Adeia's Q3 2025: Contradictions Emerge on Recurring Revenue Growth, AMD Litigation Impact, and Semiconductor Deals

Date of Call: None provided

Financials Results

• Revenue: $87.3M, in line with expectations; non-Pay TV recurring revenue up 31% YOY (Q3)
• Operating Margin: Adjusted EBITDA margin 58% in Q3; company expects ~56% adjusted EBITDA margin for full year

Guidance:

• 2025 revenue guidance narrowed to $360–$380M due to AMD litigation.
• Operating expenses expected $160–$164M (includes Disney and AMD litigation costs).
• Anticipate ~ $3M higher litigation expense in Q4 vs Q3.
• Interest expense expected $40–$41M; other income $5.5–$6.5M.
• Adjusted EBITDA margin ~56%; non‑GAAP tax rate ~23%.
• Capital expenditures approx $2M for full year.
• Pipeline could still produce upside in 2025 or act as a catalyst for stronger 2026.

Business Commentary:

* Revenue Guidance Adjustment: - Adeia adjusted its 2025 full-year revenue guidance to $360-$380 million primarily due to the litigation against AMD. - The adjustment reflects the likelihood that a license agreement with AMD will not be closed this year, impacting projected revenue.

• Non-Pay TV Recurring Revenue Growth:
• Adeia's non-Pay TV recurring revenue was up 31% year over year for the third quarter.

• Growth was driven by expansion into new verticals like semiconductors, OTT, social media, and e-commerce, with new agreements in these areas.

• Litigation and Intellectual Property Protection:

• Adeia filed multiple patent infringement lawsuits against AMD, seeking to stop unauthorized use of its patented semiconductor technologies.

• The decision to file litigation was due to AMD's continued use of Adeia's innovations without authorization, emphasizing Adeia's commitment to protecting its intellectual property.

• Strong Cash Generation and Balance Sheet Management:

• Adeia ended the third quarter with $115.1 million in cash, cash equivalents, and marketable securities, and generated $17.8 million in cash from operations.
• The company has now paid down $312 million of its debt since separation, demonstrating effective cash management and debt reduction strategies.

Sentiment Analysis:

Overall Tone: Neutral

• Management said Q3 revenue of $87.3M "was in line with our expectations" and repeatedly described the pipeline as "strong," while also lowering 2025 revenue guidance to $360–$380M due to filing litigation against AMD — balancing confidence in long‑term prospects with near‑term caution.

Q&A:

• Question from Scott Searle (Ross Capital): Clarify whether there were any one-time catch-up fees in Q3 (assumed media), color on size/types of deals in the pipeline (esp. e‑commerce), how recurring revenue moves from Q3 to Q4 and an early view on recurring media revenue for 2026; follow up on semiconductor recurring revenue and timeline/milestones for AMD litigation and impact on conversations with other semi vendors.
  Response: Recurring revenue contribution in Q3 was modest (~$1M); core recurring base was mid‑$80M and management expects it to cross roughly $90M in Q4. Pipeline across media and semiconductors is strong, but timing drives whether deals close in 2025 or shift to 2026; AMD litigation filed (two cases in W.D. Tex., 10 patents—seven hybrid bonding—trial could occur in 2027), and momentum in NAND/3D NAND contributed to semiconductor revenue uplift.

• Question from Hamed Khorsand (BWS Financial): Reconcile last quarter's comments that AMD wasn't needed to hit guidance with this quarter's reduction; why was guidance lowered now and what in the pipeline gives confidence you could still add ~$20M in revenue late in the year?
  Response: Company provides annual (not quarterly) guidance and reduced the full‑year range because the expected AMD license is now unlikely this year; management says the overall pipeline remains robust with large, complex deals that can shift timing, so upside still exists but may move into 2026.

• Question from Matthew Galinko (Maxim Group): Any implications of the AMD litigation for other semiconductor deals/renewals and whether operating expenses will scale with expected 2026 revenue growth or remain tightly controlled?
  Response: Management said AMD being ahead on hybrid bonding doesn’t reduce broader market opportunity—adoption is accelerating across logic and memory—and the litigation should not derail other engagements; they expect to invest modestly while keeping disciplined spending, targeting continued high EBITDA margins (around the 60th percentile).

• Question from Madison D. Paola (Rosenblatt Securities) on behalf of Kevin Cassidy: Timeline for monetizing RapidCool and how Microsoft’s microfluidics cooling differs technically from RapidCool?
  Response: RapidCool is an early, mid‑to‑long‑term revenue opportunity with increased customer engagements since public rollout; RapidCool bonds a cold plate to the chip (plug‑and‑play approach), which management says differs from Microsoft's reported microfluidics that etches into the chip and presents different technical challenges.

Contradiction Point 1

Recurring Revenue Growth and Expectations

It involves differing expectations regarding recurring revenue growth, which is crucial for understanding the company's financial stability and future growth potential.

Were there any one-time catch-up fees in the quarter, and could you provide details on the size and types of pipeline deals, particularly those related to 2026 recurring revenue growth? - Scott Searle (Ross Capital)

2025Q3: Recurring revenue in Q3 was modest at about $1 million from a new license agreement and a renewal. Recurring revenue is expected to cross approximately $90 million in Q4, with potential growth in 2026. - Keith Jones(CFO)

Is the new US Professional Sports League a breakthrough deal for online streaming? - Kevin Cassidy (Rosenblatt Securities)

2025Q1: We've got about $1.4 billion of our annual revenue now coming from recurring revenue, and we expect to continue to grow that base. - Paul Davis(CEO)

Contradiction Point 2

AMD Litigation Impact on Semiconductor Opportunities

It involves the impact of AMD litigation on ongoing negotiations and opportunities with other semiconductor vendors, which could affect future growth.

How is the AMD litigation affecting conversations with other semiconductor vendors, particularly regarding logic and chiplet opportunities? - Scott Searle (Ross Capital)

2025Q3: AMD litigation will not impact dialogue with other vendors. We filed two cases against AMD with a trial expected in 2027. Patents cover virtually all of AMD's products, and we believe in the strength of our portfolio. - Paul Davis(CEO)

Was the semiconductor announcement the major one expected last year? - Hamed Khorsand (BWS Financial)

2025Q1: No, it's not the big deal. It's a smaller opportunity, but it shows progress in hybrid bonding adoption. - Paul Davis(CEO)

Contradiction Point 3

AMD Litigation Impact on Semiconductor Deals

It involves the impact of litigation with AMD on negotiations with other semiconductor vendors, which could influence Adeia's pipeline and potential revenue opportunities.

How is the AMD litigation affecting engagement with other semiconductor vendors, particularly in logic and chiplet opportunities? - Scott Searle(Ross Capital)

2025Q3: AMD is ahead of the curve on hybrid bonding, but the rest of the market is adopting. We're excited about the adoption cycle and see more opportunities in 2027 and beyond. - Paul Davis(CEO)

Has there been any update on the likelihood of finalizing the semiconductor deal, given the potential for uneven performance in Q1 and Q2? - Hamed Khorsand(BWS Financial)

2024Q4: The large and complex semiconductor deal remains a key priority, with ongoing discussions focused on achieving optimal terms. The company remains optimistic about signing the deal this year. - Paul Davis(CEO)

Contradiction Point 4

Recurring Revenue Growth and Deal Pipeline

It involves the expectations for recurring revenue growth and the nature of the deals in the pipeline, which are crucial for assessing Adeia's future financial performance.

Were there any one-time catch-up fees in the quarter, and could you provide details on the size and types of deals in the pipeline, particularly regarding recurring revenue growth for 2026? - Scott Searle(Ross Capital)

2025Q3: Recurring revenue in Q3 was modest at about $1 million from a new license agreement and a renewal. Recurring revenue is expected to cross approximately $90 million in Q4, with potential growth in 2026. - Keith Jones(CFO)

For the revenue guidance, can you provide details on the key assumptions underlying the low and high ends of the outlook? - Madison De Paola(Rosenblatt Securities)

2024Q4: The guidance reflects the company's strong pipeline and the focus on deal economics. The lower end of the guidance could result from taking more time to secure optimal deal terms, while the high end assumes continued momentum similar to Q4. The company has clear line of sight on the outlook and expects continued success. - Keith Jones(CFO)