Q3 2023 Adeia Inc Earnings Call

Speaker 1: During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will open up for questions.

Today's presentation, all parties will be in a listen only mode. Following the presentation. The call will open up for questions I would like to now turn the call over to Christiani, Vice President of Investor Relations for audio Chris. Please go ahead.

Speaker 1: I would like to now turn the call over to Chris Chaney, Vice President of Invest Relations for Audia. Chris, please go ahead. Chris Chaney, Vice President for Audia.

Speaker 2: Good afternoon, everyone. Thank you for joining us as we share with you details of our third quarter of 2023 financial results.

Good afternoon, everyone.

Thank you for joining us as we share with you details of our third quarter 2023 financial results.

Speaker 2: With me on the call today are Paul Davis, our President and CEO , and Keith Johnson.

With me on the call today are Paul Davis, our president and CEO.

And Keith Jones, our CFO.

Speaker 2: Paul will share with you some general observations regarding our third quarter.

Paul will share with you some general observations regarding our third quarter.

Speaker 2: And then Keith will give further details on our financial results and guidance. We will then conclude with a question.

And then Keith will give further details on our financial results and guidance.

I will then conclude with a question and answer period.

Speaker 2: 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.

In addition to today's earnings release, there was an earnings presentation, which you can access along with the webcast and the IR portion of our website.

Speaker 2: Before turning the call over to Paul, I would like to provide a few reminders.

Before turning the call over to Paul I would like to provide a few reminders.

Speaker 2: 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 on certainties and changes in circumstance.

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.

Speaker 2: For more information on the risks and uncertainties that could cause our actual results to differ materially.

For more information on the risks and uncertainties that could cause our actual results to differ materially.

Speaker 2: from what we discussed today, please refer to the risk factors section in our SEC filings, including our annual report on Form 10K and our quarterly report on Form 10Q.

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.

Speaker 2: 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.

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.

Speaker 2: We use non-GAAP financial measures internally to evaluate and manage our operations.

We use non-GAAP financial measures internally to evaluate and manage our operations.

Speaker 2: We have therefore chosen to provide this information to enable you to perform comparisons of our operating results as we do internally.

We have therefore chosen to provide this information to enable you to perform comparisons of our operating results as we do internally.

Speaker 2: 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.

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.

Speaker 2: A recording of this conference call will be available on the Investor Relations website at on

A recording of this conference call will be available on the Investor Relations website at Audi a dot com.

Speaker 2: Now, I'd like to turn the call over to our CEO , Paul Davis.

Now I'd like to turn the call over to our CEO Paul Davis.

Speaker 1: Thank you, Chris, and thank you everyone for joining us today.

Thank you, Chris and thank you everyone for joining us today.

Speaker 1: During the third quarter, our strong deal momentum continued as we signed seven agreements with customers in consumer electronics, pay TV, OT.

During the third quarter, our strong deal momentum continued as we signed seven agreements with customers in consumer electronics.

Pay TV.

OTT and semiconductor.

Speaker 1: We delivered strong financial results with $101.4 million in revenue.

We delivered strong financial results with $101.4 million in revenue.

Speaker 1: and a non-GAAP operating margin of 69%. In addition, we can...

And a non-GAAP operating margin of 69%.

In addition, we continued to deleverage our balance sheet.

Speaker 1: As we paid down, $15.1 million on our term loan.

As we paid down $15 $1 million on our term loan.

Speaker 1: We are happy to announce we also strengthened our executive.

We were happy to announce we also strengthened our executive team.

Speaker 1: with Jarl Bernsen joining as our chief corporate development officer.

With Euro bernsen, joining as our chief corporate development Officer.

Speaker 1: And we announced today we appointed Phyllis Turner-Brim as an independent director to expand the depth and breadth of the IP experience on our board.

And we announced today, we appointed Philip Turner brand as an independent director to expand the depth and breadth of the IP experience on our board.

Our deal momentum continued in the third quarter.

Speaker 1: with a significant long-term renewal with SAMHSA, the largest smartphone producer globally. For access to our media portfolio for use in their mobile device.

With a significant long term renewal with Samsung.

The largest smartphone producer globally.

Access to our media portfolio for use in their mobile devices.

Speaker 1: This agreement is especially meaningful because Samsung is collectively a top 10 customer and has been a licensee of ours for approximately 25 years.

This agreement is especially meaningful because Samsung is collectively a top 10 customer and it's been a licensee of ours for approximately 25 years.

Speaker 1: Over this period, Samsung has renewed agreements with us multiple times.

Over this period, Samsung has renewed agreements with us multiple times.

Speaker 1: In our relationship, touches every aspect of both our media and semiconductor business.

And our relationship touches every aspect of both our media and semiconductor businesses.

Speaker 1: From mobile devices to connected TVs to semiconductors.

For mobile devices to connected Tvs to semiconductors.

Speaker 1: Our long history of renewals with Samsung illustrates our strong relationships with our customers.

Our long history of renewals with Samsung illustrates our strong relationships with our customers.

Speaker 1: and the value they place on our evolving and expanding IP portfolio. We also sign an important renewal with stars.

And the value they place on our evolving and expanding IP portfolio.

We also signed an important renewal with stars the second OTT deal in as many quarters.

Speaker 1: STARS is a leading media and entertainment provider, offering a premium OTT service.

Starz has a leading media and entertainment provider offering a premium OTT service.

Speaker 1: Our recent success with the zone and now stars are further proof points of our media portfolios value to OTT providers.

Our recent success with the zone and now stars.

Our further proof points of our media portfolio's value the OTT providers.

Speaker 1: Our expanding media portfolio includes fundamental patents.

Our expanding media portfolio includes fundamental patents.

Speaker 1: which we believe are relevant to the leading OTT providers.

Which we believe are relevant to the leading OTT providers.

Speaker 1: I am encouraged with the progress we are making in OTT and believe the recent momentum should serve as a springboard for our further success.

I'm encouraged with the progress we are making in OTT.

We believe the recent momentum should serve as a springboard for further success.

Speaker 1: During the third quarter, we were pleased to have signed a settlement agreement with NVIDIA, which resolved an outstanding litigation related to certain legacy IP.

During the third quarter, we were pleased to have signed a settlement agreement with Nvidia.

Which resolved an outstanding litigation related to certain legacy IP.

Speaker 1: Importantly, this agreement did not cover either our hybrid bonding or advanced processing node portfolio.

Importantly, this agreement did not cover either our hybrid bonding or advanced processing node portfolios.

Speaker 1: We believe with this litigation now behind us, we can begin discussions on these newer and valuable aspects of our semiconductor portfolio.

We believe with this litigation now behind US we can begin discussions on these newer and valuable aspects of our semiconductor portfolio.

As demonstrated by the many semiconductor memory customers we have today.

Market leaders have recognized the value of our IP.

Speaker 1: Similarly, we believe there is a significant opportunity in the logic mark.

Similarly, we believe there is a significant opportunity in the logic market.

Speaker 1: where our semiconductor portfolio is increasingly relevant as logic companies try to address the slowing of Moore's law.

Our semiconductor portfolio is increasingly relevant as logic companies try to address the slowing of Moore's law.

Speaker 1: I'm excited with the progress we have made in almost all aspects of our business.

I'm excited with the progress we have made in almost all aspects of our business.

Speaker 1: including the continued execution of renewals and new deals.

Including the continued execution of renewals and new deals.

Speaker 1: As evidenced by the 24 deals we have signed in the first nine months of the year, the relationships with our customers remains very strong.

As evidenced by the 24 deals we have signed in the first nine months of the year the relationships with our customers remains very strong.

Speaker 1: However, occasionally a dispute can arise between us and a customer. Our preference is always to...

However, occasionally a dispute can arise between us and our customers.

Our preference is always to work with our customers to resolve any such disputes amicably and in most cases, we can do just that.

Speaker 1: to resolve any such disputes amicably, and in most cases, we can do just that.

Speaker 1: In the rare instance we are unable to do so. We believe it's important to defend our contractual rights.

In the rare incidence we are unable to do so.

We believe it's important to defend our contractual rights.

Speaker 1: Accordingly, we filed a breach of contract lawsuit against Shah in the Southern District of New York per the terms of the agreement.

Accordingly, we filed a breach of contract lawsuit against shop in the Southern District of New York per the terms of the agreement.

Speaker 1: We believe Shaw stated positions for ceasing payments under the agreement are entirely based on the facts.

We believe <unk> stated positions for ceasing payments under the agreement are entirely baseless.

Speaker 1: After our pitted tents to resolve the matter, we were met with resistance and road blocks. And we're left with no choice but to file this case.

After repeated attempts to resolve the matter we were met with resistance and roadblocks and we're left with no choice, but to file this case.

Speaker 1: It is important to recognize that this is a unique situation with Shaw.

It is important to recognize that this is a unique situation Michelle.

Speaker 1: and only began after Rogers Management took over the combined company following their merger.

And only began after Rogers management took over the combined company following the merger.

Speaker 1: Our long-term strategic objective for the Canadian pay TV market remains unchanged.

Our long term strategic objectives for the Canadian pay TV market remains unchanged.

Speaker 1: And we will continue to pursue all opportunities to license the Canadian pay TV operators and get Shaw back as a paying customer.

And we will continue to pursue all opportunities to license the Canadian pay TV operators and get shot back as a paying customer.

Speaker 1: Shaw's breach of contract was not contemplated when we gave our guidance earlier this year. And accordingly, we have narrowed our revenue guidance to the lower end of our original outlook.

Chas breach of contract was not contemplated when we gave our guidance earlier this year and accordingly, we have narrowed our revenue guidance to the lower end of our original outlook.

Speaker 1: Importantly, and as a result of our expense management, our non-GAAP net income and operating margins are now forecasted to be at or above the original midpoint of the outlook we provided in February .

Importantly, and as a result of our expense management, our non-GAAP net income and operating margins are now forecasted to be at or above the original midpoint of the outlook. We provided in February.

Speaker 1: Keith will provide more details on our updated guidance shortly.

Keith will provide more details on our updated guidance shortly.

Speaker 1: Before I turn the call over to Keith, I'd like to provide an update on our measures of success.

Before I turn the call over to Keith I'd like to provide an update on our measures of success.

Speaker 1: We measure our success by several factors, including revenue growth.

We measure our success by several factors, including revenue growth.

Speaker 1: expanding our IP portfolio, executing renewals and new licenses, and entering adjacent markets.

Expanding our IP portfolio.

Executing renewals and new licenses and entering adjacent markets.

Speaker 1: The significant renewals we signed year-to-date with Cox, Verizon, Altice,

The significant renewals, we signed year to date with Cox Verizon.

<unk>.

Speaker 1: Samsung, and Starz further solidify our long-term revenue output.

Samsung and stars further solidify our long term revenue outlook.

Speaker 1: We are very pleased with the new license agreements we have signed this year with Western Digital, Keoksha, and Azone, as new deals are the basis for our revenue growth.

We are very pleased with the new license agreements, we have signed this year with Western digital T.

Key Osha and as old as new deals are the basis for our revenue growth.

Speaker 1: Growing our patent portfolios is key to successfully renewing licensees and signing new deals.

Growing our patent portfolio is key to successfully renewing licensees and signing new deals.

Speaker 1: We continue to track to our goal of growing our portfolio 10% annual.

We continue to track to our goal of growing our portfolio, 10% annually.

Speaker 1: One year has now passed since becoming an independent IP licensing company, and I am extremely proud of it.

One year has now passed since becoming an independent IP licensing company.

Im extremely proud of what we have accomplished.

Speaker 1: We have signed over 30 deals in the last 12 months, while strengthening and expanding our deal pipeline with numerous new engagements.

We have signed over 30 deals in the last 12 months, while strengthening and expanding our deal pipeline with numerous new engagements.

We have also delivered strong financial results.

Speaker 1: enabling us to pay down $129 million of our debt.

Enabling us to pay down $129 million of our debt.

Speaker 1: Operationally, we expanded our world-class team of engineers and licensing professionals.

Operationally, we expanded our world class team of engineers and licensing professionals.

Speaker 1: including the addition of two key members of our executive team.

Including the addition of two key members of our executive team.

Speaker 1: And I'm happy to announce we have added another new independent director to our board.

And I'm happy to announce we have added another new independent director to our board.

Speaker 1: Phyllis Turner-Brim brings to us three decades of IP experience and executive experience with Fortune 500 and IP development and licensing companies.

Phyllis Turner brand brings to us three decades of IP experience and executive experience with Fortune 500, and IP development and licensing companies.

Speaker 1: Her experience in guidance will be of great value to us as we grow our business.

Her experience and guidance will be of great value to us as we grow our business.

Speaker 1: With that, let me turn the call over to Keith to review our third quarter financial results and our 2023 guidance.

With that let me turn the call over to Keith to review, our third quarter financial results and our 2023 guidance.

Speaker 3: Thank you Paul. I'm pleased to be speaking with you today to share details of our third quarter 2023 financial results.

Thank you Paul I am pleased to be speaking with you today to share details of our third quarter 2023 financial results.

Speaker 3: We turned in a strong third quarter, delivering revenue of $101.4 million.

We turned in a strong third quarter delivering revenue of $101 4 million.

Speaker 3: an increase of 22% from the prior quarter.

An increase of 22% from the prior quarter.

Speaker 3: Our strong revenue was driven by the execution of seven agreements in the quarter.

Our strong revenue was driven by the execution of seven agreements in the quarter.

Speaker 3: This includes executing a long-term agreement with Samsung for their mobile phone.

This includes executing a long term agreement with Samsung for their mobile phones.

Speaker 3: which complements our existing consumer electronics and semiconductor agreement.

Which complements our existing consumer electronics and semiconductor agreements.

Speaker 3: We are also very pleased to announce the renewal of our OTT licensing agreement with STARS, which further validates our value to the OTT market. Now I'd like to discuss our operating expenses, for which I will be your.

We are also very pleased to announce the renewal of our OTT licensing agreement with stars, which further validates our value to the OTT market.

Now I'd like to discuss our operating expenses for which I will be referring to non-GAAP numbers only.

Speaker 3: for the third quarter, operating expenses were $31.1 million.

For the third quarter operating expenses were $31 1 million, a decrease of $800000 or 3% from the prior quarter.

Speaker 3: a decrease of $800,000 or 3% from the prior quarter.

Speaker 3: Research and development expenses increased $621,000, or 5% from the prior quarter.

Research and development expenses increased $621000 or 5% from the prior quarter.

Speaker 3: as we remain committed to growing both our media and semiconductor IP portfolios and fostering our pioneering innovation.

As we remain committed to growing both our media and semiconductor IP portfolios and fostering our pioneering innovation.

Selling general and administrative expenses decreased $1 3 million or 8% from the prior quarter, primarily due to lower corporate administrative costs and outsourced services.

Speaker 3: decreased $1.3 million, or 8% from the prior quarter, primarily due to lower corporate administrative costs and outflow of services. Litigation

Litigation expense was $2 2 million a.

Speaker 3: a decrease of $129,000 from the prior

A decrease of $129000 from the prior quarter due to the timing of expenses related to various legal matters.

Speaker 3: due to the timing of expenses related to various legal.

Interest expense during the third quarter was $15 $7 million.

Speaker 3: Inter-suppense during a third quarter was $15.7 million.

Speaker 3: an increase of $199,000 from the prior quarter due to rising interest

An increase of $119000 from the prior quarter due to rising interest rates, which is in spite of continued debt repayment and a lower principal amount.

Speaker 3: which is in spite of continued debt repayment in a lower principal amount.

Speaker 3: Our current effective interest rate, which includes amortization of debt issuance costs, is approximately 9.8%.

Our current effective interest rate, which includes amortization of debt issuance cost is approximately nine 8%.

Speaker 3: Other income was $1.5 million and was primarily related to interest income recognized on a revenue agreement with long-term billing structures under ASC 606.

Other income was $1 5 million and was.

Merrily related to interest income recognized on our revenue agreement with long term billing structures under ASC 606.

Speaker 3: and due to interest earned on our cash and investment portfolio.

And due to interest earned on our cash and investment portfolio.

Our adjusted EBITDA for the third quarter was $70 $7 million, reflecting an.

<unk> adjusted EBIT margin of 70%.

Speaker 3: appreciation expense for the quarter was $382,000.

Depreciation expense for the quarter was $382000.

Speaker 3: Our non-gap income tax rate remained at 23% for the court.

Our non-GAAP income tax rate remained at 23% for the quarter.

Speaker 3: our income tax expense consists primarily of federal and state domestic taxes, as well as Korean withholding taxes.

Our income tax expense consists primarily of federal and state domestic taxes as well as Korean withholding tax.

Now for a few details on the balance sheet.

Speaker 3: We ended the third quarter with $82.1 million in cash, cash equivalents in a marketable security.

We ended the third quarter with $82 1 million in cash cash equivalents in marketable securities.

Speaker 3: During the quarter, we generated $21.2 million in cash from operations.

During the quarter, we generated $21 2 million in cash from operations.

Speaker 3: Additionally, we made $15.1 million in principal payments on our debt.

Additionally, we made $15 $1 million and principal payments on our debt.

Speaker 3: As a result, we ended the quarter with a term loan balance of $530.4 million.

As a result, we ended the quarter with a term loan balance of $634 million.

Speaker 3: During a third quarter, we paid a cash dividend of five cents per share of common stuff.

During the third quarter, we paid a cash dividend of <unk> <unk> per share of common stock.

Speaker 3: Additionally, our Board approved the payment of another fight since Persia dividend to be paid on December 18th to share a holder's record as of November 20th. The Board approved the payment of another fight since Persia dividend to be paid on December 20th.

Additionally, our board approved the payment of another <unk> <unk> per share dividend to be paid on December 18th to shareholders of record as of November 27.

Speaker 3: Now I will go over our guidance for the Fully your 2023

Now I will go over our guidance for the full year 2023.

Speaker 3: Our operational execution year to date has been in line with what we outlined earlier this year.

Our operational execution year to date has been in line with what we outlined earlier this year.

Speaker 3: We have made solid progress with very strong renewals and executing new licensing agreements.

We have made solid progress with very strong renewals and executing new licensing agreements.

But we had not contemplated was.

Speaker 3: That's into the merger of Rogers and Shaw that Shaw would fail to continue to honor its contractual commitments with us. Kisses.

Subsequent to the merger of Rogers and Shaw that Shah, but failed to continue to honor its contractual commitments with us.

Consistent with our <unk> press release on October 2nd.

Speaker 3: For the full year 2023, we are now narrowing our revenue guidance to be in the range of $385 to $395 million.

Full year 2023, we are now narrowing our revenue guidance to be in the range of $385 million to $395 million.

We are also lowering our expected operating expenses to be in the range of $130 million to $133 million.

Speaker 3: to be in the range of 130 to 133 million.

Speaker 3: We expect interest expense to be in the range of 63 to 63.5 million.

We expect interest expense to be in the range of 63 to $63 $5 million and.

Speaker 3: and we expect other income to be in the range of $5 to $6 million.

And we expect other income to be in the range of $5 million to $6 million.

Speaker 3: We expect a resulting adjusted EBITDA margin of 67.

We expect a resulting adjusted EBITDA margin up 67%.

Speaker 3: Additionally, we expect cash flow from operations to be in a range of 150 to 155 million dollars.

Additionally, we expect cash flows from operations to be in the range of $150 million to $155 million.

Speaker 3: The adjusted cash flow guidance reflects the impact of three items that generally share equal weight.

The adjusted cash flow guidance reflects the impact of three items that generally share equal weight.

Specifically it.

Speaker 3: It has always been a priority to maximize the economics of our licensing agreement.

It has always been a priority to maximize the economics of our licensing agreements.

Speaker 3: As such, we accommodated shifting certain payments from our customers to 2024 in order to achieve better overall deal economics.

As such we accommodated shifting certain payments from our customers to 2024 in order to achieve better overall deal economics.

Speaker 3: Secondly, we have been impacted by the failure of Shaw to honor their contractual obligation

Secondly, we have been impacted by the failure of Shaw to honor their contract obligations.

Speaker 3: And lastly, we've further impacted on anticipated renewal, but they certain Canadian paid PV operator, which we now believe will not take place in 2020.

And lastly.

Were further impacted on the anticipated renewal with a certain Canadian pay TV, operator, which we now believe will not take place in 2023.

Speaker 3: We expect the non-gap tax rate to remain consistent at roughly 23% for the full year.

We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year.

Speaker 3: We also expect capital expenditures to be roughly $4 million for the full year.

We also expect capital expenditures to be roughly $4 million for the full year.

I wanted to provide a high level look at 2024.

Speaker 3: As a reminder, we will provide more detail 2024 guidance on our fourth quarter earnings call in February of next year. First, we anticipate revenue growth.

As a reminder, we will provide more detailed 2020 for guidance on our fourth quarter earnings call in February of next year.

First we anticipate revenue growth.

With a low to mid single digit increase.

Speaker 3: anticipate our non-GAAP operating margins to be in the 60s.

We anticipate our non-GAAP operating margins to be in the $60.

Speaker 3: Also, anticipate a moderate increase in cash flows from operations.

Also we anticipate a moderate increase in cash flow from operation.

Speaker 3: which takes into account the shifted customer payments I referred to earlier.

Which takes into account the shift in customer payments I referred to earlier.

Speaker 3: Paying off our debt will continue to be our priority and we'll continue to return capital to shareholders through our dividend program.

Paying off our debt will continue to be our priority and will continue to return capital to shareholders through our dividend program.

Speaker 3: I am so proud of our team as we reach our one year anniversary as a standalone company.

I am so proud of our team as we reach our one year anniversary as a Standalone company.

Speaker 3: The strides we have made, including the continued deal execution and patent portfolio expansion, paints a very bright picture for our future.

The strides we have made including the continued deal execution and patent portfolio expansion paints, a very bright picture for our future.

Speaker 3: Our future is supported by our investments in technology development, which enables the evolution of both the media and semiconductor industry.

Our future supported by our investments in technology development, which enables the evolution of both the media and semiconductor industries.

Speaker 3: As such, our pipeline remains strong and we stay committed to the vision we initially set forth at SEPARATE.

As such our pipeline remains strong and we stay committed to the vision, we initially set forth at separation.

Speaker 3: 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. Thank you.

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.

Speaker 4: Thank you, Mr. Jones. Ladies and gentlemen, at this time, if you do have any questions, simply press star with one. And if you find your question has already been addressed, you can remove yourself from the queue by pressing star one again. And we'll pause for just one moment to assemble the queue.

Thank you Mr. Jones, ladies and gentlemen at this time, if you have any questions simply press star one and I can.

Finally, your question has already been addressed you can remove yourself from the queue by pressing star one again, and we will pause for just one moment to assemble the queue.

Speaker 4: We'll first us have to move to Nick Zangler at Stephen.

We'll go first this afternoon to Nick Zheng <unk> at Stephens.

Speaker 5: Hey guys, how's it going? A few questions here.

Hey, guys How's it going.

Few questions here.

Speaker 5: Starting with the top line guide. So two months to go for the year, just wondering what the gating factor is now. I guess separating the low end of the range versus the high end.

Starting with the top line guide so two months to go for.

For the year, just wondering what the gating factor is now.

Separating the low end of the range versus the high high end Im wondering if youre willing to provide whether thats, winning a new client whether it's.

Speaker 5: wondering if you're willing to provide or whether that's winning a new client, whether it's a variable component of an existing deal or resigning an existing client, whatever variables they might be, just looking for more clarity on what gets you to the low or so the high end of that range.

A variable component of it I think existing deal or.

<unk> signing.

I think existing client whatever variables they might be just looking for more clarity on what gets you to the low versus the high end of that range.

Speaker 3: Hey Nick, thanks, great question. So the guidance that we put out the 385-395.

Hey, Nick Thanks, Great question. So the guidance that we put at the 385 to 395.

Speaker 3: First of all, let's kind of start with the bottom of the range. You know, quite frankly, we kind of see that as the floor.

First of all it's kind of start with the bottom of the range quite frankly, we kind of see that as the floor and then just like anything else in terms of what we do it's really kind of coming to terms that we think are just really in the best interest of us on a go forward basis, so that whole comment around deal economics means a lot.

Speaker 3: And then just like anything else in terms of what we do, it's really kind of coming to terms that we think are just really the best interests of us.

Speaker 3: on a go forward basis. So that whole comment around deal economics means a lot. Our pipeline is very robust. We're in deep stages with many of our customers. But quite frankly, it comes down just to economics that we think that we should get out of the deal versus not being in a position where we feel like we're forced to do that.

Our pipeline is very robust we are in deep stages with many of our customers.

Quite frankly, it comes down to the economics that.

We think that we should get out of the deal versus <unk>.

And be in a position, where we feel like we are forced to take something so we have a lot of opportunities.

Speaker 3: So we have a lot of opportunities and it's just a matter of just quite frankly making sure that we get the proper.

And it's just a matter of just quite frankly, making sure that we get the proper economics.

Speaker 5: Got it. And then obviously a sizable chunk was removed on the hop-ex side. That's obviously in conjunction with the lower revenue guide. Can you just talk about where you were able to pull back within hop-ex and so quickly?

Got it and then.

Obviously, a sizable chunk.

It was removed on the Opex side.

Obviously in conjunction with the lower revenue guide.

Can you just talk about where you were able to pullback within opex and so quickly.

Speaker 3: You know, great question. And to be very, very precise, it all has to do with our litigation expense. Primarily, that's the biggest driver.

Great question and to be very very precise it all has to do with our litigation expense primarily thats the biggest driver.

Speaker 3: Nikki, if you recall, when we talked about our guidance in the beginning of the year, and even at the time of separation, we had said we had been running historically lower levels. Last year, we did about $10 million. And if you take a look at, we were at the nine months now, we're at the same spot where we were a year ago this time.

If you recall when we talked about our guidance at the beginning of the year.

Even at the time of separation, we had said we had been running historically lower levels last year, we did about $10 million and if you take a look at where we're at the nine months now or at the same spot we were a year ago. This time.

Speaker 3: And with that being said, it's just really a matter of timing. Both Pol and I would have anticipated a little bit higher spin. That's not indicative of anything. It's just really amount timing.

And with that being said, it's a really a matter of timing, both Paul and I would have anticipated a little bit higher spin that's not indicative of anything it just really amount timing so.

Speaker 3: So that is the Delta, but more precisely when I'm really, you know, proud of is that if we take a look at the other line on it, it's being R&D and spins and SGNA, those are really spawn on from what we had forecasted. So.

That is the delta, but more precisely you want him.

Really proud of is that if we take a look at the other line items being R&D and spins at SG&A those are really spot on from what we had forecasted so.

Speaker 3: I take great pride that our variance from what we forecast as a company. It's, I'll just say very low single digit delta from what we do experience. And if we take a look at that R&D and you heard Paul talk about in his track, a great of a job that we're doing for our patent innovation, we have not backed off that not one bit.

I take great pride that our variance from what we had forecasted as the company. It's I'll just say very low single digit delta from what we experienced and if we take a look a bit R&D and you heard Paul talk about in his track of great of a job that we're doing for.

For our patent innovation, we have not backed off that not one bit.

Speaker 1: So that spinning is just really a matter of timing. And we've done a great job that that expense management is company. Yeah, Nick, maybe just on that on that, I think what's exciting for me is that we've been able to maintain that lower level of expense and still invest in what we really need to invest in. And so on the R&D front, we've filed more patents this year, new patents than I think we have in our history. It's very exciting in terms of the innovation that we have.

No.

That spending is just really a matter of timing.

And we've done a great job at that expense management is a company, yes, Nick maybe just I'll add on that I think what's what's exciting for me is that we've been able to maintain that lower level of expense and still invest in what we really need to invest in and so on the R&D front, we've filed more patents this year new patents.

I think we have in our history. It's it's very exciting in terms of the innovation that we have.

Speaker 1: going on here at Audia and it's showing up in our new patent filings in a big way so far.

Going on here at Adia, and it's showing up in our new patent filings in a big way so far.

Speaker 4: Great, and then just one final one for me, if you don't mind. Obviously, so many moving parts here within the TV landscape. You've got this breach-wish.

Great and then just one final one for me if you don't mind, obviously, so many moving parts here within the TV landscape.

He has got this breach was Shah <unk> got accelerating declines or churn within the pay TV segment, yet obviously.

Speaker 5: You've got accelerating declines or churn within, you know, the pay TV segment yet, obviously.

Speaker 5: CTV continues to grow and proliferate. I know you guys had talked about targeting a $500 million revenue number.

TV continues to grow and proliferate.

I know you guys had talked about targeting a $500 million revenue number I think.

Speaker 5: I think by 2026 based on, you know, your prior outlook there.

By 2026 based on your prior outlook there just given all these different dynamics that are going on how do you feel about that $500 million target now.

Speaker 5: Just given all these different dynamics that are going on, you know, how do you feel about that $500 million target now?

Speaker 6: Do you still think that's achievable just given, you know, everything that's been going on in the landscape?

Think thats achievable just given everything that's been going on in the landscape.

Speaker 1: Yeah, thanks, Nick. Great question. And absolutely. I mean, we had factored in the pay TV declines, and they're more or less tracking, you know, where our forecasts were. And so none of it's really been been a surprise.

Yeah. Thanks, Matt Great question, and absolutely I mean, we had factored in the pay TV declines and they are more or less tracking where our forecasts were and.

And so none of it's really been been a surprise we.

Speaker 1: We do think within that time frame, you know, we're going to turn around, you know, some of the the head ones we've had in Canada. But more importantly, our focus on growth really comes from three areas that give us confidence in achieving that number. One is certainly new media, which is largely going to be driven by OTT. The second one, semi.

We do think within that timeframe, we're going to we're going to turn around some of the headwinds we've had in Canada, but more importantly, our focus on growth really comes from three areas that give us confidence in achieving that number one is certainly new media, which is largely largely going to be driven by OTT.

The second one semiconductors.

Speaker 1: which we think can be very significant within that time period. And then the last one is the new verticals. And on each of those fronts, we're seeing traction. So in OTT, obviously we've signed two deals in the last two quarters, as I mentioned in my prepared remarks. We're very excited about the progress that we're making there.

Which we think is can be very significant within that time period.

And then the last one is the new verticals.

On each of those fronts were seeing were seeing traction. So in OTT. Obviously, we've signed two deals in the last two quarters as I mentioned in my prepared remarks, we're very excited about the progress that we're making there.

Speaker 1: and in semiconductors in addition to the large deals we signed with Kyokshan and WD, which will continue to add to that recurring revenue. We continue to have tremendous traction in the logic space and seeing what other companies are doing that. And so, very, very bullish on our efforts to achieve the revenue targets that we've set out for the semiconductor business.

In semiconductors in addition to the.

The large deals we signed with <unk> and <unk>, which will continue to add to that recurring revenue.

We continue to have tremendous traction in the logic space and seen with other companies are doing that and so.

Very bullish on our efforts to achieve.

The revenue.

Targets that we've set out for the semiconductor business.

Speaker 1: And then lastly, on new verticals, you know, we continue to just increase our pipeline there. And so the number of opportunities has really increased significantly as we look at, you know, over the course of this year in terms of what we're pursuing. And so all three of those are tracking to our expectations. And we're very excited about the growth opportunities there. Awesome.

And then lastly on new verticals.

We continue to just increase our pipeline there and so the number of opportunities has really increased significantly as we look at.

Over the course of this year in terms of what we're pursuing and so all three of those are tracking to our expectations and we're very excited about the growth opportunities there.

Awesome, great to hear thank you very much.

Speaker 4: Thank you. We have the next amount to comment Chris on at BWS Financial.

Thank you. The next now two <unk> percent at Dws financial.

Speaker 7: So the first question I had was on the the stars renewal, are you able to talk about, you know, what kind of rate you achieve with them on the renewal rate, how significant I would step up it is for you?

Hi, So the first question I had was on the Starz renewal are you able to talk about what kind of rate you achieved with them on the renewal rate and how significant of a step up it is for you.

Speaker 1: Yeah, we can't get into specifics just because of confidentiality, but we're very pleased with another multi-year agreement. Certainly, this is a space that we've talked about a lot as being important, and STARS is really a premium offering, and it really sets a great precedent for us as we're trying to look to expand the number of OTT licenses we have in the next few years.

Yes, we can't get into specifics on that just because of confidentiality, but we're very pleased with another multi year agreement. Certainly this is a space that we've talked about a lot as being important and in stars is really a premium offering.

And it really sets.

A great precedent for us as we're trying to.

Look look to expand the number of OTT licenses we have.

In the next few years.

Speaker 7: And secondly, on your comments about the Canadian operator renewal not taking place, when you were expiry, there was disclosure that it was 50 percent of the operators were being sued and 50 percent were under license. I'm assuming that Shaw and Rogers were under license and is the other operator now Rogers? And how are you going to about, you know, coming up with a form of settlement given that Rogers is now a much larger operator?

And secondly on the your comments about the Canadian operator.

Not taking place.

When you work Experi disclosure that was 50% of the operators were being sued and 50% longer license I am assuming that Shaun Rogers, where under license and as the other operator now Rogers and how are you going to Val.

<unk>.

Coming up with a formal settlement given that Rogers is now much larger operator.

Speaker 1: Yeah, we can't get into the who of that Canadian pay TV operator that we no longer expect to get the renewal from. But what I can tell you is that Rodgers is not a current licensee of ours.

Yes, we can't we can't get into the who.

Canadian pay TV, operator that we no longer expect to be.

To get the renewal from but.

But what I can tell you is that Rogers is not current licensee of ours.

Speaker 1: And so when we look at the entire, you know, Canadian pay TV landscape.

And so when we look at the entire <unk>.

Indian pay TV landscape our goal as I said in our prepared remarks is to get shot back as a pain licensee.

Speaker 1: Our goal, as I said in our prepared remarks, is to get Shaw back as a paying licensee.

Speaker 1: and to get the rest of the Canadian pay TV operators under license. That has not changed and we still feel like our patent portfolio is still very relevant to the entire Canadian pay TV landscape and we feel like they should all be under license to our portfolio.

And to get the rest of the Canadian pay TV operators under license that has not changed and we still feel like our patent portfolio is still very relevant to the entire Canadian pay TV.

Landscape and we feel like there they should all be under license to.

To our portfolio.

Speaker 7: Okay, and then lastly for me is on your comments about accommodating for payments for the 2024, how much of those payments are one time in nature?

Okay.

<unk> for me is.

On your comments about accommodating for payments for 2024, how much of those payments are onetime in nature.

Speaker 3: So I think another way to look at it is that part of our business model is that for many of these situations, we ask customers to pay in advance.

So I think another way to look at it is that part of our business models.

For many of these situations, we ask customers to pay in advance.

Speaker 3: be it an annual fee in a lot of that revenues that I'm referring to relates to that. So it wouldn't have been revenue to us, it would have been a prepayment, if you will, and deferred revenue. So just simply from negotiating and adjusting and trying to land where we wanted to in a longer term deal.

Be it an annual fee.

<unk>.

A lot of that revenues that I'm, referring to relates to that so it wouldn't have been revenue to us had been a free payment if you will and deferred revenue so just simply from.

Negotiating and adjusting and trying to land, where we wanted to on a longer term deal.

Speaker 3: We said, fine, don't pay us right now at this moment. You can pay us in early 2024, and they agreed, and quite frankly, it was good for them, it's good for us, so we maintained the longer economics of it. So it is not necessarily at all kind of a one-time payment. It's just kind of the structure and what we leverage in our company of getting some advanced payments on long-term contracts.

We said fine don't pay is right now at this moment you can pay us in early 2024, and they agreed and quite frankly it was good for them. It's good for us. So we maintained the longer economics of it. So it is not necessary at all kind of a one time payment. It is just kind of the structure and what we love.

Average inter company of getting some advanced payments on long term contracts.

Okay, great. Thank you.

Speaker 4: Thank you. And just to remind our ladies and gentlemen, Star One for questions today, we go next now to Matthew Gallico at Maxim Group.

Thank you and just a reminder, ladies and gentlemen star one for questions. Today. We'll go next now to Matthew illegal at Maxim Group.

Speaker 8: Hey, good afternoon. Thanks for taking my questions. Can we start with the, I think you mentioned the, you had legacy semiconductor assets as part of litigation with NVIDIA.

Hey, good afternoon, thanks for taking my questions.

Can we start with the.

Hi.

You mentioned, the you had legacy semiconductor asset.

Part of.

Litigation with <unk>.

<unk>.

Speaker 8: Can you talk about how ending that, did that enable more meaningful conversations on the newer assets on the semiconductor side, or talk a little bit about the dynamic there and the sequence?

Can you talk about how the ending that.

Does that enable more meaningful conversations on the.

On the newer assets on the semiconductor side or.

Talk a little bit about the dynamics.

They're in the state clients.

Sure, Matt happy to happy to touch on that.

Speaker 1: Sure, Matt. Happy to have you touch on that litigation that we settled with NVIDIA was, as you mentioned, related to some some legacy IP. It was not in connection with either our hybrid bonding or our advanced processing node portfolios, which we believe currently have tremendous value, especially in the in the logic space, as we've noted.

The litigation that we settled with and video was as you mentioned related to some some legacy IP. It was not in connection with either our hybrid bonding or our advanced processing node portfolios, which we believe.

Currently have tremendous value, especially in the in the logic space as we've noted.

Speaker 1: you know, in any situation when you're in, when you're litigation, it's hard to get past the, you know, that what's on the table in the litigation to have other conversations. And so, you know, whether, whether that's within video or any other party, frankly. And so, you know, settling that really kind of resets the discussions. And now we believe we're going to be able to have more meaningful discussions about those more advanced technologies that we have in our portfolio.

And any situation when you're in when Youre litigation, it's hard to get past the.

What's on the table in the litigation to have other conversations and so.

Weather.

Whether that's within video or any other party frankly, and so settling that really kind of resets the discussions and now we believe we're going to be able to have more meaningful discussions about those more advanced technologies that we have in our portfolio.

Speaker 8: Got it. Okay. And then just on the high-level 24 outlook, I'm just wondering if we could take

Got it Okay and then just on the.

High level 24 outlook I'm, just wondering if we could take.

Speaker 8: operating cash flow projections, just, you know, proximate what you've talked about, and use that as a

Operating cash flow projections, just proxy of what you've talked about.

And use that as.

<unk>.

Speaker 8: How do you might scale your debt payments? Or, you know, as we think about modeling 24, especially around debt.

How you might scale your debt.

Payments or as we think about modeling 'twenty four.

Especially around that.

Speaker 8: you know, similar rate of pay down to 23 or, you know, how should we be gauging that?

Similar right.

Pay down to 23 or how should we be gauging that thanks.

Speaker 3: That's a great question. I one of the statements that we've made at separation and then we continue to make today is our commitment to paying off that debt prior to maturity and there's a clear pathway for that. And we as a management team are committed.

It's a great question.

One of the statements that you've made at separation and then we continue to make today is our commitment to paying off that debt.

Prior to maturity and here's a clear pathway for that.

We as a management team are committed.

Speaker 3: So I would roughly say that the pace that you're seeing us at this year of making reductions in our overall principal amount, you know, we'll carry that forward and in particular in 2024.

I would roughly say that the pace that you're seeing us at.

This year of making reductions in our over our principal amount, we will carry that forward and in particular in 2024.

Speaker 3: You know, we've talked about that we want to stay committed to that pace, well, our leverage ratio until it reaches 1.3 times, and in 2024, we won't quite dip below that measure, but we will consistently look to retire that debt amount.

We've talked about that we went a committed stay committed to that pace, while our leverage ratio until it reaches one three times.

And in 2024 will we won't create.

Dip below that measure but.

We will we will consistently look to retire that debt.

At that amount.

Okay.

Alright, thank you.

Speaker 4: Thank you, and it appears we have no further questions this afternoon. Mr. Davis, I'll hand things back to you, sir, for any closing comments.

Thank you and it appears we have no further questions. This afternoon, Mr. Davis, I will hand things back to you Sir for any closing comments.

Thank you operator.

Speaker 1: In the third quarter, we delivered strong financial results with continued deal momentum during the quarter.

In the third quarter, we delivered strong financial results with continued deal momentum during the quarter I.

Speaker 1: I'm excited about our future prospects as we continue to grow our portfolio and expand our pipeline of opportunity.

I am excited about our future prospects as we continue to grow our portfolio and expand our pipeline of opportunities.

Speaker 1: I also want to thank our employees for their dedication and commitment to driving our success over the past year.

I also want to thank our employees for their dedication and commitment to driving our success over the past year.

Speaker 1: Next week, we will be attending the Stevens Investing Conference in Nashville. And at the end of the month, we will be attending the Wells Fargo TMT Co.

Next week, we will be attending the Stephens investment conference in Nashville, and at the end of the month, we will be attending the Wells Fargo TMT Conference.

Speaker 1: We look forward to seeing many of you at these and other events through the remainder of the year. Thank you.

We look forward to seeing many of you at these and other events through the remainder of the year.

Thank you for joining us today.

Speaker 4: Thank you. And ladies and gentlemen, that will conclude the ADIA third quarter 2023 earnings conference call. Again, thanks so much for joining and we all wish you a great evening.

Thank you and ladies and gentlemen that will conclude the <unk> third quarter 2023 earnings conference call again, thanks, so much for joining and we all wish you a great evening Goodbye.

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