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Paul Davis

Thank you, Chris, and thank you, everyone, for joining us today. I'm glad to be here again to share the results and progress we made in the first quarter. We are off to a great start to the year. We generated $88 million in revenue and $57 million in cash from operations, which was in line with our expectations. We also executed on all four elements of our balanced capital allocation strategy and ended the quarter with an even stronger cash position.
Before I get into the details on the progress we made in the first quarter, I want to highlight that our full-year 2025 outlook remains unchanged despite the volatility in the current macroeconomic environment, we feel confident in the resilience of our business model even in times of uncertainty. Over 80% of our full-year revenue outlook is supported by contracted revenue. Our average contract term is five years, so our visibility is not measured in quarters but in years. And thus, our business is less impacted by near-term economic volatility.
The vast majority of our customers are well established leaders in their industries. We have built a strong track record of building long-term relationships, renewing customers again and again, with many relationships spanning over 25 years. As a result, our business model has proven to be stable and resilient.
Lastly, our focus on growth aspects of our business, including OTT, semiconductors, and adjacent media markets, is paying dividends.
Our Q1 2025 recurring revenue is up modestly year over year as compared to Q1 of 2024, even when taking into account the anticipated declines in pay-TV. And when you look at the non-pay-TV parts of our business, recurring revenue is up an impressive 25% year over year.
Turning now to our first-quarter momentum. We signed 10 license agreements highlighted by four agreements with new customers in key growth areas, including social media, OTT, and semiconductors. I'm proud of the progress we made in signing new customers.
Adding new customers is critical to our growth strategy, and we are executing well on this front. Over the past two quarters, we have signed 20 license agreements, including eight new deals.
We further expanded our already impressive social media presence with yet another new customer in the first quarter. Social media is an area we've made great progress, having signed most of the major players over the last few years. As our media portfolio has continued to grow, particularly in areas such as imaging, video, and content delivery, so has its applicability to social media.
Another significant new customer we signed in the first quarter was a leading international multi-platform media company for their OTT offerings. OTT is one of our high-priority growth markets because of our media portfolios applicability to have it and its growing subscriber base. Having penetrated only a portion of this market today, we see a significant opportunity as we continue to pursue large customers in this key growth area.
We also signed a new long-term license agreement with a major US professional sports league for access to our media portfolio. The relevance of our video assets to their online streaming offerings was a driver for this new customer, and we're happy to have added them to our OTT vertical.
We're excited to welcome a large domestic manufacturer of analog and mixed signal semiconductor devices as a new customer in the first quarter. Hybrid bonding continues to gain adoption due to its cost, power, and performance advantages and as a key driver to our new semiconductor deal flow.
In addition to these four new deals, we signed six renewals during the first quarter for these renewals were in pay TV and the others were in OTT and consumer electronics. One pay-TV renewal was with SK Broadband, a leading IP TV provider of high-quality media and telecommunications services in South Korea, and another was domestic pay-TV provider, Frontier Communications.
Renewals are vital because they support our ongoing revenue stream and provide a stable, predictable foundation upon which we can grow in the future. These renewals continue our strong track record of over 90% of our customers renewing their license agreements with us.
We are on track to deliver sustainable long-term growth. Existing customer renewals maintain our recurring revenue stream, while new customer license agreements are the primary growth catalysts. In media, we expect that declines in pay-TV will be offset by new customers in OTT in adjacent medium markets such as e-commerce, ad tech, and gaming.
In semiconductor, adoption of hybrid bonding in logic and memory devices and our continued success signing volume-based agreements with customers ramping new products provides an additional avenue for growth.
In the first quarter of 2025, we grew our total patent portfolio by another 4% to over 12,750 patent assets. We anticipate the growth of our portfolio to moderate through the rest of the year.
Our focus on expanding our portfolios has been a clear differentiator and creates value for our customers, but increasing our numbers is not our primary goal. Rather, we aim to focus our efforts on expanding and diversifying our portfolios to meet the evolving needs of the markets we serve.
While over 85% of our patent assets are generated organically through our R&D efforts, we augment our internal growth through actively searching for patent assets, we believe will accelerate our growth opportunities.
Last quarter, we acquired two IP portfolios for $5 million in total, one was in micro LEDs, an area that has synergies with our hybrid bonding IP and that we believe expands our value proposition with customers in this market. We also acquired an imaging portfolio, which has a broad applicability today across several of our growth verticals such as e-commerce, social media, and automotive.
Our strong cash generation has enabled us to balance our capital allocation between investing in growth through strategic tuck-in acquisitions, improving our balance sheet through significant de-leveraging, and returning cash payments and share repurchases. Keith will share additional details on our progress during the first quarter in a moment.
Before I turn the call over to Keith, I'm happy to note that Sandeep Vij has been nominated to join our Board of Directors replacing Raghu Rau, who will be retiring from our Board after our upcoming Shareholder Meeting later this week. Sandeep's extensive expertise in the technology sector, particularly in semiconductors and intellectual property, combined with significant leadership experience as a CEO and Board member, will be invaluable as continue to execute our strategic growth initiatives. Additionally, his deep understanding of the technology landscape will be a tremendous asset as we continue to drive innovation and expand our market leadership.
On behalf of the entire team at Adeia, I want to express our gratitude to Raghu for his outstanding contributions over the past several years.
Now, I'll turn the call over to Keith for a review of our financial performance. Keith?

Keith Jones

Thank you, Paul. I'm pleased to be speaking with you today to share details of our first-quarter 2025 financial results.
During the first quarter, we delivered revenues of $87.7 million, driven by the execution of 10 license agreements across a diverse mix of end markets, including OTT, semiconductor, social media, pay-TV, and consumer electronics. I am pleased to note that we added four new customers during the period, which helps drive our long-term growth objectives. We are encouraged by the continuation of the strong momentum we saw exiting last 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 $40.9 million, an increase of 1.4 million or 4% from the prior quarter.
Research and development expenses increased $362,000 or 2% from the prior quarter. The modest increase in the first quarter is primarily due to ongoing patent development and related filings as well as increased personnel costs.
Selling, general, and administrative expenses decreased $964,000 for 5% from the prior quarter, primarily due to lower corporate administrative costs and lower variable compensation.
Litigation expense was $5.9 million, an increase of $2 million or 54% compared to the prior quarter, primarily due to increased spending associated with our ongoing litigation with certain Canadian and pay-TV operators and with Disney.
Interest expense during the first quarter was $10.6 million, a decrease of $1.7 million from the prior quarter due to the benefit of lower interest rate following the successful repricing of our term loan in January 2025 and due to our continued debt repayments. Our current effective interest rate, which includes amortization of debt issuance costs, was 7.9%.
Other income was $1.7 million and was primarily rely to interest earned on our cash and investment portfolio and due to interest income recognized on of new agreements with long term billing structures under ASC 606. Our adjusted EBITDA for the first quarter was $47.3 million, reflecting the adjusted EBITDA margin of 54%.
Depreciation expense for the quarter was $509,000. 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 tax.
Now, for a few details on the balance sheet. In the first quarter with $116.5 million in cash, cash equivalents, and marketable securities and generated $57.1 million in cash from operations. We made $17.1 million in principal payments on our debt in the first quarter and ended the quarter with a term loan balance of $470 million.
As a result of our strong cash generation, we executed a stock buyback during the first quarter, repurchasing approximately 760,000 shares of our common stock for 10 million.
During the first quarter, we paid a cash dividend of $0.05 per share of common stock are also approved a payment of another $0.05 per share dividend to be paid on June 17 to shareholders of record as of May 27.
We continue to remain acquisitive, and during the first quarter, we acquired patent portfolios associate with both our media and semiconductor businesses. We have party imaging assets, which adds to the strength of our media portfolio in our increasingly important as the underlying technology becomes more widely adopted in both consumer electronics and social media and markets. Seniors are longer-term growth driver. We have acquired micro-LED assets. It helps us further diversify our semiconductor portfolio and expands our potential customer base.
Now, I'll go over our guidance for the full year 2025. We are reiterating our prior guidance for the full-year 2025. We expect revenue to be in a range of $390 million to $430 million. We are pleased with the progress we're making on executing and converting our sales pipeline.
We would like to note that our second quarter could be impacted to the extent that certain deals ultimately signed in the second half of the year. If this were to occur, second-quarter revenue would be similar to our first-quarter revenue. We expect operating expenses to be in the range of $166 million to $174 million. What's in that guidance range, we anticipate that our litigation expense will increase in Q2 due to the timing of certain legal matters.
Our revenue and expense guidance reflects the progress and trajectory of the business as we see today, but we have not been impacted in the short term by market dynamics. We are mindful of the broader implications for potential economic down turn. As a result, we are carefully monitoring a broader macroeconomic environment and remain prudent in our spending.
We expect interest expense to be in the range of $41 million to $43 million. We expect other income to be in the range of $4 million to $4.5 million. We expect the resulting adjusted EBITDA margin of approximately [59%]. 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 $1 million for the full year.
The first quarter was in line with our expectations. Our pipeline of sales opportunities continues to grow and evolve across both our media and semiconductor businesses. Coupled with the deal momentum we realized over the last several quarters, it gives us confidence not only in our near-term outlook, but also our long-term growth prospects.
That brings in to 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?

Question and Answer Session

Operator

(Operator Instructions) Kevin Cassidy, Rosenblatt Securities.

Kevin Cassidy

Yeah. Thanks for taking my question, and congratulations on landing all the new deals. Very aggressive. What caught my interest to most of the new US professional sports league for online streaming, would you consider this -- is this a breakthrough with that you might be able to get other sports leagues to sign up also, or did -- I guess, maybe I can talk about the size of that market, what this strategy will be from winning your first client?

Paul Davis

Yeah. Thanks, Kevin. Great question. Yeah, we're really happy with the new deal execution. Getting four new deals done in a quarter is quite the achievement. The one that you mentioned in the US professional sports league is one that we're certainly particularly proud of. It is an area that we've been focused on as many of the sports leagues have really added to the video content and interactive nature of their websites in their offerings generally. And so yes, we do think this could lead to a more. Now, we do categorize this within our OTT vertical because of the streaming nature of many of these services. But yeah, we're very pleased by it and think it could be the first of several.

Kevin Cassidy

And maybe just one other question I had. Is there potential for turning that into a betting features also?

Paul Davis

Yeah. I mean, as you know, Kevin, we certainly have sports gambling as part of our -- one of our verticals. That is something that we continue to explore. That adjacent market is a little further out than some of our others that are more near term like e-commerce, ad tech, and automotive to a degree. But we're certainly continue to explore on the engaged with a number of potential customers on sports gambling as well. and it could be an inroad, as you know.

Kevin Cassidy

Okay, great. And just one other question. The micro-LED and the imaging portfolio that you acquired, do those currently have licenses attached to them, I should say?

Paul Davis

Yeah. No, great question. They don't. We often are buying patent assets that we don't come with an existing revenue stream, but we -- that we see a really opportunity for us to take them on and add to our portfolio. With micro-LED, we've included that in our semiconductor portfolio.
What's interesting to note there, Kevin, is that a lot of the micro-LED supply chain and ecosystem will look, we believe, like the semiconductor industry, and they're going to need to adopt semiconductor-related technologies and processes. And so we're excited about the synergies there and what that can mean in terms of adding new potential customers and also importantly on that one as we think about new technologies and semiconductors for AI, as you think about silicon photonics and the like, and so we think there's a lot of potential with that portfolio. It is a more mid- to long-term opportunity for us, but one that we're very bullish about.

Kevin Cassidy

Okay, great. Thank you.

Operator

Hamed Khorsand, BWS Financial.

Hamed Khorsand

Hey. So first off on the semiconductor announcement you have, is that the big one you were expecting last year?

Paul Davis

No, Hamed. As we noted on the call from, that deal still out there to be had. This was a smaller opportunity for us, but one that continues to show progress, especially in the adoption of hybrid bonding, which also drove this deal as well.

Hamed Khorsand

Okay. And then as far as the OTT is concerned, where are you seeing the opportunities? Is it coming from the international market like the one you announced, or are there still viable options here in the domestic market?

Paul Davis

Yeah. Well, as you know, we're currently in litigation with Disney. We also have another very large OTT opportunity that's out there that remains unlicensed, that's domestic. And then we do have international opportunities as well. There are -- I would say that the bulk of the opportunities are in the US and are domestic, but we do have international licenses today and are continuing to explore and get new deals done in the international market as well, but the larger revenue opportunities are here in the US for us.

Hamed Khorsand

Okay. And then how big is the social media opportunity? I thought it was quite small for you in the past, so you've announced one. Is there any more you could announce?

Paul Davis

When you look at our penetration and social media, we now have roughly 90% of the social media market, licensed, so it is largely a licensed opportunity. Now, where we do have opportunities in renewals that are that are coming up. New deals are harder to come by just because we have most of the market license. This was though a new customer that we license, which we're really happy to add them to the otherwise, long list of social media companies that we have already under license.
So as we have talked about before, the social media opportunity will continue to expand though in terms of the use cases where video and imaging becomes more and more important to those companies, and so we think there's some opportunity to continue to expand the revenue that we get from existing customers as well.

Hamed Khorsand

Okay, thank you.

Operator

(Operator Instructions) This will conclude the question-and-answer session. I'll turn the call to Paul for closing remarks.

Paul Davis

Thank you, operator, and thanks to everyone for being with us today. Before we go, I'd like to thank our employees for their continued dedication and hard work.
We will be attending the Needham TMT Conference on May 9 and the Maxim Virtual TMT Conference on June 4. We look forward to seeing you at these and other upcoming events. Thank you for joining us today.

Operator

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