Adeia Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 6, 2024

Key Takeaways

  • Strong Q1 results with $83.4 million revenue and $50 million adjusted EBITDA (60% margin), in line with expectations.
  • Signed 10 license agreements—including two with new customers—and maintained a >90% renewal rate, underscoring portfolio relevance across pay TV, OTT, semiconductors and consumer electronics.
  • Generated over $67 million in operating cash, paid down $40.1 million of term debt in Q1 and has reduced total debt by ~$200 million since separation, ending with $89 million in cash.
  • Reiterated full-year 2024 revenue guidance of $380–420 million but cautioned Q2 could mirror Q1’s results due to timing volatility in closing large, complex deals.
  • Litigation expense rose 35% quarter-over-quarter to $2.9 million, reflecting increased legal costs in ongoing matters.
AI Generated. May Contain Errors.
Earnings Conference Call
Adeia Q1 2024
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good day, everyone. Thank you for standing by. Welcome to Adia's Q1 2024 Earnings Conference Call. During today's presentation, all parties will be in a listen only mode. Following the presentation, the call will be open for questions.

Operator

I would now like to turn the call over to Chris Chaney, Vice President and Investor Relations for audio. Chris, please go ahead.

Speaker 1

Good afternoon, everyone. Thank you for joining us as we share with you details of our Q1 2024 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 our Q1 and then Keith will give further details on our financial results and guidance. We will then conclude with a question and answer period.

Speaker 1

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'd like to provide a few reminders. First, today's discussion contains forward looking statements that are predictions, projections, or other statements about future events which are based on management's current expectations and beliefs and therefore are subject to risks, uncertainties and changes in circumstances. For information on the risks and uncertainties that could cause our actual results to differ materially from what we discuss today, please refer to the Risk Factors section in our SEC filings, including our Annual Report on Form 10 ks 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 1

To enhance investors' understanding of our ongoing economic performance, we will discuss non GAAP information during this call. We use non GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results as we do internally. We have provided reconciliations of these non GAAP measures to the most directly comparable GAAP measures in the earnings release, the earnings presentation, and on the Investor Relations section of our website. A recording of this conference call will be available on the Investor Relations website at adia.com.

Speaker 1

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

Speaker 2

Thank you, Chris, and thank you everyone for joining us today. We hit the ground running in the Q1 and delivered results which were in line with expectations. We signed 10 license agreements, including 8 renewals and 2 with new customers. Agreements signed in the Q1 represented a broad mix of customers in pay TV, OTT, semiconductors and consumer electronics in the United States, Europe, Japan, and South Korea. 6 of our ten agreements were in pay TV, which remains a market where our media portfolio continues to show strength.

Speaker 2

We delivered revenue of $83,400,000 in the 1st quarter and adjusted EBITDA of $50,000,000 With our strong cash generation of over $67,000,000 we continued our commitment to accelerated debt payments and paid down $40,100,000 of our term loan. Our commitment to maintaining strong long term customer relationships is reflected in our high renewal rate, which continues to exceed 90% and demonstrates the continued relevance and value of our portfolios to our customers. Renewals are important because they support our ongoing revenue stream and provide a stable, predictable foundation from which we can grow in the future. Of the deals we signed during the quarter, we are particularly pleased with our multi year renewal with Paramount, a leading OTT provider, for access to our media portfolio. This agreement continues our recent success in OTT, following the STARZ and DAZN deals signed last year.

Speaker 2

These 3 recent wins in OTT are great proof points of the relevance of our media portfolio in OTT. This market remains one of our largest growth opportunities, and I'm pleased with the progress the team has made with key customer engagements. Another significant deal for us last quarter was a multi year agreement with Ulta Media, a user experience platform provider in South Korea. As I mentioned earlier, in addition to the 8 renewals, we signed long term agreements with 2 new customers, including Astound Broadband, a large pay TV and broadband provider in the US, and Magenta Telecom, a pay TV provider in Austria. Other agreements signed during the quarter included deals with 3 additional pay TV customers and 3 Japanese based customers across OTT, consumer electronics and semiconductors.

Speaker 2

We continue to make significant progress on our strategic objectives. Our long term revenue target remains $500,000,000 We plan to achieve this target through maintaining our strong renewal rates in pay TV, consumer electronics, and social media, and growing our customer base in OTT, adjacent media markets, and semiconductors. We have positioned ourselves well in each of these key growth markets, and I remain confident that we will see significant new deal wins in each of these markets in 2024. Success in 2024 in these growth markets will not only drive revenue this year, but will also provide meaningful contributions to achieving our long term revenue goal. Given the long term and predictable nature of our license agreements.

Speaker 2

As Keith and I highlighted in February, given our confidence in our expanding pipeline of opportunities, we are investing this year in talent, tools and infrastructure. These investments are tied to specific revenue growth opportunities. One key area of investment is our expanding patent portfolios, and I'm pleased to report that we closed the quarter with over 11,000 patent assets. Growing our IP portfolios continues to be an imperative. As a reminder, our IP portfolio growth is focused on supporting our current customer base in order to maintain our strong renewal rate and add new customers in adjacent and growing markets.

Speaker 2

Tuck in acquisitions remain a part of our IP growth strategy to augment our focused organic growth. During the Q1, we added to our media portfolio with the acquisition of patent assets, which further strengthened our presence in OTT. Our media and semiconductor teams also continue to be actively involved in numerous industry conferences. At these types of events, we not only showcase our expertise and share our vision for the future, but we also engage with other industry leaders and potential customers. At the Chiplet Summit in February, members of our semiconductor team participated in a panel on chiplet packaging and gave a tutorial on advanced packaging methods.

Speaker 2

Our semi team also presented a paper on hybrid bonding at a leading packaging conference in March. As the semiconductor industry moves toward broad adoption of hybrid bonding, our technology in this vital space has become a major industry topic at these conferences and has driven new customer engagements. Turning to media. At the International Conference on Consumer Electronics, members of our team delivered a presentation on one of our innovations that uses AI to capture the perfect moment in digital photography. We also received an award from Interactive TV Today in the category of achievement in shoppable TV.

Speaker 2

Interactive TV today is the most widely read and trusted news source in the multi platform and interactive television industry. We are proud to be recognized for our clickable video invention alongside other category winners such as LG, DIRECTV, Comcast and Spectrum. This award winning invention is particularly relevant to our development efforts in adtech and e commerce. Deleveraging our balance sheet remains a priority within our capital allocation strategy, and our cash generative business model enables us to continue to make accelerated debt payments. Since our separation from Experi over 18 months ago, we have paid down nearly $200,000,000 of our debt, while maintaining a relatively stable cash position of over $80,000,000 demonstrating our strong financial performance.

Speaker 2

I am very pleased with our performance in the Q1 and the progress we have made towards our strategic objectives. With that, I would like to now turn the call over to Keith for a review of our Q1 financial results.

Speaker 3

Thank you, Paul. I'm pleased to be speaking with you today to share details of our Q1 2024 financial results. During the Q1, we delivered revenue of $83,400,000 driven by the execution of 10 license agreements across a broad mix of end markets, including OTT, pay TV, semiconductor and consumer electronics. Now I'd like to discuss our operating expenses, for which I will be referring to non GAAP numbers only. During the Q1, operating expenses were $33,900,000 an increase of $721,000 or 2% from the prior quarter.

Speaker 3

Research and development expenses decreased $439,000 or 3% from the prior quarter. The decline in the Q1 is primarily related to the timing of certain patent renewal costs, which were partially offset by increased personal costs as a result of ongoing hiring. Selling, general and administrative expenses increased $402,000 or 2% from the prior quarter as we continue to invest and build out our licensing platforms associated with OTT, semiconductor and adjacent media markets. Litigation expense was $2,900,000 an increase of $758,000 or 35% compared to the prior quarter, primarily due to the timing of expenses related to certain legal matters. Interest expense during the Q1 was $14,200,000 a decrease of $1,300,000 from the prior quarter amount due to our continued debt repayments resulting in lower principal balances.

Speaker 3

Our current effective interest rate, which includes amortization of debt issuance costs, was 10%. Other income was $1,400,000 and was primarily related to interest income recognized on revenue agreements with long term billing structures under ASC 606 and due to interest earned on our cash and investment portfolio. Our adjusted EBITDA for the Q1 was $50,000,000 reflecting an adjusted EBITDA margin of 60%. Depreciation expense for the quarter was $520,000 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.

Speaker 3

Now for a few details on the balance sheet. We ended the Q1 with $89,000,000 in cash, cash equivalents and marketable securities, and generated $67,200,000 in cash from operations. We made $40,100,000 in principal payments on our debt in the Q1 and ended the quarter with a term loan balance of $561,100,000 I am very pleased with the progress we have made in deleveraging our balance sheet. In the past 18 months, we have paid down approximately $200,000,000 of our term loan, a great accomplishment by any measure and is reflective of our strong cash generative business model. During the Q1, we paid a cash dividend of $0.05 per share of common stock.

Speaker 3

Additionally, our Board approved the payment of another $0.05 per share dividend to be paid on June 18 to shareholders of record as of May 28. Now I will go over guidance for the full year 2024. We are reiterating our prior guidance for the full year 2024. We expect revenue to be in the range of $380,000,000 to $420,000,000 This guidance reflects the strength of our pipeline, which includes anticipating new license agreements in both OTT and semiconductor. In executing our pipeline, it remains our priority to achieve economic terms that reflect the proper value of our underlying IP.

Speaker 3

As a reminder, our agreements tend to be relatively large and complex, which creates volatility from period to period. While we are making great progress on many fronts, you may see the overall timing on executing agreements impacting our revenue in Q2 twenty twenty four, with a couple agreements that may potentially extend into the second half of the year. This could result in Q2 twenty twenty four revenue being similar to our Q1 twenty twenty four results. We expect our operating expenses to be in the range of $150,000,000 to $160,000,000 We anticipate both R and D and SG and A expenses to ramp in the second half of the year as a result of the timing of various initiatives to support the build out of our media and semiconductor licensing platforms. We expect interest expense to be in the range of $54,000,000 to $57,000,000 and we expect other income to be in the range of $5,000,000 to $6,000,000 We expect to result in adjusted EBITDA margin of approximately 62%.

Speaker 3

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 $3,000,000 for the full year. The Q1 was in line with our expectations. The high level of deal activity and new customer engagements in the Q1 provides us with a high degree of confidence that we will achieve our goals for the year. Our future is bright, and our entire team is working diligently to deliver strong results for our shareholders.

Speaker 3

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?

Speaker 4

Thank you. We will now begin the question and answer session. Your first question today comes from the line of Matthew Galinko from Maxim Group. Your line is open.

Speaker 5

Hey, good afternoon. Thanks for taking my question. I wanted to, I guess, circle back on understanding about the ramp up in operating expenses. I think you indicated now back half. I think possibly when we talked earlier this year, it was going to be a little bit more front end driven on the expense ramp up.

Speaker 5

So just curious if there were if I understood that correctly, was there a maybe push out in that spending? And I'll have a follow-up.

Speaker 3

Hey, Matt, great to speak with you. Your memory is spot on. So one of the things that we when we take a look at our expenses and that ramp from the back half of the year is quite frankly, it's a success story. So one of the things that we have talked about is building out our platforms, making those investments, which includes a bit of third party spend to get subject matter expertise, domain expertise. And what we really found that was actually fantastic is that some of those projects that we had earmarked early on for the first half of the year, we were quite candidly able to reach those milestones and and do with our own internal resources rather than using outside third parties, which is absolutely fantastic and speaks well to our employees and what they're able to do.

Speaker 3

With that being said, that creates an opportunity for us, not necessarily to save that money, but actually to invest it in other initiatives, which we have targeted for the second half of the year. So it's a great question. It really speaks well to our team. And then with that being said, that's why we stay on track with the guidance that we previously provided.

Speaker 5

Got it. Thank you. And I guess my follow-up question would be just on given the persistently high interest rate environment, any changes in thinking about your capital strategy? I think you bought back shares possibly in the Q1. So just curious if it tips you even further towards retiring debt more aggressively or just again, any changes to your posture?

Speaker 5

Thanks.

Speaker 3

Yes. I think our answer is almost all of the above. We're always looking at opportunities, giving pricing in the marketplace. And then really with the tremendous cash flow generation that we had in Q1 in particular, you saw that we made a fairly aggressive pay down in Q1. So that still the deleveraging our balance sheet still remains a priority.

Speaker 3

We're making really good progress on that. We evaluate all those things as we go through the course of the year. But, as we talked about, retiring $200,000,000 in separation is a tremendous achievement. And we're really happy with the path and the success we had in that regard.

Speaker 6

Perfect. Thank you.

Speaker 4

Your next question comes from the line of Kevin Cassidy from Rosenblatt Securities. Your line is open.

Speaker 6

Thanks and congratulations on signing all the 10 new agreements. On the semiconductor side, last quarter you announced the co optimization. I wonder if you could give us an update, maybe some progress there or maybe go into a little more details of what that strategy is?

Speaker 2

Great question, Kevin, and thanks for being on the call. So certainly, co optimization is something that we are continuing to be very excited about. It's a longer term play for us. It's something that we kicked off, as you noted, in Q1. And we've made really good progress.

Speaker 2

We continue to hire in that space. And it's one of the areas of investment that Keith and I noted back in February and continues to be on track. We have we've made initial hires. We are we're mapping out the program. And really the focus, as I noted before in February, is really building an organic effort to augment our existing technologies when we look at semi.

Speaker 2

So we already have a really strong program in hybrid bonding, as you know. In addition, we have an advanced processing node portfolio as well as advanced packaging. And what we wanted to really focus on is something that could really be the next thing that we focused on from an organic standpoint and building out that portfolio. And when we looked at what the industry needed, you know, what the customer demands would be, we saw that this was an area that we could add value given our unique platform that we already have. And so really tremendous progress so far.

Speaker 2

Expect to hear more as we go forward in the year on how that's continuing to progress. But it's a from a build out stage, it's exactly on track and I'm very excited about it.

Speaker 6

Okay, great. Thanks. Maybe as another question I have with Paramount, congratulations on renewing your agreement with Paramount, but they're of course in the headlines and is there any risk to your agreement if there's a new ownership?

Speaker 2

Yes. Thanks for that question, Kevin. Certainly one we get quite a bit of is, how does M and A impact our license agreements? And it's something that we think about a lot, regardless of kind of what type of agreement it is, is how will that play out because it's obviously something that a lot of companies go through, and it's a it's a really changing dynamic in OTT in particular right now. And so I won't comment exactly on on that agreement or or the speculation of of the M and A rumor mill.

Speaker 2

But what I will say is is we're prepared for it, and and we we plan for it. And there there really shouldn't be any impact on as a result of M and A on really any of our license agreements as we see them.

Speaker 4

Your next question comes from the line of Hamed Khorsand from BWS Financial. Your line is open.

Speaker 7

Hi. So first off, could you just talk about how many of these service providers are there that like Astound were left with Xperry that you would have to go and reestablish some sort of relationship now that you're a standalone company?

Speaker 2

Thanks for that question. Certainly, we're very pleased to get the Astound license agreement done. We've had a few of those. There's not many. As you recall, at the separation, and this is consistent, really our business models and who we approach were really quite different.

Speaker 2

We are usually typically are focused on the larger service providers as our licensees. We have obviously some smaller ones as well, but there's not usually a lot of overlap. So fairly unique situation, and we don't anticipate really there being many more of those at this point.

Speaker 7

Okay. And then my other question is just could you clarify your commentary? You're talking about how you're making great headway with new licensees. I think you've listed a few of them. But then you're also saying that Q2 is looking like it might be like Q1 because there is push outs.

Speaker 7

So what is that progress that you're talking about? Because it doesn't sound like it's going to be in the revenue side.

Speaker 2

Yes. So Hamed, as you know, our license agreement discussions can be quite lengthy. And often, they are can be 18, 24 month, you know, type engagements. And so we're pleased with kind of how those are progressing, as I noted in my my commentary. But the exact timing of when they will land within a quarter is the hardest thing that we have to do to, you know, predict.

Speaker 2

And, you know, that's why we provide annual guidance. That's why we focus on that. We have and we have high confidence in the year. You know, exactly whether it falls, you know, kind of, you know, June 30th versus July 1 or or some other date, you know, that that varies from from quarter to quarter is is is where what we're really talking about. But the confidence in the year remains.

Speaker 2

We feel very good about it given given where we're at. But it's, that's that's always our focus is getting the right deal done for the right economics. And and please again very pleased with the progress, but predicting on exactly when when it falls within a quarter is is something that we try to try to avoid doing for that very reason.

Speaker 7

Okay. Thank you.

Speaker 4

And that concludes our question and answer session. I will now turn the call back over to Paul Davis for closing remarks.

Speaker 2

Thank you, operator. Our first quarter results were aligned with our expectations, and we remain on track to meet our goals for the year. I want to thank our dedicated employees, partners and customers for the strong start to the year and the progress we have made on our strategic objectives. Next week, we'll be participating at the Needham Technology, Media and Consumer Conference in New York. We look forward to seeing you at this conference and other investor events in the coming weeks.

Speaker 2

Thank you for joining us today.

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