Q2 2024 Adeia Inc Earnings Call
Chris Chaney: Arise 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 www.adeia.com. Now, I'd like to turn the call over to our CEO, Paul Davis.
Unknown Executive: Rising 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.
Yeah.
Speaker Change: To enhance investors' understanding of our ongoing economic performance we will.
We 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.
Unknown Executive: 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.
Unknown Executive: A recording of this conference call will be made available on the investor relations website at adia.com.
A recording of this conference call will be made available on the Investor Relations website at <unk> Dot com.
Chris Chaney: 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.
Paul Davis: Thank you, Chris, and thank you, everyone, for joining us today. We delivered results for the second quarter that were in line with our expectations, with revenue of $87.4 million and adjusted EBITDA of $52.8 million. I am pleased with the progress we are making across all aspects of our business, and we remain on track to achieve our strategic objectives for 2024. During the second quarter, we signed five license agreements across diverse end markets, including social media, consumer electronics, semiconductors, and Pay TV.
Paul Davis: Thank you, Chris, and thank you everyone for joining us today. We delivered results for the second quarter that were in line with our expectations, with revenue of $87.4 million and adjusted EBITDA of $52.8 million. I am pleased with the progress we are making across all aspects of our business, and we remain on track to achieve our strategic objectives for 2024. During the second quarter, we signed five license agreements across diverse end markets, including in social media, consumer electronics, semiconductors, and pay TV. Additionally, shortly following the end of the quarter, we signed a multi-year renewal with Liberty Global, a leading European pay TV operator.
Paul Davis: Thank you, Chris and thank you everyone for joining us today.
Paul Davis: We delivered results for the second quarter that were in line with our expectations.
With revenue of $87 $4 million and adjusted EBITDA of $52 8 million.
Paul Davis: I am pleased with the progress we are making across all aspects of our business.
Paul Davis: And we remain on track to achieve our strategic objectives for 2024.
Paul Davis: During the second quarter, we signed five license agreements across diverse end markets.
Paul Davis: Additionally, shortly following the end of the quarter, we signed a multi-year renewal with Liberty Global, a leading European pay-TV operator. We continued to pay down our term loan in the second quarter, and we saw an opportunity to reprice our debt.
Paul Davis: We continue to pay down our term loan in the second quarter, and we saw an opportunity to reprise our debt. I am very pleased with the terms of the repricing, which will save us over $3 million annually in lower interest expense, and provide us with additional financial flexibility moving forward. We remain committed to continuing to pay down our debt, and under the new terms, we will be able to take a more balanced approach to capital allocation and return more capital to shareholders and have more firepower for tucking acquisitions to help grow our business. Since our separation, we have been diligently working to add license agreements in key growth verticals such as OTT, semiconductors, and adjacent media markets.
Paul Davis: I am very pleased with the terms of the repricing, which will save us over $3 million annually in lower interest expenses and provide us with additional financial flexibility moving forward. We remain committed to continuing to pay down our debt. And under the new terms, we will be able to take a more balanced approach to capital allocation and return more capital to shareholders and have more firepower for tuck-in acquisitions to help grow our business. Since our separation, we have been diligently working to add license agreements in key growth verticals such as OTT. Semiconductors, and Adjacent Media Marketing.
Paul Davis: We are very excited with the agreements we signed to date, and the progress we are making on new deals in each of these markets. During the quarter, we also continue to expand our pipeline of opportunities in both media and semiconductors as we look to continue to grow our business in 2025 and beyond. In the second quarter, we were very pleased to reach an agreement with XCorp, formerly Twitter, for a multi-year license renewal. The agreement resolves all outstanding litigation, and I am pleased that XCorp is a paying customer once again. The agreement further validates the value of RIP and demonstrates our commitment to enforcing the contractual terms we have with our customers.
Paul Davis: We're very excited with the agreements we've signed to date and the progress we are making on new deals in each of these markets. During the quarter, we also continued to expand our pipeline of opportunities in both media and semiconductors as we look to continue to grow our business in 2025 and beyond. In the second quarter, we were very pleased to reach an agreement with X Corp., formerly Twitter, for a multi-year license. The agreement resolves all outstanding litigation, and I am pleased that X-Corp is a paying customer once again.
Paul Davis: The agreement further validates the value of our IP and demonstrates our commitment to enforcing the contractual terms we have with our customers. We also signed a multi-year renewal with Panasonic, which continues our success in consumer electronics, and we signed multi-year renewals with two regional pay TV providers in the U.S. In semiconductors, we signed a new long-term agreement with Hamamatsu. This new agreement supplements an existing license. Adding access to our Dyed-A-Wafer Hybrid Bonding Technology.
Paul Davis: We also find a multi-year renewal with Panasonic, which continues our success in consumer electronics, and signed multi-year renewals with two regional pay TV providers in the US. In semiconductors, we signed a new long-term agreement with Hama Matsu. This new agreement supplements an existing license, adding access to our died-away for hybrid bonding technology. This new agreement follows from a prior development license to our wafer-to-wafer hybrid bonding portfolio and a technology transfer agreement. Our relationship with Hama Matsu highlights how partnerships with our customers can help accelerate the advancement of their hybrid bonding capabilities and improve their products.
Paul Davis: This new agreement follows from a prior development license to our wafer-to-wafer hybrid bonding portfolio and a technology transfer agreement. Our relationship with Hamamatsu highlights how partnerships with our customers can help accelerate the advancement of their hybrid bonding capabilities and improve their products. As noted earlier, shortly following the close of the second quarter, we also signed a multi-year renewal with Liberty Global, a leading pay TV provider in Europe.
Paul Davis: As noted earlier, shortly following the close of the second quarter, we also signed a multi-year renewal with Liberty Global, a leading pay TV provider in Europe. This deal is significant as we continue to strengthen our customer base internationally. We are on track to meet our objectives for this year and continue to make progress towards our long-term goals. We plan to drive revenue growth by growing our customer base in OTT, adjacent media markets, and semiconductors, and by maintaining our strong renewal rates and our well-established pay TV, consumer electronics, and social media verticals. To continue to grow our revenue and customer base, it is imperative that we further expand our IP portfolios.
Paul Davis: This deal is significant as we continue to strengthen our customer base internationally. We are on track to meet our objectives for this year and continue to make progress towards our long-term goal. We plan to drive revenue growth by growing our customer base in OTT, adjacent media markets, and semiconductors. To continue to grow our revenue and customer base, it is imperative that we further expand our IP portfolio. We close the second quarter with over 11,500 worldwide patents. Our portfolio growth objectives are focused on maintaining our strong renewal rate while adding new customers in our key growth market.
Paul Davis: We close the second quarter with over 11,500 worldwide patent assets. Our portfolio growth objectives are focused on maintaining our strong renewal rate while adding new customers in our key growth markets. Our customer relationships are founded on the value of our IP and are fundamental to renewals. Our investments in R&D and augmenting our technical sales and engagement resources will drive the addition of new customers in both existing and adjacent markets. Our priority remains to grow our portfolios organically through investments in internal R&D and, inorganically, by actively pursuing acquisition opportunities that strategically enhance our organic efforts. Our focus at Audia is driving next-generation innovations for our customers and markets we serve.
Paul Davis: Our customer relationships are founded on the value of our IP and are fundamental to renewal. Our investments in R&D and enhancing our technical sales and engagement resources will drive the addition of new customers in both existing and adjacent markets. Our priority remains to grow our portfolios organically through investments in internal R&D and inorganically by actively pursuing acquisition opportunities that strategically enhance our organic efforts. Our focus at Adeia is driving next-generation innovations for our customers and markets we serve.
Paul Davis: Existing and adjacent markets.
Paul Davis: Our priority remains to grow our portfolios organically through investments in internal R&D.
Paul Davis: And inorganically by actively pursuing acquisition opportunities that strategically enhance our organic efforts.
Speaker Change: Our focus at Adia is driving next generation innovations for our customers and markets we serve.
Paul Davis: As such, we were thrilled to be recognized amongst the most prolific inventors in the world for 2023 by Herity and Herity, a leading patent analytics firm. Last year, we were granted 554 patents, for which we were ranked number 70 in the world for the number of granted patents. We ranked higher on the list than many of the most well-respected media companies, such as AT&T, Verizon, and Comcast, and some of the hottest semiconductor companies leading the AI charge, such as AMD and NVIDIA.
Paul Davis: As such, we were thrilled to be recognized amongst the most prolific inventors in the world for 2023 by Heritage and Heritage, a leading patent analytics firm. Last year, we were granted 554 patents, for which we were ranked number 70 in the world for the number of granted patents. We ranked higher on the list than many of the most well-respected media companies such as AT&T, Verizon, and Comcast, and some of the hottest semiconductor companies leading the AI charge such as AMD and Nvidia. This is particularly remarkable since these companies have significantly larger R&D resources than we do.
Paul Davis: As such we were thrilled to be recognized amongst the most prolific inventors in the world for 2023 by Herrity inheriting a leading patent analytics firm.
Paul Davis: Last year, we were granted 554 patents for which we were ranked number 70 in the world for the number of granted patents.
Paul Davis: We ranked higher on the list the many of the most well respected media companies such as AT&T.
Paul Davis: Verizon and Comcast.
Paul Davis: And some of the hottest semiconductor companies, leading the AI charge, such as AMD and Nvidia.
Paul Davis: This is particularly remarkable since these companies have significantly larger R&D resources than we do. Yet, we achieve these results because of our unique business model, which allows our dedicated scientists and engineers to be exclusively focused on critical, forward-looking innovation. I am immensely proud of our team for this accomplishment.
This is particularly remarkable since these companies have significantly larger R&D resources than we do.
Paul Davis: Yet, we achieve these results because of our unique business model, which allows our dedicated scientists and engineers to be exclusively focused on critical, forward-looking innovations. I am immensely proud of our team for this accomplishment. Thought leadership is one of our hallmarks and demonstrates our commitment to innovation. Our R&D professionals continue to fully engage in the ecosystems in which we participate, delivering insightful presentations, speaking on topical panels at industry conferences, and publishing research on important, forward-looking trends. In the second quarter, members of our media team presented computing while cooling at Streaming Media NYC and participated in a panel on the pivotal role of R&D in gaming innovation at the XP-24 Game Summit.
Paul Davis: Yet we achieved these results because of our unique business model, which allows our dedicated scientists and engineers to be exclusively focused on critical forward looking innovations I am immensely proud of our team for this accomplishment.
Paul Davis: Thought leadership is one of our hallmarks and demonstrates our commitment to innovation. Our R&D professionals continue to fully engage in the ecosystems in which we participate. Delivering Insightful Presentations, Speaking on topical panels at industry conferences, and publishing research on important forward-looking trends. In the second quarter, members of our media team presented Computing While Cooling at Streaming Media NYC and participated in a panel on the pivotal role of R&D in gaming innovation at the XP24 Games Summit.
Paul Davis: Thought leadership is one of our hallmarks and demonstrates our commitment to innovation, our R&D professionals continue to fully engage in the ecosystems in which we participate.
Paul Davis: Likewise, members of our semiconductor team gave two presentations on hybrid bonding at this year's Electrical Components and Technology Conference in Denver. I was particularly proud that our paper on fine pitch died away for hybrid bonding was recognized as best session paper at the conference. Additionally, we delivered a presentation on co-optimization of semiconductor systems at the 2024 Semi-3D and Systems Conference.
Paul Davis: Likewise, members of our semiconductor team gave two presentations on hybrid bonding at this year's Electrical Components and Technology Conference in Denver. I was particularly proud that our paper on Fine Pitch Dyed-to-Wafer Hybrid Bonding was recognized as the Best Session Paper at the conference. Additionally, we delivered a presentation on Co-Optimization of Semiconductor Systems at the 2024 SEMI 3D and Systems Conference. I am very pleased with the progress we have made to date, and I am confident we will achieve our 2024 goal. With that, I would now turn the call over to Keith for a review of our second quarter financial results.
Paul Davis: I am very pleased with the progress we have made to date, and I am confident we will achieve our 2024 goals.
Keith Jones: With that, I would like to now turn the call over to Keith for review of our second quarter financial results.
Keith Jones: Thank you, Paul. I am pleased to be speaking with you today to share details of our second quarter 2024 financial results. During the second quarter, we delivered revenue of $87.4 million, driven by the execution of five licensed agreements across a diverse mix of in-market, including social media, consumer electronics, semiconductor, and pay TV. These results are in line with our prior expectations, as we anticipate seems strong momentum in the second half of the year.
Keith Jones: Thank you, Paul. I am pleased to be speaking with you today to share details of our second quarter 2024 financial results. During the second quarter, we delivered revenue of $87.4 million, driven by the execution of five license agreements across a diverse mix of in-markets, including social media, consumer electronics, semiconductor, and pay TV. These results are in line with our prior expectations as we anticipate seeing strong momentum in the second half of the year.
Keith Jones: Now, I would like to discuss our operating expenses, for which I will be referring to non-GAAP numbers only. During the second quarter, operating expenses were $35.1 million, an increase of $1.2 million, or 3% from the prior quarter. Research and development expenses increased $590,000, or 4%, from the prior quarter. The increase in the second quarter is primarily related to patent filings and related maintenance costs. Selling general administrative expenses decreased $773,000, or 4%, from the prior quarter, primarily due to the recovery of bad debt expenses associated with the resolve contract dispute with X-Corp and due to lower corporate administrative costs.
Keith Jones: Now I would like to discuss our operations, for which I'll be referring to non-GAAP numbers only. During the second quarter, operating expenses were $35.1 million, an increase of $1.2 million, or 3% from the prior quarter. Research and Development Expenses increased $590,000, or 4% from the prior quarter.
Keith Jones: The increase in the second quarter is primarily related to patent filings and related maintenance costs. Selling General Administrative Expenses decreased. $773,000 or 4% from the prior quarter, primary due to the recovery of bad debt expenses associated with the resolution of the contract dispute with X Corp and due to lower corporate administrative costs. These decreases were partially offset by increased third-party spending associated with the build-out of our licensing platform and OTT, Semiconductor, and Adjacent Media Marketing.
Keith Jones: These decreases were partially offset by increased third-party spending associated with the build-out of our licensing platforms. In OTT, semiconductor and adjacent media mark.
Keith Jones: Chates. Litigation expense was $4.3 million, an increase of $1.3 million, or 45% compared to the prior quarter, primarily due to the timing of expenses related to certain legal matters. Interest expense during the second quarter was $13.3 million, a decrease of $879,000 from the prior quarter, due to the benefit of a lower interest rate following the successful repricing of our Term Loan B, and due to our continued debt repayments. Our current effective interest rate, which includes amortization of debt issuance costs, was 9.6%. Other income was $1.4 million and was primarily related to interest earned on our cash and investment portfolio, and due to interest income recognized on revenue agreements with long-term billing structures under ASC 606.
Keith Jones: Litigation expense was $4.3 million, an increase of $1.3 million or 45% compared to the prior quarter, primarily due to the timing of expenses related to certain legal matters. Additionally due to the benefit of a lower interest rate following the successful repricing of our term loan B and due to our continued debt repayment. We made $12 million in principal payments on our debt in the second quarter and entered the quarter with a term loan balance of $549.1 million. This results in a significant $3.4 million savings on an annual basis.
Keith Jones: Our adjusted EBITDA for the second quarter was $52.8 million, reflecting the adjusted EBITDA margin of 60%. Appreciation expense for the quarter was $490,000. Our non-GAAP income tax rate remained at 23% for the quarter. Our income tax expense consists primarily of federal and state domestic taxes, as well as free-in withholding tax.
Keith Jones: Now for a few details on the balance sheet. We ended the second quarter with $94.5 million in cash equivalents and marketable securities, and generated $23.5 million in cash from operations. We made $12 million in principal payments on our debt in the second quarter and ended the quarter with a term loan balance of $549.1 million. During the second quarter, in light of payroll market conditions, we saw an opportunity to reprise our existing term loan agreement. We are very pleased with the outcome of the repricing, as we achieved two significant benefits. First, we successfully lowered the fixed interest rate component by 61 basis points.
Keith Jones: This results in a significant $3.4 million savings on an annual basis. Secondly, we greatly reduced the mandatory excess cashful payment thresholds, effectively providing us with greater financial flexibility on our uses of capital as we exit 2024. Specifically, while remaining dedicated to leveraging our balance sheet by continuing to make accelerated payments on our term loan, this improved flexibility will allow us to take a more balanced approach in returning capital to shareholders from stock repurchases in addition to our current dividend program. Additionally, we have increased our capacity to grow our business through tuck-in acquisitions. During the second quarter, we paid a cash dividend of $0.5 per share of common stock.
Unknown Executive: During the second quarter, we paid a cash dividend of five cents per share of common stock. We are reiterating our prior revenue guidance for the full year. During the first half of the year, we have seen continued execution of our various strategic objectives. As the year has progressed, we have achieved these goals with lower-than-expected third-party spending as we develop our new licensing platform, which is $5 million less than we previously guided.
Keith Jones: Our board also proved a payment of another $0.5 per share dividend to be paid on September 17 to shareholders of record as of August 27.
Your dividend to be paid on September 17th to shareholders of record as of August 27.
Keith Jones: Now I will go over our guidance for the full year 2024. We are pleased with the progress we are making on executing our sales pipeline. Consequently, we are reiterating our prior revenue guidance for the full year. We expect revenue to be in the range of 180 to 420 million dollars, which includes significant new license agreements in both OTT and semiconductor in the second half of the year. During the first half of the year, we have seen continued execution of our various strategic objectives. As the year has progressed, we have achieved these goals with lower than expected third-party spending as we develop our new licensing platforms. We have been able to leverage our internal resources to a greater extent than initially planned.
Paul Davis: Now I will go over our guidance for the full year 2024.
Paul Davis: We're pleased with the progress we're making on executing our sales pipeline. Consequently, we are reiterating our prior revenue guidance for the full year.
Paul Davis: We expect revenue to be in the range of $380 million to $420 million, which includes significant new licensing agreements in both OTT and semiconductor in the second half of the year.
Paul Davis: During the first half of the year, we have seen continued execution of our various strategic objectives. As the year has progressed, we have achieved these goals with lower than expected third party spending as we develop our new licensing platform.
Paul Davis: We have been able to leverage our internal resources to a greater extent than initially planned.
Keith Jones: Additionally, our litigation expenses have been somewhat lower than expected due to the summit with export and the timing of ongoing litigation. As a result, we are lowering our guidance for operating expenses, and we expect them to be in the range of 145 to 155 million dollars, which is $5 million less than we previously guided. We remain dedicated to our commitment to R&D as we grow and expand our IP portfolio. Because of our lower interest rate from our debt repricing, our interest expense will be less than we originally anticipated. As such, we are lowering our guidance for interest expense to be in the range of 52 to 55 million dollars, which is $2 million less than we previously guided.
Paul Davis: Additionally, our litigation expenses have been somewhat lower than expected due to the settlement with export and the timing of ongoing litigation.
Paul Davis: As a result, we are lowering our guidance for operating expenses and we expect them to be in the range of $145 million to $155 million, which is $5 million less than we previously guided.
Paul Davis: We remain dedicated to our commitment to R&D as we grow and expand our IP portfolio.
Unknown Executive: Because of our lower interest rate from our debt repricing, our interest expense will be less than we originally anticipated. As such, we are lowering our guidance for interest expense. We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year. We also expect capital expenditures to be approximately $2 million for the full year.
Paul Davis: Because of our lower interest rate from our debt repricing.
Paul Davis: Our interest expense will be less than we originally anticipated.
Paul Davis: As such we are lowering our guidance for interest expense.
Paul Davis: To be in the range of $50 million to $55 million, which is $2 million less than we previously guided.
Keith Jones: We expect other income to be in the range of $5 to $6 million. We expect a resulting adjusted EBITDA margin of approximately 63%. We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year. We also expect capital expenditures to be approximately $2 million for the full year.
Paul Davis: We expect other income to be in the range of $5 million to $6 million.
Paul Davis: We expect a resulting adjusted EBITDA margin of approximately 63%.
Paul Davis: We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year.
Paul Davis: We also expect capital expenditures to be approximately $2 million for the full year.
Keith Jones: The second quarter wasn't lying with our expectations. We are progressing nicely on all fronts, and we remain confident we will achieve our goals for the year. The concerted efforts of the entire Audi team will serve as a springboard for success as we strive to grow and expand our exceptional business model.
Paul Davis: The second quarter was in line with our expectations. We are progressing nicely on all fronts and we remain confident we will achieve our goals for the year.
Speaker Change: The concerted efforts of the entire audio team will serve as a springboard for success as we strive to grow and expand our exceptional business model.
Unknown Executive: That brings it into our prepared remarks, and with that, I'd like to turn the caller over to the operator to begin our question-and-answer session. Operator.
Speaker Change: 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.
Unknown Executive: Thank you.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad duration hand, im trying to queue.
Unknown Executive: We will now begin the question and answer session. If you have dialed in and would 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 are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not un-mute when asking your question. We do request for today's session that you please limit to two questions and re-key for any follow-up questions.
Speaker Change: If you would like to withdraw your question simply press Star one again.
Speaker Change: If you are called upon to ask your question and our listening via speaker. Following our device. Please pickup your handset ensure that your phone is not on mute when asking a question.
Paul Davis: We do request for today's session that you. Please limit to two questions and Ricky for any follow up questions again press star one to join the queue.
Unknown Executive: Again, press star one to- deque.
Kevin Cassidy: Your first question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open.
Speaker Change: Your first question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open.
Unknown Executive: No.
Kevin Cassidy: Hi. Thanks for taking my question, and congratulations on the great progress for 2024. I just, you know, wondering there is news out on some OTT companies raising their prices to consumers. Do you have any view on what how this would affect both your OTT market or even your pay TV market?
Kevin Cassidy: Hi, yes, thanks for taking my question and congratulations on the great progress for 2024.
Kevin Cassidy: I'm just wondering if there is news out on some OTT companies raising their prices to consumers see Germany any view on what how this would affect both your.
Speaker Change: OTT market or even your pay TV market.
Paul Davis: Hey, Kevin, great, great question. You know, I think we're focused obviously on the OTT market as you, as you know. We've made some really nice strides in getting deals done with the Zone and Stars and Paramount recently. And we've, you know, signaled that we anticipate having success in the OTT market with some more significant players here this year as well. And so, you know, with our engagements, you know, we typically look at the number of subscribers that an OTT platform might have. Certainly, price comes into it in terms of, you know, as we compare it to what our rates are that we have with pay TV, but we don't think we'll have a significant impact ultimately to what we're able to achieve from a licensing standpoint with our business.
Speaker Change: Hey, Kevin a great. Great question, you know I think we're focused obviously on the OTT market as you as you note.
Speaker Change: We've made some some really nice strides in getting deals done with does own and stars and Paramount recently, and we've signaled that we anticipate having a success in the OTT market.
Paul Davis: With with some more significant players here this year as well and so you know with our engagements we typically look at the.
Kevin Cassidy: The number of subscribers that an OTT platform might have certainly price comes into it in terms of you know as we compare it to what our rates are that we have with with pay TV, but we don't think it will have a significant impact or ultimately to what were able to achieve from a licensing standpoint with our business.
Unknown Executive: Okay, great.
Speaker Change: Okay, great and maybe as a follow up.
Paul Davis: And maybe as a follow-up, you know, talk about the semiconductor market. You know, there's plenty of news out there around, you know, high bandwidth memory having yield issues or various, you know, trying to keep up with demand and same with on the GPU side. Can you say is this, can you say what's what you see in your pipeline as far as where some of these issues are coming up? Is your pipeline might be getting bigger and maybe even moving to a broader use of chiplet designs. Yeah, it's certainly, you know, what we see with chiplets architecture on the logic side is something that we continue to monitor and see new companies talk about that.
Speaker Change: About the semiconductor market and others.
Speaker Change: Plenty of news out there around the high bandwidth memory, having a yield this user.
Speaker Change: Various brookdale.
Speaker Change: They are trying to keep up with demand at the same rate on the GPU side can you say is this can you say, what's where do you see in your pipeline as far as where some of these issues are coming up as you as your pipeline might be getting bigger and maybe even moving to a broader use of chip designs.
Speaker Change: Yeah. It certainly.
Speaker Change: What we see with chip architecture on the logic side is something that we continue to monitor and see new companies talk about that.
Paul Davis: You know, Intel announced a chiplet type architecture with a product that they plan to announce in 2025. Obviously, AMD's had one, you know, had to use chiplet architecture for a few years now and continues to increase the number of products that they have. And we think that will continue to be the trend, you know, as the limits of Moore's law and traditional ways of have come to come to their limits there. You know, as it relates to high bandwidth memory, certainly we're excited about HBM for and in the possibility that, you know, at least it's some version of that down the road will include need to include a hybrid bonded process as well to really get to the level of performance that we think they'll need to know could be a few years until that happens.
Speaker Change: Intel announced.
Speaker Change: Triplet type architecture with a product that they plan to announce in 2025, obviously and he's had one.
Speaker Change: You know how to use tripled architecture for for a few years now and continues to increase the number of products that they have and we think that will continue to be the trend you know as as as really the limits of Moore's law and traditional ways of have come to come to their limits there.
Speaker Change: You know as it relates to high bandwidth memory, certainly we're excited about.
Speaker Change: H B M foreign and the possibility that you know at least some version of that down. The road. We'll include a need to include a a hybrid bonded.
Speaker Change:
Speaker Change: Process as well to really get to the level of performance that we think they'll need to now it could be a few years until that happens, but but certainly its lines up well with when likely our memory licensees would would be up for renewal as well.
Unknown Executive: But certainly, it lines up well with when likely our memory licensees would be up for renewal as well.
Unknown Executive: Okay, great. Thanks. I'll get back in the queue.
Speaker Change: Yes.
Unknown Executive: Okay, great. Thanks.
Speaker Change: Great. Thanks, I'll get back in the queue.
Unknown Executive: I'll get back in the queue.
Hamed Khorsand: Our next question comes from the line of Hamed Khorsand with BWS Financial. The line is open. Hi.
Hamed Khorsand: Our next question comes from the line of Hamed Khorsand with BWS Financial.
Speaker Change: Our next question comes from the line of her Mccarson Dws financial your line is open.
Mccarson Dws: Hi, first off I just wanted to ask is what's.
Paul Davis: First off, I just want to ask, is what's changed in the business in these last six to eight months where your commentary this today is really you're putting all the some emphasis on tucking acquisitions and making a some sort of acquisition.
Speaker Change: <unk> in the business in these last six to eight months, where your commentary. This today is really are you putting some emphasis on tuck in acquisitions and.
Speaker Change: I'm, making a some sort of acquisition.
Paul Davis: Yeah, Hamed. I think that's a it's a great question. Certainly, we've actually always focused on doing tucking acquisitions. It's something that's been part of our playbook. We focus on, you know, internal R&D, though first, and that's not going to change. So 85 plus percent of our portfolio is homegrown. It's from our inventors. And we see that really maintaining in that in that zip code. However, you know, there are occasionally opportunities that come to us or that we source where we see an opportunity to really add to the portfolio that augments our internal efforts as well.
Speaker Change: Yeah, I mean, I think that's a it's a it's a great question certainly we've actually always focused on doing tuck in acquisitions, it's something that's been part of our playbook. We focus on you know internal R&D, though first and that's not going to change. So 85 plus percent of our portfolio is homegrown it's from.
Speaker Change: Our inventors and we see that really maintaining in that in that Zip code.
Speaker Change: However, you know there are occasionally opportunities that come to us or that we source, where we see an opportunity to really add to the portfolio that augments, our internal efforts as well and so that really hasn't changed we do like to highlight it though we did close.
Paul Davis: And so that really hasn't changed. We we do like to highlight it, though. We we did close, you know, a few deals earlier this year. It's something that we, as we look towards really expanding our markets into some of the adjacent markets and even in semiconductors, where we see, you know, really opportunity to accelerate the revenue opportunity as well. If we can, you know, add a high quality portfolio to our own internal efforts as well. Okay.
Speaker Change: A few deals earlier this year its something that we are.
Speaker Change: As we look towards really expanding our markets into some of the adjacent markets and even in semiconductors, where we see really opportunities to accelerate the revenue opportunity as well if we can add a high quality portfolio to our own internal efforts as well.
Speaker Change: Okay and my other question was.
Paul Davis: My other question was, is there a timing that you're expecting with these, you know, streaming and semiconductor license deals that you're you've been talking about all year? Yeah, you know, I think one of the things that we always note is that what we do is very, very large deals and trying to, but we don't do a high volume of them right. And so getting the economics right, you know, working with the customers is something that we really pride ourselves on in terms of getting, you know, the best economics that we can.
Speaker Change: Is there a timing that youre expecting what he said.
Speaker Change: Streaming and semiconductor license deals that you're you've been talking about all year.
Speaker Change: Yeah, you know I think one of the things that we always note is that what we do is is very very large deals and try and but we don't do a high volume of them right and so getting the economics right now working with the customers.
Speaker Change: Something that we really pride ourselves on in terms of getting.
Speaker Change: The best Economics that we can and so we focus on that aspect getting the right deal done rather than trying to accelerate the timeline and take have to take a deal that we're not happy with and so.
Unknown Executive: And so we focus on that aspect, getting the right deal done rather than, you know, trying to, you know, accelerate the timeline and take, have to, you know, take a deal that we're not, you know, happy with. And so the exact timing of it can shift quarter to quarter, but given where, you know, the deals are that we have in our pipeline, you know, we are, we're still very confident of that don't close this year. And that's not really what we've been saying all year in the exact quarter, though, hard to predict. Okay.
Speaker Change: The exact timing of it can shift quarter to quarter, but given where the deals are that we have in our pipeline. Now we are we're still very confident of that don't close this year.
Speaker Change: And that's not really what we've been saying all year, the exact quarter, though hard to predict.
Speaker Change: Okay, just a follow up on that if I may are you running out of the average so far this year about $85 million per quarter is that a good baseline.
Unknown Executive: Just to follow up on that, if I may, you're running out of average so far this year, about 85 million per quarter. Is that a good baseline for the business, or is it going to be higher without the licensing deals happening?
Speaker Change: For the business or is it going to be higher.
Speaker Change: Without without the licensing deals happening.
Unknown Executive: I am. It's a great question. So I think that 85 is not necessarily baseline. There's a number of renewals that we're working on. And then, if you add in the subsequent license agreements that Paul's referring to, that we talked about both for OT and semiconductor, you're going to have a much higher baseline revenue level. So that is not what we see is an ongoing run rate. We see that run rate being much higher, and that acts as a really good springboard as we move forward.
Keith Jones: Hi Ahmed, that's a great question. So I think that 85 is not necessarily the minimum. There are a number of renewals that we're working on, and then if you add in the subsequent license agreements that Paul's referring to that we talked about, both for OT and semiconductor, you're going to have a much higher baseline revenue level. So that is not what we see as an ongoing run rate. We see that run rate being much higher. And that acts as a really good springboard as we move forward into 2020.
Amit: Hi, Amit.
Speaker Change: Question. So I think that 85 is not necessarily a baseline theres a number of renewals that we're working on and then if you add in the subsequent.
Speaker Change: License agreements that Paul is referring to that we talked about both for OTT semiconductor youre going to have a.
Paul Davis: A much higher baseline revenue level.
Speaker Change: So that.
Speaker Change: That is not what we see as an ongoing run rate, we see that run rate being much higher and that acts as a really good springboard as we move forward into 2025.
Unknown Executive: May 25, 2025.
Speaker Change: Okay. Thank you.
Matthew Galinko: And we do have our last question comes from the line of Matthew Galinko with Maxine Group. Your line is open. Hey, thanks for taking my questions.
Unknown Executive: And we do have our last question comes from the line of Matthew Galinko with Maxime Group. Your line is open.
Matthew <unk>: And we do have our last question comes from the line of Matthew <unk> with Maxim Group. Your line is open.
Matthew Galinko: Hey, thanks for taking my questions. Um, maybe firstly, with respect to the larger deals that we're kind of looking for in the back half of
Matthew <unk>: Hey, Thanks for taking my questions.
Paul Davis: Maybe firstly, I would respect to the larger deals that we're kind of looking for in the back half of 24. How do the expectations for interest rate environment and kind of the macro macro backdrop influence the discussions around those licenses can in their risk that, you know, uncertainty and macro could for a long, you know, discussions or just, you know, I was understand, you know, some of the sensitivity there.
Speaker Change: I think firstly.
Matthew <unk>: Respect to the larger deals that are kind of looking for in the back half of <unk>.
Speaker Change: 24, how does the I guess.
Speaker Change: How does the expectation for interest rate environment, and kind of the macro background backdrop.
Speaker Change: Influence T. The discussions around those licenses can is there a risk that.
Speaker Change: Uncertainty in macro could prolong discussions or just help us understand some of the sensitivity there.
Unknown Executive: Yeah, Matt, I think, you know, we've
Paul Davis: Yeah, Matt, I think, you know, we've often gotten that question, especially in times of uncertainty. And what we've experienced historically, given the long-term nature of the deals that we do, is that that usually has very little impact on the overall, you know, timing or economics that we're able to achieve. I think the customers that we are often talking to are very large, you know, sophisticated companies. They understand that there's going to be, you know, various cycles that the industry goes through, you know, certainly on the semiconductor cycle. So the side of things there are very well known cycles where there are ups and downs and same same with media, whether it be an advertising or otherwise, where you see, you know, cycles of really a boom and then, you know, a slow slow down. For us, though, we're usually able to, you know, navigate through that and get those deals done really at the same level of expectations we have.
Speaker Change: Yeah, Matt I think you know we've.
Speaker Change: We often get that question.
Speaker Change: Especially in times of uncertainty and what we've experienced historically given the long term nature of the deals that we do is that they usually has very little impact on the on the overall, you know timing or economics that we're able to achieve I think the customers that we are.
Speaker Change: Often talking to are a very large sophisticated companies. They understand that there's going to be you know various cycles that the industry goes through you know certainly on the semiconductor cycle.
Speaker Change: Side of things there are a very well known cycles, where there are ups and downs and same same with media whether it be in advertising or otherwise, where you see you know cycles of early a boom and then a slow a slowdown for us, though we're usually able to navigate through that and get those deals done really at the same level of expectations.
Paul Davis: And so, you know, we don't anticipate really seeing any sort of challenges because of that environment.
Speaker Change: And so yeah.
Speaker Change: Yeah, we don't anticipate really seeing any sort of of challenges because of that environment.
Speaker Change: Yes.
Unknown Executive: Okay, thanks.
Speaker Change: Okay. Thanks, and then I guess on the.
Keith Jones: And then I guess on the question on the op-x run rate, it sounds like you had a couple of moving pieces in the op-x number this quarter, some in favor. And then maybe some increase in, you know, outside spending.
Speaker Change: Question on the Opex run rate.
Speaker Change: It sounds like you had a couple of.
Speaker Change: Moving piece in the Opex number this quarter some in favor.
Speaker Change: And then maybe some increase in outside spending.
Keith Jones: So, I guess, can you give us a bit of a sense of what we should be expecting as the baseline. You know, moving forward, I guess we could kind of back into it with your guidance, but maybe if there's anything you could, you know, share that kind of pushes us in the right direction. Yeah, great question. So, if you take a look at our op-x, we'll kind of look at a few items here. So, our R&D has been on an upward tick, and that's by design and plan. You know, we continue to make a concerted effort to invest and grow our patent portfolio.
Speaker Change: I guess can you give us a bit of a sense of what we should be expecting as the baseline.
Speaker Change: Moving forward I guess, we can kind of back into it but your guidance the navy.
Speaker Change: If theres anything you can.
Speaker Change: Sure.
Speaker Change: Kind of pushing us in the right direction.
Keith Jones: Yeah, Matt, great question. So if you take a look at our op-eds, we'll kind of look at a few things here. So our R&D has been on an upward tick, and that's by design and plan. You know, we continue to make a concerted effort to. What we really wanted to do was give ourselves a lot of expertise and wiggle room just to really kind of grow these platforms. And, you know, with that, doing deep dives in terms of learning about the customers, doing product breakdowns, and all those other good things.
Speaker Change: Yes, Matt Great question. So if you take a look at our Opex, what kind of look at a few items here. So our our R&D has been on a upward tick and that's by design and plan.
Speaker Change: We continue to make a considered effort to invest and grow our patent portfolio. So we will continue continue to see that trajectory and if you take a look at even the the amount relative to our revenue as a percentage it's going to be in that mid teens.
Keith Jones: So, we will continue to see that trajectory. And if you take a look at even the amount relative to our revenue as a percentage, it's going to be in the mid-teens, you know, throughout the remainder of the year. So, that is the path that we had anticipated to be able to go through that. And also what you see from there is us making some of those invests. Smith, and the outside from a third party perspective to help accelerate some of those efforts. On the SGNA side, you know, we had a good guy, as I like to call it; you know, we had the bad debt recovery.
Speaker Change: We're out the remainder of the year so.
Speaker Change: That is the path that we had anticipated. It may continue to go through that and also what you see from there is us making some of those investments and the outside from a third party perspective to.
Speaker Change: To help accelerate some of those efforts on the SG&A side, you know we had a good guy as I like to call. It you know we had the bad debt recovery.
Keith Jones: But if you, you kind of even that out and, as well as some administrative costs, we would have a slight uptick quarter of a quarter if you just kind of balanced those two.
Speaker Change: But if you you kind of even that out and as well as some of the administrative costs, we would had a slight uptick quarter over quarter. If you just kind of balance those two.
Keith Jones: Now, what we've seen and, you know, quite frankly, this puts a smile on my face, is being part of the management team. Because we've actually done a tremendous job internally of developing out these new platforms. When I say these new platforms, I mean the six new areas on our new media. And then also on the semiconductor side, you know, most notably, as we talked about co-authorization. So what we really wanted to do was give ourselves a lot of expertise in wiggle room, just to really kind of grow these platforms. And, you know, with that, doing deep dives in terms of learning about the customers, doing product breakdowns, and all those other good things.
Speaker Change: Well, what we've seen and you know quite frankly this puts a smile on my face.
Speaker Change: Being part of the management team because we've actually done a tremendous job internally of developing out these new platforms. When I say these new platforms is the six new areas and our R&R New media and then also on semiconductor side. It most notably as we talked about co optimization. So what we really wanted to do was give ourselves.
Speaker Change: A lot of expertise in little room, just to really kind of grow these platforms and you know and with that doing deep dives in terms of learning about the customers doing product breakdowns and all those other good things and what we've found is that while we have a new team. We have a very talented team that gets up to speed extremely quickly. So we're make.
Keith Jones: And what we found is that while we have a new team, we have a very talented team that gets up to speed extremely quickly. So we are making great progress with less of a reliance on outside third parties. And that's what you see in terms of us bringing down our overall guidance and, in part, with a little bit lower spend in the first half of the year on litigation. But you will see an uptick in Q3 and then, you know, a little bit more modestly in Q4. And as you see, we reset the guidance to be about five million dollars lower than we set out at the beginning of the year.
Keith Jones: And what we found is that while we have a new team, we have a very talented team that gets up to speed extremely quickly. So we are making great progress with less of a reliance on outside third parties. And that's what you see in terms of us bringing down our overall guidance. And in part with a little bit lower spend in the first half of the year on litigation, but you will see an uptick in Q3 and then, you know, a little bit more modestly in Q4. And as you see, we reset the guidance to be about $5 million lower than we set out the beginning of the year.
Speaker Change: Great progress with a less of a reliance on outside third parties and that's what you see in terms of us bringing down our overall guidance.
Speaker Change: And in part with a little bit lower spend in the first half of the Euro on litigation, but you you'll see an uptick in Q3, and then a little bit more modestly in Q4 that in as you see we reset the guidance too.
Speaker Change: To be about.
Speaker Change: About $5 million lower than we set out the beginning of the year.
Unknown Executive: Great. Thank you.
Speaker Change: Great. Thank you.
Unknown Executive: That concludes the question-and-answer session.
Speaker Change: That concludes the question and answer session. Mr. Paul Davis, our CEO I'll turn the call back over to you.
Paul Davis: Mr. Paul Davies, our CEO, I turn the call back over to you. Thank you, operator. I want to thank our employees for the strong first half of the year and the progress we have made towards achieving our goals for 2024. After this month, we'll be participating in the Rosenblatt Age of AI Conference and at the BWS Securities Conference in New York City. We look forward to seeing you at these events and at other investor events in the coming months.
Paul Davis: Thank you operator.
Paul Davis: I want to thank our employees for the strong first half of the year and the progress we have made towards achieving our goals for 2024.
Unknown Executive: Later this month, we'll be participating in the Rosenblatt Age of AI Conference and at the BWS Securities Conference in New York City.
Paul Davis: Later this month, we'll be participating in the Rosenblatt age of AI conference.
Paul Davis: And at the Bwl Securities Conference in New York City.
Paul Davis: We look forward to seeing you at these events and at other investor events in the coming months.
Unknown Executive: Thank you for joining us today.
Paul Davis: Thank you for joining us today.
Unknown Executive: Ladies and gentlemen, that concludes today's conference call. You may now disconnect. You are muted.
Speaker Change: Ladies and gentlemen that concludes today's conference call you may now disconnect.
Speaker Change: You are on mute.
Speaker Change: [music].