Adeia (ADEA) Q4 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Monday, February 23, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Paul Davis
• Chief Financial Officer — Keith Jones
• President, IP Licensing — Chris Chaney

TAKEAWAYS

• Quarterly Revenue -- $182,600,000, driven by nine deals spanning OTT, pay TV, consumer electronics, and semiconductors, with four new license agreements.
• Annual Revenue -- $443,000,000, exceeding the high end of revised guidance for the year.
• Adjusted EBITDA -- $133,900,000 for the quarter, with a margin of 73%.
• Operating Income -- $276,000,000 for the year (non-GAAP), above the upper end of guidance.
• Annual License Agreements -- 26 total in 2025, with a record 12 new customers across OTT, semiconductors, consumer electronics, pay TV, and e-commerce.
• Non-Pay TV Recurring Revenue Growth -- 30% year over year in the quarter, over 20% for the year, with more than 60% growth since 2022.
• Semiconductor Revenue -- $26,000,000 in 2025, up 40% from $18,000,000 in 2024; growth attributed to deals including STMicro and expansion in 3D NAND.
• Customer Mix -- Media comprised approximately 94% of total revenue for the quarter.
• Pay TV Revenue Share -- Management now expects pay TV to represent approximately 35%-40% of forecasted 2026 revenue, down from the historical 50%-60% range.
• OTT Revenue Share -- Management said OTT is expected to contribute 30%-35% of total revenue in 2026.
• New Business Activity -- Signed multiyear license agreements with Disney (NYSE: DIS), Major League Baseball, Vodafone (NASDAQ: VOD) (renewal), a new OTT provider in South Korea, a consumer electronics customer in Japan, and a notable new agreement with Microsoft (NASDAQ: MSFT) in early 2026.
• Operating Expenses -- $49,200,000 in the fourth quarter, up 33% sequentially, primarily due to higher variable compensation, with non-GAAP research and development up 21%, and selling, general, and administrative expenses up 44% from the prior quarter.
• Litigation Expense -- $6,500,000 in Q4, an increase of 25% sequentially, mainly due to A&D and Canadian cases.
• Interest Expense -- $9,400,000 for the quarter, down by $614,000 sequentially, with a current effective interest rate of 7.5%.
• Cash and Marketable Securities -- $136,700,000 at period end, with $60,000,000 in operating cash flow generated during the quarter.
• Capital Actions -- $21,100,000 in principal debt repayments, 718,000 shares repurchased for $10,000,000, $0.05 per share cash dividend paid and approved for March 30, and two tuck-in patent acquisitions completed in the quarter.
• 2026 Guidance -- Annual revenue expected in the $395,000,000–$435,000,000 range; operating expenses targeted at $184,000,000–$192,000,000; adjusted EBITDA margin forecast approximately 55%; non-GAAP tax rate of 21%; interest expense $34,000,000–$36,000,000; other income $5,500,000–$6,500,000; capital expenditures approximately $2,000,000.
• Recurring vs. Nonrecurring Revenue -- Q4 mix was roughly 50/50; annual mix was 80% recurring and 20% nonrecurring.
• Patent Portfolio Growth -- 13% portfolio size increase in 2025, the third consecutive year of double-digit growth driven by R&D and targeted M&A.
• Recognition -- Hybrid bonding technology named Best of Show for Most Innovative Technology; Rapid Cool received Global Brands Award for technology excellence.
• Leadership Updates -- Craig Mitchell named Chief Semiconductor Officer, Dr. Mark Cokes appointed Chief Revenue Officer, Bill Thomas hired as Chief Strategy Officer.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Management disclosed, "DIRECTV has filed certain litigation which challenges the need for a new license agreement" and stated Adeia has filed a breach of contract suit in response, with ongoing challenges in the pay TV licensing program.
• Keith Jones said, "We anticipate that our litigation expense will increase year over year," estimating an increase of "$5,000,000 to $10,000,000 above that $25,000,000 amount" spent in 2025, reflecting heightened litigation activity.

SUMMARY

Adeia (NASDAQ:ADEA) delivered record annual revenue, securing nine deals in the quarter, and announced high-profile agreements with Microsoft and Disney, both covering the media portfolio. Management provided detailed 2026 guidance with pay TV’s share of revenue expected to decline further, and highlighted rapid expansion in OTT and semiconductor markets. Operating expenses increased substantially driven by variable compensation and rising litigation costs, with management anticipating further expense growth due to an active litigation docket. The patent portfolio expanded by double digits for a third straight year, supporting new licenses and enhanced recognition in high-performance computing and cooling innovations.

• Cash flows remained robust, enabling substantial debt repayment, shareholder returns via dividends and repurchases, and incremental portfolio acquisitions without eroding liquidity.
• Semiconductor revenue rose 40%, tied to 3D NAND adoption and new strategic licensing, with fixed unit-based royalty structures yielding growth from volume rather than price increases.
• Fourth-quarter recurring and nonrecurring revenue were nearly evenly split, while full-year results remained heavily weighted toward predictable recurring streams.
• Leadership added depth with three senior appointments to steer semiconductor, sales, and strategy initiatives, underscoring a commitment to operational execution and market expansion.

INDUSTRY GLOSSARY

• OTT (Over-the-Top): Streaming media services delivered directly to viewers via the internet, bypassing traditional broadcast or cable platforms.
• Hybrid Bonding: Advanced semiconductor packaging technique enabling direct, atomic-scale connection of stacked chips, used to enhance memory and logic device performance.
• HBM (High Bandwidth Memory): High-speed, high-density 3D-stacked DRAM used for performance-intensive computing applications like AI and data centers.
• Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, adjusted for items not reflective of ongoing operations; used to measure normalized operating performance.
• ASC 606: Accounting Standard Codification Topic 606, governing revenue recognition from contracts with customers.
• Rapid Cool: Adeia's proprietary plug-and-play liquid cooling technology for electronics and data center applications.

Full Conference Call Transcript

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 Investor Relations 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 discussed today, please refer to the Risk Factors section in our SEC filings, including our Annual Report on Form 10-Ks 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 investors.adeia.com. Now I would like to turn the call over to our CEO, Paul Davis.

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 $183,000,000 highlighted by nine deals, including eight in media, and one in semiconductors, with four 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 two 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 one 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 US 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 two 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 would like to provide a brief review of our accomplishments for the year. Turning to the full year, 2025 was a record year for Adeia Inc. Revenue reached $443,000,000, exceeding the upper end of our revised guidance with operating income of $276,000,000 and adjusted EBITDA of $278,000,000, 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 nine pay TV deals, seven in OTT, and four 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 $60,000,000, returned capital through dividends and share repurchases, and acquired six 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, Rapid Cool received the Global Brands Award for technology excellence. As demand for high performance computing driven by AI continues to grow, we believe effective thermal solutions will be increasingly critical and remain focused on advancing Rapid Cool with partners and potential customers.

Several opportunities we previously discussed have closed or are 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 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 US 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, 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 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 Rapid Cool 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 US, 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 66th most new US patents issued in 2025.

A remarkable achievement for a company of our size and a testament 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 Inc. 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 Inc.'s semiconductor vision. In addition, Dr. Mark Cokes 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 $500,000,000 in annual licensing revenue. I will now turn the call over to Keith Jones for the financial results. Thank you, Paul. I'm pleased to be speaking with you today to share details of our fourth quarter 2025 financial results.

Keith Jones: 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 $182,600,000 was driven by the execution of nine deals across a diverse mix of customers including OTT, pay TV, consumer electronics, and semiconductor. During the quarter, we signed four new license agreements. This includes signing a significant license agreement with Disney which greatly adds to our presence in the OTT market.

Now I would like to discuss our operating expenses for which I will be referring to non-GAAP numbers only. During the fourth quarter, operating expenses were $49,200,000, an increase of $12,100,000 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 $3,100,000 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 $7,700,000 or 44% from the prior quarter, reflecting increased variable compensation costs.

Litigation expense was $6,500,000, an increase of $1,300,000 or 25% compared to the prior quarter, primarily due to higher spending on A&D and Canadian litigation matters.

Interest expense during the fourth quarter was $9,400,000, 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, including amortization of debt issuance costs, was 7.5%. Other income was $1,700,000, 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 $133,900,000, reflecting 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 $136,700,000 in cash, cash equivalents, and marketable securities, and we generated $60,000,000 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 four 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 two tuck-in acquisitions. We made $21,100,000 in principal payments on our debt in the fourth quarter and ended the quarter with a term loan balance of $426,700,000.

In the fourth quarter, we repurchased approximately 718,000 shares for $10,000,000, bringing the remaining amount available for future repurchases to $160,000,000 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 will go over our guidance for the full year 2026. Our 2026 revenue guidance range is $395,000,000 to $435,000,000. As we mentioned in our previous call, our sales pipeline was and continues to be very strong. This has manifested 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 $184,000,000 to $192,000,000.

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 $34,000,000 to $36,000,000. We expect other income to be in a range of $5,500,000 to $6,500,000. 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 $2,000,000 for the full year.

I could not be more pleased with our performance in 2025. Our operating results reflect significant records for Adeia Inc. for revenue as well as earnings. Our deal momentum and execution have led to a record number of new customers which are key catalysts 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 the momentum that we have generated, I am excited and encouraged by our prospects in 2026 and beyond.

I am incredibly proud of our dedicated employees who have worked tirelessly to accomplish our goals and thankful for their continued belief in our mission. Now I would like to turn the call back to Paul for a few additional remarks. Paul?

Paul Davis: Thank you, Keith. I would like to take a moment to congratulate our employees for delivering a record year and setting us up for success in the future. I would 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: Thank you. If you would like to withdraw your question, simply press 1 again. Please ensure that your phone is not on mute when called upon. Thank you. Your first question comes from Kevin Cassidy with Rosenblatt Securities. Your line is open.

Kevin Cassidy: Yes, thanks for taking my question, and congratulations on the great year. You know, as we look at the pay TV customers that is going to be down to 35% to 40% of your revenue, you know, a lot more derisked. Do you see that as, is that starting the, is the subscriber loss slowing, or do you think that gets to an asymptote eventually? We did have, you know, in the fourth quarter, there was Charter announced an increase in their number of subscribers. I am just wondering if you are seeing what kind of trend you are seeing there.

Paul Davis: Thanks, Kevin, and appreciate the comments. Yes, you are spot on in terms of what we are 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, you know, subscriber declines into what we forecast, and that is part of that 30% to 45% moving forward. This is why we have been so focused on non-pay TV recurring revenue.

While pay TV still remains a very important part of our business, you know, we have intentionally diversified our revenue base since we separated over three years ago and made tremendous success with that, as you see in our non-pay TV recurring revenue, I should say. So we are very pleased with those results and the progress we have made, especially around OTT, semiconductors, and adjacent media markets. But, yes, pay TV continues to be an important market for us. We have got a number, as I noted in my remarks, of deals that go out into the next decade. So, you know, our customers in pay TV still see a lot of relevance in our portfolio.

We are 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.

Kevin Cassidy: Okay, great. Just a follow-up, if I can ask on Rapid Cool, you know, the interest is encouraging. And just wondering if you could discuss the competitive landscape. You know, what other solutions are your customers looking at or what is, I guess, what is their decision process evaluating Rapid Cool or adopting it?

Paul Davis: Yes. You know, what is unique about our business is, you know, we do not compete in the typical sense. Right? We license our technology on a portfolio-wide basis and Rapid Cool will be part of that moving forward. And, you know, we are getting a lot of interest, both on the logic side and on the memory side. We think there is applicability in both, especially as you know these AI workloads require more and more memory, as you know, Kevin. And we see Rapid Cool being relevant for HBM in addition to logic. And so we are getting a lot of pull on that.

What is great about our solution and what we think differentiates it is it is plug-and-play. Right? You can use the same equipment that is being used today. You can put it into a liquid cooling rack in a data center that is already set up for liquid cooling today and use Rapid Cool in the same way that you would use a liquid cooling cold plate. That is tremendous, and we are hearing a lot of benefits around our solution related to that. And so that is what excites us about our solution versus competitive solutions.

Kevin Cassidy: Okay, great. And congratulations again.

Keith Jones: Thanks. Thank you.

Operator: The next question comes from Scott Searle with ROTH Capital. Your line is open.

Scott Searle: Hey, good afternoon. Thanks for taking the questions. Nice to see the strong conclusion to 2025 and strong start to 2026. Maybe, Keith, just to dive in, in terms of the mix of business in the fourth quarter, I am 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.

Chris Chaney: Hey, Scott. Great to hear from you.

Keith Jones: 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 in the size and 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 out 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, you know, that number, when we take a look 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 started off with semiconductor reason because I am quite proud of that group. We had an increase in revenue if we compare 2024 to 2025. 2024, we did about $18,000,000 in revenue from semiconductor. This year, we did about $26,000,000, so 40% increase. So those deals that we signed late in 2024 and early in 2025, and we talked about STMicro as a significant deal, really started the traction, and we are seeing a little bit more of a pickup really on the NAND flash side of things.

So, I think that might have been your third question in kind of how we see things progressing. We cannot be more pleased in what we are seeing in the NAND market. One of the things I do have to remind you 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 have to work through some of those minimums, so that impacts the revenue that we recognized in 2025 and in 2026 and 2024 as well. So we will see an increase.

We will see a modest increase but we will pretty much fundamentally work through most of those minimums in 2027, 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 could not be more happy about how we started the year. We signed a couple new deals. We talked about Microsoft. 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 an upward trajectory.

Scott Searle: 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 do not benefit necessarily from the price increases that are going on in the marketplace. You are driven by unit volumes. And is that, does that include capacity overall in terms of, you know, overall NAND capacity that you guys are shipping? Is that how the royalty agreement is priced?

Keith Jones: Yes, you picked up on a great note there. So our agreements are not based on the selling price. When we go through and negotiate for those agreements, it is based on a fixed amount per unit. There is some degree of scaling in there, but usually it is more so a volume discount. So the more they produce, the more benefit that we kind of give them later on down the road. So what you are seeing is that dynamic of two things: of increases in NAND and increases in volume. We benefit from the increase in volume, and not the increase in pricing.

Paul Davis: I would also just add, Scott, on NAND. You know, just as a reminder, you know, we signed the deals with Kioxia and SanDisk in March of 2023. At that time, they had no NAND products that utilized hybrid bonding, you know, and so there has been this ramp of, you know, of the mix of their product lines that include hybrid bonded products, which also, you know, impacts as we see it. So as total NAND goes up, you know, we are focused on what is the percentage of that is hybrid bonded as well.

Scott Searle: Very helpful. And if I could, you know, in terms of the guidance for 2026, and this will be a little bit of a multipart question here. But wanted to get calibrated on a couple of fronts. It seems like media, there is a lot of momentum that is building. We have the initial step down in the first quarter of one pay TV customer. But given Disney, given some of the other momentum with Microsoft and otherwise, two things. Are you expecting in media to see sequential growth throughout the course of the year from March 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 am kind of wondering if you could frame your optimism for 2026. It seems like there is certainly momentum building with the existing 3D NAND customer base, but, Paul, you called out some of the ongoing discussions that you have got with some of the larger logic players out there that will introduce products in the course of 2026. So I am wondering, what are you guys factoring in to that guidance? Are you assuming that there is 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 have got visibility to in front of you on the media side? Thanks.

Paul Davis: 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 will turn it back to Keith on the first part of your question. You know, our optimism in semi is still very strong. You know, I think not only in logic, but as we further beyond 2026, what we are seeing in memory, not just in the NAND market, but also, you know, further down the road as we have talked about before with HBM and the broader memory market as we have relicensing opportunities down the road.

You know, there is really just a tremendous amount of investment today, as I noted in my remarks, in advanced packaging and hybrid bonding specifically as the big three really try to control, you know, their own destiny on hybrid bonding and advanced packaging, which is, you know, great for us as we move forward. So, yes, we do have a lot of optimism 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 in, you know, since we have been public in terms of the number of large opportunities that we have on the table.

And so there are multiple ways that we can get to within our guidance range, and it could be continued to be driven by media, but there are some large semiconductor opportunities as well that are possible, in addition to that.

Keith Jones: Yes, Scott. And just to add a little bit of context, you asked about how do we kind of see the media business kind of looking in 2026. 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 take a look at it.

And that just really shows a lot of growth from where we started. So, you know, our market share today is about a meaningful percent on the OTT side, so that is really driving it. So that sets us up quite well to kind of get back to your question in terms of 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.

Scott Searle: Gotcha. Very helpful. And lastly, if I could just follow up with one more. 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 in the marketplace, there is a tremendous amount of press talking about demand for HBM, what we are seeing in data center and otherwise, and pricing and the evolution quicker than people expected from HBM3 to 4, 4E, etc. So I am just wondering, I know this is tied to renewal agreements with some of the larger players out there in 2027–2028. But I am 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, you know, we require renewals in the 2027–2028 frame? Thanks.

Paul Davis: Yes. Thanks, Scott. I mean, we are tremendously pleased with what we are seeing from a marketplace standpoint on memory. As you think about, you know, Micron, Samsung, and SK Hynix, you know, not only on HBM, but what we are seeing with NAND as we talked about before. You know, we are thrilled to get the deals done with Kioxia and SanDisk. And, you know, we see the need for NAND and the other big three providers, as they get to around 400 layers, to eventually go to hybrid bonding as well. And so, you know, I think there is an acceleration on both fronts in memory, both in NAND and with HBM.

And so I do not want everyone to forget about NAND either because, you know, it is pretty significant for those players as well and what they are 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, as people are trying to deal with these AI workloads. So it is exciting on both fronts and certainly the conversations, and not just with hybrid bonding. As I mentioned earlier, with Rapid Cool as well being, I think, an enabling solution not only for logic, but also for the memory market.

We see an opportunity there and certainly are progressing with a number of folks on that front as well.

Scott Searle: Great. Thanks so much. I will get back in the queue.

Operator: Your next question comes from Hamed Khorsand with BWS Financial. Your line is open. Hamed Khorsand? Khorsand? Perhaps your line is on mute.

Hamed Khorsand: Yes, sorry about that. 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 for 2026 into 2025? Can you just give a little bit more details about that, please?

Keith Jones: Hey, Hamed. Great question. So when we announced the deal with Disney, it was hot off the press after we signed that. So, frankly, the accounting was not done. And it is a very large and complex transaction. I think you and I discussed that before. And then, ultimately, we got the accounting settled up. So there were some things there that were more favorable to us. Also, to add to that in 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, you know, we talked about Major League Baseball as one, but there are others that with great momentum from our sales team, those guys did not take a vacation. They signed 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 got some very favorable royalty reports from increased volume.

You heard earlier, you know, in particular, one of the other Kevin Cassidy had talked about what we 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 have seen also on the semiconductor side, in particular 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.

Hamed Khorsand: And then if you go into 2026, you know, you have announced Microsoft. That is obviously a great big name. But is that going to be material for you in 2026? Is it going to be cash-driven, or is there minimum guarantees? You know, could you rank that as to how big that opportunity is for you?

Paul Davis: You know, I will take it for a second and let Keith add anything. But, you know, it is a great deal for us. We are very pleased with getting Microsoft, you know, done, especially so early in the year. You know, as I mentioned at the 2025 when we talked in November, you know, we had a lot of opportunities that we were chasing, you know, and a lot of significant opportunities. And certainly, we have been able to execute on some of them here early in 2026 that we are very pleased with, Microsoft being one of those.

So we cannot get into the specifics, obviously, of the economics, but it is structured like many of our other non-pay TV deals, I should say. And so that is what I would highlight for you, and it will be a significant customer for us.

Hamed Khorsand: Okay. Thank you.

Operator: Once again, if you have a question, it is. Your next question comes from Matthew Galinko with Maxim Group. Your line is open.

Matthew Evan Galinko: Hi. Thanks for taking my questions. I think, Keith, you mentioned, and I did not do the math, but 55% EBITDA margin in implied guidance. If that is correct, it seems like a step down from the last couple of years. So was hoping you could maybe just go into the assumptions there of why we would be seeing compression off, you know, what seems like a pretty strong revenue guide? Thanks.

Keith Jones: Yes, Matt, I think the one thing that I would point to is that our business, if we take a look at our operating expenses of research and development and SG&A, you heard me talk about that we are going to grow that at single-digit rates, and that is pretty consistent. That is what we have done for the last several years. The one thing that is different is, and Paul and I have talked about this going back to 2022, is that traditionally, when we take a look at that legal expense, for 2022, 2023, and 2024, it was historically low. And that was something that was an anomaly. And that is something that we did not 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 IP, we had always thought that litigation expense should be in the twenties. And that is something that we always talk to you about and talk with others. So that being said, 2025, you saw that we spent about $25,000,000 in litigation expense. And that is something we always alluded to. And then in 2026, you heard Paul talk about, or you heard me talk about, that our litigation expense will increase.

And I would say it would increase anywhere between $5,000,000 to $10,000,000 above that $25,000,000 amount. And let us just talk about why that is important. Paul alluded to it. You know, 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 are properly compensated for that. And in some instances, that might involve litigation. So it is a matter of being proactive 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 being low sixties to that 55%, in its entirety. So, hopefully, that gives you a little bit more color.

Matthew Evan Galinko: Sure, it does. And maybe just as a follow-up that I think Paul might have referenced long-term goal of $500,000,000 of annual revenue. And, again, correct me if I got that wrong, but, you know, maybe if we sort of take that number and think about what the litigation expense might be to get there, is that $30,000,000–$40,000,000 the 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?

Paul Davis: Matt, you know, I think it is a great question. And, you know, I think I have been consistent in always saying, we prefer getting deals done without litigation. And that is our ethos. That is how we approach all of our customers, is go to great strides to avoid litigation and find a path forward that gets deals done without it. But at times, it is needed. And what you have seen with Disney and, you know, even with Altice and what we think is what you are going to see, you know, in the future is we are good at it when we need to. Right? And it can really drive great results for us.

And so we are 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 is always going to be there. And so I think it is always going to be around, you know, kind of that $25,000,000–$35,000,000 from just how we think about it, how we forecast it. Are there going to be years where it might be, you know, lower than that? Sure. Are there going to be years where it could, you know, tick a little higher than that? Yes, it could. But for us, you know, we plan for it because, you know, it can really drive, you know, some great results.

You know, as I look at OTT though, you know, there are a couple of examples now that are really big. One, done without litigation—Amazon—great result for us. We got it done in 2024. And one with litigation—Disney—great result for us in 2025. And so, you know, we can drive really great results with or without litigation, but sometimes, you know, the customers, you know, 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 I am comfortable when we need to go down that path, even though it is not my first preference.

Operator: Very good. Thanks. This concludes the question and answer session. I will turn the call to CEO, Paul Davis, for closing remarks.

Paul Davis: Thank you, operator. Thanks for everyone being with us today.

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

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.