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spk01: we are still in the early innings of translating that into our financial results. As of today, much of the market remains a significant opportunity for us. Moving forward, we also anticipate that we will be able to approach the OTT market more aggressively following our recent separation from the product business, since we are no longer restricted by the channel conflicts we've discussed in the past. When we look at this market, it is important to note that we anticipate the average per subscriber rate will be less than what we have established in the U.S. pay TV market. However, given the average number of OTT services each household subscribes to, this is a significant opportunity for us. Next is consumer electronics. First, for the purpose of this presentation, we have excluded mobile from the CE market. The total CE market in 2021 was $139 billion and continues to be an attractive licensing opportunity for us, especially for the global CE providers that ship significant volume into the United States. Consumer electronics provides us with strong visibility for our annual baseline revenue and represents an area of growth with further market penetration. Lastly, social media is an attractive growth market for us and in 2021 was $136 billion market. We have had early success in this market, and we believe the opportunity will continue to expand with the explosion of video on social media platforms. In addition to these already large and attractive markets, we are actively working to expand into ad tech, automotive, gaming, music streaming, and sports gambling. As these markets further develop, we will provide additional details on these opportunities. Supporting these growth opportunities is our world-class team of engineers, inventors, and IT licensing executives and professionals. Our headcount currently stands at approximately 110 employees, and we expect to grow that in the near term to around 125. I would like to highlight our media R&D team. This impressive team averages over 20 years of experience at top-tier companies, including Dolby, Amazon, Qualcomm, Charter, Samsung, and Snap, to name a few. Approximately 60% of the team have PhDs and the rest hold master's degrees, and they are all prolific inventors. Our strong internal team also collaborates with top R&D labs and academia around the world to enhance our patent innovation engines. Collectively, this team is now producing more innovation disclosures than we had prior to separation with the combined product business. It is these invention disclosures that will lead to organic growth in our patent portfolios. Another benefit of the separation that we expected and are now beginning to realize is that without the need to navigate the separate roadmaps and strategic priorities of the Xperia product business, there is a greater focus and alignment in our R&D teams on the truly innovative and disruptive technology that will drive the value of our portfolio over the long term. Turning to our semi-business, we continue to focus on executing in our five core semiconductor market segments. Image sensors, RF front-end, DRAM, NAND, and LOGIC. We are actively engaging in partnership and licensing discussions with the remaining major unlicensed companies in each of these sectors, with an emphasis on promoting the adoption of our hybrid bonding and advanced processing node technologies. We also continue our efforts to promote our proprietary hybrid bonding technology and advancing the industry beyond Moore's Law. Our marketing, thought leadership, and promotion of hybrid bonding at industry events has increased significantly over the past year as the world began to emerge from the COVID-19 pandemic. At these events, and based on customer feedback, we are widely recognized in the industry as a leader in hybrid bonding, and we've recently seen an increased pull from our customers and partners. We also significantly enhanced our internal semiconductor team with key additions, including a new senior sales executive and a new head of strategy. These hires add decades of experience and domain expertise and will help drive success for the next chapter of our semiconductor business. Before I turn it over to Keith, I want to provide a high-level look at 2023. As a reminder, we will provide 2023 guidance on our fourth quarter earnings call in February of next year. First, we anticipate modest decline in revenue year over year. However, after accounting for the impact of our revenue recognized from Micron in the first quarter of 2022, we anticipate revenue growth in 2023. Second, in our first full year as a standalone IP company, we will demonstrate the benefits of the leverage from our highly profitable business model with investments in our patent portfolio growth, returning capital to our shareholders, primarily through our quarterly dividend, and paying down our debt through making accelerated payments. Third, we will continue to progress our efforts to expand into adjacent markets that will help accelerate our revenue growth. We anticipate initial progress in music streaming, as our IP portfolio already has significant applicability and we have begun the customer engagement process. The entire management team is excited about sharing our progress in 2023 and beyond. With that, I'll turn the call over to Keith to discuss our financials. Keith? Thank you, Paul.
spk03: As Paul mentioned earlier, we successfully completed the separation of the IT and product businesses on October 1st, thus achieving a tremendous milestone in our history. However, as of September 30th, we were still operating as a combined company, and the financial statements presented in our earnings release today reflect the results for both the IT and product businesses. Additionally, on November 8th, our counterparts at Experian Inc. provided a comprehensive review of the operating results for the product business for the quarter ending September 30th. We refer you to their earnings release and earnings call replays for more color on the financial results and the future outlook of the product business. While we have provided GAAP and non-GAAP results for the combined business, our discussion today will focus on the results of the ADIA on a standalone basis. To aid our conversation today and to provide a more historical perspective of ADIA as a standalone organization, we have supplemented provided historical income statements of the business within our earnings deck. The earnings deck also provides reconciliations of the GAAP to non-GAAP numbers. Now, let me walk you through our operating results for the third quarter. Revenue was $89.3 million, representing a 17% decrease from the prior quarter. The decline was principally driven by the recognition of a significant catch-up license fee in the prior quarter. As Paul mentioned earlier, there were a couple of deals in our pipeline we anticipated to close in the third quarter that have subsequently moved into our fourth quarter forecast. We remain confident we will get these deals closed this year, which is reflected in the guidance, which I will cover later in the call. During the third quarter, we signed several agreements covering both our media and semiconductor portfolios, including agreements with Philo and Foxtail. These multi-year agreements contribute to the stability of our $375 million baseline revenue amount. Now let's discuss our operating expenses, which I will be referring to non-GAAP numbers only. Operating expenses were $30.4 million, a 7% increase from the prior quarter. Research and development expenses increased $466,000, or 4%, primarily due to spending associated with our efforts to further build out our innovation and development engine. Selling general and administrative expenses increased $1.3 million, or 8%, from the prior period. primarily due to higher personal costs and administrative support functions as we continue to put in place the infrastructure to operate as a standalone company. In the third quarter, interest expense to our term loan was $12.3 million, up from $9.5 million in the prior quarter, primarily due to the impact of higher interest rates on the loan. Other income was $900,000, primarily related to interest earned on our cash and investment portfolio. Our non-GAAP income tax rate was 23% for the period. Our income tax expense consists primarily of federal and state domestic taxes, as well as Korean withholding taxes. As we discussed during our investor day, Our financial model provides significant operating leverage. Specifically, our EBITDA for the third quarter was $59.2 million, reflecting an EBITDA margin of 66%. Depreciation expense for the quarter was approximately $400,000. Now, let me provide a few balance sheet details for Adia post-separation. Following the separation, we had $89.6 million in cash, cash equivalents, and marketable securities. Additionally, we retained the outstanding term loan, which had a balance of $759.4 million. This balance reflects paying down $10.1 million during the third quarter. Also during the quarter, we paid a cash dividend of 5 cents per share of common stock. Further, our board approved the payment of a five cents per share dividend on December 21st to stockholders of record as of November 30th. Now turning to our guidance. Our license agreements tend to be quite large and complex by their nature. As we look to ensure that we achieve the commiserate economic return relative to the value our patented inventions provide, the timing and execution of our license agreements can vary. creating fluctuations in our revenue from quarter to quarter. As such, we generally believe evaluating our performance on an annual basis is the most appropriate measure. Thus, we will be focused on providing guidance on a full-year perspective only. Accordingly, we will be providing standalone guidance for the full year 2022. However, as Q4 will be the first time we are reporting standalone results, On this particular occasion, we'd like to give more insight and we'll also be providing guidance for the fourth quarter of 2022. For the fourth quarter of 2022, we expect revenue to be in the range of 95 to $110 million. We expect operating expenses to be in the range of 35 to $39 million. We expect interest expense to be in the range of $15 to $17 million, and we expect other income to be approximately a half a million dollars. For the full year 2022, we are narrowing our prior revenue guidance range to $430 to $445 million. We expect operating expenses to be in the range of $120 to $124 million. We expect interest expense to be in the range of $45 to $47 million. And we expect other income to be approximately $2 million. We expect the non-GAAP tax rate to remain consistent at roughly 23% for both the fourth quarter and the full year. Our tax rate, a standalone basis, is higher than previously reported on a combined basis largely in part due to a greater mix of domestic-based income and utilization of certain tax credits. From a CapEx perspective, our overall needs are relatively light given our operating structure and condensed operational footprint. As such, CapEx for the fourth quarter is expected to be approximately $200,000. In closing, I'm very pleased with our results. Our media and semiconductor portfolios provide exceptional opportunities in both markets that will drive our long-term growth. With the operating leverage our financial model provides, we are well positioned to have a balanced capital allocation strategy that will help grow our business. This consists of making both organic and inorganic investments in our company to help further expand our patent portfolio and drive adoption. Additionally, we look to make accelerated payments against our term loan in order to strengthen our balance sheet. As part of our long history of returning capital to shareholders, we remain committed to continuing our dividend program. Also, I'd like to acknowledge and thank all the employees of both Adia Inc. and Xperia Inc. for all their hard work and dedication throughout this process to have successfully fulfilled the long-term vision that was set forth several years ago. And with that, I'd like to turn the call over to the operator for questions. Operator?
spk08: Thank you, sir. We will now be conducting question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation turn will indicate that your line is in the question queue. You may press star 2 to leave the question queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. Our first question comes from Nick Zangler of Stevens.
spk04: Yeah. Hey, guys. So I think you're talking about a modest revenue decline in 2023, obviously when you're comparing to the micron deal. If I recall at the analyst day, you talked about a 6% CAGR. I think that was starting from F21 and going through what I believe was F25. So would that imply that there's an acceleration in revenue as you look past 2023 into the 24, 2025 period, if I'm getting my math right there and And if so, just curious what the driver of that acceleration might be.
spk01: Yeah. Hey, Nick. Thanks. This is Paul. You know, I think that's a great question. Thanks for asking it. And, you know, the CAGR was built from 2021 revenue as the baseline and went out about five years, so into 2026. And certainly we see revenue growth expanding past 2023 and accelerating a bit. But from 2021 into that 2026 period, and certainly it won't be linear as our business is often high dollar, small number of deals, but high dollar deals. And so you can see step ups during that period of time.
spk04: Gotcha. And is there, just actually on that then, is there a way to think about, I guess, the number of and size of IP arrangements and agreements that come up for renewal each year, just, I guess, to gauge, you know, either the risk of a non-renewal in a year, but also as well the likelihood that a particular arrangement is renewed and at more favorable rates?
spk03: I think that's a great question. You know, I wish there was an easy answer. You know, the truth of the matter is that our deals do vary in size. You know, one thing to kind of point out is that we're a big dollar small volume shop. So, you know, with that being said, all of the deals that we chase have some impact. But really what I would point to is if you take a look at our history, we have been incredibly successful at renewing. You know, it's greater than 90%. So, I think one parallel you can follow is when we talk about our, our baseline revenue at 375, you know, it's a combination of couple things. It's a combination of what we have signed today and those things that we have very good line of sight and a high degree of confidence in signing. So, you know, from that risk profile, you know, we adjust, but on both ends, you know, we see that growing and we have great confidence in renewing in the future.
spk04: Got it. And then, very helpful, and then last one, For me, um, just obviously because you know, your, your standalone company now, and we're getting used to the way that you guide, but obviously 85% of your revenue base is considered recurring. Um, yet if you, if you look at like the guide for 4Q, um, the range is 15 million between, uh, peak and trough. So basically like, you know, that that's the 15% right there, um, or, or pretty close. So just considering that so much of your revenue base is recurring, maybe you can help explain why the gap between the peak and trough revenue estimate is theoretically so wide. What considerations are being made when you put out that revenue range for the quarter?
spk03: I think that's a great question. And I like the way you tied that question back into your previous question because they're related. What that really means is that Once again, we have large sizable deals. And what I talked about, you know, the impact any given deal on a quarter could have some influence on what we report from quarter to quarter. And quite frankly, even though we manage the business and we have targets, but really when you, when we think about how we want a report card and how we score ourselves on an annual basis, because the timing of those bills can shift. There clearly could be a situation where we're negotiating a contract in general commercial terms that we need to, as Paul said, we need to kind of hold the line and get the best terms that we can, and that might slip a month or something like that. And that could have $10 million impact on revenue if they're out of license, if you will. So with that, that's why you're seeing that gap in the range, and that's why it's very difficult of just really to measure us on a quarterly basis, and that annual guidance is much more reflective. Because going back to your first question, when I take a look at what we had talked about during Annals Day, and then looking at what our profile looks like, the pipeline remains strong, and it's pretty much the consistent strong numbers. You know, there's really no change in our outlook.
spk04: Got it. I don't know if I said last one last time, but this is the last one. I don't know. I don't know if you guys are willing to do it again, obviously, you know, now that you've broken out and new company and everything, but is there obviously litigation expenses are, are recurring cost for you guys. Are you willing to kind of like walk through everything that's pending right now? Like all, all of your efforts that you're, you know, the various, you know, potential companies that you're going after and trying to come to some sort of agreement. Is there any way to kind of just walk through the list of, you know, where you're chasing potential agreements?
spk01: So, Nick, maybe just a clarifying question first. Are you referring to outstanding litigation or in a broader sense?
spk04: I'm more referring to, I guess, outstanding litigation. I'm just trying to determine, like, where there are opportunities Where you have, you know, feet on the ground, you know, trying to come to a resolution and therefore like an agreement could be reached, you know, at any near term time.
spk01: Sure. If you look in our 10Q, Nick, it lists all of our outstanding litigation currently. So it's really Canada. And then there's an older litigation matter with NVIDIA that's still outstanding as well. And that's really it. that we currently have outstanding. I think there's, and we'll provide those updates, obviously, on a quarterly basis in our 10Q, and that's where you should look for them. I would remind you, though, that the vast majority of our deals get done without litigation, right? And so it's not a significant part. We use litigation as a last resort, but our goal is to get deals done without litigation, and we're very successful at that. And so, you know, I wouldn't look for that as kind of the driver necessarily for our success. It's really, you know, when we end up in litigation, it's because we need, you know, a third party to help validate the value of our portfolio.
spk04: Understood. Great. Thanks so much for that. Really appreciate it. Good luck going forward. Thanks.
spk02: Thanks, Nick. Thanks, Nick.
spk08: The next question comes from Hamid Gursangt. Hi.
spk05: Could you just talk about the essence of why the pushout occurred and why you thought it would happen in Q3 and it did not?
spk01: Sure. Obviously, we did get deals done in Q3, but the business, as Keith mentioned earlier, is a hard, uh, one to predict on a quarterly basis because they are, you know, sizable deals that we're trying to get done. And we want to make sure we're getting the best deal done, you know, over a longer period of time. And so, you know, the negotiations and discussions with the other parties are, are going well. Uh, but we, we just weren't, weren't ready to, you know, close them out at that, at that time. And so we, you know, we, we, uh, decided, you know, as a company, it was better to go for the longer-term value. So we see that from time to time. But on an annual basis, and this is why Keith mentioned it earlier, is that we'll guide on an annual basis going forward because that's how we see and value the business rather than on a quarterly because you can get those shifts from time to time.
spk05: Is this with an existing licensee?
spk02: There's multiple discussions. It wasn't just one deal.
spk05: Okay. And then just given the fluid nature of the business with these negotiations, how do you put them into each bucket of what's a certain event and what's not so this doesn't happen again, especially when you look out into 23?
spk01: Sure. Well, I would say, again, we look at it. Certainly on an annual basis, and the quarterly fluctuations can happen from time to time. But I'd say that what we look at is where they are in the cycle of the deal negotiation. Are we talking financial terms? Are we exchanging draft agreements? Or are we, you know, at an earlier stage where we're having technical discussions on the value of the portfolio? And so, you know, we monitor that closely, and we're very good at kind of gauging on where we're coming out on, you know, for our year. And, again, those quarterly fluctuations can happen. But, you know, right now, as we look at, you know, closing out the year, we feel very confident in our annual guide, and that hasn't changed.
spk05: Okay. My last question is – Given the different end markets that you were talking about in your presentation slides, what does the funnel look like for 23? Is there a particular end market that you think you'll be capturing more of when you look out the next 12 months?
spk01: You know, certainly we continue to have success in, you know, USPATV and also in consumer electronics. We've had, you know, quite a bit of success in both of those areas. But the other markets are large and attractive as well. You know, OTT, you know, and social media, we've had deals there. So there's deals across the, and even international pay TV with our announcement of Foxtel, right? So we continue to have deals in all of those. We've signed 30 deals in the last, you know, 12 months, as we mentioned earlier as well. So, you know, there's not one deal. And so, you know, that we, you know, as we look out in each market, there's opportunities everywhere. Not to mention, you know, we also have deals in semi as well. So we, that we're, you know, we're actively progressing as well. Those market segments that I highlighted today were in media, but we also feel good about the progress we're making on the semi part of the business as well.
spk07: Okay. Thank you. Thank you.
spk08: Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star M1. to place itself in the question queue. The next question comes from Matthew Galenko of Maxim Group. Matthew Galenko of Maxim Group Hey, good afternoon.
spk06: Thanks for taking my questions. I guess maybe going to the unlicensed opportunity in STEMI, particularly around the addressable markets for hybrid bonding, how do you think about the pace of capturing that opportunity?
spk01: Yeah, we're excited about the opportunities that we see. There's obviously, we're getting a lot of coal, as I mentioned on the call. These deals take time. Our average sales cycle is 18 to 24 months from start to finish. And so we're at various different time periods with a number of those discussions. As I look at the semi-market You know, certainly, you know, as a memory, we've had a lot of success in and we continue to have some unlicensed opportunities there, especially in, you know, the NAND market that we're actively pursuing. But we also see logic, you know, starting to come into play more and more and seeing more pull there. Obviously can't get into the details of the specific customers, but, you know, we're excited about the pipeline of opportunities in Semi as that business continues to really kind of expand into its next phase.
spk07: Got it. Thanks.
spk06: And I guess, I think you mentioned plans to add to head count modestly. I guess what is the, what is the cadence or what should we expect in terms of that cadence in terms of how they hit between the fourth quarter and, you know, throughout 2023 and does the, you know, Do the current dynamics in the tech labor market make it more likely that you're able to make the hires that you're targeting?
spk01: Yeah, we certainly hope so. I mean, I think, you know, we're in a unique situation where, you know, we're trying to, you know, expand our team, especially on the R&D effort, as we talked about before, where you've got a 10% growth. We've already expanded that team significantly, as I mentioned on the call. But we do have some hires specifically in that area that we're focused on, and we think there'll be tremendous opportunity given the market dynamics that we're seeing globally. And to answer your question on terms of the timing, it will really be spread out over the year. I don't think there'll be a, you know, a big hire in Q1 or not, but, you know, we are actively looking to expand the team. So, you know, it might be slightly front loaded, but, you know, I do see that spread out over the course of the year.
spk07: All right. Thank you. Thank you.
spk08: Ladies and gentlemen, we have reached the end of our question and answer session. I will now turn the call over to Mr. Paul Davies. for closing remarks.
spk01: Thank you, Operator, and thank you, everyone, for joining today's call. Keith and I look forward to seeing many of you at the Stevens Annual Investment Conference next week in Nashville. As we close out 2022, we are excited about our path forward on a standalone basis and demonstrating continued growth in our highly profitable business model. Thank you again for joining us on the call. Goodbye.
spk08: Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. Anyone else, connect your line.
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