ADEIA CORP — Earnings Call Q3 2026

Operator: Good day, everyone. Thank you for standing by. Welcome to Adeia's third quarter 26 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. I would now like to turn the call over to Chris Chaney., Vice President of Investor Relations for Adeia. Chris? Please go ahead. Chris Chaney: 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 Dipti Vachani, our CEO and Keith A. Jones, our CFO. Dipti will share with you some general observations regarding the quarter. And then Keith will give further details on our financial results and guidance. We will then conclude with a question and answer period. In addition to today's earnings release, there is an earnings presentation which you can access along with the webcast in the IR portion of our website. Before turning the call over to Dipti, I would like to provide a few reminders. First, today's discussion contains forward looking statements that are projections, predictions or other statements about future events, are based on management's current expectations and beliefs and therefore subject to risks, uncertainties, and changes in circumstances. For more information on the risks and uncertainties that could cause our actual results to differ materially from what we discussed today, please refer to the risk factors section in our SEC filings. Including our annual report on Form 10-K. 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. 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 adeia.com. I would now like to turn the call over to our CEO, Dipti Vachani. Dipti Vachani: Thank you, Chris, and good afternoon, everyone. I am excited to be here and honored to lead Adeia. I have worked at some of the most cutting edge companies in the world. And I chose Adeia for its technology, its team, and its timing. First, the technology. In media, AI is accelerating the shift to more personalized on demand experiences and our innovations in discovery and personalization sit right at the center of this change. In semiconductors, our innovations in hybrid bonding and thermal management help solve some of the biggest bottlenecks in scaling AI compute and memory. Second, the team. Throughout my career, I have been tasked with solving some of the most difficult problems in AI scale. As I get to know Adeia's prolific inventors, I have asked myself, where have you been my whole life? I could have really used your help. Our engineers are addressing the greatest challenges the AI industry is solving today and well into the future. I have spent time with members of the senior leadership team and I am very impressed by their experience their talent, and the culture of innovation they have built. Third, the timing. AI is reinventing how we discover, and consume media. And it is transforming the compute infrastructure behind it. Adeia's IP sits right where those trends meet. Media is information. Semiconductors process information. And partnership with the ecosystem our opportunity is to anticipate where the market is headed and invent the technologies it will need. Building upon my successful track record at ARM, Intel, Skyworks, and Texas Instruments. I am excited to share with you what I will bring to Adeia. I have a proven track record of building businesses around leading edge technologies. And maximize value by creating programs to monetize the technology and building ecosystems that help scale it. At ARM, that meant bringing new reoccurring revenue streams and bringing together hundreds of partners. I look forward to applying that experience here along with the leadership style built on candor, accountability, and staying close to customers and technology. My near term focus is clear. Listen. Learn. Execute. I am spending time with our employees, customers, and shareholders and working with our team to deliver the path towards our long term annual revenue target of $600 million I will continue to diversify our revenue streams and accelerate our innovation engines in both media and semiconductors. Keith will cover our third quarter results in more detail. But I will briefly cover a few highlights. Revenue was $80.2 million in the third quarter. As I have reviewed our pipeline and where our plays in the broader ecosystem, I am very excited and confident. In the opportunities that lay ahead in the short term and the long term. However, our business is relatively sensitive to the ultimate timing of a small handful of deals. In an effort to be prudent and transparent, we have adjusted our revenue guidance to reflect the potential range to the extent that certain deals are executed beyond 2026. Even with this change in guidance, I am confident with the progress we are making. My goal remains to hit the high end of the range. Keith will provide additional color later in this section. I am proud of the work done in the third quarter. We signed 8 deals across pay TV, consumer electronics, e commerce, and social media. Our business remains robust and the momentum we are seeing across our pipeline provides us with the confidence for the remainder of this year and as we look forward to 2027. Before I turn the call over to Keith, I want to thank the Board for the trust they have placed in me to be the next leader of Adeia. I also want to thank Paul for all that he has done for Adeia over the past 4 years and for working with me through this transition period. I could not be more excited to be here for the future of Adeia. Keith A. Jones: Thanks, Dipti. Let me begin with a very warm welcome for Dipti. As our new CEO. Speaking on behalf of all the employees here at Adeia, we are extremely excited to have you on board. Bringing your extensive experience energy, and leadership. I am very much looking forward to our partnership for years to come. Now let me turn to a review of our third quarter results. Third quarter revenue was $80.2 million Deal momentum was strong with 8 license agreements closing in the quarter, across pay TV, ecommerce, consumer electronics, and social media. 4 of these deals were with new customers. As we have mentioned before, adding new customers is critical to the continued diversification of our revenue streams. I would like to emphasize that Pay TV is overall important component of our business. The underlying revenue remains significant for us. As such, we continue to innovate in this area and we are able to further leverage this technology in other growing areas such as streaming and ecommerce. With that being said, I am proud to announce that we signed a significant multiyear renewal with Charter, which is the largest provider of pay TV and broadband services in the United States. And has been a valued customer of ours for over 20 years. We also signed a multiyear renewal with TCL, 1 of the world's largest manufacturers of connected TVs. This renewal highlights the importance of our consumer electronics business which has consistently been greater than 10% of our total revenue. In ecommerce, we signed a new long term license agreement with Fanatics, a leading sports apparel ecommerce company. This reflects the growing momentum we have had in the ecommerce space leveraging the success of our RPX deal in the second quarter. Other notable agreements signed in the third quarter included new deals with a social media company a consumer electronics company as well as license agreements with 3 other pay TV providers. Since separation, we have aimed to diversify our revenue across our core pay TV market and to expand and grow revenue in both semiconductor and our adjacent media markets. We are proud of the progress we have made, With the tremendous number of opportunities that we see ahead of us, we recently increased our long term annual revenue target to $600 million. With the widespread adoption of our technologies, our confidence is unwavering. And our long term target remains unchanged. As part of this growth trajectory, increasing our recurring revenue is of paramount importance to the company's overall success. In the third quarter, we grew non Pay TV recurring revenue by 48% year-over-year, continuing a multi-quarter trend. We continue to be very excited about the expanding industry adoption of hybrid bonding across both the memory and logic markets. As noted in recent news, hybrid bonding will be essential to the manufacturing process at 20-plus layers in HBM in the next few years. As well as for future 3D RAM 3D NAND, and high bandwidth flash. For Adeia, this timing aligns nicely with our contract renewals with the top 3 memory manufacturers. We view the ultimate pervasive adoption of hybrid bonding across both the memory and logic markets is a key to driving a sustainable and growing revenue stream for many years to come. Our IP is the foundation of what we do. and is the lifeblood of our business. We ended the quarter with over 14.5 thousand patent assets, for both semiconductors and media, This commitment to innovation has resulted in our combined portfolios growing 6% year-to-date. Our patent growth is focused on areas of strategic importance including hybrid bonding, thermal management, and media technologies that support AI driven experiences. Our creative and talented inventors are critical to our continued success. Approximately 80% of our patents have been developed internally by this proud group and we are dedicated to finding solutions that address important industry challenges. Now I would like to discuss our operating expenses which I will be referring to non GAAP numbers only. During the third quarter, operating expenses were $43.8 million an increase of $3.6 million or 9% from the prior quarter. This anticipated increase was primarily driven by higher litigation expenses. Research and development expenses were up $176 thousand compared to the prior quarter. Selling, general and administrative expenses increased $1.6 million or 8% from the prior quarter primarily due to portfolio maintenance costs and other expenses to support our strategic sales efforts. Litigation expense was $7.2 million. An increase of $1.8 million or 35% compared to the prior quarter. Primarily driven by higher spending related to our various legal matters. Interest expense during the third quarter was flat at $8.1 million Our current effective interest rate which includes amortization of debt issuance costs, was 7.2%. Other income was $1.8 million and was primarily related to interest earned on our cash investment portfolio. And due to interest income recognized on revenue agreements with long term billing structures under ASC 606. Our adjusted EBITDA for the third quarter was $36.9 million reflecting adjusted EBITDA margin of 46%. Depreciation expense for the third quarter was $500 thousand. Our non GAAP income tax rate was 21% for the quarter. Our income tax expense consists primarily of federal and state domestic taxes, as well as Korean withholding taxes. We ended the third quarter with $127.7 million in cash equivalents, and marketable securities. And we generated $5.1 million in cash from operations. We made $6.1 million in principal payments on our debt in the third quarter. And ended the quarter with a term loan balance of $386.5 million. 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 December 14, to shareholders of record as of November 23. For 2026, we are reducing our revenue guidance to $375 million to $415 million. As Dipti mentioned earlier, our pipeline remains strong and robust. However, this reflects the impact of a small handful of deals we are actively working on. With the progress we have made to date, we are optimistic about closing these deals. Which would place us at the high end of the range. However, these deals are relatively large and legally complex. Which can take time to execute. Thus, to provide transparency, we have adjusted the range to reflect the potential impact to the extent certain of these deals are executed beyond 2026. We are lowering our operating expense outlook to $176 million to $180 million. This reflects both disciplined expense management within our R&D and SG&A functions as well as expected lower litigation spending as a result of certain court delays which would have further anticipated costs. We expect interest expense to be in the range of $32 million to $34 million. We expect other income to be in the range of $6 million to $7 million. We expect a resulting adjusted EBITDA margin of approximately 55%. We expect a non GAAP tax rate to be 21% for the full year. We also expect capital expenditures to be approximately $2.5 million for the full year. Our entire team remains committed to executing on our goals. For the remainder of this year. We remain confident in our technology our team, and the strength of our growing pipeline. That brings an end to our prepared remarks. And with that, like to turn the call over to the operator to begin our question and answer session. Operator? Operator: Thank you, sir. And everyone, if you have a question. Once again, that is *1 if you have a question today. And your first question comes from Kevin Cassidy, Rosenblatt Securities. Kevin Cassidy: Yes. Thanks for taking my question, and congratulations, and welcome. Just, you know, how should investors be estimating the time for signing new license agreements with semiconductors customers. Is this more complicated than the media customers? Or maybe--and is--I am just-- Guess I am assuming that is where some of these handful of deals that might be delayed. Are coming from the semiconductor market. Keith A. Jones: So you are right. The semiconductor market is different from the media market in such that the media market is much more fragmented The semiconductor market being a more concentrated group of customers within logic and memory. Though the handful of deals that we are referring to for this quarter were media deals, We expect semiconductor, especially in the logic side, to kick in sometime next year in 2027, 2028 time frame. And then memory renewals 2028, 2029. And so we will expect that to be in our revenue forecast in that timeframe, but right now the handful of deals that we are looking at on the media side, and honestly we see a slight. The pipeline has not changed. It is strong and it is exactly the pipeline we looked at last quarter, but this is as we get closer it is about deal timing. And that is it. it is deal timing and being transparent on that timing we have decided to adjust the range. Kevin Cassidy: Okay. Great. Thanks for that clarification. And just, you know, when. Going again to the semiconductor side of it, it, the ones you have in the pipeline, are they more data center products or is that cross all end markets? Dipti Vachani: it is all end markets. So I will categorize them into 3. We have the logic market, and you have heard about our AMD business. as well as other customers that we know are engaged in hybrid bonding. We know Broadcom, Intel, NVIDIA, and Feynman, And so there is the logic group of customers. Then you have your media I am sorry, your memory customers. And so there is a group of customers there. SanDisk and Kioxia are on the NAND side, and then other memory providers on HBM. And then I think you will see it more holistically across the board with data center companies acting more like semiconductor companies. And we know that. that is happening today. They are building their own silicon. And as they do, hybrid bonding will be of value to them. And so we will see them step in as well as customers for us. Kevin Cassidy: Okay. Interesting. Thank you. Operator: And your next question today will come from Scott Searle, ROTH Capital. Scott Searle: Hey, good afternoon. Thanks for taking the questions. Dipti, congratulations and look forward to working with you. Thank you. Hey, Keith, how are you doing? Hey. Maybe just to. Quick clarification. Just in terms of the mix of revenue in the quarter, Keith, I am not sure if you could provide some color in terms of media, semi mix, recurring and catch up. And want to clarify whether all of those deals you guys were referring actually occurred in the quarter because I think press releases for TCL and Spectrum came out after the quarter. So wondering if that made it into the third quarter results. And then is your looking into the wide range of implied expectations in the fourth quarter, Dipti, can you take us through what is at the lower end versus the higher end, the big gating swing factors, you know, in that $40 million range from the low end to the high end. Keith A. Jones: Hey, Scott. Thanks for your question. So a few parts there. So we will break them down 1 by 1, my friend. So just kind of giving the numbers on media versus semiconductor and I. Just to be very transparent, I am talking about just Q3 in and of itself. So media was $65 million. Semiconductor was $15 million. So we are seeing some growth quarter over quarter. Year over year on semiconductor. So once again, a great story in that perspective. And then for recurring versus nonrecurring, just using kind of some simple round numbers, the recurring revenue was $76 million. And then the nonrecurring was about $4 million. In that regard. So trying to make sure I remember all your questions because they were several multiple parts to that. The revenue growth that we are seeing is kind of aligned with what we anticipated. I think Dipti will get into a little bit more. But once again, where we are seeing our revenue opportunities, our pipeline is extremely strong. it is very strong. And at the end of the day, quite frankly, it is timing. And, ultimately, where we are at, I could not be more pleased If we look year over year, where we were at last year at the same time, we are actually ahead business wise. In terms of total revenue and then even on operating margins. We are doing absolutely fantastic. And then when you look at our company, our team, we are entirely focused, as you heard in my prepared remarks, of hitting $415 million. $415 million is the number that we are really focused on. 15 was the midpoint of the guidance that we previously had. Those opportunities still align. What we are a little bit--we want to be transparent about is like we said, there is a small handful of deals that kind of move that quarter it is really execution of those deals that get us to the midpoint or the high point of that range or otherwise. So we are really focused and to be blunt, it is a matter of when not if. it is a thousand percent on timing, and we are locked in on that. So our best days are really to come. I think Dipty can add a little bit more color on that backdrop as well. Dipti? Dipti Vachani: Yeah. I mean, the beauty of this business is the business does not go away. Right? The accounts do not go away. It is all about timing. And I see a path to $415 million, like Keith mentioned, we have a path to close it, and we are 110% focused on that. But we wanted to be transparent. That there is because of timing, it could swing 1 way or the other and we wanted to give you that range. Scott Searle: that is perfect. Very helpful. Thank you for the color. And Dipti, if I could follow-up in terms of semiconductor in 2027 and 2028, I know it is early, but if you could take us through some of your high level thoughts in terms of how this progresses. It sounds like we see logic next year, And then if you could dive into a little bit more the adoption in HBM and DRAM, there is been a lot of discussion and dialogue in the marketplace. About layers and timing and available capacity in the industry. But it seems like it is lining up with when we start to move to 16 layers and 20 layers. With your renewal time line. So I am wondering if you could extrapolate on that and maybe provide just a little bit more color in terms of the diversity within the logic pipeline. Thanks. Dipti Vachani: You are absolutely right. It is lining up very well with the timing of 16-layer and 20-layers and we will see it with HBM4 and HBM5. But I think if you look at this more holistically, as we. In the in the logic space, we are seeing that traction happening already with AMD. We know that NVIDIA and Feynman is going to be incorporating HBM. is going to be incorporating hybrid bonding. And then the traction at Intel and Apple, and Broadcom. So the logic space, we see it happening already. We know it is happening in the memory space because exactly the way you mentioned it with 20 layers. and 16. And so across the board, 2027, 2028, 2029 are going to be great years for us in the semiconductor space. Think about also overlaying on top of that this idea of heterogeneous compute, When we look at the world of physical AI or edge computing, We are talking about lots of different kinds of processing coming together and chiplets. And chiplets are also a very big opportunity. For hybrid bonding. And so again, I think there is multiple vectors here in play: 2027-28 on the logic side, 2028-29 on memory side, and then holistically a very, very strong business in this And Keith, you wanted to add on the memory side as well? Keith A. Jones: Sure. And, no, Scott, you are you are you are very perceptive almost because if you walk her hallways, you see us jumping up and down about every product announcement that we hear kind of coming out. So there has been a lot of conversation, about, when do you start seeing the impact of hybrid bonding in high volume manufacturing? That very much is kind of lining up with HBM5. And quite frankly, we are completely excited about that. And you hit the nail on the head. By the time we start getting into high volume manufacturing, that aligns perfectly with our renewal cycles with the top 3 semiconductor memory manufacturers. So that is really a great thing for Adeia. And that is something that we look forward to. And frankly, it is it is it is beyond a proof point of the adoption of our technology. It really talks about our resilience our technology, and how it is kind of shaping things because, once again, hybrid bonding, what you hear in the media, it is quite frankly, it is the only way to move forward. There is not another alternative to get to from a performance perspective. And that really makes us excited. So we are. You know, once again, it is just a great--you picked up on it. We see that as Dipti talked about, playing out really kind of latter half of 2027, but more in 2028-2029 which aligns perfectly from all the news releases in terms of when high volume manufacturing kicks in. Scott Searle: Perfect. Thanks much. I will get back in the queue. And anytime you want to allow me to wander the halls, happy to do it. Thanks, guys. You are welcome anytime, my friend. You know that. Operator: And as a reminder, it is *1 if you have a question. Next up is Hamed Khorsand from BWS Company. Hamed Khorsand: Hi. So first off, let's just talk about this revenue that you are reporting here and Q3. So last quarter, you were pretty much laser focused, your commentary was going to be higher than Q2, but similar in levels. Then you would get a ramp in Q4. Now you are backtracking. You have missed Q3. You are saying it is definitely gonna be Q4. And how are you certain? Because it seemed like at the beginning of the year, you have got AMD, you got Microsoft, you had all these things going. And, you know, it seemed like everything was fine. But now you are missing and you are saying it is deals getting pushed out. Why are you so confident? Why should we believe you? Keith A. Jones: Well, I think you heard our remarks, Hamed. And quite frankly, when I look at our pipeline and what we have in front of us, I am incredibly excited, my friend. Just being honest with you, and you have been following us for years. And you also know that we are a small volume, large dollar shop. So with that being said, all of these deals are large and complex. And I will repeat what I said before, it is a matter of when, not if. So the items that we kind of identify that are in that small handful of deals, were in our pipeline at the beginning of the year. Frankly, when we take a look at our forecast and where they were going to be at, we proved out that we could make track We proved out we believe that we can close with them. We would have anticipated some of those deals closing out a little bit sooner. But then you start dealing with the art of complexity of negotiating with someone on the other side that has these large complex deals, and in some cases, logos as well, but adds a degree of complexity. That all affects timing not value in dollars. What we are gonna see over time. So our team, once again, we are focused on trying to get to that $415 million, but you also know that we take great pride in being transparent with shareholders. That view of the world that we gave you 90 days ago was absolutely a fact. But things evolved, they changed, and our year end target remains the same for the most part and what we are really trying to achieve in the company. But we just are trying to be transparent to the things that slip beyond our control what that could potentially look like. Hamed Khorsand: Okay. And that $20 million that you reduced revenue guidance by did that get pushed into 2027? Or is that completely gone? Keith A. Jones: it is never completely gone, Hamed. I think you can appreciate that as well as anybody, Because we are not competing as a particular company in a socket. The fact of the matter is that when our technology reads on and it is infringes, that opportunity remains. I will. We will say it again, to answer your question, and just to drive it home. it is a matter of when, not if. So none of that disappears Repeating that you have heard Dipti say that as well. So yeah, it is something that we are focused on closing. it is just a it is just a matter of timing. Hamed Khorsand: Alright. Thank you. Operator: Your next question comes from Matthew Galinko, Maxim Group. Matthew Galinko: Thanks for taking my questions. Can you expand on the court delays and what your expectation for that is? So how long are the delays from your current vantage point and should we expect that the litigation spending that slips out of maybe fourth quarter land somewhere in 2027 where we see a higher level or not necessarily how it works out. Keith A. Jones: Hey, Matthew. Great to hear from you. it is a great question. So in terms of court delays, there are many, but I will give you a really simple example. So as you know, in April, as it relates toDish, we filed suit against its parent company or, in addition to, EchoStar. So, shortly thereafter, they declared bankruptcy. And then all of that activity was stayed until that cleared. And they just emerged out of bankruptcy in October. So there was by default, an unexpected pause when we filed that. So that expense pushes to the right. there is a couple other examples I can give, but you picked up on that nuance it is pushing things to the right in that regard. So the 1 thing that I would like to point to, and you are kind of hinting to it, is that we have a bit of a slide of expenses. But, also, if you take a look at our operating expense guidance, that came down $10 million in aggregate as well. Half of that, I would dare say, is kind of that push to the right of legal. And the other half is quite frankly, our great team and the expense management that we have done. So we have done a really good job of prioritizing I would also say that we have done a great job of really kind of learning, evolving, and becoming more efficient in what we do. And frankly, it is not at a sacrifice of any short term goals or long term goals that we are trying to achieve. So, net, that impact from a ELAB perspective is about $10 million on average, not $20 million, which is the revenue range. We really are doing a good job as a management team of being cautious. And I would also say if you kinda go through and do the math, if we end up at $415 million, which is our goal, which we are focused on, we would be at the upper end of the prior EBITDA guidance that we had given. On a much larger revenue target. So there speaks to the efficiency of our business. Matthew Galinko: Great. Thank you, and maybe as a follow-up to just get a little bit of I guess, insight into how things might work next year? Should we expect any incremental spending in 2027 as you pursue opportunities for hybrid bonding in 2028? Keith A. Jones: I think you are going to see some increases in our overall R&D spending and SG&A. I think it is going to be kind of in a normal steady state. And I do not think it would be very far off from the models that are out there today. But however, you know, that is 1 trigger. But the fact of the matter is when we see things are going to be in high volume and we see adoption, we need to act upon it. We need to act quickly and aggressively. So how we prioritize our dollars would be very much on capitalizing the opportunities that are in front of us. So it is really about really having this great technology that we have and making sure that we are monetizing it. Matthew Galinko: Right. Thank you. Operator: And everyone, at this time, there are no further questions. I will hand the conference back to Ms. Dipti Vachani for any additional or closing remarks. Dipti Vachani: Thank you, operator. Once again, I am excited to be here and to dive deeper into our business and strategy in the coming months. I want to thank the Adeia team for the warm welcome and their hard work in continuing to deliver results. I look forward to meeting many of you later this quarter as we attend 2 upcoming conferences. The Annual ROTH Technology Conference in New York in November, and then the annual Wells Fargo TMT Summit in California in December. Thank you for joining us today. Operator: Once again, everyone, this does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.