Good morning, everyone. Thank you for joining Acacia Research's Third Quarter 2025 Earnings Conference Call. My name is Kelly, and I will be your conference facilitator for 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. I would now like to turn the conference over to Mr. Brent Anderson of Gagnier Communications. Mr. Anderson, you may begin the conference.

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 a 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 third-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 Q3 2025 earnings presentation to its website, which includes detailed GAAP and non-GAAP financial disclosures and 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 third-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.

Thanks, Brent, and thank you to everyone for joining us for our third-quarter 2025 earnings call. Acacia delivered good results in the third quarter with significant increases sequentially and year-over-year across many key metrics. Despite persistent macroeconomic and geopolitical headwinds, our team executed well against our disciplined and operationally focused strategy. While our businesses are not immune to these headwinds, we're using this as an opportunity to accelerate our value creation plans swiftly and decisively across our portfolio. These include the implementation of pricing strategies, cost savings initiatives, operational efficiencies, and plant consolidations to mitigate tariff pressures and to position our companies for continued growth. These ongoing initiatives and the team's consistent execution drove our strong quarterly results with Acacia delivering total revenue of $59.4 million, up 16% sequentially and up 155% compared to the prior year quarter, the year-over-year comparison primarily driven by our third full quarter of Deflecto. The company's total adjusted EBITDA was $8 million, and operated segment adjusted EBITDA was $12.6 million, while free cash flow for the quarter was $7.7 million, with the net result being a GAAP loss of $0.03 a share or a loss of $0.01 per share on an adjusted basis. Book value per share at the end of the third quarter was $5.98, and book value per share to Acacia, excluding our noncontrolling interests, was $5.57, both essentially flat versus last quarter. Acacia's performance in context, in spite of the macroeconomic and geopolitical headwinds, the businesses we own are still delivering attractive return characteristics. As you've heard me say before, Acacia is focused on identifying and acquiring underloved, under-managed, and undervalued businesses where we believe we can leverage our significant capital base and experienced leadership teams to streamline operations, materially improve performance, and drive long-term growth. As a result of our actions on a year-to-date annualized basis, Benchmark is generating a roughly high teens free cash flow yield. Deflecto is generating a high single-digit free cash flow yield prior to the impact of our in-flight operational improvement initiatives, and Printronix is generating a high teens free cash flow yield. With strong and improving cash yields at each of our operating companies and disciplined cost control at the parent, we believe we're creating significant equity value, which is not yet reflected in our share price. As we approach the end of the year, we remain focused on driving revenue, EBITDA, and free cash flow growth at each of our operating businesses, while at the same time, growing our extensive pipeline of actionable M&A opportunities. With approximately $332 million in total cash, equity securities, and loans receivable at September 30, our strong balance sheet positions us well to pursue accretive organic and inorganic growth opportunities across our businesses to create differentiated value for our shareholders. I'd now like to discuss our operating segments. Within our energy operations, we continue to view Benchmark as an attractive platform to allocate capital within the oil and gas industry. As you may recall, we acquired the business in two steps. First, through our partnership in November 2023 with McArron and the company on a small package of wells; and second, through the acquisition of the Revolution assets in Q2 of 2024. At that time, we underwrote the business based on acquiring existing flowing production at a high teens discount rate, and we continue to evaluate comparable opportunities within our existing geographies. Since our acquisition of Revolution, the Western Anadarko Basin has seen a meaningful increase in investor interest. As a result of the renewed interest in the basin, we've seen high-quality, well-capitalized operators enter the basin with rig counts increasing despite declining rig count activity in many other plays. This has pushed the value of high-quality producing assets in the basin back towards historical evaluation metrics. While this is positive for the value of our business, it does mean that we need to be more cautious on valuations for additional producing assets we may want to acquire, and we have focused those efforts on asset packages where we can maximize strategic overlap with our existing fields. To that end, as you may remember, in addition to the large producing acreage we acquired as part of the Revolution acquisition, the deal came with a significant undeveloped acreage position in an emerging play called the Cherokee, which you've heard us discuss in the past. This year, we've continued to strategically develop this position within the Cherokee, most recently highlighted by two small but very strategic acreage acquisitions. As we continue to build our undeveloped acreage position, we're actively considering additional monetization opportunities as well as potential capital partnerships to finance a targeted drilling program for our acreage in this play. During the quarter, Benchmark continued to perform well with stable operated production and strong cash flow. While oil and natural gas prices remain at low levels, Benchmark's hedging strategy continues to perform as expected. As a reminder, Benchmark hedges over 70% of its operated oil and gas production with hedges currently in place through the beginning of 2028, protecting a significant amount of our cash flow from downside price risk. Further, our diversified production profile provides us with significant optionality as we're able to prioritize projects that are more gas and NGL focused in a weaker oil price environment. As of the third quarter, approximately 52% of Benchmark's last twelve months commodity revenue and 78% of last twelve months production on a BOE basis was driven by gas and natural gas liquids, which have remained much more resilient from a pricing perspective. Looking ahead, we see a variety of ways to create significant value in expanding our oil and gas platform, and we're fortunate that our operations in the Anadarko Basin provide us with access to some of the highest quality reserves and management teams in the country. We remain excited about the value generation opportunities at Benchmark, and I look forward to keeping you updated as we continue to scale this business. In our Manufacturing segment, Deflecto delivered another quarter of sequential revenue growth and improved adjusted EBITDA versus last quarter. We're continuing to progress our operational initiatives at Deflecto, including strategic price increases across each business unit, reshoring and consolidation of certain manufacturing operations, overhead and G&A cost reductions, and improving go-to-market motions, all of which are aimed at creating a more streamlined business positioned for future growth. While the current tariff and macroeconomic environment has impacted several of Deflecto's end markets, I'm encouraged by the strong progress and significant improvements we have made across the business. To address some of the trends we're seeing across Deflecto's business units, I'll start with the Class 8 truck market, which continued to experience demand headwinds throughout the third quarter. Recent industry data indicates that Class 8 net orders for September represented the weakest September since 2019. We expect the Class 8 market to remain under pressure in the near term. Further tariff and macro clarity, along with lower interest rates and gradual fleet capacity normalization into 2026, should support a rebound in activity. Moreover, Deflecto remains focused on selling essential nondiscretionary products such as mud flaps and emergency warning triangles that are mandated by key regulatory authorities, which puts the business in a strong position when the cycle turns. Within the office products business, tariff and global trade uncertainty has caused many customers to pause or delay purchasing decisions. While we expect these headwinds to persist in the coming quarters, our operational initiatives are helping to mitigate these impacts and position the business for future growth as macroeconomic conditions normalize. As a reminder, the Deflecto office products business sells basic necessities for everyday use, such as sign holders, document organizers, and flomats for the home and commercial office markets. Within the Air Distribution business, our sales have remained resilient in the face of a soft construction market, largely a result of interest rate pressures, which we believe will subside in the coming quarters. We continue to work to offset tariff cost pressures in this segment through product line relocations, pricing actions, and working with our distribution partners to optimize delivery routes. Within this business unit, Deflecto's core product offerings include dryer vents, air ducts, and air vent deflectors, all of which are essential in nature. Very excited about Deflecto's long-term growth potential, supported by its substantial market share, diversified customer base, and industry-leading products. Turning now to our Industrial segment. Printronix continues to deliver strong performance, and we're seeing positive momentum across the business. Our operational improvements over the last 12-18 months have resulted in an attractive mix of hardware and higher-margin consumable revenue streams that generate consistent free cash flow. The team continues to use our advantageous channel position and market share to add new product lines, which we expect to provide incremental contributions over the coming quarters. Now to our Intellectual Property segment. We recorded $7.4 million in total paid-up revenue from multiple settlements and licenses during the third quarter, which resulted in total revenue and adjusted EBITDA of $7.8 million and $3 million for the quarter, respectively, a significant increase sequentially and year-over-year. In the year-to-date period through September, our IP business generated $78 million in revenue and $44.2 million in adjusted EBITDA versus $19.4 million in revenue and $6.3 million in adjusted EBITDA in the prior year period. As a reminder, the quarterly fluctuations within the IP business are largely the result of the episodic nature of the business and timing of future settlements. With that, I'll pass it over to Mike to discuss the details of our financial results.

Thank you, MJ, and hello, everyone. Acacia recorded total revenue of $59.4 million during the third quarter. Our energy operations generated $14.2 million in revenue for the quarter compared to $15.8 million in the same quarter last year, reflecting a softer oil price environment year-over-year. Manufacturing operations generated $30.8 million in revenue for the quarter, representing a third consecutive sequential increase compared to $29 million in the second quarter. Given we acquired Deflecto in October of last year, there is no comparable prior year period. Our industrial operations generated $6.7 million in revenue during the quarter compared to $7 million in the same quarter last year. Our intellectual property operations generated $7.8 million in licensing and other revenue during the quarter compared to $0.5 million in the same quarter last year. Total consolidated G&A expenses were $16 million during the third quarter compared to $11.2 million in the same quarter of last year. The increase was primarily driven by the addition of Deflecto as part of the company's new manufacturing operations. Deflecto G&A expense for the third quarter of 2025 was $4.6 million, which declined from $5.1 million in the prior quarter. Of the $4.6 million of Deflecto G&A expenses, approximately $1.1 million was related to depreciation of fixed assets and amortization of intangibles. Our energy operations G&A expense was $1.2 million for the third quarter of 2025, compared to $1 million for the prior year quarter in 2024. G&A at the parent level increased by $0.5 million year-over-year from $6.1 million to $6.6 million in the quarter ended September 30, 2025. Parent G&A on an adjusted basis decreased by $0.6 million year-over-year from $5.2 million to $4.6 million in the quarter ended September 30, 2025. The company reported a third-quarter GAAP operating loss of $6.4 million compared to a GAAP operating loss of $10.3 million in the same quarter last year. This was primarily due to the inclusion of Deflecto in 2025 with no comparable operating income in 2024, along with a lower GAAP operating loss in the IP business in 2025 compared to the prior year. Energy operations contributed $1.1 million in GAAP operating income during the quarter, which included $3.8 million in noncash depreciation, depletion, and amortization expense, and does not reflect the realized hedge gain of $1.2 million during the quarter. Adjusted EBITDA for our energy operations was $6.1 million in the quarter and $21 million year-to-date. Free cash flow for our energy operations was $4.3 million in the quarter and $11.9 million year-to-date. Manufacturing operations contributed $1.1 million in GAAP operating income during the quarter, which included $1.1 million in noncash depreciation and amortization expense and $0.3 million in nonrecurring transaction-related expenses and severance costs as part of our operational initiatives at Deflecto. Adjusted EBITDA for our manufacturing operations was $2.6 million in the quarter and $6.3 million year-to-date. Free cash flow for our manufacturing operations was $2 million in the quarter and $3.7 million year-to-date. Industrial operations contributed $0.3 million in GAAP operating income during the quarter, which included $0.5 million in noncash depreciation and amortization expense. Adjusted EBITDA for our industrial operations was $0.8 million for the quarter and $2.5 million year-to-date. Free cash flow for our industrial operations was $0.7 million in the quarter and $4.1 million year-to-date. GAAP net loss attributable to Acacia Research Corporation in the third quarter was $2.7 million or $0.03 loss per share, compared to a net loss attributable to Acacia of $14 million or a $0.14 loss per share in the prior year period. This decline in net loss was primarily due to the significant year-over-year increase in revenue and EBITDA, in addition to gains from our public equity portfolio and lapping the legacy legal fees from the prior year period. Included in GAAP net loss for the third quarter was $0.9 million in unrealized gains related to changes in the fair value of equity securities at September 30, 2025. Adjusted net loss attributable to Acacia in the third quarter of 2025 was $1.1 million, or a $0.01 loss per share. Further details on these adjustments can be found in our press release. Now turning to the balance sheet. Cash and cash equivalents, equity securities measured at fair value and loans receivable totaled $332.4 million at September 30, 2025, compared to $297 million at December 31, 2024. The parent company's total indebtedness was $0 at September 30, 2025. On a consolidated basis, Acacia's total indebtedness as of September 30, 2025, was $94 million, consisting of $58.5 million and $35.5 million in nonrecourse debt at Benchmark and Deflecto, respectively. Since closing the acquisition of the Revolution assets in April 2024, Benchmark has paid down approximately $24 million in total debt, underscoring the strong free cash flow generation of the business. Additionally, since acquiring Deflecto in October 2024, the company has paid down approximately $13 million in total debt. These capital allocation decisions have significantly reduced our consolidated debt and interest expense, providing further operational flexibility. More information on Acacia's third-quarter results, please see our press release issued this morning and our quarterly report on Form 10-Q, which we will file with the SEC later this week. I'll now turn the call back over to MJ.

Thanks, Mike. Just as a reminder, we've got a Q3 earnings presentation and an investor presentation on the website that goes through the reconciliations that Mike just talked through, and I think is helpful disclosure. But just in conclusion here, as you've heard, despite ongoing tariff headwinds, Acacia delivered solid financial and operating results in the third quarter and for the first nine months of the year. Looking ahead, our near-term focus remains on leveraging our diverse portfolio and developing targeted pricing strategies and cost savings to mitigate the ongoing impact of tariffs and related uncertainties and drive value creation for our shareholders. While our approach remains measured and thoughtful, we're not letting volatility in the market stand in the way of building our pipeline and identifying opportunities for organic and inorganic growth across our businesses. The inherent value of our assets is strong, and I'm confident that our value-oriented strategy and experienced management team will enable us to continue to build our momentum across our business through year-end and into next year as we continue to generate long-term value for our shareholders. With that, I'll turn it back over to you, Kelly.

Your first question is coming from Anthony Stoss with Craig-Hallum.

I wanted to focus on Deflecto, which performed better than our projections, even in a tough environment. MJ, looking ahead to a more typical environment, what percentage of free cash flow do you anticipate using to pay down debt? Additionally, how do you see those EBITDA margins evolving?

I mean in terms of the amount of free cash flow that we use to pay down debt, we paid off some debt this quarter as a capital allocation decision, really to bring the leverage down, create even more flexibility as we look at a handful of initiatives, and also to reduce the interest drag. We like to have leverage in our underlying businesses; just given our cash balance, it's not entirely necessary, but there is some strategic benefit to having credit facilities in place there. And so we decided to bring that down a little bit. In terms of EBITDA target percentages, I would think about it in like kind of a low to mid-teens type margin. We are going through a lot of operating initiatives in all three of those selective businesses that should help to drive that. But look, we're in a pretty tough part of the cycle in the safety business. It's still performing. But with the changes that are being made there as that cycle normalizes and kind of runs back up, the margins there should be really attractive. Our air distribution business is doing well. And then the office products business, kind of the same type of target.

Could you provide an update on the benchmark side of the business, specifically regarding the Cherokee properties? How many oil heads have been tapped, and what are your plans for the upcoming year?

Yes. If we examine the core business, it is performing as we expect. While commodity prices could be higher, we have implemented hedges to protect us to a large extent. Regarding the Cherokee properties, we have not drilled any wells yet. We have focused on optimizing our acreage through two strategic acquisitions and some land and non-operated working interest swaps, which position us favorably for monetization.

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

Very impressive, the increase in the free cash flow on Deflecto in a challenging environment. But just another free cash flow question. In Printronix, the first quarter, you had $2.5 million of free cash flow. Is that a seasonality thing? Or that seemed kind of an aberration?

Yes, it is a seasonality thing.

I have a question about the valuation of AMO Pharma. When looking at their website, they have a Phase III drug in trial and a Phase II. Can you remind me of our carrying value on that? Additionally, with the total addressable markets that AMO Pharma discusses on their website, it seems there could be a potential positive surprise for us in the future.

Yes, we do not disclose the carrying value of it. However, we find it attractive. This drug is aimed at myotonic dystrophy and is relatively novel. There is significant interest in this area currently. There are a couple of research reports and commentary available regarding two companies, Dyne and Avidity, which focus on a similar market. Those might be worth examining. We are continuing to collaborate with the company, and they are making solid progress with regulatory authorities towards approval. We acquired these businesses and are actively managing them. However, these are early-stage biotech companies, so we remain cautiously optimistic.

TP Link systems seems to be in some sort of embroglio with the United States government. Does anything that's going on between them and the U.S. impact the value of our patent portfolio in that area? And also, does that change the timing on collecting our judgment we have against them?

Yes, that's a great question. There's a lot of geopolitical tension, but the current U.S. administration seems to be more favorable towards intellectual property than before, which is positive. We have been granted a judgment in the TPLink case, and the next step is that the Federal Circuit will hear some oral arguments since TPLink is asserting its legal rights. We remain optimistic about the outcome. The process may take longer than we initially expected, but our views on the potential outcome have not changed.

Last one for me. There were some pretty high-profile bankruptcies recently in the private equity space. Do you think these are canaries in the coal mine with more to follow, or these are one-offs? And I ask that because if there are canaries in the coal mine, you may hold off on buying anything in the private equity space, or if they're one-offs, will you be more aggressive in pursuing acquisition opportunities in private equity?

Yes, I believe you are referring to First Brands and Tricolor, which are indeed unique cases for different reasons. This situation has drawn more attention to the private credit sector than to private equity. We are observing various developments within private equity and several other industries as well. This is the rationale behind maintaining low leverage at Acacia. Our team has experience in private equity and has previously taken on significant leverage in businesses. The current environment underscores the importance of being cautious and judicious with leverage. We are noticing an increasing number of private equity firms being put up for sale due to high debt levels. We're beginning to see valuations decrease compared to the historically high multiples that sponsors were paying for assets in 2021 and 2022. Therefore, price discovery is improving. However, there remains considerable uncertainty. Interest rates remain high for those using five, six, or seven turns of leverage on businesses. Moreover, the implications of current administration policies and trade regulations on these companies are still ambiguous. Consequently, we are being very careful in our evaluations. We are experiencing substantial deal flow and have focused on several transactions where we may not yet fully align on price discovery, but our expectations compared to sellers' expectations have narrowed. Eighteen months ago, we were looking at four to five turns, and now we may be within one to two turns. This suggests that the market is moving towards a more normalized state.

Your next question is coming from Todd Selter with 88 Management LLC.

Well done in Q3. Leveraging off Brett's question, in terms of the IP portfolio, we noticed a settlement after Q3 on Vantiva. I think it happened somewhere in Q2 in the second week of October. Would that number be reflected in our Q3 patent $7 million to $8 million top line or no?

Yes, that's part of that $7.4 million settlement, Todd, that I mentioned earlier.

I thought it might be. Great. So Brett did expound on a couple of thoughts that I had. And what I really want to discuss with you, gentlemen, now is really proud of the operating job everyone is doing, but so disappointed and disturbed at the lack of any reach out from the IR team to try to generate some interest in what we all consider a very attractive undervalued equity. Why has there been such little initiative put forward in that area? And what do you guys plan on doing moving forward to try to raise Acacia's profile amongst the appropriate buy-side vehicles out there that might be involved or interested in investing in microcap value?

Yes, Todd, that's a great question. We were very intentional in our approach. A year ago, we chose not to draw attention to ourselves and held off on investor relations to avoid looking like we were trying too hard. Now, with a few successful quarters under our belt with Benchmark, Deflecto, and a turnaround with Printronix, we are managing the parent company's general and administrative expenses effectively. This allows us to scale with each acquisition and improve earnings. We have begun reaching out to new investors and have presented at several conferences, which has helped us share our story and engage with people more effectively in person than over Zoom. There's genuine interest in our narrative, and it just takes time to convey it during face-to-face interactions. We've dedicated a lot of effort to this initiative, talking not only to existing shareholders but also reaching out to others who might be interested in our story. We also spend considerable time discussing new acquisition opportunities with our current shareholders and continuing our outreach to inform new potential investors.

That's encouraging. Now how about on the sell side? How far are we away from maybe onboarding one or two other analysts from other firms to try to get a better sense of who we are, so they could also communicate our story and gain some more momentum in this direction?

We have had discussions with several research groups regarding our narrative. We want to ensure that it feels like a natural fit rather than forcing it. There is enthusiasm for our story, and we are in discussions with a few individuals about this. Our stock has gained some trading volume, which is positive, and I believe our average daily volume is higher than it was a year or 18 months ago. However, those research groups expect to be compensated like anyone else, and we are in the process of addressing that.

Yes. The ace in the hole that we have, MJ, is the Starboard relationship since they own 60-plus percent. You would think that some of these sell-side firms would want to maybe engender some goodwill, and the Acacia Starboard association should serve our best interest in that area.

We're arm and arm with our brothers over at Starboard on that point.

MJ, you guys are doing a great job on the operating side, but as shareholders, we're suffering.

We're working on that for you, Todd.

Your next question is coming from Shelley Anthony with Formidable Asset Management.

I'm filling in for Adam this morning. So we actually have a somewhat tangential question about your stake in AMO Pharma. The company AMO has recently announced several positive advancements and results in the last few months. And in light of that, can you tell me if that has changed your estimated valuation in any way or prompted any interest from outside buyers?

That's a good question. We have not changed our valuation due to the news. I agree that AMO has been active in helping people understand the company's positive developments. As I mentioned earlier, I think we're cautiously optimistic. Having experience in the biotech space, we've seen successes as well as failures. AMO has an interesting and necessary drug for a patient group with limited options, and the safety and efficacy of their product are impressive. Additionally, there is news regarding Dyne and Avidity, which offer similar solutions, contributing to our cautious optimism. Overall, we share the excitement but are not increasing our asset valuation based on that excitement.

And so can you tell me if there's been any interest from potential outside buyers?

No, I can't.

There are no questions in the queue at this time. I would now like to turn the floor back over to MJ McNulty for closing remarks.

Thanks, Kelly. Thanks again to everyone for joining us this morning. We look forward to talking to everyone after Q4.

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.