Acacia Research Q3 2026 Earnings Call Transcript
Acacia Research (NASDAQ:ACTG) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Acacia Research Corporation reported third-quarter 2026 revenue of $54.4 million, substantial cash reserves of $346.3 million and no parent company debt, highlighting strong financial flexibility.
Benchmark, a key operating segment, demonstrated robust performance with increased asset-level EBITDA and ongoing development supported by a $47.5 million financing facility for Cleveland drilling. Deflecto faced challenges with softer demand, while Printronix showed consistent cash flow generation.
The company remains focused on strategic acquisitions and operational improvements, with a robust pipeline of opportunities in both private and public markets. It aims to enhance long-term intrinsic value per share through disciplined capital allocation.
Full Transcript
Vincent (Operator)
Good morning everyone, and welcome to Acacia Research Corporation’s third quarter 2026 earnings conference call. My name is Vincent, and I’ll be your conference facilitator today. At this time, all participants are in a listen-only mode to prevent background noise. Following management’s prepared remarks, we will open the call for questions. Please note that today’s call is being recorded and is also being webcast through the investor relations section of the Acacia Research website.
I would now like to turn the conference over to Cody Slack of Gateway Group. Cody, please go ahead.
Cody Slack
Thanks, Vincent. Joining today’s call are MJ McNulty, Acacia’s Chief Executive Officer, and Michael Zambito, Acacia’s Chief Financial Officer. Before management begins its prepared remarks, I’d like to remind everyone that certain statements made during today’s call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations, estimates, and projections regarding future events and operating performance, and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Please refer to Acacia’s filings with the Securities and Exchange Commission, including our annual report on Form 10-K and quarterly reports on Form 10-Q, for a discussion of these risks.
Earlier this morning, Acacia issued a press release announcing its third quarter 2026 financial results. That release, together with our earnings presentation, is available in the investor relations section of our website. During today’s call, management will discuss certain non-GAAP financial measures. Reconciliations are included in this morning’s earnings release. With that, I’ll turn the call over to Acacia’s Chief Executive Officer, MJ McNulty.
Martin McNulty (Chief Executive Officer)
Thanks, Cody, and good morning, everyone. Thank you for joining us today and for your continued support for what we’re building here at Acacia Research. We’re pleased with our performance in the third quarter. Our results reflected continued strength at Benchmark, consistent cash generation at Printronix, and strong performance in our public securities portfolio, partially offset by soft end market conditions at Deflecto, where we continue to make operational progress together.
These results underscore the benefits of our diversified business model. During the quarter, we generated total revenue of $54.4 million. Our total revenue, excluding our intellectual property operations, of $54.2 million, increased for the third consecutive quarter and was at a near record. We ended the quarter with $346.3 million in cash, securities, and loans receivable and no parent company debt, providing us with significant financial flexibility. Our objective has never been to maximize short-term earnings.
Instead, we focus on compounding long-term intrinsic value per share through disciplined capital allocation, acquiring businesses at attractive valuations, improving their operations through active ownership, and deploying capital where we believe it can generate attractive long-term returns. The third quarter and the weeks since have offered several examples of that approach in action at Benchmark. During the quarter, our initial Cherokee well continued to outperform our expectations, and subsequent to quarter end we completed drilling our second Cherokee well, and we closed the dedicated financing of up to $47.5 million to accelerate development of Benchmark’s Cleveland drilling inventory, all of which we will discuss shortly. In our public securities portfolio, similar to last quarter, another one of our holdings announced an agreement to be acquired, ultimately generating realized gains for Acacia Research.
Looking ahead, our pipeline remains robust. We continue to actively evaluate attractive opportunities in the private markets, and we’re increasingly more active and seeing more compelling opportunities in the public markets, specifically in small and micro-cap businesses that fit our acquisition criteria. We remain patient and disciplined, pursuing only opportunities where we believe our operational expertise and investment approach can create value beyond the purchase price.
With that overview, let me turn to our operating businesses, beginning with Benchmark. Benchmark continues to perform well, with operating performance and cash flow exceeding our expectations. Asset-level EBITDA is up substantially year over year, and we expect to continue that growth into 2027, while operating expenses have remained in line. As we continue growing adjusted EBITDA, we will also be able to layer in hedges at higher commodity prices and lock those in over time.
Our second Cherokee well, Moon Tower, has been online for about a week. While it is early in flowback, results are encouraging and are tracking ahead of our first Cherokee well. In total, Benchmark has approximately five operated Cherokee units, each of which we believe can support two wells. We’ll continue to develop these units methodically, bringing cash flow forward where returns support it. As we continue to successfully develop our Cherokee asset, we’ll take advantage of opportunities to bolt on additional units and acreage.
Subsequent to the quarter end, on October 2, Benchmark created a wholly owned bankruptcy-remote subsidiary within which it closed a senior secured reserve-based lending facility with Cibolo Energy Partners. This senior secured facility provides up to $47.5 million of borrowing capacity, with initial availability of $27.5 million, of which $18.5 million was funded at closing. The initial draw was complemented by $6 million of equity capital from Benchmark.
The proceeds used to fund the new subsidiary are dedicated to an operated multi-well development program targeting Benchmark’s Cleveland drilling inventory in the Western Anadarko Basin. The program is initially four wells with the potential to expand the program over time. The financing is held in a separate special purpose vehicle and has non-recourse to Benchmark’s other assets and to Acacia Research. This structure allows us to accelerate development of attractive locations while isolating the program’s risk and preserving balance sheet flexibility.
As we’ve seen in the Cherokee Formation, we’re seeing a meaningful increase in Cleveland Formation drilling activity across the Western Anadarko with excellent results. While results today are substantially better than they were a decade ago, driven by a focus on top-tier rock, disciplined spacing, and modern completion techniques, we believe our Cherokee and Cleveland drilling programs offer an attractive risk-adjusted return profile for Acacia Research.
Our core strategy at Benchmark has been to acquire proved reserves at a discount to their intrinsic value. Most of that value has come through producing reserves, but every acquisition Benchmark has made since its formation in 2023 has also included proved undeveloped locations. Today’s market presents an opportunity to begin harvesting some of those locations, which is exactly what our strategy was built to take advantage of—opportunities as the market presents them.
It’s worth highlighting how this value creation is reflected in our financial statements. Over the past several quarters, Benchmark has invested meaningful capital in its drilling program. Under GAAP, that capital is recorded at cost, so our book value reflects what we’ve invested rather than the potential future value of those new reserves. When wells perform as our Cherokee well has, the difference between the underlying future value of these newly added reserves and the GAAP book value of those wells is at its greatest at the beginning of a drilling program.
This gap will narrow over time as we generate positive income from that production and the value of the underlying reserves is converted into net income. We’re pleased with the initial results from our drilling and believe this program has and will continue to meaningfully increase the intrinsic value of Benchmark’s oil and gas assets. Investors should just be aware that this value is not yet reflected in our book value. For a more complete view of this, you’ll be able to see the change in reserves when we release our year-end 2026 reserve report, which will be filed with our 10-K in the first quarter of 2027.
Those proved reserves will provide more granularity on the total value of the assets. It’s also worth noting that Benchmark holds significant resource potential that is not included in the proved reserves. Finally, we continue to actively manage our commodity hedging program. Our objective is to generate strong free cash flow, reduce earnings volatility, and protect against downside risk. We do not speculate on commodity prices. Approximately 70% of our expected oil production is currently hedged, and we’ll continue adding volumes over the next 12 months. In addition, approximately 70% of our expected natural gas production over the next 12 months is hedged with floors above $4 per MMBtu over the next six months, providing meaningful protection in a relatively soft near-term gas market.
Because these hedges are marked-to-market each quarter, reported results will include non-cash gains and losses, such as the $5.1 million unrealized loss this quarter, which should not be viewed as indicative of the underlying economics of the business. Turning to Deflecto, revenue for the third quarter was $27.2 million compared to $30.8 million in the prior-year period, and adjusted EBITDA was $1.0 million compared to $2.6 million in the prior-year period. Results were driven primarily by softer demand in our air distribution end markets, specifically in the Canadian and U.S. housing markets, coupled with increased input costs. Our office products end market showed a revenue decline. This was primarily driven by the decline in revenues associated with the sale of our floor mat business, which we sold in November of 2025.
Our transportation safety revenues have held steady year over year, and we’re optimistic about the positive trends we’re seeing in the underlying Class 8 market. We were encouraged, however, that performance improved as the quarter progressed, with September showing a meaningful step up in profitability. We believe that improvement reflects the actions we’ve taken over the past several quarters—optimizing our manufacturing footprint, reducing product lead times, streamlining the organization, tightening cost discipline, and executing on pricing.
These initiatives have fundamentally and structurally enhanced Deflecto’s earnings potential. We are optimistic about the opportunities in the transportation market and remain focused on what we can control. We’re encouraged that the actions we’ve taken to simplify operations and reduce our cost base position Deflecto to benefit from improved profitability in a recovering demand environment. Turning to Printronix, Printronix continued to perform well and generate consistent free cash flow. We continue to leverage the strength of its installed base and global distribution network to expand sales of higher-margin consumables and complementary products. Through the quarter, we continued to grow the installed printer base and operated the business with disciplined cost management. During the quarter, Printronix generated revenue of $7.5 million and adjusted EBITDA of $1.5 million.
While small to the overall portfolio, we’ve been pleased with the operational and commercial turnaround of the business. Turning to our intellectual property platform, during the quarter, we continued to pursue monetization of our Wi‑Fi 6 and other portfolios and generated licensing revenue of approximately $300,000. As a reminder, licensing activity is inherently episodic and is best evaluated over longer periods. We have a positive view of the value that remains in the portfolio, both in Wi‑Fi 6 as well as in our R2 patents.
We have also further reduced the platform’s overhead to better align its cost structure with the timing and nature of licensing opportunities, which we believe should enhance the platform’s go-forward earnings profile as future licensing opportunities are realized. Lastly, turning to our public securities portfolio, which continued to perform well during the quarter. During the third quarter, another one of our public company investments announced an agreement to be acquired, generating realized gains of $8.2 million for Acacia Research. Similar to last quarter, this demonstrates our ability to identify undervalued businesses, build strategic positions with discipline, and monetize those investments when the risk-reward becomes compelling.
Our public markets investments are an extension of our broader capital allocation strategy. When we identify a business that may fit our platform, we can establish an initial position while conducting additional due diligence in evaluating a potential strategic transaction. We also remain disciplined in managing existing positions, monetizing investments when they approach our assessment of intrinsic value, and redeploying capital where we see more attractive opportunities.
With that, I’ll hand the call over to Mike to review our financial results in greater detail.
Michael Zambito (Chief Financial Officer)
Thank you, MJ. As MJ discussed, the third quarter reflected continued execution across our operating businesses and the benefits of Acacia’s diversified business model. Before reviewing the financial statements in more detail, I’d like to highlight a few key financial takeaways. Total company revenue was $54.4 million for the quarter. Total operated segment revenue excluding intellectual property was $54.2 million. Total company adjusted EBITDA was $3.9 million, while operated segment adjusted EBITDA excluding IP totaled $11.6 million.
We ended the quarter with $346.3 million of cash, equity securities, and loans receivable while continuing to maintain no parent company debt. Turning to our income statement, total revenue for the quarter was $54.4 million compared to $59.4 million in the prior-year period. Energy operations generated revenue of $19.5 million. Manufacturing operations generated revenue of $27.2 million. Industrial operations generated revenue of $7.5 million, while our intellectual property business generated licensing and related revenue of $300,000.
Turning to expenses, consolidated G&A expense for the quarter totaled $15.4 million versus $16 million in the third quarter last year. Across our businesses, we continue to emphasize disciplined cost management, including the further reduction of overhead in our IP business. GAAP operating loss for the quarter was $3.6 million and total company adjusted EBITDA was $3.9 million. We believe adjusted EBITDA remains a useful supplemental measure of operating performance because it helps investors evaluate the underlying earnings power of our businesses by excluding certain non-cash and non-recurring items.
Turning to our operating segments, Benchmark generated adjusted EBITDA of $9.1 million and free cash flow of $2.7 million for the quarter while continuing to invest in attractive development opportunities. Consistent with our disciplined capital allocation framework, Deflecto generated adjusted EBITDA of $1 million while continuing to focus on operational improvement. Printronix generated adjusted EBITDA of $1.5 million and continued to produce strong free cash flow.
Within our IP segment, adjusted EBITDA totaled negative $2.5 million. We didn’t generate any paid-up license fee revenue in the quarter and, as a reminder, this revenue stream is episodic. In the meantime, we’ve continued to lower our cost base in the segment, which you will start to see reflected in the coming quarters, and align expenses more closely with the timing and nature of licensing opportunities. Turning to earnings, GAAP net loss attributable to Acacia Research Corporation was a $5.6 million loss, or negative $0.06 per diluted share. Adjusted net income attributable to Acacia Research Corporation was $4.3 million, $0.04 per diluted share. A reconciliation of GAAP and non-GAAP results is included in this morning’s earnings release.
Turning to the balance sheet, at quarter end cash, cash equivalents, equity securities measured at fair value, and loans receivable totaled $346.3 million, an increase of approximately $11.7 million during the quarter. We continue to maintain no parent company debt. On a consolidated basis at quarter end, total gross indebtedness was $90.4 million, consisting of $59.5 million of non-recourse debt at Benchmark and $30.9 million of non-recourse debt at Deflecto.
Subsequent to quarter end, Benchmark closed its senior secured development facility of up to $47.5 million, which is non-recourse to Acacia. Book value at quarter end was $551.6 million, or $5.65 per common share, compared to $557 million, or $5.71 per share, at prior quarter end. Changes to book value were primarily driven by $2.6 million in operating income from our operated segments including IP, and $2.3 million in gains from our public equity portfolio, offset by parent expenses of $6.3 million and realized and unrealized energy hedge losses at Benchmark of $6.1 million.
The unrealized loss associated with our oil hedging program, which was $5.1 million in the quarter and $9.7 million year to date, reflects mark-to-market accounting on derivative positions that extend over a multi-year horizon and does not correspond to realized economic outcomes within a quarter. The charge is driven by changes in future price expectations and does not impact current period cash flows or margins. Overall, we believe our balance sheet remains one of Acacia’s key competitive advantages. Our liquidity, conservative capital structure, and strong cash generation provide meaningful flexibility to continue investing in our existing businesses while evaluating new investment opportunities. I’ll now turn the call back to MJ.
Martin McNulty (Chief Executive Officer)
Thanks, Mike. As you’ve heard today, Acacia delivered another quarter of solid execution. Benchmark continues to perform well and has secured dedicated capital to accelerate its development program. Deflecto is making the operational progress that we believe will drive future performance. Printronix continues to generate consistent cash flow, and our public securities portfolio again generated attractive realized gains. Our strategy remains straightforward and unchanged. We seek to acquire businesses at discounts to what we believe is intrinsic value, fundamentally improve them through active ownership, and build them into leaders in their niches. With $346.3 million of cash, securities, and loans receivable, no parent company debt, and operating businesses that continue to generate attractive cash flow, we believe Acacia is well positioned to capitalize on the opportunities we see in both the private and public markets.
Vincent, we’d now be happy to take any questions.
Vincent (Operator)
Thank you. At this time, we will now begin the question-and-answer session. If you would like to ask a question, you will need to press star-1 on your telephone keypad. Your first question comes from Anthony Stoss of Craig-Hallum. Please go ahead.
Anthony Stoss (Analyst)
Morning, MJ and Michael. MJ, I’m hoping maybe not to put you too much on the spot, but on the acquisition side of things, can you maybe just give us a little bit more color on activity levels? Have you made bids for things, you’ve been outbid, or just any kind of additional color would be helpful? Then I had a follow-up.
Martin McNulty (Chief Executive Officer)
Yeah, no, nice to talk to you, Tony. Not putting me on the spot at all. We’ve been pretty active. We have been bidding on things, we have been outbid on things, and we are progressing other things. As you know, the two public names that we mentioned we were involved in, we’re not buying stakes in public companies purely to build a book of public names and trade around them. We’re doing that for a strategic reason, as evidenced by their sale. There were processes there, and so we’ve been pretty active on the public side.
On the private side, we’ve continued to see some interesting things. The market there, from a financing standpoint—depending upon the type of asset—has been a little choppy. We think that finally a lot of the private equity sellers are starting to get a little bit of religion around where their assets sit and returning capital to their limited partners. So we’re pretty encouraged by the pipeline of opportunities that we’ve got.
Anthony Stoss (Analyst)
Perfect. And then on the Cherokee side of things, I just wanted to make sure I heard it correctly. You drilled the second well and you have higher expectations for more output from the second well. And then I guess when would the third well be drilled, since you seemingly can have, what, 10 wells? I think you’ve mentioned five areas, two wells each.
Martin McNulty (Chief Executive Officer)
Yeah, so that’s exactly right. We have five units we continue to look at. So a unit can hold two wells, as you mentioned. We continue to look at attractive incremental units where they make sense relative to acreage that we hold from the Revolution acquisition, as the commodity price environment and the drilling environment right now is attractive. So we’re not going to commit to when we’re going to drill incremental Cherokee wells. But putting the Moon Tower down was a very attractive capital opportunity.
And then this Cibolo partnership we have with the reserve-based lending facility on a non-recourse basis in the Cleveland is also pretty attractive. If you recall from the Cherokee acquisition, we kind of priced it on a PDP basis. The discount rates on those PDPs have come in, and so as we see new opportunities to acquire businesses in Benchmark, they’re at higher prices than where we acquired Revolution. But Revolution had a very large inventory of Cleveland drilling locations that we could take advantage of. And the Cibolo partnership allows us to do it on a non-recourse basis with very favorable terms associated with it.
Anthony Stoss (Analyst)
Perfect. Thanks for all the detail.
Martin McNulty (Chief Executive Officer)
Yeah, of course.
Vincent (Operator)
Next question comes from Brett Rice. Please go ahead.
Brett Rice
Hi, MJ. Hi, Mike, can you hear me?
Martin McNulty (Chief Executive Officer)
Hey, Brett. Brett,
Brett Rice
Great. First question or two is on the IP portfolio. Is Atlas in the Wi‑Fi 6 portfolio, are you participating in some sort of consortium called Avanci?
Martin McNulty (Chief Executive Officer)
We’re consistently looking at ways to monetize that portfolio and participate with other people that have programs to go out and monetize IP. And we think that there’s, you know, a good amount of value in continuing to do that, as well as to pursue the direct communication and process that we have historically pursued that you all have seen.
Brett Rice
All right, but to the extent you’re participating in this consortium of Avanci, does that give us the opportunity to have a royalty or recurring revenue stream from the, you know, patent portfolios we own with respect to Wi‑Fi 6?
Martin McNulty (Chief Executive Officer)
Yeah. I mean, that’s a strategic question, which is do we do fully paid-up licenses, which we’ve done in the past, or do we create ongoing royalty streams? What we’ve seen, at least historically, in our pursuit of monetizing these patents is that the fully paid-up tends to be more attractive relative to the ongoing royalty stream. But to the extent that we have an opportunity to participate in an ongoing royalty stream that may not—where the opportunity may not otherwise be available to us, that’s attractive as well.
It’s incremental earnings for our portfolio.
Brett Rice
Right. Now I see you, in your news release, you added or purchased additional patents with respect to Wi‑Fi 7. So are you already positioning yourself? You know, if the industry migrates from Wi‑Fi 6 to 7, whatever economic benefits you have with Wi‑Fi 6, you’ll just roll it up as the world migrates to Wi‑Fi 7.
Martin McNulty (Chief Executive Officer)
Yeah, no, we definitely think that that’s attractive. And Brett, similar to the way we approach all of our acquisitions, when we acquire things, we acquire them because we think that there’s a big discount to intrinsic value. And so that’s how we approach anything in the IP portfolio as well.
Brett Rice
Okay, pivoting to Benchmark. Even after the special purpose acquisition vehicle with Cibolo, we still own 73% of Benchmark. Nothing changes there.
Martin McNulty (Chief Executive Officer)
So that’s a good question. There is no ownership change in Benchmark associated with this partnership with Cibolo. The partnership with Cibolo is purely a senior credit facility on very attractive terms to augment $6 million of our Benchmark equity that went into that vehicle. So there is no ownership change associated with Benchmark.
Brett Rice
Okay, so this vehicle, Cibolo, owns X amount of it, and we own X amount of it. Is that correct?
Martin McNulty (Chief Executive Officer)
We own 100% of it, Brett.
Brett Rice
Okay. All right. And their loan is collateralized by only those assets that are in that special purpose acquisition vehicle and not our other oil and natural gas assets, is that correct?
Martin McNulty (Chief Executive Officer)
That is correct. It’s a 100% bankruptcy-remote vehicle. So it has only the—well, so the way—just to expand on that a little bit, sorry to cut you off. The only collateral in that vehicle is the equity that we contributed to it and the well locations that we contribute to it. And those well locations are not. Just to be clear, and I think I said this, those well locations are not Cherokee well locations. They’re Cleveland well locations, of which we have many, many.
Craig
Okay. There’ll be an 8-K filed eventually, or maybe it’s, you know, existing now, where the all-in costs of this financing below, you know, will be something that shareholders can review.
Michael Zambito (Chief Financial Officer)
We are not 8-K-ing it. It is not material. But there will be some information in the 10-K that will give a little bit more detail around it. The reason it’s not 8-K is because it happened post quarter. It’s not in the Q, but it’ll be in the K.
Craig
Okay. Amo Pharma, any update on how things are moving along there, you know, in terms of potential strategic partners, the timing of the registrational study, any sense of how much contribution, you know, we may have to fork up, you know, to monetize the asset?
Martin McNulty (Chief Executive Officer)
There are a lot of questions there. Let me take them from the top. So we feel pretty—we’re pretty enthusiastic about Amo’s potential. As you know, we have a partner in that investment. So we’re, you know, call it 18 and a half percent or something in the total ownership cap table, and our partner is by and large the rest of that. We, and they, have been working very closely with the company on registrational studies and related work, as well as making sure that the market, commercially and from an M&A standpoint, understands the story and where the company sits.
As we said, these assets are bought, not sold. And we’ve been actively making sure that the market understands where AMO is and what the value proposition is. And as we’ve said in the past, our goal here is to monetize this, not to hold it and continue to develop the drug.
Craig
Okay, great. Deflecto. There was like a $700,000 restructuring charge. Do you think the restructuring charges are coming to an end and that your aspiration, I think, to make Deflecto an $8 million to $10 million EBITDA business eventually—you know, are we shooting for that and, you know, will we see that, you know, in the next two years or so?
Martin McNulty (Chief Executive Officer)
I mean, look, we continue to do restructuring. There’s, you know—I look at the restructuring in two ways. One, the market has been a little softer than what we would have liked it to be. We are seeing improvement in the market, and we’re encouraged by that improvement. Two, there are a lot of opportunities to restructure the business. As I mentioned in the script, we fundamentally and structurally improved the earnings power of the business. So as volumes go up, we believe margins on those new volumes, or those rebounding volumes, are going to be a lot higher.
And in terms of the numbers you threw out, that is the track we’re on, is to generate that or better, if the market cooperates, in earnings potential. We still like the business. We feel, you know, we’re very enthusiastic about the business.
Craig
Now, the idea that came from, you know, the Trump tariffs—now that it’s possible some of these will be rolled back, will that become a tailwind rather than a headwind for Deflecto?
Martin McNulty (Chief Executive Officer)
If the tariffs are rolled back, I would expect a tariff rollback to be a tailwind for Deflecto. I would caution that it’s Thursday and the elections were two days ago, so it’s far too premature to have a view on what may or could happen.
Craig
Okay, and last one. Are you at liberty to say which public equity investment you made where, you know, you generated that $8.2 million gain, which I thank you for?
Martin McNulty (Chief Executive Officer)
I wish we could take a victory lap, but we can’t. I’m sorry.
Craig
Okay. I appreciate your patience in answering all my questions and continue, you know, the good, interesting work. This is not boring.
Martin McNulty (Chief Executive Officer)
Yeah, thanks, Craig.
Michael Zambito (Chief Financial Officer)
Definitely not boring.
Vincent (Operator)
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that will be star, then the number one on your telephone keypad. Your next question comes from Adam Eagleson from Formidable Asset Management. Please go ahead.
Adam Eagleson (Analyst)
Good morning, guys. How are you today?
Martin McNulty (Chief Executive Officer)
Hey, Adam. How you doing?
Adam Eagleson (Analyst)
Really doing well, thank you. So Brett stole part of my question, which you couldn’t answer, about the name of the company. Can you give us an idea of what type of ROIC that was at least?
Martin McNulty (Chief Executive Officer)
I mean, it’s the overall ROIC. So we held the position for probably inside six months, and it was—I don’t—don’t hold me to this number, but it was probably a two-and-a-half x or something like that.
Adam Eagleson (Analyst)
Okay, that’s great, great work. At least that gives you a little bit of a victory lap there, I hope.
Martin McNulty (Chief Executive Officer)
Thanks for asking the question, Adam.
Adam Eagleson (Analyst)
Yeah, of course. So with that being said, you still have a large cash pile on the books. You’re getting some bids out there on the private side, but getting outbid. Are you maybe gonna do a little bit more of this on the public equity side, or kind of—how are you thinking about the cash at this point? Because we’re just not getting a lot of credit for it, if you look at the discount between the book value and the current share price.
Martin McNulty (Chief Executive Officer)
Yeah, it’s a good question. We are seeing attractive things on the private side. We have been outbid on things. There have been a couple of the things we looked at that we really liked. There were very irrational private equity buyers out there. We are seeing a lot of interesting things on the public side, and we’ve been much more active there, as you can see. Having spent my career, or a good part of my career, in private equity, you spend a lot of time on a deal, somebody else buys it, you get a stick in the eye and told to walk away.
On the public side, it tends to be potentially a little more interesting in that even if you don’t end up owning the business, if it transacts, then you have the potential to make some money on a public position that you hold. And so we are more active on the public side.
Adam Eagleson (Analyst)
Got it. Okay, that’s helpful. Again, we’re just not getting a ton of credit there. And then, of course, my last question: so given the discount to book value currently—and it sounds like, if I heard you correctly, as we get to the end of the year, there’s some accounting machinations that might actually increase that book value—ceteris paribus, how are you thinking about cost of capital and capital allocation, and specifically a buyback?
Martin McNulty (Chief Executive Officer)
Yeah, I mean when we look at cost of capital, we look at flexibility and opportunity. We do have a lot of cash. And I would say when you look at the cash number, it’s cash, securities, and loans receivables, so it’s not all pure cash. The ability to put that cash to work in the public markets, as we evaluate bids in the private markets—the return on that capital is pretty attractive. And so when we look at underwriting returns, we’re looking at kind of mid to high teens plus, depending upon how we view the risk adjustment associated with any particular opportunity.
So the return when we put that money to work is, you know, we expect to be very attractive.
Adam Eagleson (Analyst)
Got it. So it’s mid to high teens plus. Given the current discount’s like 20-ish percent, again, I just think that’s a lever we should consider pulling.
Martin McNulty (Chief Executive Officer)
Yeah, I understand that. And then I just want to make sure I understand your comment about year-end book value. I just want to make sure I’m answering that question or addressing it appropriately.
Adam Eagleson (Analyst)
Yeah. I thought you said there’s something with regard to some of the benchmark accounting that was going to have a—sounded like a positive effect on book value. Maybe I misheard.
Michael Zambito (Chief Financial Officer)
Yeah, sorry. I just want to clarify that. So when we drill a well, there’s obviously, or hopefully, significant future value associated with that well. So net asset value of that well—when we put it on the books, that potential future value doesn’t show up anywhere. It just goes on the book at cost. And then as we produce, there’s depreciation and depletion associated with that well, and net income. And so the net income is what feeds the book value.
At year-end, we’ll publish our reserve report, and that is what—not book value—but that reserve report is what gives investors a view into the actual value of the reserves that we own.
Adam Eagleson (Analyst)
Got it. Okay. Thanks for clearing that, clarifying that.
Michael Zambito (Chief Financial Officer)
Yeah, of course.
Adam Eagleson (Analyst)
All right, well, hey, that’s encouraging to see. Nice job.
Martin McNulty (Chief Executive Officer)
Yeah, no, thanks, Adam.
Vincent (Operator)
There are no further questions at this time. This now concludes today’s conference call. Thank you for participating. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.