Acacia Research Corporation

Good afternoon, everyone, and welcome to the Acacia Research fourth quarter and year-end 2023 financial results call. At this time, all participants are in a listen-only mode, and the floor will be open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Rob Fink, Investor Relations. Rob, you may begin.

Thank you, operator. Thank you, everyone, for joining us. Hosting the call today are MJ McNulty, 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 operations 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 that are filed with the SEC. I would also like to remind everyone that a press release disclosing the financial results was issued this afternoon just after the closed market. This release may be accessed from a company's website under the press release section of the Investor Relations tab at AcaciaResearch.com. But that said, I would now like to turn the call over to MJ. MJ, the call is yours.

Thanks, Rob, and thanks to everyone for joining our call this afternoon. We're excited to share the details of 2023 with you all. We have a very active year, and 24 is starting out in the same fashion. Well, the team focused in the first half of last year on rationalizing our cost structure and maximizing value in our legacy asset base. Our focus for the second half was and continues to be on growing our business through acquisitions and identifying opportunistic situations where our research, execution, and operating partners can drive earnings and book value for share growth in disciplined and unique ways, both in our existing operating business and non-controlled positions we have on our balance sheet. Let me speak to these achievements. Our new management team acquired our first business and approximately 50% and growing stake in Benchmark Energy. Our intellectual property team had meaningful success in its Wi-Fi 6 licensing initiatives. We believe there are still additional opportunities to monetize these portfolios. In the fourth quarter of 23, we agreed to the sale of our position in Eric's Biosciences. We believe we achieved an attractive price for the sale of these shares. And last month, we had our oil and gas business Benchmark sign an agreement to acquire a very attractive group of assets. further validating the strategy of partnering with the benchmark team to build a larger oil and gas platform, which we think is a nice complement to our acquisition initiatives in industrials, technology, and healthcare sectors. As a result of Acacia's recent business activity, we generated $82 million in gross proceeds from Intellectual Property Team's Wi-Fi 6 licensing initiatives, $57.1 million in cash from the sale of our ERIC shares, and additional income from our public markets activities and interest income from our substantial cash and equivalents balance. As you know, Acacia's business model is to allocate capital to increase book value per share for our investors. We acquire undervalued businesses and assets. We apply disciplined operating and governance practices and grow earnings and cash flow to redeploy into the highest return opportunities, whether that's back into our existing businesses or for new acquisitions. In line with this business model, we were able to deploy a portion of these proceeds into our existing businesses and expect to deploy additional cash to fund Benchmark's growth in connection with its recently signed purchase and sale agreement we mentioned earlier. Simultaneously with this increased cash, our very experienced transaction team continues to evaluate acquisitions of additional operating businesses. Our pipeline of both public and private opportunities in our target industries continues to advance and mature under our new sourcing and acquisition evaluation process. Finally, we continue to prudently manage our fixed costs to align with the interest we're generating on our cash and cash equivalents. The net amount of this activity was to increase book value per share for FY23, which is a metric we watch closely, from $5.18 at the end of 2022 adjusted for the transaction to clean up our balance sheet to $5.90 per share at the end of 2023. Recall that Acacia's corporate team's incentive compensation is tied to growth in book value per share, which we believe very closely aligns with our shareholders. As we think about sources and uses of funds, we can walk through each in more detail. For 2023 and running into the first quarter of this year, we had two significant sources of cash. First, In our last call, we announced that we'd signed an agreement to sell our stake in Eric's Biosciences, our last publicly traded life sciences asset from the portfolio that we acquired in 2020. This transaction closed early in the first quarter of this year, delivering cash of approximately $57 million. I'd like to note that the gain on the sale is approximately equal to the expected second investment into benchmark. We have now generated more than $560 million in total proceeds from those life sciences from that life sciences portfolio and the assets in that portfolio after investing $301 million in 2021. We continue to hold positions in three private life sciences companies, and we remain excited about their prospects, including AMO Pharma, clinical stage specialty biopharma company focused on rare childhood onset neurogenetic disorders with limited or no treatment options. We believe there's still more value to unlock in these remaining holdings. Second, turning to our IP monetization business, we previously communicated we had favorable licensing and settlement events related to our Wi-Fi 6 patents. At the end of 2023, we entered into licensing and settlement agreements relating to this patent portfolio with aggregate revenue of approximately $82 million. The amount ultimately received was net of customary legal fees and other expenses. Importantly, these agreements establish a stronger foundation from which we can pursue further licensing agreements and settlements. Our Printronics business is operating more efficiently. We've been working diligently to reduce ongoing operating costs in the business to enable Printronics to deliver sustainable cash flow. This effort will facilitate Printronics' ability to further sell its high-margin, reoccurring consumables, so effectively ink, with a streamlined operating structure. We believe that over time, this business will represent a nice source of cashflow for Acacia. We also generated cash from our public markets activities in 2023. We view public market investments as a catalyst for moving acquisition targets forward with the ability to monetize our public position often as a profit at a profit. If we are unsuccessful in acquiring a business, we were successful in this way during the fourth quarter. As we have mentioned before, we are unable to publicly discuss the companies we have invested in and pursued as acquisition targets, but investors should note that we have generated returns from this activity. Against this backdrop of significant sources of cash, let me now turn to our uses of cash. In November, we acquired a majority stake in Benchmark Energy II LLC, an independent oil and gas company engaged in the acquisition, production, and development of low-decline oil and gas assets in mature resource plays in Texas and Oklahoma. As discussed in our prior call, Benchmark has a unique advantage in acquiring producing oil and gas reserves and then operating them to increase production over and above how we valued the underlying acquisition and at the same time exercising prudent hedging strategies. The net result is high return, predictable cash flows with a conservative risk management philosophy. We're attracted to the oil and gas sector, and we believe there's significant opportunity to be had here at Attractive Valuations. Before acquiring this stake, we evaluated several different opportunities. Our decision to partner with Benchmark was born out of the desire to work with successful teams and to own a majority stake in an actual operating business, rather than viewing these as financial assets. Owning and controlling oil and gas assets enables our team to generate the most value from operating them better. In February, we announced a significant acquisition as part of the benchmark platform. We entered into an agreement to acquire a group of upstream assets also in Texas and Oklahoma from a private seller. This acquisition, once closed, will significantly expand the benchmark portfolio, adding approximately 140,000 net acres of land and approximately 470 operated producing wells in what's called the Western Anadarko Basis throughout the Texas Panhandle in Western Oklahoma. These assets are liquids rich, which means they're predominantly oil-based with low decline profile and include a production base of approximately 6,000 barrels of oil a day equivalent. Further, the assets are a perfect fit for Benchmark's strategy of acquiring mature cash flowing properties, improving operations, maximizing production, and most importantly, returning capital. The team at Benchmark is deeply familiar with these assets. And there is ample opportunity to deploy various field enhancements, including artificial lift optimization, a more active well maintenance program, and opening up previously closed wells. Enhancing production is a key part of the benchmark strategy, and this is one of the reasons we decided to work with Kirk and his capable team at Benchmark. While the primary focus of Benchmark and this acquisition is to maximize cash flow, The asset base we acquired also provides Benchmark with meaningful exposure to the emerging Cherokee development play through both operated acreage and non-operated arrangements with best-in-class operators. Benchmark will likely seek to monetize this value through partnerships rather than standing up its own drilling operation. This is an example of finding value where others didn't in the strategy that we're pursuing of producing existing producing wells. Upon closing, Benchmark will hedge a significant amount of production, mitigating a large part of the commodity risk. This is another key consideration that attracted us to Benchmark. They focus on improving the operation of wells and use hedges to mitigate as much of the commodity price fluctuation as practical. Taking near-term price volatility out of the picture allows the operating team to focus on operating the business better. The assets we have acquired are prime targets for this approach. In November, Acacia invested $10 million in Benchmark, resulting in a 50.4% ownership. The acquisition announced last month will include an incremental investment of approximately $57.5 million, which is expected to bring our total ownership to approximately 73%. The timeline of the second opportunity illustrates our ability to scale a platform quickly. Transaction is expected to close in the second quarter of this year. Pro forma for the closing of this acquisition We anticipate having deployable cash and marketable securities at the parent level, the occasional level, of more than $400 million. We look forward to a bright future for our new, larger benchmark. As you can see, our strategy is coming into focus. We look to acquire valuable businesses that attract evaluations and deploy disciplined operating and capital allocation methods to create value. Our book value per share has grown, and in the last quarter, this growth was significant. We have meaningful optionality across our portfolio, giving us access to innovative strategies, financing structures, and collaborations that can leverage our expertise, our network of highly talented and successful operating executives, and our capital base to grow our portfolio. Scale drives incremental scale. Our pipeline of opportunities is growing, and our existing cash flows are growing as well, bolstering our capital position. We're just getting started here. I'd now like to turn the call over to Kirsten to discuss the fourth quarter financial results. Kirsten calls yours.