Good day, everyone. Thank you for standing by. Welcome to Adeia's First Quarter 2023 Earnings Conference Call. I'd now like to turn the call over to Chris Chaney, Vice President of Investor Relations for Adeia. Chris, please go ahead.

Good afternoon, everyone. Thank you for joining us as we share with you details of our first quarter 2023 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 first quarter and then Keith will give further details on our financial results and guidance. We'll then conclude with a question-and-answer session period. In addition to today's earnings release, there is an earnings presentation, which you can access along with the webcast in the IR portion of our website. Before turning the call over to Paul, I'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, 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 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 investor's understanding of our ongoing economic performance, we'll discuss non-GAAP financial information on this call, these non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparison on 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 adeia.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. The first quarter of 2023 represented our second successful full quarter as an independent IP licensing company. We are making excellent progress towards our 2023 goals and we delivered strong operational and financial results. We signed eight license agreements, highlighted by key new wins with Kioxia and Western Digital in our semiconductor business and renewals completed ahead of plan with Verizon and Altice in our media business. Our commitment to R&D is paying dividends with customers and is driving growth in our patent portfolios. Our investment in R&D helps in the near term with renewals like Verizon and Altice and new license agreements such as Kioxia and Western Digital. It will also be the basis of our long-term revenue growth as we continue to focus on our next generation innovations for the media and semiconductor industries. Our patent portfolios now number nearly 10,000 patent assets in aggregate, up from an approximately 9,750 in December. With the patent additions in the first quarter, we are on track to meeting our goal of 10% annual patent growth this year. As we anticipated, we had a strong first quarter. Revenue was $117 million, up 14% from the prior quarter and adjusted EBITDA was approximately $86 million, up $10 million from the prior quarter. These excellent first quarter results position us well to achieve our annual outlook and again, demonstrate our ability to monetize our robust IP portfolios with an increasing pipeline of opportunities. Our deal momentum remains strong. In the first quarter, we signed significant license agreements across both our semiconductor and media businesses. First, I would like to highlight the agreements we signed with two leading flash memory companies, Kioxia and Western Digital. These agreements will deliver significant value to us…

Thank you, Paul. I am very pleased to be speaking with you today to share details of our first quarter 2023 financial results. Revenue for the first quarter was $117.3 million, up 14% from the prior quarter. Our strong revenue during the first quarter is reflective of the continuation of momentum that we saw at the end of 2022. In particular, the increase was driven by the execution of eight license agreements in the quarter, including two very large and significant deals in the semiconductor market. These license agreements are a clear and further validation of the value of our semiconductor IP portfolio, especially our hybrid bonding technology. We firmly believe that we continue to see increased adoption of our hybrid bonding in advanced note technologies as they provide real world solutions to the underlying challenges in the progression of Morris Law. For a bit more color, both of these agreements are long-term arrangements that are similar in structure. As we discussed previously, we have been pursuing licensing structures that are in more in sync with the economics of all parties by better aligning the revenue recognition measurements with the cash flow expectations. These agreements are very much reflective of this change. While a portion of the revenue has been recognized in Q1, the vast majority of expected revenue will scale and be recognized in future periods as production volumes increase accordingly. Now I'd like to discuss our operating expenses for which I will be referring to non-GAAP measures only. For the first quarter, operating expenses were $31.8 million, an increase of 11% from the prior quarter. Research and development expenses increased $970,000 or 8%, primary due to increased spending in investments towards achieving growth in our media and semiconductor portfolios. Selling, general and administrative expenses increased $958,000 or 6%…

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Hamed Khorsand with BWS Financial. Please proceed with your question.

Hi. So the first question I had was you had 10 deals announced for Q4 and then eight in Q1. And what's the good rate of assuming that you could keep this momentum going?

Yeah, thanks Hamed. Appreciate the question. So a couple ways, I'd look at it. If you look at over the last two quarters, you're right, it's about 18 deals. We're very pleased with that. It certainly can fluctuate quarter-to-quarter because it's just the timing of when deals come out. So not all quarters will start equally because you'll have a different number of deals that will come up that you're trying to get done, but over a longer period of time, we talk about 70 license -- 70-plus license agreements that we've signed over the last nine quarters since the beginning of 2021. So on average, that gets you kind of just about eight deals a quarter. Some will be less. You'll see ones that are -- some quarters will be three or four and other quarters will have kind of in the low teens even at a high point.

Okay. And then historically, Q3 used to be your slow period as far as revenue is concerned. It sounds like that's going to be different. Is that purely from the timing of the contracts that you're looking to renew?

Great question. So if we take a look at our business, we've had inflection points at different quarters in different periods of time. So Q3 to your point of 2022, we had a lower point. We had a bit of a dip, but if you also go back a little bit further, Q4 '21 was that and it just really has to do with the phenomenon of our business of really doing a relatively small number of large deals. So it's a timing thing. There's nothing that's really sequenced in terms of renewals that we have at any particular given quarter. What we have in Q2, there's a few more renewals that we're just kind of working on that will be executed in the second half of the year. That's leading to that fluctuation in the things normalize in the back half of the year.

Okay. And my last question is, you have pretty good confidence of what you were going to sign in Q1 as far as the guidance was concerned. How confident are you about the contracts that you're talking about for falling into Q3 and Q4?

Yeah, Hamed, we have strong confidence in our ability to get those done. I'd say it's very similar to, we saw at the end of last year, where we had some renewals that we didn't get done in Q3 because we wanted to really wait for those economics to be right and we ultimately got them done in Q4 as we anticipated. So we have high confidence in our overall number. We've got a 90%-plus renewal rate that we know the timing can sometimes slip quarter-to-quarter, but overall, as you look at us annually, we feel very strong on that.

Thank you. Our next question comes from Matthew Galinko with Maxim. Please proceed with your question.

Hey, congrats on the strong Q1. So can you remind me, I guess, of the cadence we might be able to expect from the NAND deals that you announced this quarter? I understand you mentioned it's tied to the timing or more tightly coupled with the timing of cash flows, but do you have a sense generally or specific to these deals, if you can say when that might become a material contributor to revenue and cash flow?

Thanks Matt. We are just absolutely excited about Western Digital and Kioxia. Not only in terms of the size of the deals, but the structure. Everything is a big leap forward for us in Adeia and then it also speaks volumes to our hybrid bonding technology. Now what we you're looking at and we send our presence in a long term agreement. So this is something that all parties are making a long commitment to and at this point in time, it's in its early stages of it ramping. But, we're also excited that shortly after we sign our license agreement, they announce that they have products coming out and what we expect to see is sometime in 2024 that those volumes start to pick up and you'll see some contribution at least the variable component from a revenue perspective. And then as that scales, that's just really the great structure of the deals and what we've been talking about that as their volumes grow, our revenue will grow as well.

Thanks. And maybe as my follow up to that, when, given the variable nature and coupling the revenue to success of the customer and their product launches, how do you think about building revenue into the baseline structure that you talk about and at what point do you have the confidence to build some level of that into the baseline number?

Yeah, that's a great question and it kind of plays into that ramp cycle as you alluded to. So in the beginning there are the volumes will be modest and with that, that is not at a level, it'll be significance for us to change the baseline revenues because as of today, that production isn't significant as for the increase, but once again, this is a big bet by us and it's a big bet by them. And then, we are just frankly excited on the potential on what these deals can look like over time. So as they start to get beyond that '24 and '25 kind of production cycles, you'll see a movement and it'll be a strong contribution to our baseline revenue amount.

Yeah, Matt, I'll just add that, we are, as Keith mentioned, just thrilled with these deals and I noted in my premier remarks that these will be additive to that baseline revenue and our revenue growth as they scale. And so we're -- this is the type of deals that we plan to continue to structure in the semi business as we've been talking about since our Investor Day and this is the first one, but as we look forward, we're going to try to continue to use this as a model, as we get into the logic space and beyond that we see our semiconductor portfolio having more and more applicability too.

Our next question comes from Matthew Galinko with Maxim. Please proceed with your question.

Well, hello again. I just wanted to get your thoughts on litigation expense and spending for the year. I think clearly you've bit up sequentially, but certainly not any sort of high that we've seen from the business over time. So, is there anything that I guess just generally how would you frame that line item to us through the balance of the year?

Sure, Matt. I think as we noted last quarter, we anticipate litigation expense, roughly doubling from last year over the last couple years in 2021 and 2022 was really at a kind of a low point. And so, we do think -- do see that increasing and it will ramp kind of in the back half of the year. So it is up a little bit as you noted and we think that trend will continue throughout the year.

There are no further questions at this time. I would like to turn the floor back over to Paul Davis for closing comments.

Thank you, operator. Our first quarter results demonstrate significant progress towards our goals for the year and our long-term strategic plan. We are pleased with our deal momentum, especially our two new semiconductor agreements. Before we close the call, I would like to mention that we'll be attending the Needham TMT Conference in New York on May 16 and additional conferences later this year. We look forward to meeting with many of you at these and other events to further discuss our progress. Thank you for joining us today.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.