Good day, everyone. Thank you for standing by. Welcome to Adeia's Fourth Quarter 2023 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will be opened for questions. I would now like to turn the call over to Chris Chaney, Vice President and Investor Relations for Adeia. Chris, please go ahead.

Good afternoon, everyone. Thank you for joining us as we share with you details of our fourth quarter 2023 financial results. With me today on the call are Paul Davis, our President and CEO; and Keith Jones, our CFO. Paul will share with you some general observations regarding our fourth quarter. And then Keith will give further details on our financial results and guidance. We will then conclude with a question-and-answer period. In addition to today's earnings release, there is an earnings presentation, which you can access along with the webcast in the IR portion of our website. Before turning the call over to Paul, I would like to provide a few reminders. First, today's discussion contains forward-looking statements that are predictions, projections or other statements about future events, which are based on management's current expectations and beliefs, and therefore 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 discuss today, please refer to the Risk Factors section in our SEC filings, including our annual report on Form 10-K. 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 and 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 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. We had a great year in 2023, our first full-year as a standalone company. I'm looking forward to sharing with you our results and progress we made in 2023 and our outlook for 2024. But before I do that, I would like to provide a review of our fourth quarter. With the continued momentum throughout the year, we signed eight agreements in the fourth quarter, represented by customers across our social media, Pay-TV and Consumer Electronics verticals. This consisted of two new agreements and six renewals. We are particularly excited about our new license agreement with a leading international social media company. This further validates the strength of our media portfolio across social media platforms. Additionally, our long history of success within the Pay-TV market was further enhanced by the addition of a new agreement with Breezeline, a large cable operator in the United States. Within Consumer Electronics, we are pleased to have renewed and extended our relationship with Funai a global manufacturer of connected TVs. We delivered strong financial results in the fourth quarter with revenue of $87 million and adjusted EBITDA of $54 million. With our significant cash flow generation, we paid down $29 million of our debt in the fourth quarter as we continue to deleverage our balance sheet. We also further strengthened our executive team, with the appointment of Joe Guiliano as our Chief Intellectual Property Officer. Joe will primarily be responsible for driving our strategy and growth of our patent portfolios. Joe has worked with us for decades as our lead outside IP counsel for the media business. Over his 30-plus year career, he is known for his proactive strategies and foresight leading to innovative business-centered solutions. I am very happy Joe has joined…

Thank you, Paul. I am pleased to be speaking with you today to share details of our fourth quarter 2023 financial results. During the fourth quarter, we delivered revenue of $86.9 million, lining our 2023 annual revenue near the midpoint of our guidance range. Our strong revenue was driven by the execution of eight license agreements in the quarter, including a new agreement with a leading international social media company, and a new agreement with Breezeline, a Pay-TV provider. Now I would like to discuss our operating expenses, for which I will be referring to non-GAAP numbers only. For the fourth quarter, operating expenses were $33.2 million, an increase of $2.1 million or 7% from the prior quarter. Research and development expenses increased $554,000 or 4% from the prior quarter. R&D expenses have grown through the course of the year as we look to increase our commitment to fueling our innovation engine. It is this commitment to R&D, which propels our future revenue growth for both the media and semiconductor markets. Most notably, we increased our investments in OTT, adjacent media markets and our semiconductor business, all key revenue growth drivers for us. Selling, general and administrative expenses increased $1.6 million or 10% from the prior quarter, primarily due to higher spending to support growth initiatives in the OTT and adjacent media markets. Litigation expense was $2.2 million, flat from the prior quarter. Interest expense during the fourth quarter was $15.5 million, a decrease of $222,000 from the prior quarter amount due to our continued debt repayments resulting in lower principal balances. Our current effective interest rate, which includes amortization of debt issuance costs, remained relatively unchanged at approximately 9.9%. Other income was $1.6 million and was primarily related to interest income recognized on revenue agreements with long-term billing structures…

Thank you. [Operator Instructions] Your first question comes from Hamed Khorsand with BWS Financial. Please go ahead.

Hi. Could you first just talk about the social media customer – license that you signed, and what does that incorporate as far as their use of your patents? And how versatile is that to apply to other social media companies?

Hey, Hamed. Great question. Thanks for asking that. So we're really, really happy with this deal, first of all. Like many of the social media companies that we've licensed in the past, unfortunately, we're not able to name them, but it is a large significant international social media company. In terms of the portfolio and its relevance, we've actually licensed a large portion of the social media market already. If you look in our investor deck, it's roughly about 85% of the market today. I mean that's consistent with what we had previously as well, where we've always had large penetration and our portfolio really reads on a lot of aspects of video and video playback and search and recommendation, which is key to a lot of the social media applications, not to mention our imaging portfolio as well. So all of that continues to be relevant really across most social media platforms, including the one we just licensed last quarter.

And then what's your intention, if I heard you right, your legal expense is doubling? I mean are you looking at more lawsuits coming up? Or are you having a snag in negotiations?

Yes. Hamed, I wouldn't say there's anything particular. It's just that we are planning for it to return to more historical norms like we've mentioned before. So we do have ongoing litigation, as you know, and that contributes to it as well as some planning in the case that we need it. My hope, as always, is that we don't need it, and then that will return obviously to the bottom line if we don't. And so, our goal is always to find negotiated deals. We've been incredibly successful in doing so. In the last three years, we've signed 95-plus agreements, almost entirely without any litigation at all. And so that remains our goal. And if we need it, though, we're prepared for it.

And my last question was that any likelihood you would sign or resign any OTT service providers this year? And what the likelihood was for something like that?

Yes. We certainly anticipate that. We built on our momentum on the deals that we got last year, certainly getting DEZn done and then getting the Starz renewal done as well. And OTT continues to be a significant area of growth for us as we move forward. And so we do anticipate success in 2024 to continue on the OTT front.

Okay. Thank you.

Thanks, Hamed.

Your next question comes from Nicholas Zangler with Stephens. Please go ahead.

Hey, guys. This is Dean on for Nick. So in the script, you mentioned increased business development and sales activities quite a bit. Could you just elaborate on what that might look like for you guys exactly and just how far along those efforts are currently?

Hey, Dean. Good to talk to you. So from where we at in separation and what we saw as a plan to expand our business growing beyond our base with Pay-TV. We had very much started that journey, of adding resources, adding subject matter expertise and making true investments from our R&D and more so from an SG&A perspective as well for those businesses. So if you take a look at our financials, you really start seeing that inflection in our financials really in Q3 of last year, where we've seen continuous kind of uptick in spend in those areas. And that will continue throughout 2024. Most notably, we'll see another uptick in Q1. We'll see another uptick in Q2, and then when we get to the back half of the year, it will be a much more modest increase. But what I'd like to say is though, in particular, in the SG&A perspective for us to make those investments is really critical to drive our revenue, in particular, for the adjacent markets in the semiconductor business as well as OTT. So those are much a little bit more shorter term place that we have, and it's a critical continued path that we're on to grow and expand our business.

Great. Thanks. That's helpful. And then just on the semi side, as you guys approach the anniversary of Western Digital and Kioxia, any incremental thoughts on the inflection of volumes for their products using your IP? Or maybe just how we should think about the variable revenue component of those deals? And that's it for me. Thanks.

Great. Thanks, Dean. Appreciate the questions. So on those deals, yes, we continue to track it. They're still at fairly early stages of their product ramp, but we do anticipate to see more and more of that in 2024, and it will continue to ramp as that deal goes forward. As we mentioned last year, it's a very – those are very long-term deals for us, and we expect the revenue contribution for them to continue to increase over time.

[Operator Instructions] Seeing no further questions, I will now turn the call back to CEO, Paul Davis for any closing remarks.

Thank you, operator. Last year, we met our goals and delivered solid financial results, sending us on a path toward continued success in 2024 and beyond. I want to thank our partners, employees, and stakeholders for their continued support and dedication. In March, we will be participating at the Deutsche Bank Media, Internet and Telecom Conference. We hope to see many of you there and at other investor events throughout the year. Thank you for joining us today.

This concludes today's conference call. You may now disconnect.