Good day, everyone. Thank you for standing by. Welcome to Adeia's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] 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, are 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. I'm pleased to be here to share our results for the fourth quarter and full year 2025. We delivered an outstanding year both financially and operationally. Our record annual revenue exceeded the high end of our guidance range, and we delivered excellent operating income and EBITDA, also exceeding the high end of our guidance. Our record revenue for both the quarter and the year was driven by our dedicated focus on key growth areas, including OTT. I'm proud of our team's commitment to maintaining relationships and finding ways to resolve litigation matters efficiently, resulting in outstanding outcomes for our stakeholders. As we mentioned during the prior call, we were pursuing multiple opportunities that would lead to a strong start for 2026. With this deal momentum, we have already executed several new agreements this year, most notably a multiyear license agreement with Microsoft, a leading technology company. This agreement covers our media portfolio with broad applicability to Microsoft's business including their consumer electronics and social media products and services. Let me discuss our fourth quarter results in a little more detail. In the fourth quarter, we delivered revenue of $183 million, highlighted by 9 deals, including 8 in media and 1 in semiconductors with 4 new customers. Our efforts to diversify our revenue base continue to show results with non-Pay-TV recurring revenue growing 30% in the quarter year-over-year. We are pleased to have signed Disney, our biggest new customer in the quarter. With Amazon and Disney, we now have licensed 2 of the largest OTT providers in the world. After an extended period of engagement with Disney, we took formal steps to protect our intellectual property while continuing constructive dialogue. Through the course of the litigation, which lasted approximately 1…

Thank you, Paul. I'm pleased to be speaking with you today to share details of our fourth quarter 2025 financial results. During the fourth quarter, we delivered strong financial results with revenue, operating income and adjusted EBITDA, all exceeding the high end of our guidance. Record revenue of $182.6 million was driven by the execution of 9 deals across a diverse mix of customers, including OTT, Pay-TV, consumer electronics and semiconductor. During the quarter, we signed 4 new license agreements. This includes signing a significant license agreement with Disney, which greatly adds to our presence in the OTT market. Now I'd like to discuss our operating expenses, for which I will be referring to non-GAAP numbers only. During the fourth quarter, operating expenses were $49.2 million, an increase of $12.1 million or 33% from the prior quarter. The increase is primarily due to increased variable compensation as a result of exceeding certain performance targets. Research and development expenses increased $3.1 million or 21% from the prior quarter. The increase is primarily due to increased variable compensation as well as increased portfolio development costs. Selling, general and administrative expenses increased $7.7 million or 44% from the prior quarter, reflecting increased variable compensation costs. Litigation expense was $6.5 million, an increase of $1.3 million or 25% compared to the prior quarter, primarily due to higher spending on AMD and Canadian litigation matters. Interest expense during the fourth quarter was $9.4 million, a decrease of $614,000, primarily attributable to our continued debt payments and due to lower variable interest rates during the period. Our current effective interest rate, which includes amortization of debt issuance costs, was 7.5%. Other income was $1.7 million and was primarily related to interest earned on our cash and investment portfolio and due to interest income earned on our…

Thank you, Keith. I'd like to take a moment to congratulate our employees for delivering a record year in setting us up for success in the future. I'd also like to note, we will be attending the ROTH Annual Conference in March. We look forward to seeing you at this and other upcoming events. I would now like to turn the call over to the operator to begin our question-and-answer session. Operator?

[Operator Instructions] Your first question comes from Kevin Cassidy with Rosenblatt Securities.

Congratulations on the great year. As we look at the Pay-TV customers, that's going to be down to 35% to 40% of your revenue, a lot more derisked. Do you see that -- is that starting -- is the subscriber loss slowing? Or do you think that gets to an asymptote eventually? We did have -- in the fourth quarter, there was -- Charter announced an increase in their number of subscribers. I'm just wondering if you're seeing what kind of trend you're seeing there?

Thanks, Kevin, and I appreciate the comments. Yes, you're spot on in terms of what we're seeing with the likes of Charter and seeing an actual increase in their video subscribers. We do see some moderation in the declines as a total percentage, and we expect that to continue. But we have built in subscriber declines into what we forecast, and that's part of that 30% to 45% moving forward. This is why we've been so focused on non-Pay-TV recurring revenue, while Pay TV still remains a very important part of our business, we've intentionally diversified our revenue base since we separated over 3 years ago and made tremendous success with that. As you see in our nonrecurring -- our Pay-TV -- our non-Pay-TV recurring revenue, I should say. So we're very pleased with those results and the progress we made, especially around OTT, semiconductors and adjacent media markets. But yes, Pay-TV continues to be an important market for us. And we've got a number, as I noted in my prepared remarks that -- of deals that go out into the next decade. So our customers in Pay-TV still see a lot of relevance in our portfolio. We're still getting deals done in that space, but those subscriber declines are built into our expectations. And we do think over time that those will moderate. But great question. Thanks, Kevin.

Okay. Great. Yes. Just a follow-up, if I can ask on the -- on RapidCool, the interest is encouraging. And just wondering, if you could discuss the competitive landscape. What other solutions are your customers looking at? Or what's the -- I guess, what is their decision process on evaluating RapidCool or adopting it?

Yes. What's unique about our business is we don't compete in the typical sense, right? We license our technology on a portfolio-wide basis, and RapidCool will be part of that moving forward. And we're getting a lot of interest, both on the logic side and on the memory side. We think there's applicability in both, especially as these AI workloads require more and more memory. As you know, Kevin. And we see RapidCool being relevant for HBM in addition to logic. And so we're getting a lot of pull on that. What's great about our solution and what we think differentiates it is it's plug and play, right? You can use the same equipment that is being used today. You can put it into a liquid cooling rack and data center, right, that is already set up liquid cooling today and use RapidCool in the same way that you would use a liquid cooling cold plate, so that's tremendous, and we're hearing a lot of benefits around our solution related to that. And so that's what excites us about our solution versus competitive solutions.

Your Next question comes from Scott Searle with ROTH Capital.

Nice to see the strong conclusion to '25 and strong start to '26. Maybe Keith, just to drive in, in terms of the mix of business in the fourth quarter. I'm wondering if you could provide a little bit more color in terms of recurring and nonrecurring and also media and semiconductor kind of the splits in terms of those businesses? And maybe a quick update in terms of, how sequentially the 3D NAND market has been progressing? And then I had a couple of follow-ups.

Scott. Great to hear from you. So for us in Q4, the amount of recurring versus nonrecurring, it was almost equally split. It was pretty close to 50-50, that just kind of gives you a feel of the size of the magnitude of the license agreement that we signed with Disney and the amount that we had recognized related to some of the prior licensing period. So that in itself was significant. So that actually brought us up for the year where we ended the year at 80% recurring, 20% nonrecurring, which is pretty consistent if you take a look at our history and how we trended as a business. So that number when we take a look at back a year ago, this is kind of where we thought we could end and actually a little bit greater. So everything kind of really lines up to where we thought it would be. In terms of other mix of the business in semiconductor and as well as media, I kind of start off with semiconductor [ for a reason ] because I'm quite proud of that group. We had an increase in revenue if we compare '24 to '25, '24 we did about $18 million in revenue from semiconductor. This year, we did about $26 million, so 40% increase. So those deals that we signed late in '24 and early in '25, we talked about STMicro being a significant deal, really started at the traction, and we're seeing a little bit more of a pickup really on the NAND flash of things. So I think that might have been your third question in kind of how we see things progressing. We can't be more pleased on how we -- what we're seeing in the NAND market. One of the things I do have to remind is that, when we signed that agreement, there were certain minimums that were built into the agreement that as a result of those minimums, we took a certain amount of revenue upfront when we signed that. So we had to work through some of those minimums so that impacts the revenue that we work recognized in '25 and '24 as well. So we will see an increase. We'll see a modest increase, but we'll pretty much fundamentally work through most of those minimums in '27, so it will be more pronounced then. But everything is up and to the right in that regard. So really off to a great start. Our media business, absolutely fantastic. Roughly 94% of our total revenue, and we are -- couldn't be more happy about how we started the year. We signed a couple of new deals. We talked about Microsoft and then we also signed a few deals or a deal on the semiconductor side of the business as well. So off to a great start and upward trajectory.

Great. Very helpful. If I could just quickly follow-up on a clarification on the NAND front. Just want to clarify in terms of pricing. You guys -- as I understand it, right, you're not -- you don't benefit necessarily from the price increases that are going on in the marketplace. They're driven by unit volumes? And is that -- does that include capacity overall in terms of overall NAND capacity that you guys are shipping? Is that how the royalty agreement is priced?

Yes, you picked up on a great note there. So our agreements are not based on the selling price. When we go to renegotiate for those agreements, it's based on a fixed amount per unit. There is some degree of scaling in there, but usually it's more so of volume discounts. So the more they produce, the more benefit that we kind of give them later on down the road. So what you're seeing is that dynamic of 2 things: of increases in NAND; and then increases in volume. We benefit from the increase in volume and not the increase in pricing.

I would also just add, Scott, on NAND just as a reminder, we signed the deals with Kioxia and SanDisk in March of 2023. At that time, they had no NAND products that utilized hybrid bonding. And so there's been this ramp of the mix of their product lines that include hybrid bonded products, which also impacts as we see it. So as total NAND goes up, we're focused on what is the percentage of that, that is a hybrid bonded as well.

Very helpful. And if I could, in terms of the guidance for 2026, and this will be a little bit of a multipart question here, but I wanted to get calibrated on a couple of fronts. It seems like media, there's a lot of momentum that's building. We have the initial step down in the first quarter of non-Pay-TV customer. But given Disney, given some of the other momentum with Microsoft and otherwise, 2 things, are you expecting in media to see sequential growth throughout the course of the year from the March quarter on? And do you expect media to grow from a recurring standpoint on a year-over-year basis. And then as it relates to semi, I'm kind of wondering if you could frame your optimism for 2026. It seems like there's certainly momentum building with the existing 3D NAND customer base. But Paul, you called out some of the ongoing discussions that you've got with some of the larger logic players out there that will introduce products in the course of 2026. So I'm wondering what are you guys factoring in to that guidance. Are you assuming that there's a logic customer that comes in? Or is that basically a baseline view of just kind of growing the existing NAND business and what you've got visibility to in front of you on the media side?

Yes. A lot to unpack there, Scott, but let me attempt to address the second part of your question around the semiconductor business, and then I'll turn it back to Keith on the first part of your question. Our optimism in semi is still very strong. I think not only in logic, but as we look out further beyond 2026, what we're seeing in memory, not just in the NAND market, but also further down the road as we've talked about before, with HBM and the broader memory market as we have relicensing opportunities down the road, really just tremendous amount of investment today, as I noted in my prepared remarks. And in advanced packaging and hybrid bonding, specifically as the Big 3 really try to control their own destiny on hybrid bonding and advanced packaging, which is great for us as we move forward. So yes, we do have a lot of optimism in our in our guide overall, we actually have multiple paths to get to where we need to be. And I think our pipeline is stronger going into this year than it has been and since we've separated in terms of the number of large opportunities that we have on the table. And so there's multiple ways that we can get to within our guidance range. And could be -- continue to be driven by media, but there's some large semiconductor opportunities as well that are possible in addition to that.

Yes, Scott. And just to add a little bit of -- no. I'm sorry. So you asked about how do we kind of see the media business kind of looking in '26. So a lot of great momentum. I think on the Pay-TV front, I know Paul did a good job of capturing that, seeing that shift being about 35% to 40%. But really, one of the tremendous stories on the OTT front, right. So we see that business being about 30-plus percent of our total revenue next year, which is just absolutely exciting. So I think 30% to 35% is really kind of a way to kind of take a look at it. And that just really shows a lot of growth from where we started. So our market share today is about 50% for -- on the OTT side. So that's really driving it. So that sets us up quite well to kind of get back to your question in terms of how do we see the media business. So when you kind of balance things out for recurring kind of related revenue, it really sets us up to have a nice modest increase in our revenue year-over-year. And so really kind of a great exciting story for us.

Got you. Very helpful. And lastly, if I could just follow up with 1 more, just because the semi side is so intriguing and exciting. Paul, so it sounds like, look, there are some opportunities this year. It sounds like more logic based. But from -- in the marketplace, there's a tremendous amount of press talking about demand for HBM, what we're seeing in data center and otherwise and pricing and the evolution quicker than people expected from HBM3 to 4, 4E et cetera. So I'm just wondering, I know this is tied to renewal agreements with some of the larger players out there in '27, '28. But I'm wondering how the view is from a customer standpoint, engagement standpoint on that front? It seems like the market is accelerating well ahead of where we thought it would be probably 12 or 18 months ago. Is that how you guys are viewing that? And is that translating into at least productive conversations notwithstanding that we require renewals in the 27, '28 time frame.

Yes. Thanks, Scott. I mean, we're tremendously pleased with what we're seeing from a marketplace standpoint on memory. And as you think about Micron, Samsung and SK Hynix, not only on HBM, but what we're seeing with NAND, as we talked about before, we're thrilled to get the deals done with Kioxia and SanDisk. And we see the need for NAND and the other 3 providers as they get to around 400 layers to eventually go to hybrid bonding as well. And so I think there's an opportunity on both fronts and memory, both in NAND and with HBM. And so I don't want everyone to forget about NAND either because it's pretty significant for those players as well and what they're trying to provide. And we think hybrid bonding will be an important story. And when you think about AI, NAND is becoming more important as well on that side as well. So as people are trying to deal with these AI workloads. So it's exciting on both fronts and certainly the conversations and not just with hybrid bonding, as I mentioned earlier, with RapidCool as well being, I think, an enabling technology, not only for logic but also for the memory market, we see an opportunity there and certainly conversations are progressing with a number of folks on that front as well.

Your next question comes from Hamed Khorsand with BWS Financial.

Could you talk about the quarter's revenue? And you outperformed given the guidance you gave right before Christmas. So what drove that outperformance? Is there any recognition from '26 into '25. If you just give a little bit more details about that, please?

Hamed, great question. So when we announced the deal with Disney, it was cut off the press after we signed that. So frankly, the accounting wasn't done. And it's a very large and complex transaction. I think you and I discussed that before. And then ultimately, we got the accounting settle up. So there were some things there that were more favorable to us. But also to add to that and where you see this overachievement on the revenue and the guidance, we closed more business. And we had a strong close to the year. Most notably, I could kind of point to -- we talked about Major League Baseball as one, but there's others that with great momentum from our sales team. Those guys didn't take a vacation [ at baseline ] Disney, they kept on working hard, and we benefit from that. Last but not least, but it was quite frankly, very meaningful to us, is that both on our media side and our semiconductor side, we've got some very favorable royalty reports from increased volume. You heard earlier, in particular, One of the other -- Kevin Cassidy had talked about where you see from Charter and we saw that across the board that the numbers that we reported on Pay-TV were favorable. And then also to no surprise, what we've seen also on the semiconductor side and particularly on the NAND and how that has been going, it was more favorable to us. So that all added up to a tremendous beat for us in coming out with the revenue number that was significantly over the guidance that we had set forth.

Okay. And then if you go into '26, you've announced Microsoft, that's obviously a great big name. But is that going to be material for you in '26? Is it going to be cash driven? Or is there a minimum guarantees? Could you rank that as to how big that opportunity is for you?

I'll take it first, Hamed, and then let Keith add anything. But it's a great deal for us. We're very pleased with getting Microsoft done, especially so early in the year. As I mentioned at the end of 2025 when we talked in November, we had a lot of opportunities that we were chasing and a lot of significant opportunities. And certainly, we've been able to execute on some of them here early in 2026 that we're very pleased with, Microsoft being one of those. So we can't get into the specifics, obviously, of the economics, but we -- it's structured like many of our other Pay-TV, non-Pay TV deals, I should say. And so that's what I would highlight for you. And it will be -- there'll be a significant customer for us.

[Operator Instructions] Your next question comes from Matthew Galinko with Maxim Group.

I think, Keith, you mentioned and I didn't do the math, but 55% EBITDA margin implied in guidance. If that's correct, it seems like a step down from the last couple of years. So I was hoping you could maybe just go into the assumptions there of why we'd be seeing compression of what seems like a pretty strong revenue guide?

Yes. Matt, I think the one thing that I would point to, the -- our business, if we take a look at our operating expenses of research and development and SG&A, they -- you heard me talk about that we're going to grow that at single digits in rates, and that's pretty consistent that we've done for the last several years. The one thing that is different is in -- and Paul I have talked about this going back to 2022, is that traditionally, when we take a look at that legal expense for '22, '23 and '24, it was historically low, and that was something that was an anomaly, and that's something that we didn't expect. So when Paul and I always took a look at the business and we said, if we look at history and what does it take to run our business and being kind of who we are and what we need to do to ensure that we defend our we IP, we had always thought that litigation expense should be in the 20s. And that's something that we always talked to you about and talked with others. So but that being said, in '25, you -- 2025, you saw that we spent about $25 million in litigation expense, and that's what we always alluded to. And then in '26, you heard Paul talk about and you heard me talk about that our litigation expense will increase. And I would say they increase anywhere between $5 million to $10 million above that $25 million amount. And let's just talk about why that's important. Paul alluded to it. We take our IP very seriously, and we want to defend our IP as much as our customers want to defend their own products and services. And what we find is that we have a lot of great adoption of our technology in the marketplace. And we want to make sure that we're properly compensated for that. And in some instances, that might involve litigation. So it's a matter of being prepared more than anything else. And we -- as Paul said, we saw some great benefits of that. So that incremental spend, quite frankly, is changing the margin from be it low 60s to that 55% in its entirety. So hopefully, that gives you a little bit more color.

Sure. It does. And maybe just a follow-ups that. I think Paul might have referenced the long-term goal of $500 million of annual revenue. And again, correct me if I got that wrong, but maybe if we sort of take that number and think about what the litigation expense might be to get there, is that $30 million, $40 million, right kind of level? Or do you kind of need to keep pushing that up a little bit to drive revenue to the long-term level?

Matt, I think it's a great question. And I think I've been consistent in always saying, we prefer getting deals done without litigation. And that is our ethos, that's our -- that's how we approach all of our customer is we go to great strides to avoid litigation and find a path forward that gets deals done without it. But at times, it's needed. And what you've seen with Disney and even with Altice and what we think it's going to -- what you're going to see in the future is we're good at it when we need to, right? And it can really drive great results for us. And so we're not afraid to file litigation when needed to defend our IP, as Keith eloquently said earlier. And so that is part of that spend. That's always going to be there. And so I think it's always going to be around kind of that $25 million, $35 million from just how we think about it and how we forecast it. Are there going to be years where it might be lower than that? Sure. Are there going to be years where it could take a little higher than that? Yes, it could. But for us, we plan for it because it can really drive some great results. As I look at the OTT market, though, there's a couple of examples now that are really big. One we did without litigation, Amazon, great result for us. We got done at the end of 2024. And one with litigation, Disney, great result for us at the end of 2025. And so we can drive really great results with or without litigation, but sometimes the customers put you in a position where you need to go down that path. But at the end of the day, our IP stands up either way, and we end up -- I'm comfortable when we need to go down that path, even though it's not my first preference.

This concludes the question-and-answer session. I'll turn the call to CEO, Paul Davis, for closing remarks.

Thank you, operator, and thanks for everyone for being with us today.

This concludes today's conference call. Thank you for joining. You may now disconnect.