Adeia Inc. (NASDAQ:ADEA) is a leading intellectual property (IP) licensing platform in the consumer and entertainment space, with a diverse portfolio of media and semiconductor IP and over 11,000 patents and patent applications worldwide. The company's innovative technologies are integrated into billions of consumer devices and media platforms globally, powering smart devices, connected cars, and immersive entertainment experiences.

Business Overview

Adeia's transformation journey continued in the first quarter of 2024, as the company delivered solid financial results across its key growth areas, while making progress on several strategic initiatives. Revenue for the quarter came in at $83.4 million, down 28.9% from the same period in the prior year. This decrease was primarily attributable to the execution of two long-term license agreements with Kioxia and Western Digital in the first quarter of 2023, for which a portion of revenue was recognized up-front in that quarter.

Recurring revenue, which includes revenue from fixed-fee media IP license agreements and per-unit or per-subscriber IP royalty licenses, decreased by 1.9% to $82.8 million, driven primarily by a decline in royalty revenue from certain Pay-TV customers in Canada. Non-recurring revenue, which includes revenue from fixed-fee or minimum-guarantee semiconductor IP licensing and fees associated with releases for past patent infringement, decreased by 98.2% to $0.6 million, also due to the Kioxia and Western Digital agreements in the prior year period.

Despite the revenue decline, Adeia's cash provided by operating activities increased by 6.0% to $67.2 million, primarily due to a decrease in accounts receivable and an increase in unbilled contracts receivable, which resulted from collection efforts and multi-year and long-term license agreements executed during the period.

Adeia's business is organized into one reportable segment: IP Licensing. The company primarily licenses its innovations to leading companies in the broader media entertainment and semiconductor industries, as well as those developing new technologies to drive these industries forward.

Financials

Research and development (R&D) expense increased by 7% to $13.9 million, primarily due to an increase in personnel costs as a result of increased headcount. Selling, general, and administrative (SG&A) expense increased by 5% to $24.0 million, mainly due to an increase in professional services costs and personnel costs, partially offset by decreases in advertising expense, credit losses, and D&O insurance premiums.

Amortization expense decreased by 2% to $23.2 million, primarily due to certain intangible assets becoming fully amortized during 2023, partially offset by an increase in amortization expense as a result of patents acquired during the period. Litigation expense increased by 12% to $2.9 million, primarily due to increased case activity in current litigation matters.

Interest expense decreased by 11% to $14.2 million, primarily due to a lower debt balance and amortization of debt discount and issuance costs, partially offset by increased interest rates on the company's variable interest rate debt. Other income and expense, net decreased by 14% to $1.4 million, primarily due to a decrease in realized gains on investments in marketable securities, partially offset by an increase in interest income from significant financing components from certain revenue contracts.

The company's income tax provision for the quarter was $5.7 million, down 52% from the same period in the prior year, primarily due to a decrease in pretax income. Adeia's effective tax rate varies from the 21% U.S. federal tax rate due to foreign withholding taxes, state income taxes, and unrealized foreign exchange gain or loss from prior year South Korea withholding tax refund claims.

Liquidity

As of March 31, 2024, Adeia had $89.0 million in cash, cash equivalents, and marketable securities, an increase of $5.4 million from December 31, 2023. This increase was primarily the result of $67.2 million of cash generated from operations, partially offset by $40.1 million in repayment of long-term debt, $7.7 million in repurchases of common stock associated with tax withholdings on equity awards, $5.4 million in dividends paid, $0.8 million in purchases of property and equipment, and $8.5 million in purchases of intangible assets.

Adeia's liquidity and capital resources are primarily sourced from its operating cash flows and short-term investments in marketable securities. The company expects to continue making additional payments on its existing debt from cash generated from operations. As of March 31, 2024, Adeia had $561.1 million in total debt outstanding, with $14.8 million of unamortized debt discount and issuance costs.

Outlook

Looking ahead, Adeia is reaffirming its full-year 2024 guidance. The company expects revenue to be in the range of $500 million to $530 million, with non-GAAP adjusted EBITDA margin expected to be between 12% and 14%. Adeia's outlook for gross margin, operating expenses, cash flow, taxes, share count, and capital expenditures remains unchanged from its previous guidance.

The company is focused on three key growth opportunities where it sees strong potential and differentiation: connected TV advertising, in-cabin entertainment, and TiVo video over broadband. Adeia aims to have 20 million monetizable endpoints by the end of 2025, with at least 10 million households and 10 million cars in which it provides the core entertainment platform. These growth initiatives are expected to generate nearly $200 million of incremental revenue in 2026 compared to 2023.

Recent Developments

Within its Media Platform business, Adeia is making progress in expanding the footprint of its TiVo operating system, with partners shipping into most of the largest European countries and plans to launch in the U.S. market later this year. The company has a goal to exit 2024 with at least 6 TV partners and an active TVOS footprint of 2 million devices.

In the Connected Car segment, Adeia's DTS AutoStage platform is now deployed in over 6 million vehicles worldwide, a 50% increase over the last 9 months. The company's goal is to deliver 3 additional AutoStage wins, with at least 1 including video, and exit 2024 with an installed base of 7 million vehicles.

Adeia's Pay TV business continues to see growth in its video-over-broadband IPTV solutions, which are helping to offset the secular decline in some of its core pay TV solutions. The company's goal is to deliver more than 10 additional TiVo Broadband wins and exit 2024 with 2.4 million video-over-broadband subscribers.

Conclusion

With consistent progress against these key growth initiatives, coupled with the company's ongoing business transformation efforts, Adeia expects to deliver the improved profitability and cash flow outlined in its 2024 outlook, and remains well-positioned to accelerate revenue growth and operating leverage in 2025 and beyond.