Adeia Inc.

Good day, everyone. Thank you for standing by. Welcome to Audia's fourth quarter 2025 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will be open for questions. I would now like to turn the call over to Chris Chaney, Vice President of Investor Relations for Audia. 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. I'm pleased to be here to share our results for the fourth quarter and full year 2025. We delivered an outstanding year, both financially and operationally. Our record annual revenue exceeded the high end of our guidance range, and we delivered excellent operating income in EBITDA, also exceeding the high end of our guidance. Our record revenue for both the quarter and the year was driven by our dedicated focus on key growth areas, including OTT. I'm proud of our team's commitment to maintaining relationships and finding ways to resolve litigation matters efficiently, resulting in outstanding outcomes for our stakeholders. As we mentioned during the prior call, we were pursuing multiple opportunities that would lead to a strong start for 2026. With this deal momentum, we have already executed several new agreements this year, most notably a multi-year license agreement with Microsoft, a leading technology company. This agreement covers our media portfolio with broad applicability to Microsoft's business, including their consumer electronics and social media products and services. Let me discuss our fourth quarter results in a little more detail. In the fourth quarter, we delivered revenue of $183 million, highlighted by nine deals, including eight in media and one in semiconductors, with four new customers. Our efforts to diversify our revenue base continue to show results, with non-pay TV recurring revenue growing 30% in the quarter year over year. We are pleased to have signed Disney, our biggest new customer in the quarter, With Amazon and Disney, we now have licensed two of the largest OTT providers in the world. After an extended period of engagement with Disney, we took formal steps to protect our intellectual property while continuing constructive dialogue. Through the course of the litigation, which lasted approximately one year, We believe we were able to demonstrate to Disney the applicability of our portfolio to their services, and both parties reached a comprehensive agreement resolving all disputes. Concluding this matter efficiently reinforces the strength and broad applicability of our IP portfolio and provides additional momentum as we pursue further OTT opportunities. Another new customer in the fourth quarter was Major League Baseball, the second major U.S. professional sports league to sign a multi-year agreement for access to our media portfolio. We were also pleased to sign a multi-year renewal with Vodafone, reaffirming our relevance and strength in international pay TV markets. In addition, during the quarter we signed a new OTT customer in South Korea. a new consumer electronics customer in Japan, a domestic consumer electronics renewal, and two pay TV renewals, further demonstrating the breadth of our licensing platform. In semiconductors, we signed a prototype development agreement with an existing customer following an initial license agreement with them last year. The customer recognized early on the value of our hybrid bonding technology for high-performance imaging and detection systems. Now I'd like to provide a brief review of our accomplishments for the year. Turning to the full year, 2025 was a record year for Audia. Revenue reached $443 million, exceeding the upper end of our revised guidance with operating income of $276 million and adjusted EBITDA of $278 million, both above the high end of our guidance. Our results were driven by the execution of 26 license agreements across a diverse customer base spanning OTT, semiconductors, consumer electronics, pay TV, and e-commerce verticals. Importantly, we added a record 12 new customers, significantly expanding and diversifying our licensing base. Momentum was strong across both core and growth verticals, including nine pay TV deals, seven in OTT, and four semiconductor deals. New customers such as Disney, STMicro, Major League Baseball, and several e-commerce platforms contributed meaningfully to growth. Renewals with customers including Altice USA, Vodafone, and others continue to support the stability and predictability of our recurring revenue stream. Balanced capital allocation remained a priority in 2025. During the year, we reduced debt by $60 million, returned capital through dividends and share repurchases, and acquired six tuck-in patent portfolios, all while growing our cash balance. Our semiconductor innovation also received industry recognition. Our hybrid bonding technology was awarded best of show for most innovative technology at the Future of Memory and Storage Conference. In addition, RapidCool received the Global Brands Award for Technology Excellence. As demand for high-performance computing driven by AI continues to grow, we believe effective thermal solutions will be increasingly critical and remain focused on advancing RapidCool with partners and potential customers. Several opportunities we previously discussed have closed or are expected to close early in 2026, supporting our confidence in our annual revenue guidance. The opportunities in our pipeline continue to expand across both media and semiconductors. As we have previously mentioned, we are expecting pay TV as a percentage of revenue to decline below the historical average of approximately 50 to 60%. We are now anticipating pay TV will represent approximately 35 to 40% of our forecasted revenue this year. We are closely monitoring and taking direct action to challenges within our pay TV licensing program. Specifically, direct TV has filed certain litigation, which ultimately challenges the need for a new license agreement. We believe this is a clear violation of the agreements we had in place, and we have in turn filed a breach of contract suit against them. As we have demonstrated in recent disputes, including Altice USA and Disney, we are confident we will ultimately be able to successfully resolve this matter. As a reminder, the vast majority of US pay TV operators are licensed to our media portfolio, several of which agreements extend into the next decade. We continue to diversify our customer base. One of our primary strategic priorities over the last few years has been to grow our revenue in non-pay TV verticals such as OTT, semiconductors, consumer electronics, social media, and adjacent media markets. By adding new customers in these verticals, we have made tremendous progress. In 2025, we grew our non-pay TV recurring revenue by more than 20%. And since 2022, we have grown it by more than 60%. In semiconductors, we see the adoption of hybrid bonding broadening with new product releases anticipated in 2026. Hybrid bonding enables further advancement of Moore's law in an environment where there is a growing need for innovations that support rapidly evolving AI ecosystems and related infrastructure. While AMD is already in production with their hybrid bonded products, other logic leaders such as Intel, Broadcom, and Marvell have publicly disclosed product roadmaps that will utilize hybrid bonding. Hybrid bonding is also becoming critical in memory, especially in high bandwidth memory and NAND, which are increasingly needed to process today's large language models and other AI applications. Micron, Samsung, and SK Hynix are all making significant multi-billion dollar investments in advanced packaging capacity that support their hybrid bonding strategies for HBM and NAND. Semiconductor equipment tool makers involved in the hybrid bonding supply chain have further confirmed the rising adoption within their tool orders recently accelerating. With AI driving significant transitions in semiconductor architectures and the need for better cooling technologies only increasing, our hybrid bonding and rapid cool technologies position us well to capture meaningful opportunities in the next several years. Our patent portfolio underpins our future licensing activity. In 2025, we grew our portfolio by 13%, marking our third consecutive year of double-digit growth, driven by strategic R&D and targeted M&A. While portfolio expansion remains a priority, we expect growth to moderate over time. I'm pleased once again we were recognized by Herity & Herity as one of the most prolific inventors in the U.S., with our ranking rising compared to last year and ahead of industry leaders such as AMD, Broadcom, Verizon, and AT&T. Amongst these industry titans, I'm extremely proud that we had the 66 most new US patents issued in 2025, a remarkable achievement for a company of our size and a testament to our commitment to innovation. We achieved a lot in 2025. We strengthened our predictable revenue stream while expanding into key growth markets, positioning Adia for continued long-term value creation. We also recently enhanced our leadership structure to strengthen execution towards the company's long-term strategy and growth priorities. Specifically, we welcome back Craig Mitchell, to the newly created role of Chief Semiconductor Officer, where he will lead the company's semiconductor technology and R&D organization, and will be responsible for shaping Adia's semiconductor vision. In addition, Dr. Mark Cokes was appointed Chief Revenue Officer. Mark will oversee our global sales and go-to-market strategy across the organization. Finally, Bill Thomas was appointed to Chief Strategy Officer, a newly created position to oversee our long-term planning, market analysis, and growth initiatives. With this new leadership, I am confident we have the right team and structure to execute on our strategy. We are off to a strong start in 2026, supported by recent agreements and a growing pipeline. We remain focused on achieving our long-term goal of $500 million in annual licensing revenue. And now I'll turn the call over to Keith for further details on our financial results.

Thank you, Paul. I'm pleased to be speaking with you today to share details of our fourth quarter 2025 financial results. During the fourth quarter, we delivered strong financial results with revenue, operating income, and adjusted EBITDA, all exceeding the high end of our guidance. Record revenue of $182.6 million was driven by the execution of nine deals across a diverse mix of customers, including OTT, pay TV, consumer electronics, and semiconductor. During the quarter, we signed four new license agreements. This includes signing a significant license agreement with Disney, which greatly adds to our presence in the OTT market. Now I would like to discuss our operating expenses, for which I will be referring to non-GAAP numbers only. During the fourth quarter, operating expenses were $49.2 million, an increase of $12.1 million, or 33% from the prior quarter. The increase is primarily due to increased variable compensation as a result of exceeding certain performance targets. Research and development expenses increased $3.1 million, or 21%, from the prior quarter. The increase is primarily due to increased variable compensation as well as increased portfolio development costs. Selling general administrative expenses increased $7.7 million, or 44%, from the prior quarter, reflecting increased variable compensation costs. Litigation expense was $6.5 million, an increase of $1.3 million, or 25% compared to the prior quarter, primarily due to higher spending on AMD and Canadian litigation matters. Interest expense during the fourth quarter was $9.4 million, a decrease of $614,000. Primary trouble to our continued debt payments and due to lower variable interest rates during the period. Our current effective interest rate, which includes amortization of debt issuance costs, was 7.5%. Other income was $1.7 million and was primarily related to interest earned on our cash and investment portfolio and due to interest income earned on our revenue agreements with long-term billing structures under ASC 606. Our adjusted EBITDA for the fourth quarter was $133.9 million, reflecting an adjusted EBITDA margin of 73%. Depreciation expense for the fourth quarter was $484,000. 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 fourth quarter with $136.7 million in cash, cash equivalents, and marketable securities. And we generated $60 million in cash from operations. As demonstrated by our results, the fourth quarter has historically been a very strong cash generation period for us. This strong financial performance allowed us to execute on all four pillars of our balance capital allocation approach, while growing our cash balance. This includes paying down our debt repurchasing shares paying our dividend and making to tuck in acquisitions. We made $21.1 million in principal payments on our debt in the fourth quarter and ended the quarter with a term loan balance of $426.7 million. In the fourth quarter, we repurchased approximately 718,000 shares for $10 million, bringing the remaining amount available for future repurchases to $160 million under our current stock repurchase program. we paid a cash dividend of 5 cents per share of common stock. Our board also approved a payment of another 5 cents per share dividend to be paid on March 30th to shareholders of record as of March 16th. Now I'll go over our guidance for the full year 2026. Our 2026 revenue guidance range is 395 to $435 million. As we mentioned in our previous call, our sales pipeline was and continues to be very strong. This has manifested not only a strong close to 2025, but serves as a springboard to early success in 2026, which we see propelling us through the remainder of the year with future wins. Overall, we see the first half of the year and the second half of the year being relatively equal in terms of revenue contribution. Operating expenses are expected to be in the range of $184 to $192 million. We anticipate modest single-digit growth for both R&D as well as SG&A expenses, as we continue to prioritize investing in our technology and infrastructure in both our media and semiconductor businesses. We anticipate that our litigation expense will increase year over year, Even with recent settlements, our litigation docket remains active as we pursue additional large licensing opportunities. We expect interest expense to be in the range of $34 to $36 million. We expect other income to be in the range of $5.5 to $6.5 million. We expect a resulting adjusted EBITDA margin of approximately 55%. We expect the non-GAAP tax rate to be 21% for the full year. We also expect capital expenditures to be approximately $2 million for the full year. I could not be more pleased with our performance in 2025. Our operating results reflect significant records for Audea for revenue as well as earnings. Our deal momentum and execution have led to a record number of new customers, which are key catalysts for our future growth as we look to expand our business. We have shown that we have a relevant and sustainable licensing program, which is bolstered by our commitment to investing in our portfolio development. With momentum that we have generated, I am excited and encouraged by our prospects in 2026 and beyond. I'm incredibly proud of our dedicated employees who have worked tirelessly to accomplish our goals and thankful for their continued belief in our mission. Now I'd like to turn the call back to Paul for a few additional remarks. Paul?

Thank you, Keith. I'd like to take a moment to congratulate our employees for delivering a record year and setting us up for success in the future. I'd also like to note we will be attending the Roth Annual Conference in March. We look forward to seeing you at this and other upcoming events. I would now like to turn the call over to the operator to begin our question and answer session. Operator?

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon. Thank you. Your first question comes from Kevin Cassidy with Rosenblatt Securities. Your line is open.

Yeah, thanks for taking my question, and congratulations on the great year. You know, as we look at the pay TV customers, that's going to be down to 35% to 40% of your revenue, you know, a lot more de-risked. Do you see that as – is that starting – is the subscriber loss – flowing, or do you think that gets to an asymptote eventually? We did have, you know, in the fourth quarter, there was a charter that announced an increase in their number of subscribers. I'm just wondering if you see what kind of trend you're seeing there.

Thanks, Kevin, and appreciate the comments. Yeah, you're spot on in terms of what we're seeing with the likes of Charter and seeing an actual increase in their video subscribers. We do see some moderation in the declines as a total percentage, and we expect that to continue. But we have built in subscriber declines into what we forecast, and that's part of that 30% to 45% moving forward. This is why we've been so focused on non-pay TV recurring revenue. While pay TV still remains a very important part of our business, we've intentionally diversified our revenue base since we separated over three years ago and made tremendous success with that. As you see in our non-recurring, our pay TV revenue, non-pay TV recurring revenue, I should say. So we're very pleased with those results and the progress we made, especially around OTT semiconductors and adjacent media markets. But yeah, pay TV continues to be an important market for us. We've got a number, as I noted in my prepared remarks, uh, that of deals that go out into the next decade. So, you know, our customers and pay TV still see a lot of relevance, uh, in our portfolio. Uh, we're still getting deals done in that space, but those, uh, subscriber declines are built into our expectations. And we do think over time that those will, those will moderate, but great question. Thanks, Kevin.

Okay, great. Yeah. Just a follow-up. If I can ask one, the, um, on rapid cool, you know, the, uh, interest is encouraging and Just wondering if you could discuss the competitive landscape. What other solutions are your customers looking at, or what is their decision process evaluating Rapid Cooler, adopting it?

Yeah, you know, what's unique about our business is, you know, we don't compete in the typical sense, right? We license our technology on a portfolio-wide basis, and RapidCool will be part of that moving forward. And, you know, we're getting a lot of interest, both on the logic side and on the memory side. We think there's applicability in both, especially as, you know, these AI workloads require more and more memory, as you know, Kevin mentioned. And we see RapidCool being relevant for HBM in addition to Logic. And so we're getting a lot of pull on that. What's great about our solution and what we think differentiates it is its plug and play, right? You can use the same equipment that is being used today. You can... put it into a liquid cooling rack and data center, right? That is already set up for liquid cooling today and use rapid cool in the same way that you would use a liquid cooling cold plate. So that's tremendous. And we're hearing a lot of benefits around our solution related to that. And so that's what excites us about our solution versus competitive solutions.

Okay, great. And congratulations again. Thanks. Thank you.

The next question comes from Scott Searle with Ross Capital. Your line is open.

Hey, good afternoon. Thanks for taking the questions. Nice to see the strong conclusion to 25 and strong start to 26. Hey, maybe, Keith, just to drive in in terms of the mix of business in the fourth quarter, I'm wondering if you could provide a little bit more color in terms of recurring and non-recurring And also media and semiconductor, kind of the splits in terms of those businesses. And maybe a quick update in terms of how sequentially the 3D NAND market has been progressing. And then I had a couple of follow-ups.

Hey, Scott. Great to hear from you. So for us in Q4, the amount of recurring versus non-recurring, it was almost equally split. It was pretty close to 50-50. That just kind of gives you a feel in the size of the magnitude of the license agreement that we signed with Disney and the amount that we had recognized related to some of the prior licensing period. So that in itself was significant. So that actually brought us out for the year where we ended the year at 80% recurring, 20% non-recurring, which is pretty consistent if you take a look at our history. And how we trended as a business. So, you know, that number, when we take a look back a year ago, this is kind of where we thought we could end and actually a little bit greater. So everything kind of really lines up to where we thought it would be. In terms of other mix of the business and semiconductor industry. And as well as media, I kind of started off with semiconductor reason because I'm quite proud of that group. We had a increase in revenue. If we compare 24 to 25, 24, we did about 18 million dollars in revenue from semiconductor. This year we did about 26. So 40 percent increase. So those deals that we signed late in 24 and early in 25, we talked about ST Microbi, a significant deal, really started to add to the traction, and we're seeing a little bit more of a pickup really on the NAND flash of things. So I think that might have been your third question in kind of how we see things progressing. We can't be more pleased in what we're seeing in the NAND market. One of the things I do have to remind is that when we signed that agreement, there were certain minimums that were built into the agreement that as a result of those minimums, we took a certain amount of revenue up front when we signed that. So we have to work through some of those minimums so that impacts the revenue that we recognize in 25 and 26 and 24 as well. So we will see a increase. We'll see a modest increase. But we'll pretty much fundamentally work through most of those minimums in 27 so it will be more pronounced then. But everything is up and to the right in that regard. So really off to a great start. Our media business, absolutely fantastic. Roughly 94% of our total revenue. And we couldn't be more happy about how we started the year. We signed a couple new deals. We talked about Microsoft. And then we also signed a few deals or a deal on the semiconductor side of the business as well. So off to a great start and an upward trajectory.

Great. Very, very helpful. If I could just quickly follow up on a clarification on the NAN front, just want to clarify in terms of pricing, you guys, as I understand it, right, you're not, you don't benefit necessarily from the price increases that are going on in the marketplace. You're driven by unit volumes. And is that, does that include capacity overall in terms of, you know, overall NAN capacity that you guys are shipping? Is that how the royalty agreement is priced?

Yeah, you picked up on a great note there. So our agreements are not based on the selling price. When we go through and negotiate for those agreements, it's based on a fixed amount per unit. There is some degree of scaling in there, but usually it's more so a volume discounts. So the more they produce, the more benefit that we kind of give them later on down the road. So what you're seeing is that dynamic of two things, of increases in NAND and then increases in volume. We benefit from the increase in volume and not the increase in pricing.

I would also just add, Scott, on NAND, just as a reminder, we signed the deals with Kyoksha and SanDisk in March of 2023. At that time, they had no NAND products that utilized hybrid bonding. And so there's been this ramp of the mix of their product lines that include hybrid bonded products, which also impacts as we see. So as total NAN goes up, we're focused on what is the percentage of that that is hybrid bonded as well.

Very helpful. And if I could, in terms of the guidance for 2026, and this will be a little bit of a multi-part question here, but wanted to get calibrated on a couple of fronts. It seems like media, there's a lot of momentum that's building. We have the initial step down in the first quarter of one pay TV customer, but given Disney, given some of the other momentum with Microsoft and otherwise, two things. Are you expecting in media to see sequential growth throughout the course of the year from the March quarter on? And do you expect media to grow from a recurring standpoint on a year-over-year basis? And then as it relates to Semi, I'm kind of wondering if you could frame your optimism for 2026. It seems like there's certainly momentum building with the existing 3D NAND customer base, but Paul, you called out some of the ongoing discussions that you've got with some of the larger logic players out there that will introduce products in the course of 2026. So I'm wondering, what are you guys factoring in to that guidance? Are you assuming that there's a logic customer that comes in, or is that basically a baseline view of of just kind of growing the existing NAND business and what you've got visibility to in front of you on the media side. Thanks.

Yeah, a lot to unpack there, Scott, but let me attempt to address the second part of your question around the semiconductor business, and then I'll turn it back to Keith on the first part of your question. Our optimism in Semi is still very strong. I think not only in logic, but as we look out further beyond 2026, what we're seeing in memory, not just in the NAND market, but also, you know, further down the road, as we've talked about before with HBM and in the broader memory market, as we have relicensing opportunities down the road, you know, really, really just tremendous amount of investment today, as I noted in my prepared remarks. And in advanced packaging and hybrid bonding specifically as the big three really try to control their own destiny on hybrid bonding and advanced packaging, which is great for us as we move forward. So yeah, we do have a lot of optimism in our guide overall. We actually have multiple paths to get to where we need to be. And I think our pipeline is stronger going into this year than it has been since we've separated in terms of the number of large opportunities that we have on the table. And so there's multiple ways that we can get to within our guidance range. And it could continue to be driven by media, but there's some large semiconductor opportunities as well that are possible in addition to that.

Yeah, Scott, and just to add a little bit of... No, I'm sorry. So you asked about how do we kind of see the media business kind of looking in 26. So a lot of great momentum. I think, you know, on the pay TV front, you know, Paul did a good job of capturing that, seeing that shift being about 35 to 40%, but really one of the tremendous stories on the OTT front. Right, so... We see that business being about 30 plus percent of our total revenue next year, which is just absolutely exciting. So I think 30 to 35 is really kind of a way to kind of take a look at it. And that just really shows a lot of growth from where we started. So, you know, our market share today is about 50 percent. on the OTT side, so that's really driving it. So that sets us up quite well to kind of get back to your question in terms of how do we see the media business? So when you kind of balance things out for recurring kind of related revenue, it really sets us up to have a nice, modest increase in our revenue year over year. So really kind of a great, exciting story for us.

Gotcha. Very helpful. And lastly, if I could just follow up with one more, just because the semi-side is so intriguing and exciting. Paul, so it sounds like, look, there are some opportunities this year. It sounds like more logic-based. But in the marketplace, there's a tremendous amount of press talking about demand for HBM, what we're seeing in data center and otherwise, and pricing and the evolution quicker than people expected from HBM3 to 4, 4E, etc., So I'm just wondering, I know this is tied to renewal agreements with some of the larger players out there in 27, 28, but I'm wondering how the view is from a customer standpoint, engagement standpoint on that front. It seems like the market is accelerating well ahead of where we thought it would be probably 12 or 18 months ago. Is that how you guys are viewing that? And is that translating into at least productive conversations there? you know, notwithstanding that, you know, we, we require renewals in the 27, 28 timeframe. Thanks. Yeah.

Yeah. Thanks, Scott. I mean, we're, we're tremendously pleased with what we're seeing from a marketplace standpoint on, on memory. And as you think about, you know, Micron, Samsung, and SK Hynix, you know, not only on HBM, but what we're seeing with NAND, as we've talked about before, you know, we were thrilled to get the deals done with Keoksha and SanDisk and, you know, we see the need for NAND and the other big three providers as they get to around 400 layers to eventually go to hybrid bonding as well. And so, you know, I think there's an opportunity on both fronts in memory, both in NAND and with HBM. And so I I don't want everyone to forget about NAND either because, you know, it's pretty significant for those players as well and what they're trying to provide. And we think hybrid bonding will be an important story. And when you think about AI, NAND's becoming more important as well on that side as well. So as people are trying to, you know, to deal with these AI workloads. It's exciting on both fronts and certainly the conversations and not just with hybrid bonding. As I mentioned earlier, you know, with RapidCool as well being, I think, an enabling technology, not only for logic, but also for the memory market. We see an opportunity there and certainly conversations are progressing with a number of folks on that front as well.

Great. Thanks so much. I'll get back in the queue.

Your next question comes from Hamed Korsant with BWS Financial. Your line is open. Hamed Korsant, perhaps your line is on mute.

Oh yeah, sorry about that. Could you talk about the quarters revenue and You outperformed given the guidance you gave right before Christmas. So what drove that outperformance? Is there any recognition from 26 into 25? If you could just give a little bit more details about that, please.

Anyhow, I have a great question. So when we announced the deal with Disney, it was hot off the press. After we signed that. So frankly, the accounting wasn't done. And it's a very large and complex transaction. I think you and I discussed that before. And then ultimately, we got the accounting settled up. So there were some things there that were more favorable to us. But also to add to that and where you see this overachievement on the revenue and the guidance, we closed more business and we had a strong close to the year. Most notably, I could kind of point to, you know, we talked about Major League Baseball is one, but there are others that with great momentum from our sales team, those guys didn't take a vacation. They signed Disney. They kept on working hard, and we benefited from that. Last but not least, but it was quite frankly very meaningful to us, is that both on our media side and our semiconductor side, we got some very favorable royalty reports from increased volume. You heard earlier, in particular, one of the other – Kevin Cassidy had talked about where we see from chartered, and we saw that across the board that the numbers that were reported on pay TV were favorable. And then also, to no surprise, what we've seen also on the semiconductor side, in particular on the NAND and how that has been going, it was more favorable to us. So that all added up to a tremendous beat for us in coming out with the revenue number that was significantly over the guidance that we had set forth.

Okay. And then if you go into 26, you've announced Microsoft. That's obviously a great big name. But is that going to be material for you in 26? Is it going to be cash-driven or is there minimum guarantees? Could you rank that as how big that opportunity is for you?

You know, I'll take it first time and let Keith add anything. But, you know, it's a great deal for us. We're very pleased with getting Microsoft, you know, done, especially so early in the year. You know, as I mentioned at the end of 2025, when we talked in November, you know, we had a lot of opportunities that we were chasing, you know, and a lot of significant opportunities. And certainly we've We've been able to execute on some of them here early in 2026 that we're very pleased with Microsoft being one of those. So we can't get into the specifics, obviously, of the economics. But, you know, we it's structured like many of our other pay TV, non pay TV deals, I should say. And so that's that's what I would I would highlight for you. And it will be it. There'll be a significant customer for us.

Okay, thank you.

Once again, if you have a question, it is star one on your telephone keypad. Your next question comes from Matthew Galenko with Maxim Group. Your line is open.

Hi, thanks for taking my questions. I think, Keith, you mentioned, and I didn't do the math, but 55% EBITDA margin in compliance and guidance. If that's correct, it seems like a step down from the last couple of years. So I was hoping you could maybe just go into the assumptions there of why we'd be seeing compression off, you know, what seems like a pretty strong revenue guide. Thanks.

Yeah, Matt, I think the one thing that I would point to, our business, if we take a look at our operating expenses of research and development and SG&A, you heard me talk about that we're going to grow that at single digits in rates. And that's pretty consistent that we've done for the last several years. The one thing that is different is – and Paul and I have talked about this going back to 2022 – is that traditionally when we take a look at that legal expense for 22, 23, and 24, it was historically low. And that was something that was an anomaly, and that's something that we didn't expect. So when Paul and I always took a look at the business and we said – If we look at history and what does it take to run our business and being kind of who we are and what we need to do to ensure that we defend our IP, we had always thought that litigation expense should be in the 20s. And that's something that we always talked with you about and talked with others. So with that being said, 2025, you saw that we spent about $25 million in litigation expense, and that's something we always alluded to. And then in 26, you heard Paul talk about – or you heard me talk about that our litigation expense will increase. And I would say they increase anywhere between $5 million to $10 million above that 25 amount. And let's just talk about why that's important. Paul alluded to it. We take our IP very seriously, and we want to defend our IP as much as our customers want to defend their own products and services. And what we find is that we have a lot of great adoption of our technology in the marketplace, and we want to make sure that we're properly compensated for that. And in some instances, that might involve litigation. So it's a matter of being prepared more than anything else. And we, as Paul said, we saw some great benefits of that. So that incremental spend, quite frankly, is changing the margin from be it low 60s to that 55% in its entirety. So hopefully that gives you a little bit more color.

Sure, it does. And maybe just as a follow-up to that, I think Paul might have referenced the long-term goal of $500 million of annual revenue. And again, correct me if I got that wrong, but maybe if we sort of take that number and think about what the litigation expense might be to get there, is that $30 million, $40 million the right kind of level, or do you kind of need to keep pushing that up a little bit to drive revenue to the long-term level?

Matt, you know, I think it's a great question. And, you know, I think I've been consistent and always saying, you know, we prefer getting deals done without litigation. And that is our ethos. That's how we approach all of our customers is we go to great strides to, you know, avoid litigation and find a path forward that gets deals done without it. But at times, you know, It's needed. And what you've seen with Disney and even with Altice and what we think you're going to see in the future is we're good at it when we need to. And it can really drive great results for us. And so we're not afraid to file litigation when needed. To defend our IP is Keith eloquently said earlier. And so that is that is, you know, part of that, that spend that's always going to be there. And so I think, you know, I think it's always going to be around, you know, kind of that 25, $35 million from just a you know, how we think about it, how we forecast it. Are there going to be years where it might be, you know, lower than that? Sure. Are there going to be years where it could, you know, tick a little higher than that? Yeah, it could. But for us, you know, we plan for it because, you know, it can really drive, you know, some great results. You know, as I look at the OTT market, though, you know, there's a couple of examples now that are really big. Yeah. One we did without litigation, Amazon, great result for us. We got done at the end of 2024. And one with litigation, Disney, great result for us at the end of 2025. And so we can drive really great results with or without litigation, but sometimes the customers put you in a position where you need to go down that path. But at the end of the day, our IP stands up either way and we end up you know, I'm comfortable when we need to go down that path, even though it's not my first preference.

Very good.

Thanks. This concludes the question and answer session. I'll turn the call to CEO Paul Davis for closing remarks.

Thank you, Operator. And thanks for everyone for being with us today.

This concludes today's conference call. Thank you for joining. You may now disconnect.