Adeia Stock

Good day, everyone. Thank you for standing by. Welcome to Adeia's Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Chris Chaney, Vice President in 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 Dipti Vachani, our CEO; and Keith Jones, our CFO. Dipti 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 Dipti, I would like to provide a few reminders. First, today's discussion contains forward-looking statements that are projections, predictions, 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 would like to turn the call over to our CEO, Dipti Vachani.

Thank you, Chris, and good afternoon, everyone. I'm excited to be here and honored to lead Adeia. I've worked at some of the most cutting-edge companies in the world, and I chose Adeia for its technology, its team, and its timing.

First, the technology. In media, AI is accelerating the shift to more personalized on-demand experiences, and our innovations in discovery and personalization sit right at the center of this change. In semiconductors, our innovations in hybrid bonding and thermal management help solve some of the biggest bottlenecks in scaling AI compute and memory.

Second, the team. Throughout my career, I've been tasked with solving some of the most difficult problems in AI scale. As I get to know Adeia's prolific inventors, I've asked myself, where have you been in my whole life? I could have really used your help. Our engineers are addressing the greatest challenges the AI industry is solving today and well into the future. I've spent time with members of the senior leadership team, and I'm very impressed by their experience, their talent, and the culture of innovation they've built.

Third, the timing. AI is reinventing how we discover and consume media, and it is transforming the compute infrastructure behind it. Adeia's IP sits right where those trends meet. Media is information. Semiconductors process information. In partnership with the ecosystem, our opportunity is to anticipate where the market is headed and invent the technologies it will need.

Building upon my successful track record at Arm, Intel, Skyworks, and Texas Instruments, I am excited to share with you what I'll bring to Adeia. I have a proven track record of building businesses around leading-edge technologies. I maximize value by creating programs to monetize the technology and building ecosystems that help scale it.

At Arm, that meant bringing new reoccurring revenue streams and bringing together hundreds of partners. I look forward to applying that experience here along with a leadership style built on candor, accountability, and staying close to customers and technology.

My near-term focus is clear: Listen, learn, and execute. I am spending time with our employees, customers, and shareholders and working with our team to deliver the path towards our long-term annual revenue target of $600 million. I will continue to diversify our revenue streams and accelerate our innovation engines in both media and semiconductors.

Keith will cover our third quarter results in more detail, but I will briefly cover a few highlights. Revenue was $80.2 million in the third quarter. As I have reviewed our pipeline and where our technology plays in the broader ecosystem, I am very excited and confident in the opportunities that lay ahead in the short-term and the long-term.

However, our business is relatively sensitive to the ultimate timing of a small handful of deals. In an effort to be prudent and transparent, we have adjusted our revenue guidance to reflect the potential range to the extent that certain deals are executed beyond 2026.

Even with this change in guidance, I am confident with the progress we're making. My goal remains to hit the high end of the range. Keith will provide additional color later in the section.

I am proud of the work done in the third quarter. We signed 8 deals across Pay-TV, consumer electronics, e-commerce, and social media. Our business remains robust, and the momentum we are seeing across our pipeline provides us with the confidence for the remainder of this year and as we look forward to 2027.

Before I turn the call over to Keith, I want to thank the Board for the trust they have placed in me to be the next leader of Adeia. I also want to thank Paul for all that he has done for Adeia over the past 4 years and for working with me through this transition period. I couldn't be more excited to be here and for the future of Adeia. Keith?

Thanks, Dipti. Let me begin with a very warm welcome for Dipti as our new CEO. Speaking on behalf of all the employees here at Adeia, we are extremely excited to have you on Board, bringing your extensive experience, energy, and leadership. I am very much looking forward to our partnership for years to come.

Now let me turn to a review of our third quarter results. Third quarter revenue was $80.2 million. Deal momentum was strong with 8 license agreements closing in the quarter across Pay-TV, e-commerce, consumer electronics, and social media. Four of these deals were with new customers. As we have mentioned before, adding new customers is critical to the continued diversification of our revenue streams.

I would like to emphasize that Pay-TV is overall an important component of our business. The underlying revenue remains significant for us. As such, we continue to innovate in this area, and we are able to further leverage this technology in other growing areas such as streaming and e-commerce.

With that being said, I am proud to announce that we signed a significant multi-year renewal with Charter. Charter is the largest provider of Pay-TV and broadband services in the United States and has been a valued customer of ours for over 20 years.

We also signed a multi-year renewal with TCL, one of the world's largest manufacturers of connected TVs. This renewal highlights the importance of our consumer electronics business, which has consistently been greater than 10% of our total revenue.

In e-commerce, we signed a new long-term license agreement with Fanatics, a leading sports apparel e-commerce company. This reflects the growing momentum we have had in the e-commerce space, leveraging the success of our RPX deal in the second quarter.

Other notable agreements signed in the third quarter included new deals with a social media company and a consumer electronics company, as well as license agreements with 3 other Pay-TV providers.

Since separation, we have aimed to support our revenue across our core Pay-TV market and to expand and grow revenue in both semiconductor and our adjacent media markets. We are proud of the progress we have made.

With the tremendous number of opportunities that we see ahead of us, we recently increased our long-term annual revenue target to $600 million. With the widespread adoption of our technologies, our confidence is unwavering, and our long-term target remains unchanged.

As part of this growth trajectory, increasing our recurring revenue is of paramount importance to the company's overall success. In the third quarter, we grew non-Pay-TV recurring revenue by 48% year-over-year, continuing a multi-quarter trend.

We continue to be very excited about the expanding industry adoption of hybrid bonding across both the memory and logic markets. As noted in recent news, hybrid bonding will be essential to the manufacturing process at 20-plus layers in HBM in the next few years, as well as for future 3D DRAM, 3D NAND, and high-bandwidth flash.

For Adeia, this timing aligns nicely with our contract renewals with the top 3 memory manufacturers. We view the ultimate pervasive adoption of hybrid bonding across both the memory and logic markets as a key to driving a sustainable and growing revenue stream for many years to come.

Our IP portfolios are the foundation of what we do and are the lifeblood of our business. We ended the quarter with over 14,500 patent assets for both semiconductors and media. This commitment to innovation has resulted in our combined portfolios growing 6% year-to-date.

Our patent growth is focused on areas of strategic importance, including hybrid bonding, thermal management, and media technologies that support AI-driven experiences. Our creative and talented inventors are critical to our continued success.

Approximately 80% of our patents have been developed internally by this proud group, and we are dedicated to finding solutions that address important industry challenges.

Now I'd like to discuss our operating expenses, for which I'll be referring to non-GAAP numbers only. During the third quarter, operating expenses were $43.8 million, an increase of $3.6 million or 9% from the prior quarter. This anticipated increase was primarily driven by higher litigation expenses.

Research and development expenses were up $176,000 compared to the prior quarter. Selling, general, and administrative expenses increased $1.6 million or 8% from the prior quarter, primarily due to portfolio maintenance costs and other expenses to support our strategic sales efforts.

Litigation expense was $7.2 million, an increase of $1.8 million or 35% compared to the prior quarter, primarily driven by higher spending related to our various legal matters.

Interest expense during the third quarter was flat at $8.1 million. Our current effective interest rate, which includes amortization of debt issuance costs, was 7.2%.

Other income was $1.8 million and was primarily related to interest earned on our cash and investment portfolio and due to interest income recognized on revenue agreements with long-term billing structures under ASC 606.

Our adjusted EBITDA for the third quarter was $36.9 million, reflecting an adjusted EBITDA margin of 46%. Depreciation expense for the third quarter was $500,000.

Our non-GAAP income tax rate was 21% for the quarter. Our income tax expense consists primarily of federal and state domestic taxes as well as Korean withholding taxes.

We ended the third quarter with $127.7 million in cash, cash equivalents, and marketable securities, and we generated $5.1 million in cash from operations. We made $6.1 million in principal payments on our debt in the third quarter and ended the quarter with a term loan balance of $386.5 million.

We paid a cash dividend of $0.05 per share of common stock. Our Board also approved a payment of another $0.05 per share dividend to be paid on December 14 to shareholders of record as of November 23.

For 2026, we are reducing our revenue guidance to $375 million to $415 million. As Dipti mentioned earlier, our pipeline remains strong and robust. However, this reflects the impact of a small handful of deals we are actively working on.

With the progress we have made to date, we are optimistic about closing these deals, which would place it at the high end of the range. However, these deals are relatively large and legally complex, which can take time to execute. Thus, to provide transparency, we have adjusted the range to reflect the potential impact to the extent certain of these deals are executed beyond 2026.

We are lowering our operating expense outlook to $176 million to $180 million. This reflects both disciplined expense management within our R&D and SG&A functions, as well as expected lower litigation spending as a result of certain court delays, which would defer the anticipated costs.

We expect interest expense to be in the range of $32 million to $34 million. We expect other income to be in the range of $6 million to $7 million. We expect a resulting adjusted EBITDA margin of approximately 55%. We expect the non-GAAP tax rate to be 21% for the full year. We also expect capital expenditures to be approximately $2.5 million for the full year.

Our entire team remains committed to executing on our goals for the remainder of this year. We remain confident in our technology, our team, and the strength of our growing pipeline.

That brings an end to our prepared remarks. And with that, I'd like to turn the call over to the operator to begin our question-and-answer session. Operator?

[Operator Instructions] And your first question comes from Kevin Cassidy, Rosenblatt Securities.

Congratulations, Dipti, and welcome. Just how should investors be estimating the time for signing new license agreements with semiconductor customers? Is this more complicated than the media customers? Or maybe -- and I guess I'm assuming that's where some of these handful of deals that might be delayed are coming from the semiconductor market.

So you're right. The semiconductor market is different than the media market in such that the media market is much more fragmented, the semiconductor market being a more concentrated group of customers within logic and memory. Though the handful of deals that we're referring to for this quarter were media deals, we expect semiconductor, especially in the logic side, to kick in sometime next year, in the 2027, '28 time frame. And then memory renewals, '28, '29.

And so we will expect that to be in our revenue forecast in that time frame. But right now, the handful of deals that we're looking at are on the media side. And honestly, we see a -- the pipeline hasn't changed. It is strong, and it's exactly the pipeline we looked at last quarter, but this is -- as we get closer, it's about deal timing. And that's it. It's deal timing and being transparent on that timing, we've decided to adjust the range.

And just going again to the semiconductor side of it, of the ones you have in the pipeline, are they more data center products? Or is it across all end markets?

It's all end markets. So I'll categorize them into 3. We have the logic market, and you've heard about our AMD business, as well as other customers that we know are engaged in hybrid bonding with Broadcom, Intel, NVIDIA Feynman. And so there is the logic group of customers. Then you have your media -- I'm sorry, your memory customers. And so there's a group of customers there. SanDisk and Kioxia are on the NAND side and then other memory providers on HBM.

And then I think you'll see it more holistically across the board with data center companies acting more like semiconductor companies. And we know that, that's happening today. They're building their own silicon. And as they do, hybrid bonding will be of value to them. And so we'll see them step in as well as customers for us.

And your next question today will come from Scott Searle with ROTH Capital.

Dipti, congratulations, and look forward to working with you. Maybe just a quick clarification. Just in terms of the mix of revenue in the quarter, Keith, I'm not sure if you could provide some color in terms of media-semi mix, recurring and catch-up. And I want to clarify whether all of those deals that you guys were referring actually occurred in the quarter because I think press releases for TCL and Spectrum came out after the quarter? So wondering if that made it into the third quarter results.

And then as you're looking into the wide range of implied expectations in the fourth quarter, and Dipti, can you take us through what's at the lower end versus the higher end, the big gating swing factors in that $40 million range from the low end to the high end?

Scott, thanks for your question. So a few parts there. So we'll break them down one by one, my friend. So just kind of giving the numbers on media versus semiconductor. And just to be very transparent, I'm talking about just Q3 in and of itself.

So media was $65 million. Semiconductor was $15 million. So we're seeing some growth quarter-over-year, year-over-year on semiconductor. So once again, a great story in that perspective.

And then for recurring versus nonrecurring, just using kind of some simple round numbers, the recurring revenue was $76 million, and then the nonrecurring was about $4 million in that regard.

So trying to make sure I remember all your questions because there were several multiple parts to that. The revenue growth that we're seeing is actually kind of aligned with what we anticipated. I think Dipti will get into a little bit more. But once again, where we're seeing our revenue opportunities, our pipeline is extremely strong. It's very strong. And at the end of the day, quite frankly, it's timing.

And ultimately, where we're at, I could not be more pleased. If we look year-over-year, where we were at last year at the same time, we're actually ahead business-wise in terms of total revenue. And then even on operating margins, we're doing absolutely fantastic.

And then when you -- our company, our team, we are entirely focused, as you heard in my prepared remarks, of hitting $415 million. $415 million is the number that we're really focused on. $415 million was the midpoint of the guidance that we previously had, and those opportunities still align.

What we are a little bit want to be transparent about is, like we said, there's a small handful of deals that kind of move that quarter, and it's really execution of those deals that get us to the midpoint or the high point of that range or otherwise.

So we're really focused. And to be blunt, it's a matter of when, not if. It's 1,000% on timing, and we're locked in on that. So our best days are really to come. I think Dipti can add a little bit more color on that backdrop as well. Dipti?

Yes. I mean, the beauty of this business is the business doesn't go away, right? The accounts don't go away. It is all about timing. And I see a path to $415 million. Like Keith mentioned, we have a path to close it, and we are 110% focused on that. But I wanted to be -- we wanted to be transparent that there is, because of timing, it could swing one way or the other, and we wanted to give you that range.

And Dipti, if I could follow-up in terms of semiconductor in '27 and '28, I know it's early. But if you could take us through some of your high-level thoughts in terms of how this progresses? It sounds like we see logic next year.

And then if you could dive into a little bit more the adoption in HBM DRAM. There's been a lot of discussion and dialogue in the marketplace about layers and timing and available capacity in the industry. But it seems like it's lining up with when we start to move to 16 layers and 20 layers with your renewal timeline. So I wonder if you could extrapolate on that and maybe provide just a little bit more color in terms of the diversity within the logic pipeline.

You're absolutely right. It is lining up very well with the timing of 16-layer and 20-layers, and we'll see it with HBM4 and 5. But I think if you look at this more holistically, as we -- in the logic space, we're seeing that traction happening already with AMD. We know that NVIDIA is going to be incorporating HBM -- I mean, is going to be incorporating hybrid bonding, right? And then the traction at Intel and Apple and Broadcom. So the logic space, we see it happening already. We know what's happening in the memory space is exactly the way you mentioned it, with 20 layers and 16.

And so across the board, '27, '28, '29 are going to be great years for us in the semiconductor space. Think about also overlaying on top of that, this idea of heterogeneous compute. When we look at the world of physical AI or edge computing, we're talking about lots of different kind of processing coming together and chiplets. And chiplets are also a very big opportunity for hybrid bonding.

And so again, I think there's multiple vectors here in play, '27, '28 on the logic side, '28, '29 on the memory side and holistically a very, very strong business. And Keith, you wanted to add on the memory side as well?

Sure. No, Scott, you're very perceptive. It's almost because if you walk our hallways and you see us jumping up and down about every product announcement that we hear kind of coming out. So there has been a lot of conversation about when do you start seeing the impact of hybrid bonding in high-volume manufacturing. That very much is kind of lining up with HBM5. And quite frankly, we're completely excited about that.

And you hit the nail on the head. By the time we start getting into high-volume manufacturing, that aligns perfectly with our renewal cycles with the top 3 semiconductor memory manufacturers. So that's really a great thing for Adeia. And that is something that we look forward to. And frankly, it's beyond a proof point of the adoption of our technology. It really talks about our resilience, our technology, and how it's kind of shaping things because once again, hybrid bonding, we do hear in the media, it's quite frankly it's the only way to move forward. There is not another alternative to get to from a performance perspective, and that really makes us excited.

So once again, it's a great opportunity. You picked up on it. We see that kind of, as Dipti talked about, playing out really kind of latter half of '27, but more in '28 and '29, which aligns perfectly from all the news releases in terms of when high-volume manufacturing kicks in.

And anytime you want to allow me to wander the walls, happy to do it.

You're welcome anytime, my friend. You know that.

[Operator Instructions] Next up is Hamed Khorsand from BWS Company.

So first off, let's just talk about this revenue that you're reporting here in Q3. So last quarter, you were pretty much laser-focused at your commentary that it was going to be higher than Q2, but similar in levels and then you would get a ramp in Q4. Now you're backtracking, you've missed Q3, and you're saying it's definitely going to be Q4.

How are you certain? Because it seemed like at the beginning of the year, you've got AMD, you got Microsoft, you got all these things going and it seemed like everything was fine. But now you're missing and you're saying it's deals getting pushed out. Why are you so confident? Why should we believe you?

Well, I think you heard our remarks, Hamed. And quite frankly, when I look at our pipeline and what we have in front of us, I'm incredibly excited, my friend. Just being honest with you. And you've been following us for years, and you also know that we are a small volume, large dollar shop. So with that being said, all of these deals are large and complex.

And I'll repeat what I said before, it's a matter of if, not when. So the items that we kind of identified that are in that small handful of deals, they were in our pipeline at the beginning of the year.

Frankly, when we take a look at our forecast and where they were going to be at, we proved out that we could make traction. We proved out we believe that we can close with them. But we would have anticipated some of those deals closing out a little bit sooner, but then you start dealing with the art of complexity of negotiating with someone on the other side that have these large complex deals, and in some cases new logos as well, which adds a degree of complexity.

That all affects timing, not value in dollars of what we're going to see over time. So our team, once again, we're focused on trying to get that $415 million. But you also know that we take great pride of being transparent with shareholders.

That view of the world that we gave you 90 days ago was absolutely a fact, but things evolved, they changed, and our year-end target remains the same for the most part in what we're really trying to achieve in the company, but we just are trying to be transparent to the things that slip beyond our control, what that could potentially look like.

And that $20 million that you reduced revenue guidance by, did that get pushed into '27? Or is that completely gone?

It's never completely gone. I think you can appreciate that as good as anybody because we're not competing against a particular company in a socket. The fact of the matter is that when our technology reads and it infringes, that opportunity remains.

I will say again to answer your question and just to drive it home, it's a matter of if -- it's a matter of when, not if. It's a matter of when, not if. So none of that disappears. Repeating that, you've heard Dipti say that as well. So it's something that we're focused on closing. It's just a matter of timing.

Your next question comes from Matthew Galinko, Maxim Group.

Can you expand on the court delays and what your expectation for that is? How long are the delays from your current vantage point? And should we expect that the litigation spending that slips out of maybe fourth quarter lands somewhere in '27 where we see a higher level or not necessarily how it works out?

Matt, great to hear from you. It's a great question. So in terms of court delays, there's many, but I'll give you a really simple example. So as you know, in April, as it relates to DISH, we filed suit against its parent company or, in addition, EchoStar.

So shortly thereafter, they declared bankruptcy and then all of that activity was stayed until that cleared. And they just emerged out of bankruptcy in October. So there was, by default, an unexpected pause when we filed that. So that expense pushes to the right. There's a couple of other examples, I can give that. But you picked up on that nuance, it's pushing things to the right in that regard.

So the one thing that I would like to point to and you're kind of hinting to it is that we have a bit of a slide on expenses. But also, if you take a look at our operating expense guidance, that came down $10 million in aggregate as well. Half of that, I would dare say, is kind of that push to the right of legal. And the other half is, quite frankly, our great team and the expense management that we've done.

So we've done a really good job of prioritizing. I would also say that we've done a great job of really kind of learning, evolving, and become more efficient in what we do. And frankly, it's not at a sacrifice of any short-term goals or long-term goals that we're trying to achieve.

So net-net, that impact from an [ EBITDA ] perspective is about $10 million on average, not $20 million, which is the revenue range. We really are doing a good job as a management team of being cautious.

And I would also say, if you kind of go through and do the math, if we end up at $415 million, which is our goal, and which we're focused to, we would be at the upper end of the prior EBITDA guidance that we had given on a much larger revenue target. So there speaks to the efficiency of our business.

And maybe as a follow-up, just to get a little bit of, I guess, insight into how things might work next year. Should we expect any incremental spending in 2027 as you pursue opportunities for hybrid bonding in 2028?

I think you're going to see some increases in our overall R&D spending and SG&A. I think it's going to be kind of a normal steady state. And I think -- I don't think it will be very far off from the models that are out there today. But, however, that's one trigger.

But the fact of the matter is when we see things going to be in high volume and we see adoption, we need to act upon it, and we need to act quickly and aggressively. So how we prioritize our dollars would be very much on capitalizing the opportunities that are in front of us. So it's really about really having this great technology that we have and making sure that we're monetizing it.

And everyone, at this time, there are no further questions. I'll hand the conference back to Ms. Dipti Vachani for any additional or closing remarks.

Thank you, operator. Once again, I'm excited to be here and to dive deeper into our business and strategy in the coming months. I want to thank the Adeia team for the warm welcome and their hard work in continuing to deliver results. I look forward to meeting many of you later this quarter as we attend 2 upcoming conferences: The Annual ROTH Technology Conference in New York in November and then the Annual Wells Fargo TMT Summit in California in December. Thank you for joining us today.

Once again, everyone, this does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

Good day, everyone. Thank you for standing by. Welcome to Adeia's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 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. I'm pleased to share our results for the second quarter of 2026 and our strong performance in the first half of the year. Our second quarter results were in line with our expectations as we delivered revenue of $96 million (sic) [ $96.1 million ] with an adjusted EBITDA margin of 59% (sic) [ 58.7% ].

We had another excellent quarter of cash generation, producing $55 million (sic) [ $54.6 million ] in cash from operations. We ended the quarter with $137 million in cash while executing on all 4 pillars of our capital allocation strategy. We closed 6 license agreements during the quarter and added a record 12 new customers in total. Our first half performance included solid execution across all aspects of our business: closing license agreements with Microsoft, AMD, Google and our recent deal with RPX that further accelerates our e-commerce business.

We also continue to invest in growing our leading media and semiconductor portfolios and believe we are well positioned for the long term. The progress we've made to date is in line with our expectations. So we are reiterating our 2026 revenue guidance of $395 million to $435 million. Our non-Pay-TV recurring revenue is strong and thriving, growing 54% year-over-year in the second quarter and is now nearly double the size of our Pay-TV recurring revenue. Despite the known headwinds in Pay-TV, including recent litigation matters, our pipeline is robust, and we are confident in our long-term trajectory.

The timing of resolution to any litigation, however, is difficult to predict and thus could impact us in the short term. As we look at the remainder of the year, our diversified and growing pipeline continues to provide multiple paths to achieve our revenue goals for 2026. As we have stated before, we tend to do big deals. And operationally, we lean towards being a relatively small volume, high dollar shop. As always, we will remain disciplined in closing deals that are in the best long-term interest of the company and its stakeholders. Our range of outcomes for the year reflects this approach and will be impacted by the ultimate timing of when we sign license agreements which we continue to have the utmost confidence in being able to do.

Importantly, as we have seen in the past, to the extent any opportunities move out of 2026, they provide a springboard for us in the following year. One of our most significant license agreements in the second quarter was a multiyear renewal with Google for access to our media portfolio. Google has been a valued customer for approximately 15 years, and this renewal reflects the continued relevance and strength of our media portfolio for Pay-TV. YouTube TV, which is operated by Google has become one of the most important players in the Pay-TV market with subscriber growth that has dramatically outpaced many of its peers. Its scale and trajectory are a clear demonstration of the ongoing migration from traditional Pay-TV to virtual MVPD services, and our portfolio is well positioned to capture that shift.

With the renewal of Google, combined with our Disney agreement signed last year, which includes Hulu + Live TV, we now count 2 of the largest and fastest-growing virtual MVPD platforms in the country as our customers. Also in the second quarter, we made excellent progress in e-commerce, closing the seminal multiyear license agreement with RPX, a leading patent risk solutions company. This unique deal includes 10 participating member companies in a single agreement, giving them a term license to our growing media portfolio of approximately 10,900 patent assets.

This deal was driven by our e-commerce technologies, including intelligent search, virtual shopping experiences and consumer engagement across connected platforms. The RPX members include a broad consortium of market leaders across the digital commerce ecosystem spanning apparel, beauty, online marketplaces, delivery networks and enterprise technology platforms. With the progress we've made in the past 2 years. We believe this business can grow over the long term to a size similar to our consumer electronics business, which has been approximately 10% of our total revenue.

Other deals signed in the second quarter include a new multiyear license agreement with L'Oreal, a leading cosmetics and personal care company. A new multiyear license agreement with a leading provider of streaming documentary programming and renewals with a leading European Pay-TV provider and a consumer electronics manufacturer in Japan. Renewals are a cornerstone of our business model. With our renewal rate at over 90%, the vast majority of our customers renew with us because we continue to innovate and build positive relationships with them.

I am pleased to announce that given the optimism in the trajectory of our business and particularly the semiconductor market, we are raising our long-term revenue target to $600 million from $500 million annually. Let me begin briefly with media and then provide more color on semiconductors. Our growth objective for our media business over the long term remains unchanged at $400 million annually, bolstered by our success in growing market adoption of our technology, we see key verticals such as OTT, e-commerce, consumer electronics, and social media as catalysts for growth.

Moving to the semiconductor industry. We continue to see rapid evolution in the market and the increasing demands from AI have induced an unprecedented acceleration in the development and production of highly advanced logic and memory devices. This new super cycle is driving the semiconductor market to reach over $1.5 trillion this year. Hybrid bonding has become a critical enabler of next-generation chip architectures, helping to solve density, performance and thermal management challenges.

We are very excited about the opportunities that lie ahead for our semiconductor business given these industry dynamics and increasing need for our technologies. We had previously estimated this opportunity to be $100 million annually, driven by the broader and faster adoption of hybrid bonding we now expect our long-term semiconductor opportunity to reach $200 million annually.

Custom and general-purpose logic providers are already or will soon be incorporating hybrid bonding in both enterprise and consumer-related products. Apple, Intel, and Broadcom, all have products ramping into production using hybrid bonding, further building on the momentum from our recent license agreement with AMD. And according to industry reports NVIDIA's Feynman will also incorporate hybrid bonding beginning in 2028.

High-bandwidth memory and flash for both enterprise and consumer markets are also incorporating hybrid bonding. We believe hybrid bonding will be a requirement in HBM with 20 or more layers, if not sooner. 3D NAND leaders, SanDisk and Kioxia, both customers of ours, began using hybrid bonding for NAND in 2023, and we believe others will follow as layer counts approach 400. We know broad adoption of hybrid bonding is coming because the capital equipment required is being ordered.

To meet demand for these next-generation devices, leading foundries, memory companies and OSATs are planning to spend approximately $125 billion in the near term for advanced packaging, including hybrid bonding. Our investments in semiconductor innovations are coming to fruition and the opportunities in front of us are very exciting. Let me now turn to our efforts to further diversify and grow our recurring revenue. As noted earlier, our non-Pay-TV recurring revenue grew an impressive 54% year-over-year in the second quarter, continuing a multi-quarter trend.

I could not be more pleased with this progress. and it is a result of our execution and focus since our separation from Xperi almost 4 years ago. We knew Pay-TV would remain a core part of our business, and we have continued to invest in it. But we also knew, given the secular trends of that industry, we needed to find other avenues of growth. Our teams across R&D, sales and patent portfolio development have executed extremely well to this vision, maintaining our relevance and strength in Pay-TV, while at the same time, impressively growing our business well beyond it.

Our IP portfolios are at the foundation of everything we do, and we continue to invest in them strategically. In the second quarter, we completed 6 tuck-in IP portfolio acquisitions for $9.5 million, focused primarily on e-commerce, OTT and imaging. Our portfolio grew to over 14,250 patent assets in the second quarter, up approximately 4% from the first quarter. In total, we have grown our patent portfolios by almost 5,000 patent assets since separation. The vast majority of this growth generated organically. Consistent with our commitment to defending our IP, earlier this quarter, we filed patent infringement claims against Fubo, asserting 4 patents from our media portfolio. We are disappointed we cannot reach acceptable terms for a new license agreement.

Our goal, as always, is a business resolution, a license agreement that reflects the underlying value of our IP. I want to be clear that this matter is completely separate from our license agreement with Disney. Fubo represents a distinct opportunity and the litigation has no impact on our license agreement with Disney. I also want to provide a brief update on the CEO search we announced in connection with our first quarter results. The Board's search process is going well. We have engaged a nationally recognized search firm and the Board is actively evaluating candidates. As a reminder, we anticipate announcing a successor by the fourth quarter of this year. In the meantime, I want to reassure our stakeholders that it is business as usual at Adeia, the same strategy, same team and same goals.

Our team remains energized and focused on executing our business plan and our pipeline remains strong. I remain fully committed to driving the business toward our goals for 2026. And to position the company for continued long-term success. I am proud of what we have built together, and I remain excited about what lies ahead. Our execution in the second quarter was great across the board and our revenue was in line with expectations. As we look to the second half of the year, our pipeline remains strong across both media and semiconductors, and we are committed to achieving our full year objectives. Our team is building something special at Adeia. And with the tremendous progress we've made, I am confident in our trajectory towards our newly revised long-term $600 million annual goal for revenue.

With that, I will turn the call over to Keith.

Thank you, Paul. I'm pleased to be speaking with you today to share details of our second quarter 2026 financial results. During the second quarter, we delivered results that were in line with our expectations. Revenue of $96.1 million was driven by the execution of 6 license agreements across a diverse mix of customers, including OTT and e-commerce, consumer electronics and Pay-TV. Our second quarter was highlighted by our renewal with Google and a new license agreement with RPX in all, we added a record 12 new customers in the quarter.

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 $40.2 million, a decrease of $2.7 million or 6% from the prior quarter. The decrease was primarily due to lower litigation and personnel-related costs. Research and development expenses were essentially flat compared to the prior quarter. Selling, general and administrative expenses decreased $2 million or 10% from the prior quarter, primarily due to lower personnel-related expenses. Litigation expense was $5.3 million a decrease of $639,000 or 11% compared to the prior quarter, primarily driven by lower spending on AMD due to the resolution of litigation in the prior quarter which was partially offset by new litigation matters.

Interest expense during the second quarter was $8 million, a decrease of $511,000 primarily due to our debt repayments and due to lower favorable interest rates during the period. Our current effective interest rate, which includes amortization of debt issuance costs, was 7.1%. Other income was $1.7 million and was primarily related to interest earned on our cash and investment portfolio and due to interest income recognized on revenue agreements with long-term billing structures under ASC 606.

Our adjusted EBITDA for the second quarter was $56.4 million, reflecting an adjusted EBITDA margin of 58.7%. Depreciation expense for the second quarter was $480,000. Our non-GAAP income tax rate was 21% for the quarter. Our income tax expense consists primarily of federal and state domestic taxes as well as Korean withholding taxes.

Now for a few details on the balance sheet. We ended the second quarter with $137.1 million in cash, cash equivalents and marketable securities, and we generated $54.6 million in cash from operations. We made $6.1 million in principal payments on our debt in the second quarter and ended the quarter with a term loan balance of $392.6 million. We repurchased approximately 353,000 shares of our common stock for $10 million bringing the remaining amount available for future repurchases to $140 million under our current stock repurchase program.

Our strong financial performance in the second quarter once again allowed us to execute on all 4 pillars of our balanced capital allocation approach. This includes paying down our debt, repurchasing shares, paying our dividend and making tuck-in portfolio acquisitions. We paid a cash dividend of $0.05 per share of common stock. Our Board also approved payment of another $0.05 per share dividend to be paid on September 14 to shareholders of record as of August 24. For 2026, we are reiterating our prior revenue guidance range of $395 million to $435 million.

Our pipeline remains strong and reflects the widespread adoption of our technologies across both the media and semiconductor markets. Operating expenses are expected to be in the range of $184 million to $192 million. We expect interest expense to be in the range of $34 million to $36 million. We expect other income to be in the range of $5.5 million to $6.5 million.

We expect a resulting adjusted EBITDA margin of approximately 55%. We expect the non-GAAP tax rate to be 21% for the full year. We also expect capital expenditures to be approximately $2 million for the full year. I am truly excited about our future. The increase in our long-term revenue outlook to $600 million annually is a clear reflection of this enthusiasm. We find ourselves at the right place at the right time with the right assets, and our entire team remains dedicated to executing on this goal. That brings it end our prepared remarks. And with that, I'd like to turn the call over to the operator to begin our question-and-answer session. Operator?

[Operator Instructions] Your first question comes from the line of Scott Searle with ROTH Capital.

Nice job in the quarter. Nice to see the semi momentum starting to build. Maybe quickly on that point, Keith, I'm not sure if I heard a number in terms of mix between media and semis. I'm wondering if you could provide that. And then, Paul, just in terms of the opportunity pipeline on the semi front, it seems like it's really started to broaden post the AMD deal as you start to see hybrid bonding being pulled into a lot of different areas within logic that previously hadn't been contemplated. I'm wondering if you could expand upon that in terms of vertically integrated hyperscalers, AI inference, other edge devices that are starting to pull in to give us a little bit more color and understand what the level of engagement is on the semi front.

So just to kind of start off with the breakout between media and semiconductor. Semi was about $14.8 million in revenue for Q2, and if you look on a year-to-date basis, I'm just pleased to say that semi year-to-date is about $48 million of that $200 million number that we posted, so about 24%. So just really good growth. If you compare that to what we were in a full year last year, about $26 million you can clearly see our semi business is headed in a great direction.

Yes, Scott. And then on the pipeline, you got it right. I mean it's really across the board that we're seeing hybrid bonding adoption. I noted some of it on my call with logic players really beyond AMD. AMD was ahead of the curve. As we mentioned before, they started shipping hybrid bonded logic devices in 2022. But now we're seeing it with Broadcom and Intel is ramping, even Apple has chips in production as well. And then there's industry reports that NVIDIA's Feynman in 2028 will incorporate hybrid bonding. So we're very excited about that opportunity. And then you mentioned hyperscalers as well.

I've said this publicly a number of times that these hyperscalers are semiconductor companies now. And I believe that they're all focused on differentiating their own products and services with their semiconductor chips. And that's going to create additional opportunity for us.

And then lastly, what we're seeing in the NAND market in HBM, the proof is really in what we're seeing in the CapEx build-out. I mentioned $125 billion CapEx build-out for advanced packaging, including hybrid bonding. But also there's reports that Samsung has ordered 50 bonding tools. And so all of this just lines up with what we have been anticipating, which is tremendous adoption of hybrid bonding, which is giving us that confidence in formally increasing our target to $200 million annually, for the semiconductor business, which we are very excited about.

Great. That's very helpful. And maybe shifting gears into the media side of the equation. We've gone through a transition here with DIRECTV and DISH kind of coming out of the numbers. But now it seems like you've got a broadened opportunity pipeline that's more diverse across different customers, different categories. And so I guess the question is, given what you're seeing in the non-Pay-TV revenue and growth, should we expect to see recurring revenue within media now on a growth trajectory that we've kind of absorbed the hits on DIRECTV and DISH?

Yes. I think we are really proud of our non-Pay-TV recurring revenue growth. We -- it's something that we were very strategic about since our separation. We knew, like everybody else knew where the Pay-TV industry was going. We have had some more headwinds because of some of this litigation that we might have not anticipated a few years ago, but this is the diversification play coming into fruition, and you're seeing that really across the board. I think the highlights, I would say, is obviously, OTT, and then e-commerce are big contributors to that growth. but even consumer electronics and social media are contributing as well to that growth.

And then we have plans to continue to expand into different adjacent markets on the media side as well, and those are starting to ramp in addition to what we already have contributing with e-commerce. So we're really pleased across the board on that. And I do think we're in a continued growth phase. We've had continued consistent growth since our separation from Xperi where we have built on our non-Pay-TV recurring revenue really quarter-over-quarter. There's occasionally dips just because of deal timing where you'll see that and structure our deals, and then it will ramp back up. But if you look at just a line across the board over the last 4 years, it is up into the right, and we expect that to continue.

Great job.

Your next question comes from the line of Kevin Cassidy with Rosenblatt Securities.

Congratulations on the great results and the better outlook. And speaking of the better outlook, the $100 million extra in semiconductors, I know you haven't given a time frame, but were you thinking that this is within the same time frame that you thought you could get to $100 million in that same time frame, you can get to $200 million?

Yes. That's right, Kevin. I think we talk about -- we call it long term. I think broadly speaking, we think about that in about 5 years, right, is what we think about when we do our long-range planning, and we think that, that is achievable, right, in that time frame now for that $200 million semiconductor target.

Again, it's really the catalyst that I just mentioned to Scott, it's both logic and memory. And by memory, I really do mean NAND and HBM. It's not just HBM, which we continue to be very bullish on as we get to 20 layers or so. But NAND, as we get to 400 layers, there's a real need, right, for hybrid bonding for the big 3 memory guys, and we think they're all ramping to get there. And so it's on both sides of their memory businesses, and that's what excites us as well in addition to all the CapEx build-out that we're seeing.

Yes, I'd agree with that with SK Hynix on their second quarter earnings call, they even said that they're preparing next generation in like say -- in addition to hybrid bonding, but they also said at iHBM, they mentioned this as -- and having thermal dissipation, is RapidCool ready for licensing? Or is this something that might be in discussion?

When you think about RapidCool, yes, we think it is part of this catalyst as well. Again, we license on a portfolio-wide basis, right? But 1 of the things that differentiates us from other licensing companies is really the innovation story. And RapidCool is a great thing for us to showcase, right, on that innovation. It's new, it's solving a big problem that the industry is trying to deal with right now. Thermal management, as you know, Kevin, is at the heart of a lot of what these companies are worried about. And we're showing a solution that is -- can be adopted, right? That is not so wild that it creates some totally new ecosystem. It's -- as I've mentioned before, it's plug and play in these current data centers, right, and it uses existing equipment.

And so yes, we think it can be also a really important element to our relicensing efforts with the memory players, but also in logic as we've talked about before. And so yes, it's part of that story. Hybrid bonding is kind of now. So we focus on that. But RapidCool is definitely an element of that relicensing effort as well as we talk to customers about how our portfolio continues to grow and evolve.

Okay. Great. And maybe I could just ask 1 other question about the tuck-in acquisitions of the IP portfolio. For -- What [indiscernible] IP in semiconductors or media? And did they include any employees or whether it's just patents?

Yes. So as I think we've mentioned before, we're focused on our tuck-in acquisitions really being in all of our growth areas. And so this quarter, it was media focused. So e-commerce, OTT and imaging were the primary technology areas that we acquired in. But we are evaluating semiconductor portfolios in addition to other media growth areas as well. We've got a strong pipeline in our acquisitions. These particular ones were patent focused, but we do remain open to looking at inventive teams and doing acquihires as well as patent acquisitions. That's part of what we evaluate as well.

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

Could you just talk about -- a little bit about your sales pipeline or potential deals? And if anything makes you uncomfortable as far as the timing not happening this year, if there's any of those possibilities?

Hamed, first of all, thanks for the question. I think our pipeline is quite robust. I was mentioning to someone just recently. I feel really good about where we are. And if I think about even comparing it to years past, I think we've got an incredibly robust set of opportunities to deliver on our commitments for this year. And it can come from various different avenues, right? And then I think the momentum we are seeing in e-commerce on the heels of our RPX deal is tremendous, for example. But in addition, obviously, the OTT and semiconductor momentum continues on as well.

And so when I look forward, there are a number of ways for us to get there. And they include even potentially some of the Pay-TV items that we've got in dispute, which obviously can move the needle quite a bit. But as you know, we are a small volume, high dollar shop, right? And so the good news is this year, we've got more in our path to get there than we have in the past, as I mentioned last quarter, and that continues on.

I guess what I'm trying to get to is, right now, you're on pace for the low end of your revenue guidance range. I'm just trying to understand like what's the outlook to get to the high end? Are you depending on 1 or 2 deals?

One or 2 deals? Sure. I think we've got a number of ways to get within our range. If I look at last year, for example, right, we were at about [ 170 ] at this point. We had 2 quarters of [ 85 ], right? This year, we're at the midpoint, we're at [ 201 ]. So we're in better shape than we were last year. We always tend to be a little back-end loaded in terms of when deals tend to come to fruition. And that's no different this year. It's a little better than it has been in the past, quite frankly. And so we continue to have really good discussions with customers, both on the renewal and new deal front.

And Hamed, I would also add to that, that when I took a look at our internal forecast, our internal forecast looks a lot like the consensus models out there as well.

Your next question comes from the line of Matthew Galinko with Maximum Group (sic) [ Maxim Group ]

Maybe, firstly, I think your 2Q operating cash flow number was historically relatively high, and I think it brought you a relatively high cash balance as well. Can you maybe talk about how you are feeling with your current cash balance and cash flow that kind of reached year-to-date and what we might expect through the balance of the year.

Yes. Matt, great question. So actually, if you take a look at that cash where we ended at $137 million, it's actually pretty consistent where we ended at the end of December of last year. And really, we got a couple of things. We had a great start to the year. Typically, Q2 and Q3 are pretty light for us in cash generation from cash from operations. But as you can see, Q2 was very, very, very strong.

For the full year, our outlook still is the same in terms of about $150 million or give or take, for the full year, which, once again, kind of going back to Q3 being relatively light. So we'd anticipate cash from operations in Q3 to be fairly modest and then have a resurgence back in Q4. And we also have a good number of commitments as we go through an operator of our business. We have a dividend program we paid down our debt. And last but definitely not least, we are acquisitive. So we built up probably a little bit higher bit of cash, knowing some of those things were coming in light of having a softer or a lighter cash from operations in Q3.

So with that being said, our targets are still the same when we -- in the year, in 2026, we anticipate cash being at that $100 million number that we typically target to get to.

All right. And maybe as a follow-up, RPX is an interesting counterparty. It's, I think first time I can remember, you announcing a license with RPX. So can you talk a little bit about how the negotiation was there? And do you think there is additional opportunity to license to portions of RPX's client or subscriber base or how should we think about that as a counterparty?

Yes. Thanks, Matt. Yes, we're really pleased with the RPX deal. We do think it is one that we can potentially replicate going forward. It is important to note, though, that it's consistent with our licensing program, right? And so it's term based, right? It is something that we see though as really helpful in terms of when you're looking at so many customers and potential customers that we have in the e-commerce space to really reduce friction potentially, right? And I think RPX was a great partner for us in that regard. I'm not going to get into the details of what the negotiations were, but we're really pleased with our conversations and relationships with RPX. And then we do think that this -- I'll just say the style of the deal can be potentially replicated going forward. I think getting 10 companies essentially under license at 1 time is fantastic for us, right?

And something that I think when you look at e-commerce in particular, we started really this business in e-commerce about 2 years ago. We got our first license agreement just at the end of 2024, right? And now it is a significant meaningful contributor to our business and our revenue, and we see it growing pretty significantly from here. And so yes, it's a great deal for us, very pleased with the relationship with RPX and see the deal structure as one that we could replicate moving forward.

That concludes our question-and-answer session. I will now turn the call back over to Chief Executive Officer, Paul Davis, for closing remarks.

Thank you, operator. Once again, I would like to thank our employees for their hard work and dedication and also our shareholders, partners and customers for their ongoing support. Over the next several weeks, we will be participating in the Oppenheimer Annual TMT Conference; the Rosenblatt Age of AI Conference, the Needham Annual Semi and SemiCap Conference and the BWS Investor Conference. We look forward to speaking with you at these and other events. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Good day, everyone. Thank you for standing by. Welcome to Adeia's First Quarter 2026 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, 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 first quarter of 2026. After last year's strong finish, including our license agreement with Disney, we entered 2026 with significant momentum, which continued into the first quarter. We signed foundational agreements with both AMD and Microsoft, along with additional deal activity across multiple verticals. Our strong execution is demonstrated in our first quarter results. We delivered revenue of $105 million with an adjusted EBITDA margin of 60% and $58 million in operating cash flow.

We also continue to execute on all 4 pillars of our balanced capital allocation strategy, paying down our debt, which is now less than $400 million, returning capital to shareholders through dividends and share repurchases and investing in our portfolios through 5 strategic tuck-in acquisitions. The 8 license agreements we closed during the first quarter were highlighted by AMD and Microsoft, which were among our 3 new customers.

We closed 5 renewals with customers across a diverse set of verticals, including Pay-TV, consumer electronics, semiconductors and OTT. I'm very pleased that in early March, we resolved our dispute and signed a seminal multiyear license agreement with AMD for access to our semiconductor portfolio, which includes our hybrid bonding technology. The agreement was reached within 4 months of filing litigation, underscoring the strength of our semiconductor portfolio and the effectiveness of our approach. It also represents an important milestone for our semiconductor business and provides further momentum as we pursue additional semiconductor opportunities in both logic and memory that will be driven by continued adoption of hybrid bonding.

The significance of our agreement with AMD cannot be overstated. AMD is a highly respected innovator and a leader in advanced semiconductor design. Their early adoption of Chiplet architecture and hybrid bonding highlights the relevance of our technology in next-generation computing. While AMD was an early adopter, hybrid bonding is now becoming more broadly adopted across the semiconductor industry. We are seeing increased adoption in both logic and memory, supported by significant investment in next-generation architectures and increasing use in advanced semiconductors for high-volume consumer electronic devices. This adoption is being driven by AI and high-performance computing, which are fundamentally increasing power density and interconnect demands.

As traditional Moore's Law scaling reaches its limits, our hybrid bonding and thermal management technologies have become essential to enabling continued performance gains. We believe our portfolio is well positioned to deliver value across both logic and memory markets as the industry pushes beyond the limits of traditional scaling. The AI-driven growth in semiconductors is remarkable with the total semiconductor market anticipated to exceed $1 trillion annually by the end of 2026.

In addition to AMD, we also added Microsoft as a new customer in the first quarter with a multiyear license agreement for access to our media portfolio. Our media portfolio has broad applicability across Microsoft's products and services, including its consumer electronics and social media businesses, such as Xbox and LinkedIn. In recent weeks, we also expanded our presence in e-commerce with a new license agreement with L'Oréal, adding another global brand to our expanding customer base in e-commerce.

While e-commerce remains a relatively small portion of our revenue to date, our growing momentum and robust pipeline in this market gives us confidence that it could be much more significant in the future. We continue to make steady progress towards reaching our long-term goal of $500 million in annual licensing revenue. Our strong start to 2026 reinforces our confidence in that trajectory. A key driver of this progress is our ability to add new high-value customers such as AMD and Microsoft, agreements that provide sustainable recurring revenue streams. These new deals are contributing to the continued diversification of our business.

In the first quarter, non-Pay-TV recurring revenue grew 28% year-over-year, reflecting further expansion into growth markets. Our most significant growth market is semiconductors. The rapid evolution of AI and high-performance computing is driving fundamental changes in chip design, including the broad adoption of Chiplet architectures with hybrid bonding.

Our agreement with AMD is an important validation of our position in this space. Other leading logic and memory companies are following similar paths, and we believe hybrid bonding will play an increasingly central role across both logic and memory applications for years to come. In addition, demand for high-performance memory continues to grow rapidly, particularly in NAND and high-bandwidth memory. We are already seeing contributions from earlier agreements with NAND manufacturers, and we expect further adoption as production volumes scale.

We are also beginning to see early indication that these technologies are expanding beyond data centers into consumer devices, which represents an additional long-term high-volume opportunity. Importantly, as AI and high-performance computing workloads continue to scale, thermal management becomes a critical constraint. Our RapidCool technology is designed to address these challenges, and we continue to make meaningful progress. Through further development, we have improved its cooling capability to approximately 5 watts per square millimeter, up from 3 watts less than a year ago, and interest from potential partners continues to grow.

Our IP portfolio remains the foundation of our business. Since the beginning of 2023, we have grown our portfolio from approximately 10,000 to over 13,750 patent assets. While we have delivered strong double-digit growth in recent years, we expect portfolio growth to moderate over time. We believe our portfolio today is well positioned to support multiple licensing cycles in both our core and growth markets, and our innovation engine is primed to continue to refresh these licensing cycles well into the future.

We continue to invest strategically in both organic R&D and targeted tuck-in acquisitions to ensure we maintain and enhance the value of our portfolio over time. In the first quarter, we increased our M&A activity, closing 5 tuck-in IP portfolio acquisitions across a wide spectrum of technologies focused on growth areas. We are very proud of these accomplishments. We continue to focus on expanding our customer base, which includes our history of developing long-term relationships. This has been a primary objective as we invest heavily in our portfolio development to support the ever-evolving technology solutions that help drive our customers' products and services.

Despite our tremendous track record of renewals, we occasionally find ourselves in customer disputes on the value of our portfolios. To that end, we are disappointed we could not reach acceptable terms for a renewal with DISH Network after their agreement expired at the end of March. DISH and their predecessor companies have been customers for decades. And throughout many renewals over the years, they have enjoyed the use of our IP. Since the last renewal, we have continued to innovate, add to our portfolio and strengthen our relevance within the Pay-TV industry.

In the past few years, we've successfully signed agreements with Hulu+ Live TV, Optimum, formerly Altice, Verizon and Frontier. Even through litigation, we keep the channels of communication open for the purpose of reaching terms on a license agreement, which is our ultimate goal. Leveraging our success with recent similar situations with Optimum, Disney and AMD, each of which was resolved efficiently and relatively quickly, we are confident we will reach successful outcomes with DISH and DIRECTV. Our technologists remain at the forefront in their fields and are often panelists or speakers at industry conferences. We are recognized as market leaders and innovators and are actively engaged in the ecosystems in which we operate.

I'm proud we were named one of the top 100 global innovators by LexisNexis Intellectual Property Solutions. We earned this recognition based on the quality and strength of our portfolios and the measurable improvements we've made in our innovation impact over the past 2 years. Unlike rankings based solely on patent volume, this award highlights companies driving meaningful advances in technology, and that is exactly what our teams do every day.

We had a strong first quarter, and we have built meaningful momentum to start 2026. I'm particularly pleased with the addition of AMD and Microsoft as new customers, both multiyear agreements that expand our presence in key growth markets and strengthen our recurring revenue base. Our strong financial performance supports continued investment in our portfolio and ongoing balance sheet improvement. And with a growing and diversified pipeline, we believe we have multiple paths to achieve our objectives for the year.

Before I turn the call over to Keith, I would like to address the other news we announced today. As noted in the press release, after much consideration and consultation with my family, I have informed the Board of my intent to step down as CEO later this year to focus on my health and other personal pursuits. As I reflect on my last 4 years leading Adeia, including through its separation from Xperi, I could not be more proud of what the company has accomplished. Our exceptional leadership team has transitioned the company from being primarily reliant on the Pay-TV market to one with robust and diversified revenue streams supported by our evolving and growing IP portfolios and technology leadership.

Our balance sheet is strong, having cut our debt nearly in half since separation, and we are positioned well for continued growth. I have committed to the Board that I will continue in my current role until a successor has been identified and appointed and through any necessary transition period. During this period, it will be business as usual as I remain focused on driving the team toward achieving our goals for 2026 and setting us up for continued long-term success.

Our goal is to find the next leader for Adeia by the fourth quarter. The Board has engaged a nationally recognized search firm, and I am confident we will find a leader that will continue the successes we have built and drive the next phase of growth for the company. I want to thank my family, the executive leadership team and the Board for helping me through this difficult decision. I also want to thank the dedicated Adeia employees that are at the heart of all of our success.

I will now turn the call over to my friend and our CFO, Keith, to cover our financial results.

Thank you, Paul. I'm pleased to be speaking with you today to share details of our first quarter 2026 financial results. During the first quarter, we delivered strong financial results within our expectations. Revenue of $104.8 million was driven by the execution of 8 deals across a diverse mix of customers, including semiconductors, consumer electronics, Pay-TV and OTT.

During the quarter, we signed 3 new license agreements, highlighted by AMD and Microsoft. Our recurring revenue during Q1 was $66.3 million as compared to $94.5 million in the prior quarter. The decrease in our recurring revenue was due to both subscriber declines and the timing of renewals with certain pay-TV customers. Additionally, we were impacted by the timing of revenue as a result of the structure of our license agreements with both SanDisk and Kioxia, which contributed no revenue in Q1, but will contribute meaningful revenue in the following quarters. We expect our quarterly recurring revenue to grow over the course of the year, reaching approximately $90 million at the end of the year.

Now I'd like to discuss our operating expenses, for which I'll be referring to non-GAAP numbers only. During the first quarter, operating expenses were $42.9 million, a decrease of $6.3 million or 13% from the prior quarter. The decrease was primarily due to lower variable compensation as a result of exceeding certain performance targets in last year's fourth quarter. Research and development expenses decreased $1.2 million or 7% from the prior quarter. The decrease is primarily due to lower variable compensation and outside service costs, which was partially offset by seasonal personnel costs.

Selling, general and administrative expenses decreased $4.6 million or 18% from the prior quarter, primarily due to lower variable compensation costs and lower spending on outside services, which was also partially offset by an increase in seasonal personnel costs. Litigation expense was $6 million, a decrease of $513,000 or 8% compared to the prior quarter, primarily due to lower spending on Disney due to the resolution of the litigation in the prior quarter, partially offset by new litigation matters.

Interest expense during the first quarter was $8.5 million, a decrease of $894,000, 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 7.3%. Other income was $1.7 million that was primarily related to interest earned on our cash and investment portfolio and due to interest income recognized on revenue agreements with long-term billing structures under ASC 606.

Our adjusted EBITDA for the first quarter was $62.3 million, reflecting an adjusted EBITDA margin of 60%. Depreciation expense for the first quarter was $492,000. Our non-GAAP income tax rate was 21% for the quarter. Our income tax expense consists primarily of federal and state domestic taxes as well as Korean withholding taxes.

Now for a few details on the balance sheet. We ended the first quarter with $115.8 million in cash, cash equivalents and marketable securities, and we generated $58.5 million in cash from operations. As demonstrated by our results, the first quarter has historically been a very strong cash generation period for us. This strong financial performance allowed us to execute on all 4 pillars of our balanced capital allocation approach. This includes paying down our debt, repurchasing shares, paying our dividend and making 5 tuck-in portfolio acquisitions. We made $28.1 million in principal payments on our debt in the first quarter and ended the quarter with a term loan balance of $398.6 million.

I'm also happy to announce that based on our strong financial performance, Standard & Poor's has upgraded their credit rating on us to BB from BB-. In the first quarter, we repurchased approximately 446,000 shares of our common stock for $10 million, bringing the remaining amount available for future repurchases to $150 million under our current stock repurchase program. We paid a cash dividend of $0.05 per share of common stock. Our Board also approved a payment of another $0.05 per share dividend to be paid on June 15 to shareholders of record as of May 26.

Now I'll go over our guidance for the full year 2026. We are reiterating our prior guidance. Our 2026 revenue guidance range is $395 million to $435 million. As we mentioned in our previous call, our sales pipeline was and continues to be very strong. Overall, we continue to see the first half of the year and the second half of the year being relatively equal in terms of revenue contribution with the second quarter being modestly lower than the first quarter.

Operating expenses are expected to be in the range of $184 million to $192 million. We expect interest expense to be in the range of $34 million to $36 million. We expect other income to be in the range of $5.5 million to $6.5 million. We expect a resulting adjusted EBITDA margin of approximately 55%. We expect the non-GAAP tax rate to be 21% for the full year. We also expect capital expenditures to be approximately $2 million for the full year.

As I conclude my remarks, I want to say this is obviously a challenging day, full of emotions for me and the company. On a personal level, Paul is not only an incredible leader and boss, but also a dear friend that I cherish. Knowing Paul, this decision was very difficult for him and his family. Paul should take great pride in having helped to cultivate a legacy that will further propel Adeia to a great and promising future.

As we look across the semiconductor and media landscapes, we continue to see broad adoption of our foundational technologies. We find ourselves at the right place at the right time. Speaking on behalf of all our employees, we take pride in this success. It is driven by the tireless and dedicated efforts of our entire team. The culture we have created will continue to thrive. Our future is bright, and I cannot be more excited about the opportunities that lie ahead of us in the coming years.

With that, it brings an end to our prepared remarks. I'd like to turn the call over to the operator to begin our question-and-answer session. Operator?

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

Congratulations on the great results and congratulations, Paul, on making this decision, but I hope you -- it's a gradual departure, but thank you for leading the company. My question is around the AMD license and how much was it on retroactive royalties, I guess, things that we wouldn't see recurring in future years? Can you give like a percentage of what the upside was?

So Kevin, in terms of the AMD, kind of getting into the granulars of the revenue breakout, that's something that we're not really in a position to do in detail. But the AMD agreement is not only significant for us in terms of being one of our first licensees in the logic space, but as they kind of go forward, there will be meaningful revenue contribution to us. Just in terms of color, they will be in this quarter, a greater than 10% customer, but that does include a retroactive amount that we have recognized. But more importantly, going forward, they most likely find themselves in a position where they would be greater than a 10% customer for us going forward. So it's something that's very meaningful for us going forward.

Okay. And maybe just on the...

Kevin, just to be clear, they won't be a 10% customer going forward. And Kevin, thanks for the kind remarks, and thank you for that. Appreciate it.

Sure. Yes. The other question I had was around the tuck-in technology acquisitions, were there any scientists or employees that are included with that? Or were they only patents?

Yes. Kevin, we focus right now primarily on patent portfolios that we think can be really helpful to really our growth areas, and that's what these ones are. We do evaluate and look at ones that are broader than that. But for the most part, what we have been acquiring have been primarily patent acquisitions. In this case, very consistent with what we've done over the last couple of years. We did 5 relatively small tuck-in acquisitions individually, but they start to add up. And they're in growth areas. So for instance, like e-commerce and automotive was a focus area this past quarter. But we look in all of our growth areas, including semiconductors, continue in OTT like we've done before with a number of acquisitions over the last couple of years. So yes, that's where we focus on, but we do explore other types of acquisitions as well.

[Operator Instructions] Your next question comes from the line of Hamed Khorsand with BWS Financial.

So first off, could you just talk about the IP funnel that you have on the licensing and that balances out Q2 and through the Q4 and how you're looking at that given these big announcements you've had in Q1 so far?

Yes. Thanks, Hamed. Really appreciate the question. When we look at our pipeline, as Keith mentioned, it's quite robust, and we have remained multiple paths to get to our guidance range that we noted. It really comes from a number of areas, including core markets, including Pay-TV, where we still have opportunities there and then e-commerce opportunities and as well as consumer electronics, social media and OTT that remain opportunities for us and then semiconductors, of course. So it's really across our different verticals. And it will be a mix of both renewals and new deals, but new deals are still important for us to be able to hit our goals for the year, and we're entirely focused on that as we have been last year as well.

Those new deals are so important because they really continue to diversify our revenue and add new streams that we're able to offset some of the known declines we have. If you look at our growth in non-Pay-TV recurring revenue, it continues to be very robust, right? So 28% year-over-year this quarter, which continues a trend over the last 4 or 5 quarters that we've had. And so we're really proud of that.

Your next question comes from the line of Matthew Galinko with Maxim Group.

I guess, firstly, you touched on maybe moderating the rate of growth of the portfolio, although I think 5 tuck-in acquisitions would be on the high end of what you've done to date. So can you maybe help us balance whether it's a shift in strategy to be more focused on external portfolios at this point or just kind of how things fell?

Yes. I would say it continues to be a mix, right? I think that's really important to us, but one that's heavily weighted towards internal innovation. I think that's what we see the most value from. That's what our customers focus on as well. So we've had an 85-15 split for 85 internal and 15 external for quite some time now. It's a metric that we like to maintain. We're not religious towards it. We can -- it can vary from time to time.

But on the strategic acquisition side, we truly look for things that can round out our portfolio. And so it can swing one way or the other where we do have more activity in a given quarter, and it can lead to that number being a little higher at any given time. But over a longer period of time, I think that 85-15 split is something that we'd like to maintain. And we're still doing a ton of internal innovation and have been. Since separation, we've really ramped that and you're seeing that both on the semiconductor and the media side of our business.

And my follow-up would be on capital structure, given the continued reduction in debt balance. And I think you mentioned an upgrade to your credit rating. Does that change anything as far as your plans or thoughts on cash levels you want to keep on hand or kind of your leverage ratio or anything -- does anything change?

Thanks for the question. So we find ourselves in a great spot, and I just couldn't be more proud of us as a company and kind of how we've operated. What we've talked about before in the past is that there's a certain amount of debt that we as a company that are comfortable carrying. And we had talked about historically that being between $300 million to $400 million just through our hard work and disciplined efforts. We find ourselves in that threshold right now. Another nice little tailwind and benefit that we get from all of that, too, is we had a nice upgrade from Standard & Poor's to that BB rating, which is going to be very advantageous to us.

But with that being said, the timing in the market for us to refinance right now is not optimal. What we've seen really since the war has kind of broken out is that interest rates have been a little bit more on the rise. And we would like to see things settle out before we get into the market and to refinance our debt. With that being said, our timing is that we'll be active and my ultimate goal or our ultimate goal is kind of have a new debt in place at least 12 months before the debt matures and that debt matures in June 2028. But with that being said, we're actively looking, and we are thinking about fixed structures that we can put in place that's going to allow us to get more cash flow back into the business to do more tuck-in acquisitions and return more capital to shareholders.

So in terms of that, we definitely have a very defined plan, and it really comes on the heels of tremendous execution of deleveraging our balance sheet. So once again, thanks for that question, and we're right where we want to be.

I'll now turn the call back over to Paul Davis for closing remarks.

Thank you, operator. Once again, I would like to thank our employees for their hard work and dedication and also to our shareholders, partners and customers for their ongoing support. And thanks to everyone for being with us today.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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 year, we believe we are able to demonstrate to Disney, the applicability of our portfolio to their services and both parties reached a comprehensive agreement resolving all disputes. Concluding this matter efficiently, reinforces the strength and broad applicability of our IP portfolio and provides additional momentum as we pursue further OTT opportunities.

Another new customer in the fourth quarter was Major League Baseball, the second major U.S. professional sports league to sign a multiyear agreement for access to our media portfolio. We were also pleased to sign a multiyear renewal with Vodafone, reaffirming our relevance and strength in international Pay-TV markets. In addition, during the quarter, we signed a new OTT customer in South Korea, a new Consumer Electronics customer in Japan, a domestic Consumer Electronics renewal and 2 Pay-TV renewals, further demonstrating the breadth of our licensing platform.

In semiconductors, we signed a prototype development agreement with an existing customer following an initial license agreement with them last year. The customer recognized early on the value of our hybrid bonding technology for high-performance imaging and detection systems.

Now I'd like to provide a brief review of our accomplishments for the year. Turning to the full year. 2025 was a record year for Adeia. Revenue reached $443 million, exceeding the upper end of our revised guidance with operating income of $276 million and adjusted EBITDA of $278 million, both above the high end of our guidance. Our results were driven by the execution of 26 license agreements across a diverse customer base spanning OTT, semiconductors, consumer electronics, Pay-TV and e-commerce verticals. Importantly, we added a record 12 new customers, significantly expanding and diversifying our licensing base. Momentum was strong across both core and growth verticals, including 9 Pay-TV deals, 7 in OTT and 4 semiconductor deals. New customers such as Disney, STMicro, Major League Baseball and several e-commerce platforms contributed meaningfully to growth. Renewals with customers, including Altice USA, Vodafone and others continue to support the stability and predictability of our recurring revenue stream.

Balanced capital allocation remained a priority in 2025. During the year, we reduced debt by $60 million, returned capital through dividends and share repurchases and acquired 6 tuck-in patent portfolios, all while growing our cash balance. Our semiconductor innovation also received industry recognition. Our hybrid bonding technology was awarded Best of Show for Most Innovative Technology at the Future of Memory and Storage Conference. In addition, RapidCool received the Global Brands Award for Technology Excellence as demand for high-performance computing, driven by AI continues to grow, we believe the effective thermal solutions will be increasingly critical and we remain focused on advancing RapidCool with partners and potential customers. Several opportunities we previously discussed have closed or are expected to close early in 2026, supporting our confidence in our annual revenue guidance. The opportunities in our pipeline continue to expand across both media and semiconductors. As we have previously mentioned, we are expecting Pay-TV as a percentage of revenue to decline below the historical average of approximately 50% to 60%. We are now anticipating Pay-TV will represent approximately 35% to 40% of our forecasted revenue this year. We are closely monitoring and taking direct action to challenges within our Pay-TV licensing program. Specifically, DIRECTV has filed certain litigation, which ultimately challenges the need for a new license agreement. We believe this is a clear violation of the agreements we had in place, and we have, in turn, filed a breach of contract suit against them. As we have demonstrated in recent disputes, including Altice USA and Disney, we are confident we will ultimately be able to successfully resolve this matter. As a reminder, the vast majority of U.S. Pay-TV operators are licensed to our media portfolio, several of which agreements extend into the next decade. We continue to diversify our customer base. One of our primary strategic priorities over the last few years has been to grow our revenue in non-Pay-TV verticals such as OTT, semiconductors, consumer electronics, social media and adjacent media markets. By adding new customers in these verticals, we have made tremendous progress. In 2025, we grew our non-Pay-TV recurring revenue by more than 20%. And since 2022, we have grown it by more than 60%.

In semiconductors, we see the adoption of hybrid bonding, broadening with new product releases anticipated in 2026. Hybrid bonding enables further advancement of Moore's Law in an environment where there is a growing need for innovations that support rapidly evolving AI ecosystems and related infrastructure. While AMD is already in production with their hybrid bonded products, other logic leaders such as Intel, Broadcom and Marvell have publicly disclosed product road maps that will utilize hybrid bonding. Hybrid bonding is also becoming critical in memory, especially in high-bandwidth memory and NAND, which are increasingly needed to process today's large language models and other AI applications. Micron, Samsung, and SK hynix are all making significant multibillion dollar investments in advanced packaging capacity that support their hybrid bonding strategies for HBM and NAND.

Semiconductor equipment toolmakers involved in the hybrid bonding supply chain have further confirmed the rising adoption within their tool orders recently accelerating. With AI driving significant transitions in semiconductor architectures and the need for better cooling technologies only increasing, our hybrid bonding and RapidCool technologies position us well to capture meaningful opportunities in the next several years.

Our patent portfolio underpins our future licensing activity. In 2025, we grew our portfolio by 13%, marking our third consecutive year of double-digit growth, driven by strategic R&D and targeted M&A. While portfolio expansion remains a priority, we expect growth to moderate over time. I'm pleased, once again, we were recognized by Harrity & Harrity as one of the most prolific inventors in the U.S., with our ranking rising compared to last year and ahead of industry leaders such as AMD, Broadcom, Verizon and AT&T. Amongst these industry titans, I'm extremely proud that we had the 66 most new U.S. patents issued in 2025, a remarkable achievement for a company of our size and attainment to our commitment to innovation.

We achieved a lot in 2025. We strengthened our predictable revenue stream while expanding into key growth markets, positioning Adeia for continued long-term value creation. We also recently enhanced our leadership structure to strengthen execution towards the company's long-term strategy and growth priorities. Specifically, we welcome back Craig Mitchell, to the newly created role of Chief Semiconductor Officer, where he will lead the company's semiconductor technology and R&D organization and will be responsible for shaping Adeia's semiconductor vision. In addition, Dr. Mark Kokes was appointed Chief Revenue Officer. Mark will oversee our global sales and go-to-market strategy across the organization. Finally, Bill Thomas was appointed to Chief Strategy Officer, a newly created position to oversee our long-term planning, market analysis and growth initiatives. With this new leadership, I am confident we have the right team and structure to execute on our strategy. We are off to a strong start in 2026, supported by recent agreements and a growing pipeline. We remain focused on achieving our long-term goal of $500 million in annual licensing revenue.

And now I'll turn the call over to Keith for further details on our financial results.

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 revenue agreements with long-term billing structures under ASC 606.

Our adjusted EBITDA for the fourth quarter was $133.9 million, reflecting an adjusted EBITDA margin of 73%. Depreciation expense for the fourth quarter was $484,000. Our non-GAAP income tax rate remained at 23% for the quarter. Our income tax expense consists primarily of federal and state domestic taxes as well as Korean withholding taxes.

Now for a few details on the balance sheet. We ended the fourth quarter with $136.7 million in cash, cash equivalents and marketable securities, and we generated $60 million in cash from operations. As demonstrated by our results, the fourth quarter has historically been a very strong cash generation period for us. This strong financial performance allowed us to execute on all 4 pillars of our balanced capital allocation approach while growing our cash balance. This includes paying down our debt, repurchasing shares, paying our dividend and making 2 tuck-in acquisitions. We made $21.1 million in principal payments on our debt in the fourth quarter and ended the quarter with a term loan balance of for $426.7 million. In the fourth quarter, we repurchased approximately 718,000 shares for $10 million, bringing the remaining amount available for future repurchases to $160 million under our current stock repurchase program. We paid a cash dividend of $0.05 per share of common stock. Our Board also approved a payment of another $0.05 per share dividend, to be paid on March 30 to shareholders of record as of March 16.

Now I'll go over our guidance for the full year 2026. Our 2026 revenue guidance range is $395 million to $435 million. As we mentioned in our previous call, our sales pipeline was and continues to be very strong. This has manifested in not only a strong close to 2025, but serves as a springboard to early success in 2026, which we see propelling us through the remainder of the year with future wins. Overall, we see the first half of the year and the second half of the year being relatively equal in terms of revenue contribution.

Operating expenses are expected to be in the range of $184 million to $192 million. We anticipate modest single-digit growth for both R&D as well as SG&A expenses. As we continue to prioritize investing in our technology and infrastructure in both our media and semiconductor businesses. We anticipate that our litigation expense will increase year-over-year. Even with recent settlements, our litigation docket remains active as we pursue additional large licensing opportunities. We expect interest expense to be in the range of $34 million to $36 million.

We expect other income to be in the range of $5.5 million to $6.5 million. We expect a resulting adjusted EBITDA margin of approximately 55%. We expect the non-GAAP tax rate to be 21% for the full year. We also expect capital expenditures to be approximately $2 million for the full year. I could not be more pleased with our performance in 2025. Our operating results reflect significant records for Adeia for revenue as well as earnings. Our deal momentum and execution have led to a record number of new customers, which are a key catalyst for our future growth as we look to expand our business. We have shown that we have a relevant and sustainable licensing program, which is bolstered by our commitment to investing in our portfolio development. With momentum that we have generated, I am excited and encouraged by our prospects in 2026 and beyond. I'm incredibly proud of our dedicated employees who have worked tirelessly to accomplish our goals and thankful for their continued belief and our mission.

Now I'd like to turn the call back to Paul for a few additional remarks. Paul?

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.

Good day, everyone. Thank you for standing by. Welcome to Adeia's Third 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, 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. Our third quarter revenue of $87.3 million was in line with our expectations, and we remain confident in the strength of our business. Importantly, our non-Pay TV recurring revenue was up 31% year-over-year for the third quarter.

Let me first address the change to our revenue guidance we announced this morning. While we continue to have paths to achieve our original revenue guidance range for the year, we have taken a prudent approach and adjusted our 2025 full year revenue guidance primarily to reflect that we have now filed litigation against AMD and closing a license agreement in the fourth quarter, as previously expected, is now unlikely. We have continued to make good progress on other significant deals in our pipeline, and we remain focused on getting the best economics we can over the long term. Our revised revenue guidance range reflects multiple opportunities that we are actively pursuing. To the extent that they don't close in 2025, they become a strong catalyst to growth in 2026.

Before I get into the details of the third quarter results, I want to cover today's announcement regarding our litigation against AMD for patent infringement. I will also provide a brief update on the progress we have made in our other pending litigation. This morning, we issued a press release announcing we filed multiple patent infringement lawsuits against AMD in the Western District of Texas. Our decision to file litigation was not taken lightly and followed significant efforts to reach a business resolution. The action we took today reflects our firm commitment to ensure we realize appropriate value for our substantial investments we have made in our foundational semiconductor technology.

For years, AMD's products have incorporated and made extensive use of our patented semiconductor technologies, which have enabled them to be a market leader in the semiconductor industry, including those related to hybrid bonding and advanced process nodes. We sought to enter into a license agreement with AMD, and we have been referencing this opportunity since last year and have been pursuing a deal for even longer. Despite our efforts to reach a business resolution, AMD continues to use Adeia's patented semiconductor innovations without authorization. The lawsuits we filed today seek to stop this unauthorized use and include patents covering hybrid bonding and advanced process node technologies. Our hybrid bonding technology is used in AMD's most advanced semiconductor products, including those for AI workloads, data centers, and high-performance cloud computing. Our advanced process node technology is used in the vast majority of AMD's current semiconductor products. We believe in the strength of our patent portfolio, the value of our innovations, and we are committed to protecting our intellectual property. We are confident in our ability to achieve a positive outcome.

Turning to the progress in our other pending litigation. It has been a year since we filed litigation against Disney, and the cases have been progressing well and collectively better than we expected. First, in Delaware, the court denied Disney's motion to dismiss certain of the patents in the case. As such, the litigation will continue to proceed on all 6 patents. In Brazil, our request for a preliminary injunction was granted and further upheld on appeal. We have initiated enforcement proceedings on the injunction. In Europe, the 3 cases are proceeding as planned and are all scheduled to go to trial in the first quarter of 2026. I am optimistic about this early progress in our Disney litigation, and our goal remains to ultimately reach an agreement with Disney that fairly values our intellectual property.

Turning to Shaw. The court recently ruled in our favor and denied Shaw's motion to dismiss our breach of contract case, meaning the litigation will now move forward. In our patent litigation case against Videotron, we recently received a positive ruling from the court. While details of the decision are still confidential, we are pleased that the court found 2 of the 4 patents in the case are valid and infringed. Further, the court awarded damages with respect to both patents and an injunction with respect to one of them. Finally, in our patent litigation against Bell, we expect a ruling in the second or third quarter of 2026.

Now for some additional commentary on our business results. During the third quarter, we closed 2 long-term license agreements: one was a renewal with Altice, one of the largest broadband and video service providers in the United States, for access to our media portfolio. The agreement supports their Optimum services, including broadband, cable television, and OTT streaming platforms, ensuring subscribers enjoy advanced content discovery and navigation experiences. The second agreement was with a new e-commerce customer also for access to our media portfolio. We have now signed 4 e-commerce customers since entering this exciting new market last year, and we anticipate many more in the coming quarters.

We recently celebrated our third anniversary as a stand-alone company, and I am tremendously proud of all we have accomplished. The separation unleashed the opportunity for us to expand our pipeline and grow as an independent organization. We have continued to expand beyond pay TV, which has been our core business historically, and into new growth opportunities in semiconductors, OTT, social media, and e-commerce. License agreements we have signed in these verticals are now driving growth in our non-Pay TV recurring revenue stream. In the third quarter, our non-Pay TV recurring revenue was up 81% since separation, providing evidence of our early success in these new verticals. This growth includes new agreements with large semiconductor companies such as Sandisk, Kioxia, and STMicroelectronics, and OTT deals with Amazon, Paramount, and Starz, and social media and consumer electronics deals with X, Samsung, LG, and Canon. We have also renewed key Pay-TV deals with customers such as Altice, Verizon, and Cox, which we've had relationships for many years and have renewed time and time again. These deals provide a solid foundation from which we can grow as we add new customers.

One of our key priorities at separation was to grow our IP portfolio. Growing our portfolio adds value to help secure new customers and renewals, which drive ongoing recurring revenue. At the time of separation, we had approximately 9,500 patent assets. With a commitment to expand and evolve our portfolio, we have seen our portfolio increase to over 13,000 patent assets, reflecting an impressive growth of over 35%. The vast majority of this growth has been from internal R&D, focused on new patent filings in OTT, AI, hybrid bonding, and thermal management.

Additionally, we have built a positive, healthy culture and have been widely recognized as a leading innovator. We were named one of the Best Places to Work by U.S. News & World Report for 2 years in a row and one of the World's Most Trustworthy Companies by Newsweek. We were honored that Adeia's hybrid bonding technology received the Best of Show Award for the Most Innovative Technology at the Future of Memory and Storage Conference in August. This recognition is a strong validation of the dedication, innovation, and technical excellence our team brings to advancing the future of memory and storage solutions. But our accomplishments don't end there because all of this contributes to our financial success. Our highly cash-generative business model has provided the strength to execute on our balanced capital allocation approach as we have continued to pay our dividend, deleverage our balance sheet, repurchase stock, and make tuck-in acquisitions of strategic patent portfolios. It has truly been a remarkable period for Adeia, and I'm excited about the road that lies ahead.

Our goal since separation has been to deliver sustainable long-term revenue growth, and we are making excellent progress as evidenced by our non-Pay TV recurring revenue growth. Our disciplined balanced capital allocation strategy continues. And during the third quarter, we made debt payments of $11.1 million, continuing our commitment to pay down our debt at an accelerated rate. We have paid down an impressive $312 million of our debt since separation. Our accomplishments have put us on a trajectory for long-term success, and I'm truly grateful for all the hard work and dedication from our team.

With that, I'll turn the call over to Keith for a review of our financial performance. Keith?

Thank you, Paul. I'm pleased to be speaking with you today to share details of our third quarter 2025 financial results.

During the third quarter, we delivered revenue of $87.3 million, driven by the execution of 2 long-term media license agreements. This includes signing a significant renewal with Altice, further extending our long-term relationship with them. I'm also proud to announce the addition of another e-commerce customer as we continue to gain momentum in this growing market. We have now signed license agreements with 4 new e-commerce customers within a relatively short period of time, and we have built and are actively engaged with a large pipeline of additional opportunities.

Now I would like to discuss our operating expenses for which I'll be referring to non-GAAP numbers only.

During the third quarter, operating expenses were $37.1 million, a decrease of $3.5 million, or 9%, from the prior quarter. Research and development expenses modestly increased $117,000, or 1% from the prior quarter. Selling, general and administrative expenses decreased $1.6 million, or 8%, from the prior quarter, primarily due to a decrease in corporate administrative expenses as well as lower personnel costs. These decreases align with the cost-saving initiatives that we previously highlighted. Litigation expense was $5.2 million, a decrease of $2 million, or 28%, compared to the prior quarter, primarily due to lower spending on Canadian matters, which was partially offset by increased spending on Disney and AMD litigation. Interest expense during the third quarter was $10.1 million, a decrease of $162,000, primarily attributable to our continued debt repayments. Our current effective interest rate, which includes amortization of debt issuance costs, was 7.8%, consistent with the prior quarter.

Other income was $1.5 million and was primarily related to interest earned on our cash and investment portfolio and due to interest income recognized on revenue agreements with long-term billing structures under ASC 606. Our adjusted EBITDA for the third quarter was $50.7 million, reflecting an adjusted EBITDA margin of 58%. Depreciation expense for the quarter was $479,000. Our non-GAAP income tax rate remained at 23% for the quarter. Our income tax expense consists primarily of federal and state domestic taxes as well as [ Korean ] withholding taxes.

Now for a few details on the balance sheet. We ended the third quarter with $115.1 million in cash, cash equivalents, and marketable securities and generated $17.8 million in cash from operations. We have made $11.1 million in principal payments on our debt in the third quarter and ended the quarter with a term loan balance of $447.8 million. Our highly cash-generative business model and our disciplined focus on deleveraging our balance sheet have produced outstanding results. Since separation, we have now paid down $311.6 million as we continue to focus on deleveraging our balance sheet. During the third quarter, we paid a cash dividend of $0.05 per share of common stock. Our Board also approved a payment of another $0.05 per share dividend to be paid on December 15 to shareholders of record as of November 24.

Now I will go over our guidance for the full year 2025. As Paul noted in his remarks, today, we have filed litigation against AMD for patent infringement. In our prior calls, we had referenced our anticipation of signing a license agreement with a semiconductor company, which was, in fact, AMD. After a long negotiation period, we have reached an impasse which has resulted in litigation. This anticipated license agreement was included in our prior guidance as we have previously mentioned. As a result of the litigation we have filed, we are adjusting our 2025 revenue guidance to reflect the likelihood that we will not close AMD this year.

We are committed to obtaining the appropriate economics on each and every deal, which is of paramount importance to us, and we'll continue to remain disciplined on this front to maximize the long-term potential of Adeia. Accordingly, our new 2025 revenue guidance range is $360 million to $380 million. I would like to emphasize that our pipeline remains strong and is growing. We continue to have many paths to success and the ultimate outcome of our short-term revenue outlook is largely due to the execution timing of that pipeline. I would like to mention that there still remains opportunities which could potentially result in revenue beyond the noted range for 2025. To the extent that these opportunities do not close this year, they will act as a catalyst for a strong 2026. With this momentum and supported by our pipeline, we foresee revenue growth in 2026.

Turning to our operating expenses. As a result of our ongoing cost-saving initiatives, we have now lowered our overall operating expense guidance. Our operating expenses are now expected to be in the range of $160 million to $164 million. Our expense guidance includes the expected costs associated with our litigation with Disney and now AMD. Relative to our Q3 litigation expense, we would anticipate litigation expense to increase by approximately $3 million in Q4. We expect interest expense to be in the range of $40 million to $41 million. We expect other income to be in the range of $5.5 million to $6.5 million. We expect a resulting adjusted EBITDA margin of approximately 56%. We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year. We also expect capital expenditures to be approximately $2 million for the full year.

As we reach our 3-year anniversary of being a stand-alone publicly traded company, I reflect and take pride in the progress we have made in our business. These achievements are driven by the dedicated efforts of our employees who work tirelessly to shape and execute our collective vision. Our long-term prospects remain strong, and the cumulative efforts we have made thus far will be a springboard for our future success.

That brings an end to our prepared remarks. And with that, I'd like to turn the call over to the operator to begin our question-and-answer session. Operator?

[Operator Instructions] And your first question comes from the line of Scott Searle with ROTH Capital.

A quick clarification and then 2 questions. Keith, I'm not sure if I heard any of onetime catch-up fees in the quarter. I'm wondering if you could clarify that. And I assume it would all be related to media. And then as we're looking out to the fourth quarter, a wide range of outcomes there depending on when deals get signed. I wonder if you could provide a little bit more color in terms of the size, the types of deals in the pipeline. I think you've talked a lot about e-commerce comprising that. But in particular, I'd like to know what you guys are thinking about recurring revenue, how that moves sequentially from the third quarter to fourth quarter, and maybe an early shot at '26 of how you see recurring media revenue grow in '26. And I had one follow-up.

Scott, great question. So the recurring revenue in Q3 was very modest. That amount was about $1 million. And as you note that we talked about we had one new license agreement, one renewal. So fundamentally that amount came from both of those agreements. And so nothing really to note there. And I think quite candidly that really speaks to the overall stability of our recurring revenue. And if you go through and do that math that gives us a recurring revenue number that's in the mid-80s.

Now what I'd like to see, and when I take a look at our forecast, is that not only is that a strong foundation, but there's a number of agreements that we have, not only in media, but also in our semiconductor side that's going to have a little bit of an uplift for us in that regard. So just from that backlog that will see it crossing approximately $90 million in Q4. So I think that's a good springboard of thinking about just the overall stability of the business.

As you know, in Q1, we have one particular agreement on our semiconductor business where there's -- just based on how we've structured the agreements in the past, there's a little bit of a short-term adjustment simply because of revenue recognition rules. But then that, quite frankly, levels out when you get into Q2 and beyond. And then -- so we're seeing really strength in that recurring revenue business going forward. In terms of the quality of the pipeline, I can turn it over to Paul, and he can give a little color on that.

Thanks, Scott, and appreciate the question. I think we're very pleased with our pipeline. As Keith and I both noted in our prepared remarks, both on the semiconductor side of the business and the media side of the business, it remains quite strong. And one thing I would just highlight is that when things do move to the right, the opportunities are not lost. We still see all of the opportunities that we saw last quarter or earlier in the year still in front of us and still achievable. But there is a timing element. And what we focus on is getting the right deal done for the long term for Adeia and its stakeholders. And so sometimes that does mean things do shift to the right, but the opportunities are not lost. And if they do move into 2026, it does mean for some significant growth that we could see in 2026 as compared to 2025.

Keith, if I could just quickly follow up, then. That means that the semiconductor revenue, I think it was $5.2 million in that ballpark, was up sequentially from a recurring standpoint, I guess, driven by the 3D NAND opportunity. And then just to dive in on AMD, I'm wondering, Paul, could you just lay out the time lines and the milestones that we could expect in terms of how this litigation would progress? And as part of that, then, how is that impacting or not impacting the dialog with other semi vendors out there, particularly as it relates to the logic opportunity with chip-led opportunities?

Yes. Thanks, Scott. I'll address your question first, and then I think on the question that you asked, Keith, I'll let him follow up. But I think it is up, you're correct, confirming that. So on your question in terms of AMD and timing, I'll note, we filed 2 cases today, both in the Western District of Texas. Those cases, we would anticipate going to trial, all things going according to schedule, sometime in 2027, although it's very early. We just filed it today. So I would caveat that. I would also note that there is a government shutdown going on right now, which does -- did impact some of the jurisdictions that may be available to us. And so there might be additional jurisdictions that would open up to us as the government opens up as well. So I would -- stay tuned on terms of the milestones, but we are -- we feel really good about the case that we filed.

Ten patents is pretty substantial. Seven of them are hybrid bonding patents. I would also note that of the 10 patents, 8 of them do not expire until mid-2030 or beyond. So these are very significant patents in our portfolio. They go out for quite some time. And as we noted on the call, they really cover collectively virtually all of AMD's products, including really all of their most advanced GPUs as well.

And Scott, as you mentioned, you hit the nail on the head. That increase -- we did see an increase in semiconductor, and we're really excited about it. And once again, you're spot on. What you've been hearing about and seeing in the industry in terms of that growth and strength in the NAND market is showing up in our financial results. And we actually see that momentum carrying into Q4 for us as well.

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

So first question is, could you just reconcile some of the commentary you've made last quarter and this quarter? Last quarter on the call you had said there was so much opportunity that you wouldn't need AMD and you could still hit the upper end of the guidance. But then this quarter, you're coming out and reducing guidance because you don't have AMD. And then right now you're saying that you met the guidance -- your expectations for Q2 -- for Q3. Well, if that was the case, why didn't you provide guidance because the Street was at $100 million. So I'm just trying to understand everything that's going on.

So Hamed, a few things. As you know, we provide annual guidance only. We do not provide quarterly guidance. So it would be unusual for us to provide quarterly guidance. Second, in terms of the statements last quarter, those statements remain true. We have a robust pipeline that we feel like we've got a number of opportunities. As Keith and I both noted, we still have opportunities today to hit above the revised guidance range, including getting into the original guidance range. However, given the time of year, the number of paths have narrowed given the AMD litigation, so that is also true. And so, we are taking a prudent approach at this time, given that we are now in November of taking the guidance range down. But we still believe that the opportunities lay ahead for us and that we have -- whether they land in '25 or they land in 2026, we have significant opportunities in front of us in both our media and semiconductor businesses that we're very excited about.

Okay. And then just so I understand, what's there in the pipeline that gives you confidence that you could see revenue lift by about $20 million in the quarter that hasn't happened at all throughout this year?

Sure. So, Hamed, as you know, we do very large deals. These are deals that often are -- they can be in the 9 figures even. And they can take time. They can be very complicated to negotiate. Often, at times, we're dealing with parties that have to go get approval from the highest levels of their own companies. And so sometimes that can be a challenge in terms of navigating the exact time line. That being said, we are having very good discussions with multiple parties in both our media and semiconductor parts of our business that give us confidence. And so we've got on the table.

So when we think about it, obviously, we filed litigation against AMD. We've got outstanding litigation against Disney. We've got Canadian operators. We have large OTT opportunities that remain unlicensed today. There are additional semiconductor opportunities that we are pursuing as well. And so when we look at it holistically, there are a number of opportunities that we have been pursuing for quite some time. I'm not going to be able to get into the details of exactly what they are. But holistically, when we look at all of them, it gives us a lot of confidence on our ability to execute and bring those deals in. It's a matter of timing, whether they happen in '25 or '26, and that's where you're getting that difference between where they fall in the change in revenue guidance.

Your next question comes from the line of Matthew Galinko with Maxim Group.

I'm curious if there are any implications for other possible deals or renewals in the semiconductor pipeline given the litigation announcement with AMD.

Yes. And a similar question that Scott asked that I didn't address. So thank you for bringing that up, Matt. We're very excited about the adoption cycle of hybrid bonding right now. You're hearing more and more adoption, especially in the logic space. And then as you look out further with HBM and also in NAND that we see more and more adoption coming down the pipeline in '27 and beyond, in particular, for the memory market and for next year for the logic market. And again, when you look at the cases we filed today, 7 of the 10 patents are hybrid bonding related. And so that is very exciting to us in terms of the breadth of our portfolio and the relevance to really these advanced semiconductors and the use of our technology that we have invented. And so we're very excited about what that pipeline can be.

Now AMD was ahead of the curve in terms of adoption of hybrid bonding. So their first products came out in 2022. The rest of the logic market is a bit behind. But you've got a number of companies that have announced intentions of launching products in 2026 and beyond that we believe will utilize hybrid bonding and our technology as well.

And maybe if I could just ask a follow-up. I realize it's still early in the planning cycle for '26. But to the extent that you expect some of these opportunities to land and that you seem to have pretty high level of confidence that 2026 will be a growth year in terms of revenue. So to that end, do you expect for operating expenses to follow the revenue trend line? Or will you keep a pretty tight lid on spending for the foreseeable future?

Matt. I think that's a great question. So when we take a look at where that could be, we feel good about that product line and what that represents from a top line perspective. And frankly, what we see out there and some of the numbers that have been published, that's something that we think is achievable with the pipeline that we have for all intents and purposes.

Now from a spending perspective, we'll continue to invest in the business but at a modest rate. So that increase that we foresee in revenue would not be consumed by incremental spending at a significantly higher level. We will still be very smart. We need to grow our portfolio. The strength of our portfolio pays off dividends in terms of the new deals, and I'll tell you quite frankly even in the litigation that we filed. So our investment in our portfolio quite frankly is a testimony to the strength of that underlying technology. And for those who might not be informed, filing 10 patents says a lot, says an absolute lot. And in general terms, what you find is typically people file 5 patents in terms of litigation. But the amount of investment that we've made really speaks to that strength because, quite frankly, there's a lot more that we have that are significant in strength. And that only comes from our investment in our R&D.

With that being said, we'll continue to grow our portfolio. We would expect our EBITDA margins to be in that 60th percentile that we've grown close to or very close to it. And then once again, just having tremendous cash generation from our business. One thing to note that we're quite proud of, since separation, we have generated over $500 million in cash from operations. So when we say we have a cash generative business model, the proof is in the pudding of those financial results.

Your next question comes from the line of Madison de Paola with Rosenblatt Securities.

This is Madison calling on behalf of Kevin Cassidy. And I was just wondering what the time line for licensing RapidCool was. And also, I know that Microsoft has recently announced a cooling technique called microfluidics. How is that different from RapidCool?

Maddie, thanks for the question. Good to hear you on the call. Yes. So first of all, as we noted last call, RapidCool is something that we see as a revenue opportunity in the mid-to-long term. And so we are still working with customers and partners on the rollout of that, and we're very encouraged. Since our rollout to the public last quarter, we got a lot of positive feedback on it, and we've increased the number of engagements that we have. But it remains a project right now that we are still in the early phases of and one that we're very excited about. So still early days, but one that we see obviously a tremendous opportunity in.

Our solution, again, it's one where we're directly bonding a cold plate to the chip. And the solution, as I understand it, and again, I'm not a world expert in this, but in Microsoft solution, from what I've seen that they were talking about, is etching in the chip, which we think has some technical challenges that our solution does not have. Happy to discuss that further offline, but I think we do see it as a pretty different solution than what we're offering. And ours is more -- we believe more plug and play and something that can be adopted by the industry relatively quickly, as quickly as at least the semiconductor industry adopts new technologies.

And that concludes the question-and-answer session. I will now turn it back over to Chris for closing comments.

Actually, thank you, operator, and thanks to everyone for being with us today. I would like to thank our employees as we celebrate our third anniversary as a stand-alone company. Later this month, we'll be attending the Wells Fargo Annual TMT Summit. We look forward to seeing you at this and other upcoming events. Thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.