Acacia Research Corporation

Good morning everyone and welcome to Acacia Research Corporation's second quarter 2026 earnings conference call. 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 the conference over to Elizabeth Chaconas of Gagne 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 the Private Securities Litigation Reform Act of 1995. These statements reflect management's current expectations, estimates, and projections regarding future events and operating performance and involve risks and uncertainties that 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 10-K and quarterly reports on Form 10-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, Lizzie, 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, disciplined capital allocation, and the benefits of our diversified business model. Our operating companies continued to perform well and 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. We 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 at 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 meeting, we continue to evaluate a broad range of acquisition 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. Deflecto continued its manufacturing optimization and restructuring initiatives that are shaping the platform for profitable growth. Printronics once again 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 Wi-Fi 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 streamlined 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 to 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, adjusted EBITDA of $9.8 million, and 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 downside risk. We do not speculate on commodity prices. As a result, quarterly mark-to-market movements should not be viewed as indicative of the underlying economics of the business. Turning to Deflecto, we're 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 EBITDA totaled $1.1 million. Importantly, many of the operational improvements we've implemented are structural in nature. As demand improves, we believe Deflecto is well positioned to benefit from meaningful operating leverage going forward. Turning to Printronics, Printronics continues to generate consistent cash flow while creating opportunities to improve profitability through disciplined operational execution. While the traditional line matrix printer market remains mature, we continue to see attractive opportunities to create value at Printronics. 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 disciplined cost management. This approach has enabled Printronics to remain a strong cash generating business while it continues to evolve. During the quarter, Printronics generated revenue of $6 million, adjusted EBITDA of $1 million, and free cash flow of $900,000. Turning to our intellectual property platform, which we view as 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 Wi-Fi 6 portfolio. Licensing revenue totaled 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 our Wi-Fi 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, while amortization associated with certain legacy intangible 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 substantially complete and not representative of the platform's ongoing cost structure. While we do not take lightly the cost of litigation, we remain optimistic in our ability 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-Fi 6 portfolio presents additional licensing opportunities, and we remain encouraged by the long-term potential of our R2 portfolio as artificial intelligence drives demand for high-performance computing and data infrastructure. We are also using AI to analyze larger datasets and identify potential intellectual property acquisition opportunities more efficiently. Overall, the platform provides Acacia with exposure to a specialized, non-correlated asset class that complements our operating businesses and creates an additional avenue for disciplined 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, its 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 registered 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 the path forward. While 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 its next stage of development. Turning to our legacy investment, Environment Pharmaceuticals, held through Malin J1. During the second quarter, we recorded a full write-down following developments impacting Mycobia Pharmaceuticals, the underlying biotechnology company. As a reminder, we acquired this interest as part of our 2020 Life Sciences portfolio acquisition. Through Malin J1's investment in Biomet, Acacia had an indirect economic interest in potential milestone and royalty payments related to the antifungal drug Vivjoa, which Mycovia acquired from Biomet in 2018. Although Vivjoa is FDA approved, 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 Mal and J1. We continue to believe Vipjoa 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 through Biomet's milestone in 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 that Mycovia will achieve its regulatory objectives. Nevertheless, Mycovia has invested considerable time and resources to position Beavejoa for the upcoming FDA review and we believe that a favorable regulatory outcome could create significant value. Although our life sciences investments are non-core 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. While 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, turning to our public securities portfolio, we continue to 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 total 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 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 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 valuation 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 believe 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.