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, ir@acaciares.com. 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 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 a discussion of such risks and uncertainties, please see the risk factors described in Acacia's most recent annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC. Earlier this morning, Acacia issued a press release disclosing its fourth quarter and year-end 2025 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 Q4 2025 earnings presentation as well as its year-end 2025 corporate presentation to its website, both of which can be found under the Quarterly Results section of the Investor Relations 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 fourth quarter and year-end 2025 financial results available under the Press Releases section of the Investor Relations tab at acaciaresearch.com. I will now turn the call over to Acacia's Chief Executive Officer, MJ McNulty.

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…

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…

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.

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.