Acacia Research Q1 Earnings Call Highlights

Key Points

• Benchmark energy: Delivered record quarterly revenue of $18.7 million and $7.7 million of adjusted EBITDA; the first Cherokee well came online (development cost $11.5M) with management targeting >2.5x MOIC/60%+ IRR and April production exceeded 63,000 barrels, though a $9.7M unrealized hedge mark‑to‑market loss lowered GAAP EPS by about $0.10.
• Deflecto consolidation and cost actions: Portland operations were consolidated into Dover (effective end of April) with expected annualized savings of roughly $2 million beginning end‑Q2/into H2, while the business showed modest sequential revenue and adjusted EBITDA gains and ongoing G&A rationalization.
• IP and balance‑sheet picture: The IP segment was weak and episodic (Q1 revenue $0.7M, negative adjusted EBITDA $3.5M), yet Acacia reported $54.2M in revenue and operated adjusted EBITDA of $6.8M ($10.3M ex‑IP), held $329.9M of cash/equities/loans, generated $10.2M operating cash flow from core segments, and the parent had no indebtedness.

Acacia Research NASDAQ: ACTG executives highlighted improving operating performance at the company’s energy and industrial businesses and continued cost actions at its manufacturing unit, while also acknowledging the inherently “episodic” nature of intellectual property monetization during the company’s first-quarter 2026 earnings call.

Chief Executive Officer MJ McNulty said Acacia remains focused on “acquiring and building businesses where our operational excellence can create stable, long-term cash flow generation and scalability,” while also driving EBITDA and free cash flow growth across its existing portfolio. The company reported first-quarter revenue of $54.2 million and operated segment adjusted EBITDA of $6.8 million. McNulty added that excluding intellectual property operations, operated segment adjusted EBITDA was “stable sequentially at $10.3 million.”

Benchmark posts record revenue; first Cherokee well comes online

McNulty said Acacia’s Benchmark energy operations “performed ahead of our expectations” in the first three months of the year, delivering “record quarterly revenue of $18.7 million” and $7.7 million of adjusted EBITDA. He attributed the opportunity set to Benchmark’s efforts over the last year to optimize its land position through “buying, selling, and swapping acreage to maximize our monetizable units” in preferred parts of the basin.

Benchmark brought its first meaningful well in the Cherokee play online late in March. McNulty said initial results were “strong,” with development costs “in line with budget” at $11.5 million. He said Acacia anticipates “a greater than 2.5x MOIC or 60% plus IRR on the project,” and that investors should see the full impact beginning in the second and third quarters. McNulty also noted Benchmark set a company production record in April, selling “over 63,000 barrels of oil in the month.”

On the Q&A portion of the call, McNulty declined to provide a specific number of additional wells contemplated, saying the company is “evaluating several different locations” and has “several” units near drill-ready status. He also said Acacia is “actively evaluating capital and operating partnerships” for additional drilling, while reiterating the Cherokee well was self-funded with Benchmark cash flow and was not debt-financed.

McNulty discussed the impact of commodity prices and hedging, noting that while oil prices rose sharply during the quarter, Benchmark is “75% to 80% hedged for existing production.” He emphasized the company recorded an unrealized mark-to-market loss on its hedge book that affected GAAP results but was “a non-cash line item.” He said the company’s oil hedges are “struck at approximately $70 a barrel,” while WTI was $101 per barrel at March 31, up 77% from Dec. 31. If oil prices were flat through June 30, he said the unrealized hedge gain or loss would be zero.

Deflecto consolidation and cost actions continue amid mixed demand

In Acacia’s manufacturing segment, McNulty said Deflecto delivered “another solid quarter,” with revenue up 4.6% sequentially and adjusted EBITDA up 1.3% sequentially. He said operational initiatives since the acquisition—including price increases, “reshoring and consolidation of select manufacturing operations,” and reducing overhead and G&A—have “greatly enhanced the future earnings potential of the business,” even as tariff pressure and macro headwinds persist.

Deflecto completed the consolidation of its Portland, Oregon, facility into Dover, Ohio. McNulty said restructuring costs and CapEx were incurred, but Acacia expects “meaningful annualized cost savings beginning in the second half of the year.” CFO Michael Zambito said the consolidation was effective at the end of April and that benefits are expected “beginning the end of Q2 and into the second half of the year.”

During Q&A, McNulty said initial estimates call for about “$2 million in annualized cost savings” from the Portland consolidation, adding that improved absorption could support margin gains as Class 8 volumes improve. He also said the company is continuing “cost rationalization at the G&A level,” while characterizing the work as deliberate due to Deflecto’s complexity across business lines and geographies.

McNulty provided segment demand commentary:

• Transportation: Deflecto sells mandated, non-discretionary products such as mud flaps and emergency warning triangles. McNulty said Class 8 demand has faced headwinds since the acquisition, but order volumes showed an inflection during the quarter. Revenue in the vertical rose 3.6% sequentially and 3.8% year over year.
• Consumer products: Tariff and trade uncertainty led some customers to delay decisions, with additional disruption from certain channel partners exiting. Revenue rose 2.2% sequentially and was flat year over year, and McNulty said the business is seeing emerging e-commerce opportunities.
• Building products: Performance tracked housing conditions and is in a “temporary pullback.” Revenue increased 8.3% sequentially but was down 13.1% year over year, with McNulty citing weakness in housing demand while remaining positive on longer-term trends.

Printronix generates cash flow as business mix evolves

McNulty said Printronix “continues to deliver consistent results and serves as a reliable source of cash flow,” generating approximately $4.8 million in cash flow over the past 12 months, which he described as a 15% cash flow yield relative to Acacia’s purchase price. He said Acacia is working to evolve the business into a “dual hardware and consumables model” with a streamlined structure. He also noted Printronix’s legacy impact printing business is in “structural decline,” while the company is emphasizing consumables and new product growth.

IP results swing lower year over year; R2 portfolio activity noted

Acacia’s intellectual property segment reported $700,000 of revenue and negative adjusted EBITDA of $3.5 million for the quarter. McNulty said the business is “inherently episodic” because of unpredictable settlement timing and said the lack of revenue in the quarter made ongoing operating costs more visible.

Zambito said the year-over-year decline was primarily due to a settlement in the Atlas portfolio in the first quarter of 2025, with no comparable settlement in 2026. McNulty said Acacia continues to see monetization opportunities in its Atlas Wi‑Fi 6 assets and R2 portfolio, and noted that the R2 Solutions portfolio—originally owned by Yahoo and covering technologies including database, internet search, AI, and big data analytics—has been “particularly active in recent months” and is currently being enforced in the big data analytics space.

Financial details: hedge mark-to-market weighs on GAAP results

Zambito said first-quarter GAAP diluted EPS was affected by a $9.7 million unrealized mark-to-market loss tied to Benchmark’s energy hedges, with a net EPS impact attributable to Acacia of $0.10 per share. On an adjusted basis, excluding the unrealized hedge loss and other items, Acacia reported an adjusted diluted EPS loss of $0.07 per share.

Acacia posted a GAAP operating loss of $8.4 million, compared with operating income of $38.3 million in the prior-year quarter, which Zambito attributed primarily to the year-ago Atlas settlement. GAAP net loss attributable to Acacia was $15.7 million, or negative $0.16 per share, compared with net income of $24.3 million, or $0.25 per share, in the prior-year period. The quarter included a $10.7 million loss on derivative hedges (including $1.0 million realized and $9.7 million unrealized), as well as $1.6 million of unrealized losses on equity securities and a $600,000 realized loss on the sale of equity securities.

On the balance sheet, Zambito said cash, equity securities measured at fair value, and loans receivable totaled $329.9 million at March 31, down from $339.6 million at Dec. 31. He said the company’s core operated segments generated $10.2 million in operating cash flow, which Acacia reinvested in “high ROI activities,” including the Cherokee well and Deflecto’s consolidation. The parent company had no indebtedness at quarter-end, while consolidated gross debt totaled $90.5 million, consisting of non-recourse debt at Benchmark and Deflecto. Zambito said Benchmark has paid down approximately $23 million in debt since the Revolution asset acquisition in April 2024, and Deflecto has paid down about $17.3 million since its October 2024 acquisition.

Asked about share repurchases, McNulty said the company evaluates buybacks “in the context of other capital allocation opportunities,” noting capital deployed during the quarter toward drilling, Deflecto initiatives, and a small investment in the IP business.

Looking ahead, McNulty said Acacia is seeing an improving acquisition opportunity set as financing conditions gradually improve and seller valuation expectations adjust, while reiterating the company’s focus on due diligence and valuation discipline.

About Acacia Research NASDAQ: ACTG

Acacia Research Corporation is a publicly traded patent licensing company based in New York City. The firm specializes in acquiring patented technologies through a network of wholly owned subsidiaries and seeking licensing agreements or settlements with companies that utilize those technologies. Since its founding in 1993, Acacia has built a business model centered on identifying innovative inventions and monetizing them through patent enforcement and strategic partnerships.

The company's activities span a broad range of technology sectors, including life sciences, medical devices, software, telecommunications and consumer electronics.

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