Adeia Inc. Q4 FY2025 earnings call

• Paul Davis noted 2025 was a record year with revenue exceeding guidance range, operating income and EBITDA also exceeding guidance. • Key deals in fourth quarter included with Disney, Major League Baseball, Vodafone, and in semiconductors with a prototype development agreement. • Full year 2025 had 26 license agreements across diverse customer base, added 12 new customers. • Strengthened leadership structure with new appointments in semiconductor, revenue, and strategy roles. • Patent portfolio grew 13% in 2025, third consecutive year of double-digit growth.

In the fourth quarter, revenue was $183 million. Non-Pay-TV recurring revenue grew 30% year-over-year. For the full year 2025, revenue reached $443 million. Pay-TV is expected to be 35% to 40% of revenue in 2026. Semiconductor revenue increased from $18 million in 2024 to $26 million in 2025, a 40% increase. Media business was roughly 94% of total revenue in 2025.

• 2026 revenue guidance range is $395 million to $435 million. • Operating expenses expected to be $184 million to $192 million. • Litigation expense anticipated to increase year-over-year. • Interest expense expected $34 million to $36 million. • Other income expected $5.5 million to $6.5 million. • Adjusted EBITDA margin expected ~55%. • Non-GAAP tax rate expected 21% for full year. • Capital expenditures expected ~$2 million for full year.

• Litigation matters such as the one with DIRECTV, where they filed litigation challenging the need for a new license agreement and Adeia filed a breach of contract suit. • Uncertainties in the Pay-TV subscriber loss trend and how it will impact revenue. • Risks associated with litigation expense potentially increasing and its impact on margins. • Market uncertainties related to semiconductor adoption and the pace of technology evolution affecting revenue from semiconductor business.

Q: 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?

A: 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.

Q: 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.

A: 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.

Q: 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?

A: 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.

Q: 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?

A: 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你好，我现在需要继续完成这个JSON的生成。首先，我需要确保所有部分都按照之前的schema准确填写。现在继续处理question_and_answer部分的剩余内容：</s>