Acacia Research Q3 Earnings Call Highlights

Acacia Research (NASDAQ:ACTG) reported lower third-quarter revenue and a net loss, as weaker demand at its Deflecto manufacturing business offset strength at its energy operations and gains from public securities investments.

Revenue fell to $54.4 million from $59.4 million a year earlier. The company reported a net loss attributable to Acacia of $5.6 million, or $0.06 per diluted share, while adjusted net income was $4.3 million, or $0.04 per diluted share.

Chief Executive Officer MJ McNulty said revenue excluding intellectual property operations rose for a third consecutive quarter to $54.2 million. Total company adjusted EBITDA was $3.9 million, while adjusted EBITDA from operating segments excluding IP was $11.6 million.

Benchmark expands drilling program

Benchmark, Acacia’s energy business, generated $19.5 million in revenue, $9.1 million in adjusted EBITDA and $2.7 million in free cash flow during the quarter. McNulty said operating performance and cash flow exceeded management’s expectations.

Benchmark’s second Cherokee well, Moon Tower, had been online for about a week at the time of the call. McNulty said early flowback results were encouraging and tracking ahead of the company’s first Cherokee well. Benchmark has approximately five operated Cherokee units, each of which management believes can support two wells, though McNulty did not commit to a date for drilling another.

After the quarter ended, Benchmark established a wholly owned, bankruptcy-remote subsidiary that closed a senior secured lending facility with Cibolo Energy Partners. The facility provides up to $47.5 million in borrowing capacity, with $27.5 million initially available and $18.5 million funded at closing. Benchmark also contributed $6 million in equity.

The financing supports an initial four-well development program targeting Cleveland Formation drilling locations in the Western Anadarko Basin, with potential for expansion. McNulty said the facility is non-recourse to Benchmark’s other assets and Acacia, and does not change ownership of Benchmark.

Approximately 70% of expected oil production and 70% of expected natural gas production over the next 12 months is hedged, McNulty said. Benchmark recorded a $5.1 million unrealized hedging loss in the quarter. Chief Financial Officer Michael Zambito said the mark-to-market charge did not affect current-period cash flows or margins.

Deflecto faces softer demand

Deflecto’s third-quarter revenue declined to $27.2 million from $30.8 million a year earlier, while adjusted EBITDA fell to $1 million from $2.6 million. McNulty attributed the weakness primarily to softer air-distribution demand in the U.S. and Canadian housing markets and higher input costs.

He said Deflecto’s profitability improved meaningfully in September as the company continued to optimize manufacturing, reduce lead times, streamline its organization and adjust pricing. Transportation safety revenue was steady year over year, and management said it was optimistic about trends in the underlying Class 8 market.

Printronix generated $7.5 million in revenue and $1.5 million in adjusted EBITDA. McNulty said the printer business continued to generate consistent free cash flow while expanding its installed base and sales of consumables and complementary products.

Acacia’s intellectual property business generated approximately $300,000 in licensing revenue and posted an adjusted EBITDA loss of $2.5 million. Zambito said the company generated no paid-up license revenue during the quarter and had continued to reduce the segment’s costs.

Investment gains and capital allocation

Acacia realized an $8.2 million gain after one of its public-company investments announced an agreement to be acquired. McNulty declined to identify the investment but estimated the return at roughly 2.5 times the amount invested over a holding period of less than six months, while cautioning that the figure was approximate.

McNulty said Acacia had been active in both public and private markets, had submitted bids and had been outbid on some opportunities. The company is increasingly active in public small- and micro-cap businesses that fit its acquisition criteria, he said.

Acacia ended the quarter with $346.3 million in cash, equity securities and loans receivable, and no parent-company debt. Consolidated gross debt was $90.4 million at quarter-end, consisting of non-recourse debt at Benchmark and Deflecto. Book value was $551.6 million, or $5.65 per common share, down from $5.71 per share at the prior quarter-end.

Asked about a potential share buyback, McNulty emphasized the flexibility to deploy capital in public and private opportunities, saying the company generally seeks risk-adjusted returns in the mid-to-high teens or better. He also clarified that Benchmark’s year-end reserve report, expected with Acacia’s annual filing in the first quarter of 2027, would provide information about reserve value but would not itself increase book value.

About Acacia Research (NASDAQ:ACTG)

Acacia Research Corporation is an investment and intellectual property company headquartered in Irvine, California. The company acquires businesses, assets and patent portfolios that it believes have the potential to generate value through licensing, monetization, operational improvement or strategic transactions.

Historically, Acacia has been primarily known for its patent licensing business. Through subsidiaries and affiliated entities, it has acquired rights to patented technologies, worked with inventors and patent owners, and pursued licensing agreements with companies that use those technologies.