Acacia Research (ACTG) FY Conference Summary Company Overview - Acacia Research has transitioned from an intellectual property business to a value-based acquirer of companies, focusing on creating a diversified portfolio of assets [2][3] - The company has a book value of approximately $577 million, translating to about $6 per share, with $340 million in cash and public securities [4] Financial Performance - Acacia generated $222 million in revenue and $61 million in EBITDA, with $40 million of EBITDA related to its former intellectual property business [5] - The company operates with no debt, emphasizing a strong financial position [5] Investment Strategy - The management team, led by the CEO with a private equity background, focuses on acquiring undervalued businesses, particularly in contrarian sectors [6][8] - Acacia aims to improve the operational efficiency and profitability of acquired businesses, emphasizing hands-on management rather than passive ownership [10][11] - The company has seen a significant number of acquisition opportunities, evaluating 350 businesses last year and 280 so far this year, but remains selective [9][50] Recent Acquisitions - Acacia has made strategic acquisitions, including Benchmark Energy and Deflecto, to build a scaled oil and gas platform and diversify its portfolio [15][22] - The acquisition of Benchmark was based on identifying dislocation in the oil and gas market, focusing on cash flow generation rather than traditional valuation metrics [17][19] - Deflecto was acquired as a collection of three unrelated businesses, with plans to streamline operations and enhance value through cost-cutting and management alignment [22][24] Operational Focus - The company emphasizes operational improvements and continuous enhancement of acquired businesses, aiming to generate cash flow and increase margins [11][20] - Acacia's approach includes leveraging existing management expertise and operational partners to drive performance in acquired companies [8][26] Market Position and Future Outlook - Acacia is exploring opportunities in specialty lending and insurance, indicating a strategic focus on markets with limited capital flow [51][52] - The company is cautious about entering new markets, preferring to build around existing positions and leverage its team's expertise [54] - Acacia aims to unlock trapped value in its portfolio, with a long-term vision of growing into a formidable public holding company with multiple large businesses [42][43] Conclusion - Acacia Research is positioned as a value-oriented acquirer with a strong financial foundation and a clear strategy for operational improvement and growth through selective acquisitions [34][55]

Core Viewpoint - Acacia Research (NASDAQ: ACTG) has seen volatile share price movements since the last analysis in January, indicating potential fluctuations in investor sentiment and market conditions [1]. Company Summary - The company has maintained a long position in its shares, suggesting confidence in its future performance despite recent price turbulence [1].

Financial Performance - Total revenues for Q1 2025 reached $124.4 million, a significant increase of 412% compared to $24.3 million in Q1 2024[16] - Operating income for Q1 2025 was $38.3 million, compared to an operating loss of $2.1 million in Q1 2024[16] - Net income attributable to Acacia Research Corporation for Q1 2025 was $24.3 million, a turnaround from a net loss of $0.2 million in Q1 2024[16] - The company reported a basic net income per common share of $0.25 for Q1 2025, compared to no earnings per share in Q1 2024[16] - For the three months ended March 31, 2025, Acacia Research Corporation reported a net income of $23,528,000, a significant increase from a net loss of $189,000 in the same period of 2024[19] - Acacia's net income attributable to common stockholders for the three months ended March 31, 2025, was $24.287 million, compared to a loss of $186,000 in the same period of 2024[186] Cash and Assets - Cash and cash equivalents as of March 31, 2025, were $272.0 million, slightly down from $273.9 million at the end of 2024[14] - Total assets increased to $801.6 million as of March 31, 2025, up from $756.4 million at the end of 2024[14] - The company’s total stockholders' equity increased to $577.3 million as of March 31, 2025, from $552.6 million at the end of 2024[14] - Acacia's cash and cash equivalents decreased to $271,964,000 at the end of Q1 2025, down from $438,762,000 at the end of Q1 2024, reflecting a decline of 38%[19] Liabilities and Equity - Total liabilities rose to $224.3 million as of March 31, 2025, compared to $203.8 million at the end of 2024[14] - The company recorded total unrecognized tax benefits of approximately $935,000 as of March 31, 2025[103] - The effective tax rate for the company was slightly lower than the U.S. federal statutory rate due to non-controlling partnership earnings allocated to minority shareholders[102] Revenue Sources - The company is focusing on expanding its intellectual property operations, which generated $69.9 million in revenue for Q1 2025, compared to $13.6 million in Q1 2024[16] - Acacia's total license revenue for the three months ended March 31, 2025, was $69,905,000, a significant increase from $13,623,000 in the same period of 2024, representing a growth of approximately 413%[49] - Paid-up license revenue agreements contributed $69,490,000 to total revenue in Q1 2025, compared to $12,365,000 in Q1 2024, indicating a growth of about 463%[49] Acquisitions and Investments - Acacia invested $10 million to acquire a 50.4% equity interest in Benchmark Energy II, LLC, which operates in the oil and gas sector[31] - The company completed the acquisition of Deflecto Acquisition, Inc. for $103.7 million, funded by a combination of a $48 million secured term loan and cash[34] - The identifiable net assets acquired in the Deflecto transaction were valued at $80.965 million, resulting in goodwill of $16.798 million[111] Operational Highlights - The company aims to acquire businesses with total enterprise values of $1 billion or less, focusing on those with stable cash flow generation and scalability[23] - The company operates in four reportable segments: Intellectual Property Operations, Industrial Operations, Energy Operations, and Manufacturing Operations[187] - The Manufacturing Operations segment was established following the acquisition of Deflecto in October 2024, focusing on specialty plastics[193] Segment Performance - The segment gross profit for intellectual property operations was $41,993,000, while the total segment operating income was $43,082,000 for the three months ended March 31, 2025[197] - Benchmark's total revenue for the three months ended March 31, 2025, was $18,306,000, a substantial increase from $1,856,000 in Q1 2024, marking a growth of approximately 884%[67] Debt and Financing - The Benchmark Revolving Credit Facility has a maximum credit amount of $150 million, with an outstanding balance of $61.5 million as of March 31, 2025, down from $66.5 million at the end of 2024[132] - The interest rate on the Deflecto Term Loan was 8% as of March 31, 2025, with an outstanding balance of $46.9 million[140] Stock and Compensation - The total compensation expense for share-based awards recognized in general and administrative expenses for the three months ended March 31, 2025, was $922,000, an increase from $858,000 in 2024[184] - As of March 31, 2025, there were 15,999,789 shares of common stock reserved for issuance under the Plans[179] Strategic Initiatives - Acacia's relationship with Starboard Value, LP enhances its access to industry expertise and acquisition opportunities, contributing to its strategic growth initiatives[24] - The company emphasizes a disciplined approach to identifying acquisition opportunities, avoiding traditional sale processes to secure attractive pricing[209] - The company’s approach to transactions is as business owners rather than purely financial investors, aiming for long-term value creation for shareholders[205]

Financial Data and Key Metrics Changes - Acacia recorded total revenue of $124.4 million during the first quarter, a significant increase compared to the previous year [21] - The company reported first quarter GAAP operating income of $38.3 million, compared to a GAAP operating loss of $2.1 million in the same quarter last year [24] - GAAP net income attributable to Acacia was $24.3 million or $0.25 per share, compared to a net loss of $200,000 or $0 per share in the prior year period [25] Business Line Data and Key Metrics Changes - Energy operations generated $18.3 million in revenue for the quarter, compared to $1.9 million in the same quarter last year [21] - Manufacturing operations generated $28.5 million in revenue, while industrial operations generated $7.7 million, a slight decrease from $8.8 million in the same quarter last year [22] - Intellectual property operations generated $69.9 million in licensing and other revenue, compared to $13.6 million in the same quarter last year, primarily due to a large settlement [23] Market Data and Key Metrics Changes - The company has hedged over 70% of its production through the end of 2027, providing price protection and greater cash flow predictability [11] - Approximately 51% of Benchmark's last twelve months revenue and 78% of production was driven by gas and natural gas liquids, which have remained resilient despite recent market volatility [11] Company Strategy and Development Direction - Acacia's strategy focuses on acquiring and building businesses with stable long-term cash flow generation and scalability [6] - The company is actively exploring strategic acquisitions and organic growth initiatives across its verticals, particularly in energy and industrial sectors [28] - Management is evaluating opportunities in the mature technology sector, aiming to enhance the value of its intellectual property portfolio [35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in Acacia's resilience amid macroeconomic uncertainties and believes the current environment presents compelling opportunities [28] - The company is optimistic about the long-term growth potential of its Deflecto business and is implementing initiatives to optimize operations [15] - Management highlighted the importance of disciplined cost management and operational excellence in navigating volatile market conditions [16] Other Important Information - Total consolidated G&A expense was $17.3 million during the first quarter, an increase from $12.5 million in the same quarter last year, primarily due to the addition of Deflecto [23] - Cash, cash equivalents, and equity securities at fair value totaled $290 million as of March 31, 2025, compared to $297 million at December 31, 2024 [26] Q&A Session Summary Question: Can you detail the total winnings from the WiFi portfolio? - Management indicated that since Q1 2023, approximately $178 million has been generated from the WiFi assets, with more value expected in the portfolio [33] Question: Are you seeing prices coming down in M&A? - Management confirmed they are looking at opportunities in energy, industrials, and mature technology, with a focus on assets that can be improved through operational efficiencies [35][36] Question: What is the calculus on protecting tax attributes versus share buybacks? - Management completed a $20 million buyback and is monitoring tax attributes to determine the optimal time for further buybacks [41] Question: Will the recent settlement pressure the defendant in the $37 million judgment case to settle sooner? - Management expressed hope that the recent settlement would encourage a quicker resolution, but could not provide a definitive answer [50]

Financial Data and Key Metrics Changes - Acacia recorded total revenue of $124.4 million during the first quarter, a significant increase compared to the same quarter last year [21] - The company reported first quarter GAAP operating income of $38.3 million, compared to a GAAP operating loss of $2.1 million in the same quarter last year [23] - GAAP net income attributable to Acacia was $24.3 million or $0.25 per share, compared to a net loss of $0.2 million or $0 per share in the prior year period [24] - Adjusted net income attributable to Acacia was $33.1 million or $0.34 per share [24] - Cash, cash equivalents, and equity securities at fair value totaled $290 million as of March 31, 2025, compared to $297 million at December 31, 2024 [25] Business Line Data and Key Metrics Changes - Energy operations generated $18.3 million in revenue for the quarter, compared to $1.9 million in the same quarter of last year [21] - Manufacturing operations generated $28.5 million in revenue [21] - Industrial operations generated $7.7 million in revenue during the quarter, a slight decrease from $8.8 million in the same quarter last year [21] - Intellectual property operations generated $69.9 million in licensing and other revenue during the quarter, compared to $13.6 million in the same quarter last year [22] Market Data and Key Metrics Changes - Benchmark's energy segment has hedged over 70% of its production through the end of 2027, providing price protection and cash flow predictability [11] - Approximately 51% of Benchmark's last twelve months (LTM) revenue and 78% of LTM production was driven by gas and natural gas liquids, which have remained resilient [11] Company Strategy and Development Direction - The company focuses on acquiring and building businesses with stable long-term cash flow generation and scalability [6] - Acacia is actively evaluating strategic acquisitions and organic growth initiatives across its verticals [27] - The company is exploring avenues to monetize its Cherokee position and is monitoring attractive M&A targets due to recent oil price softness [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in Acacia's resilience amid macroeconomic uncertainties and believes the current environment presents compelling opportunities [27] - The company is focused on disciplined cost management and operational excellence to navigate volatile periods [16] - Management highlighted the strong performance driven by realized gains from the intellectual property business and the integration of Revolution assets [7][14] Other Important Information - Total consolidated G&A expense was $17.3 million during the first quarter, an increase from $12.5 million in the same quarter last year, primarily due to the addition of Deflecto [22] - The company has zero capital commitments from a drilling perspective, allowing it to remain cash flow positive even in challenging price environments [11] Q&A Session Summary Question: Can you detail the total winnings from the WiFi portfolio? - Management indicated that since Q1 2023, approximately $178 million has been generated from the WiFi assets, with ongoing cases potentially adding more value [31] Question: Are you seeing prices coming down in M&A? - Management noted they are looking at three verticals: energy, industrials, and mature technology, with ongoing evaluations of acquisition opportunities [33][34] Question: What is the calculus on protecting tax attributes versus share buybacks? - Management confirmed they completed a $20 million buyback while monitoring tax attributes to determine the optimal time for further buybacks [40] Question: Does the recent settlement put pressure on the defendant in the $37 million judgment case? - Management expressed uncertainty but hoped that the recent settlement would encourage a quicker resolution [49]

Financial Performance - Total revenue for Q1 2025 was $124.4 million, up 412% from $24.3 million in Q1 2024, driven by $69.9 million from Intellectual Property operations and $18.3 million from Energy Operations[5]. - GAAP net income for the quarter was $24.3 million, resulting in a GAAP diluted EPS of $0.25[5]. - Adjusted net income for Q1 2025 was $33.1 million, with an adjusted diluted EPS of $0.34[5]. - Total Company Adjusted EBITDA was $50.7 million, while Operated Segment Adjusted EBITDA reached $54.7 million for the quarter[5]. - Operating income for Q1 2025 was $38.3 million, compared to an operating loss of $2.1 million in Q1 2024[26]. - Net income attributable to Acacia Research Corporation was $24.3 million for Q1 2025, a turnaround from a net loss of $0.2 million in Q1 2024[26]. - Basic net income per common share for Q1 2025 was $0.25, compared to a loss per share in the previous year[26]. - For the three months ended March 31, 2025, the consolidated Adjusted EBITDA was $50,699,000, compared to $6,332,000 for the same period in 2024, indicating a significant increase[40]. - The GAAP Operating Income for the three months ended March 31, 2025, was $38,305,000, while for the same period in 2024, it was a loss of $2,087,000, showing a turnaround in performance[40]. Revenue Breakdown - Energy Operations generated $18.3 million in revenue, marking the highest quarterly revenue under Acacia ownership[5]. - Intellectual Property Operations contributed $69.9 million in revenue, significantly up from $13.6 million in the prior-year quarter[7]. - Intellectual property operations generated $69.9 million in revenue, up from $13.6 million in the same quarter last year, marking a growth of 414%[26]. Assets and Liabilities - The book value as of March 31, 2025, was $577.3 million, translating to a book value per share of $6.00[16]. - Total assets increased to $801.6 million as of March 31, 2025, up from $756.4 million at the end of 2024[25]. - Current liabilities rose to $75.5 million in Q1 2025, compared to $49.6 million in Q4 2024[25]. - The company reported a total stockholders' equity of $577.3 million as of March 31, 2025, an increase from $552.6 million at the end of 2024[25]. - Total indebtedness on a consolidated basis was $108.4 million, with no debt at the Parent company level[20]. Cash Flow and Expenses - Free cash flow for the quarter was $335,000, reflecting net cash from operating activities of $2.4 million after capital expenditures[14]. - Free Cash Flow is defined as net cash from operating activities minus capital expenditures, which is crucial for assessing cash available for acquisitions and share repurchases[35]. - The company incurred $554,000 in transaction-related costs during the three months ended March 31, 2025[40]. - Depreciation, Depletion & Amortization for the three months ended March 31, 2025, totaled $10,610,000, compared to $4,568,000 for the same period in 2024[40]. - Parent Interest Income for the three months ended March 31, 2025, was $2,422,000, compared to $5,079,000 for the same period in 2024[40]. Strategic Focus - The company is focused on strategic acquisitions and market expansion to enhance its operational capabilities and financial performance[24]. - Adjusted EBITDA for the total company is provided as a non-GAAP financial measure to give investors insight into core operating performance[27]. - The Adjusted Net Income (Loss) metric is provided to give investors a clearer picture of core operating performance by excluding non-core items[36]. - The company reported Parent Costs, a non-GAAP measure, to normalize Parent-level expenses, which helps investors understand the underlying financial health[34]. - Adjusted Diluted EPS is calculated as Adjusted Net Income (Loss) divided by the weighted average diluted share count, providing a clearer view of earnings performance[37].

Investment Valuation and Risks - As of December 31, 2024, the carrying value of the company's equity investments in public and private companies was $59.9 million, down from $99.8 million in 2023[461]. - A hypothetical 10% adverse change in the market price of the company's investments in publicly traded common stock would have resulted in a decrease of approximately $2.3 million[462]. - The company is exposed to investment risks related to changes in the underlying financial condition of certain equity investments in technology companies, which can significantly impact fair value due to market volatility[460]. - The primary objective of the company's short-term investment activities is to preserve principal while maximizing income from equity securities without significantly increasing risk[459]. - The company intends to maintain a diversified portfolio of cash equivalents and equity securities to minimize investment risks in the future[459]. - The company evaluates equity investments in private companies for impairment when there are indications of a decline in fair value below carrying value[462]. Foreign Currency and Interest Rate Exposure - The company has no foreign denominated equity securities as of December 31, 2024, indicating limited exposure to foreign currency exchange risk[463]. - The company has historically not had material foreign operations, limiting its exposure to foreign currency exchange rate fluctuations[463]. - A 100 basis point increase in interest rates or a 10% decline in the value of the U.S. equity markets would not be expected to have a material impact on the value of the company's money market funds[459]. Competitive and Economic Risks - The company faces risks related to competition, pricing, regulations, and other economic factors that may impact its operating businesses[21].

Financial Data and Key Metrics Changes - For Q4 2024, consolidated revenue was $48.8 million, with total company adjusted EBITDA of $4.9 million and operated segment adjusted EBITDA of $9.6 million [14][29] - For the full year 2024, consolidated revenue was $122.3 million, down from $125.1 million in 2023, with total company adjusted EBITDA of $17 million [36][40] - The net loss for Q4 2024 was $13.4 million, or $0.14 per share, compared to a net income of $74.8 million, or $0.75 per share in Q4 2023 [34][36] Business Line Data and Key Metrics Changes - Energy operations generated $17.3 million in revenue for Q4 2024, significantly up from $0.8 million in the same quarter last year [29] - Manufacturing operations, following the acquisition of Deflecto, generated $23.2 million in revenue for Q4 2024 [30] - Industrial operations generated $8.2 million in revenue for Q4 2024, a slight decrease from $8.6 million in the same quarter last year [30] - Intellectual property operations generated $0.1 million in licensing revenue during Q4 2024, down from $82.8 million in the same quarter last year [30][26] Market Data and Key Metrics Changes - The energy vertical reported Benchmark's highest ever revenue this quarter, demonstrating effective operational strategies [19] - The manufacturing operations are expected to improve earnings leverage as market conditions rebound [24] Company Strategy and Development Direction - The company aims to maximize value through disciplined capital allocation and strategic acquisitions, focusing on operational efficiencies and integration of acquired businesses [9][45] - The strategy includes evaluating potential acquisition targets in both private and public markets while maintaining a strong balance sheet [46][47] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macroeconomic uncertainties and highlighted the stability offered by the company's diversified asset base [47] - The company plans to continue optimizing existing assets and exploring new acquisition opportunities to unlock shareholder value [48] Other Important Information - The company repurchased $20 million of stock at an average price of $4.61 per share, reflecting a strategic use of shareholder capital [16] - Cash, cash equivalents, and equity securities totaled $297 million at year-end 2024, down from $403.2 million at the end of 2023, primarily due to acquisitions and stock repurchases [41][42] Q&A Session Summary Question: Thoughts on the overall economy and tariffs - Management indicated that the company is insulated from tariffs due to its market position and has plans to adjust manufacturing operations if necessary [52][54] Question: Acquisition of more wells and Cherokee play potential - Management confirmed ongoing evaluation of asset packages for acquisition, focusing on operational scalability rather than geographical expansion [61][64] Question: Deflecto's gross margin performance - Management acknowledged that the fourth quarter is seasonally weak but remains committed to achieving the targeted gross margin of 15% [66] Question: Cash levels and acquisition strategy - Management clarified that the increase in cash levels is due to effective cash flow generation from acquired businesses [92] Question: Flexibility in private equity pricing - Management noted that while private equity firms typically seek high prices, there are opportunities for reasonable valuations, especially for businesses that may not fit traditional private equity models [96][97]

Financial Data and Key Metrics Changes - For Q4 2024, consolidated revenue was $48.8 million, with total company adjusted EBITDA of $4.9 million and operated segment adjusted EBITDA of $9.6 million [14][29] - For the full year 2024, consolidated revenue was $122.3 million, down from $125.1 million in 2023, with total company adjusted EBITDA of $17 million [36][38] - The net loss for Q4 2024 was $13.4 million, or $0.14 per share, compared to a net income of $74.8 million, or $0.75 per share in Q4 2023 [34][36] Business Line Data and Key Metrics Changes - Energy operations generated $17.3 million in revenue for Q4 2024, significantly up from $0.8 million in the same quarter last year [29] - Manufacturing operations, following the acquisition of Deflecto, generated $23.2 million in revenue for Q4 2024 [30] - Industrial operations generated $8.2 million in revenue for Q4 2024, a slight decrease from $8.6 million in the same quarter last year [30] - Intellectual property operations generated $0.1 million in licensing revenue during Q4 2024, down from $82.8 million in the same quarter last year [30][36] Market Data and Key Metrics Changes - The energy vertical reported Benchmark's highest ever revenue this quarter, demonstrating effective operational strategies [19] - The manufacturing operations are expected to improve earnings leverage as market conditions rebound [24] Company Strategy and Development Direction - The company aims to maximize value through disciplined capital allocation and strategic acquisitions, focusing on operational efficiencies and integration synergies [9][45] - The strategy includes evaluating potential acquisition targets in both private and public markets while maintaining a strong balance sheet [46][47] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macroeconomic uncertainties and highlighted the stability offered by the company's diversified asset base [47] - The company remains optimistic about future growth opportunities, particularly in the energy sector, due to rising demand for electricity and LNG exports [21][47] Other Important Information - The company repurchased $20 million of stock at an average price of $4.61 per share, reflecting a strategic use of shareholder capital [16] - Cash, cash equivalents, and equity securities totaled $297 million at year-end 2024, down from $403.2 million at year-end 2023, primarily due to acquisitions and stock repurchases [41][42] Q&A Session Summary Question: Thoughts on the overall economy and tariffs - Management indicated that the company is insulated from tariffs due to its market position and has plans to adjust manufacturing operations if necessary [52][55] Question: Acquisition of more wells and Cherokee play potential - Management confirmed ongoing efforts to acquire additional asset packages while being disciplined about valuations, and expressed enthusiasm about the Cherokee area as it gains interest from other players [61][64] Question: Deflecto's gross margin performance - Management acknowledged that the fourth quarter is seasonally weak but remains committed to achieving the targeted gross margin of 15% [66] Question: Cash levels and acquisition strategy - Management clarified that the increase in cash levels despite significant expenditures is due to the cash-generating nature of the acquired businesses [92] Question: Flexibility in private equity pricing - Management noted that while private equity firms typically seek high prices, there are opportunities for reasonable valuations, especially for businesses that may not fit traditional private equity models [96][97]

Q4 2024 Earnings Presentation As of December 31, 2024 | Nasdaq: ACTG Disclosures Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon the current expectations of Acacia Research Corporation ("Acacia" or the "Company") and speak only as of the date hereof. All statements other than statements of historical fact are forward-looking statements a ...