Acacia Research Corporation (ACTG) 2026 Q2 法說會逐字稿

Okay.

Oh okay.

Good morning, everyone and welcome to Acacia Research Corporation's second quarter 2026 earnings conference.

My name is Holly, and I will be your conference facilitator today.

At this time, all participants are in a listen-only mode to prevent any background noise following management's prepared remarks, we will open the call for questions, please note that today's call is being recorded and is also being webcast through the investor relations section of Acacia Research's website, I would now like to turn a conference over to Elizabeth Chikonas of Kanye Communications.

Elizabeth, please go ahead.

Thank you, operator, joining today's caller, MJ McNulty, Acacia's Chief Executive Officer, and Michael Zambito, Acacia's Chief Financial Officer.

Before management begins its prepared remarks, I'd like to remind everyone that certain statements made during today's call constitute forward looking statements within the meaning of 5.

These statements reflect management's current expectations, estimates, and projections regarding future events and operating performance and involve risks and uncertainties, it could cause actual results to differ materially from those expressed or implied by these forward-looking statements.

Please refer to Acacia's filings with the Securities and Exchange Commission, including our annual report on Form 10k and quarterly reports on for time Q for a discussion of these risks.

Earlier this morning, Acacia issued a press release announcing its second quarter 2026 financial results that release, together with our earnings presentation is available in the investor relations section of our website.

During today's call, management will discuss certain non-GAAP financial measures, reconciliations are included in this morning's earnings release.

With that, I'll turn the call over to Acacia's Chief Executive Officer MJ McNulty.

Thank you, Lizzy, and good morning, everyone.

Thank you for joining us today and for your continued support for what we're building here at Acacia.

We're pleased with our performance during the second quarter.

Our results reflected continued execution across our operating businesses, discipline capital allocation, and the benefits of our diversified business model.

Our operating continues to perform well in our streamlined intellectual property platform generated meaningful licensing revenue.

During the quarter, we generated total revenue of $114.6 million.

Operated segment adjusted EBITDA of $22.8 million and total company adjusted EBITDA of $17.3 million.

Ended the quarter with $334.6 million in cash, securities and loans receivable, while continuing to maintain no parent company debt providing us with significant financial flexibility.

Our objective has never been to maximize short-term earnings.

Instead, we focus on compounding long-term intrinsic value per share through disciplined capital allocation.

Acquiring businesses and attractive valuations, improving their operations through active ownership and deploying capital where we believe it can generate attractive long-term returns.

Whether in our existing businesses or by acquiring new platforms.

As we discussed during our annual position opportunities.

We remain patient and disciplined, pursuing only those opportunities where we believe our operational expertise and investment approach can create value beyond the purchase price.

In our view, one of the greatest competitive advantages a capital allocator can have is the ability to wait for the right opportunity rather than feeling compelled to acquire companies under a specific timeline.

Across our existing portfolio, we continue to execute against our strategic and operational priorities.

Benchmark generated strong cash flow while advancing its well development program.

Deflective continued its manufacturing optimization and restructuring initiatives that are shaping the platform for profit profitable growth.

Printronics once again just demonstrated the resiliency of its business model through strong cash generation and an improved product mix.

Our intellectual property platform also delivered meaningful licensing activity through the Wifi 6 portfolio.

As always, licensing activity should be viewed over longer periods, given the inherently episodic nature of settlement timing, we've also significantly rationalized the platform's cost structure and streamline the business to better align expenses with the timing and nature of licensing opportunities.

Looking ahead, our acquisition pipeline remains active.

We continue to see attractive opportunities across a range of industries, and we believe Acacia's strong balance sheet, disciplined underwriting process and operational capabilities position us well they capitalize on those opportunities as they arise.

With that overview, let me turn to our operating businesses beginning with benchmark.

Benchmark delivered another record revenue quarter with operating performance and cash flow exceeding our expectations.

Benchmark continues to deliver exceptional results, reinforcing our conviction in the quality of the business, the strength of its management team and its long-term value creation potential.

Our recently developed drilling inventory continues to demonstrate attractive economics.

During the quarter, production from our Cherokee development performed in line with expectations while we continued evaluating additional drilling opportunities using the same discipline underwriting framework we've applied since acquiring the business.

Benchmark generated revenue of $20.5 million dollars free cash flow of $6.5 million during the quarter.

Looking ahead, our priority remains maximizing long-term value rather than simply maximizing near term production.

We continue to evaluate additional drilling opportunities, potential capital partnerships and other initiatives that we believe can generate attractive risk adjusted returns while preserving balance sheet flexibility.

We also continue to actively manage our commodity hedging program.

The objective is straightforward, generate strong free cash flow, reduce earnings volatility, and protect outside risk.

We do not speculate on commodity prices.

As a result, quarterly mark to market movement should not be viewed as indicative of the underlying economics of the business.

Turning to Delto, were encouraged by the continued progress across the business.

Since acquiring Deflecto, we focused on positioning the business for long-term growth through manufacturing optimization, organizational streamlining, discipline, cost management, and pricing initiatives, revenue for the quarter was $27.1 million while adjusted EBD a total of $1.1 million.

Importantly, many of the operational improvements we've implemented are structural in nature as demand improves, we believe Deflective is well positioned to benefit from meaningful operating leverage going forward.

Turning to Protronics continues to generate consistent cash flow while creating opportunities to improve profitability through disciplined operational execution.

The traditional line matrix printer market remains mature; we continue to see attractive opportunities to create value of intronics.

We're leveraging the strength of the installed base in our global distribution network to expand our sales of higher margin consumable products, introduce complementary products and operate the business with discipline cost management.

This approach has enabled Printronics to remain a strong cash generating business while we continue, while it continues to evolve.

During the quarter, Printronics generated revenue of $6 million adjusted the DA of $1 million and free cash flow of $900,000.

Which we use a differentiated asset class rather than a traditional operating business.

The second quarter produced a strong result driven primarily by a significant licensing settlement within our Wii 6 portfolio, licensing revenue totals approximately $60.6 million.

As we've discussed previously, licensing revenue does not translate directly into adjusted EBITDA or cash flow because a portion of successful recoveries is contractually shared with contingency fee counsel, inventors, and when we have them in our deals, partners, which is the case for a Wifi 6 portfolio.

Given the episodic nature of licensing activity, we continue to manage the platform aggressively from a cost perspective, over the past quarter, we've significantly reduced operating expenses.

Well, amortization associated with certain legacy and tangible assets has declined significantly relative to 2025 and will continue at the current lower run rate through next year.

We believe these actions should enhance the platform's earnings profile as future licensing opportunities are realized.

Second quarter results also included approximately $3.7 million of non-recurring expense associated with the legacy litigation matter that we believe is substantial.

Complete and not representative of the platform's ongoing cost structure, well we do not take lightly the cost of litigation, we remain optimistic in our ability to obtain to obtain a potential recovery that could meaningfully exceed the associated cost, although the timing and outcome remain uncertain.

As a reminder, this expense has not been adjusted in our EBITDA.

Looking ahead, we believe the Wi FY 6 portfolio presents additional licensing opportunities, and we remain encouraged by the long-term potential of our intelligence demand for high-performance computing and data infrastructure.

We are also using AI to analyze larger data sets and identify potential intellectual property acquisition opportunities more efficiently.

Overall, the platform provides Acacia with exposure to a specialized non-correlated asset cost that complements our operating businesses and creates an additional avenue.

For discipline, capital deployment, and shareholder value creation.

Turning to our life sciences portfolio.

We were highly encouraged by AMO Pharma's recently announced regulatory update regarding AMO2, it's lead therapeutic candidate for congenital myotonic dystrophy.

During the quarter, AMO announced that it had received constructive scientific advice from the FDA, MHRA in the UK and Health Canada supporting the design of its planned Regis registrational clinical study.

The agencies provided alignment on key elements of the proposed study, representing an important milestone in establishing a regulatory path toward potential approval as the second largest shareholder of AMO Pharma.

We continue to work closely with the company and its lead shareholder as we evaluate power.

Well, significant work remains before a registrational study can begin, and its successful completion is not assured, the regulatory feedback provides greater clarity regarding the development pathway for AMO2.

The objective is to help position AMO2 with the best sources of capital to advance the program through the next stage of development.

Turning to our legacy investment inviet Pharmaceuticals held through Malanja1.

During the second quarter, we recorded a full writedown following developments impacting Mycovia pharmaceuticals, the underlying biotechnology company.

As a reminder, we acquired this interest as part of our 2020 Life Sciences portfolio acquisition.

Through Main J1's investment environment, Acacia had an indirect economic interest in potential milestone and royalty payments related to the anti-fungal drug the Ijea, which Mycoviy acquired from Viomeet in 2018.

To prove its current label includes a contraindication that significantly limits the drug's addressable patient population.

Mycovia and its sponsor have been working diligently to narrow or remove this contraindication by undertaking the necessary studies and seeking regulatory approval to expand the patient population, however, Mycovia has encountered liquidity issues as the timeline for the FDA readout has been extended, which led us to fully impair the carrying value of our investment in Ma and J1.

We continue to believe VO is an attractive drug supported by the compelling safety and efficacy data.

Accordingly, we've been actively working with Mycovia to evaluate potential financing alternatives that would allow it to fund operations through certain upcoming FDA milestones.

One potential transaction under consideration would give Acacia a direct ownership interest in Mycovia rather than an indirect economic interest to buy that's milestone and royalty rights and provide us with significantly greater participation and any value created if Mycovia achieves its regulatory and monetization objectives.

Biotechnology investments are inherently risky, and there can be no assurance that a transaction will be completed or Mycovia will achieve its regulatory objectives.

Nevertheless, Mycovia has invested considerable time and resources to position VevJa for the upcoming FDA review, and we believe that a favorable regulatory outcome could create significant value.

Although our life sciences investments are noncore and represent a modest portion of Acacia's overall value, we'll continue to manage them actively and with discipline, seeking to maximize value and pursue monetization opportunities when appropriate.

Well, we're not traditional biotech investors, situations like Mycovia and our ability to potentially create an opportunity is an example of what Acacia is uniquely positioned to execute.

Lastly, we see compelling opportunities in the small cap public markets.

Market volatility, limited research coverage and constrained access to capital can create meaningful gaps between market prices and the underlying value of high-quality businesses.

Our public market activity is closely connected to our broader acquisition strategy when we identify a business that could be an attractive fit for the Acacia platform, we may establish an initial toll hold position while we deepen our diligence, engage with management where appropriate and evaluate the potential for a broader strategic transaction.

Importantly, we remain flexible and focused on generating the best risk adjusted return while avoiding value traps.

A public market investment may lead to an acquisition or other strategic transaction, but that's not the only path to value creation.

When market developments cause a position to be more to more fully reflect or exceed our assessment of its value, we will actively and decisively trim or exit our investment and redeploy the capital into more attractive opportunities.

During the quarter, this strategy contributed meaningfully to our results.

One of our public company investments announced an agreement to be acquired, resulting in a significant increase in the value of our position, we subsequently exited the investment and realized an attractive return, although we do not intend to discuss individual positions and unless appropriate, this outcome demonstrates our ability to identify undervalued businesses, build positions with discipline and monetize those investments when the risk.

Reward becomes compelling.

We remain highly selective and evaluation driven, we believe our flexible mandate, long-term capital base and transaction experience allow us to pursue opportunities across the public and private markets and to choose the path that we will create the greatest long-term value for Acacia shareholders, with that, I'll turn the call over to Mike to review our financial results in greater detail.

Discuss believe the second quarter, showcase continued discipline execution across our operating businesses and the benefits of Acacia's diversified business model, strong operating performance combined with meaningful licensing activity within our intellectual property segment, contributed to another robust earnings quarter before reviewing the financial statements in more detail, I'd like to highlight a few key financial takeaways.

Total company revenue was $114.6 million.

Total operated segment revenue excluding intellectual property was $53.6 million.

Total company adjusted EBITDA was $17.3 million while operated segment adjusted EBITD total $22.8 million.

We ended the quarter with $3303334.6 million of cash, equity securities, and loans receivable, while continuing to maintain no parent company debt, turning to our income statements.

Total revenue for the quarter was $114.6 million compared to $51.2 million in the prior year period.

Energy operations generated revenue of $20.5 million.

Manufacturing operations generated revenue of $27.1 million.

Industrial operations generated revenue of $6 million while our intellectual property business generated licensing and related revenue of $60.9 million.

As we've discussed previously, licensing activity is inherently episodic, and quarterly results can vary significantly.

Depending on the timing of settlements.

Accordingly, we believe the platform is best evaluated over longer periods.

Turning to expenses.

Consolidated G&A expense for the quarter totaled $19.6 million.

Across our operating businesses, we continue to emphasize discipline, cost management, and operational efficiency.

Deflecto restructuring and manufacturing unit initiatives chronics continues to benefit from disciplined expense management and an improved product mix, additionally, as MJ mentioned, we have recently reduced costs at our IP business to better align expenses with licensing opportunities.

Operating income for the quarter was $8.5 million and total company adjusted EBITDA.

Was $17.3 million we believe adjusted remains a useful supplemental measure of operating performance because it helps investors evaluate the underlying earnings power of our businesses by excluding certain non cash and non-recurring.

Turning to our operating segments.

Benchmark generated adjusted Bda of $9.8 million in free cash flow of $6.5 million for the quarter, while continuing to invest in attractive development opportunities consistent with our disciplined capital allocation framework.

The Deflecto generated the Justibeda of $1.1 million while focusing on continued operational improvement despite softer conditions in certain end markets.

Herronix generated a just of $1 million and continued to produce strong free cash flow.

Within our intellectual segment, adjusted totaled $10.9 million as MJ noted earlier, licensing activity was particularly strong during the quarter, it's important to remember that a portion of licensing proceeds is contractually shared with inventors, litigation partners, and outside contingency fee council under customary commercial arrangements, and therefore reported revenue should not be viewed as directly translating into retained earnings, the IP business

Also incurred certain legal expenses associated with a legacy matter that is now substantially complete, we do not see these costs as an ongoing component of the cost structure of the business.

Turning to earnings, GAAP net income attributable to a case of Research Corporation was $47,000.

Or $0.00 per diluted share.

Adjusted net income attributable to Acacia research dollars or $0.13 per diluted share.

A reconciliation of GAAP and non-GAAP results.

Is included in this morning's earning release.

Turning to the balance sheet.

At quarter end, cash equivalents.

Equity securities measured a fair value and loans receivable.

Total $334.6 million an increase of approximately $4.7 billion during the quarter.

We continue to maintain no parent company debt.

On a consolidated basis, total gross indebtedness was $90.4 million consisting of $59.5 million of Deflecto nonrecourse data at benchmark, and $30.9 million of non-recourse debt at Deflecto .

Book value at quarter end was $557 million or $5.71 for common share.

Compared to $567.2 million or $5.87 per share at prior quarter end, increases to book value were primarily driven by $15.9 million in operating income from our operated segments at $9.4 million in gains from our public equity portfolio.

These increases were offset by parent expenses and the write-off of our investment in managing on discussed earlier.

Overall, we believe our balance sheet remains one of Acacia's key competitive advantages.

Liquidity, conservative capital structure.

And strong cash generation provide meaningful flexibility to continue investing in our existing businesses while evaluating new investment opportunities.

I'll now turn the call back to MJ.

Thanks, Mike, as you've heard today, Accasion delivered another quarter of strong execution across our portfolio.

Our operating businesses continue to perform well, our intellectual property platform generated meaningful licensing activity.

And we maintain the financial flexibility that continues to differentiate Acacia our strategy remains straightforward and unchanged, accounts to what we believe is intrinsic value.

Finally improve them through active ownership and build them into the market leaders for their niches.

We believe allocating capital with dis discipline will compound Acacia's intrinsic value per share over the long-term.

The current market environment is creating significant dislocation in both privately owned and public businesses, and we believe there's an increased number of opportunities for disciplined buyers.

A balance sheet remains a meaningful strategic advantage.

$334.6 million of cash, securities and loans receivable, no parent company debt and operating businesses that continue to generate strong free cash flow, we believe Acacia is well positioned to capitalize on attractive opportunities while maintaining financial discipline that has divined our, that has defined our investment approach.

Operator, we'd I'd be happy to take questions.

Thank you, at this time we will begin the question-and-answer session if you would like to ask a question,

(Operator Instructions) please press star 1 on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You may press star 2 if you would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up your handset before pressing the keys.

One moment please while we pull her questions.

Your first question for today is from Brett Reese with Jenny Montgomery Scott.

Good morning, MJ, hi Mike.

Hey Brett, good morning.

I got a couple of questions, first on the benchmark.

The, free cash flow and EBITDA, is that including a full quarter's contribution rated what?

Yeah, so that's a good question, it does, we open that well right at the beginning of the second quarter, if you remember, it was drilled and completed at the end of the 1st quarter and started producing a few days.

Maybe a weekend I Q2.

Okay.

And because things are, you know.

Doing well there, it's my understanding you're thinking of investing in other, similar wells, how many, and will the metrics on these additional wells.

The, you know.

Better, less good, of this, existing well.

Yeah, so, I think we mentioned this before, but the benchmark team, this acreage that we got with the Revolution acquisition in the Cherokee, created a pretty strategic angle for us, in the panhandle in Texas and Oklahoma, the team had spent post-acquisition, a good amount of time.

I'm turning the blocks of land that we have in units, and a unit is the pieces of land you put together, contiguous pieces of land you put together, that then you can drill a well on, and we have several units.

At this point, that we are looking to continue to drill wells on, you can usually drill 2 wells per unit, what we're trying to do is drill 1 well per unit, so we create a producing well in the form of PDPs, and then we have an offsetting well in the form of a pod that creates value and so the teams, work on creating several units to go drill, is pretty well advanced.

In terms of well performance, each well is independent of us of one another, but we're underwriting to type curves in future wells that look similar to, the performance of the Cherokee well that we drilled by, it's good, pivoting to Deflecto .

I was a little disappointed, there seem to be tailwinds with Class A, trucking, some of the firms that release, earnings, yeah, they were good, it just still hasn't been reflected, in deflect those, numbers yet.

Yeah, I mean, we look at that as a, as an attractive leading indicator for Deflective, if you recall, if you wanted to take back a lot of those firms you're talking about, Brad had built significant inventory in advance of what was a further decline in that market associated with.

Liberation Day, and so their numbers are very good, and we're very encouraged by those numbers, I think a lot of the sales are sales of existing, not newly manufactured OEM inventory, and so as that works through the system, we think that Deflecto will be a beneficiary of those incremental values.

Okay.

A question on potential deal flow.

Since interest rates have remained higher for longer, and as time passes, the tenor of the investments in private equity and credit, pass on, has that resulted in a level of stress so that, any potential deals you're looking to do with private equity and private.

Credit Might, be closer to the finish line.

So that, are.

Our friends in private equity have been investing as they always do through up cycles and down cycles.

Which is their remit, a lot of the acquisitions that were done in the COVID era, call it 20, end of 2021, 2022 are, as you point out, Brett, now starting to mature into longer assets inside these private equity funds, our deal flow has never been stronger, actually, and we have been talking to folks that are in the position where they have

On the, to address your point on the private credit side, have private credit lenders that want out of those businesses, and don't want to or not necessarily well situated to take the keys, so we have a handful of conversations going on there, and then in private equity, we see a lot of opportunities.

Are, not reluctant to engage in those, but we don't want to engage in situations where they're broad auction processes and we're one of, 100 people that get a confidential information memorandum and then submit an indication of interest, meet management, spend money, time, so on and so forth.

So, we're really focused on the acute situations in the private equity world, and right now we're seeing a lot of things that are not private equity that we think are really attractive and themes that we've.

Liked, over time and have studied and developed strong thesis on over time where it's a bilateral discussion and it's not a process and certainty of outcome is related to our diligence and not a potential competitive buyer that's willing to pay another, 10 $50 share, for a business, so we're actually pretty encouraged by the deal flow, we continue to see a lot of deal flow, we are sitting kind of in the center of almost if.

Not all of the deal that fits into our quality deal flow both from a company perspective, and operating model perspective, but as well as the ability to get something done as opposed to wasting time, is very encouraging right now.

Right, last one for me, the EBITD on the intellectual property business was 10.9 million.

Is that a rough back of the envelope?

What you net from the 60 million after paying, the lawyers, investors, and inventors.

And it's the cash that came in from, what you booked in the IP portfolio included in the,

Second quarter, cash number.

Yeah, so on the first question,

The EBITA is not the best proxy for that particular deal, and as we close.

Licensing settlements in the IP business.

In the WiFi 6 portfolio, we have a partner in that is in the, that has earned into the splits of their share, we also have, we do all of our litigation on a contingency basis to be conservative.

With cash and potential downside cases, the settlement that came in was TP Link, and as everyone knows, that's been sitting out there for a long time, the cost of the contingency fee grows as the case goes farther and farther through the court system and TP Link went almost all the way through the court system, so it's a higher contingency rate than what we typically see, and then in terms of EBITDA.

Being a metric for cash on that settlement, you gotta remember there were $3.7 million of legal expenses in that EBITDA that we don't anticipate spending again, a litigation matter that we think we hope we have an ability to recover in excess of that $3.7 million on and their operating expenses that go against, that cash amount on your question around, cash being booked, the cash for the

The settlement was received in Q3, but it's booked as Aar, at the end of Q2.

So, it's not, so Brad, it's not, it's, sorry, just to finish that out, it's not in the cash number on the balance sheet at the end of the quarter, but it has been added to our balance sheet subsequent to the end of the quarter.

Great.

Thank you very much for taking all my questions.

Yeah, of course, always nice to talk to you, Brent.

As a reminder, if you would like to ask a question, please press 1.

We have reached the end of the question-and-answer session and conference call.

Thank you for participating.

You may now disconnect.