Thank you very much, everybody, for coming. My name's Nick Zangler. I cover ad tech and media at Stephens. Super excited to have Adeia here. We have with us Paul Davis, CEO, Keith Jones, CFO. So obviously at the conference, you know, we've hosted thus far a bunch of players within TV. You know, names to highlight might be like Roku, VIZIO, Fubo, we've got some various broadcasters, they were here as well. But behind the scenes, enabling all of the or most of the video interactivity we see and use every day, that people might not realize, is Adeia. You guys are building the technology to make it all possible.
Just to start, as a lead-in, can you just provide an overview of Adeia, touch on the history with Xperi, 'cause it recently came out of a spin, and just describe how you would segment the business across pay TV, OTT, social media, consumer electronics, semiconductors. Just a broad overview there would be great.
Sure. Happy to do so, Nick, and thanks, thanks for having us. So Adeia is a relatively new name. We celebrated about a year ago we separated from Xperi. We have been a standalone public company since October 1st of 2022. And so while our name is new, and we're new in kind of the public market as a standalone, we've been around for over 30 years in two primary areas. So we invent technology, fundamental technologies, that really play in two different spaces: media and semiconductors. And we've been doing this for 30-plus years, as I mentioned. At the heart of what we do is we look to invent technologies that we think are going to be relevant in those spaces for years to come, right?
We patent those technologies, and then we license them out to the industry. And that's the model that we've built up on the different spaces. So in media, we play in a couple of different industries. Pay TV is what we're best known for. We've licensed, you know, almost 90% or a little over 90% of the total U.S. Pay TV market alone. And so pretty much the entire industry has recognized the value of our IP, and it dates back a long time, starting in the Rovi days, where we were, you know, interactive program guides was the primary feature that we were licensing.
They then merged with Rovi and TiVo merged together, and so DVR technology as well, playback features, search and recommendation as well, were items that we were well-known for and continue to license in those spaces. In addition to Pay TV, we license about 60% of the consumer electronics market, and it's roughly about 10% of our revenue. In addition, social media, we've licensed about 80% of the social media companies, and it's in the, you know, 10%-15% of our revenue, in the teens. So it's, you know, a significant contributor, and it's really been growing over the last few years. And then our biggest growth area in media is really OTT, so the streaming players.
It's an area where we really weren't licensing significantly as part of a combined company because of some conflicts that we had with the product business prior to separation. And so that's an area where almost the entire market is greenfield to us. We've had some recent success with folks like DAZN and Starz, which we announced last quarter, and so we're very happy with that progress. And it's an area that we think can really be a significant growth area for us.
In addition to all of those markets, we're also expanding into a bunch of adjacent markets, which I can touch on later, but those areas will be of significant growth, including e-commerce, ad tech, sports gambling, gaming, you know, music streaming, and the like. So this is an area of... We saw the industry, really those industries, moving into more video-centric features. I mean, you think about e-commerce, a lot of the shopping now is interactive video that people are looking at, and so a lot of the features end up being very similar. So that's the core of what we do on the media side. On the semiconductors side, again, our history dates back 30-plus years.
It started with a company called Tessera Technologies that invented Chip-Scale Packaging, and really then taught the industry how to do Chip-Scale Packaging and licensed it out. Today, the semiconductor business is focused on two core technology areas, primarily Hybrid Bonding, which is a process that allows really two semiconductor chips to be bonded together in a way that makes them integrated that it's like one chip. And so, as the industry's moving to, you know, Chiplet designs on the logic side, we think Hybrid Bonding's gonna be very significant. The other area that we focus on is APN, Advanced Processing Node.
This both hybrid bonding and advanced processing node are trying to deal with what people refer to as the slowing of Moore's Law, where reducing the semiconductor processing nodes became a way to increase performance, and that has become very difficult to do, the costs associated with doing that. So people are looking for other technologies to advance performance without having the costs associated with the increasing challenges of Moore's Law. So that's an overview of both the media and semiconductor part of the business, and you know, happy to-
Yeah, that's great.
dive into other areas.
And, I'm gonna open the questions up, so I'll let you guys decide who's gonna take it. But for anybody in the audience, if you guys wanna participate, raise your hand, interrupt me, feel free to do that. But I'll keep going here. You know, I've gone on LinkedIn, and I've looked at, like, all the people that work at Adeia, and their backgrounds make me feel pretty dumb. So you guys, you guys have PhDs, you know, Master's, you got prolific inventors.
Yeah.
Can you just talk about the team that you've built at Adeia, who these people are, what they're researching on, and where their focus is? Maybe, like, it's not building technologies for two to four years from now, but maybe five, 10, 15, 20 years from now.
Yeah, this is something I'm really proud of. We have an incredible team of engineering talent, in particular. One of the things that we do at Adeia is we're able to attract people that have just years of industry experience. They come to Adeia because they're getting to invent really fundamental technologies for the future, right? So we have a time horizon that's often different than a lot of other, you know, folks. We are inventing, you know, with a five to 10-year horizon, often out there, and engineers love that. They love coming to our company. There's a freedom there. They're not just trying to push out the next product. So we've hired from, you know, the likes of Qualcomm, Amazon. You're right, Nick, we have people with PhDs.
We have lawyers that have Ph.D.s in electrical engineering, also because they work with the engineering team as we're developing the patents. So it's a tremendously talented group. And so we're not hiring a lot from the... you know, straight out of college. We want people that understand the industries that we play in, whether that be media or semiconductors, so that they know where the industry needs to go in that time horizon that I talked about.
Got it. All right, so everybody watches TV. Everybody, you know, whether it's linear, whether it's Connected TV, everybody does it. We're used to interactivity. Can you talk about the things that you power every day through your patented technology that we interact with, and just to make it real for us?
Yeah, it's usually, it's all about the user experience, primarily. So it's, it's how you interact with that, that TV, whether it's the pay TV or the, the streaming services. So if you're... You know, how you find a program, right? There's search and recommendation aspects. On pay TV, it is that interactive program guide, that people have gotten obviously very used to and, and seeing the, the advertisements that are, that are a part of it and the guide that, that goes down, that's still a significant part of the technologies. But in, in addition, you know, playback features deeper into the stack of, how, how the streaming services are, are, you know, coding the, the shows and delivering them, as well as an aspect of it, that, that we, that we play in as well.
So it's really that how you interact with the TV, how you interact with that pay TV service to find what your favorite shows are to watch.
Got it. So just going through some segments then, we'll start with Pay TV.
Yep.
Right? So I think you would say that 90% of the opportunity is locked up under contract with Adeia in the U.S.-
Yep
... at least. So just for some perspective, that includes Comcast, DirecTV, Charter, Verizon, Dish, Cox, Altice. They all pay the Adeia toll, right? But obviously, it includes vMVPD pay TV players as well.
Yep.
YouTube TV.
Yep.
In totality, we talked about this part of the business now representing 230-240, I think, of revenues as it is right now. As most people know, Pay TV subscriptions are shrinking with cord-cutting. That's accelerating. You got Comcast, they just lost 13% of subscribers on a year-over-year basis. How should we think about growth within this segment of the business, given what we're seeing on the cord-cutting side?
Yeah, so, great question. First of all, you're absolutely right, 90% of the market that we've licensed. And the names that Nick just read off, those are the who's who, right? We've licensed everybody. We don't think of it as a toll, just to clarify that. We think it's getting value for our R&D investments. You know, the value that we have really invested in our engineering team and the R&D effort that we've done and how we have improved the ecosystem in the pay TV market. And so that is just a different way of the value exchange and how we contribute to that market. And so the pay TV market has obviously seen declines. We've factored that into all of our, you know, our growth plans as well.
We can offset that decline in a couple of important ways. One, OTT, as I mentioned, almost entirely a greenfield opportunity as we sit here today. And that alone can really address almost all of the offset, the declines in pay TV that we see. So if you think about, you know, ARPU on a pay TV subscription, you're talking about $100-$150, you know, per month, where an OTT, you're probably talking about $15 on average for, you know, a premium subscription, maybe a little more, a little less. But what's important is the number of OTT subscribers.
So if you're like the Davis household, you probably have eight, nine, ten. I don't know what my children have signed up for recently, maybe it's more, you know, OTT subscriptions, right? And so you... That volume, right, is where you make up in that ARPU difference there. And so as that greenfield opportunity really matures for us and we're able to get folks under license, you know, we see that dynamic being the primary ability for us to really offset that pay TV decline. The other thing I'd note about the declines in pay TV is that you are seeing, while the year-over-year numbers are fairly significant...
Sequentially, you're starting to see it on an absolute basis starting to level out, if not decrease in the absolute number of cord-cutting that we're starting to see. You know, and there's others that have noted that we believe that the pay TV market is not gonna go away, right? There is a certain segment of the population that will continue to look for, you know, bundled entertainment offerings, and that will continue on. And then in addition to OTT, and so it's adjacent markets that I mentioned earlier. So we think those are the ways in the media space that we're gonna continue to grow despite the declines in pay TV.
Right. And even in Pay TV, the vMVPDs are included in Pay TV, right?
Correct.
So like, they're growing, right?
Yeah.
Some kind... YouTube TV-
Absolutely.
is growing, DIRECTV STREAM growing. I think you got Sling TV as well. So, like, these actually are, our current customers.
Yep.
I think if I were to just round that out as far as the vMVPDs go, I think there's FuboTV left and Disney, Hulu + Live TV. I'm still... In my mind, I think those are still prospective customers.
Yeah. Yeah, we still have some opportunities in that space for sure. You know, a lot of that is still very similar look and feel that you would have in a traditional linear pay TV offering, just delivered in a different way. And so a lot of our IP is very relevant in that space as well.
Got it. Okay. I'm gonna move on to these Canadian pay TV operators. I hate to name names, but-
No.
I'm gonna do it. Rogers, Bell Canada, Videotron, Telus.
Yeah.
Collectively, they make up around 8.5 million pay TV subscribers across Canada. By our math, if you get, you guys landed them as clients, we get to $50 billion-$70 billion in annual revenue. But the most conservatively, if you took, like, your Comcast contract, which is 15 years, has huge volume, $25 billion. Those are our estimates, by the way. But clearly, these Canadian pay TV operators don't think that they need to pay you a licensing fee. Why are they wrong, and can you update us on the current litigation process that's going on there?
So I think, first of all, I do think the number of them have been, you know, licensees in the past. Shaw is a current licensee. We're actually just in a contract dispute with them. And so that the revenue associated, you know, with the Canadian pay TV operators is fairly minimum right now. But we do believe that our fundamental IP reads in Canada just how it reads in the U.S. A lot of their operating systems are actually based on platforms from U.S. companies and that we've successfully licensed, and then we have a significant Canadian patent portfolio that has many of the same features and technology that we have in the U.S.
So we believe we will ultimately be successful in Canada and get everyone under license and get Shaw back as a paying customer. It's taken a little longer than we had originally hoped, but the long-term outlook and our long-term belief is we will get them under license just as we have the U.S. Pay TV operators.
Can you just go into a little bit more detail on the recent Rogers-Shaw impasse?
Yeah.
Kinda like, obviously, there was an acquisition there, and then, you know, obviously impacted your financial outlook. So can you just kinda break it down?
Yeah, absolutely. So Shaw has been a customer of ours. We signed a deal with them in 2014. We renewed it in 2019. An excellent customer. They've paid us on time, for you know, all of those years. And then, in April of this year, Rogers and Shaw merged, and the deal closed in that timeframe. And Rogers' management took over, and looked at the contract and apparently decided that they didn't wanna continue to pay us, even though it goes out to the end of 2025. And so, with that, obviously very disappointing.
We think their arguments are without merit, and that we have, you know, a claim to continue to be paid throughout the term of the agreement. So, with any situation like that, our first approach is to try to engage, you know, with the customer, understand the issue, and try to resolve it amicably, which we do all the time. We have very good customer relationships. This situation is just unique. You know, Rogers has put out a very significant cost synergies model. We think that they're trying to drive, you know, reduced costs on their own business and, you know, they are currently unlicensed to our portfolio.
And so, you know, we think that is really what's driving this behavior and ultimately will prevail in the contract dispute with them.
Kyle?
I have two questions.
Yeah.
One, why are these two businesses together? They're incredibly complicated on their own, and for a $1 billion market cap, it's a lot of work for the buy side to figure out. And two, can you go back in time? There was a Comcast that was your big heavyweight-
Uh-huh
... battle. Can you kinda go back and give the timeline for that? And they were negotiating here, you were negotiating here-
Yeah
... and you hear how that happened? Because that was probably the fight to end all fights for you guys, I would think.
Let me start with Comcast, and I'll go back to your question on the semi and media businesses together. So, on Comcast, we had, going into 2016, there was a number of significant pay TV renewals that we had at that timeframe. The team was able to successfully get them all licensed and renewed, except for Comcast. Comcast held out. And so there was a series of litigations that resulted from that, in it starting in 2016 and ultimately was settled in 2020. I would note that it settled on terms that we found to be incredibly favorable to us.
And so, you know, sometimes you have to go through that dispute, you know, where there will be a holdout in terms of the-
Mm-hmm
... getting them under license. But we believe in the long-term value creation that that can create, and so we... It proved out, right? So you have to be persistent, you have to, you know, continue to believe in your IP and move that forward, and ultimately, we were very successful. That agreement, you know, it's a 10-year agreement from the time we signed it, right? It goes out into actually 2031. It has been incredibly valuable to us as we go forward. So in the beginning of this year, we signed three pay TV renewals with not small players. These are top 10, you know, customers. Cox, Altice, and Verizon, right? So this is a significant, you know...
has significant benefits for us long-term, in terms of being able to, you know, ultimately get these folks under license. And so any sort of dispute, you know, litigation is our last resort, and we don't wanna go down, you know, that path, but sometimes you're left with no choice if you're not getting the value that you need in the long-term benefits. You know, by ultimately, you know, prevailing in that case was significantly important for us.
What is the Rogers team-
Yeah.
You just listed off people that are a multiple the size of Rogers-
Yeah, yeah
... combined.
Yeah.
What does Rogers... I, maybe you don't have an answer for this, but what in the world do they see as an opportunity-
Yeah
... when Comcast and Cox and others have already signed with you?
Yeah, I think, I think there's a couple things that I'd just note. You know, the U.S., U.S. pay TV market has clearly been incredibly successful for us, you know, over, over a long period of time. You know, Canada, it is, it is a different, you know, patent system, jurisdiction. There's different rules, you know, there's different, different patents that we have in Canada than we have in the U.S. And so I think that they're, you know, looking at it, and we've had... We did have some setbacks in, in, the Bell and Telus case, and, and Videotron, that we believe we'll ultimately be able to, to prevail on that.
They're probably looking at those cases as well and trying to, you know, see if there is, you know, a leverage situation since they're currently unlicensed, and Shaw was. That would be, you know, my guess of what's going on there.
And then the businesses.
Yeah. So thank you for the reminder. So the two businesses, so, semiconductor and media, so they are different markets for sure. But a lot of the semiconductor devices power really what the media business is able to do and deliver today. When you think about, you know, what's needed in it for a lot of these streaming services and the like, they need advanced semiconductor devices, and so there is, you know, a synergy there.
And a lot of our customers now, you think about Samsung, who we just signed another deal with on the mobile side of their business in this last quarter, and then last year we signed a deal in the consumer electronics for their Connected TV. We also have a semiconductor. So there are these larger companies where the semiconductor part of the business and the media part of the business are becoming more and more, you know, vertically integrated. And that there's opportunities and synergies for us to be able to license the entire portfolio, right?
So if you think about, you know, the likes of, you know, an Amazon, a Google, you know, a Samsung, you know, those are big, integrated companies, where the more that you have from an IP standpoint, the more offerings that you can provide, the easier for deals to get done. So there's that element as well. The other thing, the way we invent, the way we patent our technology, and the way we license, there's so much that we learn from each other, right? In those two businesses and the way we approach it, that I do think there's a tremendous benefit from an operational standpoint that we have learned, you know, as we brought them two together. So this really...
It started, the combination came about because Xperi merged with TiVo in June 2020. They both had product businesses. They both had IP licensing business. So the Xperi side had the semiconductor business, TiVo obviously had the media business. We brought them together, and there was a scale element as well, where bringing the two IP licensing businesses allowed us to, you know, really have, you know, more significant scale of bringing that together than they would've been on a standalone basis. And then similarly on the product side, it was a similar story there.
By bringing what was, you know, essentially the DTS, you know, part of the business on the Xperi side, and the TiVo business on that media side, you know, bringing those two businesses and being able to go out, and there's synergies there. So that was the rationale in bringing them together and the benefits that we see of having them both.
Just to add to that, we just completed an offsite with our executive team, and we constantly get together with our media and our semiconductor group. The rhythm that-
Yeah
... how we manage the business is fairly identical-
Yeah
... in terms of looking forward, the drive for innovation, inventions, and patent filing processes, and how we go through in reviewing opportunities in the marketplace, and then just from best practices and even licensing. You know?
Yeah.
So the logos might be different, but candidly, the logos are different from looking from pay TV to OTT or consumer electronics as well. So we had to go through those verticals. We had to get to understand them and know them, but how we go about it is a very systematic way. So there's a tremendous amount of leverage. It is not the case by any stretch of imagination that we take off one hat and put on another.
Yeah
... when we're talking about semi versus, media.
... Go ahead. Yeah, absolutely.
On the patent side, is that in the form of in-house attorneys? And so when you go up to Canada to throw down with Shaw-
Yeah.
Does that mean you're bringing four of your own instead of one of your own? And how many people are you having to bring in from the outside, given the wall?
Yeah, I mean, I think, listen, I think obviously on SG&A, there is, you know, synergies there in bringing them together. Any sort of litigation, like we have with Shaw, you're using outside resources as well. But we have a... We do have a smaller, you know, in-house team that we're able to leverage than we would if the businesses were separate. You'd need that regardless. Similar on the finance side, similar on the transactional IP, you know, IP side. Most of our attorneys, right, don't touch litigation, right? I mean, we have folks that are doing deals, right, that close deals. We have closed, you know, 85 deals in the last 11 quarters alone, right?
We are incredibly successful in getting license deals, you know, done, and that part of the team, they work on both media and semiconductor deals, right? So there's synergies there. You know, there's other aspects, you know, throughout SG&A that are very similar to that.
Thanks.
Yep.
I was gonna jump to the OTT opportunity-
Yeah
... or CTV opportunity-
... that currently remains out there. This is, you know, obviously the most attractive growth aspect of the business here. But just listing off a few clients that people are probably aware of, you know, Fox, YouTube, HBO Max, Pluto TV, DAZN, relatively new, just... and you just re-upped a licensee with Starz, Paramount+. So clearly a lot of wins within the CTV side of the business, you know, landing these streaming services, but can you just talk about the opportunity that remains? What do you still see as potentially available across CTV?
Yeah, I think it's that we're very happy with the success that we've had because it continues to show the relevance, you know, of our portfolio in the OTT space. The companies you listed off, you know, are relatively smaller players in that space. What you didn't list off are obviously, you know, the Amazon, Disney and Netflixes of the world, you know, to name a few smaller companies. And so that's obviously, you know, significant growth opportunity. Those are all unlicensed, you know, or they're coming off of license very soon.
There were some combined deals that we had on the product and the IP side, where we weren't really getting, you know, full value from an IP perspective, and so those roll off very soon. And so that market becomes, you know, a very attractive growth area for us, as you noted, because those are, you know, very significant players. And so if you know when we get, you know, success in that space, it is, you know, goes directly to the bottom line. It is, you know, is an area that we are have been, you know, pursuing and seeing as really a growth area for us, that we needed to get past the separation first.
'Cause once we had taken away the leverage situation that the, you know, from the product side, and that conflict, that opened up the opportunity. And so, you know, we think of our licensing engagements, you know, typically take around 18 months -24 months, sometimes a little longer, sometimes a little less, but in that as a general, you know, range, that we see. So you think our separation was, you know, roughly a year ago. We're kind of in the middle of that kind of engagement cycle, and the opportunity that we see, there, can really drive that with the big players being unlicensed in particular.
Okay. Oh, go ahead.
Yes, my Netflix subscription works great.
Yeah.
How is it gonna be better by licensing?
That's a great question. So, you know, Netflix, you know, Amazon, Disney, all of those services, the rest of the OTT, they're actually already using our IP, right? They... There is intellectual property that we have in our patent portfolio that we believe they're currently using. So it's around us getting a license deal done with them, right? That ends up, you know, contributing in that way. And so it's... There also, though, is a discussion that we have with all of our customers around, and prospective customers, around how we're developing our technology as well.
And so there's a future aspect, in that regard, where we will go and tell them, "Okay, this is the IP that we believe actually you're currently using and why you need to take a license now. Here's our development pipeline as well, of where we're going," and they get to see that roadmap, as well, of where we're taking that future, you know, technology as well.
So they have gaps in their IP, basically, or they have IP-
They, they-
That covers it?
Yeah, so all of them obviously have their own, you know, patent portfolios as well. But a patent that you get issued gives you an exclusive right to license the patent that you have-
Mm-hmm
... under you know, U.S. law or any other, you know, jurisdiction, right? And so there can be certain aspects that they might have patented or they might have invented, and there's other aspects that we have that could still read on their products and services as well.
You know, one way to take it, to think about it, when you think about these large companies, and we get the question all the time, you know, your, your size relative to these large companies. But fundamentally, every company that you would think of and compare us to, they're predominantly a product or a service company.
Yeah.
Predominantly, that's what they do. So when you take a look at behind the covers, what they do from an R&D, their competition is getting their platform out with their features, in a short timeframe-
... versus the next guy, so that they maintain their subscriptions, they don't have attrition in that regard. So when you look how they allocate the resources, the amount that are doing, like, pure invention, that's down the road, it's relatively small. So the features that you're enjoying today, we thought about that 5-10 years ago. Yeah. So what we're investing in today is not for your-- only for your enjoyment today, about what's it gonna be.
Your patents are five years earlier than patents?
No, I mean, our portfolio, right? We have been developing it over, you know, 30 years, right? We constantly are adding to our portfolio. So our... You know, we have 10,500, you know, plus patents today, right? So we have—we cover a broad array of different technologies under that patentage number.
This is great, great for us to understand how much, how distant you are from trolling as well.
Mm-hmm. Yeah.
Which is basically writing patent at the same time, it'd be fun to see that you guys are way-
Oh, yeah. So, yeah, we are. We do, you know, 85% of our portfolio is things that our engineering team has developed, right? And you actually can't get a patent. You can't get a patent unless you've already invented the technology. Has to be novel... novel and new, right? So you can't actually get a patent on something that's already in the marketplace. It has to be new, and so that's just, that's how, you know, the patent system works. That's what, you know, the law requires, and so it's always new technology that we are. And so we're not, you know, we occasionally will augment our portfolio through acquisitions, but the vast majority of what we do is our own R&D team inventing technologies.
And again, we hire the leading, you know, folks in these spaces that have worked at you know, Disney, Amazon. They've worked at these, you know, these larger companies, you know, for decades, right? And they understand where the industry is going and what and how they're gonna, you know, add value to it in that way. And, Paul, I would say, just to add to that, you know, giving a little color on how we're always staying ahead relative to the life of our patents, how long they've been out into the ecosystem, if anything. Yeah, you can add to that.
Yeah, I mean, so, you know, our portfolio on average has an expiration, you know, patents have a 20-20 years is a typical, you know, life cycle of any patent once you get it granted, right? And our average expiration is around 10 years and has been for a number of years. And what does that mean? We're constantly adding to it. We have also put out a metric that we're trying to grow our patent portfolio 10% year-over-year, right? So there's significant growth, and that growth is coming from our own internal R&D, and that adds to, you know, our, the breadth of our, you know, our portfolio and technologies that we're offering and what we can provide to our customers as well.
Great. Just to... I just wanna be clear on, on one of those points that you made earlier. Would you are you willing to say, whether or not you are in active discussions then with the, I guess, the big three, we'll call them Netflix, Disney, Amazon, and can you... And if so, or just, stepping back, can you talk about, like, how long that process can take between-
Sure
... "Hey, guys, you're using our patent. Let's prove it out, let's show you the portfolio, let's talk about the economics," formulating the deal? Like, I don't think those things come together pretty fast.
No, it's a lengthy process. I'm not gonna talk about, you know, customer engagements specifically, but yeah, the OTT market in general is one that we are actively pursuing. So, the timeframe, you're right, Nick, it is a lengthy process. There is a long technical engagement cycle that we often go through, where we are showing, you know, the IP that we have, the portfolio that we have, and proving out, you know, mapping it to their products and services and showing the value of our portfolio. So that process often can, you know, can take, you know, many months, right, to get past and kind of go through that back and forth.
At the end of that, there's usually a determination, "Okay, you've done enough. We agree we should take a license," right? And then it gets into kind of an economic discussion of what that value looks like, which again, can be a fairly lengthy process to ultimately get to, you know, that agreed-upon number, right? And so we go back and forth all the time on that and ultimately, you know, we drive for long-term value. You know, the terms of our agreements are, you know, five years on average. You know, some are longer, some are shorter, but that's typically, you know, the approach, and so these are big dollar, you know, deals.
So, you know, we're talking about, you know, $10s of millions often that we're, you know, achieving. So we're, you know, Keith likes to say that we're a small volume, high dollar shop, right? Which is absolutely, you know, the case. So we, that process, it's not a simple process to ultimately get, and that's why we focus on what the long-term value will be, you know, in getting those deals done, because it has a benefit not only in the year that we sign it, obviously, but that royalty stream that we get afterwards can have huge benefits for us throughout the term and also lead to other customers in that same space agreeing to take a license.
Got it. And you guys also have a presence across social media.
Yeah.
Social media is licensing your technology. I guess, like, what's interesting about this aspect then is it shows that you're not just creating patents that are useful for TV or pay TV or CTV, but more broadly, video.
Yeah.
Like, video at large.
Yeah.
Then you can kind of think about, okay, who utilizes video? It's well beyond and continues to proliferate beyond pay TV-
Right
... and CTV. So can you talk about, I guess, the broader potential for video as it continues to proliferate across mediums, but then specifically for social media, like, what are these guys doing differently recently that requires them to also take a license?
Sure, happy to. Yeah, so about 80% of the social media market is licensed. We're incredibly proud of that. It's something that we got the first deals done in social media about, you know, five to six years ago.
Mm.
And have since renewed many of them. Many of them took a license at a higher rate than before, and the primary reason for that is video has become far more important than it was when we originally signed them up, and we see that only continuing to grow. So when you think about, you know, services like Instagram or Snap or, you know, Facebook, they all have an integrated, you know, video offering, and how they are delivering content has become more video-driven than anything else. People want to watch, you know, the one-minute, you know, reels. They wanna watch, you know, that video. They enjoy content in that way, and that has continued to proliferate.
And if you think about even, you know, the, the, you know, sports is driving a lot of, a lot of, the value in streaming, but it's also driving it in, on a social media context. And, you know, companies and leagues are thinking about, "How do we make," you know, football, for example, how do you make, you know, a one-minute, you know, clip of that to get really that next generation, that's how they are enjoying, you know, content today, become more and more valuable? And so that's an aspect that we see, really driving, you know, that part of the business more and more. And we've been, you know, very successful in getting deals done.
And that video, you know, the content and how it's delivered, again, you know, and, and how people watch and enjoy it, or they search, or they, you know, they like it, the recommendation aspect of it, that is an area that we have developed. And it's this approach that we like to think of, of kind of horizontal technology development. And so when our engineers are thinking about, you know, a problem that they're trying to solve, 'cause that's ultimately, you know, how you come up with an innovation. You have a problem question, and you go, "What am I trying to solve with this?" And they think about how it could then apply across not just a certain industry but across multiple industries.
And so when we get a patent on that, and we have multiple patents on that, it can have this effect of we are then able to license it across multiple industries, and so we invent once and then are able to, you know, license it across multiple industries and multiple customers.
Got it. I got 5 minutes, and I gotta squeeze 2 good questions in there, so-
All of your questions are pretty good.
I wanna hit, I wanna hit on these two, so give me... Make sure you make time for both of them.
Yeah.
All right, I have to hit semiconductor, right?
Yeah.
A lot of really great progress in this space recently. Some really big new wins. Micron, a few years back or a year or so back. Kioxia? Am I saying that right?
Kioxia.
Kioxia, yeah.
Close enough.
Yeah, right. Western Digital, I know you briefly talked about it before, but the hybrid bonding technology that you have-
Yeah.
-Can you talk about why all of a sudden there's increasing demand for it? And, I think as it stands right now, semi revenues are $35 million-
Right
... annually, but you guys have a target for $100 million over a more, I guess, longer-term threshold there. Just can you talk about what needs to happen in order to see that type of growth?
Sure, yeah. Our semiconductor revenue is roughly in kind of the, you know, 10%, low teens of our overall revenue. We do see it as a significant growth area, so our growth aspects are, you know, OTT, which we've talked about, semiconductors, and new verticals are the three primary areas of growth for us. And semiconductor is one that I'm extremely excited about. It is in a we're in an evolution that's going on right now. We have proven it out in memory. All of the major memory players have a license to our portfolio, after we got the Kioxia and Western Digital deals done earlier this year.
What's significant about those two deals as well, just to touch on briefly, is we structured them in a way that we'll be able to recognize revenue over the life of those agreements. In the past, with the Micron deal, even before separation, they were most of the revenue had to be recognized upfront, and because of accounting rules that Keith could nerd out and tell you all about, if you're interested in. But we really changed that structure as we separated, and when Keith and I took over this, we said, "We have to have an ability to recognize that revenue over time," and we did that. Why are companies taking a license to our portfolio? What do they see?
What's really interesting about Western Digital and Kioxia, in particular, and this goes to your question earlier, is they took a license before they even had a product that utilized hybrid bonding, 'cause they recognized us as a market leader in hybrid bonding. We have been investing in this space for a number of years. We bought a company called Ziptronix in 2015, and we bought the entire company, including the engineering talent and that came along with it. 'Cause we saw a vision where hybrid bonding had been used really only in image sensors in the semiconductor market, and we saw that this could be used in other applications, and so we invested heavily in this space, and we're seeing the dividends of that now.
So we thought, "Hey, this could be used in, in DRAM," you know? "This could be used in NAND," right? And we're seeing that now, right? We're seeing that market evolve. More importantly, on the area that's most attractive to us from a growth standpoint is the logic market. You're seeing a... AMD has a product out there that uses this chiplet architecture-
... And what they're able to do is they're able to take a less advanced processing node for a certain element of the design and a more advanced, which is really costly, and they're able to bring those together with hybrid bonding technology. And so it acts as one singular, you know, kind of device. It's like the same, the same concept of it. And so hybrid bonding is a low-temperature way of bonding two semiconductor together, right? Pieces of silicon together in a way that it's very fine pitch. So it has the benefits of it being, you know, less costly, increased performance, and a much lower cost.
Okay, last one, just to finish up on the fundamentals and outlook. So right now, I have you guys at $390 million in revenue for the year, 65% or just maybe slightly above adjusted EBITDA margins. Free cash flow of $150 million, which I think is actually low, given some unique scenarios.
Sure
... that played out this year.
Yeah.
But you would expect north of that going forward. But you have a path laid out to reach $500 million, I think two years from now. So just can you provide just an outlook on the business from the $390 million we're at, reaching that $500 million, the free cash flow, and then your willingness and ability to pay down the current debt balance?
Yeah, great question. So where we're at today, I smile, you know, it being the $390 million in revenue, with the setbacks that we had in Canada. If it were not for that, we would've been, quite frankly, at or above the midpoint of what we guided. So just a very strong year for us out the gate, which speaks to our overall execution. But with that making me smile, the future makes me smile even more, with that being said. So, you know, Paul talked about our opportunities for OTT and what that could mean. My own terminology, when you talk about the opportunities, I call it, you know, the big three. You know, the big three are anchors.
So if you're gonna be in any industry, and who you want as your customers, you should be really focusing on all parties, and in particular, the large ones. So when we get all those folks under license, and we have that type of coverage, and it will take a little bit of time, the revenues that we have from OTT will be significant. So Paul talked about that offsetting the declines that we have in pay TV. Absolutely right. So today, if you're looking at OTT, it's, let's be kind, single digit-ish of what we have from a revenue contribution. When we, you know, have those victories, and we have that success, that OTT by itself is gonna be roughly a third of our total revenue on that path of getting to $500 million in revenue.
Then, on the semiconductor side, that makes me smile as well. You know, that business has been in a rebirth, especially since the transition of the, the technology and the revenue that we have from chip-scale packaging. And then, if you look at that need for semiconductors, you know, it is a challenge to have a monolithic design for a semiconductor. So generally, you know, 15 years ago, or even less, you know, you're Intel, you're just having a GPU. You maybe have a little bit of DRAM off to the side, but when you're trying to do AI, you need a lot of things to work to that functionality. You hear of them talking about their technology and how complicated it is, that they have 64,000 cores, right, on a single chip.
You know, there's a lot of IP in that, but ultimately, it's just very hard to manufacture, to have what would've been separate chips for analog, would've been separate chips for SRAM and memory. And then you have the GPU and the CPU all combined on one chip, and there is no reason for you to manufacture certain components on these advanced edge. That costs incredibly amounts, large amounts of money, and where this process that I've been doing for 10 years on an old, cheaper technology, works perfectly as well. And our technology works so great that when we bond it together, it functions as if it's one piece of silicon-
Yeah
... just like the monolithic approach, and we have no degradation in terms of performance, speed. And, it is really the answer, quite frankly, when you look forward, for the semiconductor business on what folks need to do. 'Cause the challenges of doing that on a monolithic design is just outpacing them, and they can focus on areas that matter or are costly. So, that makes me smile because that opportunity of that being a $100 million run rate, when I look at our pipeline, I look at the value that we deliver, and the adoption that's gonna happen, it's real. It's absolutely real.
Okay. Great, guys. Thank you so much.
Thank you.
I really appreciate you guys coming.
Yep.