Earnings call transcript: Acacia Research misses Q2 2025 forecasts

Published 06/08/2025, 14:26
Earnings call transcript: Acacia Research misses Q2 2025 forecasts

Acacia Research Corporation (NASDAQ:ACTG) reported its second-quarter 2025 earnings, revealing a miss on both earnings per share (EPS) and revenue forecasts. The company recorded an adjusted EPS loss of $0.06, compared to the forecasted loss of $0.04. Revenue also fell short at $51.2 million, against an expected $57 million. Following the announcement, Acacia’s stock experienced a modest pre-market increase of 0.28%, with shares trading at $3.60. According to InvestingPro analysis, the stock appears slightly undervalued at current levels, with analysts maintaining a Strong Buy consensus and a $6.00 price target.

Key Takeaways

  • Acacia Research reported a larger-than-expected loss in Q2 2025.
  • Revenue fell short by 10.11% compared to forecasts.
  • The company continues to focus on strategic partnerships and operational improvements.
  • Pre-market trading showed a slight positive movement in stock price.
  • Acacia’s diversified portfolio aids in navigating market volatility.

Company Performance

Acacia Research’s performance in Q2 2025 was marked by a challenging market environment, with the company reporting a revenue of $51.2 million and an adjusted EBITDA of $1.9 million. Despite the revenue miss, Acacia’s diverse business operations, spanning energy, manufacturing, and intellectual property, provide a buffer against sector-specific downturns. The company continues to capitalize on its strategic initiatives, including partnerships in the Bitcoin-backed loan market and optimization efforts in its manufacturing business.

Financial Highlights

  • Revenue: $51.2 million, down from the forecast of $57 million.
  • Adjusted EPS: Loss of $0.06, compared to a forecasted loss of $0.04.
  • Free cash flow: $47.9 million.
  • Book value per share: $5.99.
  • Cash, cash equivalents, and equity securities: $338.2 million.
  • Total consolidated indebtedness: $104.4 million.

Earnings vs. Forecast

Acacia Research’s adjusted EPS loss of $0.06 was 50% greater than the forecasted loss of $0.04. Revenue was $51.2 million, falling short by 10.11% compared to the expected $57 million. This marked a significant deviation from analyst expectations, impacting investor sentiment slightly.

Market Reaction

Despite the earnings miss, Acacia Research’s stock showed resilience with a pre-market increase of 0.28%, trading at $3.60. This movement can be attributed to investor confidence in the company’s strategic direction and diversified portfolio. The stock’s performance remains within its 52-week range, reflecting broader market stability.

Outlook & Guidance

Looking ahead, Acacia Research maintains a cautious but optimistic outlook, focusing on organic growth and strategic partnerships. The company is evaluating mergers and acquisitions opportunities while monitoring macroeconomic headwinds, particularly in the manufacturing sector. Acacia’s forward guidance includes continuing its strategic development of the Cherokee oil and gas assets and exploring new avenues in the Bitcoin lending market.

Executive Commentary

CEO MJ McNulty emphasized the company’s resilience, stating, "Our business continues to generate value amid a volatile market." McNulty also highlighted efforts to mitigate tariff impacts, saying, "We are doing a lot around our business in terms of price increases to react to tariffs."

Risks and Challenges

  • Tariff-related purchasing delays could impact manufacturing operations.
  • Volatile oil and gas prices pose risks to energy operations.
  • Global trade uncertainties may affect manufacturing sector performance.
  • Potential challenges in the Bitcoin lending market as it continues to develop.
  • Aging fleet dynamics in the transportation safety market could impact demand.

Q&A

During the earnings call, analysts inquired about the details of Acacia’s Bitcoin loan offerings, which feature low teens interest rates and a 50% loan-to-value ratio. Questions also focused on the company’s response to tariff-related challenges and the potential for future asset acquisitions, which will depend on valuation discipline.

Full transcript - Acacia Research Corporation (ACTG) Q2 2025:

Jenny, Conference Facilitator: Good morning, everyone. Thank you for joining Acacia Research Second Quarter twenty twenty five Earnings Conference Call. My name is Jenny, and I’ll be your conference facilitator today. Following the speakers’ remarks, there will be time for questions. Questions can also be directed anytime to acaciareas dot com acacires dot com.

I would now like to turn the conference over to Mr. Brent Anderson of Gagne Communications. Mr. Anderson, you may begin.

Brent Anderson, Communications Representative, Gagne Communications: 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 discussion of such risks and uncertainties, please see the risk factors described in Acacia’s most recent annual report on Form 10 ks and quarterly reports on Form 10 Q filed with the SEC. Earlier this morning, Acacia issued a press release disclosing its second quarter twenty twenty five 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 Q2 twenty twenty five earnings presentation to its website, which 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 second quarter twenty twenty five 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.

MJ McNulty, Chief Executive Officer, Acacia Research: Thank you, Brent, and thank you everyone for joining us this morning for our second quarter twenty twenty five earnings call. I’d like to begin today’s call by introducing and welcoming Mike Zambito, who joined the Acacia team in June as our Chief Financial Officer. We’ll let Mike give a more formal introduction, quickly, most recently, he worked as a partner in Ernst and Young’s Parthenon practice and brings more than thirty years of finance, accounting and M and A expertise to our team. I speak for the entire Acacia team when I say we’re thrilled to have Mike on board. Mike’s breadth and depth of industry experience and his finance and accounting skill sets are already driving expanded reach for us in our long term approach of identifying and executing value creation strategies across our business.

I’ve worked with Mike in different capacities over the past fifteen years, and we’re very excited to have him as part of the team. I also want to thank Kirsten Hoover for the instrumental role she’s played in Acacia’s success over the past two years as our interim CFO. Kirsten is a dedicated and valued part of our team and not surprisingly, she’s continued to excel as a key member of our finance team. She’s been a valuable resource for Mike as he’s gotten up to speed in his new role. As we discussed in more detail in our press release, this morning we announced a partnership with Unchained Capital, a leader in financial services tailored for Bitcoin holders, and Build Asset Management, an investment advisor focused on the Bitcoin space.

As Bitcoin increasingly becomes a strategic treasury reserve for companies, both large and small, a growing number of commercial borrowers are seeking ways to access dollar based liquidity without selling their Bitcoin. We believe this has created a compelling opportunity for secured lending solutions that allow businesses to unlock the value of their Bitcoin while maintaining long term exposure. In our view, Unchained has built a market leading platform designed to meet this need, offering fully collateralized US based commercial loans backed by Bitcoin. Loans are originated at a conservative 50% loan to value ratio and secured through a three party multi signature cold storage vault with servicing provided by an affiliate of Unchained. The underlying infrastructure is engineered for institutional grade security with key safeguards such as no rehypothecation and controlled liquidation rates.

We are initially committing $20,000,000 to acquire a portfolio of these fully recourse loans, which we believe offer an attractive risk adjusted return profile supported by high quality collateral and our hedging risk management strategy. As Bitcoin continues to institutionalize, we see potential for this investment to grow over time for additional strategic opportunities to emerge alongside trusted partners like Unchained and Build. Turning now to our quarterly results. We continued in the second quarter to pursue our value oriented strategy, including opportunities within our existing stable of businesses, while at the same time growing our pipeline and evaluating several actionable M and A situations in an uncertain macroeconomic environment. We’ve made significant progress in both these initiatives, all while maintaining a focus on free cash flow and our strong balance sheet.

Mike will get into more detail on the numbers, but from a high level, we generated total company revenue of $51,200,000 total company adjusted EBITDA of $1,900,000 and free cash flow of $47,900,000 reflecting the cash collection around the previously announced settlement in our IP business. The net result was a diluted earnings per share loss of $03 a share, which when adjusted was a loss of $06 a share. Book value per share at the end of the second quarter was $5.99 per share and book value to Acacia excluding non controlling interests was $5.58 a share, essentially flat versus last quarter. To give a little more color on our subsidiaries, in the second quarter, benchmarks showed slight sequential improvement in operated production and we lapped significant weather events in Q1. During Q2, we slowed the pace of workovers relative to Q1 in an effort to preserve resource and reduce operating costs during the volatile commodity price environment.

Importantly, our hedging strategy continues to perform as expected, mitigating some of the pressure from lower commodity prices. As a reminder, we’ve hedged over 70% of our operated oil and gas production through the 2027, which protects a substantial amount of our cash flow from downside pricing risk. During the quarter, Benchmark also paid down an incremental 3,500,000 of debt, bringing our total debt reduction at Benchmark to $24,000,000 over the last twelve months. We continue to see value in growing our oil and gas exposure. Our team continues to evaluate new acquisition opportunities, though it does appear valuation multiples are increasing in our geographies.

We’ll continue to evaluate M and A where we believe it is strategic, but we’ll maintain our valuation discipline. We’ve also continued to strategically build around our existing assets, specifically the Cherokee position we acquired as part of the Revolution deal. As we accumulate attractive acreage in the core of this play, we’ll be considering additional monetization opportunities, including potential alternative capital partnerships to finance a targeted drilling program. We remain very excited about the value generation opportunities ahead of us at Benchmark and I look forward to updating you on our progress in the second half of the year. Moving now to our Deflecto business.

During the quarter, Deflecto grew revenue sequentially and our team continues to progress on our integration efforts. While early days, we’re pleased with the improvements we have made to optimize operations across Deflective’s three distinct business units. The changes that we have made and will continue to make are improving accountability, reducing overhead costs, streamlining product offerings, improving business systems processes, optimizing our global production footprint and improving go to market motions across all three businesses. The strategy is based on our long term view of how best to capitalize on Deflective’s growth potential, substantial market share and diversified customer and supplier base. While global trade flow uncertainty impacted Deflective’s end markets during the quarter, which we expect to continue in the near and medium term.

We remain confident in the long term value and compelling opportunity set that Deflective presents. We maintain a global production footprint and we’ve been reshoring certain manufacturing functions and exploring sourcing alternatives to help mitigate the impact of tariffs. While these mitigation efforts have allowed us to partially offset recent cost volatility, we did feel the effects of tariff specific demand headwinds in Deflecto’s business. Most notably, we’re seeing demand pressure in our transportation safety business, which sells products into the Class eight truck market as well as our consumer products business for which manufacturing industry wide is heavily geared toward China. The weak Class eight truck market that we saw during the latter part of 2024 has persisted into 2025, which we believe is largely a result of tariff related purchasing delays.

Current data indicates new Class eight orders are now at their lowest level since 2010 and fleet CapEx levels remain well below replacement rates, a dynamic that can only persist so long. On the consumer product side, we’ve seen customers who typically source our products and our competitors’ products out of China pause purchasing until they receive more clarity on the global trade situation. We are managing our businesses prudently to navigate these considerations. Looking ahead, we will continue to invest to optimize these businesses while maintaining our typical disciplined approach to cost management, capital allocation as this market cycle normalizes. Many businesses that we evaluate require Lyft to position them under our ownership to achieve their full potential.

Our team has shown skill in transforming underlying operations and efficiencies in this situation. For example, our turnaround at Printronics. While our strategic countermeasures, including operational improvement and cash flow initiatives at Deflecto are in full swing and we feel confident in them, we’re subject to the prevailing macro environment, specifically tariffs. As we mentioned above, tariff related demand headwinds resulting in delayed purchasing in the case of consumer products and aging fleets in the case of transportation safety can only endure so long. The fundamental changes under our watch are making these businesses stronger and more competitive and we would anticipate this to drive attractive outcomes as the macroeconomic environment stabilizes and our customers have more certainty around purchasing cycles.

Turning now to our Industrial segment, Printronics continued to demonstrate its resiliency during the quarter and is now performing ahead of plan. We acquired Printronics, we’ve since we acquired Printronics, we streamlined its operating structure to improve free cash flow on an annual basis. We’ve added new product lines and we’ve transitioned its business mix from lower margin printer sales to higher margin consumable products. We’re confident in the integrity of the dual hardware and consumables business model moving forward and pleased with the turnaround the team has made with this business. Now to touch a little bit on our intellectual property operations.

Aside from the cash collection from our large settlement in Q1, it was a quiet quarter for our intellectual property business. Recall that in Q1, we generated $69,900,000 in revenue, primarily related to our Wi Fi six portfolio. The quarter over quarter decrease in revenue from IP is largely the result of the episodic nature of this business, where value can be generated at sporadic intervals throughout the lifecycle of each investment. As attractive opportunities become available in the IT space, our team remains open to opportunistically committing capital to this business, consistent with our priorities of maximizing shareholder value. Acacia is a well regarded leader in the IP space and intellectual property owners continue to actively seek us out as a trusted partner.

We also continue to actively track, monitor and analyze the evolving regulatory landscape related to our IP business, particularly with respect to the potential for new regulations and or fees that would impact patent holders. The landscape continues to change in real time and to date, we do not see any of the currently discussed changes would materially impact us. I’d now like to turn the call over to Mike to provide additional details on our first quarter financial results.

Michael Zambito, Chief Financial Officer, Acacia Research: Thank you, MJ, and hello everyone. It’s a pleasure to be here today to report on Acacia’s second quarter financial results and my first quarter as CFO. I am genuinely thrilled to be here and to be part of the Acacia team. I also want to echo MJ’s comment on how instrumental Pearson has been to Acacia’s success and continues to be in my onboarding. Acacia recorded total revenue of $51,200,000 during the second quarter.

Our energy operations generated $15,300,000 in revenue for the quarter, compared to $14,200,000 in the same quarter last year. Manufacturing operations generated $29,000,000 in revenue for the quarter. Our industrial operations generated 6,600,000 in revenue during the quarter, compared to $6,300,000 in the same quarter last year. Our intellectual property operations generated 300,000.0 in licensing and other revenue during the quarter, compared to $5,300,000 in the same quarter last year. Total consolidated G and A expenses were $15,500,000 during the second quarter, compared to $10,100,000 in the same quarter of last year, with $5,100,000 of the increase related to the addition of Deflecto as part of the company’s new manufacturing operations.

Of the $5,100,000 in Deflecto G and A expense, approximately $1,500,000 is related to depreciation and amortization of intangible assets. Our energy operations G and A expense was flat year over year, while G and A at the parent level increased by $800,000 year over year. The company recorded a second quarter GAAP operating loss of $12,400,000 compared to a GAAP operating loss of $4,800,000 in the same quarter last year. This was primarily due to a $5,000,000 year over year revenue decline in the IP business and incremental IP business patent amortization. Energy operations contributed $2,100,000 in operating income during the quarter, which included $4,000,000 in non cash depreciation, depletion and amortization expense, and does not reflect the hedge gain we realized during the quarter.

Adjusted EBITDA for our energy operations was $7,000,000 Free cash flow for the energy operations was $4,100,000 in the quarter and $7,600,000 year to date. Manufacturing operations had a 600,000 GAAP operating loss during the quarter, which included 1,500,000.0 in non cash depreciation and amortization expense, and $400,000 in non recurring transaction related expenses and severance costs as part of our operational initiatives at Deflecto. Adjusted EBITDA for our manufacturing operations was $1,300,000 Industrial operations contributed $100,000 in operating income during the quarter, which included $500,000 in non cash depreciation and amortization expense. Adjusted EBITDA for our industrial operations was $600,000 GAAP net loss attributable to Acacia Research Corporation in the second quarter was $3,300,000 or $03 per share, compared to a net loss attributable to Acacia of $8,400,000 or $08 per share in the prior year period. This increase was primarily due to gains from our benchmark hedge book and our public equity portfolio.

Included in GAAP net loss was $2,200,000 in unrealized gains and $1,900,000 in realized gains related to the fair value of equity securities at 06/30/2025. Adjusted net loss attributable to Acacia in the 2025 was $5,900,000 or $06 per share. Further details on these adjustments can be found in our press release. Turning to the balance sheet. Cash, cash equivalents and equity securities at fair value totaled $338,200,000 at 06/30/2025, compared to $297,000,000 at 12/31/2024.

The parent company’s total indebtedness was zero at 06/30/2025. On a consolidated basis, Acacia’s total indebtedness as of 06/30/2025 was $104,400,000 consisting of $58,000,000 and $46,400,000 in non recourse debt at Benchmark and Deflecto, respectively. Since closing the acquisition of the Revolution assets in April 2024, Benchmark has paid down approximately $24,000,000 in total debt, underscoring the strong free cash flow generation of the Benchmark business. For more information on Acacia’s second 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’d like to now turn the call back over to MJ.

MJ McNulty, Chief Executive Officer, Acacia Research: Thanks, Mike. As you’ve heard today, our business continues to generate value amid a volatile market. While no business is immune to the macroeconomic headwinds we are all currently experiencing, I’m confident in the inherent value of our assets and our ability to consistently execute our strategy for long term value creation. Looking ahead, we’ll continue to focus on growing our platforms organically and through M and A to deliver significant value for our shareholders. We have exciting opportunities in the pipeline and I look forward to updating you on our progress in due course.

With that, I’ll turn the call back over to Jenny for questions.

Jenny, Conference Facilitator: Thank you very much, MJ. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press session. And Your first question is coming from Anthony Stoss of Craig Hallum. Anthony, your line is live.

Anthony Stoss, Analyst, Craig Hallum: Great, thank you and welcome aboard Mike.

Michael Zambito, Chief Financial Officer, Acacia Research: Thank you.

Anthony Stoss, Analyst, Craig Hallum: MJ, I wanted to maybe drill in a little bit on the Bitcoin commercial loans. Can you maybe share with us a range of expected interest that you would receive from these and do you view these as a little bit more risky than a typical commercial loan or similar? And then I had a couple of follow ups.

MJ McNulty, Chief Executive Officer, Acacia Research: Yeah. Hey, Tony. Hope you’re well. So your first question, are you talking about kind of what we’re thinking of sizing or I just want to make sure I have your question.

Anthony Stoss, Analyst, Craig Hallum: No, just the if you’re taking on these loans, what’s the expected return to Acacia in terms of interest rate?

MJ McNulty, Chief Executive Officer, Acacia Research: Yeah, great question. So the loans are originated at pretty attractive rates, call it low teens type rates return. We’re going to hedge the loans, so we have a little bit of cost against that and there’s some origination costs, but think about it in kind of their in excess of 10% net to Acacia type returns. And when you think about these, these are loans originated to US commercial borrowers at a 50% loan to value ratio collateralized by Bitcoin that these commercial borrowers hold in a cold storage unit where we have the ability with Unchained to manage the loan to value ratio through calls to the borrowers of the loan to add more Bitcoin or cash into their account to maintain that loan to value ratio or ultimately the ability to liquidate that borrowers Bitcoin in order to maintain the loan to value ratio. And so when you think about the risk, these are like, I guess it’s like an ABL type loan, which when you look at historical loss rates on ABL, they’re very low, but rather than holding AR and inventory as collateral that takes time to liquidate if you need to, liquid, this Bitcoin is in our control as a lender.

So I view the risk to be very minimal risk relative to other loans and the return on the loan to be very attractive. So we actually really like these loans. We also are going to hedge some Bitcoin exposure. So in the event there’s a big gap down in Bitcoin, we’re going to protect ourselves from that as a kind of outside risk.

Anthony Stoss, Analyst, Craig Hallum: Got it. And then just drilling in a little bit on Deflecto, you guys did a great job turning around Printronics. So I trust you guys will step in and if there’s something that needs to be done specific to Deflecto versus the macro. Is there any kind of light at the end of the tunnel you’re seeing from any industry guys in the Class A truck market or do you think this could extend on for a period of time? If it’s not, excuse me, just tariff if it’s more macro related.

MJ McNulty, Chief Executive Officer, Acacia Research: Yeah, I mean, it’s really, I think the tariff surprises us all. I think the magnitude of the tariff surprised us even further. I don’t think we’re alone in that. And so it’s early to tell what we’re hearing from customers is that their buying patterns have changed. While the uncertainty of where this will shake out sits.

And so I think when we get through some of the uncertainty, some of the the typical purchasing cycles may return. I think pricing and cost for buyers could change. We’re doing a lot around our business in terms of price increases to react to tariffs as well as we’ve done it with the Printronics business, cost rationalization, optimization, improving processes, all the things that I mentioned in the call. And so we’re monitoring the market. We’re constantly talking to customers.

We were encouraged by the fact that fleets are aging past kind of refresh rates. And so we do think that there is going to be a good outcome here. I think we just need to clear some of this uncertainty in order to have, for the market to have a better view on what that looks like.

Anthony Stoss, Analyst, Craig Hallum: Got it. And the last question for me, your comments related to Cherokee, very positive, seems like there’s a step forward maybe being taken by Acacia. Can you lay out your plans over the next one to two years, what you think you’ll do and how many wells can be drilled, etcetera?

MJ McNulty, Chief Executive Officer, Acacia Research: Yeah, I mean, I can’t get into the number of wells that can be drilled. We are evaluating ways to partner with third party capital in order to pursue a drilling strategy in the Cherokee. And that’s kind of on the back of a lot of work that we and the team have done to identify the right blocks and the right wells and high grade those wells to go after a strategy. And so we’re kind of in the kind of past the planning stage and into kind of the middle part of that process. And so I think we’ll be hopefully in a position to take advantage of some of that Cherokee acreage, which came with the PDPs that we bought as part of that Revolution deal.

Michael Zambito, Chief Financial Officer, Acacia Research: Got it. Thanks for all

Anthony Stoss, Analyst, Craig Hallum: the color, MJ. Appreciate it.

MJ McNulty, Chief Executive Officer, Acacia Research: Yeah. Thanks, Tony.

Jenny, Conference Facilitator: Thank you very much. Your next question is coming from Brett Reiss of Janney Montgomery Scott. Brett, your line is live.

Brett Reiss, Analyst, Janney Montgomery Scott: Hi, MJ. Welcome aboard, Michael. And thank you to Kirsten for answering all my questions over the years. I appreciate it.

Michael Zambito, Chief Financial Officer, Acacia Research: Hey, Brett. Thanks, Brett.

Brett Reiss, Analyst, Janney Montgomery Scott: Yeah. Hi. I just want to make sure we drill down a little bit on the risk on these loans. I mean, you’re basically going to be a margin department, like in a brokerage firm almost. Are the markets mature enough so that you can put hedges in?

And if you get a multi standard deviation event where Bitcoin really drops dramatically in price, that the hedges will protect our loans?

MJ McNulty, Chief Executive Officer, Acacia Research: Yeah, so we’ve done a lot of work around that Brett. And the Bitcoin market is very large. And and we’re talking about Bitcoin here, not other cryptocurrencies just to be clear. So we are looking solely at Bitcoin. The depth of the market and the breadth of the market is is substantial for us to be able to put these hedges in place.

Brett Reiss, Analyst, Janney Montgomery Scott: Okay. And can you just talk to me a little bit this cold storage unit? I mean, we’ll be able to, with metaphysical certainty, know that these assets are segregated. And there’s a lot of neutering of regulation with the crypto markets, with the Trump administration. So it’s kind of the responsibility to protect ourselves rests on us.

Can you just talk to that a little bit?

MJ McNulty, Chief Executive Officer, Acacia Research: Yeah. Yeah. And maybe just to take a step back, there are increasing number of companies that as a treasury strategy are holding Bitcoin. We at Acacia, as a treasury strategy are holding cash and treasuries, not Bitcoin. But for those companies that are holding Bitcoin, they have a handful of ways to hold that Bitcoin.

They can hold it on a key, a tracer or something like that and put it in the drawer. Not very safe, not very smart. We all read the stories about Bitcoin being lost because a key was thrown out and people lost several 100,000 Bitcoin. So that’s not a prudent way to manage people’s capital. There are things like Coinbase, where it is a claim on a pool of Bitcoin as opposed to holding an actual physical Bitcoin.

What Unchained has created is cold storage inability for a actual holder of a physical Bitcoin to have a custodian maintain that Bitcoin for them. So Unchained, Brett, if you hold physical Bitcoin, you can go to Unchained and you can pay Unchained to hold that Bitcoin in cold storage. So what does that mean? It means that they have a software and a third party, effectively a bank that holds that key for you in a safe and controlled storage environment where it can be accessed in the case of our loans by a holder of two of three keys. And the only way that Bitcoin can come out of storage is if two of the three key holders present those keys and ask for that Bitcoin to come out of storage.

And so one of the reasons we really like this is that in the case of our loans, we and our custodian hold the key and can only unlock it at the direction of we and our custodian, which we think provides a lot of security. So that’s kind of the cold storage piece of it. On the lending and the security piece of it, so the standard or typical UCC process, Bitcoin actually presents a really unique piece of collateral because the UCC goes in the chain of the actual Bitcoin. So you can go on and see who the holders are and you can ensure that there’s no other holder in the chain before you. So it becomes even more clear than with a physical piece of equipment or a building or so on and so forth that Unchained Acacia are the owners or have a claim, have the most senior claim that Bitcoin.

So we actually think it’s a really elegant piece of collateral and in a lot of ways more superior than most other collateral.

Brett Reiss, Analyst, Janney Montgomery Scott: Incredible. So the UCC lean is actually flagged in the Bitcoin. Wow.

MJ McNulty, Chief Executive Officer, Acacia Research: It’s in the coding of the Bitcoin.

Brett Reiss, Analyst, Janney Montgomery Scott: Right. Right. Incredible. Different subject. You know, because we’re hedged 70%, you know, with the benchmark resolution business, if if we go into a recession and oil and natural gas prices continue to decline, is it almost impossible for that business through 2027 to go cash flow negative?

MJ McNulty, Chief Executive Officer, Acacia Research: Nothing’s impossible, but I would say it would be highly improbable for it to go cash flow negative because of the hedges. We do have a little bit of unhedged exposure primarily to non op related and some of our small amount of our operated production. But so far our hedges have worked as we have expected them to work. And so we feel pretty comfortable that in spite of the recent price volatility that we will be cash flow positive.

Brett Reiss, Analyst, Janney Montgomery Scott: Right. Now the 30% on the oil and natural gas that you’re not hedged, is there a breakeven price of oil and natural gas below which you just don’t make any money?

MJ McNulty, Chief Executive Officer, Acacia Research: Theoretically, there is a breakeven. I don’t have that number in front of me, Brett, but we can follow-up with that.

Brett Reiss, Analyst, Janney Montgomery Scott: Okay. Different subject. There’s a lot of stress in the private equity markets. Has it risen to a level such that the private equity potential sellers are finally gonna come to the table with lower price so that we can get some deals done in that space?

MJ McNulty, Chief Executive Officer, Acacia Research: Yeah, I mean, this is an interesting question and one that we watch quite a bit because we’re pretty plugged into what’s going on in private equity. I would say there are multiple answers depending upon asset quality. So in the call it B and C quartile assets where we like to play because we like the ability to go in and have a reason to be a buyer, usually around operational improvement, margin improvement, sales motion, so on and so forth. We’re seeing a reasonable number of opportunities in that space. For the A quartile assets, the private equity funds are just going to hold those or they’ll put them into a continuation vehicle or find another way to continue to manage those assets.

We are starting to see the bid ask spread close a little bit and we’re starting to see price discovery create some opportunities. Private equity funds have a long time horizon and until their LPs really push on them for liquidity, they’re not inclined to reduce their fee paying base of assets. But we are seeing more opportunities in that space.

Brett Reiss, Analyst, Janney Montgomery Scott: Okay. On the legacy patent business, I think we’re both in agreement. The market really doesn’t give us any value for that business, which has been under your stewardship quite good. Is there any kind of information disclosure that you can give the market so that they’d feel comfortable on putting a valuation on that business without compromising your negotiating positions with defendants on the other side?

MJ McNulty, Chief Executive Officer, Acacia Research: This is a question I ask myself a lot, Brett. I think, there are public cases out there, but we also have a lot of private discussions going on in kind of bilateral negotiations. It’s difficult for us to disclose what all those discussions are and what the potential outcome of those might be because it just tips our hand to those counterparties and we wanna keep those private. And so aside from what you can see in the market and unfortunately having to extrapolate the value of say TP Link, for example, and applying it to other potential parties out there in similarly situated situations, it’s difficult for us to give a lot of information around what we believe the value of Bharat Patent SIS.

Brett Reiss, Analyst, Janney Montgomery Scott: Okay. I thank thank you for answering my questions. I’m gonna drop back in queue. Thank you. And welcome.

MJ McNulty, Chief Executive Officer, Acacia Research: Yeah. Good to talk to you, Brad. Okay.

Michael Zambito, Chief Financial Officer, Acacia Research: Thanks a lot, Brad. Appreciate it.

Jenny, Conference Facilitator: Thank you very much. Our next question is coming from Adam Eagleston from Formidable. Adam, your line is live.

MJ McNulty, Chief Executive Officer, Acacia Research: Hey, MJ. Hey, Adam. How are you?

Adam Eagleston, Analyst, Formidable: Good. Doing well. Michael, welcome. Kirsten, thanks for all of your work over the years. Quick question.

Congrats on the Build Unchained deal. With building out your in house capabilities around hedging that, etcetera, does that increase the likelihood that we may see Acacia adopt some type of Bitcoin treasury strategy?

MJ McNulty, Chief Executive Officer, Acacia Research: We’re not currently considering a Bitcoin treasury strategy. It doesn’t mean that we wouldn’t do that in the future, but it’s not something that we’re actively considering, Adam.

Adam Eagleston, Analyst, Formidable: Okay. Fair enough.

Jenny, Conference Facilitator: Thank you very much. Well, we appear to have reached the end of our question and answer session. I will now hand the call back over to MJ for any closing remarks.

MJ McNulty, Chief Executive Officer, Acacia Research: Thanks everyone, as usual for joining the call. It’s good to talk to everybody. And we look forward to talking to you after the end of the third quarter.

Jenny, Conference Facilitator: Thank you very much. This does conclude today’s conference. You may disconnect your phone lines at this time and have a wonderful day. We thank you for your participation.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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