Acacia Research Corporation

In context, in spite of the macroeconomic and geopolitical headwinds, the businesses we own are still delivering attractive return characteristics. As you've heard me say before, Acacia is focused on identifying and acquiring underloved, undermanaged, and undervalued businesses where we believe we can leverage our significant capital base and experienced leadership teams to streamline operations, materially improve performance, and drive long-term growth. As a result of our actions on a year-to-date annualized basis, Benchmark is generating a roughly high teens' free cash flow yield. Deflecto is generating a high single-digit free cash flow yield. Prior to the impact of our in-flight operational improvement initiatives, And Printronics is generating a high teen's free cash flow yield. With strong and improving cash yields at each of our operating companies and disciplined cost control at the parent, we believe we're creating significant equity value, which is not yet reflected in our share price. As we approach the end of the year, we remain focused on driving revenue, EBITDA, and free cash flow growth at each of our operating businesses, while at the same time growing our extensive pipeline of actionable M&A opportunities. With approximately $332 million in total cash, equity, securities, and loans receivable at September 30th, our strong balance sheet positions us well to pursue accretive, organic, and inorganic growth opportunities across our businesses to create differentiated value for our shareholders. I'd now like to discuss our operating segments. Within our energy operations, we continue to view benchmark as an attractive platform to allocate capital within the oil and gas industry. As you may recall, we acquired the business in two steps. First, through our partnership in November 2023 with McGarren and the company on a small package of wells, and second, through the acquisition, the revolution assets in Q2 of 2024. At that time, we underwrote the business based on acquiring existing flowing production at a high teens discount rate. We continue to evaluate comparable opportunities within our existing geographies. Since our acquisition of Revolution, the Western Anadarko Basin has seen a meaningful increase in investor interest. As a result of the renewed interest in the basin, we've seen high-quality, well-capitalized operators enter the basin, with rig counts increasing despite declining rig count activity in many other plays. This has pushed the value of high-quality producing assets in the Basin back towards historical valuation metrics. While this is positive for the value of our business, it does mean that we need to be more cautious on valuations for additional producing assets we may want to acquire. And we have focused those efforts on asset packages where we can maximize strategic overlap with our existing fields. To that end, as you may remember, in addition to the large producing acreage we acquired as part of the Revolution acquisition, the deal came with a significant undeveloped acreage position in an emerging play called the Cherokee, which you've heard us discuss in the past. This year, we've continued to strategically develop this position within the Cherokee, most recently highlighted by two small but very strategic acreage acquisitions. As we continue to build our undeveloped acreage position, we're actively considering additional monetization opportunities, as well as potential capital partnerships to finance a targeted drilling program for our acreage in this play. During the quarter, Benchmark continued to perform well with stable operated production and strong cash flow. While oil and natural gas prices remain at low levels, Benchmark's hedging strategy continues to perform as expected. As a reminder, Benchmark hedges over 70% of its operated oil and gas production, with hedges currently in place through the beginning of 2028, protecting a significant amount of our cash flow from downside price risk. Further, our diversified production profile provides us with significant optionality as we're able to prioritize projects that are more gas and NGL focused in a weaker oil price environment. As of the third quarter, approximately 52% of Benchmark's LTM commodity revenue and 78% of LTM production on a BOE basis was driven by gas and natural gas liquids, which have remained much more resilient from a pricing perspective. Looking ahead, we see a variety of ways to create significant value in expanding our oil and gas platform, and we're fortunate that our operations in the Anadarko Basin provide us with access to some of the highest quality reserves and management team in the country. We remain excited about the value generation opportunities at Benchmark, and I look forward to keeping you updated as we continue to scale this business. In our manufacturing segment, Deflecto delivered another quarter of sequential revenue growth and improved adjusted EBITDA versus last quarter. We're continuing to progress our operational initiatives at Deflecto, including strategic price increases across each business unit, reshoring and consolidation of certain manufacturing operations, overhead and G&A cost reductions, and improving go-to-market motions, all of which are aimed at creating a more streamlined business positioned for future growth. While the current tariff and macroeconomic environment has impacted several of Deflecto's end markets, I'm encouraged by the strong progress and significant improvements we have made across the business. To address some of the trends we're seeing across Deflecto's business units, I'll start with the Class 8 truck market, which continued to experience demand headwinds throughout the third quarter. Recent industry data indicates that Class 8 net orders for September represented the weakest September since 2019. While we expect the Class 8 market to remain under pressure in the near term, further tariff and macro clarity, along with lower interest rates and gradual fleet capacity normalization into 2026, should support a rebound in activity. Moreover, Deflecto remains focused on selling essential, non-discretionary products, such as mudflaps and emergency warning triangles that are mandated by key regulatory authorities, which puts the business in a strong position when the cycle turns. Within the office products business, tariff and global trade uncertainty has caused many customers to pause or delay purchasing decisions. While we expect these headwinds to persist in the coming quarters, our operational initiatives are helping to mitigate these impacts and position the business for future growth as macroeconomic conditions normalize. As a reminder, the Deflecto office products business sells basic necessities for everyday use, such as sign holders, document organizers, and floor mats for the home and commercial office markets. Within the air distribution business, our sales have remained resilient in the face of a soft construction market, largely a result of interest rate pressures, which we believe will subside in the coming quarters. We continue to work to offset tariff cost pressures in this segment through product line relocations, pricing actions, and working with our distribution partners to optimize delivery routes. Within this business unit, Deflecto's core product offerings include dryer vents, air ducts, and air vent deflectors, all of which are essential in nature. Very excited about Deflecto's long-term growth potential, supported by its substantial market share, diversified customer base, and industry-leading products. Turning now to our industrial segment, Protronics continues to deliver strong performance, and we're seeing positive momentum across the business. Our operational improvements over the last 12 to 18 months have resulted in an attractive mix of hardware and higher margin consumable revenue streams that generate consistent free cash flow. The team continues to use our advantageous channel position and market share to add new product lines, which we expect to provide incremental contributions over the coming quarters. Now to our intellectual property segment. We recorded $7.4 million in total paid up revenue for multiple settlements and licenses during the third quarter, which resulted in total revenue and adjusted EBITDA of $7.8 million and $3 million for the quarter, respectively, a significant increase sequentially and year over year. In the year-to-date period through September, our IP business generated $78 million in revenue and $44.2 million in adjusted EBITDA versus $19.4 million in revenue and $6.3 million in adjusted EBITDA in the prior year period. As a reminder, the quarterly fluctuations within the IP business are largely the result of the episodic nature of the business and timing of future settlements.

With that, I'll pass it over to Mike to discuss the details of our financial results.

Thank you, MJ, and hello, everyone. Acacia recorded total revenue of $59.4 million during the third quarter. Our energy operations generated $14.2 million in revenue for the quarter, compared to $15.8 million in the same quarter last year, reflecting a softer oil price environment year over year. Manufacturing operations generated $30.8 million in revenue for the quarter, representing a third consecutive sequential increase compared to $29 million in the second quarter. Given we acquired Deflecto in October of last year, there is no comparable prior year period. Our industrial operations generated $6.7 million in revenue during the quarter compared to $7 million in the same quarter last year. Our intellectual property operations generated $7.8 million in licensing and other revenue during the quarter compared to $0.5 million in the same quarter last year. Total consolidated G&A expenses were $16 million during the third quarter, compared to $11.2 million in the same quarter of last year. The increase was primarily driven by the addition of Deflecto as part of the company's new manufacturing operations. Deflecto G&A expense for the third quarter of 2025 was $4.6 million, which declined from $5.1 million in the prior quarter. Of the $4.6 million of deflecto G&A expenses, approximately $1.1 million was related to depreciation of fixed assets and amortization of intangibles. Our energy operations G&A expense was $1.2 million for the third quarter of 2025 compared to $1 million for the prior year quarter in 2024. G&A at the parent level increased by $0.5 million year-over-year from $6.1 million to $6.6 million in the quarter ended September 30th, 2025. Parent G&A on an adjusted basis decreased by $0.6 million year over year from $5.2 million to $4.6 million in the quarter ended September 30th, 2025. The company recorded a third quarter gap operating loss of $6.4 million compared to a gap operating loss of $10.3 million in the same quarter last year. This was primarily due to the inclusion of Deflecto in 2025 with no comparable operating income in 2024, along with a lower GAAP operating loss in the IP business in 2025 compared to the prior year. Energy operations contributed $1.1 million in GAAP operating income during the quarter, which included $3.8 million in non-cash depreciation, depletion, and amortization expense, and does not reflect the realized hedge gain of $1.2 million during the quarter. Adjusted EBITDA for our energy operations was $6.1 million in the quarter and $21 million year to date. Free cash flow for our energy operations was $4.3 million in the quarter and $11.9 million year to date. Manufacturing operations contributed $1.1 million in GAAP operating income during the quarter which included $1.1 million in non-cash depreciation and amortization expense and $0.3 million in non-recurring transaction related expenses and severance costs as part of our operational initiatives at Deflecto. Adjusted EBITDA for our manufacturing operations was $2.6 million in the quarter and $6.3 million year to date. Free cash flow for our manufacturing operations was $2 million in the quarter and $3.7 million year-to-date. Industrial operations contributed $0.3 million in gap operating income during the quarter, which included $0.5 million in non-cash depreciation and amortization expense. Adjusted EBITDA for our industrial operations was $0.8 million for the quarter and $2.5 million year-to-date. Free cash flow for our industrial operations was $0.7 million in the quarter and $4.1 million in the base. Net loss attributable to Acacia Research Corporation in the third quarter was $2.7 million, or $0.03 loss per share, compared to a net loss attributable to Acacia of $14 million, or a $0.14 loss per share in the prior year period. This decline in net loss was primarily due to the significant year-over-year increase in revenue in EBITDA, in addition to gains from our public equity portfolio and lapping the legacy legal fees from the prior year period. Included in GAAP net lead loss for the third quarter was $0.9 million in unrealized gains related to changes in the fair value of equity securities at September 30, 2025. Adjusted net loss attributable to Acacia in the third quarter of 2025 was $1.1 million, or a one cent loss per share. Further details on these adjustments can be found in our press release. Now turning to the balance sheet. Cash and cash equivalents, equity securities measured at fair value and loans receivable totaled $332.4 million at September 30, 2025, compared to $297 million at December 31st, 2024. The parent company's total indebtedness was zero at September 30th, 2025. On a consolidated basis, Acacia's total indebtedness as of September 30th, 2025 was $94 million, consisting of $58.5 million and $35.5 million in non-recourse debt at Benchmark and Deflector, respectively. Since closing the acquisition of the Revolution assets in April 2024, Benchmark has paid down approximately $24 million in total debt, underscoring the strong free cash flow generation of the business. Additionally, since acquiring Deflecto in October 2024, the company has paid down approximately $13 million in total debt. These capital allocation decisions have significantly reduced our consolidated debt and interest expense, providing further operational flexibility. For more information on Acacia's third 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. I'll now turn the call back over to MJ.