Acacia Research Corporation Q2 FY2026 earnings call

Overall Corporate Strategy

• Long-term value creation focus: Management prioritizes compounding long-term intrinsic value per share over maximizing short-term earnings, via disciplined capital allocation, attractive valuation acquisitions, and active operational improvement of portfolio companies.
• Diversified business model: The company combines operating business segments, a streamlined intellectual property platform, life sciences investments, and a public small-cap securities portfolio to create multiple value creation avenues.
• Strong balance sheet position: The company ended the quarter with $334.6 million in cash, securities, and loans receivable, with no parent-level debt, providing significant financial flexibility for acquisitions and investments.

Existing Operating Segment Highlights

• Benchmark: Newly developed drilling inventory demonstrates attractive economics, with Cherokee development production meeting expectations. Management continues to evaluate additional drilling opportunities under disciplined underwriting, and maintains an active commodity hedging program to reduce earnings volatility and protect against downside risk, with no speculation on commodity prices.
• Deflecto: Structural manufacturing optimization, organizational streamlining, cost management, and pricing initiatives are complete, positioning the segment to leverage operating leverage as end-market demand improves.
• Printronics: Leverages its installed base and global distribution network to expand higher-margin consumable sales and complementary product offerings, maintaining consistent strong cash generation in a mature market.

Intellectual Property Platform Highlights

• Strong Q2 licensing activity was led by a major settlement in the Wi-Fi 6 portfolio, which still holds additional future licensing opportunities.
• Management has significantly rationalized the platform's cost structure and streamlined operations to align expenses with the inherently episodic nature of licensing settlement timing. Amortization of legacy intangibles is now at a lower run rate that will continue through 2027.
• Artificial intelligence is being used to analyze large datasets and identify intellectual property acquisition opportunities more efficiently.

Life Sciences Portfolio Highlights

• AMO Pharma, the portfolio's lead asset, received constructive aligned scientific advice from the FDA, MHRA, and Health Canada for the design of its planned registrational clinical trial for AMO2, a candidate for congenital myotonic dystrophy. This marks an important regulatory milestone for the program.
• The legacy Environment Pharmaceuticals investment held via Malin J1 was fully written down due to liquidity issues at Mycovia Pharmaceuticals, the underlying developer of approved antifungal drug Vivjoa. Management is actively evaluating financing alternatives for Mycovia, including a potential transaction that would give Acacia a direct ownership stake in the company, in the hopes of unlocking value from a future favorable regulatory outcome that removes Vivjoa's current label contraindication.

Public Securities Portfolio Highlights

• The company targets undervalued small-cap public companies, where market volatility, limited research coverage, and constrained capital create valuation gaps. Investments are often an initial step ahead of a potential full acquisition, but positions are trimmed or exited when valuations meet expectations to redeploy capital.
• During Q2, a portfolio holding that received an acquisition offer was exited for an attractive realized return, demonstrating the success of the portfolio's strategy.

1. Benchmark (Energy Operations): Generated revenue of $20.5 million, adjusted EBITDA of $9.8 million, and free cash flow of $6.5 million. This represents 17.9% of total company revenue. It delivered a record revenue quarter with performance exceeding expectations, driven by new production from the Cherokee development well. Non-recourse debt for the segment totals $59.5 million.

2. Deflecto (Manufacturing Operations): Generated revenue of $27.1 million, adjusted EBITDA of $1.1 million. This represents 23.6% of total company revenue. The segment is in the midst of manufacturing optimization, restructuring, and pricing initiatives to improve long-term profitability, with ongoing structural operational improvements in place. Non-recourse debt for the segment totals $30.9 million.

3. Printronics (Industrial Operations): Generated revenue of $6 million, adjusted EBITDA of $1 million, and free cash flow of $900,000. This represents 5.2% of total company revenue. The segment continues to generate consistent cash flow from its mature printer market, supported by improved product mix and expansion of higher-margin consumable sales.

4. Intellectual Property Platform: Generated total licensing and related revenue of $60.9 million, with adjusted EBITDA of $10.9 million. This represents 53.1% of total company revenue. The strong quarterly result was driven by a major Wi-Fi 6 portfolio licensing settlement. A portion of all licensing proceeds is contractually shared with contingency counsel, inventors, and deal partners, so revenue does not directly translate to retained earnings. The segment incurred $3.7 million in non-recurring legacy litigation expense during the quarter.

Total company Q2 2026 revenue was $114.6 million, with total adjusted EBITDA of $17.3 million and total operated segment adjusted EBITDA of $22.8 million.

Management did not issue formal numeric guidance for future periods, but provided the following forward-looking outlooks:

• The company's acquisition pipeline remains active, with stronger deal flow than prior periods, particularly from mature private equity holdings and stressed private credit situations. Management sees an increased number of attractive opportunities in the current market environment, and is well positioned to capitalize on them due to its strong balance sheet.
• Benchmark has multiple drilling units prepared for future development, with future wells underwritten to have performance similar to the successful Cherokee well. Management prioritizes maximizing long-term value over near-term production growth, and continues to evaluate potential capital partnerships to expand development.
• Deflecto's structural operational improvements are complete, and management expects the segment to realize meaningful operating leverage as end-market demand improves and existing OEM inventory is worked through the supply chain.
• The Wi-Fi 6 intellectual property portfolio still holds additional licensing opportunities, and the long-term potential of the R2 intellectual property portfolio is expected to grow with increasing AI-driven demand for high-performance computing and data infrastructure.
• The lower cost and amortization run rate for the intellectual property platform will be maintained through 2027, which is expected to improve the platform's earnings profile as future licensing opportunities are completed.

• Intellectual property licensing revenue is inherently episodic, so quarterly results can vary significantly, and the platform's performance should be evaluated over multi-quarter periods. Litigation to enforce intellectual property rights carries uncertain timing and outcomes, even for legacy matters that are substantially complete.
• Biotechnology and life sciences investments are inherently high-risk: clinical trial and regulatory success is not guaranteed for AMO2, and there is no assurance that Mycovia will be able to secure financing, achieve its regulatory objectives to remove Vivjoa's label contraindication, or complete the proposed transaction that would give Acacia direct ownership.
• Acquisitions carry execution risk: management only pursues opportunities that are expected to create value beyond the purchase price, but there is no guarantee that new acquisitions will meet return expectations.
• Commodity price volatility creates risk for Benchmark's operating performance, though the company actively hedges to mitigate downside risk and reduce volatility. Quarterly mark-to-market hedging movements do not reflect the underlying business economics.
• Soft demand in Deflecto's end markets continues to weigh on near-term results, even after operational restructuring is complete.

Q: Does Benchmark's Q2 2026 free cash flow and EBITDA include the full quarter contribution from the new Cherokee well? How many additional wells does Benchmark plan to drill, and how will their performance compare to the existing Cherokee well? / A: Yes, the full quarterly contribution of the Cherokee well is included, as it started production just days into Q2 after being completed at the end of Q1. Benchmark has advanced work to create multiple drillable units from its existing acreage, with one well planned per unit (with a second untapped well held as a future PUD reserve). Future wells are underwritten to perform similarly to the existing Cherokee well.

Q: Despite strong tailwinds for Class A trucking, Deflecto's Q2 results were still soft. When should we expect these industry tailwinds to flow through to Deflecto's results? / A: Strong recent trucking industry results are driven by the drawdown of OEM inventory built ahead of a prior market downturn. As existing inventory clears through the supply chain, incremental new manufacturing demand will flow to Deflecto, and management views current industry strength as a positive leading indicator for future Deflecto results.

Q: Have higher-for-longer interest rates and maturing private market investments increased deal flow and moved potential acquisitions closer to closing? / A: Yes, deal flow is currently stronger than ever, as COVID-era private equity holdings mature and private credit lenders seek exits for stressed positions. Management prioritizes off-process bilateral opportunities over broad competitive auctions to avoid wasted time and excessive pricing, and the current market is producing a high volume of attractive opportunities that fit this criteria.

Q: Does the intellectual property segment's $10.9 million Q2 EBITDA approximate the net proceeds from the $60.9 million Wi-Fi 6 settlement after sharing with partners and counsel, and was the settlement cash included in Q2 ending cash balances? / A: The $10.9 million EBITDA is not a good proxy for net proceeds from the settlement: the TP-Link settlement went to late-stage litigation, resulting in a higher than typical contingency fee for counsel, and the EBITDA includes $3.7 million in non-recurring legacy litigation expenses. The settlement cash was received in Q3 2026, and was recorded as accounts receivable on the Q2 end-of-period balance sheet, not included in ending cash.