Q1 2024 Adeia Inc Earnings Call
Speaker Change: [music].
Speaker Change: [music].
Paul E. Davis: McSperry over 18 months ago. We have paid down nearly $200 million of our debt while maintaining a relatively stable cash position of over $80 million, demonstrating our strong financial performance. I am very pleased with our performance in the first quarter and the progress we have made towards our strategic objective. With that, I would like to now turn the call over to Keith for a review of our first quarter financial results.
18 months ago.
We have paid down nearly $200 million of our debt, while maintaining a relatively stable cash position of over $80 million.
Administrative our strong financial performance.
I am very pleased with our performance in the first quarter and the progress we have made towards our strategic objectives.
With that I would like to now turn the call over to Keith for a review of our first quarter financial results.
Keith A. Jones: Thank you, Paul. I'm pleased to be speaking with you today to share details of our first quarter 2024 financial results. During the first quarter, we delivered revenue of $83.4 million, driven by the execution of 10 license agreements across a broad mix of end markets, including OTT, pay TV, semiconductor, and consumer electronics. Now I'd like to discuss our operating expenses, for which I will be referring to non-GAAP numbers only. During the first quarter, operating expenses were $33.9 million, an increase of $721,000, or 2% from the prior quarter. Research and Development expenses decreased $439,000, or 3% from the prior quarter.
Keith: Thank you Paul I'm pleased to be speaking with you today to share details of our first quarter 2024 financial results.
Keith: During the first quarter, we delivered revenue of $83 $4 million driven by the execution of 10 license agreements across a broad mix of end markets, including OTT pay TV semiconductor.
Keith: In consumer electronics.
Keith: Now I would like to discuss our operating expenses for which I will be referring to non-GAAP numbers.
Keith: During the first quarter operating expenses were $33 $9 million in.
Keith: An increase of $721000.
Keith: Our 2% from the prior quarter.
Keith: Research and development expenses decreased $439000 or 3% from the prior quarter.
Keith A. Jones: The decline in the first quarter was primary related to the timing of certain patent renewal costs, which were partially offset by increased personal costs as a result of ongoing hiring. Selling General Administrative Expenses increased $402,000 or 2% from the prior quarter as we continue to invest and build out our licensing platform associated with OTT, Semiconductor, and Adjacent Media Marketing.
Keith: The decline in the first quarter.
Keith: Primarily related to the timing of certain patent renewal costs, which were partially offset by increased personnel costs as a result of ongoing hiring.
Keith: Selling general and administrative expenses increased 400 in $2000 or 2% from the prior quarter as we continue to invest and build out our licensing platforms associated with OTT semiconductor and adjacent media markets.
Keith A. Jones: Litigation expense was $2.9 million, an increase of $758,000 or 35% compared to the prior quarter, primarily due to the timing of expenses related to certain legal matters. Interest expense during the first quarter was $14.2 million, a decrease of $1.3 million from the prior quarter amount due to our continued debt repayment, resulting in a lower principal balance.
Litigation expense was $2 $9 million.
Keith: An increase of $758000 or 35% compared to the prior quarter.
Due to the timing of expenses related to certain legal matters.
Keith: Interest expense during the first quarter was $14 $2 million.
Keith: Decrease of $1 $3 million from the prior quarter amount.
Keith: Due to our continued debt repayments, resulting in lower principal balances.
Keith A. Jones: Our current effective interest rate, which includes amortization of debt issuance costs, was 10%. Other income was $1.4 million, and was primarily related to interest income recognized on revenue agreements with long-term billing structures under ASC 606 and due to interest earned on our cash and investment portfolio. Our adjusted EBITDA for the first quarter was $50 million, reflecting an adjusted EBITDA margin of 60%. Appreciation Expense for the quarter was $520,000. 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 Tax.
Keith: Our current effective interest rate, which includes amortization of debt issuance costs was 10%.
Keith: Other income was $1 $4 million and was primarily related to interest income recognized on revenue agreements with long term billing structures under ASC 606.
Keith: And due to interest earned on our cash and investment portfolio.
Keith: Our adjusted EBITDA for the first quarter was $50 million.
Keith: Reflecting the adjusted EBITDA margin of 60%.
Keith: Depreciation expense for the quarter was $520000.
Keith: Our non-GAAP income tax rate remained at 23% for the quarter.
Keith: Our income tax expense consists primarily of federal and state domestic taxes.
Keith: As well as Korean withholding taxes.
Keith A. Jones: Now for a few details on the balance. We ended the first quarter with $89 million in cash, cash equivalents, and marketable security and generated $67.2 million in cash from operations. We made $40.1 million in principal payments on our debt in the first quarter, and we had a term loan balance of $561.1 million. I am very pleased with the progress we have made in deleveraging our balance sheet. In the past 18 months, we've paid down approximately $200 million of our term loans.
Now for a few details on the balance sheet.
Keith: We ended the first quarter with $89 million in cash cash equivalents and marketable securities.
Keith: And generated $67 $2 million in cash from operations.
Keith: We made $41 million and principal payments on our debt in the first quarter and ended the quarter with a term loan balance of $561 $1 million.
Keith: I am very pleased with the progress we have made in deleveraging our balance sheet.
Keith: In the past 18 months.
Keith: We've paid down approximately $200 million of our term loan.
Keith A. Jones: A great accomplishment by any measure and reflective of our strong cash generative business model. During the first quarter, we paid a cash dividend of five cents per share of common stock. Additionally, our board approved the payment of another five cents per share dividend to be paid on June 18th to shareholders for record as of May 28.
Keith: A great accomplishment by any measure and is reflective of our strong cash generative business model.
Keith: During the first quarter, we paid a cash dividend of five cents per share of common stock.
Keith: Additionally, our board approved the payment of another five cents per share dividend to be paid on June 18th to shareholders of record as of May 28.
Keith A. Jones: Now I will go over guidance for the full year 2020. We are reiterating our prior guidance for the full year 2024. We expect revenue to be in the range of $380 to $420 million. This guidance reflects the strength of our pipeline, which includes new license agreements in both OTP and semiconductor. In executing our pipeline, it remains our priority to achieve economic terms that reflect the proper value of our underlying IP. As a reminder, our agreements tend to be relatively large and complex, which creates volatility from period to period. Well, we are making great progress on many fronts.
Keith: Now I will go over guidance for the full year 2024.
Keith: We are reiterating our prior guidance for the full year 2024 weeks.
Keith: We expect revenue to be in the range of 382 $420 million.
Keith: This guidance reflects the strength of our pipeline, which includes anticipating a new license agreements in both OTT and semiconductor.
Keith: Executing our pipeline it remains our priority to achieve economic terms that reflect the proper value of our underlying IP.
Keith: As a reminder, our agreements tend to be relatively large and complex.
Keith: Which creates a volatility from period to period.
Keith: While we are making great progress on many fronts you may see the overall timing on executing agreements impacting our revenue in Q2 2024.
Keith A. Jones: You may see the overall timing of executing agreements impacting our revenue in Q2 2024, with a couple of agreements that may potentially extend into the second half of the year. This could result in Q2 2024 revenue being similar to our Q1 2024 result. We expect our operating expenses to be in the range of $150 to $160 million. We anticipate both R&D and SG&A expenses to ramp up in the second half of the year as a result of the timing of various initiatives to support the build out of our media and semiconductor licensing platform.
Keith: With a couple of agreements that may potentially extend to the second half of the year.
Keith: This could result in Q2 2024 revenue being similar to our Q1 2024 results.
Keith: We expect our operating expenses to be in the range of $150 million to $160 million.
Keith: We anticipate both R&D and SG&A expenses to ramp in the second half of the year.
Keith: As a result of the timing of various initiatives to support the buildout of our media and semiconductor licensing platforms.
Keith A. Jones: We expect interest expense to be in the range of $54 to $57 million, and we expect other income to be in the range of five to six million dollars. This will result in an adjusted even margin of approximately 62%. We expect the non-gap tax rate to remain consistent at roughly 23% for the full year. We also expect capital expenditures to be approximately $3 million for the full year.
Keith: We expect interest expense to be in the range of $54 million to $57 million and.
Keith: And we expect other income to be in a range of $5 million to $6 million.
Keith: We expect the resulting adjusted EBITDA margin of approximately 62%.
Keith: We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year.
Keith: We also expect capital expenditures to be approximately $3 million for the full year.
Keith A. Jones: The first quarter was in line with our expectations. The high level of deal activity and new customer engagements in the first quarter provides us with a high degree of confidence that we will achieve our goals for the year. Our future is bright, and our entire team is working diligently to deliver strong results for our shareholders. That brings us 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?
Keith: The first quarter was in line with our expectations.
Keith: The high level of deal activity and new customer engagements in the first quarter provides us with a high degree of confidence that we will achieve our goals for the year.
Keith: Our future is bright.
And our entire team is working diligently to deliver strong results for our shareholders.
Speaker Change: That brings an end to our prepared remarks.
Speaker Change: And with that I'd like to turn the call over to the operator to begin our question and answer session operator.
Unknown Executive: Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and you are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question today comes from Matthew Galenko from Maxim Group. Your line is open.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, you raise your hand and join the queue.
Speaker Change: I'd like to withdraw your question simply press Star one again.
Operator: You are called upon to ask your question and you are listening via loud speaker on your device. Please pickup your handset any sure that your phone is not on mute when asking your question you.
Operator: Our first question today comes from the line of Matthew <unk> from Maxim Group. Your line is open.
Matthew Evan Galinko: Hey, good afternoon. Thanks for taking my question. Um, I wanted to, uh, circle back on understanding about the, uh, ramp up in operating expenses. Um, I think you indicated now the back half, but I think possibly when we talked earlier this year, it was going to be a little bit more front end driven on the expense ramp up. So just curious if there were, if I understood that correctly, was there a maybe a push back on that spending? And I'll have a follow up.
Matthew: Hey, good afternoon, Thanks for taking my question.
I wanted to I.
Matthew: I guess circle back and understanding about the.
Matthew: The ramp up in.
Matthew: Operating expenses I think you indicated now back half.
Matthew: I think possibly when we talked earlier this year.
Matthew: Who is going to be a little bit more front end driven on the expense ramp up. So just curious if there were if I understood that correctly was there any maybe push out in that spending.
Speaker Change: Ill follow up.
Keith A. Jones: Hey Matt, great to speak with you. Your memory is spot on.
Speaker Change: Hey, Matt Great to speak with you at your your memory is spot on so.
Keith A. Jones: So one of the things that we when we take a look at our expenses and that grant from the back half of the year, it's quite frankly a success story. So one of the things that we have talked about is building out our platforms and making those investments, which includes a bit of third-party spend to get subject matter expertise and domain expertise. And what we, you know, really found that was actually fantastic was that some of those projects that we had earmarked early on for the first half of the year were quite candidly able to reach those milestones and do so with our own internal resources rather than using outside third parties, which is absolutely fantastic and speaks well to our employees and what they're able to do.
Matt: One of the things that we when we take a look at our expenses in that grab for the back half of the year is quite frankly, it's a success story. So one of the things that we have talked about is building out our platforms, making those investments which includes a bit of third party spend.
Matt: To get subject matter expertise domain expertise and what we really found that was absolutely fantastic is that some of those projects that we had earmarked early on for the first half of the year, we were quite candidly able to reach those milestones and deal with our own internal resources rather than.
Matt: Using outside third parties, which is absolutely fantastic and speaks well to our employees and what they are able to do with that being said that creates an opportunity for us not necessarily to save that money, but actually tune busted and other initiatives, which we have targeted for the second half of the year. So it's a great question.
Keith A. Jones: With that being said, that creates an opportunity for us, not necessarily to save that money, but actually to invest it in other initiatives, which we have targeted for the second half of the year. So it's a great question. It really speaks well to our team. And then with that being said, that's why we stay on track with the guidelines that we previously provided.
Matthew Evan Galinko: Got it. Thank you.
It really speaks well to our team and then with that being said that's why we stay on track with the guidance that we previously provided.
Speaker Change: Got it.
Matthew Evan Galinko: And I guess my follow-up question would be just on, you know, given the persistently high interest rate environment, any changes in thinking about your capital strategy? I think you bought back shares possibly in the first quarter. So just curious if it tips you even further towards retiring debt more aggressively or, you know, just, again, any changes to your posture. Thanks.
Speaker Change: Thank you and I guess my follow up question would be just.
Speaker Change: Given the persistently high.
Speaker Change: Interest rate environment, any any changes in thinking about your capital strategy.
Speaker Change: I think you bought back shares possibly in the first quarter. So just curious if it hits you even further towards <unk>.
Speaker Change: Tiring that more aggressively or just again any changes to your posture.
Keith A. Jones: Yeah, I think our answer is almost all of the above. We're always looking at opportunities, and determining pricing in the marketplace. And then, really, with the tremendous cash flow generation that we had in Q1, in particular, you saw that we made a fairly aggressive pay down in Q1. So, you know, that still, deleveraging our balance sheet still remains a priority. We're making really good progress on that. You know, we evaluate all those things as we go through the course of the year. But as we talked about, retiring $200 million in separation is a tremendous achievement, and we're really happy with the path and the success we had in that regard.
Speaker Change: Yeah, I think our answer is almost all of the above we are always looking at opportunities, giving pricing in the marketplace and then really.
Speaker Change: Really with the tremendous cash flow generation that we had in Q1 in particular.
Speaker Change: That we made a fairly aggressive paydown in.
Speaker Change: In Q1, so that you know that still that deleveraging our balance sheet still remains a priority, we're making really good progress on that.
Speaker Change: We evaluate.
All of those things as we go through the course of the year.
But as we talked about retiring $200 million in separation is a tremendous achievement and we're really happy with the paths and the success we've had in that regard.
Speaker Change: Perfect. Thank you.
Unknown Executive: Your next question comes from the line of Kevin Cassie from Rosenblatt Securities. Your line is open.
Speaker Change: Your next question comes from the line of Kevin Cassidy from Rosenblatt Securities. Your line is open.
Kevin Edward Cassidy: Thanks and congratulations on signing all the 10 new agreements. I'm on the semiconductor side. Last quarter you announced co-optimization. I wonder if you could give us an update, maybe some progress there, or maybe go into a little more detail about what that strategy is.
Kevin Cassidy: Thanks, and congratulations on signing all the 10 new agreements.
Kevin Cassidy: On the semiconductor side last quarter, you announced co optimization I Wonder if you could give us.
Kevin Cassidy: An updated maybe some progress there or maybe go into little more details of what that strategy is.
Paul E. Davis: Great, great question, Kevin. And thanks for thanks for being on the call. So certainly co-optimization is something that we continue to be very excited about. It's a longer term play for us.
Kevin Cassidy: Yeah, Great Great question, Kevin and thanks for.
Kevin Cassidy: Thanks for being on the call.
Speaker Change: So certainly co optimization is something that we are continuing to be very excited about it as a longer term play for us it's something that we kicked off as you noted in Q1 and we've made we've made really good progress we continue to hire.
Paul E. Davis: It's something that we kicked off, as you noted, in Q1. And we've made really good progress; we continue to hire in that space. And it's one of the areas of investment that Keith and I noted back in February and continues to be on track. We have, we've made initial hires, and we are mapping out the program. And really, the focus, as I noted before in February, is really building an organic effort to augment our existing technologies when we look at SEMI.
Speaker Change: In that space and it's one of the areas of investment.
Speaker Change: Keith and I noted back in February and continues to be on track.
Keith: We have we've made made initial hires we are mapping out the program and really the focus as I have noted before in February.
Keith: It's really building an organic effort to augment our existing technologies. When we look at semi so we already have a very strong program in hybrid bonding as you know.
Paul E. Davis: So we already have a really strong program in hybrid bonding, as you know. And in addition, we have an advanced processing node portfolio as well as advanced packaging. And what we wanted to really focus on was something that could really be the next thing that we focused on from an organic standpoint and building out that portfolio. And when we looked at what the industry needed, you know, what the customer demands would be, we saw that this was an area that we could add value given our unique platform that we already have.
Keith: And in addition, we have advanced processing node portfolio as well as advanced packaging and what we wanted to really focus on is something that could.
Keith: <unk> really be the next the next thing that we focused on from an organic standpoint in building out that portfolio.
Keith: When we looked at what the industry needed.
Keith: You know what the customer demands would be.
Keith: We saw that this was an area that we could add value given our unique platform that we already have an and so really tremendous progress so far and expect to hear more as we go go forward in the year on how thats.
Paul E. Davis: And, and so really tremendous progress. So far, expect to hear more as we go forward in the year on how that's continuing to progress. But it's a, you know, from a build out stage, it's exactly on track. And I'm very excited about it.
Keith: Continuing to progress, but it's a from a build out stage. It is exactly on track and I'm very excited about it.
Kevin Edward Cassidy: Okay, great. Thanks.
Speaker Change: Okay, great. Thanks, and maybe as a another question I had was.
Speaker Change: With Paramount Congratulations on renewing your agreement with Paramount.
Kevin Edward Cassidy: And maybe another question I have was with Paramount, you know, congratulations on renewing your agreement with Paramount, but they're, of course, in the headlines. And is there any risk to your agreement if there's new ownership? Yeah.
Speaker Change: There are of course in the headlines and is there any risk to your agreement if there is the new ownership.
Paul E. Davis: Yeah, thanks for that question. Question, Kevin, certainly one we get quite a bit is, you know, how does M&A impact our, our, you know, our license agreements, and it's something that we think about a lot, regardless of kind of what type of agreement it is, is, you know, how will that play out, because it's obviously something that a lot of companies go through. And it's a really changing dynamic in OTT, in particular, right now.
Speaker Change: Yes.
Speaker Change: Thanks for that question, Kevin certainly one we get quite a bit of is how does the M&A impact our our license agreement.
Speaker Change: Agreements and it's something that we think about a lot regardless of kind of what type of agreement is is how how will that.
That play out because it's obviously something that a lot of companies go through and it's a really changing dynamic in.
Speaker Change: In OTT in particular, right now and so.
Speaker Change: No.
Unknown Executive: And so I won't comment exactly on that agreement or the speculation of the M&A rumor mill. But what I will say is that we're prepared for it, and we plan for it, and there really shouldn't be any impact as a result of the M&A on really any of our license agreements.
Speaker Change: I won't comment exactly on on that agreement or the speculation.
Speaker Change: The M&A rumor mill.
Speaker Change: But what I will say is we're prepared for it and and we plan for it and there there really shouldnt be any impact on as a result of M&A on really any of our license agreements as we see them.
Speaker Change: Okay, great. Thank you.
Unknown Executive: Again, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Hamed Khorsand from BWS Financial. Your line is open.
Speaker Change: Again, if you'd like to ask a question press star one on your telephone keypad. Your next question comes from the line of Amit <unk> from Dws financial your line is open.
Hamed Khorsand: Hi, so first off, could you just talk about how many of these service providers are there that, like I found, were left with expiry dates that you would have to go and, you know, reestablish some sort of relationship now that you're a standalone company.
Amit: Hey, So first off could you just talk about.
Amit: How many of these.
Service providers are there that like us down.
Amit: We're left with expiry that you would have to go in.
Amit: Reestablish some sort of relationship now that your Standalone company.
Paul E. Davis: Thanks for that question. Certainly, we're very pleased to get the Astound License Agreement done.
Speaker Change: Thanks for that question certainly we're very pleased to get the Astound license agreement done. We've we've had a few of those theres not theres not many as you recall at the separation and this is consistent really our business models and who we approach where we're really quite different we are usually typically.
Paul E. Davis: We've had a few of those. There aren't very many. As you recall, at the separation, and this is consistent, really our business models and who we approach were really quite different. We are usually typically focused on the larger service providers as our licensees. We have obviously some smaller ones as well, but there's not usually a lot of overlap. So, it's a fairly unique situation, and we don't anticipate really there being many more of those at this.
Speaker Change: <unk> are focused on the larger service providers.
Speaker Change: As our licensees, we have obviously, some smaller ones as well, but there's not usually a lot of overlap so.
Speaker Change: Fairly unique situation and we don't anticipate really theyre being.
Speaker Change: How many more of those at this point.
Hamed Khorsand: Okay, and then my other question is just, could you clarify your commentary? You're talking about how you're making, you know, great headway with new licensees. I think you listed a few of them. But then you're also saying that, you know, q2 is looking like it might be like q1 because there are pushouts. So what is that progress that you're talking about? Because it doesn't sound like it's going to be on the revenue side.
Speaker Change: Okay and then my other question is this could you clarify your commentary.
Speaker Change: You're already talking about how that youre, making.
Speaker Change: Great headway with new licensees.
Speaker Change: You've listed a few of them, but then you're also saying that Q2 is looking like it might be like Q1, because there is push outs. So what is that progress state you are talking about it because it doesn't sound like it's going to be on the revenue side.
Paul E. Davis: Yeah, so, Hamed, as you know, our license agreement discussions can be quite lengthy. And often they are, you know, can be, you know, 18-24 month engagements.
Paul E. Davis: Yeah, so Hamed.
Speaker Change: Yeah, So Amit as you know our license agreement discussions can be quite lengthy.
Amit: And often they are.
Amit: Can be 18 to 24 month type engagements and so we're pleased with kind of how those are progressing.
Paul E. Davis: And so we're pleased with how those are progressing, as I noted in my commentary. But the exact timing of when they will land within a quarter is the hardest thing that we have to do to, you know, predict. And, you know, that's why we provide annual guidance. That's why we focus on it. We have, and we have high confidence in the year, you know, exactly whether it falls, you know, kind of, you know, June 30th versus July 1 or some other date, you know, that that varies from quarter to quarter is what we're really talking about.
Speaker Change: I noted in my commentary.
Amit: But the exact timing of when they will land within a quarter is the hardest thing that we have to do to predict.
Amit: And that's why we provide annual guidance, that's why we focus on that.
Amit: We have and we have high confidence in the year exactly whether it falls kind of.
Amit: June 30th versus July one of her or some other date.
That varies from from quarter to quarter.
Paul E. Davis: But the confidence in the year remains, and we feel very good about it, given where we are. But it's, that's always our focus, getting the right deal done for the right economics. And, and, please, again, please, very pleased with the progress.
Amit: As we're what we're really talking about by the confidence in the year remains we feel very good about it.
Amit: Even given where we're at but it's that's that's always our focus is getting the right deal done for the right economics and and pleased again pleased very pleased with the progress, but predicting on exactly when when it falls within the quarter is something that we try to try to avoid doing for that very reason.
Paul E. Davis: But predicting exactly when when it falls within a quarter is something that we try to avoid doing for that very reason.
Speaker Change: Okay. Thank you.
Unknown Executive: And that concludes our question and answer session. I will now turn the call back over to Paul Davis for his closing remarks.
Speaker Change: And that concludes our question and answer session I will now turn the call back over to Paul Davis for closing remarks.
Paul E. Davis: Thank you operator.
Paul E. Davis: Our first quarter results were aligned with our expectations, and we remain on track to meet our goals for the year. I want to thank our dedicated employees, partners, and customers for the strong start to the year and the progress we have made on our strategic objectives. Next week, we'll be participating at the Needham Technology, Media, and Consumer Conference in New York. We look forward to seeing you at this conference and other investor events in the coming weeks. Thank you for joining us today.
Paul E. Davis: Our first quarter results were aligned with our expectations and we remain on track to meet our goals for the year.
Paul E. Davis: I want to thank our dedicated employees partners and customers for the strong start to the year and the progress we have made on our strategic objectives.
Paul E. Davis: Next week, we'll be participating at the Needham Technology Media and consumer conference in New York, We look forward to seeing you at this conference and other investor events in the coming weeks. Thank.
Speaker Change: Thank you for joining us today.
Unknown Executive: This concludes today's conference call. Thank you for your participation. You may now disconnect.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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