Adeia Inc.

Chris, please go ahead. Good afternoon, everyone. Thank you for joining us as we share with you details of our quarterly financial results. With me on the call today are Paul Davis, our President and CEO, and Keith Jones, our CFO. Paul will share with you some general observations regarding the quarter, And then Keith will give further details on our financial results and guidance. We will then conclude with a question and answer period. In addition to today's earnings release, there is an earnings presentation which you can access along with the webcast in the IR portion of our website. Before turning the call over to Paul, I would like to provide a few reminders. First, today's discussion contains forward-looking statements that are predictions, projections, or other statements about future events which are based on management's current expectations and beliefs, and therefore subject to risks, uncertainties, and changes in circumstances. For more information on the risks and uncertainties that could cause our actual results to differ materially from what we discussed today, please refer to the risk factors section in our SEC filings, including our annual report on Form 10-K and our quarterly report on Form 10-Q. Please note that the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after this call. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results as we do internally. We have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in the earnings release, the earnings presentation, and on the investor relations section of our website. A recording of this conference call will be made available on the investor relations website at adia.com. Now, I'd like to turn the call over to our CEO, Paul Davis.

Thank you, Chris, and thank you everyone for joining us today. We delivered results for the second quarter that were in line with our expectations, with revenue of $87.4 million and adjusted EBITDA of $52.8 million. I am pleased with the progress we are making across all aspects of our business, and we remain on track to achieve our strategic objectives for 2024. During the second quarter, we signed five license agreements across diverse end markets, including in social media, consumer electronics, semiconductors, and pay TV. Additionally, shortly following the end of the quarter, we signed a multi-year renewal with Liberty Global, a leading European pay TV operator. We continued to pay down our term loan in the second quarter, and we saw an opportunity to reprice our debt. I am very pleased with the terms of the repricing, which will save us over $3 million annually in lower interest expense and provide us with additional financial flexibility moving forward. We remain committed to continuing to pay down our debt, And under the new terms, we will be able to take a more balanced approach to capital allocation and return more capital to shareholders and have more firepower for tuck-in acquisitions to help grow our business. Since our separation, we have been diligently working to add license agreements in key growth verticals such as OTT, semiconductors, and adjacent media markets. We're very excited with the agreements we've signed to date and the progress we're making on new deals in each of these markets. During the quarter, we also continue to expand our pipeline of opportunities in both media and semiconductors as we look to continue to grow our business in 2025 and beyond. In the second quarter, we were very pleased to reach an agreement with XCorp, formerly Twitter, for a multi-year license renewal. The agreement resolves all outstanding litigation, and I am pleased that XCorp is a paying customer once again. The agreement further validates the value of our IP and demonstrates our commitment to enforcing the contractual terms we have with our customers. We also signed a multi-year renewal with Panasonic, which continues our success in consumer electronics, and signed multi-year renewals with two regional pay TV providers in the US. In semiconductors, we signed a new long-term agreement with Hamamatsu. This new agreement supplements an existing license, adding access to our die-to-wafer hybrid bonding technology. This new agreement follows from a prior development license to our wafer-to-wafer hybrid bonding portfolio and a technology transfer agreement. Our relationship with Hamamatsu highlights how partnerships with our customers can help accelerate the advancement of their hybrid bonding capabilities and improve their products. As noted earlier, shortly following the close of the second quarter, we also signed a multi-year renewal with Liberty Global a leading pay TV provider in Europe. This deal is significant as we continue to strengthen our customer base internationally. We are on track to meet our objectives for this year and continue to make progress towards our long-term goals. We plan to drive revenue growth by growing our customer base in OTT, adjacent media markets, and semiconductors. and by maintaining our strong renewal rates in our well-established pay TV, consumer electronics, and social media verticals. To continue to grow our revenue and customer base, it is imperative that we further expand our IP portfolios. We close the second quarter with over 11,500 worldwide patent assets. Our portfolio growth objectives are focused on maintaining our strong renewal rate while adding new customers in our key growth markets. Our customer relationships are founded on the value of our IP and are fundamental to renewals. Our investments in R&D and augmenting our technical sales and engagement resources will drive the addition of new customers in both existing and adjacent markets. Our priority remains to grow our portfolios organically through investments in internal R&D and inorganically by actively pursuing acquisition opportunities that strategically enhance our organic efforts. Our focus at Audia is driving next generation innovations for our customers and markets we serve. As such, we were thrilled to be recognized amongst the most prolific inventors in the world for 2023 by Herity & Herity, a leading patent analytics firm. Last year, we were granted 554 patents, for which we were ranked number 70 in the world for the number of granted patents. We ranked higher on the list than many of the most well-respected media companies, such as AT&T, Verizon and Comcast, and some of the hottest semiconductor companies leading the AI charge, such as AMD and Nvidia. This is particularly remarkable since these companies have significantly larger R&D resources than we do. Yet, we achieve these results because of our unique business model, which allows our dedicated scientists and engineers to be exclusively focused on critical, forward-looking innovations. I am immensely proud of our team for this accomplishment. Thought leadership is one of our hallmarks and demonstrates our commitment to innovation. Our R&D professionals continue to fully engage in the ecosystems in which we participate. delivering insightful presentations, speaking on topical panels at industry conferences, and publishing research on important forward-looking trends. In the second quarter, members of our media team presented Computing While Cooling at Streaming Media NYC and participated in a panel on the pivotal role of R&D in gaming innovation at the XP24 Game Summit. Likewise, members of our semiconductor team gave two presentations on hybrid bonding at this year's electrical components and technology conference in Denver. I was particularly proud that our paper on fine pitch died away for hybrid bonding was recognized as best session paper at the conference. Additionally, we delivered a presentation on co-optimization of semiconductor systems at the 2024 SEMI 3D and systems conference. I am very pleased with the progress we have made to date, and I am confident we will achieve our 2024 goals. With that, I would like to now turn the call over to Keith for a review of our second quarter financial results.

Thank you, Paul. I am pleased to be speaking with you today to share details of our second quarter 2024 financial results. During the second quarter, we delivered revenue of $87.4 million, driven by the execution of five license agreements across a diverse mix of end markets, including social media, consumer electronics, semiconductor, and pay TV. These results are in line with our prior expectations, as we anticipate seeing strong momentum in the second half of the year. Now I would like to discuss our operating expenses, for which I'll be referring to non-GAAP numbers only. During the second quarter, operating expenses were $35.1 million, an increase of $1.2 million, or 3% from the prior quarter. Research and development expenses increased $590,000, or 4% from the prior quarter. The increase in the second quarter is primarily related to patent filings and related maintenance costs. Selling general administrative expenses decreased $773,000 or 4% from the prior quarter, primarily due to the recovery of bad debt expenses associated with the resolved contract dispute with X-Corp and due to lower corporate administrative costs. These decreases were partially offset by increased third-party spending associated with the build-out of our licensing platforms in OTT, semiconductor, and adjacent media markets. Litigation expense was $4.3 million. An increase of $1.3 million were 45% compared to the prior quarter, primarily due to the timing of expenses related to certain legal matters. Interest expense during the second quarter was $13.3 million, a decrease of $879,000 from the prior quarter due to the benefit of a lower interest rate following the successful repricing of our term loan B and due to our continued debt repayments. Our current effective interest rate, which includes amortization of debt issuance costs, was 9.6%. Other income was $1.4 million and was primarily related to interest earned on our cash and investment portfolio and due to interest income recognized on revenue agreements with long-term billing structures under ASC 606. Our adjusted EBITDA for the second quarter was $52.8 million, reflecting an adjusted EBITDA margin of 60%. Depreciation expense for the quarter was $490,000. Our non-GAAP income tax rate remained at 23% for the quarter. Our income tax expense consists primarily of federal and state domestic taxes, as well as Korean withholding taxes. Now for a few details on the balance sheet. We ended the second quarter with $94.5 million in cash, cash equivalents, and marketable securities, and generated $23.5 million in cash from operations. We made $12 million in principal payments on our debt in the second quarter, and ended the quarter with a term loan balance of $549.1 million. During the second quarter, in light of favorable market conditions, we saw an opportunity to reprice our existing term loan agreement. We are very pleased with the outcome of the repricing as we achieved two significant benefits. First, we successfully lowered the fixed interest rate component by 61 basis points. This results in a significant $3.4 million savings on an annual basis. Secondly, we greatly reduced the mandatory excess cash flow payment thresholds, effectively providing us with greater financial flexibility on our uses of capital as we exit 2024. Specifically, while we remain dedicated to deleveraging our balance sheet by continuing to make accelerated payments on our term loan, this improved flexibility will allow us to take a more balanced approach in returning capital to shareholders through stock repurchases in addition to our current dividend program. Additionally, we have increased our capacity to grow our business through tuck-in acquisitions. During the second quarter, we paid a cash dividend of $0.05 per share of common stock. Our board also approved a payment of another $0.05 per share dividend to be paid on September 17th to shareholders of record as of August 27th. Now, I will go over our guidance for the full year 2024. We are pleased with the progress we are making on executing our sales pipeline. Consequently, we are reiterating our prior revenue guidance for the full year. We expect revenue to be in the range of $380 to $420 million, which includes significant new licensing agreements in both OTT and semiconductor in the second half of the year. During the first half of the year, we have seen continued execution of our various strategic objectives. As the year has progressed, we have achieved these goals with lower-than-expected third-party spending as we develop our new licensing platforms. We have been able to leverage our internal resources to a greater extent than initially planned. Additionally, our litigation expenses have been somewhat lower than expected due to the settlement with XCorp and the timing of ongoing litigation. As a result, we are lowering our guidance for operating expenses and we expect them to be in the range of $145 to $155 million, which is $5 million less than we previously guided. We remain dedicated to our commitment to R&D as we grow and expand our IP portfolio. Because of our lower interest rate from our debt repricing, our interest expense will be less than we originally anticipated. As such, we are lowering our guidance for interest expense to be in the range of $52 to $55 million, which is $2 million less than we previously guided. We expect other income to be in the range of $5 to $6 million. We expect a resulting adjusted EBITDA margin of approximately 63%. We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year. We also expect capital expenditures to be approximately $2 million for the full year. The second quarter was in line with our expectations. We are progressing nicely on all fronts and we remain confident we will achieve our goals for the year. The concerted efforts of the entire Audia team will serve as a springboard for success as we strive to grow and expand our exceptional business model. That brings an end to our prepared remarks. And with that, I'd like to turn the call over to the operator to begin our question and answer session. Operator?