Good day and welcome to the Acacia Research First Quarter 2024 Financial Results Conference Call. At this time all participants are in a listen-only mode. After managements prepared remarks there will be a question-and-answer session. I would now like to turn the call over to Rob Fink. Please go ahead.

Thank you, operator. Thank you, everyone, for joining us today. Hosting the call today are MJ McNulty, Chief Executive Officer; and Kirsten Hoover, Interim Chief Financial Officer. Before beginning, I'd 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 operation 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 as described in Acacia's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, both of which are filed with the SEC. I’d also like to remind everyone that a press release disclosing the financial results was issued this afternoon just after the close of market. The release may be accessed on the company's website under the Press Release section of the Investor Relations tab at acaciaresearch.com. With all that said, I would now like to turn the call over to MJ. MJ, the call is yours.

Thanks very much, Rob. In the short time since our last call, we have continued to execute on our capital allocation strategy. We have realized gains from our IP monetization business and cash flows from Printronix, and have deployed capital into our new oil and gas business. Our focus continues to be twofold: first, growing cash flow and earnings from our current businesses and second, continuing to evaluate opportunities to acquire new businesses into our platform. Our team has been busy identifying opportunistic situations where our research, execution and operating partners can drive attractive earnings and book value per share growth. As it relates to the specifics in terms of sources of capital, our IP monetization business generated $13.6 million in gross settlements and patent license agreements in the first quarter. These agreements further bolster our position to pursue additional licensing agreements and settlements, and our team is advancing discussions with other potential licensees. The Wi-Fi six patent portfolio continues to represent a lucrative opportunity for periodic cash events, and we believe there is significant incremental value in these patents. Additionally we continue to evaluate potential additional capital investment into this business to acquire new patent portfolios when we believe there are attractive risk-reward opportunities. Also, as you will recall Acacia acquired Printronix' operating business in October of 2021. At the time we acquired the business, we believed it represented an attractive price relative to the cash flow able to be generated and recognized there would be some level of operational and strategic restructuring required. Beginning in early 2023, this team began the detailed work of putting the restructuring in motion by replacing the Printronix management team and bringing an operating adviser into the business to formulate and execute on continuous improvement and efficiency initiatives, including significant cost rationalization. These…

Thank you, MJ. Our GAAP book value at March 31, 2024, was $589.6 million or $5.89 per share. Excluding the impact of the additional accrual of $6.2 million related to the AIP Matter MJ discussed earlier, our book value per share at March 31, 2024, would have been $5.95 per share. Printronix generated $2.8 million in cash during the quarter, reflecting the changes and process improvements to optimize operational efficiencies that have taken place over the past year. We expect Printronix to continue to generate free cash flow on an annual basis. Benchmark's operating income during the quarter was $0.2 million, which included $0.4 million of non-cash depreciation, depletion and amortization and does not reflect $0.8 million of realized derivative gains. Now let me turn to the first quarter results. Total revenues were $24.3 million compared to $14.8 million in the same quarter last year. Let me break this down between our operating segments. The intellectual property business generated $13.6 million in licensing and other revenue during the quarter compared to $4.2 million in the same quarter last year, reflecting an increase in the number of license agreements executed quarter-over-quarter and higher average license fees. Printronix our industrial operations business generated $8.8 million in revenues during the quarter compared to $10.6 million in the same quarter last year. Benchmark, our energy operations which we acquired on November 13, 2023 generated $1.9 million in revenue in the quarter which excludes gains on hedging contracts of $0.8 million. As a reminder in April, we closed Benchmark's first acquisition following Acacia's initial investment. Results from this acquisition will be reported beginning in our second quarter. Pro forma for the acquisition, we will own 73.5% of this subsidiary. General and administrative expenses were $12.4 million compared to $12 million in the same quarter of…

The floor is now open for questions. [Operator Instructions] Your first question is coming from Brett Reiss with Janney Montgomery Scott. Please post your question. Your line is live.

Hi MJ, hi Kirsten.

Hi, Brett, how are you doing?

I’m good. I just have a couple of questions to get my arms around the Bench.

Benchmark?

Yes, Benchmark, sorry. So we basically have laid out $67 million for the 73.5% interest we have in it. Do we value it or mark it at $67 million. I'm just wondering why the book value after this investment did not move up?

Yes. So that's a great question, Brett. So it is valued -- well -- two points. The $67 million for the second acquisition of Benchmark, remember the first we made in November and we invested roughly $10 million for half the company is marked to cost. The second investment, which is the much larger of the two, which we closed this year was actually closed in April. So it's not yet reflected in the numbers because it wasn't a first quarter event, but you'll see that -- you'll start to see that in the second quarter. But broadly, how we think about it when you do see it in the second quarter, is we are taking cash and we are investing it into those assets. And with those assets marked at cost, there is a little bit of expense that goes against it. For deal-related expenses, you shouldn't see a material appreciation of book value because you're trading cash [burn] (ph) asset. So you're just moving around the asset side of the balance sheet.

Okay. I appreciate that. Now somewhere in my notes, at the Benchmark company level, it was anticipated or expected to generate $45 million in EBITDA or operating cash flow. Do you recall this number?

Yes. That's what we mentioned on our last call. It was cash flow at the asset level, which is effectively. Yes.

All right. So we're entitled to 73.5% of that $45 million. And then what we don't know is what the SG&A on Benchmark is going to be. I'm just trying to get a handle on what -- or maybe you can just short cut it for me. I mean what do we own with Benchmark and -- so we can begin to feel -- get a sense of valuation?

Yes. So we own -- with Benchmark -- we are in a company called Benchmark. Benchmark owns two assets. They own the first asset that we bought half of, and they own the second asset, which we closed subsequent to the end of the quarter, which pro forma for our investment and our partner's equity investment into that, we will own 73.5% of the combination of those two assets, which is roughly together on a pro forma basis, $50 million of earnings, of which 73.5% would be net to our stake.

Okay. Now that's aspirational, the $50 million in earnings. How long do you think it will take to gear up to achieve that?

So you are not going to see it all in 2024, because we closed the larger of the two acquisitions in April. But that is at current oil and gas prices. And recall, we're hedged three years out, 70% on the strip. And so you'll start to see those numbers go through on a monthly basis. They will ramp because they'll come into our financial statements on a monthly and quarterly basis. But the company is running at that level of earnings today.

Right. And so monthly -- well, 0.735 times $50 million divided by 12, I mean eventually we are going to see $2.5 million -- $3 million of cash flow come to us from this investment.

Every month. You'll see it quarterly, Brett. But yes, every month, that's roughly the amount of cash flow that will be generated in this investment.

Why don't you do some more of this stuff?

Well, look, I mean that's -- we joke and laugh about it, but those are the types of opportunities that we're looking for. And so our strike zone is very tight in terms of risk management and risk/reward. And we do not want to be an oil and gas company. We want to have a diversified portfolio, but we are looking at other opportunities in other industries where the profile is similar to this. And so those are the types of acquisitions that we are looking to add into our portfolio.

Right, right. Now one last one, a little change in direction. Last conference call, you mentioned strong pipeline of opportunities outside oil and gas. Another quarter has passed, and we've not seen your pull the trigger on any of it. And then you said earlier in your comments, deals and bank credit is loosening up. Does this make it more likely you can get a deal or less likely?

Look, the way I’d answer that question is to say that we're not looking to buy companies for the sake of buying companies. We are looking to buy companies where we can have a really nice risk/reward profile associated with them and it -- the volume of M&A will be dictated by the types of opportunities we see. We are seeing a lot of things that are quite interesting right now. We’re looking at things that are off the run. We're looking at things that others don't understand. And in these types of transactions, we have counterparties and we need to negotiate to a point where both counterparties are willing to transact. And that's our job is to find those opportunities and get to a point where we can transact at a price and on terms that are attractive to our shareholders. And so we are not looking to do an acquisition a month. We are looking to do an acquisition when that acquisition makes sense collectively for all of us to preserve and grow our capital base.

Right. One last one. It is the macroeconomic backdrop, is this ballyhooed soft landing? Or on the alternative, we have a hard landing, would a hard landing make it more likely you can get a deal outside of oil and gas done?

I don't think it hurts and it really just depends on the particular companies that we are seeing that we like and think there's opportunity in and who owns the companies and what the situation is. But we're not looking to make macro-related bets. If we have a hard landing, historically, that has been a very good time to buy companies if you have conviction around the cycle. And so we are not calling the macro-picture. We're not waiting for a recession, we are not assuming that the market will continue to be in a Goldilocks phase indefinitely. It is really a -- it's a case-by-case situation. And as I mentioned earlier, each of the companies that we are looking at is very idiosyncratic.

Right, thank you for answering all my questions. I will drop back in queue, thank you.

Yeah, and of course thanks Brett, nice to hear from you.

[Operator Instructions] Your next question is coming from a private investor, [Ron Heller] (ph). Please post your question, your line is live.

Hi. Can you go through the cash on the balance sheet again? I think we went from $400 million and -- I heard 2 numbers, $439 million and $460 million. Can you clarify that?

Yes, Kirsten, do you want to take that one?

Sure, 1 sec. So yes, the $439 million is our cash and cash equivalents as of the end of March, and then the $460 million includes our cash and equity securities.

And that's up from the previously reported $400 million. Can you tell me what the delta is on that?

Sure. We had some receivables as of the end of December from our IP group that were all collected in the quarter. That was really the biggest driver of the increase. Sorry -- and also, as we mentioned, in the fourth quarter, we recorded an unrealized gain on our Arix investment for the forward sale contract that we had. That closed also in the quarter and turned to cash.

Yes. So Ron (ph), if you take the December 31 cash number, add the cash receipts from the intellectual property business and the Arix sale, which moved from a marketable security to cash with a slight gain associated to the 12/31 marketable security number when we actually converted it into cash. That's how you get to the numbers that Kirsten is talking about. And then the other number that I mentioned is pro forma for the funding of the second Benchmark acquisition. We will have approximately $400 million of cash and securities, of liquid marketable securities that we can use to go deploy into other acquisitions.

Okay. Two more questions. Back in November of 2023, the company announced a buyback of stock, no obligation to buy stock back, but I think it was $20 million, not to exceed 5 million shares. Has the company bought any stock back to-date?

We have not bought any stock back yet Ron.

Okay. And did the company intend to buy stock back, back when they made the announcement in the fourth quarter? And if so, why hasn't the company bought any stock back considering it's been in some cases, a 30% discount to book value?

I appreciate you asking the question. We're evaluating it on a consistent basis, and we are seeing a lot of opportunities to deploy cash into acquisitions. So we -- when we think it is opportunistic, we'll buy stock back. And if we don't think, it's opportunistic or it's less opportunistic than making acquisitions, then we use cash to make acquisitions.

One footnote question regarding the lot of time and releases -- time and conversation, and the CC in the release has been on book value per share. And is my math correct that if you did buy stock back or any company bought stock back at a significant discount that it would, by definition increase book value per share?

As a general theory, yes that is correct. The magnitude of which this buyback increases book value per share is attractive. But again, we have attractive ways to deploy the capital.

Okay thank you.

Your next question is coming from Adam Eagleston with Formidable Asset Management. Please post your question, your line is live.

Hi, MJ, Kirste. How you’re today?

Hi, Adam. How it’s going.

Doing well, Ron beat me to the punch on the buyback question, but would love to hear little bit more. I echo his sentiment about that being seen as the cost of capital so to speak. I hope that's the way you and the Board are looking at it. In terms of the legacy Woodford assets, you don't talk much about those. They are sort of orphaned at this point. Any impetus by management to divest those or do something with them? Is there a market out there for those assets?

Yes. I appreciate you asking the question. And you are right -- we didn't mention it in the transcript. I’d use the term non-core as opposed to orphan maybe because we do work those assets pretty hard. And hence the goal is to create liquidity on those assets. And as you know, there are two biotech companies. The overwhelming majority of the value there is two biotech companies, and we are actively working to create liquidity in those positions.

Got it. Great. And that's a good segue actually as we think about the market opportunities out there. You mentioned biotech, and there is clearly a lot of carnage in that space. Is there any opportunity in that orphan biotech space? And again, apologies for the pejorative term. But with regards to some publicly traded biotech that are sub cash, et cetera or is that one of those cliche kind of too hard stacked as you think about the public market opportunity?

I mean I think, the answer to the question is a little bit in between the two kind of goalposts you put out there. I would say, in the past we have evaluated some of the net-nets in the pharmaceutical world. One of the issues is, without control, you can't really effect the change or the trajectory of the cash burn, which gives us a little bit of heartburn. And then with the control, you're effectively taking technology risk, and that's not really the business that we've set out to be in. We are looking for companies with durable earnings. And so there is potential alpha in those names. I'm candidly not sure that we are the right people with the right folks on staff and experience to be able to pick that horse. And so while it is alluring from a valuation standpoint, for us we don't know -- we're not exactly sure how we create value out of those opportunities as opposed to just betting on a horse.

Got it. Thanks for taking the call.

Yeah, of course.

Your next question is coming from [Todd Selter] (ph) with [88 Management] (ph). Please post your question. Your line is live.

Thank you. Congratulations on a solid quarter. Quick question. When I look at the income statement, we are sitting with $400 million large. And I know T-bills and money-market accounts are yielding in the area of 5%, which should generate somewhere around $5 million a quarter. Where do we see any income generated from our liquidity on our income statement?

Kirsten, do you want to take that one?

Yes. You'll see that in the other operating or other income and expense, and there is a line, interest income and other is $4.9 million for the quarter.

Great. Okay. Appreciate that, Kirsten.

Sure.

Okay. MJ, keep up the good work with the team. We appreciate you. And thank you.

Yes, thanks Todd.

There appears to be no further questions in queue at this time. I would now like to turn the floor back over to MJ for any closing remarks.

Thanks for everyone's participation here today. Thanks for paying attention. And we appreciate the questions and the conversations, and most importantly we appreciate the idea flow that we get from you all because we're – you are an investor in us, but we are all in the same business in certain ways. And so we love to hear the ideas that come our way from you all and we'll talk to you next quarter.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.