Acacia Research Corporation

Good morning, everyone. Thank you for joining Acacia Research's fourth quarter and year-end 2024 earnings conference call. My name is Holly, and I will 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 call is being recorded today and is also available through audio webcast on Acacia's website. Following the speaker's remarks, there will be time for questions. Questions can also be directed to Acacia at ir.acaciarest.com. I would now like to turn the conference over to Mr. Brent Anderson of Gagne Communications. Mr. Anderson, you may begin the conference.

Thank you, Holly. Leading today's call are MJ McNulty, Acacia's Chief Executive Officer, and Kirsten Hoover, Acacia's Interim Chief Financial Officer. 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 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 and trends. Actual results may differ materially from those projected as a result of certain risks and uncertainties. For 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 on Form 10-Q filed with the SEC. Earlier this morning, Acacia issued a press release disclosing its fourth quarter and year-end 2024 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 Q4 and year-end 2024 earnings presentation to its website, which can be found under the Quarterly Results tab. On today's call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA for the company and each of its operating segments. Brent Hirata, Information regarding the comparable gap metrics, along with required definitions and reconciliations can be found in the press release disclosing fourth quarter and year end 2024 financial results. Brent Hirata, available under the press releases section of the investor relations tab at acacia research COM, I would now like to turn the call over to acacia's chief executive officer and Jay mcdulley.

James Forrest, M.D.: : Thanks Brent and thanks to everyone for joining us this morning. I'd like to begin by briefly revisiting our approach to building Acacia. First and foremost, we're disciplined and patient allocators of capital. We spent much of 2023 cleaning up the business and getting our house in order, onboarding the right human capital, evaluating the assets we own and the most attractive ways to maximize their value, and enhancing our internal processes to be in an optimal position to find, evaluate, and execute on acquisition opportunities. 2024, those efforts bore fruit. In April, this team made its first acquisition in partnership with Benchmark Energy and acquired the Revolution Asset Package, which we've talked about extensively on prior calls. In October, we acquired Deflecto and have been aggressively optimizing and integrating it into Acacia's operations. Finally, we monetized in an attractive transaction our stake in Eric's. We did all this while continuing to manage the business, including our existing intellectual property and Printronics assets, driving attractive results, and we bought back $20 million of stock. After a transformational year, I'm proud of our team's ability to successfully navigate the macro environment, the integration processes for benchmark and deflecto, and to drive significant value. We're pleased to see the positive impacts of our strategy taking shape. We believe benchmark and deflecto are attractive additions to our growing portfolio of companies. They exhibit the characteristics we seek, significant operational and strategic optionality, stable and risk-managed cash flows, and acquired at attractive valuations, which allows us to drive attractive risk-adjusted returns for our shareholders. We continue to build on our momentum from 2024. As of year end, we had approximately $274 million of cash to deploy, thanks to existing cash on hand and cash generated from our operating businesses. We continue to see attractive opportunities within both the public and private markets and continue to take positions in public companies we believe would be good Acacia businesses. We've mentioned in the past discussing the specifics of any one of these situations is disadvantageous to our strategy. but we believe 2024 illustrates that our process works and we'll continue to follow and improve upon that process to acquire additional businesses to benefit our shareholders. Kirsten will provide additional financial details in a few minutes, but before her remarks, I'd like to highlight a few key metrics for the fourth quarter and for the year. For the fourth quarter, we generated consolidated revenue of $48.8 million. produced 4.9 million of total company adjusted EBITDA and recorded 9.6 million of operated segment adjusted EBITDA. Excluding our intellectual property operations, which we've mentioned in the past, have episodic cash flows, we delivered 12.4 million in operated segment adjusted EBITDA for the quarter. For the year, we generated consolidated revenue of 122.3 million, total company adjusted EBITDA of 17 million, operated segment adjusted EBITDA of $35.7 million, and operated segment adjusted EBITDA, excluding our intellectual property business, of $32.2 million. While the amortization of patents in our intellectual property portfolio, combined with the costs associated with acquiring Deflecto, including one-time charges related to legal compliance and accounting functions, led to an increase in our GAAP operating costs and a net loss of $13.4 million on a GAAP basis for the quarter, our team remains diligent in our cost management strategy, and I'm confident in our balanced and strategic approach to long-term value creation. We've included a bridge from GAAP to adjusted EPS in our press release to provide further detail on these costs. We recorded book value per share $5.75 as of December 31st of 2024 compared to $5.90 per share at December 31st, 2023. As a reminder, this book value per share metric includes minority interest and is burdened by all of the one-time items included in the add-backs to adjusted EPS. Finally, during the latter part of 2024, we repurchased $20 million of stock at an average price of $4.61 per share. versus our year-end book value attributable to Acacia of $5.75 per share. We believe this was a good use of shareholder capital. This also represented the maximum amount we're comfortable repurchasing while simultaneously protecting our valuable tax attributes. Turning to a breakdown of our results by operations. For the three and 12 months ended December 31st, 2024, Keisha's energy operations generated adjusted EBITDA of $8.4 million and $25.2 million, respectively. Our industrial operations delivered adjusted EBITDA of $1.6 million in the quarter and $4.5 million for the year, while our intellectual property operations generated an EBITDA loss for the quarter of $2.7 million and an EBITDA gain of $3.6 million for the year. Our newly formed manufacturing operations, consisting entirely of the Deflecto acquisition, generated EBITDA of $2.4 million in the quarter, reflecting a partial quarter of results in the seasonally weakest time of the year. In our energy vertical, since our investment and benchmark, the team has consistently performed well on the operated production front, and our hedging strategy has proven to be an effective buffer for near-term commodity price fluctuations. This is now our fifth quarter owning benchmark in the third quarter since the Revolution assets were acquired. Notably, this quarter, we reported Benchmark's highest ever revenue, demonstrating our ability to drive significant returns on this investment. Following the Revolution acquisition, the Benchmark team has completed over 40 capital workover projects, which have helped bring unproductive wells back online and improve the production of wells that were underperforming. This is a core part of our strategy. The net impact of these investments is that we've been able to replenish the oil and gas produced since our acquisition. Our reserve base is a key metric we measure in the success of this investment as offsetting the natural decline of the assets should allow us to meet and potentially outperform our underwriting expectations over the long term. We also expect rising demand for electricity and increasing LNG export capacity could provide broad tailwinds to the oil and gas industry, which we're poised to benefit from, particularly given our strategically important geographic location in the MidCon and ability to sell gas in a variety of markets. This is an enviable position if you were to study our peers in plays like the Permian or the Marcellus. Our hedging strategy remains consistent since underwriting, protecting approximately 70% of our operated net oil and gas production over the next three years. As a reminder, in line with last quarter, we've reported adjusted EBITDA on our financials, including the impact of realized hedge gains, but they're not included in the quarter's top line revenue figure. Our manufacturing operations consisting of the newly acquired Deflecto business generated 23.3 million in revenue during the partial quarter. Recall that we acquired Deflecto because of the significant operational opportunity we saw within the business. its market-leading position in selling diversified and, in many cases, regulatorily mandated products, and the opportunity for strategic M&A in each operating vertical. Since closing the Deflecto acquisition, we've been working with the team to organize the company into three distinct business units to drive operational efficiencies, management accountability, and to reduce overhead costs. While the transportation and office end markets are experiencing some cyclicality, we've begun to offset this with the process improvement initiatives mentioned above. We remain opportunistic that these efforts within Deflecto should create more earnings leverage and a cyclical rebound with these end markets. Looking forward, the actions we are taking with Deflecto will allow us to better capitalize on the company's growth potential which combined with its substantial market share, diversified customer and supplier base, and moderate capital needs provides promising opportunities for this business going into 2025 and beyond. Printronics continues to be a nice source of cash for Acacia, and I'm pleased with the work our team has done to date to transition this business to a dual hardware and consumables business model with a streamlined operating structure. The Printronics team generated $7.3 million in operating cash flow during the calendar year, representing 22% of our initial purchase price. We believe this is a good example of the value we can drive over the long term through improving the operations of the under-managed assets we acquire. Turning now to our intellectual property vertical. Our intellectual property operations generated $100,000 in licensing and other revenue during the quarter compared to $82.8 million in the same quarter last year. The year-over-year decrease in revenue is primarily due to a decrease in the number of new license agreements in the quarter. We remain open to opportunistically deploying additional capital to capitalize on any attractive opportunities that might become available in this area. Given our team's well-regarded reputation as leaders in the IP space, intellectual property owners continue to actively seek us out as a partner. While our life sciences portfolio is not a core vertical for us, our interest in Viamet, AMO, and Novobiotics represent $25.7 million in book value at the end of last year, net of non-controlling interests. We're encouraged by the catalysts we see coming down the pike for our holdings in this sector, and we continue to actively work these businesses to seek ways to maximize the value of our life sciences assets. I'd now like to turn the call over to Kirsten to provide additional detail on our fourth quarter and full year financial results.