Martin McNulty
Thanks, Brent, and thanks to everyone for joining us this morning. I’d like to begin by briefly revisiting our approach to building Acacia.
First and foremost, we’re disciplined and patient allocators of capital. We spent much of 2023 cleaning up the business and getting our house in order, on boarding the right human capital, evaluating the assets we own, and the most attractive ways to maximize their value and enhancing our internal processes to be in an optimal position to find, evaluate, and execute on acquisition opportunities.
2024, those efforts bore fruit. In April, this team made its first acquisition in partnership with Benchmark Energy and acquired the revolution asset package, which we’ve talked about extensively on prior calls. In October, we acquired Deflecto and have been aggressively optimizing and integrating it into Acacia’s operations.
Finally, we monetized in an attractive transaction our stake in Erics. We did all this while continuing to manage the business, including our existing intellectual property and printronics assets, driving attractive results, and we bought back $20 million of stock.
After a transformational year, I’m proud of our team’s ability to successfully navigate the macro environment, the integration processes for benchmark and Deflecto, and to drive significant value. We’re pleased to see the positive impacts of our strategy taking shape. We believe Benchmark and Deflecto are attractive additions to our growing portfolio of companies.
They exhibit the characteristics we seek, significant operational and strategic optionality, stable and risk managed cash flows, and acquired and attractive valuations, which allows us to drive attractive risk adjusted returns for our shareholders.
We continue to build on our momentum from 2024. As of year end, we had approximately $274 million of cash to deploy, thanks to existing cash on hand and cash generated from our operating businesses. We continue to see attractive opportunities within both the public and private markets and continue to take positions in public companies we believe would be good Acacia businesses.
We’ve mentioned in the past discussing the specifics of any one of these situations is disadvantageous to our strategy, but we believe 2024 illustrates that our process works, and we will continue to follow and improve upon that process to acquire additional businesses to benefit our shareholders.
Kristen will provide additional financial details in a few minutes, but before her remarks, I’d like to highlight a few key metrics for the fourth quarter and for the year.
For the fourth quarter, we generated consolidated revenue of $48.8 million, produced $4.9 million of total company adjusted EBITDA and recorded $9.6 million of operated segment adjusted EBOTDA . Excluding our intellectual property operations, which we’ve mentioned in the past have episodic cash flows.
We delivered $12.4 million in operated segment adjusted EBITDA for the quarter. For the year we generated consolidated revenue of $122.3 million, total company adjusted even down $17 million. Operated segment adjusted EBITDA of $35.7 million and operated segment adjusted EBITDA excluding our intellectual property business of $32.2 million.
Well, the amortization of patents in our intellectual property portfolio combined with the costs associated with acquiring Defleo, including one-time charges related to legal compliance and accounting functions, led to an increase in our GAAP operating costs and a net loss of $13.4 million on a GAAP basis for the quarter. Our team remains diligent in our cost management strategy, and I’m confident in our balanced and strategic approach to long-term value creation.
We’ve included a bridge from GAAP to adjusted EPS in our press release to provide further detail on these costs. We recorded book value per share of $5.75 as of December 31, 2024 compared to $5.90 per share at December 31, 2023. As a reminder, this book value per share metric includes minority interests and is burdened by all of the one-time items included in the ad backs to adjusted the EPS.
Finally, during the latter part of 2024, we repurchased $20 million of stock at an average price of $4.61 per share. Our year-end versus our year-end book value attributable to Acacia $5.75 per share. We believe this was a good use of shareholder capital. This also represented the maximum amount we’re comfortable repurchasing while simultaneously protecting our valuable tax attributes.
Turning to a breakdown of our results by operations. For the 3 and 12 months ended December 31, 2024. Keisha’s energy operations generated adjusted EBITDA of $8.4 million and $25.2 million respectively. Our industrial operations delivered adjusted EBITDA of $1.6 million in the quarter and $4.5 million for the year.
While our intellectual property operations generated an EBITDA loss for the quarter of $2.7 million and an EBITDA gain of 3.6 million for the year. Our newly formed manufacturing operations consisting entirely of the deflector acquisition generated EBITDA of $2.4 million in the quarter, reflecting a partial quarter of results in the seasonally weakest time of the year.
In our energy vertical, since our investment in Benchmark, the team has consistently performed well on the operated production front, and our hedging strategy has proven to be an effective buffer for near-term commodity price fluctuations.
This is now our fifth quarter owning benchmark in the third quarter since the revolution assets were acquired. Notably this quarter, we reported Benchmark’s highest ever revenue, demonstrating our ability to drive significant returns on this investment.
Following the revolution acquisition, the Benchmark team has completed over 40 capital workover projects which have helped bring unproductive wells back online and improve the production of wells that were underperforming. This is a core part of our strategy.
The net impact of these investments is that we’ve been able to replenish the oil and gas produced since our acquisition. Our reserve base is a key metric we measure in the success of this investment as offsetting the natural decline of the assets should allow us to meet and potentially outperform our underwriting expectations over the long term.
We also expect rising demand for electricity and increasing LNG export capacity could provide broad tailwinds to the oil and gas industry, which we’re poised to benefit from, particularly given our strategically important geographic location in the mid-con and ability to sell gas in a variety of markets. This is an enviable position if you were to study our peers in places like the Permian or the Marcellus.
Our hedging strategy remains consistent since underwriting, protecting approximately 70% of our operated net oil and gas production over the next three years. As a reminder, in line with last quarter, we’ve reported adjusted EBITDA our financials, including the impact of realized hedge gains, but they are not included in the quarter’s top line revenue figure.
Our manufacturing operations consisting of the newly acquired Defleo business generated $23.3 million in revenue during the partial quarter. Recall that we acquired Deflecto because of the significant operational opportunity we saw within the business, its market leading position in selling diversified and in many cases regulatorily mandated products, and the opportunity for strategic M&A in each operating vertical.
Since closing the Defleo acquisition, we’ve been working with the team to organize the company into three distinct business units to drive operational efficiencies, management accountability, and to reduce overhead costs.
While the transportation and office and markets are experiencing some cyclicality, we’ve begun to offset this with the process improvement initiatives mentioned above. We remain opportunistic that these efforts within Deflecto should create more earnings leverage and a cyclical rebound with these end markets.
Looking forward, the actions we are taking with the Deflecto will allow us to better capitalize on the company’s growth potential, which combined with its substantial market share, diversified customer and supplier base, and moderate capital needs provides promising opportunities for this business going into 2025 and beyond.
Printronix continues to be a nice source of cash for Acacia. And I’m pleased with the work our team has done to date to transition this business to a dual hardware and consumables business model with a streamlined operating structure. The Printronix team generated $7.3 million in operating cash flow during the calendar year, representing 22% of our initial purchase price. We believe this is a good example of the value we can drive over the long term through improving the operations of the undermanaged assets we acquire.
Turning now to our intellectual property vertical. Our intellectual property operations generated $100,000 in licensing and other revenue during the quarter compared to $82.8 million in the same quarter last year. The year-over-year decrease in revenue is primarily due to a decrease in the number of new license agreements in the quarter.
We remain open to opportunistically deploying additional capital to capitalize on any attractive opportunities that might become available in this area. Given our team’s well regarded reputation as leaders in the IP space, intellectual property owners continue to actively seek us out as a partner.
While our life sciences portfolio is not a core vertical for us, our interest (inaudible), AMO and Novobiotics represent $25.7 million in book value at the end of last year.
Net of non-controlling interests. We are encouraged by the catalysts we see coming down the pike for our holdings in this sector, and we continue to actively work these businesses to seek ways to maximize the value of our life sciences assets.
I’d now like to turn the call over to Kirsten to provide additional detail on our fourth quarter and full year financial results.
Kirsten Hoover
Thank you, MJ. Acacia recorded total revenue of $48.8 million during the fourth quarter. Our energy operations generated $17.3 million in revenue for the quarter compared to $0.8 million in the same quarter last year. The increase in revenue was primarily driven by the addition of the revolution assets that Benchmark acquired earlier in 2024.
Manufacturing operations generated $23.2 million in revenue for the quarter, which reflects a partial quarter following the acquisition of Deflecto in October and the seasonally weakest time of the year for the business.
Our industrial operations generated $8.2 million in revenue during the quarter, a slight decrease compared to $8.6 million in the same quarter last year. But an increase of $1.2 million compared to the prior quarter. Our intellectual property operations generated $0.1 million in licensing and other revenue during the quarter compared to $82.8 million in the same quarter last year.
The quarter-over-quarter decrease in revenue was primarily due to a decrease in the number of new license agreements in the quarter and a decrease in average license fees. General and administrative expenses were $21.5 million during the fourth quarter, compared to $10.8 million in the same quarter of last year.
The increase in G&A was primarily due to the addition of the company’s new manufacturing operations and an increase in one-time acquisition-related charges for legal compliance and accounting functions. The fourth quarter included $5.2 million in non-recurring parent G&A charges, which can be seen in the adjusted EBITDA tables provided in the earnings release.
The company recorded fourth quarter operating loss of $15.8 million compared to operating income of $55.9 million in the same quarter last year, primarily due to lower revenues generated and higher costs and expenses.
Energy operations contributed $3 million in operating income, which included $4.4 million of non-cash depreciation, depletion, and amortization expenses and does not reflect $1 million of realized derivative gains.
These figures include the impact of the revolution assets that Benchmark acquired earlier in 2024. Adjusted EBITDA for energy operations with $8.4 million. Industrial operations contributed $0.9 million in operating income, which included $0.7 million in non-cash depreciation, amortization expenses.
Adjusted EBITDA for Acacia’s industrial operations was $1.6 million. Net loss attributable to Acacia Research Corporation in the fourth quarter was $13.4 million or $0.14 per share compared to net income attributable to Acacia of $74.8 million or $0.75 per share in the fourth quarter of 2023.
This was primarily due to the patent amortization expense in our IP business, combined with limited IP revenues, which, as a reminder, is episodic, as well as one-time non-recurring costs associated with the acquisition and integration of Deflecto and benchmark.
Net loss included $4.1 million in unrealized gains related to the fair value of equity securities at December 30, 2024. Adjusted net loss attributable to Acacia Research Corporation in the fourth quarter of 2024 with $6.8 million or $0.07 per share. Further details on these adjustments can be found in our press release.
Turning to the full year results. Total 2024 revenues were $122.3 million compared to $125.1 million in the prior year period. Our energy operations generated $49.2 million for the year, compared to $0.8 million last year, while our manufacturing operations generated $23.2 million in revenue for the year following the completion of the Deflecto acquisition on October 18, 2024.
Our industrial operations generated $30.4 million in revenue, compared to $35.1 million last year. And our intellectual property operations generated $19 million in licensing and other revenue compared to $89.2 million last year.
General and administrative expenses were $55.4 million compared to $44.4 million last year due to the addition of the company’s manufacturing segment operations and full year results for the energy segment. Operating loss was $32.9 million compared to operating income of $20.9 million in the prior year period.
Our energy operations contributed $9.5 million in operating income, which included $12.6 million of depreciation, depletion, and amortization charges. Our industrial operations contributed $1.8 million in operating income, which included $2.7 million of depreciation and amortization charges.
Net loss was $36.1 million or $0.36 per diluted share compared to net income of $67.1 million or $0.58 per diluted share last year. Net loss included $28.9 million in realized gain from the sale of the equity securities, offset by $31.4 million in unrealized loss.
The 2024 period unrealized loss primarily relates to the reversal of unrealized gains previously recorded for Eric shares that were sold in January 2024 for realized gains. Adjusted net income attributable to Acacia Research Corporation for the full year of 2024 was $14.2 million or $0.14 per diluted per share.
Further details on these adjustments can be found in our press release. Acacia has generated $564.1 million in proceeds from sales and royalties of its Life Sciences portfolio, which was purchased for an aggregate price of $301.4 million in 2020. At December 31, 2024, Acacia’s remaining positions in its Life Sciences portfolio represented $25.7 million in book value.
Now turning to the balance sheet. Cash, cash equivalents, and equity securities at fair value totaled $297 million at December 31, 2024, compared to $403.2 million at December 31, 2023. The decrease in cash was primarily due to $60 million paid to acquire Defleo, $60 million paid to acquire the revolution assets, and approximately $20 million in repurchases of common stock, offset by cash provided by operating activities.
Equity securities without readily determinable fair value, totaled $5.8 million at December 31, 2024, unchanged from December 31, 2023. Investment securities, representing equity method investments totaled $19.9 million at December 31, 2024, net of non-controlling interest, unchanged from December 31, 2023.
Acacia owns 64% of [Mall and J1], which results in a 26% indirect ownership stake in (inaudible) Pharmaceuticals for Acacia. The parent company’s total indebtedness was zero at December 30, 2024. On a consolidated basis, Acacia’s total indebtedness, as of December 31, 2024 was $114 million, consisting of $66.5 million and $47.5 million in non-recourse debt at Benchmark and Deflecto respectively.
Since closing the acquisition of the revolution assets in April, Benchmark has paid down $15 million in total debt. For more information on Acacia’s fourth quarter and full year results, please see our press release issued this morning, and our annual report on Form-10K, which we will file with the SEC next week.
With that, I’d like to turn the call back over to you, MJ.
Martin McNulty
Thanks, Kirsten. I’m incredibly proud of our team’s accomplishments in 2024. Looking ahead, integration, particularly with Deflecto remains a key priority for us as we aim to diligently maximize the value of our investments through integration synergies, process improvements and targeted cost reductions.
At the same time, we’ll continue to evaluate potential acquisition targets in both the private and public markets. We have a disciplined capital allocation strategy and a strong balance sheet enables us to be selective in choosing the right companies to partner with.
We have the optionality to grow and reinvest free cash flow or look to monetize and build new platforms. With regard to future acquisitions, we continue to consider various value adding opportunities, but we’ll only act when the timing and opportunity is right and the potential target is aligned with our long term objectives.
Well, macroeconomic conditions are creating uncertainties in the market in 2025, I’d like to point out the relative stability we believe Acacia offers to our investors. While we have exposure across a wide range of industries, our current group of assets were acquired at attractive evaluations with the margin of safety, providing investors potential upside even in times of broader uncertainty. Further, our substantial cash balance allows us to continue to be opportunistic during these uncertain times.
As we look at 2025 and beyond, I’m confident in our strategy and our ability to continue to successfully unlock value for shareholders through organic growth opportunities within each of our platforms while retaining the optionality to be a strategic acquirer and consolidator within their respective industries.
With that, I’ll turn the call back over to Holly.
Operator
Thank you. At this time, we will be conducting a question and answer session.(Operator instructions)
Anthony Stoss, Craig Hallum.
Anthony Stoss
Good morning team. Let me start by saying, (multiple speakers)hi, nice to see consistent execution, especially in this rougher environment.
Speaking of which, MJ, I’m curious your thoughts on just the economy overall, especially on the tariff side, maybe that’s having an impact on Deflecto or any thoughts on just tariffs in general on your business.
Martin McNulty
Yeah, I mean, it’s a great question, Tony. Look, we have been following the tariffs since probably the election cycle. There are some information out there. The information changes, every morning when I turn on the TV to hear the update.
I would say on the oil and gas side of things, we’re pretty insulated our position in the midcon, allows us to sell our hydrocarbons to multiple markets so we’re not beholden to Canada or the Gulf Coast or, any particular area that might be tariffs.
I think you will see some impact of tariffs on oil and gas companies that focus on drilling because of the steel costs. But if you recall, we’re not really a drilling focused model, so the steel costs don’t impact us as much. So that’s the benchmark piece of it.
On Deflecto, we do have manufacturing operations in Canada. We have manufacturing operations in the US. The team has been very focused on this issue. We have optionality to move manufacturing or pieces of manufacturing depending upon the ultimate impact of tariffs. We have plans in place to be able to do that.
We don’t want to start executing on those plans until we kind of have a better understanding of where this is going, just given the back and forth and the fast moving pace of that back and forth. But we feel pretty confident that we can insulate ourselves from, most if not all the impact.
Anthony Stoss
Got it. And then if I could throw two more questions, I’m curious on Benchmark if there’s a larger number of wells being targeted, and then I just wanted to point to your press release talking about [Cherokee] play and Cleveland formations that you see potential upside. I’d love to hear more color related to that.
Martin McNulty
Just on the first piece, when you say wells being targeted, I just want to make sure I understand the question.
Anthony Stoss
To acquire more more wells.
Martin McNulty
Oh, to acquire. Yeah, so, Kirk and the team and we continue to look for different asset packages to acquire. There are, there is activity and there are asset packages that are out there. We’re pretty disciplined on the evaluations that we acquire those asset packages for. The market has appears to be moving up in valuation ranges, and so we’re being pretty patient there.
We have, when we bought partnered on the original Benchmark acquisition in ’23, we had a small asset package and we liked it and it’s a great package, the right field. It does really well. When we ended up then acquiring in April, the revolution asset package, it really increased the scale of the business and it gave us a fantastic position in the midcon, in the Anadarko Basin and the team, I think we noted this in the press releases built a services organization around that, which helps us to control and optimize costs.
And so as we look, we’re really thinking about acquisitions that we can tuck in around our existing position as opposed to trying to expand and add another geography. So we’re really looking for pretty tight tack ons so that we can increase the production with a lot of scalability in our operations.
So that’s kind of point one when we see them and we can do them at attractive evaluations, we will, but we’re not growing for growth sake from an acquisition strategy.
On the Cherokee. So when we acquired the Benchmark assets, there was a little bit of chatter about the Cherokee and if you remember we kind of, we paid for the existing production, the PDPs, and then the what they call pods proved undeveloped wells in future locations. We didn’t really assign any value in our in our purchase price to those.
We had a view that the Cherokee was attractive and the team understood the Cherokee. That area has become or appears to be becoming an area of interest for more players. And so we’re evaluating the best way to monetize those assets. It’s a little bit early in kind of the ball game of that area growing and gaining interest, but we’re pretty enthusiastic about the well results that we see out there and what it means for future growth in the Cherokee.
And others are seeing what we saw, which is the midcon is a really good place to be producing oil and gas because of the optionality of the takeaway and the markets that you can sell to.
Anthony Stoss
Got it. Thanks for all the color. And then last question for me, first quarter with Deflecto and the targeted gross margin of 15%, they came in a little bit below that. I’m curious, was that just a function of the weaker seasonal quarter as you highlighted on the prepared marks, or is there something else going on and where do you think that is 15% still the goal?
Martin McNulty
Yeah, it’s still the goal. The fourth quarter is seasonally weak in that business. I, we can’t isolate the impact of the election and buyer behavior around that, but that could be playing a piece of it, but we do keep to the goal and as we’ve gotten into the business, we found more opportunity from an operational perspective to improve how the business runs. We look at businesses that have historically been under managed where there’s opportunity and we are finding that with Deflecto.
Anthony Stoss
Got it. Thanks, MG and again, congrats on the consistent execution.
Martin McNulty
Yeah, thanks, Tony. I appreciate you taking the time.
Operator
Brett Reiss, Jenny Montgomery Scott.
Brett Reiss
Good Morning, MJ. Good morning, Kirsten.
Martin McNulty
Hey Brett.
Brett Reiss
Hi. (multiple speakers)
Martin McNulty
Yeah, so Clay’s been working with us for a while as an operating partner. We have pretty deep relationships with him and Clay has been helping us both with Printronics and with Deflecto, and he’s kind of, he’s an integral member of our team.
Brett Reiss
Right, but he’s from Danaher.
Martin McNulty
Correct.
Brett Reiss
Okay. Yeah, I have a great deal of respect for the talent that’s come out of, Danaher. Could you give me one or two examples of, something that he saw with the Deflecto that you’re doing that’s going to improve the operations.
Martin McNulty
Yeah, I mean, I’ll give you a couple examples. We’ve restructured the cost pretty significantly since we acquired the asset, and from an operating stand, we own a lot of plants, we have three different business units. One of the first things we wanted to do was to kind of cut the combined oversight of those businesses as one business and divisionalize those businesses.
And so our view is that decisions, alignment of interests, alignment of comp, performance, accountability all happen at the local level and not at the global level. And so step one is let’s make these locally run and have the teams be compensated for that and be accountable to the results as opposed to one team being accountable for the results of three different businesses. So that’s kind of one piece piece too.
We’ve identified significant areas where we can improve the operations of those business, and it’s things from, mundane or maybe not so mundane, plant floor layouts, consolidation of facilities, training of folks on optimizing processes. So a lot of what you might recall from Danaher’s playbook the business system that Danaher puts in place in the businesses that they acquire, that’s kind of part of our playbook and what we strive to do.
And I guess, if I’ll add a third to round it out. A key focus on cash flow and cash flow management. So it’s earnings growth, but it’s also right sizing capital allocation and working capital and inventory, improving AR collections, kind of the nuts and bolts of how businesses are run well.
And one, we have the opportunity to acquire businesses that are good businesses. They have good products. Deflecto has products that people need. They’re not discretionary. They’re products that people need and in a lot of cases are mandated to have.
And when you got a portfolio of products like that, where there’s been historical undermanagement of most or all the aspects of the business, we like those opportunities because we can go in and fix those things and really create scale and leverage in the business.
Brett Reiss
Great. I’ve got a question, just trying to get a handle on cash levels. Before you started to make these acquisitions under your stewardship, we start at $403 million. And then we spent $60 million on revolution, $60 million on Deflecto, $15.5 million debt repayment, $20 million on share buybacks. I guess this is for Kirsten, so that that’s a $155.5 million. I subtract that from the $403 million. That’s $247.7 million, we’re at $297 million. The only thing I don’t have is how much came in from the monetization of of Erics.
Kirsten Hoover
Erics was $37 million.
Brett Reiss
Okay, so, I add back the $37 million, so. $247.7 million plus $37 million. Yeah, I mean, you’ve basically done all of this stuff and have more cash in the corporate coffers than you started with. Am I missing something here or do I have it right?
Martin McNulty
No, Brett, that’s, I don’t think you’re missing anything. I mean that’s what we kind of have said and it’s starting to bear fruit, which is, we’re moving cash from a cash and securities account on the balance sheet to assets that are generating cash and that’s the plan which is the businesses we buy our cash flow generating businesses combined with the conversation we just had about the operational improvement, so that we’re effectively creating more cash through owning of these businesses.
Brett Reiss
Great. Now, I know you you’re looking at things in private equity. Between the private equity has to monetize some of their assets. Between that and the stress in the system, are you finding a little bit more flexibility price wise on on private equity, maybe letting some things go at realistic prices, so that we can get more deal flow?
Martin McNulty
I mean, I kind of think about it as like buying as a public investor on the buy side, buying the market versus single names. There are always opportunities in single names irrespective of what the market is doing, and I don’t think it’s dissimilar to private equity.
Private equity is incentivized to get the most for their assets. I think there are exceptions to that when they are high volume private equity shops that are happy to exchange businesses at reasonable valuations because they buy and sell a lot of businesses. I think in the space and size in the market that we’re looking at, remember we’re looking at like kind of B&C quartile assets, not the A’s.
I mean, we see the A quartile assets and we love them, but we’re not the right buyer for those. And so where it’s more challenging for private equity sellers to sell a business because there’s a story, maybe there’s a little bit of hair, there’s some work that needs to be done. I think there are less buyers of those assets generally. I think a lot of private equity buyers want to buy pristine assets that potentially high prices, because they just take less work. We have our own views on that.
So I would say, it’s not necessarily a market driven phenomenon that’s generating deal flow for us as much as it is really being in the flow and understanding who owns what, how long they’ve been in it, where they maybe have it marked, and what their goals are for it.
And so we’re seeing a good amount of private equity businesses where we think we can go in and change the trajectory of that business. We are also seeing, in broadly the private markets. We’re also seeing businesses that private equity we think is not seeing. And so having been in private equity for a long time, you kind of see what you see because it’s coming to private equity as a potential buyer.
We’re seeing a lot of opportunities that don’t want to go to private equity as a buyer and so the business model that we have and the team that we have is an attractive option for a lot of folks who have excluded for one reason or another private equity as a potential source of capital and a partner in their future.
Brett Reiss
Great. And Benchmark is 70% hedged, 30% where you’re not hedged. Do you have a metric that indicates that if oil prices go up $100 a barrel or down $10 a barrel, what that does to the cash flow from our Benchmark revolution investment?
Martin McNulty
We, so we monitor it, and we watch it, but it’s not a metric that we publish or share
Brett Reiss
Okay. That’s it for me, a good show on continued execution.
Martin McNulty
Thanks, Brett.
Operator
We have reached the end of the question and answer session, and I will now turn the call over to MJ for closing remarks.
Martin McNulty
Thanks everyone for joining us. We’re looking forward to a productive 2025, both with our existing assets and optimizing those existing assets and then towards future deal opportunities as they present themselves, and we look forward to talking to everyone in a few weeks for Q1.
Operator
This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.
Martin McNulty
Thanks, Holly.
