Adeia Inc

Previous wording

Adeia Inc. (formerly known as Xperi Holding Corporation) (“Adeia”, “we”) is a leading IP licensing platform in the consumer and entertainment space, with a diverse portfolio of media and semiconductor intellectual property and over 11,500 patents and patent applications worldwide. In order to serve an increasingly connected world, we invent, develop, and license fundamental innovations that enhance billions of devices and shape the way millions of people explore and experience entertainment. Through our IP licensing business, we help enable extraordinary experiences at home and on the go for millions of consumers around the world, with IP that helps elevate content and improves how audiences connect with it in a way that is more intelligent, immersive and personal. Through providing the IP that helps to power smart devices, entertainment experiences and more, we have created a unified ecosystem that reaches highly-engaged consumers and uncovered new business opportunities.

Current wording

Adeia Inc. (formerly known as Xperi Holding Corporation) (“Adeia”, “we”) is a leading IP licensing platform in the consumer and entertainment space, with a diverse portfolio of media and semiconductor intellectual property and more than 11,750 patents and patent applications worldwide. In order to serve an increasingly connected world, we invent, develop, and license fundamental innovations that enhance billions of devices and shape the way millions of people explore and experience entertainment. Through our IP licensing business, we help enable extraordinary experiences at home and on the go for millions of consumers around the world, with IP that helps elevate content and improves how audiences connect with it in a way that is more intelligent, immersive and personal. Through providing the IP that helps to power smart devices, entertainment experiences and more, we have created a unified ecosystem that reaches highly-engaged consumers and uncovered new business opportunities.

Previous wording

Headquartered in Silicon Valley with more than 35 years of operating experience, we have approximately 140 employees, with substantially all of our employees located in the U.S.

Current wording

Headquartered in Silicon Valley with more than 35 years of operating experience, we have approximately 144 employees, with substantially all of our employees located in the U.S.

Previous wording

The current macroeconomic environment, which has arisen in part from the effects of the COVID-19 pandemic, has had, and may continue to have, an adverse impact on our business. The impact to date has included periods of significant volatility in the markets we serve, in particular the broad consumer electronics market. The current macroeconomic environment has also caused challenges and delays in acquiring new customers and executing license renewals. These factors have negatively impacted our financial condition and results of operations, which may result in an impairment of our long-lived assets, including goodwill, and increased credit losses.

Current wording

Macroeconomic conditions due to inflation, geopolitical instability and global health events may have an adverse impact on our business. For example, such conditions may continue to cause volatility in the markets we serve, particularly the broad consumer electronics market. Impacts from adverse macroeconomic conditions may negatively impact our financial condition and results of operations, which could result in an impairment of our long-lived assets, including goodwill, and increased credit losses.

Previous wording

In evaluating our financial condition and operating performance, we primarily focus on revenue and cash flows from operations. For the three and six months ended June 30, 2024, as compared to the same periods in 2023:

Current wording

In evaluating our financial condition and operating performance, we primarily focus on revenue and cash flows from operations. For the three and nine months ended September 30, 2024, as compared to the same periods in 2023:

Previous wording

Cash provided by operating activities decreased by $5.2 million, or 18.1% from $28.7 million in 2023 to $23.5 million in 2024.

Current wording

Cash provided by operating activities decreased by $6.9 million, or 32.6% from $21.2 million in 2023 to $14.3 million in 2024.

Previous wording

Repriced our term loan which lowered our interest rate by 61 basis points and made $52.1 million in principal payments, bringing the outstanding balance to $549.1 million as of June 30, 2024.

Current wording

Made $12.0 million in principal payments on our term loan, bringing the outstanding balance to $537.1 million as of September 30, 2024.

Previous wording

Cash provided by operating activities decreased by $1.4 million, or 1.5%, from $92.1 million in 2023 to $90.7 million in 2024.

Current wording

Cash provided by operating activities decreased by $8.3 million, or 7.3%, from $113.3 million in 2023 to $105.0 million in 2024.

Previous wording

Repriced our term loan which lowered our interest rate by 61 basis points and made $12.0 million in principal payments, bringing the outstanding balance to $549.1 million as of June 30, 2024.

Current wording

Repriced our term loan which lowered our interest rate by 61 basis points and made $64.2 million in principal payments, bringing the outstanding balance to $537.1 million as of September 30, 2024.

Previous wording

The following table sets forth our revenue for the three and six months ended June 30, 2024 and 2023 (in thousands, except for percentages):

Current wording

The following table sets forth our revenue for the three and nine months ended September 30, 2024 and 2023 (in thousands, except for percentages):

Previous wording

Recurring revenues increased slightly to $82.3 million during the three months ended June 30, 2024 from $81.6 million in the same period in 2023.

Current wording

Recurring revenues decreased slightly to $82.7 million during the three months ended September 30, 2024 from $83.6 million in the same period in 2023.

Previous wording

The decrease in revenue during the six months ended June 30, 2024, as compared to the same period in 2023, was primarily attributable to the execution of two long-term license agreements with Kioxia and Western Digital in the first quarter of 2023 and a decline in royalty revenue from certain Pay-TV customers, partially offset by a multi-year agreement with X Corp. for access to our media portfolio in the second quarter of 2024 and recurring revenue from long-term renewals with Samsung for access to our media portfolio in the second half of 2023.

Current wording

The decrease in revenue during the nine months ended September 30, 2024, as compared to the same period in 2023, was primarily attributable to the execution of two long-term license agreements with Kioxia and Western Digital in the first quarter of 2023, recognition of revenue from periods prior to the execution of the long-term renewal of a license agreement with Samsung in the third quarter of 2023, and a decline in royalty revenue from certain Pay-TV customers, partially offset by a multi-year agreement with X Corp. for access to our media portfolio that occurred in the second quarter of 2024.

Previous wording

Non-recurring revenues for the six months ended June 30, 2024 and 2023 were $5.7 million and $34.6 million, respectively. The decrease of $28.8 million was primarily attributable to the execution of long-term license agreements with Kioxia and Western Digital in the first quarter of 2023, partially offset by a settlement agreement and multi-year renewal with X Corp. for access to our media portfolio in the second quarter of 2024.

Current wording

Non-recurring revenues for the nine months ended September 30, 2024 and 2023 were $7.0 million and $46.8 million, respectively. The decrease of $39.8 million was primarily attributable to the execution of long-term license agreements with Kioxia and Western Digital in the first quarter of 2023 and revenue from periods prior to the execution of the long-term renewal of a license agreement with Samsung in the third quarter of 2023, partially offset by a settlement agreement and multi-year renewal with X Corp. for access to our media portfolio that occurred in the second quarter of 2024.

Previous wording

The increase in R&D expense during the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due an increase in patent prosecution, defense and assertion costs.

Current wording

The increase in R&D expense during the three months ended September 30, 2024, as compared to the same period in 2023, was primarily due to an increase in patent prosecution, patent portfolio development costs and an increase in personnel related costs as a result of increased headcount.

Previous wording

The increase in R&D expense during the six months ended June 30, 2024, as compared to the same period in 2023, was primarily due an increase in personnel costs as a result of increased headcount and patent prosecution, defense and assertion costs, partially offset by a decrease in professional services costs.

Current wording

The increase in R&D expense during the nine months ended September 30, 2024, as compared to the same period in 2023, was primarily due to an increase in personnel costs as a result of increased headcount and an increase in patent portfolio development costs, partially offset by a decrease in professional services costs.

Previous wording

The decrease in SG&A expense during the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due to decreases in advertising expense and the recovery of certain bad debt expenses. The decreases were partially offset by increases in certain administrative costs associated with our debt repricing and personnel costs as a result of increased headcount.

Current wording

The increase in SG&A expense during the three months ended September 30, 2024, as compared to the same period in 2023, was primarily due to an increase in personnel related costs as a result of increased headcount and an increase in professional services costs.

Previous wording

The decrease in SG&A expense during the six months ended June 30, 2024, as compared to the same period in 2023, was primarily due to decreases in advertising expense, separation costs that were incurred in 2023 but did not recur in 2024, certain insurance costs and bad debt expenses; partially offset by increases in certain administrative costs associated with the repricing of our credit facility discussed below and personnel costs as a result of increased headcount.

Current wording

The increase in SG&A expense during the nine months ended September 30, 2024, as compared to the same period in 2023, was primarily due to an increase in personnel related costs as a result of increased headcount, an increase in professional services costs, an increase in certain administrative costs associated with the repricing of our credit facility in the second quarter of 2024, partially offset by decreases in separation costs that were incurred in 2023 but did not recur in 2024, lower insurance costs and recovery of certain bad debt expenses.

Previous wording

The decrease in amortization expense during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to certain intangible assets becoming fully amortized during 2024. The decrease was partially offset by an increase in amortization expense as a result of patents acquired in 2024.

Current wording

The decrease in amortization expense during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to certain intangible assets becoming fully amortized during 2024. The decrease was partially offset by an increase in amortization expense as a result of patents acquired in 2024.

Previous wording

The increase in litigation expense during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to increased case activity in current litigation matters.

Current wording

The increase in litigation expense during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to increased activity in current litigation matters.

Previous wording

The decrease in interest expense during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to lower debt balance and amortization of debt discount and issuance costs, partially offset by increased interest rates on our variable interest rate debt due to the rising interest rate environment.

Current wording

The decrease in interest expense during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to lower debt balance and lower interest rates on our variable interest rate debt due to the repricing of our Term Loan B during the second quarter of 2024.

Previous wording

We anticipate interest expense will continue to decrease in 2024, when compared to 2023, as a result of a full year of a lower debt balance, amortization of debt discount and issuance costs and the reduction of the interest rate margin due to the repricing of our Term Loan B during the second quarter of 2024.

Current wording

We anticipate interest expense will continue to decrease in 2024, when compared to 2023, as a result of a full year of a lower debt balance, the reduction of the interest rate margin benefited from the repricing of our Term Loan B during the second quarter of 2024, and the Federal Reserve interest rate cut during the third quarter of 2024.

Previous wording

The decrease in other income and expense, net during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to a decrease in realized gains on our investments in marketable securities, partially offset by an increase in interest income from significant financing components from certain revenue contracts.

Current wording

The decrease in other income and expense, net during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to a decrease in interest income from significant financing components from certain revenue contracts.

Previous wording

During the three and six months ended June 30, 2024, we recognized $0.5 million associated with the repricing of our Term Loan B and there were no such costs in 2023. Refer to discussion below for further detail on the repricing of our Term Loan B.

Current wording

During the nine months ended September 30, 2024, we recognized $0.5 million associated with the repricing of our Term Loan B and there were no such costs in 2023. Refer to discussion below for further detail on the repricing of our Term Loan B.

Previous wording

Our income tax provision for interim periods is based on the estimated annual effective tax rate adjusted for discrete items during the period. For the three months ended June 30, 2024, we recorded income tax expense of $2.9 million on pretax income of $11.3 million, and for the six months ended June 30, 2024, we recorded an income tax expense of $8.6 million on pretax income of $17.9 million, which resulted in effective tax rates of 26.0% and 48.2%, respectively, for the three and six months ended June 30, 2024. The increase in income tax expense for the three months ended June 30, 2024, as compared to the same period in the prior year was primarily due to a quarter to date increase in pretax income. The decrease in income tax expense for the six months ended June 30, 2024, as compared to the same period in the prior year was primarily due to a year to date decrease in pretax income.

Current wording

Our income tax provision for interim periods is based on the estimated annual effective tax rate adjusted for discrete items during the period. For the three months ended September 30, 2024, we recorded income tax benefit of $2.5 million on pretax income of $16.8 million, and for the nine months ended September 30, 2024, we recorded an income tax expense of $6.1 million on pretax income of $34.7 million, which resulted in effective tax rates of (14.9)% and 17.6%, respectively, for the three and nine months ended September 30, 2024. The decrease in income tax expense for the three months ended September 30, 2024, as compared to the same period in the prior year was primarily due to certain unrealized foreign exchange benefits associated with South Korea withholding tax refund claims. The decrease in income tax expense for the nine months ended September 30, 2024, as compared to the same period in the prior year was primarily due to certain unrealized foreign exchange benefits associated with South Korea withholding tax refund claims.

Previous wording

For the three months ended June 30, 2023, we recorded an income tax expense of $2.4 million on pretax income of $3.8 million, and for the six months ended June 30, 2023, we recorded an income tax expense of $14.2 million on pretax income of $44.6 million, which resulted in effective tax rates of 61.9% and 31.8%, respectively, for the three and six months ended June 30, 2023. The decrease in income tax expense for the three and six months ended June 30, 2023, as compared to the same period in the prior year was primarily due to a decrease in pretax income.

Current wording

For the three months ended September 30, 2023, we recorded an income tax expense of $1.7 million on pretax income of $25.9 million, and for nine months ended September 30, 2023, we recorded an income tax expense of $15.9 million on pretax income of $70.5 million, which resulted in effective tax rates of 6.6% and 22.5%, respectively, for the three and nine months ended September 30, 2023.

Previous wording

The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents for the six months ended June 30, 2024 and 2023.

Current wording

The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents for the nine months ended September 30, 2024 and 2023.

Previous wording

Our primary sources of liquidity and capital resources are our operating cash flows and our short-term investments in marketable securities. Cash, cash equivalents and marketable securities were $94.5 million at June 30, 2024, an increase of $10.9 million from $83.6 million at December 31, 2023. This increase primarily resulted from $90.7 million of cash generated from operations, and $1.6 million in proceeds from purchases through our employee stock purchase program and exercise of stock options, partially offset by $52.1 million in repayment of our long-term debt, $9.1 million in repurchases of common stock associated with tax withholdings on equity awards, $10.9 million in dividends paid, $1.2 million in purchases of property and equipment, and $8.5 million in purchases of intangible assets.

Current wording

Our primary sources of liquidity and capital resources are our operating cash flows and our short-term investments in marketable securities. Cash, cash equivalents and marketable securities were $89.2 million at September 30, 2024, an increase of $5.6 million from $83.6 million at December 31, 2023. This increase primarily resulted from $105.0 million of cash generated from operations, and $1.5 million in proceeds from purchases through our employee stock purchase program and exercise of stock options, partially offset by $64.2 million in repayment of our long-term debt, $11.6 million in repurchases of common stock associated with tax withholdings on equity awards, $16.3 million in dividends paid, $1.3 million in purchases of property and equipment, and $8.5 million in purchases of intangible assets.

Previous wording

For information about our material cash requirements, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Other than the principal payments of $52.1 million made by us under the existing Term Loan B during the six months ended June 30, 2024, our cash requirements have not materially changed since December 31, 2023.

Current wording

For information about our material cash requirements, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Other than the principal payments of $64.2 million made by us under the existing Term Loan B during the nine months ended September 30, 2024, our cash requirements have not materially changed since December 31, 2023.

Previous wording

Cash flows provided by operations were $90.7 million for the six months ended June 30, 2024, were primarily due to our net income of $9.3 million being adjusted for non-cash items of amortization of intangible assets of $43.2 million, amortization of debt issuance costs of $1.6 million, stock-based compensation expense of $11.7 million, depreciation of property and equipment of $1.0 million and $24.5 million in changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2023.

Current wording

Cash flows provided by operations were $105.0 million for the nine months ended September 30, 2024, were primarily due to our net income of $28.6 million being adjusted for non-cash items of amortization of intangible assets of $56.8 million, amortization of debt issuance costs of $2.4 million, stock-based compensation expense of $19.2 million, depreciation of property and equipment of $1.5 million and $(0.7) million in changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2023.

Previous wording

Cash flows provided by operations were $92.1 million for the six months ended June 30, 2023, primarily due to our net income of $30.4 million being adjusted for non-cash items of amortization of intangible assets of $47.3 million, deferred income taxes of $1.5 million, amortization of debt issuance costs of $2.2 million and stock-based compensation expense of $8.2 million. These increases were partially offset by $1.7 million in changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2022.

Current wording

Cash flows provided by operations were $113.3 million for the nine months ended September 30, 2023, primarily due to our net income of $54.7 million being adjusted for non-cash items of amortization of intangible assets of $70.7 million, amortization of debt issuance costs of $3.3 million and stock-based compensation expense of $13.1 million. These increases were partially offset by $29.6 million in changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2022.

Previous wording

Net cash used in investing activities was $8.2 million for the six months ended June 30, 2024, primarily related to purchases of short-term investments of $18.7 million, purchases of property and equipment of $1.2 million, purchases of intangible assets of $8.5 million, and proceeds from maturities of investments of $20.2 million.

Current wording

Net cash used in investing activities was $8.4 million for the nine months ended September 30, 2024, primarily related to purchases of short-term investments of $25.1 million, purchases of property and equipment of $1.3 million, purchases of intangible assets of $8.5 million, and proceeds from maturities of investments of $26.5 million.

Previous wording

Net cash used in investing activities was $25.4 million for the six months ended June 30, 2023, primarily related to purchases of short-term investments of $23.8 million and capital expenditures of $1.5 million.

Current wording

Net cash used in investing activities was $31.8 million for the nine months ended September 30, 2023, primarily related to purchases of short-term investments of $33.6 million, capital expenditures of $1.9 million and proceeds from maturities of investments of $3.8 million.

Previous wording

Our capital expenditures for property and equipment consist primarily of leasehold improvements, purchases of computer hardware and software, information systems, and semiconductor production and test equipment. During the six months ended June 30, 2024 and 2023, we spent $1.2 million and $1.5 million on capital expenditures, respectively, and we expect capital expenditures in the remainder of 2024 to be approximately $1.0 million. Our capital expenditures for intangible assets consists primarily of acquired patents. During the six months ended June 30, 2024, we spent $8.5 million on purchases of intangible assets. These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents and short-term investments. There can be no assurance that current expectations will be realized, and plans are subject to change upon further review of our capital expenditure needs.

Current wording

Our capital expenditures for property and equipment consist primarily of leasehold improvements, purchases of computer hardware and software, information systems, and semiconductor production and test equipment. During the nine months ended September 30, 2024 and 2023, we spent $1.3 million and $1.9 million on capital expenditures, respectively, and we expect capital expenditures in the remainder of 2024 to be approximately $1.0 million. Our capital expenditures for intangible assets consists primarily of acquired patents. During the nine months ended September 30, 2024, we spent $8.5 million on purchases of intangible assets. These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents and short-term investments. There can be no assurance that current expectations will be realized, and plans are subject to change upon further review of our capital expenditure needs.

Previous wording

Net cash used in financing activities was $70.5 million for the six months ended June 30, 2024 due to $52.1 million in repayment of indebtedness, $10.9 million in dividends paid, $9.1 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.6 million in proceeds from purchases through our employee stock purchase program and exercise of stock options.

Current wording

Net cash used in financing activities was $90.5 million for the nine months ended September 30, 2024 due to $64.2 million in repayment of indebtedness, $16.3 million in dividends paid, $11.6 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.5 million in proceeds from purchases through our employee stock purchase program and exercise of stock options.

Previous wording

Net cash used in financing activities was $120.7 million for the six months ended June 30, 2023 due to $103.8 million in repayment of indebtedness, $10.6 million in dividends paid, $7.5 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.1 million in proceeds from purchases through our employee stock purchase program and exercise of stock options.

Current wording

Net cash used in financing activities was $144.2 million for the nine months ended September 30, 2023 due to $118.9 million in repayment of indebtedness, $16.0 million in dividends paid, $10.5 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.1 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Previous wording

On May 30, 2023, we entered into Amendment No. 3 (“Amendment No. 3”) to the 2020 Credit Agreement to replace the reference to LIBOR as the base rate with the reference to the Secured Overnight Financing Rate “SOFR” as administered by the Federal Reserve Bank of New York.

Current wording

On May 30, 2023, we entered into Amendment No. 3 (“Amendment No. 2”) to the 2020 Credit Agreement to replace the reference to LIBOR as the base rate with the reference to the Secured Overnight Financing Rate “SOFR” as administered by the Federal Reserve Bank of New York.

Previous wording

At June 30, 2024, $549.1 million was outstanding under the term loan B facility with an interest rate, including unamortized debt discount and issuance costs of $13.5 million. Interest is payable monthly. Under the existing loan agreement, we have future minimum principal payments for our debt of $14.0 million in the remainder of 2024, $28.1 million each year from 2025 through 2027, with the remaining principal balance of $450.9 million due in 2028. After the Separation, we own the debt under the term loan B facility. Additionally, we paid $29.1 million during the six months ended June 30, 2024, based on certain leverage ratios and our excess cash flow generated for the year ended December 31, 2023. We are obligated to continue to pay a portion of excess cash flows on an annual basis. The term loan B facility contains customary covenants, and as of June 30, 2024, we were in full compliance with such covenants. The 2020 Credit Agreement, as amended, also requires that we continue to make cash payments on an annual basis based on certain leverage ratios and excess cash flow generated for the immediately preceding fiscal year. The cash payments are applied to the remaining principal balance due at final maturity.

Current wording

At September 30, 2024, $537.1 million was outstanding under the term loan B facility with an interest rate, including unamortized debt discount and issuance costs of $12.7 million. Interest is payable monthly. Under the existing loan agreement, we have future minimum principal payments for our debt of $7.0 million in the remainder of 2024, $28.1 million each year from 2025 through 2027, with the remaining principal balance of $445.9 million due in 2028. After the Separation, we own the debt under the term loan B facility. Additionally, we paid $29.1 million during the nine months ended September 30, 2024, based on certain leverage ratios and our excess cash flow generated for the year ended December 31, 2023. We are obligated to continue to pay a portion of excess cash flows on an annual basis. The term loan B facility contains customary covenants, and as of September 30, 2024, we were in full compliance with such covenants. The 2020 Credit Agreement, as amended, also requires that we continue to make cash payments on an annual basis based on certain leverage ratios and excess cash flow generated for the immediately preceding fiscal year. The cash payments are applied to the remaining principal balance due at final maturity.

Previous wording

During the three and six months ended June 30, 2024, there were no significant changes in our critical accounting policies and estimates. See “Note 2 –Summary of Significant Accounting Policies” of Notes to Condensed Consolidated Financial Statements for additional detail. For a discussion of our critical accounting policies and estimates, see Part II, Item 7 –Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K.

Current wording

During the three and nine months ended September 30, 2024, there were no significant changes in our critical accounting policies and estimates. See “Note 2 –Summary of Significant Accounting Policies” of Notes to Condensed Consolidated Financial Statements for additional detail. For a discussion of our critical accounting policies and estimates, see Part II, Item 7 –Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K.