Q3 2024 Adeia Inc Earnings Call

Unknown Executive: Regarding a quarter. And then Keith will give further details on our financial results and guidance. We will then conclude with a question and answer period.

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

We will then conclude with a question and answer period.

Unknown Executive: 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.

Unknown Executive: Before turning the call over to Paul, I would like to provide a few reminders. First, today's discussion contains forward-looking statements that are predictions, projections, or other statements about future events, which are based on management's current expectations and beliefs, and therefore are subject to risks, uncertainties, and changes in circumstances. For more information on the risks and uncertainties that could cause our actual results to differ materially from what we discussed today, please refer to the risk factors section in our SEC filings, including our annual report on Form 10-K. at our quarterly report on Form 10-Q. Please note that the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after this call.

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

First <unk>.

Today's discussion contains forward looking statements that are predictions projections or other statements about future events, which are based on management's current expectations and beliefs, and therefore subject to risks uncertainties and changes in circumstances.

For more information on the risks and uncertainties that could cause our actual results to differ materially from what we discussed today. Please.

Please refer to the risk factors section in our SEC filings, including our annual report on Form 10-K.

And our quarterly report on Form 10-Q.

Please note that the company does not intend to update or alter these forward looking statements to reflect events or circumstances arising after this call.

Unknown Executive: 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.

To enhance investors' understanding of our ongoing economic performance, we only 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.

Unknown Executive: A recording of this conference call will be made available on the Investor Relations website at adeia.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. I am pleased to be here to share the results of our third quarter and the progress we have made in our business.

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

Paul Davis: I am pleased to be here to share the results of our third quarter and the progress we have made in our business.

Paul Davis: I want to first cover a significant recent development. filing a patent infringement litigation against Disney. We have had great success over the past several years in signing license agreements without the need for litigation. As evidenced by our over 100 agreements we have signed in the past three plus years. We always prefer to reach a mutually agreeable resolution. However, sometimes we are left with no choice.

Paul Davis: I want to first cover a significant recent development.

Paul Davis: The filing of patent infringement litigation against Disney.

Paul Davis: We have had great success over the past several years and signing license agreements without the need for litigation.

Paul Davis: As evidenced by our over 100 agreements, we have signed in the past three plus years.

Paul Davis: We always prefer to reach a mutually agreeable resolution however.

Paul Davis: However, sometimes we are left with no choice.

Paul Davis: To that end, let me briefly discuss the litigation we filed earlier today against the Walt Disney Company and certain of its subsidiaries, including Hulu and ESPN. for their unauthorized use of our IP. The lawsuits we filed include six patents in the U.S. and three in Europe, all related to various aspects of our media streaming technology utilized by their streaming platform. While we remain willing to negotiate a resolution that fairly compensates Adeia for our valuable IP We are also fully prepared to proceed through the entirety of the legal process to protect our rights. and we are confident in our ability to achieve a positive outcome.

Paul Davis: To that end, let me briefly discuss the litigation we filed earlier today against the Walt Disney company and certain of its subsidiaries, including Hulu and ESPN.

Paul Davis: For their unauthorized use of our IP.

Paul Davis: The lawsuits we filed includes six patents in the U S and three in Europe.

Paul Davis: All related to various aspects of our media streaming technology utilized by their streaming platforms.

Paul Davis: While we remain willing to negotiate a resolution that fairly compensates audio for our valuable IP.

We are also fully prepared to proceed through the entirety of the legal process to protect our rights.

Paul Davis: And we are confident in our ability to achieve a positive outcome.

Paul Davis: Finally, I'd like to emphasize that Disney was not contemplated in our prior or current revenue guidance for 2024.

Paul Davis: Finally, I'd like to emphasize that Disney was not contemplated in our prior our current revenue guidance for 2024.

Paul Davis: As we look at other progress in our business. Our pipeline of new opportunities in key verticals such as OTT, semiconductor, and ecommerce continues to strengthen. And we are advancing many of these to the final stages of negotiation. Following the end of the third quarter, we closed a multi-year e-commerce license agreement with Neiman Marcus, a leading luxury retailer with a growing e-commerce presence. This agreement with Neiman Marcus represents early success for us in our e-commerce media adjacent market. and is an important milestone that we intend to build on. Additionally, we are making great strides towards closing two significant agreements, one in OTT and one in semiconductor.

Paul Davis: As we look at other progress in our business our pipeline of new opportunities in key verticals such as OTT.

Paul Davis: Semiconductor and E Commerce continues to strengthen.

Paul Davis: And we are advancing many of these to the final stages of negotiation.

Paul Davis: Following the end of the third quarter, we closed a multi year E Commerce license agreement with Neiman, Marcus a leading luxury retailer with a growing e-commerce presence.

Paul Davis: This agreement with Neiman Marcus represents early success for us and our E Commerce media adjacent market.

Paul Davis: And it is an important milestone that we intend to build on.

Paul Davis: Additionally, we are making great strides towards closing two significant agreements one in OTT and one in semiconductor.

Paul Davis: As with all complex agreements, it is difficult to pin down exactly when they will close. Our priority is to secure the best long-term outcome that fairly values our IP. This is particularly important given the long-term nature of our agreement. with an average contract length of five years. The trajectory of both of these deals remains positive, and we look forward to sharing further details on them soon.

Paul Davis: As with all complex agreements it is difficult to pin down exactly when they will close.

Paul Davis: Our priority is to secure the best long term outcome, that's fairly values our IP.

Paul Davis: This is particularly important given the long term nature of our agreements.

Paul Davis: With an average contract length of five years.

Paul Davis: The trajectory of both of these deals remains positive and we look forward to sharing further details on them soon.

Paul Davis: As Keith will discuss. We have adjusted our revenue guidance for the year to reflect the possibility that one of these deals moves into 2025. More importantly, our long-term goal of growing our annual revenue to over $500 million remains the same, and we are confident that with our robust pipeline of opportunities, we will be able to achieve this milestone. In the third quarter, we continued to make progress towards our goals for the year, as we signed seven deals in the quarter. bringing our total to 22 deals signed in the year. These agreements were across multiple verticals, including consumer electronics, pay TV, semiconductor, and OTT.

Paul Davis: As Keith will discuss.

Paul Davis: We have adjusted our revenue guidance for the year to reflect the possibility that one of these deals moves into 2025.

Paul Davis: More importantly, our long term goal of growing our annual revenue to over $500 million remains.

Paul Davis: It remains the same and we are confident that with a robust pipeline of opportunities we will be able to achieve this milestone.

Paul Davis: In the third quarter, we continued to make progress towards our goals for the year as we signed seven deals in the quarter.

Paul Davis: Bringing our total to 22 deals signed in the year.

Paul Davis: These agreements were across multiple verticals, including in consumer electronics.

Paul Davis: TV semiconductor and OTT.

Paul Davis: Six of the deals we signed in the third quarter were renewals, further strengthening our high renewal rate, which continues to exceed 90%. We delivered revenue of $86.1 million in EBITDA of $51.3 million, and we continue to reduce our term loan balance with another $12 million accelerated payment.

Paul Davis: Six of the deals we signed in the third quarter were renewals further strengthening and our high renewal rate, which continues to exceed 90%.

Paul Davis: We delivered revenue of $86 1 million and EBITDA of $51 3 million and we continued to reduce our term loan balance with another $12 million accelerated payment.

Paul Davis: Lastly, given the confidence in our long term process, Our board increased the authorization under our share repurchase program to up to $200 million, and we intend to begin executing towards a more balanced capital allocation approach this quarter.

Paul Davis: Lastly, given the confidence in our long term prospects our board increased the authorization under our share repurchase program for up to $200 million.

Paul Davis: And we intend to begin executing towards a more balanced capital allocation approach this quarter.

Paul Davis: I'd like to share some more details of the deals we signed in the third quarter. We signed a multi-year renewal with LG Electronics for access to our media portfolio. As many of you know, LG is a global producer of consumer electronics, such as smart TVs. This renewal highlights our position as a technology innovator. and our 25-plus-year relationship with LG is a great example of the positive influence our R&D investment has on the enduring relevance and value of our portfolio. In addition, we also signed a multi-year renewal with Vizio, a leading smart TV brand, for access to our media portfolio.

Speaker Change: I'd like to share some more details of the deals we signed in the third quarter.

Speaker Change: We signed a multiyear renewal with LG electronics for access to our media portfolio.

Speaker Change: As many of you know LG as a global producer of consumer electronics, such as Smart Tvs.

Speaker Change: This renewal highlights our position as a technology innovator.

Speaker Change: And our 25 plus year relationship with LG is a great example of the positive influence our R&D investment has on the enduring relevance and value of our portfolios.

Speaker Change: In addition, we also signed a multiyear renewal with Vizio, a leading smart TV brand.

Speaker Change: For access to our media portfolio.

Paul Davis: We are pleased to now have most of the major smart TV brands under license. including Samsung, LG, Sony, Vizio, and Panasonic.

Speaker Change: We are pleased to now have most of the major smart TV brands under license.

Speaker Change: Including Samsung.

LG <unk>.

Tony Vizio and Panasonic.

Paul Davis: We further strengthened our international customer base in the third quarter. with a long-term renewal with Liberty Global. a significant provider of pay TV services in Europe. Other agreements we signed in the third quarter were renewals with a provider of streaming services and devices. A provider of online programming and an OTT provider in Korea, all for access to our media portfolio. We also signed a semiconductor agreement with an existing customer for advanced hybrid bonding engineering support. We ended the third quarter with over 11,750 worldwide patents. up from $11,500 in the prior quarter. Our future growth and ability to attract renewals and new customers is dependent on the relevance and value of our portfolio.

Speaker Change: We further strengthened our international customer base in the third quarter.

Speaker Change: With a long term renewal with Liberty global.

Speaker Change: A significant provider of pay TV services in Europe.

Speaker Change: Other agreements, we signed in the third quarter were renewals with a provider of streaming services and devices.

Speaker Change: A provider of online programming guides.

Speaker Change: And an OTT provider in Korea, all for access to our media portfolio.

Speaker Change: We also signed a semiconductor agreement with an existing customer for advanced hybrid bonding engineering support.

Speaker Change: We ended the third quarter with over 11750 worldwide patent assets up from 11500 in the prior quarter.

Speaker Change: Our future growth and ability to attract renewals and new customers is dependent on the relevance and value of our portfolios.

Paul Davis: High quality portfolio assets are vital to maintaining our strong renewal rate and adding new customers in our key growth markets. Our commitment to driving innovation through investment in R&D has enabled us to generate approximately 85% of our portfolio organically while expanding the relevance of our portfolios to our existing and new markets. I am immensely proud of the way our visionary inventors anticipate future trends in our targeted end markets and develop fundamental innovations enabling those trends. Although the majority of our IP is organic, we actively seek to augment our portfolio through M&A when we see opportunities that align with our strategy.

Speaker Change: High quality portfolio of assets are vital to maintaining our strong renewal rates and adding new customers and our key growth markets.

Speaker Change: Our commitment to driving innovation through investment in R&D has enabled us to generate approximately 85% of our portfolio organically, while expanding the relevance of our portfolios to our existing and new markets.

Speaker Change: I'm immensely proud of the way our visionary inventors anticipate future trends in our targeted end markets and develop fundamental innovations, enabling those trends.

Speaker Change: Although the majority of our IP is organic we actively seek to augment our portfolio through M&A, when we see opportunities that align with our strategy.

Paul Davis: We have augmented our media assets through multiple primarily focused on OTT. for a combined investment of approximately $20 million this year, including acquisitions closed in the fourth quarter. Our acquisition efforts are primarily targeted at accelerating our growth opportunities in both our media and semiconductor business. Our media and semi R&D teams continue to remain actively engaged in the respective ecosystem. and over the last quarter, share their insights on topics such as video proliferation. AI, and augmented reality with other experts and potential customers at numerous industry events.

Speaker Change: We have augmented our media assets through multiple acquisitions, primarily focused on OTT.

Speaker Change: For a combined investment of approximately $20 million this year.

Speaker Change: Including acquisitions closed in the fourth quarter.

Speaker Change: Our acquisition efforts are primarily targeted at accelerating our growth opportunities in both our media and semiconductor businesses.

Speaker Change: Our media and semi R&D teams continue to remain actively engaged in their respective ecosystems and over the last quarter share their insights on topics such as video proliferation.

Speaker Change: AI and augmented reality with other experts and potential customers at numerous industry events.

Paul Davis: As we look deeper into the semiconductor market. Hybrid Bonding Adoption in Flash Memory, High Bandwidth Memory, and in Logic Devices continues to gain traction. We believe the growth of hybrid bonding adoption in these areas will drive increased revenue opportunities for us with both existing and new customers. In addition, there are substantial interests in new semiconductor co-optimization innovation as the slowing of Moore's law accelerates. We believe our co-optimization program launched earlier this year will pay long-term dividends, especially in the logic market. In media, we are seeing particular focus on image recognition in e-commerce. and AdTech Utilizing AI.

Speaker Change: As we look deeper into the semiconductor market.

Speaker Change: <unk> bonding adoption in flash memory high bandwidth memory and in logic devices continues to gain traction.

Speaker Change: We believe the growth of hybrid bonding adoption in these areas will drive increased revenue opportunities for us with both existing and new customers.

In addition, there is substantial interest in new semiconductor co optimization innovation as the slowing of Moore's law accelerates.

Speaker Change: We believe our co optimization program launched earlier this year will pay long term dividends, especially in the logic market.

Speaker Change: In media, we are seeing particular focus on image recognition and e-commerce.

Speaker Change: <unk> AD tech utilizing AI.

Paul Davis: and the critical issue of network security. all areas where our media R&D team is driving exciting new solutions. The introduction of the first augmented reality glasses, utilizing spatial computing and innovative micro LED displays instead of traditional OLED are recent market developments that we believe will be of growing relevance to audio. Our media and semiconductor portfolios have important inventions that contribute to the advancements in these areas and can help drive long-term revenue growth. Further, our participation in related industry events not only keeps us close to these industry trends, but also brings new customer engagement.

Speaker Change: And the critical issue of network security.

Speaker Change: All areas, where our media R&D team is driving exciting new solutions.

Speaker Change: The introduction of the first augmented reality glasses, utilizing spatial computing and innovative micro OLED displays instead of traditional OLED or recent market developments that we believe will be of growing relevance to audio.

Speaker Change: Our media and semiconductor portfolios have important inventions that contribute to the advancements in these areas and can help drive long term revenue growth.

Speaker Change: Further our participation and related industry events, not only keeps us close to these industry trends, but also brings new customer engagements.

Paul Davis: Our media team participated in a panel on preventing unauthorized broadband sharing at SCTE Tech Expo 24 and presented a paper on groundbreaking solutions for copyright attribution and AI generated images at IEEE 2024. Further, our semiconductor team presented research on enabling cost-effective micro-LED integration for near-eye devices at Micro-LED Connect. Adeia continues to gain recognition through our participation in these conferences and contributions to the innovation ecosystem in our target market.

Speaker Change: Our media team participated in a panel on preventing unauthorized broadband sharing at S. E. T E Tech Expo 24, and presented a paper on groundbreaking solutions for copyright attribution and AI generated images and I Tripoli 2024.

Speaker Change: Further our semiconductor team presented research on enabling cost effective micro OLED integration for near eye devices at micro OLED connect.

Speaker Change: <unk> continues to gain recognition through our participation in these conferences and contributions to the innovation ecosystem in our target markets.

Paul Davis: In October, we were honored to be included in the 2024 Streaming Media 100, a list of the most innovative and influential North American based companies in the streaming ecosystem. The progress we have made has been impressive, both operationally and in terms of executing our highly cash-generative and profitable business model. and we remain committed to achieving the goals we set earlier this year.

Speaker Change: In October we were honored to be included in the 2020 for streaming media 100.

Speaker Change: A list of the most innovative and influential North American based companies in the streaming ecosystem.

Speaker Change: The progress we have made has been impressive both operationally and in terms of executing our highly cash generative and profitable business model and.

Speaker Change: And we remain committed to achieving the goals we set earlier this year.

Paul Davis: Since separation, we have created an engaging, vibrant, and healthy working environment where we are attracting and retaining top talent. To that end, I'm proud we are recently recognized by U.S. News & World Report as one of their best companies to work for.

Speaker Change: Since separation, we have created an engaging vibrant and healthy working environment, where we are attracting and retaining top talent.

Speaker Change: To that end I'm proud we were recently recognized by U S News and World report as one of their best companies to work for.

Paul Davis: Now I would like to turn the call over to Keith for review of our third quarter financial results.

Speaker Change: Now I would like to turn the call over to Keith for a review of our third quarter financial results.

Keith Jones: Thank you, Paul. I'm pleased to be speaking with you today to share details of our third quarter 2024 financial results. We delivered revenue of $86.1 million in the third quarter, driven by the execution of seven deals across multiple verticals, including consumer electronics, pay TV, semiconductor, and OTT.

Keith: Thank you Paul I am pleased to be speaking with you today to share details of our third quarter 2024 financial results.

Keith: We delivered revenue of $86 1 million in the third quarter, driven by the execution of seven deals across multiple verticals, including consumer electronics pay TV semiconductor and OTT.

Keith Jones: And shortly after we close the third quarter, you find a new multi-year agreement with Neiman Marcus. demonstrating early success in our e-commerce media adjacent market protocol.

Keith: And shortly after we closed the third quarter, we signed a new multi year agreement with Neiman Marcus.

Keith: Demonstrating early success in our E Commerce media adjacent market vertical.

Keith Jones: Now I would like to discuss our operating for which I will be referring to non-GATT numbers only. During the third quarter, operating expenses were $35.3 million. an increase of $300,000 or 1% from the prior quarter. Research and Development Expenses were $13.7 million and were consistent with the prior course. Selling General and Administrative Expenses increased $1.9 million, or 11% from the prior quarter, primarily due to higher personal costs as a result of increases in staff. Higher spending to support our sales efforts in both the media and semiconductor business. and due to a non-recurring benefit on the recovery of bad debt expense in the prior quarter related to our settlement with FEM.

Keith: Now I would like to discuss our operating expenses for which I'll be referring to non-GAAP numbers.

During the third quarter operating expenses were $35 $3 million, an increase of $300000 or 1% from the prior quarter.

Keith: Research and development expenses were $13 7 million.

Keith: And were consistent with the prior quarter.

Keith: Selling general and administrative expenses increased $1 9 million or.

Keith: Or 11% from the prior quarter, primarily due to higher personal cost as a result of increases in staffing.

Keith: Higher spending to support our sales efforts in both the media and semiconductor businesses.

Keith: And due to a nonrecurring benefit on the recovery of bad debt expense in the prior quarter related to our settlement with tax.

Keith Jones: Litigation expense was $2.7 million. A decrease of $1.6 million or 38% compared to the prior quarter. primary due to the timing of expenses related to certain legal matters. Interest expense during the third quarter was $12.8 million, a decrease of $540,000 from the prior quarter due to the benefit of a lower interest rate following the successful repricing of our term loan and due to our continued debt repayment. Our current effective interest rate, which includes amortization of debt issuance costs, was 9.2%. I would like to highlight that our year-over-year interest has decreased $2.9 million, which is a significant accomplishment as we continue to deleverage our balance sheet and enjoy the benefits of repricing our debt agreement.

Litigation expense was $2 7 million.

Keith: A decrease of $1 6 million or 38% compared to the prior quarter.

Keith: Primarily due to the timing of expenses related to certain legal matters.

Keith: Interest expense during the third quarter was $12 8 million a decrease of $540000 from the prior quarter due to the benefit of a lower interest rate. Following the successful repricing of our term loan and due to our continued debt repayment.

Keith: Our current effective interest rate, which includes amortization of debt issuance costs was nine 2%.

Keith: I would like to highlight that our year over year interest expense decreased $2 $9 million, which is a significant accomplishment as we continue to deleverage our balance sheet and enjoyed the benefits of repricing our debt agreement.

Keith Jones: Other income was $1.4 million and was primarily related to interest earned on our cash investment portfolio and due to interest income recognized on revenue agreements with long-term billing Our adjusted EBITDA for the third quarter was $51.3 million. reflected and adjusted even a margin of 60%. depreciation expense for the quarter was $526,000. Our non-debt 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.

Keith: Other income was $1 4 million.

Keith: It was primary related to interest earned on our cash investment portfolio and.

Keith: And due to interest income recognized on revenue agreements with long term billing structures.

Keith: Our adjusted EBITDA for the third quarter was $51 $3 million, reflecting an adjusted EBITDA margin of 60%.

Keith: Depreciation expense for the quarter was $526000.

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 as well as Korean withholding tax.

Keith Jones: Now for a few details on the balance We ended the third quarter with $89.2 million in cash, cash equivalents, and marketable securities, and generated $14.3 million in cash from operations. We made $12 million in principal payments on our debt in the third quarter and into the quarter with a term loan balance of $537.1 million. During the third quarter, he paid a cash dividend of five cents per share of common stock. Our board also approved a payment of another five cents per share dividend to be paid on December 18th to shareholders a record as of November 27th.

Keith: Now for a few details on the balance sheet.

Keith: We ended the third quarter with $89 2 million in cash cash equivalents and marketable securities.

Keith: And generated $14 3 million in cash from operations.

Keith: We made $12 million and principal payments on our debt in the third quarter and ended the quarter with the term loan balance of $537 $1 million.

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

Keith: Our board also approved a payment of another five cents per share dividend to be paid on December 18th to shareholders of record as of November 27.

Keith Jones: Additionally, in October, the board approved an increase to our current repurchase program to repurchase up to a total of $200 million of our common stock. The share repurchase program is part of our broader capital allocation strategy as a result of the increased flexibility that we have following our recent debt repricing. As we discussed during last quarter's call, we now have greater capacity to have a more balanced approach to deploying our capital, including continuing to make accelerated payments on our debt. Continuation of our current dividend program. Commencing Stock Repurchases, and Increasing our Capacity to Make Tuck-in Acquisitions to Expand our Patent Portfolio.

Keith: Additionally in October the board approved an increase to our current repurchase program to repurchase up to a total of $200 million of our common stock.

Keith: The share repurchase program as part of our broader capital allocation strategy as a result of the increased flexibility that we have following our recent debt repricing.

Keith: As we discussed during last quarter's call.

Keith: We now have greater capacity to have a more balanced approach in deploying our capital, including continuing to make accelerated payments on our debt.

Keith: Continuation of our current dividend program.

Keith: Commencing stock repurchases and.

Keith: And increasing our capacity to make tuck in acquisitions to expand our patent portfolio.

Keith Jones: Now I will go over our guidance for the full year 2020. We remain confident in the overall progress towards executing our sales pipe. We continue to make great strides throughout our businesses, which includes significant new license agreements in both OTT and semi-conductor. As we have consistently emphasized, obtaining the appropriate economics on each deal is of paramount importance to us. As we maintain this discipline, and given the relatively large size of agreements we enter into, the timing of executing agreements can impact our reporting in the near term.

Keith: Now I will go over our guidance for the full year 2024.

Keith: We remain confident in the overall progress towards executing our sales pipeline.

Keith: We continue to make great strides throughout our businesses, which include significant new license agreements in both OTT and semiconductor.

Keith: As we have consistently emphasize obtaining the appropriate economics on each deal is of Paramount importance to us.

Keith: As we maintain this discipline and given the relatively large size of agreements we enter into the.

Keith: The timing of executing agreements can impact our reporting in the near term.

Keith Jones: Given this dynamic, as we close out 2024, we are adjusting our revenue guidance. to $370 to $400 million. Once again, this guidance is a reflection of the potential impact a small subset of deals can have on our short term reporting and is merely timing related. With the health of our sales pipeline and the progress we have made to date, we see no loss in business momentum and our ability to Operating expenses are now expected to be in the range of $144 to $148 million. We have again reduced and narrowed our operating expense guidance range as we continue to leverage our internal resources better than we had initially planned and also due to changes in the timing of certain litigation expenses.

Keith: Given this dynamic as we closeout 2024, we are adjusting our revenue guidance range to $370 million to $400 million.

Keith: Once again this guidance is a reflection of the potential impact a small subset of deals can have on our short term reporting.

Keith: And as merely timing related.

Keith: With the health of our sales pipeline and the progress we have made to date.

Keith: We see no loss in business momentum and our ability to execute.

Keith: Operating expenses are now expected to be in the range of $144 million to $148 million.

Keith: We have again reduced and narrowed our operating expense guidance range as we continued to leverage our internal resources better than we had initially planned.

Keith: Also due to changes in the timing of certain litigation expenses.

Keith Jones: We expect interest expense to be in the range of $52 to $53 million. We expect other income to be in the range of $5.5 to $6 million. We expect a resulting adjusted EBITDA 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 $2 million for the full year.

Keith: We expect interest expense to be in the range of $52 million to $53 million.

Keith: We expect other income to be in the range of five $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%.

Keith: For the full year.

Keith: We also expect capital expenditures to be approximately $2 million for the full year.

Keith Jones: Our sales pipeline of new opportunities is more robust than it has been since our separation, and I'm confident we will achieve our goals as we look to grow and expand our business. We also view our current litigation with Disney as a step forward. While we view this as a last resort, it is of the utmost importance for us to protect our IEP in order to drive shareholder value.

Keith: Our sales pipeline of new opportunities is more robust than it has been since our separation.

Keith: And I'm confident we will achieve our goals as we look to grow and expand our business.

Keith: We also view, our current litigation with Disney as a step forward.

Keith: While we view this as a last resort it is of utmost importance for us to protect our IP in order to drive shareholder value.

Unknown Executive: That brings it into our prepared remarks.

Keith: 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: And with that, I'd like to turn the call over to the operator to begin our question and answer session.

Unknown Executive: Operator. Thank you. And at this time, I would like to remind everyone, in order to ask a question, press star and the number one on your telephone keypad. Once again, star. And we will pause just a moment to compile the Q&A roster.

Speaker Change: Thank you and at this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad once again star one.

Speaker Change: And we will pause just a moment to compile the Q&A roster.

Madison DePaola: And it looks like our first question today comes from the line of Madison DePaola with Rosenblatt Securities. Madison, please go ahead. Hi, thanks for taking my question. So I'm just wondering, could you provide any more details around the semiconductor license signed during the quarter?

Speaker Change: And it looks like our first question today comes from the line of Madison Depaola with Rosenblatt Securities Madison. Please go ahead.

Hi, Thanks for taking my question. So I'm just wondering could you provide any more details around the semiconductor license signed during the quarter.

Paul Davis: Hi Maddy, this is Paul Davis. Thanks for the question. Hope you're doing well.

Speaker Change: Hi, Matt.

Paul Davis: Paul Davis Thanks.

Speaker Change: Thanks for the question hope you're doing well.

Paul Davis: You know, we can't get into too much details on it. But you know, I think what it really shows is the continued interest in hybrid bonding. You know, we're getting tremendous interest in really across the board and a number of different customers. And it's really exciting for us as that hybrid bonding adoption, as I said, in my prepared remarks, we're really seeing it across, you know, a number of industries, including, obviously, flash memory, where we're seeing increased adoption, after our signing of our deals with with Keoksha and Western Digital last year. And then also, in logic, we continue to see more devices.

Speaker Change: We can't get into too much details on it but I think what it really.

Speaker Change: Shows is the continued interest in hybrid bonding were getting tremendous.

Speaker Change: Interest in really across the board in a number of different customers.

Speaker Change: And it's really exciting for us is as that hybrid bonding adoption as I said in my prepared remarks, we're really seeing it across a number of industries.

Speaker Change: Including obviously flash memory, where we're seeing.

Speaker Change: Increased adoption.

Speaker Change: After our signing of our deals with key Osha and Western digital last year and then also in logic, we continued to see more devices and then finally.

Paul Davis: And then finally, we're continuing to monitor and look at what what people are talking about in high bandwidth memory as well. So we're very excited about it.

Speaker Change: We're continuing to monitor and look at what people are talking about and high bandwidth memory as well so.

We were very excited about it unfortunately, though because of confidentiality I cant get too much more on the details about a specific agreement.

Paul Davis: Unfortunately, though, because of confidentiality, I can't get too much more into details about a specific agreement.

Madison DePaola: Okay, great. Thank you.

Speaker Change: Okay, great. Thank you and then I just was wondering what are the trends that youre seeing in pay TV subscribers from your customers' point of view.

Paul Davis: And then I just was wondering, what are the trends that you're seeing in pay TV subscribers from your customers point of view? Yeah, I think it's like it's more of the same. It's really we're continuing to see, you know, declines in subscribers in our customer base in the US on with traditional pay TV. It's right in line with what our expectations are, though. We put that into our forecast both for the year and in our long term forecast as well. So we continue to see that going down over a period of time. We do think it will level out after, you know, a few years is our expectations.

Speaker Change: Yeah, I think it's like it's more of the same it's really we're continuing to see declines.

Speaker Change: Declines in subscribers in our customer base in the U S.

With traditional pay TV, it's right in line with what our expectations are though we put that into our forecast both for the year and in our long term forecast as well. So we continue to see that.

Speaker Change: Going down over a period of time, we do think it will level out after a few years is our expectations, but we've modeled that into our forecast and it is what it is in terms of what we are.

Paul Davis: But we've modeled that into to our forecast. And it is what it is, in terms of, you know, what we are, what our expectations are.

Madison DePaola: The one thing I would note, though, is, you know, there is there's tremendous growth in, obviously, OTT, the virtual MVPD players. And so, you know, that's the plan. That's what how we're trying to offset those declines that we anticipated. And, and we're very confident in our ability to continue to execute towards towards that plan to offset the expected decline. Okay, great. Thank you guys so much. Alright, thanks Madison.

Speaker Change: And what our expectations are the one thing I would note. Though is you know there is theres tremendous growth and obviously OTT the virtual mvpds players and so that's the plan that's what how we're trying to offset those declines that we anticipated.

Speaker Change: And we're very confident in our ability to continue to execute towards towards that plan to offset the expected declines.

Speaker Change: Okay, great. Thank you guys so much.

Speaker Change: Alright, Thanks, Madison and our next question comes from the line of course and with Bwl's financial. Please go ahead.

Hamed Khorsand: And our next question comes from the line of Hamed Khorsand with BWS Financial. Hamed, please go ahead. Hi, so my first question is, what gives you the confidence that you would sign at least one in Q4 and then the slippage into 2025 actually happens?

Speaker Change: So my first question is what gives me the confidence that you would sign at least one in Q4 and then the <unk>.

Speaker Change: Slippage into 2025 actually happens.

Paul Davis: Yeah, listen, Hamed, I think, you know, it's a it's a it's a fair question. I think what gives us confidence is just the regular communication that we continue to have with with these customers, and are also just our pipeline of opportunities continues to expand. And so, you know, we've signed, we signed seven deals in Q3. These deals, though, take time, even those deals that we signed were, you know, took quite a bit of time to ultimately conclude. But where we're at in the progress we've made, the frequency of communication that we're having, and we think there, our goal is to close both of them.

Speaker Change: Yeah.

Speaker Change: Yeah listen I think it's a it's a fair question I think what gives us confidence is just the regular communication that we continue to have with with these customers and are also just our pipeline of opportunities continues to expand and so we've signed we signed seven deals in Q3.

Speaker Change: These deals do take time, even those deals that we signed work.

Speaker Change: Quite a bit of time to ultimately conclude but where we're at and the progress we've made.

Speaker Change: The frequency of communication that we're having and.

Paul Davis: But we wanted to be transparent about, you know, that there could be one of them that closes in in Q4, and the other could slip into 2025.

Speaker Change: We think there our goal is to close both of them, but we wanted to be transparent about that there could be one of them that closes in Q4 and the other could slip into 2025, but our our goal and what we're pushing the team to get still get both of them done this year.

Paul Davis: But our goal and what we're pushing the team to is get still get both of them done this So is it fair to assume that at least the one that you're saying that might go into 2025 is not Disney? Yeah, I mean, Disney was not in our near term opportunities. As I noted on, on the call, it wasn't 20, it wasn't a 2024 revenue projection for us. And so we, that was that was not, not one of the ones that we were we were counting on for 2024.

Speaker Change: So is it fair to assume that at least the one that youre, saying that might go into 2025 is not Disney.

Speaker Change: Yeah, I mean Disney was not in our near term.

Speaker Change: Opportunities as I noted on the call. It wasn't it wasn't a 'twenty 'twenty four revenue.

Speaker Change: Our projection for us and so we.

Speaker Change: That was that was not a not one of the ones that we were counting on for 2024.

Hamed Khorsand: Okay, thank you. You're welcome.

Speaker Change: Okay. Thank you.

Speaker Change: Youre welcome.

Unknown Executive: All right. Thank you, Hamed.

Speaker Change: Alright, Thank you Howard.

Matthew Galinko: And our next question comes from the line of Matthew Galinko with Maxim Group.

Speaker Change: And our next question comes from the line of Matthew <unk> with Maxim Group Matthew. Please go ahead.

Matthew Galinko: Matthew, please go ahead. Hey, thanks for taking my questions.

Matthew: Hey, Thanks for taking my questions.

Paul Davis: So maybe first, could you give us a little bit of background on, I guess, how long the negotiation with Disney was ongoing prior to you filing the infringement cases and, you know, anything you could share with us about, you know, what the sticking point might have been. Is it really just kind of a price discovery issue or, you know, maybe just any background you could share on that? Thank you.

Speaker Change: So maybe first could you give us a little bit of background on.

Speaker Change: I guess, how long the negotiation with me.

Speaker Change: What's ongoing prior 10-Q filing.

Speaker Change: Cancel and.

Speaker Change: Anything you could share with us.

Speaker Change: What are the sticking point right advantage that really just kind of a price discovery issue or.

Speaker Change: Just any background you could share on that.

Paul Davis: Yeah, thanks, Matt. You know, unfortunately, you know, we can't we can't get into specific details. You know, like, our conversations with our customers are often covered, you know, under confidentiality agreements. What I can say, you know, is, is generally speaking, you know, we pride ourselves on on getting deals done, and taking the time to get deals done. And we have lengthy discussions, I've mentioned, you know, multiple times, you know, often our, our cycle is 18 to 24 months, sometimes it can can even take, you know, longer than that. At some point, though, you know, in discussions, it becomes clear if someone, you know, we're going to be able to get a deal done or not.

Speaker Change: Yeah. Thanks, Matt you know Unfortunately, we can't we can't get into specific details.

Speaker Change: Our conversations with our customers are often covered under confidentiality agreements what I can say is generally speaking we pride ourselves on getting deals done and taking the time to get deals done and we have lengthy discussions I've I've mentioned multiple times.

Speaker Change: Often our our cycle is 18 to 24 months, sometimes it can can even take longer than that at some point, though and discussions it becomes clear if someone we're going to be able to get a deal done or not in this case we are.

Paul Davis: And in this case, you know, we we We determined, obviously, by filing this litigation that we needed to move down that in that step. As Keith said, we see this as a step forward, right? This is this is something that we needed to do. We're confident in the cases that we filed today and that we'll ultimately be able to get a good outcome from them.

Speaker Change: Be determined obviously by following this litigation that we needed to move down that.

Speaker Change: And that step as Keith said, we see this as a step forward right. This is this is something that we needed to do we're confident in the cases that we filed today.

Speaker Change: And that will ultimately be able to get a good outcome from them.

Matthew Galinko: All right. Thanks.

Speaker Change: Alright.

Matthew Galinko: And then. You I think you've referenced the shift in capital allocation for a couple quarters now.

Speaker Change: And then.

Speaker Change: I think you referenced.

Speaker Change: Shifting capital allocation for a couple of quarters now so I'm wondering what the pipeline looks like for those sorts of tuck in M&A opportunity now that you are.

Paul Davis: So I'm wondering what the pipeline looks like for those sorts of tuck in M&A opportunities now that you're a little bit more able to execute on them. Yeah, you know, great question, Matt. So I kind of start with, you know, the catalyst is kind of thinking about, even with the guidance that we've talked about the overall stability in our business. So, you know, really, with that, and we talked about capital allocation, one thing that we didn't mention in some of our prepared remarks, is that that cash flow outlook that we've alluded to, noting that it was going to be, you know, slightly above what we had realized in 2023, is absolutely on point.

Speaker Change: Hello out then we're able to execute on them.

Speaker Change: Yes, great question, Matt, So I kind of start with the catalyst.

Speaker Change: Kind of thinking about even with the guidance that we've talked about the overall stability in our business. So you know really with that and we talk about capital allocation. One thing that we didn't mention in some of our prepared remarks is that that cash flow outlook that we've alluded to the noting that it was going to be.

Speaker Change: Slightly above what we had realized in 2023 is absolutely on point today, our outlook is that we see the strength in the cash flow and that's our minimum expectation that we have for ourselves.

Paul Davis: Today, our outlook is that we see the strength in the cash flow, and that's a minimum expectation that we have for So if you take that strength and outlook in our business. coupled with our backlog, coupled to opportunities. And then the cherry on top, quite frankly, is the repricing that we have and the interest rate, we have a tremendous amount more flexibility.

Speaker Change: If you take that strength and the outlook in our business.

Speaker Change: Coupled with our backlog coupled the opportunities are.

Speaker Change: And then.

Speaker Change: The Cherry on top quite frankly is the repricing that we have in the interest rate, we have a tremendous amount more flexibility.

Keith Jones: So in Q4, you're going to see a few things. You're going to see us paying down some of our debt. And you're going to see us starting some of the share repurchase programs that we alluded to, with the $200 million authorization that our board has allotted us. So we're quite excited. This is all part of our vision of returning capital to shareholders, and this is very consistent what we've been alluding to in the last two calls. All right.

Speaker Change: So in Q4, youre going to see a few things.

Speaker Change: See us paying down some of our debt and you're going to see is starting.

Speaker Change: Some of the share repurchase programs that we alluded to with the $200 million authorization that our board has a lot of this so we're quite excited this is all part of our vision of returning capital to shareholders and this is very consistent where we've been alluding to in the last two calls.

Matthew Galinko: Anything else, Matt? No, that's it for me. Thanks. Okay. Thank you for the question.

All right anything else Matt.

No thats it for me thanks.

Speaker Change: Okay. Thank you for the questions.

Unknown Executive: And that does conclude today's Q&A session.

Speaker Change: And that does conclude today's Q&A session I will now turn the floor back over to President and CEO, Paul Davis for closing comments Paul.

Paul Davis: I will now turn the floor back over to President and CEO Paul Davis for closing comments, Paul. Thank you, operator. I want to thank our employees for remaining committed to executing our business plan and the progress we have made in 2024. In December, we will be participating in the Wells Fargo Technology and Media Summit and the UBS Global Media and Communications Conference. We look forward to seeing you at these events and updating you on our progress. Thank you for joining us today.

Paul Davis: Thank you operator.

Paul Davis: I want to thank our employees for remaining committed to executing our business plan and the progress we have made in 2024 and.

Paul Davis: In December we will be participating in the wells Fargo technology and media summit.

Paul Davis: And the UBS Global Media and Communications Conference. We look forward to seeing you at these events and updating you on our progress. Thank you for joining us today.

Unknown Executive: Thanks, Paul.

Unknown Executive: And ladies and gentlemen, that concludes today's call. Thank you so much for joining. And you may now disconnect. Have a great day, everyone.

Speaker Change: Thanks, Paul and ladies and gentlemen that concludes today's call. Thank you. So much for joining and you may now disconnect have a great day everyone.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

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