ACTG - NASDAQ

Good morning, everyone. Thank you for joining Acacia Research's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Jenny, and I will be your conference facilitator today. [Operator Instructions] I would like to remind you today's conference call is being recorded and is also available through audio webcast on Acacia's website. [Operator Instructions] Questions can also be directed at any time to Acacia, [email protected]. I would now like to turn the conference over to Elizabeth Chaconas of Gagnier Communications. Elizabeth, you may begin the conference.

Thank you, operator. Leading today's call are MJ McNulty, Acacia's Chief Executive Officer; and Michael

Thank you, Lizzy, and thank you all for joining us this morning. Before getting into the specifics of this past quarter's results, I'd like to zoom out and take stock of Acacia today versus 3 years ago when this team began our efforts. There are a few slides in our corporate overview deck, which we believe show our progression well. Since we're not all on video together, I'll point you to Slides 8 and 9 of our corporate presentation available on the top of our quarterly results tab of the Investor Relations section of our website at acaciaresearch.com. To set the stage, 3 years ago, we had approximately $350 million of cash on our balance sheet. The parent company that was burning over $30 million annually, no operated segment cash flow to speak of, a large securities portfolio made up primarily of biotech assets left over from the Woodford investment and an extremely valuable intellectual property business that was receiving no public market enterprise value. When I became CEO in the fourth quarter of 2022, I told you that this team's vision and that of our Board was to build a portfolio of operating companies that can create compounding value over the long term. Inherent in this vision was our goal to preserve your capital while simultaneously building a durable enterprise. So in our efforts to execute on this vision, we zero-based the parent budget, rightsized the organization and put in place the people, systems and processes necessary to succeed in our initial efforts. This reorganization positioned us to successfully monetize several of our legacy assets, continue nurturing our intellectual property portfolio, return capital to shareholders and acquire valuable operating businesses at attractive prices, all of which we believe will drive strong returns for you, our shareholders, over the long term. As a result of these initiatives, I am pleased to report that we sit today with $285.2 million in total 2025 revenue and $96.4 million in 2025 operated segment adjusted EBITDA, including our intellectual property operations. We've extracted $187 million from our valuable IP portfolio, have monetized most of our legacy assets and have kept parent expenses relatively flat even as the organization has scaled. Through all of this and perhaps most importantly, in the current market environment, we preserved your capital and kept Parent level deployable cash consistent, having started with approximately $350 million of cash and securities at the end of '22 and ending our most recent fiscal year with about $340 million of cash and securities and short-term loans receivable. If you take a look at Page 9 of the corporate presentation, which we're particularly proud of, you can see how this happened numerically. We used a combination of approximately $10 million of cash and $92 million of nonrecourse subsidiary level debt to add approximately $36 million of durable operated segment EBITDA, which now has nicely clipped our Parent costs. I expect that going forward, while we may need to add some incremental parent costs to support continued scaling of our business, continued improvements in our underlying stable of businesses, whether from increased revenue, improved margins or through continued acquisitions should result in a high degree of earnings flow through to Acacia's bottom line. So stepping back, I would say the first 3 years have been an operational success. And today, we're in a better position than ever to continue adding to our portfolio of value-generating and cash flowing assets. With that, I'd like to take -- turn to a brief view of 2025. We're not alone in navigating the unpredictable and uncertain macroeconomic and geopolitical backdrops, we've made significant progress across each of our businesses and closed the year on a strong note, with full year revenue of $285.2 million, a record for Acacia as a public company, total adjusted EBITDA of $77.9 million and operating cash flow of $75.2 million, all higher year-over-year. While tariff-related headwinds as well as inflation continue to present challenges in certain aspects of our portfolio, we continue to prudently manage each of our operating segments and consistently execute against our value-oriented strategy to drive growth in asset value. Underpinning this strategy are our significant capital resources and experienced management team and an opportunistic approach to value-accretive opportunities. During the year, we leveraged the resilience of our businesses. Recall, we like to acquire things people need, combined with targeted price increases and cost savings initiatives to help offset macroeconomic headwinds and position our companies for further growth. We also leveraged our strong cash generation to pay down debt in our Benchmark and Deflecto businesses and completed the acquisition of a portfolio of commercial loans collateralized by Bitcoin through our partnership with Build Asset Management. The parent organization, as always, remains focused on managing expenses while overseeing prudent capital allocation and deployment. Turning to our businesses. Deflecto posted a good quarter in its seasonally weakest period of the year with revenue of $26.4 million and adjusted EBITDA of $1.1 million. While the business continues to experience cyclical headwinds, we are encouraged by the progress made during the quarter. We're trending well in the early part of Q1 and are encouraged about what we're seeing in our end markets. During Q4, we successfully began the consolidation of our Portland facility into our Dover, Ohio facility, divested a small segment of our office products business. And in Q1 of this year, we completed the sale of a portion of our U.K. facility, which we do not currently occupy. Taken together, these actions resulted in nearly $5 million of net proceeds from asset sales and the plant consolidation we expect will result in approximately $2 million of total annualized cost savings once complete, with additional benefits as volumes improve through the cycle. I would note that this plant consolidation is not only positive for our earnings, but also for the community of Dover, Ohio, which now has a significantly more profitable, efficient factory, providing valuable employment for the area. With that said, and as we've mentioned before, the Deflecto business has experienced meaningful macroeconomic headwinds driven by uncertainty in the Class 8 trucking market, Canadian housing market, tariff-related demand and cost pressures as well as input cost pressures. Taking these one by one. The Class 8 market continues to be depressed relative to historical averages, primarily driven by macro factors. However, we've started to see green shoots emerge in recent months. Class 8 orders saw steady year-over-year improvement over the last 3 months with December through February up 23%, 25% and 156%, respectively, after 11 straight months of year-over-year declines. Class 8 dealer inventories, which look like they peaked last summer, have finally begun to fall and freight rates appear to be improving. Finally, the OEMs continue to take a conservative stance relative to new builds and our commentary on the forward outlook of the market continues to improve. So taken in whole, all these indicators lead us to believe that trucking activity and new and used truck sales should begin to pick up over the coming quarters, all of which should help our safety business within Deflecto. Moving to the Canadian housing market. Our Air Distribution segment does business in both Canada and the United States. The Canadian housing market has experienced building cost pressures related to general inflation as well as a slowdown in the velocity of sales of both new and existing homes, a key driver for our business. The latter being a function of rates and economic uncertainty. As we continue to enact our value creation plan, one of the paths we're exploring is augmenting both U.S. and Canadian sales teams with resources to attack underserved areas of the market, which we think could be a meaningful opportunity. On tariffs, Deflecto is a global business. And as a result, we've been exposed to cost pressures from the IEEPA tariffs as well as demand-related uncertainty that has caused certain customers in our Office Products and Safety segments to delay purchases. This pressure has been far greater than we anticipated. However, we have fared well, defending margins where possible through price increases and cost concessions and have most importantly, defended market share with our markets. For context, Deflecto paid approximately $2.4 million in tariffs in 2025, $2 million of which impacted earnings. With the recent court ruling, we do expect a net benefit to our earnings, and while we likely will not be able to offset the full cost given the new Section 122 tariffs, we do expect relief in 2026. Tariffs from products imported from China have moved from a 20% tariff to a 10% tariff and products imported from Canada have moved from a 25% tariff to a 10% tariff. While still too early to quantify, directionally, we believe this is a positive for our earnings power at Deflecto. We also note that we have and continue to avail ourselves of the administrative rights we have to recoup from the U.S. Customs Agency, tariffs previously paid. While the tariff picture is changing rapidly, we have the processes in place to ensure that we're doing what's in our control to manage these changes. We'll get to the specifics of oil prices in a second. While they've been a positive for Benchmark, they represent potential cost pressures in Deflecto and Printronix as shipping and input costs have upside price risk. In our Energy segment, Benchmark continued to perform well during the fourth quarter, delivering solid operating production and cash flow. Business posted record production during the quarter, bolstered by several non-operated projects that came online in Q4. We continue to see strong operator and investor interest in the Anadarko Basin, which has pushed the value of high-quality producing wells towards historically elevated valuations. Our geographic position is a key source of strength in our energy operations given our exposure to some of the country's highest quality reserves. And while heightened valuations in this region have led to a more discerning approach to acquiring new producing assets, we continue to see a number of exciting ways to generate significant value in this segment in 2026. As I mentioned last quarter, we spent time last year deliberately building our position within the attractive Cherokee play, acquiring and trading land packages to assemble a portfolio of what we believe to be highly economic drilling locations. With that work complete, we selected an attractive location, assembled a top-notch team of service providers and began drilling our first Cherokee well, which was completed last week, and we anticipate we will begin producing this week. We opportunistically funded this first new well from our balance sheet, which we believe will position us well to create partnership opportunities for future wells. We were deliberate in our approach to this well and believe we have several additional attractive opportunities, which we will evaluate conservatively with a view of continuing to grow our asset value within the means of our cash flows. In light of the recent price movements, particularly in oil, Benchmark's hedging strategy continues to perform as expected. As we've outlined previously, Benchmark hedges approximately 75% of its operated oil and gas production with hedges currently in place through the beginning of 2028, protecting a significant amount of cash flow from downside price risk. On the flip side, when oil runs as it has, we've traded that upside for downside protection. That said, we have been able to benefit from selling unhedged exposure as well as through sales of our natural gas liquids, which tend to track oil rather than gas prices. As of the fourth quarter, approximately 54% of Benchmark's LTM commodity revenue and 78% of LTM production on a BOE basis was driven by gas and NGLs. Importantly, Benchmark is also in a fortunate geographic position to be able to sell our gas in a variety of markets. With the recent volatility in energy markets, we continue to remain nimble in our hedging strategy. In our Industrial segment, Printronix continues to be a great example of our team's diligent execution and ability to transform an asset's underlying operations and efficiencies to generate shareholder value. Our efforts over the past 2 years have led to a higher margin and optimized product mix for Printronix, which continues to generate consistent revenue and free cash flow. Lastly, looking at our Intellectual Property segment, we recorded total revenue and adjusted EBITDA of $326,000 and $12.1 million for the quarter and $78.4 million and $56.3 million for the year, respectively. Our Q4 EBITDA benefited from a settlement that occurred during the quarter against which we incurred related costs in prior periods. While this area of our business is episodic in nature due to the variable timing of future settlements, our team continues to evaluate attractive opportunities in the space and remains open to opportunistically committing capital to investments that will maximize shareholder value. Mike will provide additional financial details in a few minutes, but before his remarks, I'd like to highlight a few key metrics for the fourth quarter. In the fourth quarter, we delivered total revenue of $50.1 million, up 3% compared to the prior year period, primarily driven by our fourth full quarter of Deflecto. The company adjusted EBITDA was -- total company adjusted EBITDA was $17.4 million and operated segment adjusted EBITDA, including our intellectual property operations was $22.4 million. For the year, we generated record consolidated revenue of $285.2 million, up 133% year-over-year, total company adjusted EBITDA of $77.9 million and operated segment adjusted EBITDA of $96.4 million. We reported book value per share of $6.05 at December 31 compared to $5.75 per share at December 31, 2024, an increase of 5% year-over-year. These results reflect our ability to successfully navigate through significant macroeconomic challenges, leveraging our value-oriented strategy and the underlying strength of our success. As I mentioned last quarter, while volatility creates headwinds, can also be a source of opportunity for our businesses as uncertain environments often create openings for us to swiftly implement operational changes at the companies we own. Looking ahead, I'm confident in the strength of our team and our ability to balance thoughtful cost management with consistent execution to drive revenue, EBITDA and free cash flow across our businesses. While I believe there's still a gap between our intrinsic equity value and what is reflected in our share price, the fundamentals of our business and the inherent value of our assets are strong and continue to improve. Our management and Board are committed to exploring and executing appropriate capital deployment initiatives internally and externally that will support our continued momentum and generate long-term value for our shareholders. With that, I'll pass it over to Mike to discuss the details of our financial results.

Thank you, MJ. And echoing your sentiment, we remain enthusiastic about the results and progress at each of our businesses and our continued success in managing Parent costs. Let me start with a few financial highlights from the quarter. Acacia recorded total revenue of $50.1 million during the fourth quarter. Our energy operations generated $16 million in revenue for the quarter compared to $17.3 million in the same quarter last year, primarily reflecting a softer oil price environment year-over-year. Remember, we hedge approximately 75% of our operated production at benchmark. Realized hedge gains not included in revenue were $1.7 million in Q4 2025 versus $1 million in Q4 2024. Manufacturing operations generated $26.4 million in revenue for the quarter. Given we acquired Deflecto in October of last year, there is no full quarter prior year comparable. Our industrial operations generated $7.3 million in revenue during the quarter compared to $8.2 million in the same quarter last year. Our intellectual property operations generated $0.3 million in licensing and other revenue during the quarter compared to $0.1 million in the same quarter last year. Total consolidated G&A on a reported basis was $16.3 million during the fourth quarter compared to $21.5 million in the same quarter of last year. The decrease was primarily driven by third-party transaction costs in Q4 2024 associated with the Deflecto acquisition, which closed in October 2024. Deflecto reported G&A expense for the fourth quarter of 2025 was $4.7 million compared to $4.6 million in the prior quarter. Of the $4.7 million in Deflecto G&A expense, approximately $1.2 million was related to depreciation of fixed assets and amortization of intangible assets and $0.4 million was related to nonrecurring severance and transaction-related costs. Our energy operations reported G&A expense was $0.6 million for the fourth quarter of 2025 compared to $1.1 million for the prior quarter in 2024. Q4 of 2024 included certain onetime fees and expenses that didn't recur in Q4 of 2025. Reported G&A at the parent level for the fourth quarter decreased by $5 million year-over-year from $12 million to $7 million. Q4 of 2024 included third-party transaction expenses associated with the Deflecto acquisition. Parent G&A on an adjusted basis or our non-GAAP parent costs, as shown in our adjusted EBITDA reconciliations remained relatively stable at $5 million in the quarter ended December 31, 2025, versus $4.8 million in the prior year. The company recorded a fourth quarter GAAP operating loss of $13.1 million compared to a GAAP operating loss of $15.8 million in the same quarter last year. This improvement was primarily due to year-over-year increase in revenue, slightly offset by higher cost of goods sold within our manufacturing operations given the partial quarter in the prior year following the acquisition of Deflecto in October 2024. Energy operations contributed $3 million in GAAP operating income during the quarter, which included $3.4 million in noncash depreciation, depletion and amortization expense and does not reflect the realized hedge gain of $1.7 million we realized during the quarter. Adjusted EBITDA for our energy operations was $8.1 million and free cash flow for our energy operations was $1 million in the quarter. This free cash flow included approximately $4.6 million of CapEx, primarily related to continued development in Cherokee. Manufacturing operations had a $0.4 million GAAP operating loss during the quarter, which included $1.2 million in noncash depreciation and amortization expense and $0.4 million in nonrecurring transaction-related expenses and severance costs as part of our operational initiatives at Deflecto. Adjusted EBITDA for our manufacturing operations was $1.1 million and free cash flow for our manufacturing operations was negative $1.8 million in the quarter, primarily due to timing of certain working capital items. Industrial operations contributed $0.5 million in GAAP operating income during the quarter, which included $0.5 million in noncash depreciation and amortization expense. Adjusted EBITDA for our industrial operations was $1.1 million and free cash flow for our industrial operations was essentially flat in the quarter, primarily due to tariff-related payments, working capital items and negative impacts from FX fluctuations. GAAP net income attributable to Acacia Research Corporation in the fourth quarter was $3.4 million or $0.04 per share compared to a net loss attributable to Acacia of $13.4 million or a $0.14 loss per share in the prior year period, largely driven by our intellectual property operations results. Included in GAAP net income for the fourth quarter was $2.8 million in unrealized gains related to changes in the fair value of equity securities, offset by a realized loss of $3.5 million. Adjusted net income attributable to Acacia in the fourth quarter of 2025 was $3.1 million or $0.03 per share. Further details on these adjustments can be found in our press release. Turning to the full year results. Total 2025 revenues were $285.2 million, a record for Acacia compared to $122.3 million in the prior year period. Our energy operations generated $63.8 million for the year compared to $49.2 million last year, reflecting a full year of results from the acquisition of the Revolution assets in 2024. Our manufacturing operations generated $114.8 million in revenue for the year. Our industrial operations generated $28.3 million in revenue compared to $30.4 million last year. And our intellectual property operations generated $78.4 million in licensing and other revenue compared to $19.5 million last year. Reported G&A expenses were $65.1 million compared to $55.4 million last year, the increase primarily due to the full year impact of Deflecto compared to an approximate 3-month period in 2024, offset by lower transaction-related costs in 2025. GAAP operating income was $6.4 million compared to an operating loss of $32.9 million in the prior year period. Our energy operations contributed $10.2 million in operating income, which included $15.2 million of depreciation, depletion and amortization charges. Our industrial operations contributed $1.2 million in operating income, which included $2.2 million of depreciation and amortization charges, and our manufacturing operations contributed $0.3 million in operating income for the year, which included $5.4 million of depreciation and amortization charges and $1.7 million of nonrecurring severance costs and transaction-related expenses. Consolidated GAAP net income was $21.7 million or $0.22 per diluted share in 2025 compared to a net loss of $36.1 million or negative $0.36 per diluted share last year. Net income in 2025 included $1.1 million in unrealized gains from the change in fair value of equity securities, offset by a $25,000 realized loss. Adjusted net income attributable to Acacia Research Corporation for the full year 2025 was $29.2 million or $0.30 per share. Further detail on these adjustments can be found in our press release. As MJ alluded to earlier, we're exceptionally proud that we have grown LTM operated segment adjusted EBITDA, excluding our episodic IP operations, from $4.3 million as of the fourth quarter of 2023 to over $40 million as of the fourth quarter of 2025, while maintaining relatively consistent parent costs to date as defined of $18 million to $19 million. Turning to the balance sheet. Cash and cash equivalents, equity securities measured at fair value and loans receivable totaled $339.6 million at December 31, 2025, compared to $332.4 million at September 30, 2025, and $297 million at December 31, 2024. The increase of $42.6 million for the year was primarily due to cash generated from operating activities across all operating segments of $86.7 million, proceeds from the sale of the [Format] assets of $3 million and $1.2 million of working capital benefit from the Deflecto transaction. Cash was reduced by parent costs of $11.4 million and further by $9.7 million and $1.4 million of capital expenditures at Benchmark and Deflecto, respectively, as well as $6.1 million in spend at Benchmark for new oil and gas leasehold interests. Additionally, cash used in financing activities reduced cash by $22.7 million primarily from $12 million of debt repayment on the Benchmark revolving credit facility and $15.1 million debt repayment on the Deflecto facility, offset by a $5 million draw on the Benchmark revolving credit facility for the purchase of additional leasehold interest. The parent company's total indebtedness was 0 at December 31, 2025. On a consolidated basis, Acacia's total indebtedness as of December 31, 2025, was $92.1 million, consisting of $59.5 million and $32.6 million in nonrecourse debt at Benchmark and Deflecto, respectively. Since closing the acquisition of the Revolution assets in April 2024, Benchmark has paid down approximately $23 million in total debt underscoring the strong free cash flow generation of the Benchmark business. Additionally, since acquiring Deflecto in October 2024, the company has paid down approximately $16 million in total Deflecto debt. These capital allocation decisions have significantly reduced our consolidated debt and interest expense, providing further operational flexibility. 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 10-K, which we will file with the SEC later this week. And now I'll turn the call back over to you, MJ.

Thanks, Mike. As you've heard today, we're excited. We've executed well throughout the fourth quarter and the full year. Our diverse portfolio and targeted strategy allow us to consistently streamline operations, materially improve performance and drive long-term growth across each of our operating businesses. Looking ahead, we'll continue to appropriately balance prudent cost control initiatives with a deliberate approach to value generation across our platforms while continuing to build our pipeline of attractive opportunities for growth in 2026. With that, I'll hand it back over to Jenny.

[Operator Instructions] Our first question is coming from Anthony Stoss of Craig-Hallum.

You drilled your first well in Cherokee. I don't know if you can share kind of expectations. Do you think it's going to be 10%, 20%, whatever percent better than the rest of the benchmark wells? And what are your plans maybe over the next 3 months, let's say, on how many more drills or more wells you'll drill? And then I had a couple of follow-ups after that.

Look, I think -- that's a good question. I think it's difficult to compare the new well to the wells that we have in benchmark because as you remember, when we acquired the Wainwright assets and then subsequently, the Revolution assets, we were acquiring kind of mid-life, low decline, shallow decline wells that we thought were long-lived. And so when we drilled this new well, we spent a lot of time high-grading the acreage. Tony, we talked a lot about the acreage that we got for free from the Revolution acquisition and this kind of fit in that bucket. We did take some existing acreage we had that we didn't like as much, swapped it for acreage around positions that we did like, and we built a little bit around that. In terms of the number of wells we might drill, I don't think we're ready to say that. I will say that we have several locations like this well that we just drilled that we've high graded and think are very attractive. But if you think about the production decline in a well, you will see an uptick in production for the rest of this year once this well comes online, which is imminent.

Got you. And I know you guys got this for a very attractive price and clearly you could sell it for more now. Is there any thought process on seeing what that first well will produce, take that and potentially sell all the Cherokee assets for shareholder value?

That is an option. It's one of many options. As you know, the oil and gas business is interesting that you have a team and you have assets and you tend to be able to keep the team and sell the assets. And there are different pieces of benchmark that have different profiles. For example, we have Cleveland wells. We have now a Cherokee well. We have wells in different counties within Texas and Oklahoma that fit with other people's production profiles. And so there are a lot of ways to monetize the package in pieces or as a whole. And as we see activity continuing to develop in our Little Basin, we'll evaluate opportunities around all of those.

Got it. And then maybe this isn't the right way of phrasing the question, but you've hedged away 75% of the oil. What's the average hedge price per barrel right now for you guys? And now with oil over $90 a barrel, you say you're going to continue to hedge that like in the next couple of quarters, what can that number move up to?

Yes. So our average hedge price is about $70 a barrel right now. If you look at the front end of the curve for the next, call it, 12 to 18 months, that front end has moved up pretty significantly. And as you know, if you're watching oil prices, it has bounced around in a pretty wide range over the last few days. But we are fully hedged for 2026. We will be hedging the volumes that come on from this new well. And so hopefully, you get the benefit of the curve, the front end of the curve right now. And then we'll continue to look at the curve out past '28 as we layer on new hedges, not only in oil, but in gas and to the extent that the liquidity in the market is their NGLs. And so we think that we're in a pretty advantageous position. Now also recall that we're selling oil and gas into the market today that's unhedged. So the 25% of the exposure that's unhedged, we are taking advantage of market prices. And NGL hedging has less liquidity and less term on it or duration on it and NGLs tend to trade based on a ratio to oil. And so those NGLs, I think, will benefit from as well.

Our next question is coming from Brett Reiss of Janney Montgomery Scott.

MJ, good show to you and the team on the quarterly and yearly results.

Yes. Thanks, Brett. We really appreciate it.

Just one question on Benchmark. If you do retain Cherokee and other acreage, based on what you think the intermediate and long-term pricing on hydrocarbons are, would your goal be to just kind of sustain your 6,000 barrels a day production or materially increase it?

I mean what we think about is being able to add and maintain production inside our current cash flows. And so we're not -- you're not going to see us go out and borrow a bunch of money in order to materially increase production. That's not our model. Our model is a production one. So where we can take existing cash flows and put them into high ROI projects, whether that's acquiring new businesses or it's drilling new wells, that's how we're going to evaluate it. But we are going to be very judicious and conservative in how we use cash flow to do that.

Okay. Pivoting to Deflecto, between the green shoots you talked about in your opening remarks plus the operational improvements that Clay Kiefaber brings to the table, what is your aspirations on operating margins and EBITDA? I mean the operating margins are at x right now and EBITDA is at x. Where do you think it can go 18 months to 2 years from now?

Look, I think without answering that question with guidance on margins and EBITDA, I think that we're in a very good position right now. I think we have taken our licks from tariff-related issues and some inflation, but we are well on our way of operational improvement from a margin standpoint, not only the consolidation of our Portland facility into Dover, but also general lean manufacturing initiatives on the shop floor. And so as those take root and volumes come back, you mentioned the green shoots in Class 8, that is a cyclical industry. We are seeing positive data points, albeit 3, but 3 consistent after a long trend of down Class 8 sales. As volumes pick up, we anticipate that we'll benefit from the initiatives that have been put into it. The air distribution business has had a little bit of headwinds more recently on the Canadian housing market side, but it's held up pretty well, and it's a nice competitive business with good share in the markets in which it plays. And so as we see some of the cyclical rebound, A, B, our initiatives to drive growth through sales channels and the like and see the cost enhancement or margin enhancement opportunities that we're taking advantage of, we feel like we're kind of hitting on all cylinders in spite of where the market sits.

Okay. Could you just give me the thought process and thinking of the sale of the [indiscernible] business? Why that one and why at this time?

Yes. When we looked at the -- remember, when we bought Deflecto, it was a lot of different businesses. And we looked at what was most strategic for us within safety, air and office. And when we looked at the [format business] in particular, we thought it was subscale. And we thought that the owner -- the current owner, the group that bought it from us was a better owner for that business, and they offered us a fair price for it. And so we found that from a capital allocation standpoint, it was the right thing to do.

Okay. A question on the legacy patent business. There's been a lot of turmoil with AI impacting software and the protective moats everyone thought that would exist. Has that impacted negatively or positively our legacy patent portfolio?

Yes. I mean, look, our legacy patent portfolio is around -- the overwhelming majority of it is around Wi-Fi 6. And so we really haven't seen a negative impact from AI. In fact, I would think that AI would actually be a tailwind for the value of that portfolio in terms of connectivity and interconnectivity and how it is today and the continued evolution of that.

Right. There's been a lot of stress in private credit and private equity. Has that stress risen to a point where pricing of some things in that space you might want to purchase is closer to fruition?

Yes, that's a great question, and this is really an evolving scenario. I think we've talked about this for the past couple of quarters that the valuations at which private equity funds are holding assets and their ability to hold assets for a longer period of time without a daily mark-to-market has given them a little bit of a place to hide. In the area of the market that we look at sort of mid-market, lower middle market private businesses and not commenting on the public businesses right now because I think there's a lot of opportunity there as well. On the private businesses, the great assets, the assets that are hitting on all cylinders are able to be sold. And there's a bid for them, and there's a very good bid for them. As we've talked about many times in the past, we kind of like the B and C quartile assets. And that area is starting to see a freeze up in deal activity where it's not necessarily to bid ask, which had been in the past, now is people showing up to buy those assets. And so if we believe in our operating capabilities, which we do, we become a very logical buyer and solution to these private equity funds that are now 2021, maybe early '22 acquisitions that are 4 to 5 years through a hold period, where we can be a buyer at a reasonable price with an operating partner that can help us really take advantage of the situation and build that business and fix that business. So I'm encouraged by what we're seeing, albeit at the cost of our...

Great. Last one for me, had any of the potential sellers of things you're looking at wanted instead of just all cash, a part of the consideration for the sale of their assets to be in your company's stock. We get that question all the time, and the answer is we'll pay you cash.

Our next question is coming from Adam Eagleston of Formidable Asset Management.

Again, echo the comments from everyone else. Nice to see the execution this quarter. You guys touched on it a little bit in terms of Brett's call on what's happening in the private equity markets. But if I heard you correctly, despite the headlines we see on private equity, private credit, it sounds like it's not yet a buyer's market yet, at least for the good assets. So just kind of confirm that, A. And then B, just overall capital allocation-wise, how are you guys thinking right now?

Yes. So -- and I'm glad you brought it back up, Adam, because -- and Brett, I apologize, I didn't address the point on private credit. I think it's too early in private credit. I think the issue in private credit, I think, is predominantly around the software businesses that are in there, and there are a lot of private equity funds that have borrowed from private credit funds and on software businesses. And so we are very cautious on software businesses. We are trying to -- when we look at them, look for systems of record, compliance-related interconnectivity where there's less risk of displacement. But I think what's going on in the private credit market is a generalization because I don't think people know all the details yet of software businesses losing seat licenses and what that does to earnings and the flow-through on earnings for these software businesses. So I'm not sure that we know yet what the impact for our types of businesses is in the private credit markets. In the private equity markets, we are again seeing opportunities where B and C quartile assets just are not moving despite a desire by a sponsor to move those assets. They've gone through over the last several years and quarters, they've gone through pruning their best assets, taking their cash off the table and making the return, and they will need to clean up the rest of those portfolios, which we think is an opportunity for us.

Got it. Okay. And then capital allocation-wise, I know you're coming up on some milestones here, I think, at least that might open up opportunities for buybacks. How do you balance that with putting capital to work in operating businesses versus any disruptions you're seeing in the public equity space?

Yes. Look, I think there's a lot of disruption and opportunity on the public and private space. I also -- we and our Board are looking at all alternatives all the time in terms of how we best allocate capital for you all. When you look at the slides in our deck and you see where we are on earnings from our segments relative to our Parent costs, we think there's new acquisitions and any improvement in the underlying portfolio drive a lot of flow-through to the bottom line of Acacia. And so it's balancing that and the opportunity set, which I think is pretty robust right now with the net impact of buyback. And we evaluate that on a consistent basis.

And our next question is coming from Todd [indiscernible] of 88 Management LLC.

Congratulations on a strong 2025. I noticed a somewhat de minimis revenue number on the IP this quarter and a very robust EBITDA number. Can you kind of give us a better understanding of that?

Yes. No, that's a good question. And I tried to address it in the script, but I'm happy to address it here as well. So we had a settlement with a service provider that dates back to 2017, 2018 time frame, and we were pursuing that settlement over the course of 2025. We had costs burning our EBITDA in prior quarters and the fourth quarter associated with that. And so we recorded from a matching standpoint, the settlement that we received as part of that, not IP monetization related in EBITDA, which is what drives that difference.

Got you. Got you. Well, MJ, first of all, I want to give you some additional credits on eyeballing Benchmark and making that acquisition. I know you had a lot of experience in that complex. So what a great purchase that was. Guys, I hate to hark on this one last issue again. But considering the way the markets are right now, our balance sheet and the fact that the currency still trades at a significant discount to the underlying book value. What was the thought process in not considering putting forth some sort of a buyback announcement?

I think when -- let's take a step back and let's put that in 2 pieces. One, the conversations we have at the management and Board level about a buyback and capital allocation versus an announcement of a potential buyback. I think we're thinking about it and considering all the alternatives all the time. And when we think it's appropriate or if we think it's appropriate, we'll put something in place. But we don't want to put one in place without intending to use it. And so if we get to the capital allocation decision that we intend to use it and we want to buy back shares, that's when you'd see an announcement.

Great. And is that something that we would have to wait another 3 months for? Or do you guys have the flexibility and the ability to execute on that during the quarter?

We still have some constraints that we're monitoring, and we're working with our tax advisers on a regular basis to monitor those constraints. And when we're in a position where we feel like we have the cushion to do it, then we will evaluate that with the other uses of capital that we're evaluating.

Got you. I knew there was a period of time that a case was precluded based upon the acquisition, and that was about 3 years. Do you have -- could you kindly share with us when that period gets sunsetted and when you would be unencumbered in seeing cleared to purchase if you wanted to?

Yes. It becomes -- we start to become unencumbered towards the end of this quarter, beginning of next quarter, and then we have a little bit of a roll-off period on that.

And what was that last time? You have a little bit of a what period?

There's a little bit -- so it starts to become unencumbered towards the end of this quarter, beginning of next quarter. And then there's a little bit of a roll-off to be completely unencumbered.

Got you. And is that months? Or is that for a longer period of time that roll off?

It's probably a couple of quarters.

Got you. And would that mean you're precluded during that couple of quarter period from making any purchases or just limit the amount that you could purchase?

There are limits on it.

Got you. Got you. Well, listen, keep up the good work. I appreciate it, and thank you very much.

Thank you very much. Well, we appear to have reached the end of our question-and-answer session. I will now turn the call over to MJ for closing remarks.

Thanks, Jenny. Thanks to everyone for taking the time this morning, for following us, for asking good questions. We'll talk to you pretty shortly on Q1 and looking forward to it. Take care, everyone.