Good day, everyone. Thank you for standing by. Welcome to Adeia's Second Quarter 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. I would 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 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. 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 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. 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. 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 delivered results for the second quarter that were in line with our expectations, with revenue of $87.4 million and adjusted EBITDA of $52.8 million. I’m pleased with the progress we are making across all aspects of our business and we remain on track to achieve our strategic objectives for 2024. During the second quarter, we signed five license agreements across diverse end markets, including in social media, consumer electronics, semiconductors and Pay-TV. Additionally, shortly following the end of the quarter, we signed a multi-year renewal with Liberty Global, a leading European Pay-TV operator. We continued to pay down our term loan in the second quarter and we saw an opportunity to reprice our debt. I’m very pleased with the terms of the repricing, which will save us over $3 million annually in lower interest expense and provide us with additional financial flexibility moving forward. We remain committed to continuing to pay down our debt and under the new terms, we will be able to take a more balanced approach to capital allocation and return more capital to shareholders and have more firepower for tuck-in acquisitions to help grow our business. Since our separation, we have been diligently working to add license agreements in key growth verticals such as OTT, semiconductors and adjacent media markets. We're very excited with the agreements we've signed to-date and the progress we are making on new deals in each of these markets. During the quarter, we also continued to expand our pipeline of opportunities in both media and semiconductors as we look to continue to grow our business in 2025 and beyond. In the second quarter, we were very pleased to reach an agreement with X Corp, formerly Twitter, for a multi-year license…

Thank you, Paul. I am pleased to be speaking with you today to share details of our second quarter 2024 financial results. During the second quarter, we delivered revenue of $87.4 million driven by the execution of five license agreements across a diverse mix of end markets including social media, consumer electronics, semiconductor and Pay TV. These results are in line with our prior expectations as we anticipate seeing strong momentum in the second half of the year. Now, I would like to discuss our operating expenses, for which I'll be referring to non-GAAP numbers only. During the second quarter, operating expenses were $35.1 million, an increase of $1.2 million, or 3% from the prior quarter. Research and development expenses increased $590,000, or 4% from the prior quarter. The increase in the second quarter is primarily related to patent filings and related maintenance costs. Selling, general, administrative expenses decreased $773,000 or 4% from the prior quarter, primarily due to the recovery of bad debt expenses associated with the resolve contract dispute with X Corp and due to lower corporate administrative costs. These decreases were partially offset by increased third-party spending associated with the build-out of our licensing platforms in OTT, semiconductor and adjacent media markets. Litigation expense was $4.3 million, an increase of $1.3 million, or 45% compared to the prior quarter, primarily due to the timing of expenses related to certain legal matters. Interest expense during the second quarter was $13.3 million, a decrease of $879,000 from the prior quarter due to the benefit of a lower interest rate following the successful repricing of our term loan B and due to our continued debt repayments. Our current effective interest rate, which includes amortization of debt issuance costs, was 9.6%. Other income was $1.4 million and was primarily related to…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open.

Hi. Yes. Thanks for taking my question and congratulations on the great progress for 2024. I just wondering, there is news out on some OTT companies raising their prices to consumers. Do you have any view on how this would affect both your OTT market or even your Pay-TV market?

Hey Kevin, great question. I think we’re focused obviously on the OTT market. As you note, we’ve made some really nice strides in getting deals done with the [indiscernible] Paramount recently. And we’ve signaled that we anticipate having success in the OTT market with some more significant players here this year as well. And so with our engagements, we typically look at the number of subscribers that an OTT platform might have. Certainly, price comes into it in terms of, as we compare it to what our rates are that we have with Pay-TV. But we don’t think it will have a significant impact ultimately to what we’re able to achieve from a licensing standpoint with our business.

Okay, great. And maybe as a follow-up, talk about the semiconductor market, there’s plenty of news out there around high bandwidth memory having yield issues, or various trying to keep up with demand, and same with on the GPU side. Can you say, what do you see in your pipeline as far as where some of these issues are coming up as your pipeline might be getting bigger and maybe even moving to a broader use of chiplet designs?

Yes. It’s certainly what we see with chiplets architecture on the logic side is something that we continue to monitor and see new companies talk about that. Intel announced a chiplet type architecture with a product that they plan to announce in 2025. Obviously, AMD’s had one – has had used chiplet architecture for a few years now and continues to increase the number of products that they have. And we think that will continue to be the trend as really the limits of Moore’s Law and traditional ways have come to their limits there. As it relates to high bandwidth memory, certainly, we’re excited about HBM4 and the possibility that at least some version of that down the road will include – a need to include a hybrid bonded process as well to really get to the level of performance that we think they’ll need to. It could be a few years until that happens, but certainly it lines up well with when likely our memory licensees would be up for renewal as well.

Okay. Great. Thanks. I’ll get back in the queue.

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

Hi. First off, I just want to ask what’s changed in the business in these last six to eight months, where your commentary today has really, you’re putting some emphasis on tuck-in acquisitions and making some sort of acquisition?

Yes. Hamed, I think that’s a – it’s a great question. Certainly, we’ve actually always focused on doing tuck-in acquisitions. It’s something that’s been part of our playbook. We focus on internal R&D though, first, and that’s not going to change. So 85 plus percent of our portfolio is homegrown. It’s from our inventors and we see that really maintaining in that zip code. However, there are occasionally opportunities that come to us or that we source where we see an opportunity to really add to the portfolio that augments our internal efforts as well. And so that really hasn’t changed. We do like to highlight it, though. We did close a few deals earlier this year. It’s something that we – as we look towards really expanding our markets into some of the adjacent markets and even in semiconductors, where we see really opportunities to accelerate the revenue opportunity as well, if we can add a high quality portfolio to our own internal efforts as well.

Okay, my other question was, is there a timing that you're expecting with these streaming and semiconductor license deals that you've been talking about all year?

Yes, I think one of the things that we always note is that what we do is very large deals, and trying, but we don't do a high volume of them. Getting the economics right, working with the customers is something that we really pride ourselves on in terms of getting the best economics that we can. And so we focus on that aspect, getting the right deal done, rather than trying to accelerate the timeline and have to take a deal that we're not happy with. And so the exact timing of it can shift quarter-to-quarter. But given where the deals are that we have in our pipeline, we're still very confident that they'll close this year. And that's really what we've been saying all year in the exact quarter, though. Hard to predict.

Okay. Just to follow up on that, if I may. You're running out of average so far this year, about $85 million per quarter. Is that a good baseline for the business? Or is it going to be higher without the licensing deals happening?

Hi, that's a great question. So I think that $85 million is not necessarily based on. There's a number of renewals that we're working on. And then if you add in the subsequent license agreements that Paul's referring to that we talked about, both for OT and semiconductor, you're going to have a much higher baseline revenue level. So that is not what we see as an ongoing run rate. We see that run rate being much higher and that acts as a really good springboard as we move forward into 2025.

Okay, thank you.

And we do have, our last question comes from the line of Matthew Galinko with Maxim Group. Your line is open.

Hey, thanks for taking my questions. Maybe firstly, with respect to the larger deals that we're kind of looking for in the back half of 2024. How does the, I guess, how does the expectation for interest rate environment and kind of the macro backdrop influence the discussions around those licenses? Can – is there a risk that, uncertainty in macro could prolong discussions or just help us understand, some of the sensitivity there?

Yes, Matt, I think, you know, we've, we often get that question, especially in times of uncertainty. And what we've experienced historically, given the long term nature of the deals that we do, is that usually has very little impact on the overall timing or economics that we're able to achieve. I think the customers that we are often talking to are very large, sophisticated companies. They understand that there's going to be various cycles that the industry goes through. Certainly on the semiconductor side of things, there are very well known cycles where there are ups and downs and same with media, whether it be in advertising or otherwise, where you see cycles of really a boom and then a slowdown. For us, though, we're usually able to navigate through that and get those deals done really at the same level of expectations we have. And so we don't anticipate really seeing any sort of challenges because of that environment.

Okay, thanks. And then I guess on the question, on the OpEx run rate, it sounds like you had a couple of moving pieces in the OpEx number this quarter, some in favor and then maybe some increase in outside spending. So I guess, can you give us a bit of a sense of what we should be expecting as the baseline moving forward? I guess we could kind of back into it with your guidance, but maybe if there's anything you could share that kind of pushes us in the right direction.

Yes, Matt, great question. So if you take a look at our OpEx, we'll kind of look at a few items here. So our R&D has been on an upward tick, and that's by design and plan. We continue to make a considered effort to invest and grow our patent portfolio. So we will continue to see that trajectory. And if you take a look at even the amount relative to our revenue as a percentage, it's going to be in that mid-teens throughout the remainder of the year. So that is the path that we had anticipated to continue to go through that. And also what you see from there is us making some of those investments outside from a third-party perspective to help accelerate some of those efforts. On the SG&A side, we had a good guy, as I like to call it, we had the bad debt recovery. But if you kind of even that out, and as well as some of the administrative costs, we would have had a slight uptick quarter-over-quarter, if you just kind of balance those two. Well, what we've seen, and quite frankly this puts a smile on my face, is being part of the management team is we've actually done a tremendous job internally of developing out these new platforms. When I say these new platforms, it's the six new areas in our new media and then also on semiconductor side, most notably, as we talked about co-optimization. So what we really wanted to do was give ourselves a lot of expertise in wiggle room just to really kind of grow these platforms. And with that, doing deep dives in terms of learning about the customers, doing product breakdowns and all those other good things. And what we found is that while we have a new team we have a very talented team that gets up to speed extremely quickly. So we are making great progress with a less of a reliance on outside third parties. And that's what you see in terms of us bringing down our overall guidance, in part with a little bit lower spin in the first half of the year on litigation. But you will see an uptick in Q3 and then a little bit more modestly in Q4. As you see, we reset the guidance to be about $5 million lower than we set out the beginning of the year.

Great. Thank you.

That concludes the question-and-answer session. Mr. Paul Davis, our CEO, I turn the call back over to you.

Thank you, operator. I want to thank our employees for the strong first half of the year and the progress we have made towards achieving our goals for 2024. Later this month, we will be participating in the Rosenblatt Age of AI Conference and at the BWS Securities Conference in New York City. We look forward to seeing you at these events and at other investor events in the coming months. Thank you for joining us today.

Ladies and gentlemen, that concludes today's conference call. You may now disconnect.