Q3 2025 Adeia Inc Earnings Call

<unk> the presentation the call will be opened for questions.

I would now like to turn the call over to Chris Cheney, Vice President of Investor Relations for audio Chris. Please go ahead.

Keith Jones: Research and development expenses modestly increased $117,000, or 1%, from the prior quarter. Selling, general, and administrative expenses decreased $1.6 million, or 8%, from the prior quarter, primarily due to a decrease in corporate administrative expenses, as well as lower personnel costs. These decreases align with the cost-saving initiatives that we previously highlighted. Litigation expense was $5.2 million, a decrease of $2 million, or 28%, compared to the prior quarter, primarily due to lower spending on Canadian matters, which was partially offset by increased spending on Disney and AMD litigation. Interest expense during the third quarter was $10.1 million, a decrease of $162,000, primarily attributable to our continued debt repayments. Our current effective interest rate, which includes amortization of debt issuance costs, was 7.8%, consistent with the prior quarter.

Good afternoon, everyone. Thank you for joining us as we share with you details of our quarterly financial results.

Speaker #1: Following the presentation, the call will be open for questions. I would now like to turn the call over to Chris Chaney, Vice President of Investor Relations for Adeia.

With me on the call today are Paul Davis, our president and CEO and Keith Jones, our CFO.

Speaker #1: Chris, please go ahead.

Speaker #2: 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.

Speaker #2: 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 and the IR portion of our website.

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

Speaker #2: 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.

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 subject to risks uncertainties and changes in circumstances.

Speaker #2: 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.

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

Keith Jones: Other income was $1.5 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. Our adjusted EBITDA for the third quarter was $50.7 million, reflecting the adjusted EBITDA margin of 58%. Depreciation expense for the quarter was $479,000. 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 third quarter with $115.1 million in cash, cash equivalents, and marketable securities, and generated $17.8 million in cash from operations. We have made $11.1 million in principal payments on our debt in the third quarter and ended the quarter with a term loan balance of $447.8 million.

Speaker #2: And therefore, subject to risks/uncertainty 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.

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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: We have therefore chosen to provide this information to enable you to perform comparisons of our operating results as we do internally. We have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in the earnings release, the earnings presentation, and on the investor relations section of our website.

A recording of this conference call will be made available on the Investor Relations website at <unk> Dot com.

Now I'd like to turn the call over to our CEO Paul Davis.

Speaker #2: A recording of this conference call will be made available on the investor relations website at adia.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.

Keith Jones: Our highly cash-generative business model and our disciplined focus on deleveraging our balance sheet have produced outstanding results. Since separation, we have now paid down $311.6 million as we continue to focus on deleveraging our balance sheet. During the third 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 15 December 2024 to shareholders of record as of 24 November 2024. Now I will go over our guidance for the full year 2025. As Paul noted in his remarks, today we have filed litigation against AMD for patent infringement. In our prior calls, we had referenced our anticipation of signing a license agreement with a semiconductor company, which was in fact AMD. After a long negotiation period, we have reached an impasse, which has resulted in litigation.

Our third quarter revenue of $87 $3 million was in line with our expectations and we remain confident in the strength of our business.

Speaker #1: Thank you, Chris, and thank you, everyone, for joining us today. Our third quarter revenue of $87.3 million was in line with our expectations. And we remain confident in the strength of our business.

Importantly, our non pay TV recurring revenue was up 31% year over year for the third quarter.

Let me first address the change to our revenue guidance, we announced this morning.

Speaker #1: Importantly, our non-Pay TV recurring revenue was up 31% year over year for the third quarter. Let me first address the change to our revenue guidance we announced this morning.

While we continue to have paths to achieve our original revenue guidance range for the year, we have taken a prudent approach and adjusted our 2025 full year revenue guidance, primarily to reflect that we have now filed litigation against a M D.

Speaker #1: While we continue to have paths to achieve our original revenue guidance range for the year, we have taken a prudent approach in adjusting our 2025 full-year revenue guidance to primarily reflect that we have now filed litigation against AMD, and closing a license agreement in the fourth quarter as previously expected is now unlikely.

In closing our license agreement in the fourth quarter as previously expected is now unlikely.

We have continued to make good progress on other significant deals in our pipeline and we remain focused on getting the best economics, we can over the long term.

Our revised revenue guidance range reflects multiple opportunities that we are actively pursuing.

Speaker #1: We have continued to make good progress on other significant deals in our pipeline, and we remain focused on getting the best economics we can over the long term.

Keith Jones: This anticipated license agreement was included in our prior guidance, as we had previously mentioned. As a result of the litigation we have filed, we are adjusting our 2025 revenue guidance to reflect the likelihood that we will not close AMD this year. We are committed to obtaining the appropriate economics on each and every deal, which is of paramount importance to us, and we'll continue to remain disciplined on this front to maximize the long-term potential of Adeia. Accordingly, our new 2025 revenue guidance range is $360 to 380 million. I would like to emphasize that our pipeline remains strong and is growing. We continue to have many paths to success, and the ultimate outcome of our short-term revenue outlook is largely due to the execution timing of that pipeline.

To the extent that they don't close in 2025, they become a strong catalyst to growth in 2026.

Speaker #1: Our revised revenue guidance range reflects multiple opportunities that we are actively pursuing. To the extent that they don't close in 2025, they become a strong catalyst for growth in 2026.

Before I get into the details of the third quarter results.

I want to cover today's announcement regarding our litigation against AMD for patent infringement.

I will also provide a brief update on the progress we have made in our other pending litigation.

Speaker #1: Before I get into the details of the third quarter results, I want to cover today's announcement regarding our litigation against AMD for patent infringement.

This morning, we issued a press release announcing we filed multiple patent infringement lawsuits against AMD in the Western district of Texas.

Speaker #1: I will also provide a brief update on the progress we have made in our other pending litigation. This morning, we issued a press release announcing we filed multiple patent infringement lawsuits against AMD in the Western District of Texas.

Our decision to file litigation was not taken lightly and followed significant efforts to reach a business resolution.

The action, we took today reflects our firm commitment to ensure we realize appropriate value for our substantial investments we have made in our foundational semiconductor technology.

Speaker #1: Our decision to file litigation was not taken lightly. And followed significant efforts to reach a business resolution. The action we took today reflects our firm commitment to ensure we realize appropriate value for our substantial investments we have made in our foundational semiconductor technology.

Keith Jones: I would like to mention that there still remain opportunities which could potentially result in revenue beyond the noted range for 2025. To the extent that these opportunities do not close this year, they will act as a catalyst for a strong 2026. With this momentum, and supported by our pipeline, we foresee revenue growth in 2026. Turning to our operating expenses, as a result of our ongoing cost-saving initiatives, we have now lowered our overall operating expense guidance. Our operating expenses are now expected to be in the range of $160 to 164 million. Our expense guidance includes the expected costs associated with our litigation with Disney and now AMD. Relative to our Q3 litigation expense, we would anticipate litigation expense to increase by approximately $3 million in Q4. We expect interest expense to be in the range of $40 to 41 million.

For years Amd's products have incorporated and made extensive use of our patented semiconductor technologies.

Which have enabled them to be a market leader in the semiconductor industry <unk>.

Speaker #1: For years, AMD's products have incorporated and made extensive use of our patented semiconductor technologies. Which have enabled them to be a market leader in the semiconductor industry.

Including those related to hybrid bonding and advanced process nodes.

We sought to enter into a license agreement with AMD and we have been referencing this opportunity since last year and have been pursuing a deal for even longer.

Speaker #1: Including those related to hybrid bonding, and advanced process nodes, we sought to enter into a license agreement with AMD. And we have been referencing this opportunity since last year.

Despite our efforts to reach a business resolution a.

AMD continues to use audio is patented semiconductor innovations without authorization.

Speaker #1: And have been pursuing a deal for even longer. Despite our efforts to reach a business resolution, AMD continues to use Adeia's patented semiconductor innovations without authorization.

The lawsuits we filed today seek to stop this unauthorized use and include patents covering hybrid bonding and advanced process node technologies.

Our hybrid bonding technology is used in Amd's, most advanced semiconductor products, including those for AI workloads.

Speaker #1: The lawsuits we filed today seek to stop this unauthorized use and include patents covering hybrid bonding, and advanced process node technologies. Our hybrid bonding technology is used in AMD's most advanced semiconductor products, including those for AI workloads, data centers, and high-performance cloud computing.

Data centers.

Keith Jones: We expect other income to be in the range of $5.5 to 6.5 million. We expect a resulting adjusted EBITDA margin of approximately 56%. We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year. We also expect capital expenditures to be approximately $2 million for the full year. As we reach our three-year anniversary of being a standalone publicly traded company, I reflect and take pride in the progress we have made in our business. These achievements are driven by the dedicated efforts of our employees, who work tirelessly to shape and execute our collective vision. Our long-term prospects remain strong, and the cumulative efforts we have made thus far will be a springboard for our future success.

In high performance cloud computing.

Our advanced process node technology is used in the vast majority of Amd's current semiconductor products.

We believe in the strength of our patent portfolio the.

Speaker #1: Our advanced process node technology is used in the vast majority of AMD's current semiconductor products. We believe in the strength of our patent portfolio, the value of our innovations, and we are committed to protecting our intellectual property.

The value of our innovations and we are committed to protecting our intellectual property.

We are confident in our ability to achieve a positive outcome.

Yeah.

Turning to the progress in our other pending litigation.

It has been a year since we filed litigation against Disney and the cases have been progressing well and collectively better than we expected.

Speaker #1: We are confident in our ability to achieve a positive outcome. Turning to the progress in our other pending litigation. It has been a year since we filed litigation against Disney, and the cases have been progressing well.

First in Delaware The court denied Disney's motion to dismiss certain of the patents in the case.

As such the litigation will continue to proceed on all six patents.

Speaker #1: And collectively, better than we expected. First, in Delaware, the court denied Disney's motion to dismiss certain of the patents in the case. As such, the litigation will continue to proceed on all six patents.

In Brazil, our request for a preliminary injunction was granted and further upheld on appeal.

Keith Jones: 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.

We have initiated enforcement proceedings on the injunction.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, again, press star one. We do ask that you limit yourself to one question and one follow-up. For any additional questions, please requeue. Your first question comes from the line of Scott Searle with Roth Capital. Please go ahead.

Speaker #1: In Brazil, our request for a preliminary injunction was granted and further upheld on appeal. We have initiated enforcement proceedings on the injunction. In Europe, the three cases are proceeding as planned and are all scheduled to go to trial in the first quarter of 2026.

In Europe. The three cases are proceeding as planned and are all scheduled to go to trial in the first quarter of 'twenty 'twenty six.

I am optimistic about this early progress in our Disney litigation.

And our goal remains to ultimately reach an agreement with Disney that fairly values, our intellectual property.

Speaker #1: I am optimistic about this early progress in our Disney litigation. And our goal remains to ultimately reach an agreement with Disney that fairly values our intellectual property.

Turning to shop.

[Analyst] (Roth Capital): Hey, good afternoon for taking my questions. Quick clarification and then two questions. Keith, I'm not sure if I heard any of one-time catch-up fees in the quarter. I'm wondering if you could clarify that. I assume it would all be related to media. As we're looking out to the fourth quarter, a wide range of outcomes there depending on when deals get signed. I wonder if you could provide a little bit more color in terms of the size, the types of deals in the pipeline. I think you've talked a lot about e-commerce comprising that, but in particular, I'd like to know what you guys are thinking about recurring revenue, how that moves sequentially from the third quarter to fourth quarter, and maybe an early shot at 2026 of how you see recurring media revenue growing in 2026. I had one follow-up.

The court recently ruled in our favor and denied <unk> motion to dismiss our breach of contract case.

Meaning the litigation, we'll now move forward.

Speaker #1: Turning to Shaw, the court recently ruled in our favor and denied Shaw's motion to dismiss our breach of contract case. Meaning the litigation will now move forward.

In our patent litigation case against Videotron.

We recently received a positive ruling from the court.

While details of the decision are still confidential. We are pleased that the court found two of the four patents in the case are valid and in France.

Speaker #1: In our patent litigation case against Videotron, we recently received a positive ruling from the court. While details of the decision are still confidential, we are pleased that the court found two of the four patents in the case are valid and infringed.

Further the court awarded damages with respect of both patents and an injunction with respect to one of them.

Finally in our patent litigation against Bell, we expect a ruling in the second or third quarter of 'twenty 'twenty six.

Speaker #1: Further, the court awarded damages with respect to both patents and an injunction with respect to one of them. Finally, in our patent litigation against Bell, we expect a ruling in the second or third quarter of 2026.

Keith Jones: Sure, Scott. Great question. The recurring revenue in Q3 was very modest. That amount was about $1 million. As you kind of know, what we talked about, we had one new license agreement, one renewal. Fundamentally, that amount came from both of those agreements. Nothing really to note there. I think, quite candidly, that really speaks to the overall stability of our recurring revenue. If you kind of go through and do that math, that gives us a recurring revenue number that's in the mid-80s. Now, what I'd like to see, and when I take a look at our forecast, is that not only is that a strong foundation, but there's a number of agreements that we have not only in media but also in our semiconductor side that's going to have a little bit of an uplift for us in that regard.

Now for some additional commentary on our business results.

During the third quarter, we closed two long term license agreements one was a renewal with altice one of the largest broadband and video service providers in the United States for access to our media portfolio.

Speaker #1: Now for some additional commentary on our business results. During the third quarter, we closed two long-term license agreements. One was a renewal with Altice, one of the largest broadband and video service providers in the United States.

The agreement supports their optimum services, including broadband cable TV and OTT streaming platforms, ensuring subscribers enjoy advanced content discovery and navigation experiences.

Speaker #1: For access to our media portfolio. The agreement supports their optimum services, including broadband, cable television, and OTT streaming platforms. Ensuring subscribers enjoy advanced content discovery and navigation experiences.

The second agreement was with a new e-commerce customer also for access to our media portfolio.

We have now signed for e-commerce customers since entering this exciting new market last year.

Speaker #1: The second agreement was with a new e-commerce customer, also for access to our media portfolio. We have now signed four e-commerce customers since entering this exciting new market last year.

And we anticipate many more in the coming quarters.

We recently celebrated our third anniversary as a Standalone company and I am tremendously proud of all we have accomplished.

Keith Jones: Just from that backlog, we'll see it crossing approximately $90 million in Q4. I think that's a good springboard for kind of thinking about just the overall stability of the business. As you know, in Q1, we have one particular agreement on our semiconductor business where there's, just based on how we structured the agreements in the past, a little bit of a short-term adjustment simply because of revenue recognition rules. Quite frankly, that levels out when you get into Q2 and beyond. We're seeing really strength in that recurring revenue business going forward. In terms of the quality of the pipeline, I can kind of turn it over to Paul, and he can give a little color on that.

Speaker #1: And we anticipate many more in the coming quarters. We recently celebrated our third anniversary as a standalone company. And I am tremendously proud of all we have accomplished.

The separation unleash the opportunity for us to expand our pipeline and grow as an independent organization.

We have continued to expand beyond pay TV, which has been our core business historically and into new growth opportunities and semiconductors O T T <unk>.

Speaker #1: The separation unleashed the opportunity for us to expand our pipeline and grow as an independent organization. We have continued to expand beyond PayTV, which has been our core business historically.

Social media and e-commerce.

License agreements, we have signed in these verticals are now driving growth in our non pay TV recurring revenue stream.

Speaker #1: And into new growth opportunities in semiconductors, OTT, social media, and e-commerce. License agreements we have signed in these verticals are now driving growth in our non-PayTV recurring revenue stream.

In the third quarter, our non pay TV recurring revenue was up 81% since separation.

Providing evidence of our early success in these new verticals.

Paul Davis: Sure. Thanks, Scott. Appreciate the question. I think we're very pleased with our pipeline, as Keith and I both noted in our prepared remarks, both on the semiconductor side of the business and the media side of the business. It remains quite strong. One thing I would just highlight is that when things do move to the right, the opportunities are not lost, right? We still see all of the opportunities that we saw last quarter or earlier in the year still in front of us and still achievable. There is a timing element. What we focus on is getting the right deal done for the long term for Adeia and its stakeholders. Sometimes that does mean things do shift to the right, but the opportunities are not lost.

Speaker #1: In the third quarter, our non-PayTV recurring revenue was up 81% since separation. Providing evidence of our early success in these new verticals. This growth includes new agreements with large semiconductor companies such as Sandisk, Kioxia, and STMicroelectronics.

This growth includes new agreements with large semiconductor companies such as Santos.

He osha.

And S T microelectronics.

In OTT deals with Amazon Paramount and stars and.

In social media and consumer electronics deals with ex Samsung LG and candidate.

Speaker #1: And OTT deals with Amazon, Paramount, and Starz. And social media and consumer electronics deals with X, Samsung, LG, and Canon. We have also renewed key PayTV deals with customers such as Altice, Verizon, and Cox.

We have also renewed key pay T V deals with customers such as Altice, Verizon and Cox.

Which we've had relationships for many years and have renewed time and time again.

These deals provide a solid foundation from which we can grow as we add new customers.

Paul Davis: If they do move into 2026, it does mean some significant growth that we could see in 2026 as compared to 2025.

Speaker #1: Which we've had relationships for many years and have renewed time and time again. These deals provide a solid foundation from which we can grow as we add new customers.

One of our key priorities at separation was to grow our IP portfolio.

Knowing our portfolio adds value to help secure new customers and renewals, which drive ongoing recurring revenue.

[Analyst] (Roth Capital): Hey, great. Very helpful. Keith, if I could just quickly follow up then. That means that the semiconductor revenue, I think it was $5.2 million, in that ballpark, was up. Sequentially from a recurring standpoint, I guess, driven by the 3D NAND opportunity. To dive in on AMD, I'm wondering, Paul, could you just lay out the timelines and the milestones that we could expect in terms of how this litigation would progress? As part of that, how is that impacting or not impacting the dialogue with other semi vendors out there, particularly as it relates to the logic opportunity with chiplet opportunities? Thank you.

Speaker #1: One of our key priorities at separation was to grow our IP portfolio. Growing our portfolio adds value to help secure new customers and renewals, which drive ongoing recurring revenue.

At the time of separation, we had approximately 9500 patent assets.

With a commitment to expand and evolve our portfolio.

We have seen our portfolio increased over 13000 patent assets, reflecting an impressive growth of over 35%.

Speaker #1: At the time of separation, we had approximately 9,500 patent assets. With a commitment to expand and evolve our portfolio, we have seen our portfolio increase to over 13,000 patent assets, reflecting an impressive growth of over 35%.

The vast majority of this growth has been from internal R&D focused on new patent filings in OTT.

<unk> hybrid bonding and thermal management.

Speaker #1: The vast majority of this growth has been from internal R&D focused on new patent filings and OTT, AI, hybrid bonding, and thermal management. Additionally, we have built a positive healthy culture and have been widely recognized as a leading innovator.

Additionally, we have built a positive healthy culture and have been widely recognized as a leading innovator.

Paul Davis: Yeah. Thanks, Scott. I'll address your question first, and then I think on the question that you asked Keith, I'll let him follow up. I think it's, it is up. You're correct to confirming that. On your question in terms of AMD and timing, I'll note we filed two cases today, both in the Western District of Texas. Those cases, we would anticipate going to trial, all things going according to schedule, sometime in 2027, although it's very early. We just filed it today, so I would caveat that. I would also note that there is a government shutdown going on right now, which did impact some of the jurisdictions that may be available to us. There might be additional jurisdictions that would open up to us as the government opens up as well.

We were named one of the best places to work by U S News and World report for two years in a row.

And one of the world's most trustworthy companies by Newsweek.

We were honored that Audi is hybrid bonding technology received the best of show award for the most innovative technology at the future of memory and storage conference in August.

Speaker #1: We were named one of the best places to work by U.S. News and World Report for two years in a row. And one of the world's most trustworthy companies by Newsweek.

Speaker #1: We were honored that Adia's hybrid bonding technology received the best of show award for the most innovative technology at the future of memory and storage conference in August.

This recognition is a strong validation of the dedication innovation and technical excellence our team brings to advancing the future of memory and storage solutions.

Speaker #1: This recognition is a strong validation of the dedication, innovation, and technical excellence our team brings to advancing the future of memory and storage solutions.

But our accomplishments don't end there because all of this contributes to our financial success.

Our highly cash generative business model has provided the strength to execute on our balanced capital allocation approach as we have continued to pay our dividend.

Speaker #1: But our accomplishments don't end there because all of this contributes to our financial success. Our highly cash-generative business model has provided the strength to execute on our balanced capital allocation approach.

Deleverage our balance sheet repurchase.

Paul Davis: I would stay tuned on terms of the milestones, but we feel really good about the case that we filed. Ten patents is pretty substantial. Seven of them are hybrid bonding patents. I would also note that of the 10 patents, eight of them do not expire until mid-2030 or beyond. These are very significant patents in our portfolio. They go out for quite some time, and as we noted on the call, they really cover collectively virtually all of AMD's products, including really all of their most advanced GPUs as well.

Repurchase stock and make tuck in acquisitions of strategic patent portfolios.

It has truly been a remarkable period for audio and I'm excited about the road that lies ahead.

Speaker #1: As we have continued to pay our dividend, de-leverage our balance sheet, repurchase stock, and make tuck-in acquisitions of strategic patent portfolios. It has truly been a remarkable period for Adia.

Okay.

Our goal since separation has been to deliver sustainable long term revenue growth and we are making excellent progress as evidenced by our non pay TV recurring revenue growth.

Speaker #1: And I'm excited about the road that lies ahead. Our goal since separation has been to deliver sustainable, long-term revenue growth. And we are making excellent progress as evidenced by our non-PayTV recurring revenue growth.

Our disciplined and balanced capital allocation strategy continues and during the third quarter, we made debt payments of $11 $1 million, continuing our commitment to pay down our debt at an accelerated rate.

Speaker #1: Our disciplined balanced capital allocation strategy continues. And during the third quarter, we made debt payments of 11.1 million dollars continuing our commitment to pay down our debt at an accelerated rate.

Keith Jones: Scott, as you mentioned, you hit the nail on the head. That increase, we did see it increase in semiconductor, and we're really excited about it. Once again, you're spot on. What you've been hearing about and seeing in the industry in terms of that growth and strength in the NAND market is showing up in our financial results. We actually see that momentum carrying into Q4 for us as well.

We have paid down an impressive $312 million of our debt since separation.

Our accomplishments have put us on a trajectory for long term success and I'm truly grateful for all the hard work and dedication from our team.

Speaker #1: We have paid down an impressive 312 million dollars of our debt since separation. Our accomplishments have put us on a trajectory for long-term success.

With that I'll turn the call over to Keith for a review of our financial performance Keith.

Speaker #1: And I'm truly grateful for all the hard work and dedication from our team. With that, I'll turn the call over to Keith for a review of our financial performance.

Thank you Paul I'm pleased to be speaking with you today to share details of our third quarter 2025 financial results.

[Analyst] (Roth Capital): Great, thanks so much.

During the third quarter, we delivered revenue of $87 $3 million driven by the execution of two long term media license agreements.

Operator: Your next question comes from the line of Hamed Khorsand with BWS Financial. Please go ahead.

Speaker #1: Keith, thank you, Paul.

Speaker #2: I'm pleased to be speaking with you today to share details of our third quarter of 2025 financial results. During the third quarter, we delivered revenue of 87.3 million dollars.

This includes signing a significant renewal with all Ts further extending our long term relationship with them.

Hamed Khorsand: Hi. The first question is, could you just reconcile some of the commentary you've made last quarter and this quarter? I mean, last quarter on the call, you had said there was so much opportunity that you wouldn't need AMD, and you could still hit the up end of the guidance. This quarter, you're coming out and reducing guidance because you don't have AMD. Right now, you're saying that you met the guidance, your expectations for Q2 or for Q3. Well, if that was the case, why didn't you provide guidance? The street was at $100 million. I'm just trying to understand everything that's going on.

Speaker #2: Driven by the execution of two long-term media license agreements, this includes signing a significant renewal with Altice, further extending our long-term relationship with them.

I'm also proud to announce the addition of another e-commerce customer as we continue to gain momentum in this growing market.

We have now signed license agreements with four new e-commerce customers within a relatively short period of time.

Speaker #2: I'm also proud to announce the addition of another e-commerce customer, as we continue to gain momentum in this growing market. We have now signed license agreements with four new e-commerce customers within a relatively short period of time.

And we have built and are actively engaged with a large pipeline of additional opportunities.

Now I'd like to discuss our operating expenses for which I'll be referring to non-GAAP numbers only.

Speaker #2: And we have built and are actively engaged with a large pipeline of additional opportunities. Now, I would like to discuss our operating expenses for which I'll be referring to non-GAAP numbers only.

During the third quarter operating expenses were $37 $1 million.

Paul Davis: I'm at a few things. As you know, we provide annual guidance only. We do not provide quarterly guidance. It would be unusual for us to provide quarterly guidance. Second, in terms of the statements last quarter, those statements remain true, right? We have a robust pipeline, right, that we feel like we've got a number of opportunities. As Keith and I both noted, we still have opportunities today to hit above the revised guidance range, including getting into the original guidance range. However, given the time of year and the number of paths have narrowed given the AMD litigation, that is also true. We are taking a prudent approach at this time, given that we are now in November, of taking the guidance range down.

A decrease of $3 5 million or 9% from the prior quarter.

Research and development expenses modestly increased our Hudson $17000 or 1% from the prior quarter.

Speaker #2: During the third quarter, our operating expenses were 37.1 million dollars. A decrease of 3.5 million dollars or a 9% from the prior quarter. Research and development expenses modestly increased 117,000 dollars or 1% from the prior quarter.

Selling general and administrative expenses decreased $1.6 million or 8% from the prior quarter.

Primarily due to a decrease in corporate administrative expenses as well as lower personnel costs.

Speaker #2: Selling journal administrative expenses decreased 1.6 million dollars or 8% from the prior quarter. Primarily due to a decrease in corporate administrative expenses as well as lower personnel costs.

These decreases align the cost saving initiatives that we previously highlighted.

Litigation expense was $5 2 million, a decrease of $2 million or 28% compared to the prior quarter.

Speaker #2: These decreases align with the cost-saving initiatives that we previously highlighted. Litigation expense was 5.2 million dollars, a decrease of 2 million dollars or 28% compared to the prior quarter.

Primary due to lower spending on Canadian matters, which was partially offset by increased spending on Disney and AMD litigation.

Paul Davis: We still believe that the opportunities lay ahead for us and that we have, whether they land in 2025 or they land in 2026, significant opportunities in front of us in both our media and semiconductor businesses that we're very excited about.

Interest expense during the third quarter was $10 1 million a decrease of $162000 primarily true to our continued debt repayments.

Speaker #2: Primarily due to lower spending on Canadian matters, which was partially offset by increased spending on Disney and AMD litigation. Interest expense during the third quarter was 10.1 million dollars, a decrease of 162,000 dollars primarily attributed to our continued debt repayments.

Our current effective interest rate, which includes amortization of debt issuance costs was 7.8% <unk>.

Hamed Khorsand: Okay. Just so I understand, what's there in the pipeline that gives you confidence that you could see revenue lift by about $20 million in the quarter that hasn't happened at all throughout this year?

Consistent with the prior quarter.

Other income was $1.5 million and was primary 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 #2: Our current effective interest rate which includes amortization of debt issuance costs was 7.8%. Consistent with the prior quarter. Other income was 1.5 million dollars, 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.

Paul Davis: Sure. Hamad, as you know, we do very large deals, right? These are deals that often are in, they can be in the nine figures even, right? They can take time. They can be very complicated to negotiate. Often, at times, we're dealing with parties that have to go get approval from the highest levels of their own companies, right? Sometimes that can be a challenge in terms of navigating the exact timeline. That being said, we are having very good discussions with multiple parties in both our media and semiconductor parts of our business that give us confidence. We've got on the table, right? When we think about it, obviously, we've filed litigation against AMD. We've got outstanding litigation against Disney. We've got Canadian operators. We have large OTT opportunities that remain unlicensed today. There are additional semiconductor opportunities that we are pursuing as well.

Our adjusted EBITDA for the third quarter was $50 $7 million, reflecting an adjusted EBITDA margin of 58%.

Depreciation expense for the quarter was $479000.

Speaker #2: Our adjusted EBITDA for the third quarter was 50.7 million dollars, reflecting the adjusted EBITDA margin of 58%. Depreciation expense for the quarter was 479,000 dollars.

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.

Speaker #2: 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 third quarter with $115 $1 million in cash cash equivalents and marketable securities.

And generated $17 $8 million in cash from operations.

Speaker #2: Now for a few details on the balance sheet. We ended the third quarter with 115.1 million dollars in cash, cash equivalents, and marketable securities.

We have made $11.1 million in principal payments on our debt in the third quarter and ended the quarter with a term loan balance of $447 $8 billion.

Speaker #2: And generated 17.8 million dollars in cash from operations. We have made 11.1 million dollars in principal payments on our debt in the third quarter.

Paul Davis: When we look at it holistically, there are a number of opportunities that we have been pursuing for quite some time. I'm not going to be able to get into the details of exactly what they are. Holistically, when we look at all of them, it gives us a lot of confidence on our ability to execute and bring those deals in. It's a matter of timing, whether they happen in 2025 or 2026. That's where you're getting that difference between where they fall in the change in revenue guidance.

Our highly cash generative business model and our disciplined focus on deleveraging our balance sheet have reduced outstanding results.

Speaker #2: And ended the quarter with a term loan balance of 447.8 million dollars. Our highly cash-generative business model and our discipline focus on de-leveraging our balance sheet have reduced outstanding results.

Since separation, we have now paid down $311 $6 million as we continue to focus on deleveraging our balance sheet.

During the third quarter, we paid a cash dividend of five cents per share of common stock.

Speaker #2: Since separation, we have now paid down 311.6 million dollars. As we continue to focus on de-leveraging our balance sheet. During the third quarter, we paid a cash dividend of 5 cents per share of common stock.

Our board also approved a payment of another five cents per share dividend paid on December 15th to shareholders of record as of November 24th.

Hamed Khorsand: Okay, thank you.

Operator: Your next question comes from the line of Matthew Galinko with Maxim Group. Please go ahead.

Now I will go over our guidance for the full year 2025.

Speaker #2: Our board also approved a payment of another $0.05 per share dividend to be paid on December 15th to shareholders of record as of November 24th.

As Paul noted in his remarks today, we have filed litigation against a M D for patent infringement.

Matthew Galinko: Hi. Good afternoon. Thanks for taking my question. I'm curious if there are any implications for other possible deals or renewals in the semiconductor pipeline given the litigation announcement with AMD.

In our prior calls we had referenced our anticipation of signing a license agreement with a semiconductor company, which was in fact a M D.

Speaker #2: Now, I will go over our guidance for the full year 2025. As Paul noted in his remarks, today we have filed litigation against AMD for patent infringement.

After a long negotiation period, we have reached an impasse, which has resulted in litigation.

Paul Davis: Yeah. A similar question that Scott asked that I did not address. Thank you for bringing that up, Matt. We are very excited about the adoption cycle of hybrid bonding right now. You are hearing more and more adoption, especially in the logic space. As you look out further with HBM and also in NAND, we see more and more adoption coming down the pipeline in 2027 and beyond, in particular for the memory market and for next year for the logic market. When you look at the cases we filed today, 7 of the 10 patents are hybrid bonding related. That is very exciting to us in terms of the breadth of our portfolio and the relevance to these advanced semiconductors and the use of our technology that we have invented. We are very excited about what that pipeline can be.

Speaker #2: In our prior calls, we had referenced our anticipation of signing a license agreement with a semiconductor company. Which was, in fact, AMD. After a long negotiation period, we have reached an impasse which has resulted in litigation.

This anticipated license agreement was included in our prior guidance as we have previously mentioned.

As a result of the litigation we have filed we are adjusting our 2025 revenue guidance to reflect the likelihood that we will not close AMD this year.

Speaker #2: This anticipated license agreement was included in our prior guidance, as we had previously mentioned. As a result of the litigation we have filed, we are adjusting our 2025 revenue guidance to reflect the likelihood that we will not close AMD this year.

We are committed to obtaining the appropriate economics on each and every deal.

Which is of Paramount importance to us and will continue to remain disciplined on this front to maximize the long term potential of audio.

Speaker #2: We are committed to obtaining the appropriate economics on each and every deal. Which is of paramount importance to us. And we'll continue to remain disciplined on this front to maximize the long-term potential of Audia.

Accordingly.

Our new 2025 revenue guidance range is $360 million to $380 million.

I would like to emphasize that our pipeline remains strong and is growing.

Speaker #2: Accordingly, our new 2025 revenue guidance range is 360 to 380 million dollars. I would like to emphasize that our pipeline remains strong and is growing.

We continue to have many paths to success and the ultimate outcome of our short term revenue outlook is largely due to the execution timing of that pipeline.

Paul Davis: Now, AMD was ahead of the curve in terms of adoption of hybrid bonding. Their first products came out in 2022. The rest of the logic market is a bit behind, but you have a number of companies that have announced intentions of launching products in 2026 and beyond that we believe will utilize hybrid bonding and our technology as well.

Speaker #2: We continue to have many past successes in the ultimate outcome of our short-term revenue outlook is largely due to the execution timing of that pipeline.

I would like to mention that there still remains opportunities, which could potentially result in revenue beyond the noted range for 'twenty 'twenty five.

To the extent that these opportunities do not close this year. They will act as a catalyst for a strong 2026.

Speaker #2: I would like to mention that there still remains opportunities which could potentially result in revenue beyond the noted range for 2025. To the extent that these opportunities do not close this year, they will act as a catalyst for a strong 2026.

Matthew Galinko: Got it. Thank you. Maybe if I could just ask a follow-up. I realize it's still sort of early in the planning cycle for 2026, but to the extent that you expect some of these opportunities to land and that you seem to have a pretty high level of confidence that 2026 will be a growth year in terms of revenue, to that end, do you expect for operating expenses to follow the revenue trendline, or will you sort of keep a pretty tight lid on spending for the foreseeable future?

With this momentum and supported by our pipeline before see revenue growth in 2026.

Turning to our operating expenses as a result of our ongoing cost saving initiatives. We have now lowered our overall operating expense guidance.

Speaker #2: With this momentum and supported by our pipeline, we foresee revenue growth in 2026. Returning to our operating expenses, as a result of our ongoing cost-saving initiatives, we have now lowered our overall operating expense guidance.

Our operating expenses are now expected to be in the range of $160 million to $164 million.

Our expense guidance includes the expected costs associated with our litigation with Disney and now a M D.

Speaker #2: Our operating expenses are now expected to be in the range of 160 to 164 million dollars. Our expense guidance includes the expected costs associated with our litigation with Disney and now AMD.

Relative to our Q3 litigation expense, we would anticipate litigation expense to increase by approximately $3 million in Q4.

Keith Jones: Hey, Matt. I think that's a great question. When we take a look at where that could be, we feel good about that pipeline and what that represents from a top-line perspective. Frankly, what we see out there in some of the numbers that have been published is something that we think is achievable with the pipeline that we have for all intents and purposes. From a spending perspective, we will continue to invest in the business, but at a modest rate. That increase that we foresee in revenue would not be consumed by incremental spending at a significantly higher level. We will still be very smart. We need to grow our portfolio. The strength of our portfolio pays off dividends in terms of the new deals, and I'll tell you, quite frankly, even in the litigation that we filed.

We expect interest expense to be in the range of $40 million to $41 million.

Speaker #2: Relative to our Q3 litigation expense, we would anticipate litigation expense to increase by approximately 3 million dollars in Q4. We expect interest expense to be in the range of 40 to 41 million dollars.

We expect other income to be in the range of 5.5 to $6 $5 million.

We expect a resulting adjusted EBITDA margin of approximately 56%.

Speaker #2: We expect other income to be in the range of 5.5 to 6.5 million dollars. We expect a resulting adjusted EBITDA margin of approximately 56%.

We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year.

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

Speaker #2: We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year. We also expect capital expenditures to be approximately 2 million dollars for the full year.

As we reach our three year anniversary of being a standalone publicly traded company I reflect and take pride in the progress we have made in our business.

These achievements are driven by the dedicated efforts of our employees, who work tirelessly to shape and execute our collective vision.

Speaker #2: As we reach our three-year anniversary of being a standalone publicly traded company, I reflect and take pride in the progress we have made in our business.

Keith Jones: Our investment in our portfolio, quite frankly, is a testimony to the strength of that underlying technology. For those who might not be informed, filing 10 patents says a lot, says an absolute lot. In general terms, what you find is typically people file five patents in terms of litigation. The amount of investment that we've made really speaks to that strength because, quite frankly, there's a lot more that we have that are significant in strength, and that only comes from our investment in our R&D. With that being said, we'll continue to grow our portfolio. We would expect our EBITDA margins to be in that 60th percentile that we've kind of grown a coast to, or very close to it. Once again, just having tremendous cash generation from our business.

Our long term prospects remained strong.

Speaker #2: These achievements are driven by the dedicated efforts of our employees. Who work tirelessly to shape and execute our collective vision. Our long-term prospects remain strong.

And the cumulative efforts, we have made thus far will be a springboard for our future success.

That brings us 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.

Speaker #2: And the cumulative efforts we have made thus far will be a springboard for our future success. 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.

Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and if you'd like to withdraw your question again Crestar. One we do ask that you limit yourself to one question and one follow up for any additional questions. Please re queue.

Speaker #2: Operator. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.

And your first question comes from the line of Scott Searle with Roth Capital. Please go ahead.

Speaker #2: And if you'd like to withdraw your question, again, press star one. We do ask that you limit yourself to one question and one follow-up.

Hey, good afternoon for taking my questions.

Speaker #2: For any additional questions, please re-queue. And your first question comes from the line of Scott Searle with Roth Capital. Please go ahead.

Quick clarification, and two questions Keith I'm not sure if I heard any of onetime catch up fees in the quarter I'm wondering if you could clarify that and I assume.

Keith Jones: One thing to note that we're quite proud of, since separation, we have generated over $500 million in cash from operations. When we say we have a cash-turn of business model, the proof is in the pudding of those financial results.

Speaker #3: Hey, good afternoon for taking my questions. Quick clarification and then two questions. Keith, I'm not sure if I heard any of one-time catch-up fees in the quarter.

It would all be related to media and as we're looking out to the fourth quarter a wide range of outcomes are depending on when deals get signed I Wonder if you could provide a little bit more color in terms of.

Speaker #3: I'm wondering if you could clarify that. And I assume it would all be related to media. And then as we're looking out to the fourth quarter, a wide range of outcomes there, depending on when deals get signed.

The size of the types of deals in the pipeline I think you've talked a lot about e-commerce comprising that but in particular like to know what you guys are thinking about recurring revenue how that moves sequentially from the third quarter to fourth quarter and maybe an early shot at 26 of how you see recurring media revenue growing 26, and I had one follow up.

Speaker #3: I wonder if you could provide a little bit more color in terms of the size of types of deals in the pipeline. I think you've talked a lot about e-commerce comprising that.

Operator: Your next question comes from the line of Madison De Paola with Rosenblatt Securities. Please go ahead.

Speaker #3: But in particular, I'd like to know what you guys are thinking about recurring revenue and how that moves sequentially from the third quarter to fourth quarter.

Madison De Paola: Hi. This is Madison calling on behalf of Kevin Cassidy. I was just wondering what the timeline for licensing RapidCool was. I know that Microsoft has recently announced a cooling technique called microfluidics. How is that different from RapidCool?

Sure Scott Great question. So the recurring revenue in Q3 was very modest.

Speaker #3: And maybe in early shot at 26 of how you see recurring media revenue growing in 26 and add one follow-up.

Or are there.

That amount was about a $1 million of IND as he kind of note that we talked about we had.

Speaker #4: Sure, Scott. Great question. So the recurring revenue in Q3 was very modest. Our amount was about 1 million dollars. And as you kind of know, we talked about we had one new license agreement, one renewal.

One new license agreement when renewal so that fundamentally that.

Paul Davis: Hey, Maddie. Thanks for the question. Good to hear you on the call. Yeah. First of all, as we noted last call, RapidCool is something that we see as a revenue opportunity in the kind of mid to long term. We are still working with customers and partners on the rollout of that, and we're very encouraged since our rollout to the public last quarter. We got a lot of positive feedback on it, and we've increased the number of engagements that we have. It remains a project right now that we are still in the early phases of and one that we're very excited about. Still early days, but one that we see, obviously, a tremendous opportunity. Our solution, again, it's one where we're directly bonding a cold plate to the chip, right?

Mountain came from both of those agreements and.

So nothing really to note there and I think quite candidly that really speaks to the overall stability of our recurring revenue and if you kind of go through and do that math, you know that gives us.

Speaker #4: So that fundamentally, that amount came from both of those agreements. And so nothing really to note there. And I think quite candidly, that really speaks to the overall stability of our recurring revenue.

Our recurring revenue number that's in the mid eighties now what I'd like to see in when I take a look at our forecast is that not only set a strong foundation, but theres a number of agreements that we have not only in media, but also in our semiconductor side, that's going to have a little bit of an uplift for us in that regard so.

Speaker #4: And if you kind of go through and do that math, that gives us a recurring revenue number that's in the mid-80s. Now, what I'd like to see, and when I take a look at our forecast, is that not only is that a strong foundation, but there's a number of agreements that we have not only in media but also in our semiconductor side.

Just from that backlog.

That we'll see it crossing approximately $90 million in Q4, So I think that's a good springboard of kind of thinking about just the overall stability of the business as you know in Q1, we have one particular agreement in our semiconductor business where there's.

Speaker #4: That's going to have a little bit of an uplift for us in that regard. So just from that backlog, that we'll see it crossing approximately 90 million dollars.

Paul Davis: The solution, as I understand it, and again, I'm not a world expert in this, but in Microsoft's solution, from what I've seen that they were talking about, is etching in the chip, which we think has some technical challenges that our solution does not have. Happy to discuss that further offline, but I think we do see it as a pretty different solution than what we're offering. Ours is more, we believe, more plug and play and something that can be adopted by the industry relatively quickly, as quickly as at least the semiconductor industry adopts new technologies.

Just based on we structured the agreements in the past Theres a little bit of a.

Speaker #4: In Q4. So I think that's a good springboard of kind of thinking about just the overall stability of the business. As you know, in Q1, we have one particular agreement in our semiconductor business where there's just based on how we structured the agreements in the past, there's a little bit of a short-term adjustment simply because of revenue recognition rules.

Short term.

Adjustment simply because of revenue recognition rules, but then that quite frankly levels about and when you get into Q2 and beyond and then so we're seeing really strength in that recurring revenue business.

Kind of going forward in terms of the quality of the pipeline or I can kind of turn it over to Paul and he can give a little color on that sure. Thanks, Scott I appreciate the question.

Speaker #4: But then that, quite frankly, levels out. And when you get into Q2 and beyond, and then so we're seeing really strength in that recurring revenue business.

I think we're very pleased with with our pipeline is as we Keith and I. Both noted in our prepared remarks, both on the semiconductor side of the business and the media side of the business.

Speaker #4: Kind of going forward. In terms of the quality of the pipeline, I can kind of turn it over to Paul, and he can give a little color on that.

Madison De Paola: Okay. Great. Thank you, guys.

Operator: That concludes the question and answer session. I will now turn it back over to Paul for closing comments.

Speaker #5: Sure. Thanks, Scott. Appreciate the question. You know, I think we're very pleased. You know, with our pipeline, as we Keith and I both noted in our prepared remarks, both on the semiconductor side of the business and the media side of the business, it remains quite strong.

It remains quite strong.

One thing I would just highlight is that.

Paul Davis: Thank you, operator. Thank you to everyone for being with us today. I would like to thank our employees as we celebrate our third anniversary as a standalone company. Later this month, we'll be attending the Wells Fargo Annual TMT Summit. We look forward to seeing you at this and other upcoming events. Thank you.

When things do move to the right. The opportunities are not lost right. We still see you know all of the opportunities that we saw last quarter earlier in the year is still in front of us and still achievable.

Speaker #5: You know, and one thing I would just highlight is that, you know, when things do move to the right, the opportunities are not lost, right?

But you know there is there is a timing element and what we focus on is getting the right deal done.

Speaker #5: We still see all of the opportunities that we saw last quarter or earlier in the year still in front of us and still achievable.

Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

For the for the long term for audio and its stakeholders and so sometimes that does mean things do shift to the right, but the opportunities are not lost and if they do move into 2020 six it does mean for.

Speaker #5: But, you know, there is a timing element. And what we focus on is getting the right deal done for the long term, for Adia and its stakeholders.

For some significant growth.

That we could see in 2026 as compared to 2025.

Speaker #5: And so sometimes that does mean things do shift to the right, but the opportunities are not lost. And if they do move into 2026, it does mean for some significant growth that we could see in 2026 as compared to 2025.

Okay, Great very helpful. Keith if I could just quickly follow up then.

That means that the semiconductor revenue I think it was $5 2 million.

In the in that ballpark was up.

Sequentially from a recurring standpoint, I guess driven by by the three D NAND opportunity.

Speaker #3: Okay. Great. Very helpful. Keith, if I could just quickly follow up then. That means that the semiconductor revenue, I think it was 5.2 million in that ballpark, was up sequentially from a recurring standpoint, I guess driven by the 3D NAND opportunity.

And then as Jim.

To dive in on A&D I'm wondering Paul can you just lay out the timelines and the milestones that we could expect in terms of how this litigation would progress and as part of that then how is that impacting or not impacting the dialog with other semi vendors out there, particularly as it relates to the logic opportunity with chip led opportunities.

Speaker #3: And then, just to dive in on AMD, I'm wondering, Paul, could you just lay out the timelines and the milestones that we could expect in terms of how this litigation would progress?

Thank you.

Speaker #3: And as part of that, then how is that impacting or not impacting the dialogue with other semi vendors out there? Particularly as it relates to the logic opportunity with chiplet opportunities.

Yeah.

Thanks, Scott I'll I'll address your question first and then.

And on the on the question that you asked Keith I'll, let him follow up but I think it's you know it is up.

Speaker #3: Thank you.

Youre correct to confirm.

Speaker #4: Yeah. Thanks, Scott. I'll address your question first, and then I think on the question that you asked, Keith, I'll let him follow up. But I think it's it is up.

Confirming that so the AR on the.

On your question in terms of M D and timing.

We filed two two cases to today, both in the Western District of Texas.

Speaker #4: You're correct to confirming that. So the on the on your question in terms of AMD and timing, I'll note we filed two cases to today.

Those cases, we would anticipate.

Going to trial all things.

Going according to schedule some time in 2027, although it's very early we just filed it today, so I would caveat that.

Speaker #4: Both in the Western District of Texas. Those cases, we would anticipate going to trial, all things going according to schedule sometime in 2027, although it's very early.

I'd also note that there is.

A government shutdown going on right now, which does did impact some of the jurisdictions that may be available to us and so there might be additional jurisdictions that would open up to us.

Speaker #4: We just filed it today. So I would caveat that. I would also note that there is a government shutdown going on right now, which does impact some of the jurisdictions that may be available to us.

As the government opens up as well so I would stay tuned on terms of the milestones, but we are we.

And we feel really good about the case that we filed.

Speaker #4: And so there might be additional jurisdictions that would open up to us as the government opens up as well. So I would stay tuned on terms of the milestones, but we are we feel really good about the case that we filed.

10 patents is pretty substantial seven of them are hybrid bonding patents.

I would also note that of the 10 patent eight of them.

Do not expire until mid 'twenty 30 or beyond.

Speaker #4: 10 patents is pretty substantial. Seven of them are hybrid bonding patents. I would also note that of the 10 patents, eight of them do not expire until mid-2030 or beyond.

So these are very significant patents in our portfolio. They go out for for quite some time.

As we noted on the call they really cover collectively.

Virtually all of Amd's products, including you know really all of their other their most advanced.

Speaker #4: So these are very significant patents in our portfolio. They go out for quite some time. And as we noted on the call, they really cover collectively virtually all of AMD's products, including really all of their most advanced GPUs as well.

G P Islam and Scott as you mentioned.

You you hit the nail on the head that increase we did see an increase in semiconductor and we're really excited about it and once again your spun on will you be hearing about and seen in the industry in terms of that growth and strength in the NAND market is showing up in our financial results and to.

Speaker #3: And Scott, as you mentioned, you hit the nail on the head. That increase we did see it increase in semiconductor. And we're really excited about it.

Speaker #3: And once again, you're spot on. What you've been hearing about and seeing in the industry in terms of that growth and strength in the NAND market is showing up in our financial results.

We actually see that momentum carrying.

Into Q4 for us as well.

Great. Thanks, so much.

Your next question comes from the line of Chris <unk> with the AWS financial. Please go ahead.

Speaker #3: And we actually see that momentum carrying into Q4 for us as well.

Hi, So first question is could you just reconcile.

Speaker #1: Great. Thanks so much.

Speaker #6: Your next question comes from the line of Hamad Korsand with BWS Financial. Please go ahead.

Some of the commentary you've made last quarter and this quarter I mean last quarter on the call. You had said there was so much opportunity that you wouldn't need A&P and you could still hit the upper end of the guidance, but then this quarter you are coming out and reducing guidance because you don't have AMD and then right now you're saying that you met the.

Speaker #7: Hi. So the first question is, could you just reconcile some of the commentary you've made last quarter and this quarter? I mean, last quarter on the call, you had said there was so much opportunity that you wouldn't need AMD, and you could still hit the up end of the guidance.

Guidance your expectations for Q2 for Q3, well if that was the case why don't you provide guidance because the street was at $100 million.

Speaker #7: But then this quarter, you're coming out and reducing guidance because you don't have AMD. And then right now, you're saying that you met the guidance.

I'm just trying to understand everything that's going on.

Speaker #7: Your expectations for Q2 or for Q3 will, if that was the case, why didn't you provide guidance? Because the street was at $100 million.

So I'm at a few a few things as you know we provide annual guidance only we do not provide quarterly guidance. So it would be unusual for us to provide quarterly guidance.

Speaker #7: So I'm just trying to understand everything's going on.

Second in terms of the statements last quarter are those statements remain true right. We have a robust pipeline that we feel like we've got a number of opportunities as Keith and I. Both noted we still have opportunities today.

Speaker #4: So So Hamad, a few things. As you know, we provide annual guidance only. We do not provide quarterly guidance. So it would be unusual for us to provide quarterly guidance.

Speaker #4: Second, in terms of the statements last quarter, those statements remain true, right? We have a robust pipeline, right, that we feel like we've got a number of opportunities.

Today to hit above the revised guidance range, including getting into the original guidance range. However, given the time of year and then the number of pass have narrowed given the AMD litigation. So that that is also true.

Speaker #4: As Keith and I both noted, we still have opportunities today to hit above the revised guidance range, including getting into the original guidance range.

And so we are.

Taking a prudent approach at this time given that we are now in November of taking the guidance range down, but we still believe that the opportunities lay ahead for us and that we have whether they land and twenty-five or then in 2020 six.

Speaker #4: However, given the time of year and the number of past have narrowed, given the AMD litigation. So that is also true. And so we are taking a prudent approach at this time, given that we are now in November of taking the guidance range down.

We have significant opportunities in front of us in both our media and semiconductor businesses that we're very excited about.

Speaker #4: But we still believe that the opportunities lay ahead for us, and that we have, whether they land in 2025 or they land in 2026, significant opportunities in front of us in both our media and semiconductor businesses that we're very excited about.

Yeah.

Okay, and then just so I understand what that was.

It's there in the pipeline that gives you confidence that you can.

See revenue lift by about $20 million in the quarter that hasn't happened at all throughout this year sure. So Amit as you know we do very large.

Speaker #7: Okay. And then just so I understand, what's there in the pipeline that gives you confidence that you could see revenue lift by about 20 million in the quarter that hasn't happened at all throughout this year?

Deals right. These are these are deals that often are.

And you know that.

They can be in the nine figures, even right and they they can take time they.

Speaker #4: Sure. So Hamad, as you know, we do very large deals, right? These are deals that often are in they can be in the nine figures even, right?

They can be very complicated to negotiate often at times, we're dealing with parties that have to go get approval from the highest levels of their own companies right and so sometimes that can be a challenge in terms of navigating the exact timeline that being said we are having.

Speaker #4: And they can take time. They can be very complicated to negotiate. Often, at times, we're dealing with parties that have to go get approval from the highest levels of their own companies, right?

Good discussions with multiple parties in both our media and semiconductor parts of our business that give us confidence.

Speaker #4: And so, sometimes that can be a challenge in terms of navigating the exact timeline. That being said, we are having very good discussions with multiple parties in both our media and semiconductor parts of our business that give us confidence.

And so we've got on the table right. So when you think about it obviously, we filed litigation against AMD, We've got outstanding litigation.

Against Disney We've got Canadian operators, we have large OTT opportunities that remain unlicensed today, there are additional semiconductor opportunities that we're pursuing as.

Speaker #4: And so we've got on the table, right? So when we think about it, obviously, we filed litigation against AMD. We've got outstanding litigation against Disney.

As well and so when we look at it Holistically. There are number of opportunities that we have been pursuing for for quite some time and I'm not going to be able to get into the details of exactly what they are but holistically. When we look at all of them. It gives us a lot of confidence on our ability to execute and bring those deals in.

Speaker #4: We've got Canadian operators. We have large OTT opportunities that remain unlicensed today. There are additional semiconductor opportunities that we are pursuing as well. And so when we look at it holistically, there are a number of opportunities that we have been pursuing for quite some time.

Speaker #4: I'm not going to be able to get into the details of exactly what they are, but holistically, when we look at all of them, it gives us a lot of confidence on our ability to execute and bring those deals in.

It's a matter of timing, whether they happen in 25, or 26, and that's where you're getting that that difference between.

Where where they fall in the change in revenue guidance.

Okay. Thank you.

Speaker #4: It's a matter of timing, whether they happen in '25 or '26. And that's where you're getting that difference between where they fall in the change in revenue guidance.

Your next question comes from the line of Matthew <unk> with Maxim Group. Please go ahead.

Hi, good afternoon, and thanks for taking my question.

Speaker #7: Okay. Thank you.

Speaker #6: Your next question comes from the line of Matthew Galinko with Maxim Group. Please go ahead.

Curious if there are any implications.

For other possible Gail the renewals in the semi conductor pipeline given the lid.

Speaker #8: Hi, good afternoon, and thank you for taking my question. I'm curious if there are any implications for other possible deals or renewals in the semiconductor pipeline, given the litigation announcement with AMD.

Litigation announcement with AMD.

Yeah, and a similar question that Scott asked that I didn't address so thank you for bringing that up Matt.

We're very excited about the adoption cycle of hybrid bonding right now.

You're hearing more and more adoption, especially in the logic space and then as you look out further.

Speaker #4: Yeah. And a similar question that Scott asked that I didn't address. So thank you for bringing that up, Matt. We're very excited about the adoption cycle of hyperbonding.

With H B M and also in NAND.

We see more and more adoption coming down the pipeline in 27 and beyond in particular for the memory market and for next year for the logic market and when you get when you look at the cases, we filed today seven of the 10 patents are hybrid bonding related and so.

Speaker #4: Right now, you're hearing more and more adoption especially in the logic space. And then as you look out further with HBM and also in NAND, that we see more and more adoption coming down the pipeline in '27 and beyond in particular for the memory market and for next year for the logic market.

That is very exciting to us in terms of the breadth of our portfolio and the relevance to our really these these advanced semiconductors.

Speaker #4: And when you look at the cases we filed today, seven of the 10 patents are hybrid bonding related. And so that is very exciting to us in terms of the breadth of our portfolio and the relevance to really these advanced semiconductors.

And the use of our technology that we have invented and so we're very excited about what that pipeline can be now AMD was ahead of the curve in terms of.

Adoption of hybrid bonding. So they've first products came out in 2022 are the rest of the logic market is a bit behind but you've got a number of companies that have announced.

Speaker #4: And the use of our technology that we have invented. And so we're very excited about what that pipeline can be. Now, AMD was ahead of the curve in terms of adoption of hybrid bonding.

Intentions of launching products in 2026 and beyond that we believe will utilize hybrid bonding and our technology as well.

Speaker #4: So they first products came out in 2022. The rest of the logic market is a bit behind, but you've got a number of companies that have announced intentions of launching products in 2026 and beyond that we believe will utilize hyperbonding in our technology as well.

Got it.

Thank you and maybe if I could just ask a follow up I realize it's still sort of early in the planning cycle for 2006, but.

To the extent that you expect some of these opportunities to land.

Speaker #8: Got it. Thank you. And maybe if I could just ask a follow-up. I realize it's still sort of early in the planning cycle for '26, but to the extent that you expect some of these opportunities to land and that you seem to have pretty high level of confidence that 2026 will be a growth year in terms of revenue, so to that end, do you expect to for operating expenses to follow the revenue trend line, or will you sort of keep a pretty tight lid on spending for the first stable future?

Seem to have pretty high level of confidence that 2026 will be a growth year in terms of revenue.

To that end do you expect to.

For operating expenses to follow the revenue trend line or will you sort of keep.

Pretty tight lid on spending for the foreseeable future.

Hey, Matt I think it's a that's a great question. So when we take a look at where that could be.

You know we feel good about the pipeline and what that represents from a top line perspective.

And you know frankly, what we see out there in some of the numbers that have been published.

Speaker #4: Amen. I think it's a great question. So when we take a look at where that could be, we feel good about that product line and what that represents from a top-line perspective.

That's something that we think is achievable with the pipeline that we have for all intents and purposes now from a spinning.

Speaker #4: And frankly, what we see out there in some of the numbers that are being published, that's something that we think is achievable with the pipeline that we have, for all intents and purposes.

Perspective.

We will.

We'll continue to invest in the business, but you know at a at a modest rate.

So that increase that we foresee in in our revenue.

Speaker #4: Now, from a spinning perspective, we will continue to invest in the business, but at a modest rate. So that increase that we foresee in revenue would not be consumed by incremental spending at a significantly higher level.

It would not be consumed by incremental spending at a at a significantly higher level, we will still be very smart, we need to grow our portfolio of the strength of our portfolio pays off dividends.

In terms of the new deals and I'll tell you quite frankly, even in the litigation that we filed and so our investment portfolio quite frankly is a testimony to the strength of our of all of that that underlying technology in for those who might not be informed.

Speaker #4: We will still be very smart. We need to grow our portfolio. The strength of our portfolio pays off dividends. In terms of the new deals, and I'll tell you quite frankly, even in the litigation that we filed.

Filing 10 patents says a lot says an absolute lot and in general terms. What you find is typically people file five.

Speaker #4: So our investment in our portfolio, quite frankly, is a testimony to the strength of that underlying technology. And for those who might not be informed, filing 10 patents says a lot.

Patents in terms of litigation, but the amount of investment that we've made really speaks to that strength because quite frankly, there was a lot more that we have that.

Speaker #4: It says an absolute lot and in general terms, what you find is typically people file five patents in terms of litigation, but the amount of investment that we've made really speaks to that strength because, quite frankly, there's a lot more that we have that are significant in strength.

That are significant in strength, so and that is only comes from our investment in our R&D.

With that being said, we will continue to grow our portfolio we.

We would expect our EBITDA margins to be in that 60 years.

Speaker #4: So and that is only comes from our investment in our R&D. With that being said, we'll continue to grow our portfolio. We would expect our EBITDA margins to be in that 60th percentile that we've kind of grown accustomed to or very close to it.

Percentile debt that we've kind of grown at close to or very close to it.

And then once again, just having tremendous cash generation from our business. You know one thing to note that we're quite proud of since separation, we have generated over $500 million in cash from operations. So when we say we have a cash burn of business model. The proof is in the putting in those finance.

Speaker #4: And then once again, just having tremendous cash generation from our business. One thing to note that we're quite proud of since separation: we have generated over $500 million in cash from operations.

Results.

Your next question comes from the line of Madison M. D pay all that with Rosenblatt Securities. Please go ahead.

Speaker #4: So when we say we have a cash stream of business model, the proof is in the pudding and those financial results.

Hi, This is Madison, calling on behalf of Kevin Cassidy and I was just wondering what the timeline for licensing rapid call was and also I know that Microsoft has recently announced a coolant capital called Microfluidics.

Speaker #6: Your next question comes from the line of Madison DiPaola with Rosenblatt Securities. Please go ahead.

Speaker #1: Hi, this is Madison calling on behalf of Kevin Cassidy. And I was just wondering what the timeline for licensing Rapid Cool was and also I know that Microsoft has recently announced a cooling technique called Microfluidics.

How is that different from rapid call.

Hey, Matt Thanks for the question a good that's good to hear you on the call. Yeah. So first of all as we noted last call.

Speaker #1: How is that different from Rapid Cool?

Rapid cool is something that we see as a revenue opportunity in the kind of mid to long term and so we.

Speaker #4: Hey, Matty. Thanks for the question. Good to hear you on the call. Yeah, so first of all, as we noted last call, Rapid Cool is something that we see as a revenue opportunity in the kind of mid to long term.

We are still working with.

Customers and partners on the rollout of that and we're very encouraged since our rollout to the public last quarter. We got a lot of positive feedback on it and we've increased the number of engagements that we have but it remains a project right now that we are still in the early phases of you know and.

Speaker #4: And so we are still working with customers and partners on the rollout of that, and we're very encouraged since our rollout to the public last quarter.

Speaker #4: We got a lot of positive feedback on it, and we've increased the number of engagements that we have. But it remains a project right now that we are still in the early phases of.

One that we're very excited about so you know still early days, but one that we see obviously a tremendous opportunity and you know our.

Lucian again is it's a it's one where we're directly bonding of cold plate to the chip right and the solution as I understand it and again I'm not a world expert in this but in.

Speaker #4: And one that we're very excited about. So still early days, but one that we see obviously a tremendous opportunity in. Our solution again is one where we're directly bonding a cold plate to the chip, right?

In our Microsoft solution from what I've seen that they were talking about is ethane in the chip, which we think has some some technical challenges that our solution does not have.

Happy to discuss that further offline, but I think we do see it as a pretty different solution that we're offering and ours is more we believe more plug and play and something that can be adopted by the industry.

Relatively quickly.

As quickly as at least the semi conductor industry adopts new technologies.

Okay, great. Thank you guys.

And that concludes the question and answer session I will now turn it back over to Paul for closing comments.

Thank you operator, and thanks to everyone for being with US today I would like to thank our employees as we celebrate our third anniversary as a Standalone company.

Later this month, we'll be attending the Wells Fargo annual TMT summit, we look forward to seeing you at this and other upcoming events. Thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.