Q2 2025 Adeia Inc Earnings Call
Good day everyone, thank you for standing by. Welcome to aia's second quarter 2025 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will open up for questions. I would like to now turn the call over to Chris Cheney Vice President of investor relations for audio Chris. Please go ahead.
Good afternoon, everyone. Thank you for joining us as we share with you details of our quarterly financial results.
With me on the call today are Paul Davis, our president and CEO and Keith Jones. Our CFO.
Paul will share with you some general observations regarding the quarter.
And then Keith will give further details on our financial results and guidance.
We will then conclude with a question and answer period.
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.
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, a 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 factor 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.
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.
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 aia.com
Now, I'd like to turn the call over to our CEO. 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've made in the second quarter.
Our second quarter results were in line with what we indicated on our last earnings call.
We delivered 85.7 million in Revenue.
And cash from operations of 23.1 million.
We also reduced our debt by $11.1 million.
Bringing our total debt pay down since separation to over 300 million dollars.
A testament to our cash generative, business model, and our disciplined Capital allocation approach.
We have good visibility into the second half of the year.
And are reiterating our full year Revenue guidance.
Based on the progress we've made in the first half of the year.
We now have multiple paths to achieve our Revenue goals.
While the significant semiconductor opportunity we previously referenced remains an attractive opportunity.
And a key focus of ours. It is not the only path to achieving our Revenue Target for the year.
We have also Advanced other high potential opportunities to the point that we see a path to close them this year.
And these other opportunities could help us achieve our Revenue Target for 2025. Even if we need to take a different strategic Direction with the Summit conductor customer.
Collectively these opportunities, both reinforce our confidence in achieving our goals, for the year and achieving our long-term objectives.
Keith will walk through our financials and Outlook in more detail shortly.
Before diving into our second quarter deal activity. I'd like to highlight an exciting recent development in our semiconductor business.
As you are all aware the pervasiveness and Rapid adoption of AI.
Has created tremendous demand for data centers throughout the world.
In those data centers. Our servers running the most advanced high-performance semiconductors
The semiconductors, not only consume an enormous amount of power, but they also create a tremendous amount of heat.
The AI era is driving up the power densities of these semiconductors and traditional cooling solutions are unable to meet the thermal loads.
In late May at the iPhone and ectc Conference in Dallas.
We introduced rapid cool a revolutionary direct to chip liquid cooling technology for high-performance semiconductor devices.
This groundbreaking technology, which has evolved from our deep experience and hybrid bonding and advanced packaging Technologies.
Eliminates thermal interface, materials used and conventional processes.
Rapid cool. Thereby increases heat dissipation efficiency.
And lowers the temperature of the semiconductor.
Our rapid cool technology. Bonds, the Silicon cold plate directly to the semiconductor.
Thereby eliminating, the thermal interface, materials others use.
And lower thermal resistance by 70%.
Is running at 3 times. Today's current power densities.
Additionally, rapid cool targets specific hotspots on the semiconductors.
Further enhancing thermal management.
We are currently working with industry Partners who have requested rapid cool prototypes to evaluate for their future products.
As part of our roadmap, we continue to develop options that address the growing thermal demands of high-performance processors and high bandwidth memory devices.
We are extremely excited about the potential of this technology and see it as a growth driver for us in the mid to long term.
Turning to our second quarter momentum.
We signed 5 license agreements consisting of 4 in media and 1 in semiconductors.
3, where with new customers in key growth areas of semiconductors, and e-commerce.
We are making great progress, bringing on new customers, which is critical to our growth strategy.
Over the last 3 quarters 11 of the 25 license agreements. We have signed have been with new customers.
Our strategy of targeting new customers and growth markets is producing results.
Our second quarter recurring Revenue was up modestly year-over-year and our non-paid TV. Recurring Revenue was up an impressive 28% during the same period.
We signed a multi-year license agreement with STMicroelectronics, a global leader in analog and digital semiconductors.
This deal was driven by our hybrid bonding technology, which continues to gain traction as a key enabler for AI and high performance semiconductor devices.
We also signed 2 reneau in the second quarter.
These renewals continued, our strong track record of over 90% of our customers, renewing, their license, agreements with us.
Renewals provide predictable revenue and validate the ongoing relevance of our IP as customers continue to rely on our Innovations to deliver value to their end users.
1 of these agreements was a multi-year renewal, with a popular, domestic Ott, streaming service.
Ott remains 1 of our high priority growth markets due to our media portfolios, applicability, and the Ott markets sheer size and subscriber growth trajectory
Having penetrated only a portion of this market today. There is significant opportunity as we continue to pursue large customers in this key Market.
We signed multi-year license agreements with 2 new e-commerce customers for access to our media portfolio.
1 of these agreements is with Warby Parker a popular and rapidly growing eyeglass retailer.
This follows a success. We had last year. Signing Neiman Marcus.
E-commerce is particularly exciting to us because of the sheer breadth of potential customers across numerous Industries where the possibilities are virtually Unlimited.
Our initial license agreements Market, an important entry point and validating our media portfolio for the e-commerce Market.
These early wins, lay the foundation for scale and we expect deal volume to build as our Market presence expands
We are on track to achieve our goal of delivering sustainable, long-term growth.
The renewals we signed with existing customers and importantly, the license agreements with new customers. In our key growth markets such as semiconductors and e-commerce. Last quarter will contribute to achieving this goal.
In the second quarter, our patent portfolio, grew by 2% to over 13,000 assets.
This brings our first half portfolio, growth to a little over 6%. As we continue to evolve. Our portfolio to meet the needs of our fastest growing markets,
While growth May moderate over the rest of the year.
Our Focus remains on quality and relevance, not just volume.
Our strong cash generation supports a balanced Capital, allocation strategy.
Investing in strategic tuck in acquisitions.
Reducing debt and returning Capital to shareholders through dividends and share repurchases.
Keith will share more on our Capital, allocation activity in a moment.
Finally, I'm proud to share that for the second year in a row. Audio was named a best company to work for by US News and World Report.
This recognition, reflects our strong culture and helps us attract and retain world-class Talent.
Our financial performance.
Keith.
Thank you, Paul. I'm pleased to be speaking with you today to share details of our second quarter, 2025 Financial results.
During the second quarter, we delivered revenue of 85.7 million driven by the execution of 5 license agreements, covering our strategic in markets, including semiconductor Ott e-commerce and paint TV. This includes 3 new customers that we added During the period which further expands our customer base.
now, I would like to discuss our operating expenses or which I'll be referring to non-gaap numbers only
During the second quarter, operating expenses were 40.6 million.
A decrease of 297,000 or 1% from the prior quarter.
Research and development expenses decreased by $798,000, which represents a 5% decrease from the prior quarter.
The decrease in the quarter is primarily due to a lower patent, filing administrative fees and personal costs.
Selling General and administrative expenses decreased 819,000 or 4% from the prior quarter.
Primarily due to lower personal costs.
Litigation expense was 7.2 million, an increase of 1.3 million, or 23% compared to the prior quarter.
Primarily due to expending associate with our ongoing litigation with Disney.
Interest expense. During the second quarter was 10.2 million. A decrease of 433,000 primarily showed to our continued debt repayments.
our current effective interest rate which includes amortization of debt, issuance costs plus 7.8%,
other income was 1.4 million 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
Our tested EBA for the second quarter was 45.7 Million reflecting the adjusted. EBA margin of 53%
depreciation expense for the quarter was 488,000.
Our non-gaap income tax rate remained at 23% for the quarter.
Our income tax expense consists primarily of federal and state domestic taxes as well as Korean withholding taxes.
Now for a few details on the balance sheet.
We ended the second quarter with 116.5 million in cash, cash, equivalents and marketable securities.
And generated 23.1 million in cash from operations.
As a reminder, we experience fluctuations in our cash flows.
Due to the billing structures of some of our agreements.
Whereby we receive a lump sum annual payments.
As a result, our first and fourth quarter's tend to be significant cash. Generation quarters for us.
Whereas our second and third quarters tend to be more modest.
We made 11.1 million in principal payments on our debt. In the second quarter.
And end of the quarter with a Term Loan balance of $458.9 million.
During the quarter, we reached a significant Milestone. As we have now paid down, more than 300 million since our separation in October 2022.
This is a clear Testament to our highly cast generative business model and our discipline focus on deleveraging our balance sheet.
During the second quarter, he paid a cash dividend of $0.05 per share of common stock.
Our board also approved, a payment of another 5 cents, per share dividend to be paid on September 16th to shareholders of record as of August 26th.
now, I'll go over our guidance for the full year 2025
We are reiterating our prior Revenue, guidance, for the full year.
We expect Revenue to be in the range of 390 to 430 million.
We're pleased with the progress that we continue to make in both adding new customers and growing our sales pipeline.
As always, we will actively engage with our customer base.
As we monitor how their businesses are progressing during this dynamic economic environment,
as a result of the relative uncertainty witnessed in the first half of the year,
businesses would be impacted and thus reflecting a more heavily loaded, second half for our Revenue Outlook,
Today is anticipated.
We see an increased level of Engagement supporting our revenue forecast for the second half of the year.
As we noted during our prior call.
We made a conscious effort to be prudent and spending in light of the broader economic environment.
Due to our efforts. We now expect operating expenses to be in the range of 160 to 166 million.
Within that guidance range anticipate that our litigation expense will decrease modestly in the second half of the year.
Primarily due to the completion of the trials associated with our litigation against certain Canadian pay TV operators.
We expect interest expense to be in the range of 40 to 42 million.
We expect other income to be in the range of 5.5 to 6.5 million.
We expect a resulting adjusted, even to margin of approximately 60%.
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 $1 million for the full year.
The second quarter was in line with our expectations.
With improved stability within the broader macroeconomic environment and the strength of our sales pipeline.
Remain encouraged about both our short-term and long-term prospects.
That brings it into our prepared remarks and with that, I'd like to turn the call over to the operator to begin. Our question and answer session, operator.
To ask a question.
Star followed by the number 1 on your telephone keypad. And our first question comes from the line of Hamed corset with bws financial, please go ahead.
Hi. Um, just the first question here.
On this Ott renewal is, can you just talk about if the contract is structurally different than the previous 1?
Sure. How many, uh, thanks for the question. Appreciate it. Um, yeah, like most of our renewals, uh, typically, they're, uh, they're pretty, uh, standard unless there's really a change in circumstances. What the, what the company in this case. Uh, it was, uh, in line with the prior agreement.
And then the new opportunities that you talked about earlier, could you talk about, you know, where they fit as far as whether they are e-commerce or are they OTT?
Yeah, you know, we're we're not. Um,
Going to get into that uh, in much detail right now. But what I can say is these are opportunities 1 that we are, uh, you know, excited about, uh, they are opportunities that we had originally thought would be in 2026 and Beyond. And, and because of the work of the team, uh, we now believe we can pull in to, to 2025. Um, they are, uh, you know, fairly sizable opportunities. And what it means is, we have an, uh, an ability to, uh, finish the year in, uh, in within our guidance range. Uh, even towards the high end of the guidance range even without the large, uh, semiconductor um, agreement closing within the year, which is still our goal. Uh, but if we can't get that done, we now have uh multiple uh shots on goal to make that happen. So we're very pleased with the progress. We've been able to make their
Okay, thank you.
Then our next question comes from the line of Scott. Sarah with Roth Capital. Please go ahead.
Hey, good afternoon. Thanks for taking my questions.
Keith and Paul, maybe just to get quickly calibrated. I'm wondering if you could, um, give us an idea about the, the recurring verse non-recurring, revenue and kind of the mix between, uh, media and semi. And then I, and I had a couple of follow-ups on the semi front
Hey, Scott and welcome. Um, so for our recurring Revenue, our this quarter, the large portion of the substantial portion of our Revenue. This quarter was uh, recurring, we had, uh, 3 new customers that we, we, we signed this period. A lot of that revenue is kind of based on kind of future production and, and, and volumes. So, the impact of those, uh, those agreements will be kind of more picked up and more pronounced in the future.
Ability. You know, overall Revenue base and and with that being said, being able to kind of maintain through our our renewals and then, when we start adding some of the new deals that Paul's kind of looking to, you're going to see a nice step up in that and some growth in that recurring number.
Gotcha and and um maybe just in terms of the the split between media and otherwise and within media, you know, if if we were excluded pay TV, what kind of growth rate are you seeing, then with Ott CE and e-commerce? You know, what are we looking at as we go, um, in second quarter and kind of how that ramps into the second half,
Yeah, I I think what you're going to, you're going to see is that well there will be some impact. Um um, you know, when we sign the the semi deal and and that will definitely add to it. But what's really exciting is that um, the the growth in the media side which is really makes it the proponents of the revenue today, from a recurring standpoint, they'll be an appreciable pickup as well. Um, so you'll, you'll see growth on both ends. Yeah. And Scott just as you know what, what I said in my prepared remarks, uh, just as a reminder, you know, we saw, you know, a 28% increase in our, uh, recurring Revenue. Um, in the non-pay TV part of our recurring Revenue, right? Which is really a, a combination of obviously the the semiconductor business growth. And then also the non-paid TV parts of our uh, media part of our business which is obviously Ott e-commerce. Uh, you know,
Uh, Consumer Electronic, social media. All are contributing to that growth. Um and and you know, we're seeing uh, recurring Revenue growth. Uh, even even when you put the, the declines in pay TV in there, um, the sequentially and year-over-year. So we're we're we're happy with the the recurring Revenue, uh, growth overall.
Okay. Great. Very helpful. And and then Paul maybe on on the the semi for I think you had some comments um if the semi deal does not happen this year, I wonder if you could, parse that a little bit more, I know this deal is been, uh, fairly complex. But is there an expectation that it maybe doesn't happen or it's just taking more time to close because it sounds like you got multiple Avenues. Now, like you said or multiple shots on goal to get to the higher end of that range. But I'm I'm kind of wondering where your enthusiasm with hybrid bonding in the large, semi deal, kind of sits and how we should be thinking about 2026 on that front. Sure. You know, I, I want to be clear, you know, our goal and our expectations is still absolutely to close that deal this year, but we have to, you know, plan for the alternative. And so we've been doing, you know, multiple things along. You know, that that, that front, you know, 1, uh, we've been, you know, working really hard to find ways that we can pull in other deals and really proud of the teams, uh, effort on that front. And so,
And now we have multiple pass, if if, if something, you know, doesn't happen. It's always good to have, um, you know, multiple paths to achieve the revenue goals. The other thing, you know, is, you know, if if for some reason it we we can't get there with that, then we we're ready to, we've referred to it before as a year of action and we'll be ready to take a different uh, strategic path. If we, if we need to with that that customer. Um, and it's something that we uh, don't take lightly when we need to but we're we'll be prepared to and uh, and ready to if we if we need to go down that path as well.
Gotcha, very good and and lastly just to throw in. Um, I wonder if you could provide a little bit more color on uh the rapid cool direct to chip. Um, sounds very exciting. Um, I think, I think you said a medium or intermediate term to longer term. So you know in in terms of the commercialization of that, maybe the process to get there and kind of maybe a time frame that you'd put around that and and 1 other high level question. Uh there had been some, I guess commentary coming out of Washington a week or so ago about the taxation of intellectual property. I'm just wondering if you had any high level thoughts on that. Thanks. Yeah, I'll start with that second. Uh, question first because otherwise I'll forget because I'll get so excited about rapid cool. But um, I'll I'll start on the. Uh, what I'd say is is really speculation out of Washington and its really nothing more than that. Um you know as a Wall Street Journal article. Um, you know I think someone wanted to float an idea um uh that that came across there's really not
A lot of details and it's um, and you know if and when there's more, we'll we'll comment on it. But until until that time, it's really not uh, worth uh, spending a lot of time on it because it's uh it's it's hard to know what what's really even. Um, being being even floated out there uh, given the lack of detail there.
Uh, we're working. As, as I mentioned, uh, with industry, uh, partners and potential customers, uh, about, you know, our our test results and, and what it looks like. And, you know, this is what we do really well, right. We focus on, uh, industry needs. And so a few years ago, the team looked at, you know, what are what are some of the key areas that are of, uh, of need and what are our strengths, right? And hybrid bonding is clearly a strength of ours. And something that uh, we have focused on as well as advanced Packaging.
And the idea that came from our world-class Engineers, was what if we were able to directly Bond, the cold plate directly to the silicon and, and really take out a lot of, uh, you know, the other, the unnecessary, you know, parts of that make, uh, cooling the chip much more difficult and that's what the the team came up. It sounds easy. When I say it. It's incredible, engineering feat, what they've done and, uh, what we're hearing from our partners and customers is, is it, it's it's better than anything else that they're seeing out there. And so, we're very, we're very excited about the the potential of it. Um, but it does take time to get from where we're at right now to, to ultimately commercialization. And then, you know, Revenue that we see. So we do see it as a medium to long-term opportunity, but 1, that could be very substantial, you know, for us down the road.
Great. Thanks so much. I'll get back in the queue.
My next question comes from the line of Kevin Cassidy with rosenblat Securities. Please go ahead.
Uh yes, thanks for taking my question and maybe to drill down a little more on rapid. Cool does seem very exciting. Uh, technology, do do you see this as applications in the data center or do they think it's in the high performance at the network Edge where maybe liquid cooling isn't practical today?
I I think I think you know right now we're targeting really is the the data centers. If you you you look at my prepared remarks and the the topic there, that's what you know. We've we've focused on and seeing the the needs there, you know. It is a, a, a direct to chip technology and 1 that um, can actually work with other cooling Technologies as well. It's not something that, um, you know, is going to necessarily compete with other data center, related, cooling, um, Technologies, whether it be air cooling or liquid cooling. And so, um, it is it is unique in that way and we're, we're pretty excited about it. Um, you know, our road map though does create potential for other applications for it. And we are looking at at other ways that we could it could apply uh to other applications. So stay tuned on on where it can go as well.
Okay, great. And the, uh, congratulations on Landing the St. Micro you said it was a hybrid bonding is that related to, uh, chiplets. And the expect there would be a lineup of many other semiconductor companies that are looking to move to the chiplet technology. Yeah, you know. Uh, um, you can't get too much into the details, you know, I what we, what we said on the it's a portfolio license to our some semiconductor, you know, portfolio what we talked about was, you know, what's driving, you know, our license agreements generally, um, which is hybrid bonding in the semiconductor space and certainly, uh, chiplets especially in the, in the logic space. Um, which is, which is different than what SD, um, uh, micro Electronics is in focused. On it certainly is as an area of of, of focus for, uh, where we're seeing hybrid bonding adoption. Um, you know, broadly speaking, we're seeing more and more companies announced, uh, new, uh, uh, chip designs that.
They intend to launch or have launched here in the in the coming um months uh to to years. So we're very excited about that as well as as you know. Well Kevin uh where what's coming in in high bandwidth memory here in the in the near term uh with what uh Samsung and others are talking about with hbm for uh and hbm as we get to 16 layers and then ultimately to to 20 layers,
And the need for hybrid bonding uh, for for for memory as well.
That's great. Yeah, Greg great progress, congratulations, thanks Scott. Thanks, Kevin.
No, our final question comes from the line of Matthew golinko with Maxim group. Please go ahead.
Hey, good afternoon, thank you for attending my questions. Um,
A, a fourth quarter concentration, just giving the multiple opportunities you have, or, you know, how should we be thinking about timing?
Hey Matt, good, talking to you. So you know for us
Only just take a look at a real focus is on on, getting the proper economics for the deals, right? Um, I think the, the relative opposing of those bills that we've kind of talked about, uh, is uh, you know, our focus is within the year. I, I would just really kind of kind of focus on that. So, you know, with that being said, I think the momentum that we see, makes me quite excited and, and kind of where we're at at, at the particular stages. And then Paul did a really good job at talking about some of the progress that we're making on other deals that wasn't necessary on our original forecast for the year and, uh, those are progressing, quite well. So as we sit here, we're, we're, we're kind of in a, a really good position quite frankly in terms of there's many options, uh, that we have to kind of achieve that Target. Uh, how that balances out from 1 quarter to the next is probably less important versus closing. Those deals and get
Them done. But, uh, in any event I, we're we're very much dedicated to that, that guidance range and and just speaking up on that, um, you know, what we really do see is, you know, that aspect of the range, um, we we try to be very transparent and and what you have, we're reiterating guidance. And then quite frankly with the options that we have, you know, the top end of the guidance as well is still in play uh very much. So as uh, you know, we typically talk about the from a midpoint perspective but there's a great deal of momentum that we have in our business.
And, and maybe just in the follow up on your comments about, you know, caution on spending and and bringing the uh, spending down a little bit. Um, you know, if you do find yourself, finding, you know, uh, you know, some larger deal than the in the third quarter or early in the fourth. Do you see potentially bringing some, you know, R&D back up in the back half of the year? Um, if you're feeling more comfortable with, you know, Revenue levels, um, in the back half and particularly the end of the year,
No, that's a great question, Matt. And then, you know, specifically what 1 of our main priorities. And our, our business is to continue to innovate and we take that very, very seriously. Um, the the spending that we noted and that that decrease from a midpoint of formerly 170 to 163, uh, that is primarily driven on the selling General administrative side of things for for R&D. There is a few things that are very a little bit much further out that we've adjusted the timing on, uh, that doesn't have a, a near-term impact in on Revenue. But with that dedication to Innovation, quite frankly, you will see some growth, uh, uh, some slight and modest growth on the R&D side of things. Uh, it's we're on the the sgna. We, we tighten the belt, so to speak and, uh, and And Delay. The timing on a few things, on a strategic basis, without harming.
our, our our really, our long-term prospects
But uh, R&D is something that we're committed to as a company and uh, anytime we see an opportunity that we can accelerate our business wheel capitalize on and we'll make that sense.
Great. Thank you.
I'm with no further questions, and I will hand the call back over to management.
Thank you, operator.
And thanks to everyone for being with us today.
I'd like to thank our employees for their continued dedication and hard work.
In the third quarter, we will be participating in Rosen Blatz age of AI virtual conference on August 18th.
And we will also be attending the bws investor conference in New York on August 20th.
We look forward to seeing you at these and other upcoming events.
Thank you for joining us today.