Adeia Inc.

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 adya.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. I'm glad to be here again to share the results and progress we've made in the second quarter. Our second quarter results were in line with what we indicated on our last earnings call. We delivered $85.7 million in revenue and cash from operations of $23.1 million. We also reduced our debt by $11.1 million, bringing our total debt paydowns and separation to over $300 million, a testament to our cash generative business model and our disciplined capital allocation approach. We have good visibility into the second half of the year and are reiterating our full year revenue guidance. Based on the progress we've made in the first half of the year, we now have multiple paths to achieve our revenue goals. While the significant semiconductor opportunity we previously referenced remains an attractive opportunity and a key focus of ours, it is not the only path to achieving our revenue target for the year. We have also advanced other high potential opportunities to the point that we see a path to close them this year. And these other opportunities could help us achieve our revenue target for 2025, even if we need to take a different strategic direction with the semiconductor customer. Collectively, these opportunities both reinforce our confidence in achieving our goals for the year and achieving our long-term objectives. Keith will walk through our financials and outlook in more detail shortly. Before diving into our second quarter deal activity, I'd like to highlight an exciting recent development in our semiconductor business. As you're all aware, the pervasiveness and rapid adoption of AI has created tremendous demand for data centers throughout the world. In those data centers are servers running the most advanced high-performance semiconductors. These semiconductors not only consume an enormous amount of power, but they also create a tremendous amount of heat. The AI era is driving up the power densities of these semiconductors and traditional cooling solutions are unable to meet the thermal loads. In late May at the iTherm and ECTC conference in Dallas, we introduced RapidCool, a revolutionary direct to chip liquid cooling technology for high-performance semiconductor devices. This groundbreaking technology, which has evolved from our deep experience in hybrid bonding and advanced packaging technologies, eliminates thermal interface materials used in conventional processes. RapidCool thereby increases heat dissipation efficiency and lowers the temperature of the semiconductor. Our RapidCool technology bonds the silicon cold plate directly to the semiconductor, thereby eliminating the thermal interface materials others use and lowers thermal resistance by 70%. This allows RapidCool to effectively manage heat in semiconductors running at three times today's current power densities. Additionally, RapidCool targets specific hotspots on the semiconductors, further enhancing thermal management. We are currently working with industry partners who have requested RapidCool prototypes to evaluate for their future products. As part of our roadmap, we continue to develop options that address the growing thermal demands of high-performance processors and high-bandwidth memory devices. We are extremely excited about the potential of this technology and see it as a growth driver for us in the mid to long term. Turning to our second quarter momentum, we signed five license agreements, consisting of four in media and one in semiconductors. Three were with new customers in key growth areas of semiconductors and e-commerce. We are making great progress bringing on new customers, which is critical to our growth strategy. Over the last three quarters, 11 of the 25 license agreements we have signed have been with new customers. Our strategy of targeting new customers in growth markets is producing results. Our second quarter recurring revenue was up modestly year over year, and our non-PATV recurring revenue was up an impressive 28% during the same period. We signed a multi-year license agreement with STMicroelectronics, a global leader in analog and digital semiconductors. This deal was driven by our hybrid bonding technology, which continues to gain traction as a key enabler for AI and high-performance semiconductor devices. We also signed two renewals in the second quarter. These renewals continue our strong track record of over 90% of our customers renewing their license agreements with us. Renewals provide predictable revenue and validate the ongoing relevance of our IP as customers continue to rely on our innovations to deliver value to their end users. One of these agreements was a multi-year renewal with a popular domestic OTT streaming service. OTT remains one of our high priority growth markets due to our media portfolio's applicability and the OTT market sheer size and subscriber growth trajectory. Having penetrated only a portion of this market today, there is significant opportunity as we continue to pursue large customers in this key market. We signed multi-year license agreements with two new e-commerce customers for access to our media portfolio. One of these agreements is with Warby Parker, a popular and rapidly growing eyeglass retailer. This follows the success we had last year signing Neiman Marcus. E-commerce is particularly exciting to us because of the sheer breadth of potential customers across numerous industries where the possibilities are virtually unlimited. Our initial license agreements mark an important entry point in validating our media portfolio for the e-commerce market. These early wins lay the foundation for scale and we expect deal volume to build as our market presence expands. We are on track to achieve our goal of delivering sustainable long-term growth. The renewals we've signed with existing customers and importantly, the license agreements with new customers in our key growth markets such as semiconductors and e-commerce last quarter will contribute to achieving this goal. In the second quarter, our patent portfolio grew by 2% to over 13,000 assets. This brings our first half portfolio growth to a little over 6% as we continue to evolve our portfolio to meet the needs of our fastest growing markets. While growth may moderate over the rest of the year, our focus remains on quality and relevance, not just volume. Our Charon Cash Generation supports a balanced capital allocation strategy, investing in strategic tuck in acquisitions, reducing debt and returning capital to shareholders through dividends and share repurchases. Keith will share more on our capital allocation activity in a moment. Finally, I'm proud to share that for the second year in a row, Audio was named a best company to work for by US News and World Report. This recognition reflects our strong culture and helps us attract and retain world-class talent. With that, I'll turn the call over to Keith for a review of our financial performance. Keith.

Thank you, Paul. I'm pleased to be speaking with you today to share details of our second quarter, 2025 financial results. During the second quarter, we delivered revenue of $85.7 million driven by the execution of five license agreements coming our strategic in markets, including Semiconductor, OTT, E-commerce, and Pay-TV. This includes three new customers that we added during the period, which further expands our customer base. 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 $40.6 million, a decrease of $297,000, or 1% from the prior quarter. Research and development expenses decreased $798,000, or 5% from the prior quarter. The decrease in the quarter is primarily due to lower patent filing administrative fees and personal costs. Selling general and administrative expenses decreased $819,000, or 4% from the prior quarter, primarily due to lower personal costs. Litigation expense was $7.2 million, an increase of $1.3 million, or 23%, compared to the prior quarter, primarily due to spending associated with our ongoing litigation with Disney. Interest expense during the second quarter was $10.2 million, a decrease of $433,000, primarily true to our continued debt repayments. Our current effective interest rate, which includes amortization of debt issuance costs, was 7.8%. 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 $45.7 million, reflecting an adjusted EBITDA margin of 53%. Depreciation expense for the quarter was $488,000. 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 $116.5 million in cash, cash equivalents, and marketable securities, and generated $23.1 million in cash from operations. As a reminder, we experienced fluctuations in our cash flows due to the billing structures of some of our agreements, whereby we received lump sum annual payments. As a result, our first and fourth quarters tend to be significant cash generation quarters for us, whereas our second and third quarters tend to be more modest. We made $11.1 million in principal payments on our debt in the second quarter, and ended the quarter with a term loan balance of $458.9 million. During the quarter, we reached a significant milestone, as we have now paid down more than $300 million since our separation in October 2022. This is a clear testament to our highly cash generative business model, and our disciplined focus on deleveraging our balance sheet. During the second quarter, we paid a cash dividend of five cents per share of common stock. Our board also approved a payment of another five cents per share dividend to be paid on September 16th to shareholders of record as of August 26th. Now I'll go over our guidance for the full year 2025. We are reiterating our prior revenue guidance for the full year. We expect revenue to be in a range of $390 to $430 million. We're pleased with the progress that we continue to make in both adding new customers and growing our sales pipeline. As always, we remain actively engaged with our customer base, as we monitor how their businesses are progressing during this dynamic economic environment. As a result of the relative uncertainty witnessed in the first half of the year, many companies were cautious, yet optimistic on how their businesses would be impacted, and thus reflecting a more heavily loaded second half for our revenue outlook. Today as anticipated, we see an increased level of engagement supporting our revenue forecast for the second half of the year. As we noted during our prior call, we made a conscious effort to be prudent in spending in light of the broader economic environment. Due to our efforts, we now expect operating expenses to be in a range of 160 to $166 million. Within that guidance range, we anticipate that our litigation expense will decrease modestly in the second half of the year, primarily due to the completion of the trials associated with our litigation against certain Canadian pay TV operators. We expect interest expense to be in the range of 40 to $42 million. We expect other income to be in a range of $5.5 to $6.5 million. We expect a resulting adjusted EBITDA margin of approximately 60%. 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 $1 million for the full year. The second quarter was in line with our expectations. With improved stability within the broader macroeconomic environment, and the strength of our sales pipeline, remain encouraged about both our short-term and long-term prospects. That brings it into 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.