Good morning, everyone. Thank you for joining Acacia Research Second Quarter 2025 Earnings Conference Call. My name is Jenny, and I'll be your conference facilitator today. 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. [Operator Instructions] Questions can also be directed to Acacia ir@acaciares.com. I would now like to turn the conference over to Mr. Brent Anderson of Gagnier Communications. Mr. Anderson, you may begin.

Thank you, operator. Leading today's call are MJ McNulty, Acacia's Chief Executive Officer; and Michael Zambito, Acacia's Chief Financial Officer. Before MJ and Mike 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 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 second quarter 2025 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 Q2 2025 earnings presentation to its website, which can be found under the Quarterly Results tab. On today's call, the team will discuss certain non-GAAP financial measures, including adjusted EBITDA for the company and each of its operating segments. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations can be found in the press release disclosing second quarter 2025 financial results available under the Press Releases section of the Investor Relations tab at acaciaresearch.com. I'll now turn the call over to Acacia's Chief Executive Officer, MJ McNulty.

Thank you, Brent, and thank you, everyone, for joining us this morning for our second quarter 2025 earnings call. I'd like to begin today's call by introducing and welcoming Mike Zambito, who joined the Acacia team in June as our Chief Financial Officer. I'll let Mike give a more formal introduction, but quickly, most recently, he worked as a partner in Ernst & Young's EY-Parthenon practice and brings more than 30 years of finance, accounting and M&A expertise to our team. I speak for the entire Acacia team when I say we're thrilled to have Mike on board. Mike's breadth and depth of industry experience and his finance and accounting skill sets are already driving expanded reach for us in our long-term approach of identifying and executing value creation strategies across our business. I've worked with Mike in different capacities over the past 15 years, and we're very excited to have him as part of the team. I also want to thank Kirsten Hoover for the instrumental role she's played in Acacia's success over the past 2 years as our interim CFO. Kirsten is a dedicated and valued part of our team and not surprisingly, she's continued to excel as a key member of our finance team. She's been a valuable resource for Mike as he's gotten up to speed in his new role. As we discussed in more detail in our press release, this morning, we announced a partnership with Unchained Capital, a leader in financial services tailored for Bitcoin holders and Build Asset Management, an investment adviser focused on the Bitcoin space. As Bitcoin increasingly becomes a strategic treasury reserve for companies, both large and small, a growing number of commercial borrowers are seeking ways to access dollar-based liquidity without selling their Bitcoin. We believe this has created…

Thank you, MJ, and hello, everyone. It's a pleasure to be here today to report on Acacia's second quarter financial results and my first quarter as CFO. I'm genuinely thrilled to be here and to be part of the Acacia team. I also want to echo MJ's comment on how instrumental Pearson has been to Acacia's success and continues to be in my onboarding. Acacia recorded total revenue of $51.2 million during the second quarter. Our Energy operations generated $15.3 million in revenue for the quarter compared to $14.2 million in the same quarter last year. Manufacturing operations generated $29 million in revenue for the quarter. Our Industrial operations generated $6.6 million in revenue during the quarter compared to $6.3 million in the same quarter last year. Our Intellectual Property operations generated $0.3 million in licensing and other revenue during the quarter compared to $5.3 million in the same quarter last year. Total consolidated G&A expenses were $15.5 million during the second quarter compared to $10.1 million in the same quarter of last year, with $5.1 million of the increase related to the addition of Deflecto as part of the company's new Manufacturing operations. Of the $5.1 million in Deflecto G&A expense, approximately $1.5 million is related to depreciation and amortization of intangible assets. Our Energy operations G&A expense was flat year-over-year, while G&A at the parent level increased by $0.8 million year- over-year. The company recorded a second quarter GAAP operating loss of $12.4 million compared to a GAAP operating loss of $4.8 million in the same quarter last year. This was primarily due to a $5 million year-over-year revenue decline in the IP business and incremental IP business amortization. Energy operations contributed $2.1 million in operating income during the quarter, which included $4 million in noncash depreciation, depletion…

Thanks, Mike. As you've heard today, our business continues to generate value amid a volatile market. While no business is immune to macroeconomic headwinds we are all currently experiencing, I'm confident in the inherent value of our assets and our ability to consistently execute our strategy for long-term value creation. Looking ahead, we'll continue to focus on growing our platforms organically and through M&A to deliver significant value for our shareholders. We have exciting opportunities in the pipeline, and I look forward to updating you on our progress in due course. With that, I'll turn the call back over to Jenny for questions.

[Operator Instructions] Your first question is coming from Anthony Stoss of Craig-Hallum.

Welcome aboard, Mike.

Thank you.

MJ, I wanted to maybe drill in a little bit on the Bitcoin commercial loans. Can you maybe share with us a range of expected interest that you would receive from these? And do you view these as a little bit more risky than a typical commercial loan or similar? And then I had a couple of follow-ups.

Yes. Tony, I hope you're well. So your first question, are you talking about kind of what we're thinking of sizing or -- I just want to make sure I have your question.

No, just see, if you're taking on these loans, what's the expected return to Acacia in terms of interest rate?

Yes. Great question. So the loans are originated at pretty attractive rates, call it, low teens type rates of return. We're going to hedge the loans. So we have a little bit of cost against that, and there's some origination costs. But think about it in kind of they're in excess of 10% net to Acacia type returns. And when you think about these, these are loans originated to U.S. commercial borrowers at a 50% loan-to-value ratio collateralized by Bitcoin that these commercial borrowers hold in a cold storage unit where we have the ability with Unchained to manage the loan- to-value ratio through either calls to the borrowers of the loan to add more Bitcoin or cash into their account to maintain that loan-to- value ratio or ultimately the ability to liquidate that borrower's Bitcoin in order to maintain the loan-to-value ratio. And so when you think about the risk, these are like -- I guess it's like an ABL type loan, which when you look at historical loss rates on ABL, they're very low, but rather than holding AR and inventory as collateral that takes time to liquidate if you need to, this Bitcoin is in our control as a lender. So I view the risk to be very minimal risk relative to other loans and the return on the loan to be very attractive. So we actually really like these loans. We also are going to hedge some Bitcoin exposure. So in the event there is a big gap down in Bitcoin, we're going to protect ourselves from that as a kind of outside risk.

Got it. And then just drilling in a little bit on Deflecto. You guys did a great job turning around Printronix. So I trust you guys will step in if there's something that needs to be done specific to Deflecto versus the macro. Is there any kind of light at the end of the tunnel you're seeing from any industry guys in the Class A truck market? Or do you think this could extend on for a period of time? If it's not just tariff, if it's more macro related?

Yes. I mean, it's really -- I think the tariff surprised us all. I think the magnitude of the tariffs surprised us even further. I don't think we're alone in that. And so we -- it's early to tell. What we're hearing from customers is that their buying patterns have changed, while the uncertainty of where this will shake out it sits. And so I think when we get through some of the uncertainty, some of the purchasing -- the typical purchasing cycles may return. I think pricing and cost for buyers could change. We're doing a lot around our business in terms of price increases to react to tariffs as well as we've done it with the Printronix business, cost rationalization, optimization, improving processes, all the things that I mentioned in the call. And so we're monitoring the market. We're constantly talking to customers. We're encouraged by the fact that fleets are aging past kind of refresh rates. And so we do think that there is going to be a good outcome here. I think we just need to clear some of this uncertainty in order to have -- for the market to have a better view on what that looks like.

Got it. And the last question from me. Your comments related to Cherokee, very positive. It seems like there's a step forward maybe being taken by Acacia. Can you kind of lay out your plans over the next 1 to 2 years, what you think you'll do and how many wells can be drilled, et cetera?

Yes. I mean I can't get into the number of wells that can be drilled. We are evaluating ways to partner with third-party capital in order to pursue a drilling strategy in the Cherokee. And that's kind of on the back of a lot of work that we and the team have done to identify the right blocks and the right wells and high-grade those wells to go after a strategy. And so we're kind of in the -- kind of past the planning stage and into kind of the middle part of that process. And so I think we'll be hopefully in a position to take advantage of some of that Cherokee acreage, which came with the PDPs that we bought as part of that Revolution deal.

Your next question is coming from Brett Reiss of Janney Montgomery Scott.

Welcome aboard, Michael, and thank you to Kirsten for answering all my questions over the years. I appreciate it. I just want to make sure we drill down a little bit on the risk on these loans. I mean, you're basically going to be a margin department like in a brokerage firm almost. Are the markets mature enough so that you can put hedges in? And if you get a multi-standard deviation event where Bitcoin really drops dramatically in price that the hedges will protect our loans?

Yes. So we've done a lot of work around that, Brett. And the Bitcoin market is very large. And we're talking about Bitcoin here, not other cryptocurrencies just to be clear. So we are looking solely at Bitcoin. The depth of the market and the breadth of the market is substantial for us to be able to put these hedges in place.

Okay. And can you just talk to me a little bit this cold storage unit? I mean, we'll be able to, with metaphysical certainty, know that these assets are segregated and there's a lot of neutering of regulation with the crypto markets with the Trump administration. So it's kind of the responsibility to protect ourselves rests on us. Can you just talk to that a little bit?

Yes, yes. And maybe just to take a step back, there are increasing number of companies that as a treasury strategy are holding Bitcoin. We at Acacia as a treasury strategy are holding cash and treasuries, not Bitcoin. But for those companies that are holding Bitcoin, they have a handful of ways to hold that Bitcoin. They can hold it on a key or [indiscernible] or something like that and put it in the drawer, not very safe, not very smart. We all read the stories about Bitcoin being lost because a key was thrown out and people lost several hundred thousand Bitcoin. So that's not a prudent way to manage people's capital. There are things like Coinbase where it is a claim on a pool of Bitcoin as opposed to holding an actual physical Bitcoin. What Unchained has created is cold storage, an ability for an actual holder of a physical Bitcoin to have a custodian maintain that Bitcoin for them. So Unchained, Brett, if you hold physical Bitcoin, you can go to Unchained and you can pay Unchained to hold that Bitcoin in cold storage. So what does that mean? It means that they have a software and a third-party, effectively a bank that holds that key for you in a safe and controlled storage environment where it can be accessed in the case of our loans by a holder of 2 of 3 keys. And the only way that Bitcoin can come out of storage is if 2 of the 3 key holders present those keys and ask for that Bitcoin to come out of storage. And so one of the reasons we really like this is that in the case of our loans, we and our custodian hold the key and can only unlock it at the direction of we and our custodian which we think provides a lot of security. So that's kind of the cold storage piece of it. On the lending and the security piece of it, so the standard or typical UCC process, Bitcoin actually presents a really unique piece of collateral because the UCC goes in the chain of the actual Bitcoin so you can go on and see who the holders are and you can ensure that there's no other holder in the chain before you. So it becomes even more clear than with a physical piece of equipment or a building or so on and so forth that Unchained Acacia are the owners or have a claim, have the most senior claim on that Bitcoin. So we actually think it's a really elegant piece of collateral and in a lot of ways, more superior than most other collateral.

Incredible. So the UCC lien is actually flagged in the Bitcoin, wow.

It's in the coding of the Bitcoin.

Right, right. Incredible. Different subject. Because we're hedged 70% with the Benchmark resolution business, if we go into a recession and oil and natural gas prices continue to decline, is it almost impossible for that business through 2027 to go cash flow negative?

Nothing is impossible, but I would say, it would be highly improbable for it to go cash flow negative because of the hedges. We do have a little bit of unhedged exposure, primarily to non-operated and some of our -- a small amount of our operated production. But so far, our hedges have worked as we have expected them to work. And so we feel pretty comfortable that in spite of the recent price volatility that we will be cash flow positive.

Right. Now the 30% on the oil and natural gas that you're not hedged, is there a breakeven price of oil and natural gas below which you just don't make any money?

Theoretically, there is a breakeven. I don't have that number in front of me, Brett, but we can follow up with that.

Okay. Different subject. There's a lot of stress in the private equity markets. Has it risen to a level such that the private equity potential sellers are finally going to come to the table with lower price so that we can get some deals done in that space?

Yes. I mean this is an interesting question and one that we watch quite a bit because we're pretty plugged into what's going on in private equity. I would say, there are multiple answers depending upon asset quality. So in the, call it, B and C quartile assets where we like to play because we like the ability to go in and have a reason to be a buyer usually around operational improvement, margin improvement, sales motion, so on and so forth, we're seeing a reasonable number of opportunities in that space. For the A quartile assets, the private equity funds are just going to hold those or they'll put them into a continuation vehicle or find another way to continue to manage those assets. We are starting to see the bid-ask spread close a little bit, and we're starting to see price discovery create some opportunities. But private equity funds have a long time horizon and until their LPs really push on them for liquidity, they're not inclined to reduce their fee-paying base of assets. But we are seeing more opportunities in that space.

Okay. On the Legacy Patent business, I think we're both in agreement. The market really doesn't give us any value for that business, which has been under your stewardship, quite good. Is there any kind of information disclosure that you can give the market so that they feel comfortable on putting a valuation on that business without compromising your negotiating positions with defendants on the other side?

This is a question I ask myself a lot, Brett. I think we -- there are public cases out there, but we also have a lot of private discussions going on in kind of bilateral negotiations. It's difficult for us to disclose what all those discussions are and what the potential outcome of those might be because it just tips our hand to those counterparties and we want to keep those private. And so aside from what you can see in the market and unfortunately, having to extrapolate the value of, say, TP-Link, for example, and applying it to other potential parties out there in similarly situated situations, it's difficult for us to give a lot of information around what we believe the value of RF patents is.

[Operator Instructions] Our next question is coming from Adam Eagleston from Formidable.

Michael, welcome. Kirsten, thanks for all of your work over the years. Quick question. Congrats on the Build/Unchained deal. With building out your in-house capabilities around hedging that, et cetera, does that increase the likelihood that we may see Acacia adopt some type of Bitcoin treasury strategy?

We are not currently considering a Bitcoin treasury strategy. It doesn't mean that we wouldn't do that in the future, but it's not something that we're actively considering, Adam.

Well, we appear to have reached the end of our question-and-answer session. I will now hand the call back over to MJ for any closing remarks.

Thanks, everyone as usual, for joining the call. It's good to talk to everybody, and we look forward to talking to you after the end of the third quarter.

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