Q1 2025 Acacia Research Corp Earnings Call

Speaker Change: [music].

Unknown Attendee: Good morning, everyone. Thank you for joining Acacia Research first quarter 2025.

Good morning, everyone. Thank you for joining Acacia research first quarter 'twenty to 'twenty five earnings Conference call. 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 on it.

Jenny: My name is Jenny and I'll be your conference facilitator. All lines are currently on mute to prevent any backtracking. Acacia Research Corp.

Also available through audio webcast on Acacias website.

Jenny: Following the speaker's remarks, there will be time for questions.

Following the speakers remarks, there will be time for questions questions can also be directed at anytime.

Unknown Attendee: For more information please visit www.brentandsris.com to Acacia at IR at Acacia Res.

Speaker Change: Two acacia at IR Acacia research Acacia 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: I would now like to turn the conference over to Mr Brent Anderson of Gagnier Communications. Brent Anderson, New Maybe. Thank you, Operator.

MJ McNulty: 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.

Brent Anderson: Before MJ and Kirsten begin their prepared remarks, please be reminded that certain 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 Security Litigation Reform Act of 1995. These forward looking statements generally relate to the company's plans, objectives and expectations for future operations, and are based on current estimates and projections, future results and trends. Actual results may differ materially from those projected as a result of certain risks and uncertainty.

Speaker Change: Before Jamie Kirsten begin their prepared remarks, please be reminded that certain 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: Forward looking statements generally relate to the company's plans objectives and expectations for future operations and are based on current estimates and projections future results and trends.

Speaker Change: Actual results may differ materially from those projected as a result of certain risks and uncertainties.

Brent Anderson: For a discussion of such risks and uncertainties, please see the risk factors described in Acacia's most recent annual report on Form 10-K and quarterly reports in Form 10-Q filed with the SEC.

Speaker Change: For a discussion of such risks and uncertainties. Please see the risk factors described indications. Most recent annual report on Form 10-K, and quarterly reports on Form 10-Q filed with the SEC.

Brent Anderson: Earlier this morning, Acacia issued a press release disclosing its first quarter 2025 financial results. 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 Q1 2025 earnings presentation to its website, which can be found under the quarterly results tab.

Speaker Change: Earlier this morning, Acacia issued a press release disclosing its first quarter 2025 financial results. The press release may be accessed on the Companys website under the press releases section the Investor Relations tab at Acacia research Dot com.

Speaker Change: The company also posted its Q1 2025 earnings presentation to its website, which can be found under the quarterly results tab.

Brent Anderson: On today's call, the team will discuss certain non-GAAP financial measures, including adjusted EBITDA for the company and each of its operating segments. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, can be found in the press release disclosing first quarter 2025 results. Available under the Press Releases section of the Investor Relations tab at acaciaresearch.com.

Speaker Change: On today's call the team will discuss certain non-GAAP financial measures, including adjusted EBITDA for the company and each of its operating segments information regarding the comparable GAAP metrics, along with required definitions and reconciliations can be found in the press release disclosing first quarter 2025 results available under the press releases section of the <unk>.

Speaker Change: Relations tab at Acacia research Dot com.

M.J. McNulty: I would now like to turn the call over to Acacia's Chief Executive Officer, MJ McNulty. Thank you, Brent. And thanks to everyone for joining us for our first quarter 2025 earnings call. Against the backdrop of significant macroeconomic uncertainty, Acacia had a strong start to the year. As you've heard me say, our strategy is founded on acquiring and building businesses with stable long-term cash flow generation and scalability. combination of our existing businesses and our strong balance sheet enables us to deliver sustainable, long term value for a shareholder. The merits of this strategy are apparent in our first quarter results where our targeted capital allocation strategy and consistent execution enabled us to deliver first quarter revenue and total company adjusted EBITDA of $124.4 million and $50.7 million respectively.

John Mcnulty: I would now like to turn the call over to Acacia as Chief Executive Officer, and John Mcnulty.

John Mcnulty: Thank you, Brad and thanks to everyone for joining us for our first quarter 2025 earnings call.

John Mcnulty: Against the backdrop of significant macroeconomic uncertainty Acacia had a strong start to the year.

John Mcnulty: As you've heard me say our strategy is founded on acquiring and building businesses with stable long term cash flow generation and scalability.

John Mcnulty: Combination of our existing businesses and our strong balance sheet enables us to deliver sustainable long term value for our shareholders.

John Mcnulty: The merits of the strategy are apparent in our first quarter results, where our targeted capital allocation strategy and consistent execution enabled us to deliver first quarter revenue and total company adjusted EBITDA of $124 4 million at $50 7 billion respectively.

M.J. McNulty: This is due in part to our intellectual property business, which, while less consistent with our target business characteristics, shows the attractive, uncorrelated nature of these assets. Book value per share at the end of the quarter was $6 and book value to Acacia, excluding noncontrolling interests, was $5.62, representing a quarter over quarter increase of 4.3% and 4.8% respectively.

John Mcnulty: This is due in part to our intellectual property business, which while less consistent with our target business characteristics shows the attractive uncorrelated nature of these assets.

John Mcnulty: Value per share at the end of the quarter was $6 and book value to Acacia excluding noncontrolling interest was $5 62.

John Mcnulty: Renting a quarter over quarter increase of four 3% and four 8% respectively.

M.J. McNulty: Our strong performance for the quarter was driven primarily by three factors. First, realize gains from our intellectual property business, where we saw a large settlement in our Atlas portfolio. Second, the continued integration of the revolution assets within our energy segment, where we saw sequential improvement in revenue compared to the fourth quarter. And third, our first full quarter of contributions from Deflecto.

John Mcnulty: Strong performance for the quarter was driven primarily by three factors.

John Mcnulty: Realized gains from our intellectual property business, where we saw a large settlement in our outlet portfolio.

John Mcnulty: Second the continued integration of the revolution of assets within our energy segment, where we saw sequential improvement in revenue compared to the fourth quarter.

John Mcnulty: And third our first full quarter of contributions from deflect out.

M.J. McNulty: I'd like to discuss each of these factors in more detail, starting with benchmark. You may recall that in April of 2024, a majority owned subsidiary, Benchmark Energy, acquired an interest in approximately 470 operated producing wells in the Anadarko Basin, as well as a non-operated interest in the developing Cherokee Plain. Since that acquisition, Benchmark has generated free cash flow to repay a little over 25% of the $82 million of debt drawn at close, and our workover program has helped keep the daily production profile and asset value consistent. largely mitigating the natural decline curve in our asset.

John Mcnulty: Like to discuss each of these factors in more detail starting with benchmark.

John Mcnulty: You may recall that in April of 2024, a majority owned subsidiary benchmark energy acquired an interest in approximately 470 operated producing wells in the Anadarko basin.

John Mcnulty: As well as a non operated interest in the developing Cherokee play.

John Mcnulty: Since that acquisition benchmark has generated free cash flow to repay a little over 25% of the $82 million of debt drawn at close and our Workover program has helped keep the daily production profile and asset value consistent.

John Mcnulty: Largely mitigating the natural decline carbon our assets.

M.J. McNulty: I'm also pleased to report that due to the hard work of our field team, our assets experienced limited production downtime during the challenging Q1 weather situation in the Anadarko Basin, and our near-term capital projects remain on track. This weather did cause some inventory build, leading to more crude oil in our field tanks. The cash flow associated with this crude will be collected in the coming quarters as inventory naturally unwinds. While macroeconomic uncertainty has created volatility in global oil prices, our hedging strategy has provided price protection and greater cash flow predictability. As a reminder, we've hedged over 70% of our production through the end of 2027, which protects a substantial amount of our cash Further, our diversified production profile of oil, gas and natural gas liquids provides a significant optionality in our capital program, as we're able to prioritize projects that are more gas and NGL weighted in a weaker oil price environment.

John Mcnulty: I'm also pleased to report that due to the hard work of our field team our assets experienced limited production downtime during the challenging Q1 weather situation in the Anadarko basin and our near term capital projects remain on track.

John Mcnulty: This weather did cause some inventory build leading to more crude oil in our field tax the cash flow associated with this crude will be collected in the coming quarters as inventory as inventory naturally unwise.

John Mcnulty: Well macroeconomic uncertainty has created volatility in global oil prices, our hedging strategy has provided price protection and greater cash flow predictability.

John Mcnulty: As a reminder, we've hedged over 70% of our production through the end of 2027, which protects a substantial amount of our cash flow.

John Mcnulty: Further our diversified production profile of oil gas and natural gas liquids provides a significant optionality in our capital program as we're able to prioritize projects that are more gas and NGL weighted in a weaker oil price environment.

M.J. McNulty: As a reminder, approximately 51% of Benchmark's LTM revenue and 78% of LTM production on an MBOE basis was driven by gas and natural gas liquids, the price of which have remained resilient in the face of the recent OPEC announcement. Finally, Benchmark has zero capital commitments from a drilling perspective and our lean operating structure will allow these assets to remain cash flow positive in even the most challenging price environment. allowing us to be opportunistic relative to our more levered and less hedged fears. This is consistent with the capital light strategy we laid out when we first partnered with McGarren and the management team to build this business.

John Mcnulty: As a reminder, approximately 51% of benchmark LTM revenue and 78% adults you have production on it.

John Mcnulty: N V O E basis was driven by gas and natural gas liquids the price of which have remained resilient in the face of the recent OPEC announcements.

John Mcnulty: Finally benchmark has zero capital commitments from a drilling perspective, and our lean operating structure will allow these assets to remain cash flow positive and even the most challenging price environments.

John Mcnulty: Allowing us to be opportunistic relative to a more levered than less hedged fears.

John Mcnulty: This is consistent with the capital light strategy, we laid out when we first partnered with Mccarran and the management team to build this business and.

M.J. McNulty: and remains a core tenet of our thesis in oil and gas.

John Mcnulty: And remains a core tenant of our thesis and oil and gas.

M.J. McNulty: As many of you know, a significant portion of the domestic natural gas supply growth has been a result of associated gas, or gas produced from a well that was primarily oil focused, many of these in the Permian Basin. As a result of the recent lower oil price environment, we're seeing rig counts drop and subsequently supply growth of both oil, as well as that associated gas slowing. This declining production growth coupled with the increasing demand for electricity and increasing LNG export capacity in the US sets up for an attractive backdrop for gas prices, both domestically and for export.

As many of you know a significant portion of the domestic natural gas supply growth has been a result of associated gas or gas produced from a well that was primarily oil focused many of these in the Permian basin.

John Mcnulty: As a result of the recent lower oil price environment, we're seeing rig counts dropped and substitute and consequently supply growth of both oil as well as that associated gas slowing this declining production growth coupled with the increasing demand for electricity and increasing LNG export capacity in the U S sets up for an attractive back.

John Mcnulty: Drop for gas prices, both domestically and for export bench.

M.J. McNulty: Benchmark is in a fortunate geographic position to be able to sell our gas in a variety markets. Interestingly, recent oil price softness has begun to surface some attractive M&A targets, which we're closely monitoring as potential tack-on opportunities. We also continue to explore avenues to monetize our Cherokee position in due course. Specifically, from a buy-build perspective, now is an attractive time to grow crude exposure through acquisition and gas exposure organically.

John Mcnulty: Benchmark is an unfortunate geographic position to be able to sell our gas in a variety of markets.

John Mcnulty: Interestingly recent oil price softness has began to surface some attractive M&A targets, which we're closely monitoring as potential tack on opportunities. We also continue to explore avenues to monetize our Cherokee position in due course, specifically from a buy build perspective now is an attractive time to grow crude exposure through acquisition.

John Mcnulty: And gas exposure organically, we'll keep you updated as and when there are any significant developments.

M.J. McNulty: We'll keep you updated as and when there are any significant developments. In line with last quarter, we've reported adjusted EBITDA on our financials, including the impact of realized hedging gains and losses, but they're not included in the quarter's top line revenue figure. 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.

John Mcnulty: In line with last quarter, we've reported adjusted EBITDAR financials, including the impact of realized hedging gains or losses, but they are not included in the quarter's topline revenue figure 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 further information can be.

M.J. McNulty: Further information can be found in our regulatory Moving now to our Deflecto business. Since acquiring Deflecto in the fourth quarter of last year, our team has been diligently working to integrate the company into our existing portfolio and has implemented several initiatives to optimize operations. So far, we've organized Deflecto into three distinct business units, which we believe will drive operational efficiencies, improve accountability, and reduce overhead costs. Further, we continue to streamline our product offering, optimize our global production footprint, and improve go-to-market motions across all three of the businesses. Finally, across each unit, we're implementing our business systems process.

John Mcnulty: Found in our regulatory filings.

John Mcnulty: Moving now to our deflect a business.

John Mcnulty: Since acquiring <unk> in the fourth quarter of last year. Our team has been diligently working to integrate the company into our existing portfolio and has implemented several initiatives to optimize operations. So far we've organized a flat go into three distinct business units, which we believe will drive operational efficiencies.

John Mcnulty: Prove accountability and reduce overhead costs further and we continue to streamline our product offering and optimize our global production footprint and improved go to market motions across all three of the businesses.

Finally across each unit, we're implementing our business systems processes.

M.J. McNulty: targeting a number of working capital initiatives, including inventory optimization and sales operations planning process. which we believe will manifest themselves in higher rates of cash conversion over the coming quarter. The actions we have taken and will continue to take will allow us to better capitalize on Deflecto's long-term growth potential, which, combined with its substantial market share, diversified customer and supplier base, and modest capital gains, provides promising opportunities for the second half of 2025 and beyond. In terms of capital deployment at Deflecto, we continue to evaluate strategic M&A within the business and see a significant amount of opportunity and optionality going forward.

John Mcnulty: Getting a number of working capital initiatives, including inventory optimization and sales operations planning processes, which we believe will manifest themselves in higher rates of cash conversion over the coming quarters.

John Mcnulty: The actions, we have taken and will continue to take will allow us to better capitalize on the flip those long term growth potential, which combined with its substantial market share diversified customer and supplier base and modest capital needs provides promising opportunities for the second half of 2025 and beyond.

John Mcnulty: In terms of capital deployment at the plateau, we continue to evaluate strategic M&A within the business and see a significant amount of opportunity and optionality going forward.

M.J. McNulty: Despite, and in certain cases, because of the global macroeconomic uncertainty, our opportunity set here remains revived.

John Mcnulty: Despite and in certain cases, because of the global macroeconomic uncertainty our opportunity set here remains robust.

M.J. McNulty: I would now like to take a few minutes to discuss the impact of rapidly evolving terraplants. Thus far, we've been reasonably protected from tariffs from a cost standpoint. We maintain a global production footprint and have been reshoring certain manufacturing functions and exploring sourcing alternatives to mitigate duty impact.

John Mcnulty: I would now like to take a few minutes to discuss the impact a rapidly evolving tariff landscape.

John Mcnulty: Thus far we've been reasonably protected from tariffs from a cost standpoint, we maintain a global production footprint and had been reassuring certain manufacturing functions and exploring sourcing alternatives to mitigate duty impacts.

M.J. McNulty: However, like many of our peers, we've seen tariff specific demand headwinds, particularly in Deflecta's transportation unit, which provides safety related and regulatory required components into the trucking industry. Well, this end market remains challenged due to purchasing delays. We continue to invest to optimize our business in order to maximize cash flow when the cycle returns, which we believe it will. Looking ahead, I believe our operations will benefit from our disciplined approach to cost management and operational excellence, which is central to our core capital allocation process. confident in Acacia's resilience and our ability to continue managing pressures brought on by tariffs in the coming quarters.

John Mcnulty: However, like many of our peers, we've seen tariff specific demand headwinds, particularly in deflect those transportation unit, which provides safety related and regulatory required components into the trucking industry.

John Mcnulty: This end market remains challenged due to purchasing delays, we continue to invest to optimize our business in order to maximize cash flow when the cycle returns, which we believe it will looking ahead I believe our operations will benefit from our disciplined approach to cost management and operational excellence, which is central to our core capital allocation philosophy.

John Mcnulty: Competent indications resilience and our ability to continue managing pressures brought on by tariffs in the coming quarters.

M.J. McNulty: Our business is well positioned to handle volatile, volatile periods, and I'm proud of the discipline shown by our team amid what's been a challenging environment for many.

John Mcnulty: Business is well positioned to handle volatile volatile periods and I'm proud of the discipline shown by our team in what's been a challenging environment for many.

M.J. McNulty: I'd now like to turn to our intellectual property business, which generated a significant increase in revenue in EBITDA quarter over quarter, primarily driven by a large IP settlement related to our Wi-Fi portfolio. The settlement delivered approximately $69 million in revenue against approximately $21 million of direct costs and revenue sharing with our partners for total net proceeds of approximately $48 million.

John Mcnulty: I'd now like to turn to our intellectual property business, which generated a significant increase in revenue and EBITDA quarter over quarter, primarily driven by a large IP settlement related to our Wi Fi portfolio.

John Mcnulty: Settlement delivered approximately $69 million in revenue against approximately $21 million of direct cost and revenue sharing with our partners for total net proceeds of approximately $48 million.

M.J. McNulty: We like the non-correlated nature of these assets and continue to evaluate new opportunities while weighing the relative merits and considerations against alternative options for our capital allocation.

John Mcnulty: We like the non correlated nature of these assets and continue to evaluate new opportunities, while weighing the relative merits and considerations against alternative options for our capital allocation.

John Mcnulty: Okay.

M.J. McNulty: Turning now to our industrial segment. Brentronics continues to generate consistent revenue, just shy of $8 million during the quarter, and the business continues to be a nice source of cash for Acacia. Over the last 12 months, Brentronics generated over $7 million in free cash flow on $3.7 million in EBITDA, a result of the business systems we began implementing when this team began its turnaround. What we have experienced is substantial benefit from working capital over the past 24 months. We still expect the business to convert cash at an attractive rate going forward.

John Mcnulty: Turning now to our industrial segment.

John Mcnulty: Print products continues to generate consistent revenue just shy of $8 million during the quarter and the business continues to be a nice source of cash for Acacia over the last 12 months plantronics generated over $7 million in free cash flow on $3 $7 million in EBITDA. A result of the business systems. We began implementing when this team began its turnaround.

John Mcnulty: What we have experienced a substantial benefit from working capital over the past 24 months, we still expect the business to convert cash at an attractive rate going forward.

M.J. McNulty: Since acquisition, our team has transformed the business to a dual hardware and consumables model with a streamlined operating structure and has layered in two new products into our product. for Existing Distribution Channels. These efforts are now bearing fruit and are indicative of the value we can drive over the long term through implementing improvements to operations of the assets that we manage.

John Mcnulty: Since acquisition, our team has transformed the business to a dual hardware and consumables model with a streamlined operating structure and is layered in two new products into our product mix.

John Mcnulty: Your existing distribution channels.

John Mcnulty: These efforts are now bearing fruit and are indicative of the value. We can drive over the long term through implementing improvements to operations of the assets that we manage.

M.J. McNulty: Before turning the call over to Kirsten, I'd like to take a moment to share my views on Acacia's share price. Management and the board continually seek ways to enhance our business and strive to generate value for our shareholders. While capital markets continue to be negatively impacted by macroeconomic uncertainties, we believe our current share price does not reflect the underlying value of our assets.

John Mcnulty: Before turning the call over to Kirsten I'd like to take a moment to share my views on Acacia share price management and the board continually seek ways to enhance our business strive to generate value for our shareholders.

John Mcnulty: While capital markets continue to be negatively impacted by macroeconomic uncertainties. We believe our current share price does not reflect the underlying value of our assets for.

M.J. McNulty: For example, pro forma for the IP settlement I mentioned previously, we have cash, cash equivalents and equity securities of $3.52 a share and a book value excluding non-controlling interest of $5.62 a share. As we mentioned on our last call, in 2024, we repurchased the maximum number of shares we were comfortable repurchasing at this time, while simultaneously protecting our valuable tax attributes. While we cannot control the share price in the near term, I can assure you that your management and board continue to explore all possible accretive capital deployment initiatives, both internally and externally, and are working hard to protect and optimize the capital you've entrusted us with.

John Mcnulty: For example, pro forma for the IP settlement I mentioned previously we have cash cash equivalents and equity securities of $3.52, a share and our book value excluding non controlling interest.

John Mcnulty: $5.62 a share as we mentioned on our last call in 2024, we repurchased the maximum number of shares we were comfortable repurchasing at this time, while simultaneously protecting our valuable tax attributes where.

John Mcnulty: While we cannot control the share price in the near term I can assure you that your management and board continue to explore all possible all possible accretive capital deployment initiatives, both internally and externally and are working hard to protect and optimize the capital you have been trusted us with.

Kirsten Hoover: And now I'd like to turn the call over to Kirsten to provide additional details on our first quarter financial results. Thank you, M.J. Acacia recorded total revenue of $124.4 million during the first quarter. Our energy operations generated $18.3 million in revenue for the quarter, compared to $1.9 million in the same quarter of last year. Manufacturing Operations generated $28.5 million in revenue. Our industrial operations generated $7.7 million in revenue during the quarter, a slight decrease compared to $8.8 million in the same quarter of last year. Our intellectual property operations generated $69.9 million in licensing and other revenue during the quarter, compared to $13.6 million in the same quarter last year.

Kirsten: And now I'd like to turn the call over to Kirsten to provide additional details on our first quarter financial results.

Kirsten: Thank you Ajay.

Kirsten: Acacia recorded total revenue of $124 4 million during the first quarter.

Kirsten: Our energy operations generated $18 3 million in revenue for the quarter compared to $1 9 million in the same quarter of last year.

Kirsten: Manufacturing operations generated $28 5 million in rabbit Kimberly.

Kirsten: Our industrial operations generated $7 7 million and revenue during the quarter, a slight decrease compared to $8 8 million in the same quarter of last year.

Kirsten: Our intellectual property operations generated $69 9 million in licensing and other revenue during the quarter compared to $13 6 million in the same quarter last year.

Kirsten Hoover: The year-over-year increase in revenue is primarily due to the Atlas Portfolio Settlement that MJ previously touched on. Total consolidated GNA expense was $17.3 million during the first quarter, compared to $12.5 million in the same quarter of last year. with the $5.7 million increase related to the addition of the deflecto as part of the company's new manufacturing operation. Of the $5.7 million in DeflectoGNA, approximately $1.5 million is related to depreciation and amortization of intangible assets. Our energy operations G&A expense increased 1.2 million versus the same period last year, while G&A at the parent level decreased by 2 million year over year.

Speaker Change: The year over year increase in revenue is primarily due to the Atlas portfolio settlement that M. J previously touched on.

Speaker Change: Total consolidated G&A expense was $17 3 million during the first quarter compared to $12 5 million in the same quarter of last year with the 5.7 million increase related to the addition of the plateau as part of the company's new.

Speaker Change: <unk> operations.

Speaker Change: Of the $5 7 million and reflect our G&A.

Speaker Change: <unk>, one 5 million is related to depreciation and amortization of intangible assets.

Speaker Change: Our energy operations G&A expense increased 1.2 million versus the same period last year, while G&A at the parent level decreased by 2 million year over year.

Kirsten Hoover: The company recorded first quarter GAAP operating income of $38.3 million, compared to GAAP operating loss of $2.1 million in the same quarter last year, primarily due to the increase in revenue. Energy operations contributed $4 million in operating income during the quarter, which included $4 million in non-cash depreciation, depletion, and amortization expense, and does not reflect a nominal realized hedge loss. Adjusted EBITDA for our energy operations was $7.9 million. Manufacturing operations contributed $0.3 million in operating income during the quarter, which included $1.5 million in non-cash depreciation and amortization expense, and $0.4 million in non-recurring transaction-related expenses, and $0.2 million in severance costs as part of our operational initiatives at Deflecto.

Speaker Change: The company reported first quarter GAAP operating income of $38 3 million compared to GAAP operating loss of $2 1 million in the same quarter last year, primarily due to the increase in revenues.

Speaker Change: Energy operations contributed $4 million and operating income during the quarter, which included $4 million in noncash depreciation depletion and amortization expense and does not reflect a nominal realized hedge loss.

Speaker Change: Adjusted EBITDA for our energy operations was $7 9 million.

Speaker Change: Manufacturing operations contributed <unk> 3 million and operating income during the quarter, which included $1 5 million in noncash depreciation and amortization expense and <unk> 4 million.

Speaker Change: Nonrecurring transaction related expenses and point 2 million in severance costs as part of our operational initiatives at the blacked out.

Kirsten Hoover: Adjusted EBITDA for our manufacturing operations was $2.4 million. Industrial operations contributed $0.3 million in operating income during the quarter, which included $0.6 million in non-cash depreciation and amortization expense, and $0.2 million in severance costs as part of our continued operational initiatives at Printronics. Adjusted EBITDA for our industrial operations was $1 million.

Speaker Change: Adjusted EBITDA for our manufacturing operations was $2 4 million.

Speaker Change: Okay.

Speaker Change: Industrial operations contributed <unk> 3 million and operating income during the quarter, which included $6 million in noncash depreciation and amortization expense and point 2 million in severance costs as part of our continued operational initiatives at <unk>.

Speaker Change: Adjusted EBITDA for our industrial operations was $1 million.

Kirsten Hoover: Gap net income attributable to Acacia Research Corporation in the first quarter was $24.3 million, or $0.25 per share, compared to a net loss attributable to Acacia of $0.2 million, or $0.0 per share in the prior year period. The increase was primarily due to the large IP settlement revenue in addition to the full quarter impacts from the Revolution and Deflecto acquisitions. lower parent costs, and the completion of legal legacy expenses. in the prior year period. GAAP net income included $4.8 million in unrealized losses and $1.6 million in realized gains related to the fair value of equity securities at March 31, 2025.

Speaker Change: GAAP net income attributable to Acacia Research Corporation in the first quarter was $24 3 million or 25 cents per share compared to a net loss attributable to Acacia of point 2 million or zero cents per share in the prior year period.

Speaker Change: The increase was primarily due to the large IP settlement revenue. In addition to the full quarter impact from the revolution and de facto acquisitions.

Speaker Change: Lower parent costs and the completion of legal legacy expenses in.

Speaker Change: In the prior year period.

Speaker Change: GAAP net income included 4.8 million and unrealized losses, and $1 6 million and realized gains related to the fair value of equity Securities at March 31, 2025.

Kirsten Hoover: Adjusted net income attributable to Acacia in the first quarter of 2025 was $33.1 million or $0.34 per share.

Speaker Change: Adjusted net income attributable to Acacia and the first quarter of 2025 with $33 1 million or 34 cents per share.

Kirsten Hoover: Further details on these adjustments can be found in our press release.

Speaker Change: Further details on these adjustments can be found in our press release.

Kirsten Hoover: Now turning to the balance. Cash, cash equivalents, and equity securities at fair value totaled $290 million at March 31, 2025, compared to $297 million at December 31, 2024.

Speaker Change: Now turning to the balance sheet.

Speaker Change: Cash cash equivalents and equity securities at fair value totaled 290 million at March 31st 2025, compared to 297 million at December 31 2024.

Kirsten Hoover: Pro forma for the net proceeds received after quarter end from the intellectual property operations, cash, cash equivalents and equity securities totaled approximately three hundred and thirty eight point two million or three dollars and fifty two cents per share.

Speaker Change: Pro forma for the net proceeds received after quarter end from the intellectual property operations cash cash equivalents and equity securities totaled approximately $338 2 million or $3 52 per share.

Kirsten Hoover: The parent company's total indebtedness was zero at March 31st, 2025. On a consolidated basis, Acacia's total indebtedness as of March 31st, 2025, was $108.4 million, consisting of $61.5 million and $46.9 million in non-recourse debt at Benchmark and Deflecta, respectively. Since closing the acquisition of the Revolution Assets one year ago in April 2024, Benchmark has paid down approximately $21 million in total debt, underscoring the strong free cash flow generation of the business.

Speaker Change: The parent company's total indebtedness with zero at March 31, 2025.

Speaker Change: On a consolidated basis Acacias total indebtedness as of March 31, 2025 was $108 4 million.

Speaker Change: A listing of $61 5 million and $46 9 million and non recourse debt at benchmark and effective respectively.

Speaker Change: Since closing the acquisition of the Revolution assets, one year ago in April 2024.

Speaker Change: Benchmark has paid down approximately $21 million in total debt.

Underscoring the strong free cash flow generation of the business.

Kirsten Hoover: For more information on Acacia's first quarter results, please see our press release issued this morning and our quarterly report on Form 10-Q, which we will file with SEC later this week.

Speaker Change: For more information on Acacias first quarter results. Please see our press release issued this morning, and our quarterly report on Form 10-Q, which we will file with the SEC later this week.

M.J. McNulty: with that, I'll turn the call back over to MJ. Thanks, Kirsten. I'm proud of the work our team has done this quarter in the face of a very volatile market. We believe that this uncertain, unique period in capital markets presents compelling opportunities for our business. We remain focused on identifying and executing upon strategic acquisitions and organic growth initiatives in our verticals. We have many promising opportunities under active evaluation in both of these categories.

Ajay: With that I'll turn the call back over to Ajay. Thanks.

Ajay: Thanks Kirsten.

Ajay: I'm proud of the work our team has done this quarter in the face of a very volatile market.

Ajay: We believe that this uncertain unique period in capital markets presents compelling opportunities for our business.

Ajay: We remain focused on identifying and executing upon strategic acquisitions and organic growth initiatives in our verticals. We have many promising opportunities under active evaluation and both of these categories.

Jenny: With that, I'll hand the call back over to the operator, Jenny. Thank you very much MJ.

Speaker Change: With that I'll hand, the call back over to the operator Jenny.

Ajay: Yeah.

Ajay: 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 phone keypad now 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 Nicky So any participants.

Jenny: 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 screen. Information Tome will indicate that your line is in the queue.

Jenny: 2, if you would like to remain. for any participation. Please wait a moment whilst we poll Thank you.

Ajay: Using speaker equipment, it might 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 live.

Anthony Stoss: Your first question is coming from Anthony Stoss of Craig Hallam. Anthony? Morning team, really impressive execution and congrats on the Wi-Fi six continued wins. And let me start with that.

Anthony Stoss: Good morning team really impressive execution and congrats on the Wi Fi six continued wins and let me start with that.

M.J. McNulty: Can you maybe just detail, I think, over the last couple of years, or total up the winnings from this portfolio, and are there many more left out there, or are there many more companies that you can go after? And then add a couple of follow-ups after that. Yeah, hey, Tony, good to talk to you. Thanks for joining the call.

Speaker Change: Andrew can you maybe just detail I think.

Speaker Change: Last couple of years, our total up the the winning solution portfolio and are there. Many more left out there are many more companies that you can go after and then I had a couple of follow ups after that.

Speaker Change: Yeah, Hey, Tony good to talk to you. Thanks for joining the call, let let let us pull the number for the total winnings over the periods I don't have that handy, but.

M.J. McNulty: Let us pull the number for the total winnings over the periods. I don't have that handy, but can certainly get that to you. We do think there's more value in the portfolio. It's, you know, we've got, as you all know, you've seen in the press, we've got this TP Link case that's sitting out there where the court's awarded it. It continues to go through some appeal processes, but we feel pretty good about it. And the cases all build on themselves. So the more settlements and winnings we have in court, the stronger the hand we have in executing against the portfolio.

Speaker Change: Can certainly get that to you.

Speaker Change: We do think there's more value in the portfolio.

Speaker Change: It's.

Speaker Change: We've got.

Speaker Change: As you all know you've seen in the press. We've got this TP link case, that's sitting out there where a courts awarded it.

Speaker Change: Can you just go through some appeal processes, but we feel pretty good about it.

Speaker Change: And and and the cases I'll build on themselves. So the more settlements and winning as we have in court the stronger the hand, we have it and executing against the portfolio.

Anthony Stoss: in terms of total wins. Since the first quarter of 23, we've pulled in about $178 million from the Wi-Fi asset. Wow, impressive.

Speaker Change: In terms of total wins.

Speaker Change: The first quarter of 'twenty three.

Speaker Change: We pulled in about $178 million from from Wi Fi assets.

Speaker Change: Impressive.

M.J. McNulty: And then just following up on your prepared remarks on valuations and M&A, are you seeing prices finally coming in? I would imagine it depends on the sector. Are you still thinking kind of on the industrial side, though, in your prepared remarks you mentioned again on energy and maybe even on the deflective side of the business? Just any thoughts on valuations and the way you're kind of looking would be helpful. Yeah, I mean, so as we've said, we kind of are looking at three verticals, you name two of them, energy and industrials, the third being, you know, what we call mature technology.

Speaker Change: And then just following up on your prepared remarks on valuations and M&A are you seeing prices finally coming in.

Speaker Change: I would imagine it depends on the sector or are you still thinking kind of on the industrial side, though in your prepared remarks, you mentioned again on energy and maybe even on the deflector side of the business just any thoughts on valuations and where you're kind of looking would be helpful.

Speaker Change: Yeah, I mean, so so as we've said we we kind of are looking at three verticals you named two of them energy and industrials the third being.

Speaker Change: What we call mature technology.

M.J. McNulty: I guess, taking each of those apart a little bit on the mature technology side, we've seen some assets, and we're looking, you know, for BNC quartile assets, where we can do what we did with Printronics. And what we're doing with Deflecto, we can, you know, bring in an operating partner, have a plan, put our business systems, processes in place and really improve the business. That's how we're driving value. And, and on the mature technology side, we we've looked at several acquisition opportunities in that space. And for one reason or another, have walked away from them, we haven't liked them.

Speaker Change: I guess, taking each of those apart a little bit on the mature technology side, we've seen some assets and we're looking for being a few quartile assets, where we can do what we did with plantronics and what we're doing with the <unk>. We can bring in an operating partner have a plan put our business systems.

Speaker Change: He is in place and really improve the business, that's how we're driving value.

Speaker Change: And and on the mature technology side, we've looked at several acquisition opportunities in that space and for one reason or the other have walked away from them, we haven't liked them.

M.J. McNulty: But we're still hopeful that we're going to be able to find some interesting things there on the industrial side. As we look at Deflecto, we've got three separate businesses that that comprises. And then we've got Printronics. So I'll kind of group manufacturing, the manufacturing and industrial segments together. We, the transportation in particular, we really like that business. We think that the multiple in the market that that business is worth is more than what we bought it for. And we're seeing some opportunities to grow that business. The air distribution piece of the business is actually a very attractive business, particularly for private equity buyers right now.

Speaker Change: But we're still hopeful that we're going to be able to find some interesting things there on the industrial side as.

Speaker Change: As we look at the fact that we've got three separate businesses that that comprises and then we've got plantronics, So I'll kind of group manufacturing the manufacturing and industrial segments together.

Speaker Change: We did the transportation in particular, we really like that business, we think that the multiple in the market that that business is worth it is is more than what we bought it for.

Speaker Change: And we're seeing some opportunities to grow that business. The air distribution piece of the business, it's actually a very attractive business, particularly private equity buyers right now.

M.J. McNulty: So we like that business and the office business generates cash and we like it.

Speaker Change: So we like that business in the office business generates cash we like it.

M.J. McNulty: You know, I were, if you were to ask me, the office is probably not a place we want to allocate capital, air and, and transportation. I think we're, you know, we're excited to allocate capital there and grow businesses in those two verticals. And we're seeing, we're actively seeing opportunities in both of those businesses to do that.

Speaker Change: Sure.

Speaker Change: If you were to ask me the office is probably not a place we want to allocate capital are and and transportation I think we're we're excited to allocate capital there and grow businesses.

Speaker Change: In those two verticals and we're seeing.

Speaker Change: We're actively seeing opportunities in both of those businesses to do that on the on the oil and gas or the energy side of the business.

M.J. McNulty: On the, on the oil and gas or the energy side of the business, you know, Kirk and his team that run that business are, they have a great deal of experience and knowledge operating in the Anadarko Basin. I would say broadly, we're seeing a lot of oil and gas opportunities.

Speaker Change: Kirk and his team that run that business.

Speaker Change: Are they have a great deal of experience and knowledge operating in the Anadarko Basin I would say broadly we're seeing a lot of oil and gas opportunities. We're shying away from those that are based in the Anadarko basin, because we're seeing enough opportunities in that area, both organically and through acquisition to grow that platform.

M.J. McNulty: We're shying away from those that aren't based in the Anadarko Basin because we're seeing enough opportunities in that area, both organically and through acquisition to grow that platform in a basin where the team is really comfortable operating. Got it.

Speaker Change: <unk> in a basin, where the team is really comfortable operating.

Speaker Change: Got it and then.

M.J. McNulty: And then I'm not sure how much you can you can say on this, but you mentioned the tax attributes versus share buyback and other moves that you can make on capital allocation. If you can, and I think it'd be helpful for investors, what's the calculus on this, in terms of losing potentially, the tax attributes and anything you could share, I think would be helpful for investors. Yeah, I look we're so we we completed the $20 million buyback. We do have significant tax attributes that we'd like to protect, and those are based on some change of control metrics and things like that, which we continually watch to determine when the optimal time to buy back more stock is.

Speaker Change: Im not sure how much you can you can see on this but you mentioned the tax attributes versus share buyback and other moves you can make on capital allocation.

Speaker Change: If you can and I think it would be helpful for investors, what's the calculus on this in terms of losing potentially the tax attributes and anything you could share I think it would be helpful for investors.

Speaker Change: Yeah look we're so we completed the $20 million buyback.

We do have significant tax attributes that we'd like to protect.

Speaker Change: And those are based on some change of control metrics and things like that which we continually watch to determine when the optimal time to buy back more stock is.

M.J. McNulty: and so we monitor it.

Tony: And so we monitor it that's what I can say Tony.

Anthony Stoss: That's what I can say, Tony. Got it. Perfect.

Speaker Change: Got it perfect. Thanks, guys best of luck.

Jenny: Thanks, guys. Best of luck. Yeah, thanks, Tony. Really appreciate it. For questions you can press star 1.

Speaker Change: Yeah, Thanks, Terry really appreciate it.

Speaker Change: Thank you very much just a reminder, that if at all any further questions. You can press star one to join Nikki. Thank you very much. Your next question is coming from Brett Reece of Janney Montgomery Scott Bret Your line is life.

Brett Reiss: Brett Reiss of Journey Montgomery Scott. Brett, your line is up. MJ, hi. Kirsten, hi. Can you hear me? Yeah, we can hear you, Brett. How you doing? Great, great. Tony Soss asked two of my main questions. The you know, in terms of allocating more money to new patent portfolios, you haven't done that the last two or three years. But you know, with my channel checking, you know, prices have kind of come down. Is that something, you know, you'll revisit allocating capital to in the future? Yeah, so that's a great question. A couple thoughts there. Uh, first is where we weigh capital allocation among among all the opportunities we have to allocate capital.

Speaker Change: MTA, Hi, Kirsten Hi, can you hear me.

Kirsten: Yeah, we can hear you Brett how are you doing.

Speaker Change: Great.

Anthony Stoss: Tony Socs.

Speaker Change: Two of my main question.

Speaker Change: <unk>.

Speaker Change: The.

Speaker Change: In terms of allocating more money to new patent portfolios you haven't done that in the last two or three years, but with my channel checking prices have kind of come down.

Speaker Change: Is that something.

Speaker Change: You know you revisit allocating capital to in the future.

Speaker Change: Yes, so that's a great question a couple of thoughts there.

Speaker Change:

Speaker Change: First is where we weigh capital allocation among.

Speaker Change: Among all the opportunities we have to allocate capital and as you know, we have industrial manufacturing and energy businesses as well as the IP business. So we're continually looking at the right place to allocate the capital.

M.J. McNulty: And as you know, we have industrial manufacturing and energy businesses as well as the IP business. So we're continually looking at the right place to allocate the capital. The second thought is in our intellectual property business, we and Mark and his team have taken a very deliberate approach at high grading that portfolio. And so whereas in the past, we may have bought some small portfolios here or there, we are looking at standards of central patents. The Wi-Fi patent portfolio is excellent. And so we're looking to grow that piece of the business rather than picking up onesie-twosie patents here and there.

Speaker Change: The second Dod is in our intellectual property business, we and Mark and his team have taken a very deliberate approach at high grading that portfolio and so whereas in the past we may have bought some small portfolios here or there.

Speaker Change: We are looking at standards essential patents, the Wi Fi patents portfolio is excellent.

Speaker Change: And so we're looking to grow that piece of the business rather than picking up onesie twosies patents here and there.

M.J. McNulty: We're seeing a handful of things that are similar to the Wi-Fi portfolio that could be attractive. The tail on executing deals in the IP space with our particular strategy is a little bit more tail than allocating capital in industrials or oil and gas, for example.

Speaker Change: We are seeing a handful of things.

Speaker Change: That are similar to Wi Fi portfolio that could be attractive the tail on on executing deals in the IP space with our particular strategy is a little bit longer tail than than allocating capital in industrials or oil and gas for example.

M.J. McNulty: Okay, now, at some point, Yeah, to, to just kind of attract Attention to the Acacia story. Would it be too Byzantine Lee complex to at some point dividend out or spin off the patent business when your industrial and manufacturing business have achieved greater critical mass? I mean, I think that's a core question of how we look at the business and and whether it's the patent business our other businesses, when they get to scale, it's a capital allocation question for us. And so I think the broader question is, is are any one of our particular current or future businesses worth more to somebody else than they are to us?

Speaker Change: Okay.

Speaker Change: Now.

Speaker Change: At some point.

Speaker Change: You too.

Speaker Change: <unk>.

Speaker Change: Just to kind of attract.

Speaker Change: Tension to to the cases story.

Speaker Change: Would it be too busy tingly complex to at some point dividend out or spin off.

Speaker Change: The patent business when your industrial and manufacturing business had become greater critical mass.

Speaker Change: I mean, I think that's a core question of how we look at the business end and whether its the patent business.

Speaker Change: Our other businesses when they get to scale, it's a capital allocation question for us and so I think the broader question is is there are any one of our particular current or future business is worth more to somebody else than they are to us.

M.J. McNulty: And we, you know, like everything, we're constantly evaluating that in the capital allocation picture. And if the answer is yes, whether it's selling, spinning, divvying, whatever the mechanical answer is, if the business is worth more to somebody else than it's worth to us, then it's something that we need to pay attention to.

Speaker Change: We.

Speaker Change: Everything we're constantly evaluating that and the capital allocation picture and if the answer is yes, whether its selling spinning.

Speaker Change: Dividend whatever the mechanical answer is.

Speaker Change: If the business is worth more to somebody else than it's worth to US then it's something that we need to pay attention to.

Brett Reiss: The last one for me. The $37 million judgment we got that is being appealed does the $69 million settlement. Does that put more pressure on the defendant to perhaps, you know, settle that sooner rather than later? So I can give you my opinion. I wish I were in the head of the defendant, but but I don't have that luxury. I don't know is the short answer. I don't know how to guess the answer to that. But I but I hope the answer is yes, Brett. Right, right.

Speaker Change: The last one for me.

Speaker Change:

Speaker Change: The $37 million judgment, we got that is being appealed.

Speaker Change: The.

Speaker Change: $69 million settlement.

Speaker Change: Does that put more pressure on the defendant to.

Speaker Change: Perhaps.

Speaker Change: Several back sooner rather than later.

Speaker Change:

Speaker Change: So I I can give you my opinion.

Speaker Change: Wish I were in the head of the defendant, but but I don't have that luxury.

Speaker Change: I I don't know is the short answer.

Speaker Change: I don't know how to guess the answer to that but I hope the answers yes Brett.

Speaker Change: Right right.

Brett Reiss: MJ, thank you for Christmas coming early with the $69 million and have a good summer. Thanks, Brett. We'll talk to you soon. You bet.

Speaker Change: And Jay Thank.

Speaker Change: Thank you for Christmas coming early would be $69 million and.

Speaker Change: Have a good summer.

Brad: Thanks, Brad will talk to you soon.

Speaker Change: Pat.

Speaker Change: Thank you very much while we appear to have reached the end of our question and answer session I will now hand, it back over to Jay for any closing remarks.

Unknown Attendee: Thank you very much.

M.J. McNulty: Well, we appear to have reached the end of our... M.J. Thanks, Jenny. We, as always, we appreciate everyone joining and taking the time and following the company and engaging with us. We appreciate that engagement and the constructive feedback.

Speaker Change: Thanks Jody.

Speaker Change: As always we appreciate everyone joining and taking the time and following the company and engaging with US we appreciate that engagement and the constructive feedback.

M.J. McNulty: So we'll talk to you next quarter. Thank you very much.

Speaker Change: And we will talk to you next quarter.

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, we thank you for your participation.

Unknown Attendee: This does conclude.

Unknown Attendee: You may disconnect your phone lines at this time.