners as an advance against future licensing revenue.
Speaker Change: Our current active patent portfolios include Atlas technologies, which covers Wi Fi six standards essential patents.
Speaker Change: On a vacation technologies, which covers flash memory technology.
Speaker Change: Networking technologies, which covers IP networking staying.
Speaker Change: Stingray IP solutions, which covers wireless networking and our two solutions, which covers internet search advertising and cloud computing technology.
M.J. McNulty: We're often asked to provide updates on these monetization efforts, including our litigation activities. However, as you can appreciate, we can only disclose publicly available information. For example, regarding TP-Link, I can confirm that following the September 2023 judgment of $37.4 million against TP-Link, their post-trial motions were denied and they filed an appeal with the Federal Circuit in October of this year. We anticipate briefings will be filed between now and February of next year with a decision anticipated in the second half of 2025. Interest on the $37 million judgment continues to accrue at the monthly U.S. T-bill.
Speaker Change: We're often asked to provide updates on these monetization efforts, including our litigation activities.
Speaker Change: However, as you can appreciate we can only disclose publically available information for example regarding TP link I can confirm that following the September 2023 judged.
Speaker Change: Judge went up for $37 $4 million against T. P. Like their post trial motions were denied and they filed an appeal with the federal circuit in October of this year.
Speaker Change: We anticipate briefings will you file between now and February of next year with a decision anticipated in the second half of 2025.
Speaker Change: Interest on the $37 million judgment continues to accrue at the monthly U S T bills.
Speaker Change: With respect to our private negotiations and licensing campaigns as you can appreciate we're not able to disclose any information.
M.J. McNulty: with respect to our private negotiations and licensing campaigns, as you can appreciate, we're not able to disclose any information. As attractive opportunities become available, we remain open to opportunistically deploying additional capital into the IP in the future, consistent with our mission to maximize value for sure. Our team are well respected leaders in the IP space and intellectual property owners actively seek us out as a partner.
Speaker Change: As attractive opportunities become available we remain open to opportunistically deploying additional capital into the IP business in the future.
Speaker Change: With our mission to maximize value for shareholders.
Speaker Change: Our team are well respected leaders in the IP space and intellectual property owners actively seek us out as a partner.
Speaker Change: Turning now to our industrials business.
M.J. McNulty: Turning now to our industrials business. We're pleased with the progress of Printronics as it transitions its business mix from lower-margin printer sales to higher-margin consumable products, including ink cartridges and specialty repairs. We believe this dual hardware and consumables model, combined with the streamlined operating structure, represents a nice source of cash flow for Acacia. I'm also pleased with the turnaround work the Printronics team continues to undertake, including a key focus on top line initiatives and reducing G&M. and we expect Printronics to continue to generate free cash flow on an annual basis. Petronix generated $7 million in revenue during the quarter compared to $6.3 million in the prior and $8.3 million in the third quarter of last year.
Speaker Change: We're pleased with the progress of <unk> as it transitions, it's business mix from lower margin printer sales to higher margin consumable products, including ink cartridges and specialty rabbits.
Speaker Change: We believe this dual hardware and consumables model combined with a streamlined operating structure represents a nice source of cash flow for Acacia.
Speaker Change: I'm also pleased with the turnaround work at Plantronics team continues to undertake including a key focus on top line initiatives and reducing G&A.
Speaker Change: And we expect print tries to continue to generate free cash flow on an annual basis.
Speaker Change: Photronics generated $70 million in revenue during the quarter compared to $6 3 million in the prior quarter and $8 3 million in the third quarter of last year.
Speaker Change: And briefly while not a core vertical for us I'd like to highlight dedications remaining life Sciences portfolio net of Noncontrolling interest represented $25 $7 million in book value at September 30th Geisha.
M.J. McNulty: And briefly, while not a core vertical for us, I'd like to highlight that Acacia's remaining life sciences portfolio, net of non-controlling interest, represented $25.7 million in book value at September 30. Acacia holds interest in three private companies, including an approximate 26% interest in Biomet Pharmaceuticals. and approximately 18% interest in AMO pharma and approximately 4% interest in Novabio. We continue to actively and diligently seek opportunities to maximize the value for our life sciences assets for sure.
Speaker Change: <unk> holds interesting three private companies, including an approximate 26% interest in buying that pharmaceuticals and.
Speaker Change: At approximately 18% interest and a M O pharma.
Speaker Change: And approximately 4% interest in Novo Biotics.
Speaker Change: Continue to actively and diligently seek opportunities to maximize the value for our life sciences assets for our shareholders.
Kirsten Hoover: I'd now like to turn the call over to Kirsten to discuss her third quarter financial results. Thank you, MJ. Our GAAP book value at September 30, 2024 was $578.6 million, or $5.85 per share. excluding the impact of $14.9 million related to non-recurring legacy legal matters, the company's book value per share at September 30, 2024 would have been $6 per share. Total revenues were $23.3 million, compared to $10.1 million in the same quarter last year. Our intellectual property business generated $0.5 million in licensing and other revenues during the quarter, compared to $1.8 million in the same quarter last year, due to no paid up licensing agreements executed during the third quarter of 2024.
I'd now like to turn the call over to cure soon to discuss our third quarter financial results.
Speaker Change: Thank you M J.
Speaker Change: Our GAAP book value at September 30th 'twenty, 'twenty, four with $578 6 million or $5.85 per share.
Speaker Change: Excluding the impact of $14 9 million related to nonrecurring legacy legal matters. The company's book value per share at September 30th 'twenty 'twenty four would have been $6 per share.
Speaker Change: Total revenues were $23 3 million compared to $10 1 million in the same quarter last year.
Speaker Change: Our intellectual property business generated <unk> 5 million in licensing and other revenues during the quarter compared to $1 8 million in the same quarter last year due to no paid up licensing agreements executed during the third quarter of 'twenty 'twenty four.
Kirsten Hoover: Our industrial operations business generated $7 million in revenue during the quarter compared to $8.3 million in the same quarter last year due to a decrease in printer sales. Benchmark generated $15.8 million in revenue in the quarter as Acacia's initial investment in Benchmark closed on November 13, 2023. There is no comparable revenue in the same quarter of last year. General and administrative expenses were $11.1 million, compared to $11.6 million in the same quarter of last year, with the decrease due to the decrease in parent legal fees offset by an increase in G&A for the addition of our energy segment.
Speaker Change: Our industrial operations business generated 7 million in revenue during the quarter compared to $8 3 million in the same quarter last year due to a decrease in printer sales.
Benchmark generated $15 8 million in revenue in the quarter as the case its initial investment in benchmark closed on.
Speaker Change: November 13th 2023 there is no comparable revenue in the same quarter of last year.
Speaker Change: Okay.
Speaker Change: <unk> and administrative expenses were $11 1 million compared to $11 6 million in the same quarter of last year with the decrease due to the decrease in current legal fees offset by an increase in G&A for the addition of our energy segment.
Speaker Change: The company recorded an operating loss of $10 3 million down 22% compared to an operating loss of $13 2 million in the same quarter of last year.
Kirsten Hoover: The company recorded an operating loss of $10.3 million, down 22% compared to an operating loss of $13.2 million in the same quarter of last year due to higher revenues generated. Printronics contributed $0.1 million in operating loss, which included $0.7 million of non-cash depreciation and amortization expenses. Benchmark contributed $3.1 million in operating income, which included $4.3 million of non-cash depreciation, depletion, and amortization expenses, $0.3 million in one-time transaction costs. and does not reflect 0.7 million of realized derivative gains. Gap net loss attributable to Acacia Research Corporation in the third quarter was $14 million, or $0.14 per share, compared to gap net income attributable to Acacia of $1.6 million, or $0.02 loss per share in the third quarter of last year.
Speaker Change: Two higher revenues generated.
Speaker Change: <unk> contributed <unk> 1 million and operating loss, which included <unk> 7 million of noncash depreciation and amortization expenses.
Speaker Change: Benchmark contributed $3 1 million and operating income, which included $4 3 million of noncash depreciation depletion and amortization expenses <unk> 3 million in one time transaction cost.
And does not reflect the point 7 million unrealized derivative gain.
Speaker Change: GAAP net loss attributable to Acacia Research Corporation in the third quarter with $14 million.
Speaker Change: Our 14 cents per share compared to GAAP net income attributable to Acacia of one 6 million or two cents loss per share in the third quarter of last year.
Speaker Change: Diluted earnings per share adjusted numerator used in basic earnings per share computation for the fair value adjustments on boring and embedded derivative liabilities, resulting in a diluted net loss attributable to common stockholders, but their 2023 period.
Kirsten Hoover: Diluted earnings per share adjusts the numerator used in basic earnings per share computation for the fair value adjustments on warrant and embedded derivative liabilities, resulting in a diluted net loss attributable to common stockholders for the 2023 period. The net loss for the third quarter of 2024 includes $4.1 million in unrealized losses related to the fair value of our remaining equity securities. The third quarter included $1.9 million in non-recent bring general and administrative charges. As of September 30, 2024, our NOL totaled approximately $14 million. we will continue to evaluate the most efficient ways to maximize this asset.
Speaker Change: The net loss for the third quarter of 'twenty 'twenty four includes $4 1 million and unrealized losses related to the fair value of our remaining equity securities.
Speaker Change: The third quarter included $1 9 million and non REIT.
Speaker Change: General and administrative charges.
Speaker Change: As of September 30th 'twenty, 'twenty, four our NOL totaled approximately 14 million.
Speaker Change: We will continue to evaluate the most efficient ways to maximize this asset.
Kirsten Hoover: Turning to the balance sheet. Cash, cash equivalents, and equity securities at fair value totaled $374.2 million at September 30, 2024, compared to $403.2 million at December 31, 2023. The decrease in cash was primarily due to $60 million paid to acquire the Revolution assets, $12 million paid on the benchmark revolving credit facility, and $7.3 million in repurchases of common stock. offset by cash provided by operating activity. Equity Securities without readily Permittable Fair Value totaled $5.8 million at September 30, 2024, unchanged from December 31, 2023. Investment Securities representing Equity Method Investments Net of Non-Controlling Interest totaled $19.9 million at September 30, 2024, unchanged from December 31, 2023.
Speaker Change: Turning to the balance sheet.
Speaker Change: Cash cash equivalents and equity securities at fair value totaled $374 2 million at September 30th 2024, compared to $403 2 million at December 31st 2023.
Speaker Change: The decrease in cash was primarily due to 60 million paid to acquire the revolution assets 12 million paid on the benchmark revolving credit facility and $7 3 million in repurchases of common stock.
Speaker Change: All set by cash provided by operating activities.
Speaker Change: Equity securities without readily.
Speaker Change: Terminable fair value totaled $5 8 million at September 30th 'twenty 'twenty four.
Speaker Change: Changed from December 31st 2023.
Speaker Change: Investment Securities representing equity method investments net of Noncontrolling interests totaled $19 9 million at September 30th 'twenty 'twenty four unchanged from December 31 2023.
Kirsten Hoover: Acacia owns 64% of Malan J1, which results in a 26% ownership stake in Biomet Pharmaceuticals for Acacia. The parent company's total indebtedness was zero at September 30, 2024. On a consolidated basis, Acacia's total indebtedness was $70 million in non-recourse debt at benchmark as of September 30, 2024. We continue to believe that cash per share is an important metric for measuring our progress. As of September 30, 2024, our cash per share stood at $3.64.
Speaker Change: Acacia, 164% analogy, one which results in a 26% ownership stake in biomass pharmaceuticals for Acacia.
Speaker Change: The parent company's total indebtedness with zero at September 30th 'twenty 'twenty four.
Speaker Change: On a consolidated basis cases, total indebtedness with $70 million in non recourse debt at benchmark as of September 30th 'twenty 'twenty four.
Speaker Change: We continue to believe that cash per share is an important metric for measuring our progress.
Speaker Change: As of September 30th 2024, our cash per share stood at $3.64.
Kirsten Hoover: For more information on Acacia's third quarter results, please refer to our press release that was issued this morning and our quarterly report on Form 10-Q, which we will file with SEC later today.
Speaker Change: For more information on Acacia third quarter results. Please refer to our press release that was issued this morning, and our quarterly report on Form 10-Q, which we will file with the SEC later today.
M.J. McNulty: With that, I'd like to turn the call back over to MJ. Thanks, Kirsten. Before taking questions, I'd like to highlight that following the Deflecto acquisition, the company's cash reserves were approximately $280 million for potential future acquisitions. We also repurchased approximately 3 million common shares. for about $14 million at an average execution price of $4.65 as of November 7, 2020. through our previously announced stock repurchase program. This program is a key component of the company's overall long-term strategy to deploy excess cash and increase total shareholder returns. As a reminder, Acacia's $20 million award-approved repurchase program allows us to repurchase up to 5.8 million shares of Acacia Copper.
Speaker Change: With that I'd like to turn the call back over to M. J.
Speaker Change: Thanks Kirsten.
Speaker Change: Before taking questions I'd like to highlight the following the <unk> acquisition, the company's cash reserves were approximately $280 million for potential future acquisitions.
Speaker Change: We also repurchased approximately 3 million common shares for about $14 million at an average execution price of $4.65 as of November 7th 2024.
Speaker Change: Through our previously announced stock repurchase program.
Speaker Change: This program is a key component of the company's overall long term strategy to deploy excess cash and increase total shareholder returns over time.
Speaker Change: As a reminder, Acacia is $20 million board approved repurchase program allows us to repurchase up to $5 8 million shares of Acacia common stock.
M.J. McNulty: We intend to continue to opportunistically complete share repurchases in the open market during the fourth quarter of 24 and into 25.
Speaker Change: Tend to continue to Opportunistically complete share repurchases in the open market during the fourth quarter of 'twenty four and into 'twenty five.
I'd also like to point out that we posted our Q3 24 earnings presentation to our website.
Jenny: I'd also like to point out that we posted our Q3 24 earnings presentation to our website. With that, Kirsten and I would be pleased to take any questions.
Speaker Change: With that here soon and I would be pleased to take any questions Jenny I'll hand, it back to you.
Jenny: Jenny, I'll hand it back to you. Thank you very much MJ. At this time we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before you begin. Please wait a moment whilst we poll for questions. Thank you.
Speaker Change: Thank you very much I'm Jay at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that Youll line isn't the key you May press star two if you would like to remove your question from the key for any participants using speaker.
Speaker Change: Equipment, it may be necessary to pick up your handset before pressing the keys. Please wait a moment, whilst we poll for questions.
Speaker Change: Thank you. Your first question is coming from Anthony Stoss of Craig Hallum. Anthony Your line is life. Thank.
Anthony Stoss: Your first question is coming from Anthony Stoss of Craig Hallam.
Anthony Stoss: Anthony, your line is Thank you.
Speaker Change: Thank you and good morning, I'm, just curious then M D.
Anthony Stoss: Good morning, M.J. and Kirsten.
Anthony Stoss: M.J., really, really hi, really a two part question. Love to hear more on Deflecto. Congratulations on the transaction. Love to hear kind of their margin profile, what your plans are for Synergies. And then I had one other follow up after that.
Speaker Change: Really really a.
Speaker Change: It really a two part question loved to hear more on deflect doing congratulations on the transaction love to here.
Speaker Change: Kind of their margin profile, what your plans are for synergies and then I had one other follow up after that.
Speaker Change: Yeah, I think it's a great question I mean to start off I think this is kind of a.
M.J. McNulty: Yeah, I think it's a great question.
M.J. McNulty: I mean, to start off, I think this is, you know, kind of a an exemplary deal for us. Deflecto's got three business segments, as we mentioned, all of which are kind of niche. Very strong market share in each one of their core end markets. We mentioned a lot of their products are regulatorily required, and they have really strong market share.
Speaker Change: An exemplary deal for us and <unk> got three business segments. As we mentioned all of which are kind of an issue.
Speaker Change: Very strong market share in each one of their core end markets. We mentioned a lot of their products or regulatory required and they have really strong share and so as we think about the business. We think there is.
M.J. McNulty: And so as we think about the business, we think there's, you know, the company had been going through a, you know, a cost rationalization exercise. We think they're probably five or six innings through that with a strong team that can continue further cost rationalization, facility rationalization, and, you know, margin enhancement. Today, they're kind of doing. Even found margins in the mid-teens. We think there's opportunity there from continued scaling and cost rationalization, as I mentioned.
Speaker Change: The company had been going through.
Speaker Change: E E.
Speaker Change: Cost rationalization exercise, we think there are probably five or six innings through that with the strong team that can continue further cost rationalization facility rationalization.
Speaker Change: And and margin enhancement today, they're kind of doing.
Speaker Change: EBITDA margins in the mid teens.
Speaker Change: I think there's opportunity there.
Speaker Change: From you know from from continued scaling and cost rationalization as I mentioned.
M.J. McNulty: We think there's opportunity from a product set standpoint. If you dig into their products, there's some product expansion, product adjacencies that are pretty logical for them, that are kind of in flight already inside the company. And then we do think with three different segments, different end markets and different products, that there's an ability to continue to grow those through acquisition, which will enhance the scale and help to enhance utilization of existing capacity or capacity of the acquired company. And so we think it's a pretty interesting acquisition that provides a lot of levers to continue to grow and enhance.
Speaker Change: We think there's opportunity from a product set standpoint.
If you dig into their products, there's there's some.
Speaker Change: Expansion product Adjacencies.
Speaker Change: That are pretty logical for them that they that are in kind of in flight already inside the company and then we do think with three different segments are different end markets and different products that there is an ability to continue to grow those through acquisition, which will enhance the scale.
Speaker Change: And.
Speaker Change: And help to enhance utilization of existing capacity or capacity of the acquired company and so we think it's a pretty addressing acquisition that provides a lot of levers to continue to grow and enhance margins.
Anthony Stoss: Perfect.
Speaker Change: Perfect.
M.J. McNulty: And then shifting gears to the benchmark assets, you've got a couple of quarters under your belt now. When you look at both either revenues or adjusted EBITDA, is it living up to your expectations? And where do you think you could take it on the adjusted EBITDA side going forward? Yeah, I mean, I, you know, as we, we mentioned in the past, we kind of underwrite, this is operated oil and gas. So we're not really running drilling programs. And so we, we had the ability in oil and gas to look at the decline profile of each of the wells that we acquired, sensitize that decline profile, and then put oil and gas liquids overlay pricing on that to determine what revenue looks like.
Speaker Change: Shifting gears to the.
Speaker Change: Benchmark assets, you've got a couple of quarters under your belt now when you look at both either revenues or where adjusted EBITDA is living up to your expectations and where do you think you could take it on adjusted EBIT design going forward.
Speaker Change: Yeah, I mean, I you know as we mentioned in the past we kind of underwrite. This is operated oil and gas. So we're not really running.
Drilling programs and so we had the ability in oil and gas to look at the decline profile of each of the wells that we acquired sensitize that decline profile and then put.
Speaker Change: Oil and gas liquids overlay pricing on that to determine what revenue looks like I would say that that is playing out the way we expected it to play out.
M.J. McNulty: I would say that, you know, that is playing out the way we expected it to play out. We, we operate most of our production. Some of our production is operated by others. And we're a participant in those wells. We did see a little bit of a slowdown in some of the wells that we're participants in, but not the operator being completed. We think that's largely pushed forward as opposed to, as opposed to not an opportunity. So we do expect to see more revenue coming online from those. And the team is kind of in mid innings of its operational enhancement of particularly the revolution assets that we bought, where they're opening, where they're opening wells that were previously closed and reworking wells that are not producing to optimization.
Speaker Change: We operate most of our production some of our production is operated by others and we're a participant in those wells, we did see a little bit of a slowdown in some of the wells that we are participants in but not the operator being completed.
Speaker Change: We think that's largely pushed forward as opposed to as opposed to an opportunity.
Speaker Change: So we do expect to see more revenue coming online from those and the team as you know kind of in mid innings.
Speaker Change: It's operational enhancement of particularly the revolution assets that we bought where they're opening.
Speaker Change: Where they're opening the wells that were previously closed and reworking wells that are not producing to optimization and so I think the acquisition in total to answer your question Tony is playing out exactly how we thought it would we're very pleased with it we still think there's a lot of opportunity there.
M.J. McNulty: And so I think the acquisition in total to answer your question, Tony, is playing out exactly how we thought it would. We're very pleased with it. We still think there's a lot of opportunity there.
Speaker Change: Thanks for all the color and nice execution guys.
Anthony Stoss: Thanks for all the color and nice execution guys. Yeah, thanks, Tony.
Speaker Change: Yeah. Thanks, Tony.
Speaker Change: Thank you very much. Your next question is coming from Brett Reiss of Janney Montgomery Scott Bret Your line is live.
Unknown Attendee: Thank you very much.
Brett Reiss: Your next question is coming from Brett Reiss of Janney Montgomery Scott. Brett, your line is Good morning. Can you hear me, MJ and Kirsten? Yeah. Hey, Brett, how are you? I'm great. I'm good.
Speaker Change: Good morning can you hear me MTI and Kirsten.
Speaker Change: Yeah, Yeah, Hey, Brad how are you all right.
Speaker Change: I'm good I'm good.
Speaker Change: Some questions also on deflect though.
Brett Reiss: Some questions also on Deflecto, you know, and poking around the internet, you know, years ago, were their revenues much higher? And, you know, if I have that right, did they get out of some businesses? Or, or I just, you know, I just don't have the forensics on that, right? Yeah, no, Brett, it's a great question. It's a very astute observation. The company that we bought is very different from the company that existed five years ago. It was really a mishmash of a lot of disconnected assets. It really was a family business that then was acquired by a sponsor and had grown into a lot of unattractive and unrelated business lines that didn't really have a cogent focus.
And poking around the Internet.
Speaker Change: Is a go where their revenues much higher and you know if I have that right.
Speaker Change: Did they get out of some businesses or or I. Just you know I just don't have the.
Speaker Change: The forensics on that right.
Speaker Change: Yeah, no bread it it's a it's a great. It's a great question, it's very astute observation.
Speaker Change: The company that we bought is very different from the company that existed five years ago. It was a it was really a mishmash of a lot of disconnected assets. It really was a family business.
Speaker Change: <unk> was acquired by a sponsor and had grown into a lot of unattractive.
Speaker Change: Unattractive and unrelated business lines that didn't really have a cogent focus and so the existing sponsor and the team.
M.J. McNulty: And so the existing sponsor and the team, the prior owner had really rationalized of the non-core product portfolio and brought it down to this transportation safety, you know, mudflaps and emergency warning triangles. Again, these things are kind of, you know, not the sexiest things in the world, but very attractive products with very, very good market share and regulatory required products into the HVAC space and into the office and market. And so it was a larger business that has been paired back to the higher margin, highest margin product portfolio inside their suite of products. And then as we mentioned, cost rationalization alongside.
Speaker Change: The prior owner had been rationalized.
Speaker Change: The other non core product portfolio and brought it down to this transportation safety.
Speaker Change: Mudflats and emergency warning triangles again, these things are kind of not not the sexiest things in the world, but very attractive products with very very good market share in regulatory required products into the into the HVAC space and into a into the kit.
Speaker Change: Office and market and so it was a larger business that had been pared back to the higher margin highest margin product portfolio inside their suite of products and then as we mentioned cost rationalization alongside so there has been a big transformation in the business, which is why I say we're kindness.
M.J. McNulty: So there has been a big transformation in the business, which is why I say we're kind of seeing us maybe six innings through that transformation. And we see a really clear path to finishing that transition and then continuing to grow the business organically through acquisition. Great, great.
Speaker Change: Maybe six savings through that transformation and we see a really clear path to finishing that transition and then continuing to grow the business organically and through acquisitions.
Speaker Change: Great great.
M.J. McNulty: So, you know, since they began the process of Unknown Attendee, Brett Reiss, Kirsten Hoover, Rob Fink, Acacia Research Corp No, I think it's a good question. And we spent a lot of time talking about it. We like all three. for different reasons. But we do like all three segments. And they have, you know, they each have very attractive characteristics associated with them. I think that the transportation business and the HVAC business have logical paths to be platforms in and of themselves to grow through acquisition. And so we, you know, as we've said in the past, we are looking to create platforms where we can.
Speaker Change: So since they began the process of.
Speaker Change: More concentrated focus do you think youre going to.
Speaker Change: Stay in the three business segments, or maybe to one or two too.
Speaker Change: Really focus on and maybe do something with the one that you know is tangential to the other two.
Speaker Change: Or.
Speaker Change: We're not far enough along in our analysis yet.
Speaker Change: No I think it's a good question and we spent a lot of time talking about it we like all three segments.
Speaker Change: For different reasons, but we do like all three segments and they have they each had very attractive characteristics associated with them.
Speaker Change: Thank God, the transportation business and the HVAC business.
Speaker Change: Have logical pads to be platforms in and of themselves to grow through acquisition.
Speaker Change: So we you know as we've said in the past we are looking to create platforms, where we can and I think we had definitely too there that we can grow into independent large businesses in and of themselves.
M.J. McNulty: And I think we have definitely two there that we can grow into independent, large businesses in and of themselves.
Speaker Change: Okay.
Brett Reiss: Okay, and this is very back of the envelope, but assuming the EBITDA is the midpoint, $18 million. Your cost of the secured loan and revolving credit facility is 7.5% to 8% because it's SOFR, you know, plus that spread, so your interest costs are going to be a little over four million dollars. So the cash flow on our $50 million investment. is upwards of 25-27%. Is that back of the envelope, you know, what, what we own here? Because, you know, if so, that's for a night. Yeah, no, we look, this is, you know, this was kind of the point I was trying to make at the beginning of the call, Brett, which is we're, we're targeting, you know, pretty nice returns, while we own the business.
Barry: And this is Barry.
Speaker Change: Back of the envelope, but assuming the EBITDAR is the midpoint 18 million.
Speaker Change: And.
Speaker Change: Your cost of.
Speaker Change: The secured loan and revolving credit facility is.
Speaker Change: 7.5% to 8% because its so for plus that spread so your interest costs are going to be.
Speaker Change: A little over $4 million.
Speaker Change: So the cash flow on our $50 million.
Speaker Change: Investment.
Speaker Change: Upwards of 25, 27% is that back of the envelope.
Speaker Change: But we own here because you know so that's right.
Speaker Change: That's very nice.
Speaker Change: Yes, no. We look this as you know this was kind of the point I was trying to make at the beginning of the call bread, which is where we're targeting.
Speaker Change: Pretty nice returns, while we own the business and so we put a very moderate amount of leverage. So there is some interest cost that interest cost will in part offset the taxes. We will have some some notional taxes. We do have some NOL left but we don't really take our NOL into account underwrite.
M.J. McNulty: And so we've put a very moderate amount of leverage. So there is some interest cost, that interest cost will in part offset the taxes, we will have some some notional taxes, we do have some NOL left, but we don't really take our NOL into account. Unknown Attendee, Brett Reiss, Kirsten Hoover, Rob Fink, Acacia Research Corp. is attractive. So we're getting paid to own this business, as opposed to, you know, the leverage buyout model where you're, you're making a little bit to own the business, but you're really making your money on exiting the business. And so we really look to underwrite deals like this, where we're, where we all collectively as shareholders, are being paid a really nice return just to own the business.
Speaker Change: It was a turn of an underlying business looks like and so there is some tax against that Brad, but we still think that the yield.
Speaker Change: On both the Levered and Unlevered basis, while we own the business is attractive. So we're getting paid to own this business as opposed to the leverage buyout model, where you're you're making a little bit to own the business, but you're really making your money on exiting the business and so we really look to underwrite deals like this where.
Speaker Change: Where were we all collectively as shareholders are being paid a really nice return just to own the business.
Brett Reiss: Right, right.
Speaker Change: Right right.
Brett Reiss: I want one last one because I've asked a lot of questions and I don't want to hog the phone here. I did get a couple of comments from, you know, shareholders, you know, we thought that the revenue flow from the IP business would have been a little higher this quarter. I know it's lumpy, but can you just talk to that a little bit? Yeah, I mean, it is very difficult to determine on a quarter by quarter basis what the intellectual property business is going to deliver in revenue. We as the management team have the luxury of knowing what we own, and what's going on under the covers with those portfolios.
Speaker Change: One last one because I've asked a lot of questions I don't want to harm the phone here.
Speaker Change: I did get a couple of comments.
Speaker Change: You know shareholders.
Speaker Change: We thought that the <unk>.
Speaker Change: Revenue flow from the IP business would have been a little higher this quarter I know, it's lumpy but can.
Speaker Change: Can you just talk to that a little bit.
Speaker Change: Yeah, I mean, I I it is very difficult to determine on a quarter by quarter basis, what the intellectual property business is going to deliver in revenue.
Speaker Change: We as the management team have the luxury of knowing what we own.
Speaker Change: And what's going on under the covers.
Speaker Change: With those portfolios and as we've said we view this as a very attractive asset class.
Brett Reiss: And we, as we've said, we view this as a very attractive asset. and the month-to-month, quarter-to-quarter. revenue from that asset class will vary. But ultimately, the portfolio, we believe, is very attractive from a monetizing cash flow perspective. Thank you for answering my questions and you know good show on the Deflecto Acquisition. Yeah, thanks, Brett. We appreciate it.
Speaker Change: And the month to month quarter to quarter.
Speaker Change: Revenue from that asset class will vary.
Speaker Change: But but ultimately the portfolio. We believe is very attractive from monetizing cash flow perspective.
Speaker Change: Great.
Speaker Change: Thank you for answering my questions and good show on the <unk> acquisition.
Speaker Change: Yeah. Thanks, Brett we appreciate it.
Speaker Change: Okay.
Adam Eagleston: Thank you very much. Just a reminder, if anyone has any remaining questions, you can press star one on your phone keypad now to join. Your next question is coming from Adam Eagleston of Formidable Assets.
Speaker Change: Thank you very much just a reminder, if anyone has any remaining questions. You can press star one on your phone keypad now to join Nikki Keith.
Speaker Change: Your next question is coming from Adam Eagleson of full Middle asset management, Adam Your line is life.
Adam Eagleston: Adam Muir-Linus Good morning, MJ, Kirsten, how are you today? Hey, Adam, how are you? Good, doing well. Hey, just wanted to echo what Tony said, really nice work on the execution then in terms of what Brett said. Nice ROIC it seems like we're going to have on FLETCO. All great stuff. I'm thinking about more from a sentiment perspective. Also, like seeing the buyback turned on there, we've talked about that in the past. You've got 280 million in cash. And I think that the future term MJ, maybe this wasn't the sexiest acquisition, but. Thoughts right now we're trading on narrative.
Good morning M. J curious and how are you today.
Speaker Change: Hey, Adam how are you.
Speaker Change: Good doing well Hey, just wanted to.
Speaker Change: Echo what he said.
Speaker Change: Had you really nice work on the execution then in terms of what Brad said.
Speaker Change: Hi, Nice ROIC D. It seems like we're going to have on on plateau, all great stuff like I'm thinking about more from a sentiment perspective yet.
Speaker Change: <unk> also are likely in the buyback turned on there we've talked about that in the past you've got $280 million in cash and I think that the.
Speaker Change: To use your term M. J, maybe this wasn't the <unk> acquisition.
Speaker Change: But.
Speaker Change: That's right now we're trading on there and you got a stack of cash.
Adam Eagleston: You've got a stack of cash. You've got now a derivatives team in place.
Speaker Change: You've got now a derivatives team in place have you considered any type of entry into the crypto space given the fervor. We're seeing if you compare the NAV discount where you trade versus the ridiculous in my opinion premium at which some of these crypto shares trade have you thought about a slightly different approach to <unk>.
M.J. McNulty: Have you considered any type of entry into the crypto space given the fervor we're seeing if you compare the NAV discount where you trade versus the ridiculous, in my opinion, premium at which some of these crypto shares trade? Have you thought about a slightly different approach to cash management versus treasury? I'm fascinated by crypto. Adam, I'm a little scared of the volatility of crypto. Have we evaluated using crypto as cash management? Not seriously, to be honest with you. Not that we determined we wouldn't, but that we haven't spent a lot of time thinking about that as an alternative to cash management.
Speaker Change: Cash management versus treasuries.
Speaker Change: I.
Speaker Change: I'm fascinated by crypto Adam.
Speaker Change: I'm I'm, a little scared of the volatility of crypto.
Speaker Change: Have we evaluated using crypto as cash management I not seriously to be honest with you not that we've determined we wouldn't but that we haven't we haven't spent a lot of time thinking about that as an alternative to cash management.
M.J. McNulty: Have we looked at things around the crypto space from an operating and business operating model perspective? We have. I think it's been a little academic on our side. The new administration is very pro-crypto. So I think it warrants an evaluation. We historically have been much more conservative as you know, we're inherently value investors. And so we have been cautious on our evaluation of crypto. Understood. Now, that's fair. Again, value investors seem to be a dying breed, and we're kind of one of them, too. In terms of being scared of the volatility, that's why bringing the derivatives piece, and maybe you can harvest some of that volatility with your derivatives team there.
Have we looked at things around the crypto space from an operating a business operating model perspective.
Speaker Change: We have I think it's been a little academic on our side.
Speaker Change: I think that you know.
Speaker Change: The the.
Speaker Change: New administration is very pro crypto.
Speaker Change: I think it warrants an evaluation.
Speaker Change: We historically have been much more conservative as you know we're inherently value investors.
Speaker Change: And so we we have been cautious on our evaluation of crypto.
Speaker Change: Understood now that that's that's fair again value investors seem to be a dying breed and what were kind of one of them too.
Speaker Change: In terms of being scared of the volatility that's why bringing the derivatives piece and maybe you can harvest some of that volatility with with with your derivatives team there. So.
Adam Eagleston: So, yeah, that was my question for the day. Okay, no, that's it's an interesting question. I maybe we can talk offline about it a little bit. Sure.
Speaker Change: Yeah that was that was my question today.
Speaker Change: Okay. No. That's it's an interesting question, maybe we can talk offline about it a little bit.
Speaker Change: Sure.
Speaker Change: Thank you very much well we appear to have reached the end of our question and answer session. I will now turn the call back over to M. J for closing remarks.
Unknown Attendee: Thank you very much.
Unknown Attendee: Well, we appear to have reached the end of our question and answer session.
M.J. McNulty: I will now turn the call back over to MJ for closing. I appreciate it, Jenny. Thanks for leading us in the conference today. Thank you for joining us, everyone. Hopefully, we gave a fulsome update on kind of the portfolio, the suite of assets that we have, and a little bit more disclosure on how we think about the business and the operated segment adjusted EBITDA. So, we look forward to talking to you next quarter, and we're continuing to put our heads down and execute against the plan that we put forward. Thank you very much.
M. J: Yeah I appreciate that Jeremy Thanks for the thanks for leading us on the conference today. Thank you for joining US everyone. Hopefully we gave a fulsome update on kind of the portfolio. This suite of assets that we have.
M. J: And a little bit more disclosure on how we think about the business and the operated segment adjusted EBITDA.
M. J: So we look forward to talking to you next quarter.
M. J: And we're continuing to put our heads down and execute against the plan that we put forward.
Speaker Change: Thank you very much. This does conclude today's conference you may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Unknown Attendee: This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.