Acacia Research Corporation

Greetings and welcome to the Acacia Research third quarter 2023 financial results conference call. At this time, all participants are in a listen-only mode and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Jeff Stanlis, of SNK IR. Jeff, you may begin.

Thank you. Hosting the call today are MJ McNulty, Interim Chief Executive Officer, and Kirsten Hoover, Interim Chief Financial Officer. Before beginning, I would like to remind you that the 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. 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. But I'd also like to remind everyone that a press release disclosing financial results was issued this afternoon just after the close of the market. This release may be accessed on the company's website under the Press Releases section of the Investor Relations tab at AcaciaResearch.com under the News and Events tab. With all that said, I would now like to turn the call over to MJ McNulty. MJ, the call is yours.

Thanks, Jeff, and thanks to everyone for joining us this afternoon. We've had a highly productive few months here and have several recent developments that I'd like to review on today's call. As you may have seen today, we announced that we acquired a majority stake in Benchmark Energy 2 LLC. Benchmark is an independent oil and gas company engaged in the acquisition, production, and development of long-lived oil and gas assets in mature resource plays in Texas and Oklahoma. I'll speak more about this in a few minutes, but Benchmark is an established entity managed by executives with whom we have a positive history and a team with a demonstrated track record of success across market cycles. We have long waited to invest in oil and gas assets and believe the timing for capital access in the industry, especially in terms of valuation, is ideal. The Benchmark platform specifically gives Acacia access to high return, predictable cash flows while employing a conservative risk management philosophy. We also signed an agreement to sell our stake of approximately 25% in Eric's Bioscience PLC. This is our last publicly traded life sciences asset as part of the portfolio that we acquired in 2020. And once completed, this sale will result in a significant return on our investment. Moreover, it further augments our capital base, enabling us to reallocate this capital in new ways, more core to our strategy. Our board has also approved a new share repurchase program. I'll discuss the details later current growth initiatives, and the share buyback. Turning to benchmark, we're enthusiastic about the acquisition announced today, which we believe is a good example of the flexibility of our capital and where we're able to find value others are overlooking. Where typical oil and gas models tend to rely on acquiring land and drilling wells, benchmark's particular operating model drives returns to investors through its focus on cash flow. Specifically, benchmark strategy involves acquiring mature assets, rather than undeveloped acreage and hedging up to 80% of its oil and gas production. The result is lower capital requirements and greater predictability of cash flows. Once an asset is acquired, Benchmark and their team undertake a holistic approach to increasing the ultimate recoverable volumes from these wells through a disciplined field optimization strategy with low leverage. Simply acquire under-operated assets and give them some time and attention to increase their production volumes. Additionally, Benchmark keeps G&A lean and seeks to hold assets for the long term with a focus on maximizing distribution to investors. This results in returns closer to the well ahead than a typical oil and gas company and significant optionality where we can harvest cash flows that are not encumbered by a drilling program and redeploy them either to our shareholders or through M&A. Over the long term, we believe that even though Benchmark is running a robust hedging program, The platform is well positioned to benefit from long exposure in the event the oil and gas markets help perform our expectations, for example, through increased production or reserves relative to how we value the assets or mean reversion in the market discount rates buyers assign to such assets. Acacia has invested $10 million in benchmark, resulting in a 50.4% ownership. The assets we're acquiring in this first transaction consists of over 13,000 net acres and an interest in over 125 wells, the majority of which are operated wells. We view this platform as just the beginning of a larger strategy, and we intend to utilize our capital base and this platform to support future growth through acquisition. The Jones Family Office McCarron Partners, led by Johnny Jones, is our partner in this acquisition. McCarron will maintain its interests and commit additional capital to support growth. Benchmark's management team includes Chief Executive Officer Kirk Gehring, who previously served as Chief Operating Officer of both Benchmark and Jones Energy. Other Acacia executives and I have worked with Kirk and Johnny in the past, and we know this team to comprise accomplished professionals with deep expertise in the industry. Shifting to ERICS, in early November, RTW Biotech Opportunities a leading specialized life sciences investor agreed to apply for cash, or Eric's position for approximately $57 million, which represents a purchase price of a pound 43 per share. RTW's purchase of Akisha's Eric shares is conditioned solely upon RTW receiving the necessary approval from the United Kingdom's Financial Conduct Authority and is expected to be completed in the first quarter of 2024. Separately, And independently, ERIX announced that its board has approved an agreement for ERIX to be acquired in an all-share transaction by RTW, conditional upon regulatory and ERIX shareholder approval. The sale of our stake in ERIX enables us to monetize this position in a single transaction, converting a relatively illiquid asset into cash that we can redeploy. We continue to hold positions in three life sciences companies, and we remain excited about their prospects, including AML Pharma, a clinical stage specialty biopharmaceutical company focusing on rare childhood onset neurological disorders with limited or no treatment options. AMO recently announced positive initial preclinical data from a study of the use of the company's investigational therapy, AMO2, in a treatment of Duchenne muscular dystrophy that showed strong potential in treating the muscle damage and weakness that occurs with BMD and other muscle wasting conditions. as well as the potential to improve cardiac and skeletal muscle health and function. We continue to closely monitor the AMO team's progress as they continue to develop AMO2. As a reminder, we acquired this life sciences portfolio for a total of $301 million. The ERICS transaction, once closed, will add an additional $57 million in returns on top of the $506.5 million we've generated through the end of Q3. and we retain still more value to unlock in these remaining holdings. Next, let me speak to the buyback. Our board of directors has approved a $20 million share repurchase program, which is subject to a cap of 5.8 million shares. We have a significant capital base, and we have reduced our fixed costs so that ongoing operations and interest should cover our recurring expenses. As such, we believe we have the necessary capital to both return some capital to shareholders at this time, as well as execute against our strategic acquisitions. As always, we'll continue to evaluate the most advantageous capital allocation opportunities for us to pursue as we continue to execute our strategy. Turning to other aspects of our business, our IP modernization business received a favorable jury award in a key patent infringement case related to our Wi-Fi 6 patents, setting the stage for further licensing agreements in seven years. and that verdict is already driving productive conversations. Our printronics business is operating more efficiently, delivering positive operating income and additional cash flow. Finally, I recognize that many shareholders are eager for us to deploy capital into our existing businesses as well as into new businesses. Our pipeline of opportunities continues to grow. We have a number of late-stage targets today, and we have many other opportunities on deck. In some of these cases, we are working with people we have partnered with in the past and we have confidence in their track record of success, much like we did with Benchmark. This familiarity is accelerating efforts. Our network of referral sources also continues to grow, and we continue to collaborate closely with our largest shareholders as they provide us with access to their extensive network of industry executives. Additionally, and most importantly, the work to grow our pipeline has not come at the expense of maintaining the rigor and high standards we put into evaluating each opportunity. I'm reluctant to make any predictions about when future transactions will occur or the scope of any of those transactions. We continue to need willing counterparties evaluations that are accretive for our shareholders and discussing the status of various projects does not work to anyone's benefit. But I hope you appreciate the progress we've made. As we've mentioned in the past, when we evaluate potential opportunities in the public markets, we will from time to time acquire stock in those companies. In some cases, buying stock may be a first step leading to an offer for the rest of the company. Our policy will be to not comment on individual positions as it will inhibit our ability to execute our strategy. I'd now like to turn the call over to Kirsten to discuss our third quarter financial results.