Q1 2025 Adeia Inc Earnings Call
Speaker Change: Good day everyone, thank you for standing by. Welcome to Adia's first quarter 2025 earnings
Speaker Change: During today's presentation, all parties will be in a listen only mode
Speaker Change: Following the presentation, the call will be open for questions. I would now like to turn the call over to Chris Chaney, Vice President, and Investor Relations for Audio. Chris, please go ahead.
Chris Chaney: Good afternoon, everyone. Thank you for joining us as we share with you details of our first quarter 2024 on Natural Results.
Chris Chaney: With me on the call today are Paul Davis, our present and CEO and Keith Jones, our CFO .
Chris Chaney: Paul will share with you some general observations regarding our first quarter and then Keith will give further details on our financial results in guidance.
We will then conclude with a question and answer period.
Chris Chaney: In addition to today's earnings release, there is an earnings presentation which you can access along with a webcast in the IR portion of our website.
Speaker Change: Before turning the call over to Paul, I'd like to provide a few reminders
Speaker Change: 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 a subject to risks, uncertainties, and changes in circumstances.
Speaker Change: For 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 factor section in our SEC filings, including our Anna Report on Form 10K and our quarterly report on Form 10Q.
Speaker Change: Please note that the company does not intend to update or alter these four-looking statements to reflect events or circumstances arising after this call.
Speaker Change: To enhance investors understanding of our ongoing economic performance, we will discuss non-GAAP information during this call.
Speaker Change: We use non-GAAP financial measures internally to evaluate and manage our operations.
Speaker Change: We have therefore chosen to provide this information to enable you to perform comparisons of our operating results as we do internally.
Speaker Change: We have provided recommendations of these non-GAAP measures to the most directly comparable GAAP measures in the earnings release, the earnings presentation, and on the Invest Relations section of our website.
Speaker Change: A recording of this conference call will be available on Investor Relations website at Adia.com.
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'm glad to be here again to share the results and progress we made in the first quarter. We are off to a great start to the year.
Paul Davis: We generated $88 million in revenue and $57 million in cash from operations
which was in line with our expectations.
Paul Davis: We also executed an all four elements of our balance capital allocation strategy.
and ended the quarter with an even stronger Cass position.
Paul Davis: Before I get into the details on the progress we made in the first quarter, I want to highlight that our full year 2025 outlook remains unchanged, despite the volatility in the current macroeconomic environment.
Paul Davis: We feel confident in the resilience of our business model, even in times of uncertainty.
Chris Chaney: I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Paul Davis: Over 80% of our full year revenue outlook is supported by contracted revenue.
Chris Chaney: Our average contract term is five years so our visibility is not measured in quarters, but in years.
Chris Chaney: and thus our business is less impacted by near-term economic volatility.
Chris Chaney: The vast majority of our customers are well-established leaders in their industries.
Chris Chaney: We have built a strong track record of building long-term relationships, renewing customers again and again, with many relationships spanning over 25 years.
Chris Chaney: As a result, our business model has proven to be stable and resilient [inaudible]
Chris Chaney: Lastly, our focus on growth aspects of our business, including OTT, semiconductors, and adjacent media markets, is paying dividends.
Chris Chaney: Our Q1 2025 recurring revenue is up modestly year-over-year as compared to Q1 of 2024, even when taking into account the anticipated declines in PayTV.
Chris Chaney: and when you look at the non-PATV parts of our business, recurring revenue is up an impressive 25% year over year.
Turning now to our first quarter momentum.
Chris Chaney: We signed ten license agreements highlighted by four agreements with new customers in key growth areas including social media, OTT, and semiconductors.
Chris Chaney: I'm proud of the progress we made in signing new customers.
Chris Chaney: Adding new customers is critical to our growth strategy and we are executing well on this front.
Chris Chaney: Over the past two quarters, we have signed 20 license agreements, including eight new deals.
Chris Chaney: We further expanded our already impressive social media presence with yet another new customer in the first quarter.
Chris Chaney: Social media is an area where we've made great progress, having signed most of the major players over the last few years
Chris Chaney: Another significant new customer we signed in the first quarter was a leading international multi-platform media company for their OTT offerings.
Chris Chaney: OTT is one of our high priority growth markets because of our media portfolios applicability to it and it's growing subscriber base.
Chris Chaney: Having penetrated only a portion of this market today, we see a significant opportunity as we continue to pursue large customers in this key growth area.
Chris Chaney: We also signed a new long-term license agreement with a major US professional sports league for access to our media portfolio.
Chris Chaney: The relevance of our video assets to their online streaming offerings was a driver for this new customer, and we're happy to have added them to our OTT vertical.
Chris Chaney: We are excited to welcome a large domestic manufacturer of analog and mixed signal semiconductor devices as a new customer in the first quarter.
Chris Chaney: Hybrid bonding continues to gain adoption due to its cost, power, and performance advantages.
Chris Chaney: and is a key driver to our new semiconductor deal flow.
Chris Chaney: In addition to these four new deals, we signed six renewals during the first quarter.
Chris Chaney: Four of these renewals were in PayTV and the others were in OTT and Consumer Electronics.
Chris Chaney: One pay TV renewal was with SK Broadband, a leading IPTV provider of high quality media and talent communication services in South Korea.
and another was with Domestic PayTV provider, Frontier Communications .
Chris Chaney: Renewals are vital because they support our ongoing revenue stream and provide a stable, predictable foundation upon which we can grow in the future.
Chris Chaney: These renewals continue our strong track record of over 90% of our customers renewing their license agreement with us.
Chris Chaney: We are on track to deliver sustainable long-term growth. Existing customer renewals maintain our recurring revenue stream, while new customer license agreements are the primary growth catalysts.
Chris Chaney: In media, we expect that the clients in PayTV will be offset by new customers in OTT and adjacent media markets, such as e-commerce, ad tech and gaming.
Chris Chaney: In semiconductor, adoption of hybrid bonding, in-logic, and memory devices, and our continued success, signing volume-based agreement, with customers ramping new products, provides an additional avenue for growth.
Chris Chaney: In the first quarter of 2025, we grew our total patent portfolio by another 4% to over 12,750 patent assets.
Chris Chaney: We anticipate the growth of our portfolio to moderate through the rest of the year.
Chris Chaney: Our focus on expanding our portfolios has been a clear differentiator and creates value for our customers.
Chris Chaney: But increasing our numbers is not our primary goal. Rather, we aim to focus our efforts on expanding and diversifying our portfolios to meet the evolving needs of the markets we serve.
Chris Chaney: While over 85% of our patent assets are generated organically through our R&D efforts, we augment our internal growth through actively searching for patent assets we believe will accelerate our growth opportunities.
Chris Chaney: Last quarter, we acquired two IP portfolios for $5 million in total.
Chris Chaney: One was in micro LEDs, an area that has synergies with our hybrid bonding IP, and that we believe expands our value proposition with customers in this market.
Chris Chaney: Our strong cast generation has enabled us to balance our capital allocation between investing in growth through strategic tuck-in acquisitions.
Chris Chaney: Improving our balance sheet through significant de-leveraging and returning capital to shareholders of all others.
Through a given end payments and sharey purchases.
Chris Chaney: Keith will share additional details on our progress during the first quarter in a moment.
Chris Chaney: Before I turn the call over to Keith, I'm happy to note that Sandy Vige has been nominated to join our Board of Directors, replacing Raghu Rao who will be retiring from our board after our upcoming shareholder meeting later this week.
Chris Chaney: Sandeep's extensive expertise in the technology sector, particularly in semiconductors and intellectual property, combined with his significant leadership experience as a CEO and board member.
Chris Chaney: will be invaluable as we continue to execute our strategic growth initiatives.
Chris Chaney: Additionally, his deep understanding of the technology landscape will be a tremendous asset as we continue to drive innovation and expand our market leadership.
Chris Chaney: On behalf of the entire team at Adia, I want to express our gratitude to Raghu for his outstanding contributions over the past several years.
Keith Jones: Now I'll turn the call over to Keith for review of our financial performance.
Keith?
Keith Jones: Thank you, Paul. I'm pleased to be speaking with you today to share details of our first quarter 2025 financial results.
During the first quarter, he delivered revenues of $87.7 million million dollars.
Keith Jones: during by the execution of 10 licensed agreements across a diverse mix of in-markets, including OTT, Seneca conductor, social media, pay TV, and consumer electronics.
Speaker Change: I am pleased to note that we added four new customers during the period which helps drive our long-term growth objectives.
Speaker Change: Now I'd like to discuss our operating expenses, for which I'll be referring to non-GAF numbers only.
Speaker Change: During the first quarter, operating expenses were $40.9 million dollars, an increase of $1.4 million dollars, or 4% from the prior quarter.
Speaker Change: Research and development expenses increased $362,000 or 2% from the prior quarter.
Speaker Change: The modest increase in the first quarter is primarily due to ongoing patent development and related filings as well as increase personal costs.
Speaker Change: Selling general and administrative expenses decreased $964,000 for 5% from the prior quarter, primarily due to lower corporate administrative costs and lower variable compensation.
Speaker Change: The irrigation expense was $5.9 million, an increase of $2 million, or 54% compared to the prior quarter, primarily due to increased spending associated with our ongoing litigation with certain made-in pay TV operators and with Disney.
Speaker Change: Interest expense during the first quarter was $10.6 million, a decrease of $1.7 million from the prior quarter.
Speaker Change: Due to the benefit of lower interest rates, following the successful reprising of our term loan in January 2025.
Antutor continued debt repayments.
Speaker Change: Our current effective interest rate, which includes ammarization of debt issuance costs, was 7.9 percent.
Speaker Change: Other income was $1.7 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.
Speaker Change: Our adjusted EBITDA for the first quarter was $47.3 million, but the fact that they adjusted EBITDA
Appreciation expense for the quarter was $509,000 dollars.
Speaker Change: Our non-GAAP income tax rate remained at 23% for the quarter
Speaker Change: Our income tax expense consists primarily of federal and state domestic taxes as well as Korean withholding tax.
Now for a few details on the balance sheet.
Speaker Change: We ended the first quarter with $116.5 million in cash, cash equivalents and marketable securities.
and generated 57.1 million dollars in cash from operations.
Speaker Change: We made $17.1 million in principal payments on our debt in the first quarter and ended the quarter with a term loan balance of $470 million.
Speaker Change: As a result of our strong-cast generation, we executed a stock buyback during the first quarter, repurchasing approximately $760,000 shares of our common stock for $10 million.
Speaker Change: During the first quarter, we paid a cash dividend of $0.05 per share of common stock, our board also approved a payment of another $0.05 per share dividend to be paid on June 17th to share hold as a record as of May 27th.
Speaker Change: We continue to remain inquisitive, and during the first quarter we acquired patent portfolios associated with both our media and semiconductor businesses.
Speaker Change: We acquired the imaging assets, which adds to the strength of our current media portfolio and are increasingly important as the underlying technology becomes more widely adopted and both consumer electronics and social media in markets.
Speaker Change: Seeing as a longer-term growth driver, we acquired microLED assets. It helps us further diversify our semiconductor portfolio and expands our potential customer base.
Speaker Change: Galinko. Now I'll go over our guidance for the full year 2025.
Speaker Change: We are reiterating our prior guidance for the full year 2025.
Speaker Change: We expect revenue to be in the range of $390 to $430 million, as we are pleased with the progress we are making on executing and converting our sales pipeline.
Speaker Change: We would like to note that our second quarter could be impacted to the extent that certain deals ultimately find in the second half of the year.
if this were to occur.
Speaker Change: 2nd quarter revenue will be similar to our 1st quarter revenue.
Speaker Change: We expect operating expenses to be in a range of $166, the $124 million
Speaker Change: But within that guidance range, we anticipate that our litigation expense will increase in Q2 due to the timing of certain legal matters.
Speaker Change: Our revenue and expense guidance reflects the progress and trajectory of the business as we see today, but we have not been impacting the short term by market dynamics. We are mindful of the broader implications of a potential economic downturn.
Speaker Change: As a result, we are carefully monitoring the broader macroeconomic environment and remain prudent in our spending
Speaker Change: We expect interest expense to be in the range of $41 to $43 million [inaudible]
Speaker Change: We expect other income to be in the range of $4 to $4.5 million.
Speaker Change: We expected non-GAAP tax rate to remain consistent at roughly 23% for the full year.
Speaker Change: We also expect Catholic spinatures to be approximately $1 million for the full year.
The first quarter was in line with their expectations
Speaker Change: or Pipeline of Sales Opportunities continues to grow and evolve across both our media and
Speaker Change: Couple with the deal momentum, we realize over the last several quarters, it gives us confidence not only in our near-term outlook, but also our long-term growth prospects.
Speaker Change: That brings it into a prepared remarks and with that, I'd like to turn the call over to the operator to begin our question and answer session operator. The operator?
Speaker Change: Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure you are not on speakerphone and that your phone is not a mute one called upon. Thank you.
Speaker Change: Your first question comes from Kevin Cassidy of Rosenblatt Securities. Your line is open.
Kevin Cassidy: Yes, thanks for taking my question and congratulations on landing all the new deals. Very impressive. And you know what caught my interest the most is the new US professional sports league for online streaming. Would you consider this is this a breakthrough with that you might be able to get other. Thank you very much.
Kevin Cassidy: Sports Leads to sign up also, or I guess maybe you can talk about the size of that market and what the strategy would be from winning your first client.
Kevin Cassidy: Yeah, thanks, Kevin. Great question. Yeah, we're really happy with the new deal execution getting four.
Kevin Cassidy: New Deal's done in a quarter is quite the achievement. The one that you mentioned, the US Professional Sports League is one that
Kevin Cassidy: We're certainly particularly proud of it. It is an area that we've been focused on as many of these sports leagues have
Kevin Cassidy: really added to the video content an interactive nature of their of their websites and their offerings generally and so yes we do think this could lead to more now we do categorize this.
Kevin Cassidy: within our OTT vertical because of the streaming nature of many of these services, but yeah, we're very pleased by it and think it could be the first of several.
Speaker Change: Yeah, maybe just one other question on that is, is there a potential for turning that into a betting features also?
Speaker Change: Yeah, I mean, as you know, Kevin, we certainly have sports gambling as part of our one of our verticals. That is that is something that we continue to to explore that adjacent market is a little further out than some of our others that are more near term like e commerce, ad tech.
Speaker Change: and Automotive to a degree. But we are certainly continue to explore on the and engage with with a number of potential customers on sports gambling as well, and it could be an in-road as you know.
Speaker Change: Okay, great. And, yeah, just one other question on the micro LED and the imaging portfolio that you acquired. Do those currently have licenses attached to them? Licenses? Yeah, no, great question. They don't. You know, we often are.
Speaker Change: Buying patent assets that we don't come with a existing revenue stream, but we see a really opportunity for us to take them on and add to our portfolio. With microLED, we've included that in our semiconductor portfolio, what's interesting to note there, Kevin, is that a lot of the microLED supply chain and ecosystem will look, we believe like the semiconductor industry and they're going to need to adopt.
Speaker Change: Semiconductor-related technologies and processes and so we're excited about the synergies there and what that can mean in terms of adding new potential customers and also importantly on that one as we think about
Speaker Change: New technologies and semiconductors for AI, as you think about silicon photonics and the light. And so we think there's a lot of potential with that portfolio. It is a more mid to long-term opportunity for us, but one that we're very bullish about.
Okay, great. Thank you.
Speaker Change: The next question comes from Hamed Khorsand with BWS Financial. Your line is open.
Hamed Korsund: Hi, so first off on this semiconductor announcement you have, is that the big one you were expecting last year?
No, it's not Hamed as we noted on the call.
Hamed Korsund: That deal is still out there to be had. This was
Hamed Korsund: A smaller opportunity for us, but one that continues to show progress, especially in the adoption of hybrid bonding, which also drove the steel as well.
Hamed Korsund: Okay. And then as far as the OTT is concerned, where are you seeing the opportunities? Is it coming from the international market, like the one you announced, or are there still, you know, viable options here in the domestic market?
Speaker Change: Yeah, and as you know, we're currently in litigation with Disney. We also have
Speaker Change: Another very large OTT opportunity that's out there that remains unlicensed that's domestic. And then we do have international opportunities as well. There are I would say the bulk of the opportunities are in the US and are domestic but we do have [inaudible]
Speaker Change: We do have international licensees today and are continuing to explore and get new deals done in the international market as well. But the larger revenue opportunities are here in the U.S. for us.
Speaker Change: Okay, and then how big is the social media opportunity? I thought it was quite small for you in the past, so you've announced one. Is there any more you could announce?
Speaker Change: You know, when you look at our penetration in social media, we now have roughly 90% of the social media you know market license so it is. [inaudible]
Speaker Change: Largely, a licensed opportunity. Now, what we do have opportunities in renewals that are coming up, new deals are...
Speaker Change: You know, harder to come and buy just because we have most of the market.
Speaker Change: License. This was, though, a new customer that we licensed which we're really happy to add them.
Speaker Change: to the otherwise long list of social media companies that we have already under under license so as we have talked about before the social media opportunity will continue to expand though in terms of the use cases where video and imaging becomes more and more important to those companies and so we think there's some opportunity to continue to [inaudible]
Speaker Change: to expand the revenue that we get from existing customers as well.
Okay. Thank you.
Speaker Change: Again, if you have a question, it is star 1 on your telephone keypad. Please ensure you are not on speaker phone and that your phone is not on mute.
Speaker Change: This will conclude the question and answer session. I'll turn the call to Paul for closing remarks.
Paul Davis: Thank you operator, and thanks to everyone for being with us today.
Speaker Change: Before we go, I'd like to thank our employees for their continued dedication and hard work. We will be attending the Needham TMT Conference on May 9th and the maximum virtual TMT conference on June 4th. We look forward to seeing you at these and other upcoming events.
Thank you for joining us today.
Speaker Change: This concludes today's conference call. Thank you for joining. You may now disconnect.
and more. Thank you. Thank you.
You are muted.