Martin McNulty
Analyst · Craig-Hallum
Thank you, Lizzy, and thanks, everyone, for joining us this morning. Coming quickly off the back of our full year 2025 call. We're excited to share some updates with you as our business continues to progress. As we have been, we continue to work diligently on our execution strategies across our businesses. At Benchmark, we drilled our first meaningful well in the Cherokee play, which we brought online late in March. The drilling of that well and a constructive commodity price environment have opened additional attractive return opportunities in the Benchmark business. We're continuing to make progress at Deflecto and Printronix and we'll share some updates there. Further, in our intellectual property business, we're seeing some interesting monetization opportunities, both in our Atlas portfolio of Wi-Fi 6 assets and our R2 portfolio. I believe this quarter is another example of Acacia demonstrating the resilience of our evolving business despite persistent volatility in the market. Our strategy continues to remain the same, acquiring and building businesses where our operational excellence can create stable long-term cash flow generation and scalability. Importantly, we've done this in a way that allows us to capitalize upon a diverse set of capital allocation and operational opportunities to create value for our shareholders. Through the combined strengths of each of our businesses, we aim to create meaningful enduring value. Our successful execution of this strategy, combined with our disciplined cost control, stable cash yields and targeted operational initiatives enable Acacia to achieve Q1 revenue of $54.2 million and operated segment adjusted EBITDA of $6.8 million. We look at these numbers before the impact -- if we look at these numbers before the impact of our intellectual property operations, operating segment adjusted EBITDA was stable sequentially at $10.3 million. I believe that our consistent execution across operating segments and the significant actions we've taken since our current team took over has created substantial intrinsic equity value in Acacia that is not yet reflected in our share price. We feel very strongly about our ability to continue to generate value for our shareholders as we move further into the year. We continue to be laser-focused on growing EBITDA and free cash flow in each of our operating businesses while continuing to strategically grow our pipeline of acquisition opportunities. Our strong balance sheet, $330 million in total cash, securities and loans receivable as of March 31 puts us in a strong position to pursue accretive organic and inorganic growth opportunities in each of our core verticals. I'd like to take a moment to give you more of an update on our operating segments. Starting with Benchmark, our energy operations performed ahead of our expectations for the first 3 months of the year. We achieved record quarterly revenue of $18.7 million and generated $7.7 million in adjusted EBITDA for the quarter. Over the last 12 months, the team at Benchmark has been working hard to assemble an attractive set of drilling units from the land package that we were blessed with from the original Revolution purchase. These actions consist of buying, selling and swapping acreage to maximize our monetizable units in what we felt were the most attractive parts of our basin. These efforts started to shine through in December when we spud our first well, which we are very excited about. The executive and land team at Benchmark continue to work hard to build our inventory of high-return projects, of which we now have many in the queue. Our production and revenue were up, our extraction costs were down on a per barrel equivalent basis and our G&A was in line. Notably, we've continued to generate attractive cash flow at this asset, which enabled Benchmark to self-fund the drilling of our first Cherokee well with the cash flow the business has generated. As we indicated on our last call, this new well started producing in late March. Initial results from this well are strong. Development costs of $11.5 million came in line with budget, and we are anticipating a greater than 2.5x MOIC or 60% plus IRR on the project. Investors should see the full impact of this project beginning in Q2 and Q3, and we're proud to say that we set a company record for production in April, selling over 63,000 barrels of oil in the month. We have many more of these high-return projects within our portfolio and are eager to monetize these in the medium term. We had strong production volumes in the quarter despite some severe winter weather. As I'm sure everyone has seen, we also had and continue to have a strong commodity price environment, specifically in oil. While crude prices didn't really begin their ascent until the early part of March, the elevated price environment has continued into the second quarter, which, of course, is a benefit to us. I will remind everyone that we are 75% to 80% hedged for existing production, so it's not a one-for-one relationship. That said, we've been hedging volumes from our new Cherokee well into a more constructive environment and the rise in prices increases the value of our asset overall. Based on the success we're seeing with our first drilled well, as well as with the current pricing environment, additional drilling, both in our Cherokee acreage as well as our Cleveland acreage has become more attractive, and we're in advanced stages of evaluating additional projects. As we've mentioned in the past, we approach drilling in a very deliberate way. The Cherokee well we just drilled was drilled with cash produced inside the company. We did not borrow money to drill the well. We're also actively evaluating capital and operating partnerships to drill additional wells that we believe could be attractive for our shareholders. Before I move on, there's one thing I'd like to note around our hedging strategy. Mike will get into this in more detail when he walks through the numbers for the quarter. But given the significant rise in oil prices in the quarter and our large hedge position, which covers more than 2 years of future production, we recorded an unrealized loss from the mark-to-market impact of the hedge book, which adversely impacted GAAP net income, EPS and book value. Importantly, this is a noncash line item. Because of the multiyear duration of the hedge book, the mark-to-market swings can have a disproportionate impact on a single quarter's results, particularly given the magnitude of changes in commodity prices in the last quarter. To put this into context, our oil hedges are struck at approximately $70 a barrel and the price of WTI at March 31 was $101 per barrel, up 77% from December 31. If oil prices were to stay flat at $101 per barrel through June 30, the unrealized gain or loss on the hedge book would be zero. The ultimate goal of our hedge book is to reduce the volatility of cash flows from the benchmark investment. The knock-on effect of this is in periods of price volatility, we may experience unrealized hedge gains or losses. Today, as we look forward, we're earning more on our unhedged volumes, earning the hedge rate on our hedge volumes, and we're putting on additional hedges at elevated prices as we bring on new production. Turning now to our Manufacturing segment. Deflecto delivered another solid quarter, increasing revenue 4.6% and adjusted EBITDA 1.3% sequentially. Since acquiring the business in the fourth quarter of 2024, we've made meaningful progress enhancing operational performance, reflecting the impact of several targeted initiatives, including price increases, the reshoring and consolidation of select manufacturing operations and a focus on reducing overhead and G&A expenses. These initiatives have greatly enhanced the future earnings potential of the business. While tariff pressures and macroeconomic headwinds persist, Deflecto has been navigating this environment effectively under the world-class leadership of our operating partner, Clay Kiefaber. We're blessed to have talent like Clay on our team, which speaks to the capacity of this team's ability to scale a much larger business. Specifically, during the quarter, Deflecto successfully completed the consolidation of our Portland, Oregon facility into our Dover, Ohio facility. While we did incur restructuring costs and CapEx associated with this move, we believe the payback should be quick as we anticipate meaningful annualized cost savings beginning in the second half of the year. While early days, we believe that the improved absorption and efficiency from these initiatives could result in even greater earnings uplift, particularly when volumes return to more normalized levels. Further, we completed the sale of a small unoccupied portion of our U.K. facility, the proceeds of which were used to pay down additional principal on our Deflecto term loan, which has a current balance today of $31.3 million. Deflecto's Transportation segment is primarily focused on selling essential nondiscretionary products such as mud flaps and emergency warning triangles that are mandated by key regulatory authorities. That said, since our initial acquisition, we've seen macroeconomic headwinds in the Class 8 market that have reduced overall demand for the product set. During the quarter, we started to see an inflection in Class 8 order volumes, which has translated into a modest increase in demand for our products with revenue for the vertical increasing 3.6% sequentially and 3.8% year-over-year. This gives us confidence that our product set has retained and perhaps gained share during the market downturn, and we're hopeful that the positive macroeconomic trends driving these results continue. Deflecto's Consumer Products segment focuses on essential everyday workplace and household items such as sign holders, wall pockets, storage and organization products, literature holders and desk accessories that are supported by reoccurring demand. Within this segment, ongoing tariff and global trade uncertainty have led some customers to delay purchasing decisions, creating some manageable near-term headwinds combined with significant channel disruption as certain partners have exited the space. We appear to be reaching a steady state within this segment as revenue increased sequentially by 2.2% during the quarter and was flat year-over-year. We are enthusiastic about the months to come and are excited about the new channel opportunities that are emerging within e-commerce. Lastly, in Deflecto's Building Products business, which includes products such as air ducts, dryer vents and vent deflectors, performance has been in line with the housing market and is going through a temporary pullback. While the segment was up 8.3% sequentially, we're still down 13.1% year-over-year. While still too early to call a recovery, we have full confidence in the essential and generally nondiscretionary nature of Deflecto's building products portfolio and retain our overall positive view on the long-term positive demand trends for housing in both the U.S. and Canada. Now turning to our Industrial segment. Printronix continues to deliver consistent results and serves as a reliable source of cash flow for Acacia, having generated approximately $4.8 million of cash flow in the past 12 months, representing a 15% cash flow yield relative to the price we paid to acquire the business. Our ongoing efforts to evolve Printronix into a dual hardware and consumables model, supported by a more streamlined operating structure have expanded the product mix while driving meaningful cost efficiencies across the business. These initiatives are driving tangible results and reflect our broader approach to value creation, where we implement operational improvements across our portfolio to strengthen performance and position each of our businesses for long-term success rather than optimizing them for a near-term exit. The business had a strong quarter in each of its products and geographies. As a reminder, the legacy Impact Pine business within Printronix is in structural decline, but we're excited about the pivot to a more consumables heavy model and new product growth. Lastly, to our Intellectual Property segment. We recorded total revenue and adjusted EBITDA of $700,000 and a negative $3.5 million, respectively, for the quarter. As I've noted previously, this segment is inherently episodic in terms of its revenue generation given the unpredictable timing of settlements. This unpredictability in receipt of settlements is more noticeable in quarters where we do not have revenue to offset the ongoing operational costs of our team who have done a great job extracting value from the IP portfolio. While the confidential nature of our settlements limits the level of detail I can provide on a potential future activity for the IP business, we continue to see meaningful value in our IP monetization platform, which has delivered attractive returns over the past 12 months. Of note, our R2 solutions portfolio, which was originally owned by Yahoo! -- and covers a broad array of innovative computing technologies in the database, Internet search, AI and big data analytics industries has been particularly active in recent months. R2 Solutions is currently enforcing the portfolio in the big data analytics space and anticipates further developments in the coming months. Before passing it over to Mike to discuss our results in more detail, I'd like to reiterate that while I'm pleased with the improvement in execution of our operating segments, we're equally focused on acquiring and building businesses with stable long-term cash flow generation and scalability that can create compounding value over the long term. As you know, we put together a highly talented team that we believe, together with the strength of Acacia's value-oriented business model positions us to deliver across market cycles. And while it may seem quiet on the M&A side of things, please trust that we continue to leverage our institutional approach to due diligence and valuation discipline to ensure that we're spending our time on acquisition opportunities that will deliver the most value to our platform and shareholders. I'm genuinely excited about the acquisition opportunity set emerging across our target universe over the next few fiscal quarters as financing conditions gradually improve, and sellers become more realistic around valuation. For well-capitalized buyers such as Acacia, I believe this will open a window to pursue opportunities where operational improvement and focused integration can drive meaningful value. To that end, our leadership team and Board remain focused on evaluating both internal and external strategic capital allocation opportunities where we believe our experience and approach can help augment underappreciated businesses, creating lasting value for our shareholders and sustaining Acacia's long-term growth trajectory. With that, I'd like to turn things over to Mike to walk through the quarter.
