Q4 2020 Xperi Holding Corp Earnings Call
Good day, ladies and gentlemen, thank you for standing by and welcome to the expiry fourth quarter fiscal year 2020 earnings conference call. During today's presentation. All parties will be in a listen only mode. Following the presentation. The call will be opened for questions. This call is recorded today Tuesday February 23rd 2021, I would now like.
I turn the call over to Jerry Weinfeld, Vice President of Investor Relations for experience Geri. Please go ahead.
Good afternoon, everyone.
With me on the call today are John Cardsharp, CEO and Robert Andersen CFO also on the call. It's in your Armory President of IP licensing, who will be available along with John and Robert to answer questions. During the Q&A portion of this call.
Before we begin I would like to provide two reminders for today's discussion contain 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 subject to risks uncertainties and changes in circumstances.
Please refer to the risk factors section in our at D. C filings, including our most recent form 10-Q for more information on the risks and uncertainties that could cause our actual results to differ materially from what we discuss today, including but not limited to risks associated with the Tivo transaction.
Net and launch of new products and any potential impact of the coronavirus.
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.
We refer to certain non-GAAP financial measures, which exclude one time or ongoing non cash acquired intangible amortization charges costs related to actual our planned business combination, including transaction fees and integration costs.
Severance facility closures and retention bonuses separation costs stock based compensation.
Loss on debt extinguishment realized and unrealized gains or losses on marketable equity securities and associated tax effects.
We have provided reconciliations of these non-GAAP measures for the most directly comparable GAAP measures in the earnings release and on the Investor Relations Relations section of our website a recording of this conference call will be available on our Investor Relations website at Www Dot, it's very dot com I will now turn the call over to Jon Kirchner.
Thanks, Jerry and thanks, everyone for joining us.
It would be difficult to begin a discussion around last year's performance without reference to the COVID-19 pandemic.
For the year like no other.
Boys came together seamlessly to deliver on our mission to provide extraordinary experiences in the home on the go.
Sure.
And while were impacted by the pandemic in some areas for both business.
We exited the year with strong results from key accomplishments.
2020 was a transformative year.
We closed our merger with Tivo made significant progress on integration.
Able to achieve 90 per cent of the $50 million from run rate synergies from the combination.
Importantly by the time, we finished the first quarter.
We have reached the $50 million run rate synergy target, we set for the transaction nine months ahead of schedule.
One of the largest IP licensing deals in the history of both companies.
Steps to increase product business profitability in EMEA with several new product offerings altogether, we've made incredible progress last year.
Continue our transformation for the business in 'twenty and 'twenty, one we've improved profitability opportunities for growth as we look ahead over the next few years.
Now onto the results for todays call all 'twenty 'twenty year over year performance comparisons will be discussed just experience for you, though work and volume for all periods.
This approach will give you the best for you with progress on the overall business. These numbers can be found in the interactive analyst Center on our Investor Relations website.
Despite operating in a global pandemic, we are thrilled with our full year 2020 performance and execution.
By 2020 revenue of $1.15 billion far exceeded our expectations as we came into the merger.
We generated $416 million in operating cash flow and had 453 million and adjusted free cash flow.
For the capital allocation front, we paid down $176 million of debt issued in connection with the merger, bringing our net debt balance to $2 million to $617 million.
Since the merger and we bought back $70 million of stock at an average price of $14 20 car since COVID-19.
Paid out $10.7 million in dividends.
In our IP licensing business, we successfully closed transformational deals that Thunder schools that foundational nature of our innovations and their long term value of multiple licensing markets.
Thus this high margin businesses in the enviable position of having tremendous scale.
Stable revenue and cash flow long term visibility and meaningful growth opportunities.
For the media side of our IP business, we successfully entered into a long term agreement with Comcast that extends into 'twenty 31.
Illustrating the continued relevance and value of our media IP portfolio well into the future.
On the semi side of our IP business, we entered into an important patent licensing and technology transfer agreement with SK Hynix rehab.
Reinforcing our leading position in hybrid bonding as that market continues to develop.
In our product business, despite COVID-19 related headwinds, we executed against our plan to deliver a range of new products before the end of 2020.
This should help improve the growth trajectory of the product business over the next few years.
The products launched included the Tivo stream for K D.
Dts autos stage or connected radio solution.
N V T S auto sense for in cabin monitoring solution.
In addition, we saw strong industry interest in our new perceive ergo chip for edge based AI applications.
Importantly, we have restructured the product business to improve focus strategic positioning profitability and longer term growth prospects.
We're also working to adjust for our product portfolio drive greater cost efficiencies and realize revenue synergies, resulting from having a broader base of technology.
In support of these objectives, we've also been pretty certain investments in areas of the business that we believe will enhance our growth prospects and improved leverage and efficiency over the next three to five years.
On the integration front, we've made substantial progress against the list of more than 1000 tasks. Many of which are absolutely complete positioning the product and IP businesses to be ready to operate independently during 'twenty 'twenty, one and a critical step as we prepare for ultimate separation.
Over the last few months, we've evaluated uncertainties with respect to the shape for the Covid pandemic recovery its impact on our product business and our internal progress on the complex systems, where needed to successfully separate our businesses.
As a result of these factors, we now expect that our original timeline to separate the business in mid 'twenty 'twenty, one will be pushed out for the first half of 'twenty to 'twenty two.
We believe that this timeline will enable us to best position, both the product and IP businesses for success.
The total company's thereby create the most value for shareholders.
Moving to more specifics in the IP and product segments.
IP licensing revenue, including the impact of purchase accounting was $304 million in Q4, one for 132% year over year.
This increase was mainly driven by the catch up payments under our new Comcast agreement somewhat offset by one time revenue in Q4, 2000 19 million or semi IP business.
For the full year revenue was $635 $6 million for 58 per cent year over year.
We enter 2021 with a significant step up in our historical annual run rate for our IP business.
After Comcast or average revenue baseline is now approximately $350 million, which supports our position as one of the largest IP licensing companies in the world.
As we entered the year, we are pleased with the exciting continued momentum we see in our IP business already in 2021, and we've announced a number of key renewals with leading companies around the world further solidifying our 350 million IP revenue baseline.
These include multiyear agreements with Cox, Saudi and T C L.
Additionally, as we've highlighted previously there are a number of key growth areas for the IP business that would be incremental to that $350 million baseline.
In the aggregate we believe these growth areas represent an opportunity in the low hundreds of millions per year when fully realized.
The first opportunity is greater penetration in OTT video markets.
For the reason agreements we have successfully licensed 100 per cent of the top 10 traditional pay TV providers in the United States, which accounts for approximately 70 million subscribers.
The OTT market is currently experiencing explosive growth for us.
Simple the largest providers of subscription video on demand in the United States now have approximately 200 million subscribers in the aggregate.
Driven in part by the recent launch of a number of new services.
While these services have a significantly lower RPT when compared to traditional pay TV.
The scale of the overall OTT video market continues to grow presents an increasingly important licensing opportunity for IP business.
While we were at a comparatively earlier stage licensing for key providers in this market.
We are confident that the fundamental innovations from our patent portfolios will be similarly relevant to these new and widely adopted OTT video services.
This will be an area of increased focus for us and one that we're very excited about.
The second opportunity for us is continuing to license the traditional pay TV market in Canada.
Already successfully licensed a number of leading Canadian pay TV providers, including Shaw and Rogers.
No. We are currently in litigation with several Canadian pay TV providers and expect some decisions from this initial round of litigation in the Q2 Q3 timeframe the other.
The timing of resolution and whether additional litigation for the necessary remains uncertain.
Third on the semiconductor from and consistent with our prior messaging for $350 million baseline whether it was exclusive of any semiconductor revenue. This.
This revenue has been has historically been more episodic and therefore more difficult to forecast and our media IP revenue.
We believe that near term revenue opportunities, maybe comparatively smaller than in years past because their semi IP business goes through a period of transition as the market for more advanced technologies. Further develops we remain confident that the opportunity for a semiconductor technologies and in particular hybrid bonding is significant and will play.
[noise] out over the next few years as the industry increasingly adopts are foundational IP.
Now on to the product business.
Total product revenue for the quarter, including the impact of purchase accounting was $133 $5 million down 2% year over year.
Growth in the connected car and consumer experience categories was offset.
Declines in the pay TV category.
Product revenue for the year was $511 $9 billion down 6% year over year.
Consumer experience revenue in Q4 was $56 million up 11% year over year.
Revenue for the year in this category was $209 $9 million up 3% year over year.
Growth in Q4 was driven by increases in monetization game consoles mobile.
Game console was driven by the launch of two new consoles that resulted in a strong Q4.
In our mobile business continues to show strength in gaming headsets, which grew 44% year over year.
Our tivo hardware business grew significantly versus 2019 due to continued momentum for the Tivo stream for King.
We improved monetization or consumer hardware business, driven by higher user engagement on our content first platform and an increased user base.
Do you go plus or a broad streaming platform grew from 26 to 145 in one of your channels in 2020.
Tens of thousands a day wide viewing hours.
Importantly, we've seen a 393 per cent quarter over quarter growth.
Other income total viewership for a premium for a broad catalog and partner feedback indicates we're delivering significantly higher than average average hours per user per month compared to other Android distribution platforms.
We continue to expand our connected television advertising footprint across operators and across our stream for key product.
This footprint expansion, coupled with the new excuse me with the launch of new data and AD products and a strengthening market for connected TV and entertainment advertising contributed to growth in monetization this quarter.
We also added to our IMAX enhanced ecosystem Sony.
Sony announced its probably a core service launching soon is the largest IMAX enhanced movie collection.
IMAX enhanced program has seen growing success with local studios in China.
Including the IMAX enhanced release of the 800.
Its grossing film worldwide in 2020.
Tencent and I cheat ear now streaming in China supporting this growth pipeline of IMAX enhanced titles.
Lastly, I T E N <unk>, Washington, IMAX enhanced uncertain TV models.
I T E six streaming service worldwide to launch on IMAX enhanced and the second streaming service from China.
Importantly, we expect to see significant expansion on the content side of the IMAX enhanced ecosystem.
We progressed through 2021, which should in turn drive greater device growth in revenue.
Connected car delivered Q4 revenue of $22 million up 12% year over year, because we're seeing a return to strength in North American auto sales for.
For the full year revenue was $75 million down 14% year over year due to the impact of the pandemic on car sales in late Q1 and Q2 for 2020.
In Q4, and Q4 eight new car models with various brands launched with HD radio and.
In addition, the FCC officially approved commercial am all digital broadcasting.
Creating additional incentives for car Oems to adopt HD radio technology.
In total more than 8 million cars shipped with HD radio last year.
And overall when taking into account our audio and radio solutions experienced technology has now been shifted over 100 million vehicles on the road.
With the merger of Experian Tivo, we greatly expanded our next generation infotainment offering branded the platform is Dts audio stage.
Mr Walsh with Mercedes in Q4.
We were adding additional features such as lyrics for the platform and integrating meta data and personalization capabilities going forward.
Future generations of the Dts audio stage product will represent a full suite of features.
Continue to expand our global broadcast footprint print to enable the D. T S. Other stage experience in cars.
We branded our in cabin monitoring solutions as D. T S auto sense, which are available across for OEM providers.
Moving three light truck and bus suppliers in Asia.
One major European passenger vehicle manufacturer coming to market later this year.
To date, we've had 20 different design wins for the product.
The solution now has over 600 million kilometers of actual road drive time behind it.
Moving on to pay TV.
Pay TV revenue was $55 $7 million up slightly sequentially and down 16% year over year, primarily due to a onetime payment received in Q4 2019.
For the full year revenue was $232 $7 million down 10% year over year.
As expected we continue to see churn in our legacy pay TV business over time, we expect this churn to be partially offset by growth from new Tivo IP TV deployments.
Our contracted customer IP TV deployments in 2020, we're heavily disrupted by the COVID-19 pandemic.
We've been actively working with our operator partners to enable new consumer self install no contact deployment options.
As a result of these efforts, we're starting to see a positive trend in new household deployments in the U S and Latin America.
In addition, we added two new operator, Tivo IP TV design wins in the period.
Lastly, with our perceived subsidiary we continue to make progress with early partners to bring a smart security camera product to market later this year.
As evidence of the innovation around our go platform. Our chip has received a number of industry awards validating its unique capabilities.
These include the CES Innovation Awards 2021 honoree in the embedded technologies category.
And the best of sensors Awards 2020 startup for the year.
As we continue to see the opportunities for ergo evolve.
We are accelerating certain investments during 2021 to position the platform for greater scalability in 'twenty two and beyond.
These investments primarily relate to expanding our field applications engineering capability and the product position with tools that will allow our customers to quickly and easily develop their solutions on our platform.
Entering 2021, we have a clear set of priorities that are aimed at positioning the product and IP businesses for growth.
We complete integration and prepare our business for independent success.
On the IP licensing side.
Include increase in penetration into OTT media markets.
Licensing the remaining pay TV operators in Canada on market based terms consistent with our existing licensing program and.
And expanding our hybrid bonding technology footprint.
On the product side. These include driving our tivo stream in IMAX enhanced programs and connected televisions.
For accelerating our D T S. Otto stage in D. T S auto sites progress with tier one suppliers in other ones.
Spanning people like the T V deployments and launching perceives ergo chip and our first partner products and completing the product position of our platform tools.
With that I'll turn the call over to Robert to discuss our financials.
Thanks, John.
Let me begin with financial results for the 'twenty 'twenty fourth quarter and for year.
As John noted earlier in order to provide more meaningful comparisons.
I'll be describing revenue and cash flow based numbers on a fully combined basis.
Spirit and Tivo were combined for all periods.
Combined numbers can be found in the interactive analyst center on our Investor Relations website.
Total revenues for the fourth quarter was $433 $9 million.
Up from $265 7 million in the fourth quarter of 2019.
The increase was mainly driven by the Comcast settlement.
And growth from the consumer experience and connected car categories.
All set by lower revenue from semiconductor IP.
As John mentioned, the full year revenue on a combined basis for 2020 was $1.15 billion.
Up 21% from $948 2 million in 2019.
Fourth quarter, GAAP operating expense, including Cogs was $244 $1 million.
GAAP expenses significantly higher than the fourth quarter of last year due to a merger with tivo.
GAAP operating expenses for full year, including Cogs was $714 $4 million.
On a non-GAAP basis, Q4, total operating expense, including Cogs was $173 $6 million.
Q4 interest expense was $13 $3 million.
And other income was $1 million.
Cash taxes paid in the quarter were $12 $4 million.
So using cash tax and non-GAAP fully diluted shares of $112 3 million.
Non-GAAP earnings per share for Q4 was $2.10.
We ended the quarter with $105 5 million basic shares outstanding and.
And we bought back just over 1 million shares of common stock during the quarter at an average price of 1982 for.
For a total of $20 million.
As for the end of the fourth quarter, we had $80 million of share repurchase authorization remaining.
Moving to the balance sheet, we finished the quarter with $257 $1 million in cash and investments.
Up by $54 million from the third quarter.
We paid down $163 million of our debt during the quarter to bring our year end debt balance down to 100, $873 8 million.
We also purchased a substantial number of patent assets during the quarter for a total of $50 million.
These assets provide valuable coverage in key existing IP markets and are equally important and some of the areas we're focused on for future growth.
Operating cash flow for the quarter was $298 $2 million.
Up from $136 8 million a year ago, due primarily to the Comcast settlement.
And balanced by lower cash from semi IP customers and delayed cash payment for operating spend at the end of 2019.
Alright, adjusted free cash flow for the quarter was $296 $8 million adjusted free cash flow reflects operating cash flow adjusted for port for $4 million property plant equipment.
And 3 million of merger and separation related costs for.
For the second half of the year, excluding prior period payments from Comcast.
We returned approximately 50% of free cash flow through dividends and share buybacks, which is in line with our target objectives.
During the quarter expiry paying a cash dividend of <unk> <unk> per share of common stock.
In terms of guidance, we believe an annual view provides the best measure of the business is there are always certain deals in our annual forecast for which it is difficult to determine timing by quarter.
I will however, provide some guidelines on what we expect from seasonality for revenue and expenses.
For the full year of 'twenty and 'twenty, one we expect revenue to be between 860 and $900 million.
For comparison parison purposes to last year.
Worth, noting there was approximately $300 million of nonrecurring revenue in 2020 related to the media and semiconductor IP licenses.
For revenue, we would expect the first and fourth quarters of the year to be slightly higher than the second and third.
We expect Cogs for the year, but to be between 115 and $125 million.
GAAP operating expenses for the year is expected to be between 760 from $790 million.
Non-GAAP operating expenses are expected to be between 475 from $505 million.
Please refer to our earnings release for a reconciliation.
Conciliation between GAAP and non-GAAP expenses.
We expect depreciation costs to be approximately $25 million.
Overall, we expect non-GAAP expenses declined by approximately $35 million year over year.
Primarily due to realized merger synergies and other cost reductions.
While we expect litigation spend to be lower in 2021, the savings is balanced by investments in systems infrastructure and business growth initiatives.
For expenses, we would expect the first half spending with <unk>.
The lower from the second half.
We expect interest expense to be approximately $43 million significantly less.
Year over year on a combined basis due to debt pay down and more favorable borrowing terms.
Other income will be approximately $4 million.
And cash taxes will be between 35 from $38 million.
Also we expect our basic number of shares to be $105 million.
And fully diluted shares on a non-GAAP basis to be $112 million.
Using the midpoint for the guidance range as we would expect non-GAAP earnings per share for the full year 2021.
To be approximately $1 74.
Additionally, we expect to generate between 180 and $220 million of operating cash flow and between 185 and $225 million of adjusted free cash flow in fiscal 2021.
That concludes our prepared remarks.
Now open the call to your questions operator.
Ladies and gentlemen, if you'd like to ask a question. Please signal there pressing star one on your telephone keypad using a speaker phone. Please make sure to mute function on your phone is turned off so you're saying Oh can reach but could be reached by our equipment.
Star one for questions for a pause a moment to give everyone an opportunity to signal for questions.
We'll take our first question from Matthew <unk> with Sidoti <unk> Company. Please go ahead.
Thanks for taking my question.
Maybe just sleep.
I guess investments in product ties and perceive and I think spanning some maybe just some field support for that.
Can you elaborate a little bit more on you know what does it need the product times you know what.
You have so far.
What are the milestones we should be looking for and now is that based upon feedback from your initial partners and bringing that to market.
I guess just to cap off net.
Part question.
Do you expect an acceleration.
Asian in identifying and ramping up with partners as you maybe automated a little bit more facts.
Sure.
So.
On the hardware side of the chip.
He has done.
It's a very innovative hardware design, but it is closely coupled with.
Oh software that basically basically makes the platform work, where you get incredible.
Our savings are yet performance and accuracy and so.
The investments, we're making are very much around the software tool set because it basically is a different way of doing neural networks.
And if you will translating standard networks are there people are typically using today in the cloud.
Onto this chip platform, which of course is very very small and low power.
Is not a trivial task and what other things we've learned and continue to work on and we've known this going in but continue to work on is how do we make it really easy for people to.
You know to run.
<unk> algorithms for being the otherwise would be running in the cloud and basically put them under this device. So you know.
That process for those tools, coupled with our field application engineering support to help people, particularly first time go through the process of working on what is fundamentally a moving pretty revolutionary platform.
Our focus as we get flow.
Through the.
Completion of the tools.
Which should shake or more or less as we approach late spring into the middle of this year at least in their first instantiation.
We do believe that customers will be able to more rapidly evaluate not only the platform, but then ultimately proceed with confidence.
Around incorporating the chip design, so we see the pipeline expand and as we get towards the latter part of the year and certainly we expect to see the business acceleration in 'twenty, two and beyond as a result of those investments and the continued efforts by the team.
Got it if I could just sneak one follow up on that.
Yeah.
We've talked in prior quarters. It's about you know other potential use of proceed beyond the.
Kind of a security cameras smart camera market.
So I know you called out that opportunity today, but is there anything else once you get that product deflation dawn and we move into the back half of the year and already falling debt.
Debt that you expect to be pulled into or that youre, starting to see interest from that.
Do you think is relevant.
Well very much say security cameras are just literally the initial target application based on some a lot of internal we have expert teams. We have in terms of world class imaging.
But when you think about the platform I would think about it this way, which is you know.
Any device, where you'd like to to bring intelligence much greater intelligence into the fold.
And the way to think about that is there are billions upon billions tens of billions of sensors in the world of all kinds and they're in there, they're delivering information and intelligence around everything from you know.
During two audio to thermal to other sorts of sensing.
And the idea behind perceive that is so powerful is it but.
Anywhere you have today, which is a sensor that just basically feeds raw data into some other assets C or some other process or to try to figure out or send it to the cloud what it means the proceed chip right there locally in a private way and in a.
You know in an incredibly powerful way can turn that raw data into better information and really apply intelligence to then figure out what happens downstream so applications or wearables.
Consumer white goods.
Our related things Dr related things.
Mobile phones automotive.
Other consumer electronics.
Enterprise Inns.
Industrial I mean, the list goes on and on and on it's it's a it's a vast vast potential market.
Really because these are all the places if you look around where people are beginning to apply artificial intelligence and different ways.
Relative to move some of that computation out of the cloud directly on our into the local environment sales.
Saves money on data traffic up and down to the cloud it improves accuracy improves privacy, there's there's a whole series of benefits that come in and around when you can you can really develop something that is genuinely powerful gan.
And low power and its operations and put it at the edge and so that's that's the vision.
And the opportunity behind proceed we are in fact.
Engage with customers in a number of these areas that I mentioned.
And the feedback continues to be outstanding.
Terrific. Thank you.
Yeah.
We will take our next question from Eric Wold with B Riley Securities. Please go ahead.
Thank you good afternoon guys.
A couple of questions just kind of diving in the outlook a little bit I guess, one you know thinking back to last year.
As you kind of maybe starting to come out of the pandemic a little bit you you express some some cautiousness around the potential pace of the recovery in the product segment. This year.
As the economy came back July you know can you update us moving along.
What are your thoughts are there given what's kind of transpired in the past few months kind of what you're seeing.
To start the year.
Where youre seeing maybe signals the strength in that segment.
For the year, and where you might be seeing some signals of weakness.
Yeah.
Hi, Eric This is Robert I can start out.
And John if he wants to make kind of over the top comments I'd say at this point in the year.
And given where we are in the most of the pandemic, we expect product business to be roughly flat year over year.
And the upside range would be probably in the neighborhood of a few percentage points.
<unk> seen some recovery in automotive, which we noted in Q4.
I think we we are taking I believe around a cautious outlook for 2021.
<unk>.
Got it where do you where do you see maybe the most at risk and the various kind of sub segments of product.
For most of the worst uncertainty maybe putting other vertical.
Well I think we are.
Go ahead, John do you want to take it.
I was going to say.
We see some risk on the per unit basis in 2021, which would be in the consumer segment.
And Theres.
There's also upside there too there's also.
Some chip shortages, we've noticed in auto so I think we're taking a bit more of a conservative view there.
Yeah, I would add Eric that I think you know what day.
T D.
Obviously cord cutting continues I think the.
The pace of IP T D.
Deployments, which is an area that has been offset for us in that space.
She is improving net good news the extent to which would impose a new systems get deployed during the course of the year will also determine kind of what the if you will what the net impact of that is on other areas of the business that are expected.
To recover and that is certainly aspects of the home through game console certainly.
Assembled what were seeing growth that we're seeing around connected TV related things, including stream for Kay.
Growth.
And as Robert touched on automotive.
Okay.
Got it and then kind.
The last question.
And the guidance for the 816 and I are moving.
Revenue guidance for the year.
Maybe just dive into that a little bit income, but it's making what were the drivers out there in terms of.
Baseline growth.
Assuming any major renewals during the year, if you're assuming any.
Major licensing litigation, but she's going to get a sense of kind of baseline because I assume this is mostly a baseline kind of everything else kind of becomes yeah.
Because you have upside to that.
Sure. This is Robert.
As we look at the range, we recognize generally speaking will call our mid point, our most likely.
Working to that mid point I'd say, we have a pipeline of smaller IP opportunities for which we have good visibility.
As well as a range of product and unit shipments scenarios and as we work our way through the shape of the pandemic recovery that get us to the midpoint.
You know getting to the higher ends we would need certain new deals, especially in IP.
And higher per unit reports from our customers. It's all within the range of possibilities of course.
That gives you a feel for it Eric.
Yeah, that's perfect. Thanks Robert.
It won't happen if I day, Eric just one other thing I think you know.
To be crystal clear what is not.
What's not in the guide is IP deals for which we don't have direct line of sight. Our guidance history. You know what I think our experience tells us you're better off not including large things that may occur until they occur and so you know there's opportunities on an NAV.
Media side, there's opportunities obviously on the semi side.
That would take you.
Not only did the top but well above the top of the range, but at this point of the year as Robert said, we're not inclined to guide that way until we get better visibility into where these things sit.
Yeah.
Perfect. Thank you.
Yeah.
We'll take our next question from harm it correspond with Dws financial Please go ahead.
Hi, So first off I just wanted to ask you as well.
Where do you stand with the embedding the Tivo stream for K I N T V's.
For this year or if it's being pushed down for next year.
Yeah.
We continue to work.
On the process of obviously.
Both working on the technical end of that as well it took us a business partnership for that and I don't think.
You may be surprised but I would not expect to necessarily see TV models I think we'd all largely talked in terms of 'twenty two being the first time you'd see kind of that transition. So we will continue to focus.
In part on <unk>.
Sales of strained for K and continue to build out some footprint, but obviously working aggressively behind the scenes to setup for.
The real the real end game, which is you know.
Getting our technology and our technology stack embedded on Tvs.
We get into 'twenty, two and beyond.
And so within the Tivo stream for K, you're saying, there's a greater increase in your view.
Your shift, especially on that yet does that helps you in any way as far as the AD rates go or.
How has that been perceived with your different customers.
I think there's there's clearer I think there's clear interest in what we're doing from a.
You know, our search and recommendation and the user engagement perspective that has.
You know benefits from it.
Advertiser perspective, Yeah, certainly distribution platform perspective, and I think it also is of interest as we think about them.
Presenting our board, our technology stack and a platform opportunity that connected TV folks who you know we're obviously you know there's a day two it's got the big well participate in downstream economics Theyre interested in you know how much easier and user engagement will be on the platform. So.
I think it still for us as we move into that space, It's still earlier days, but I you know I think.
You don't have the benefit of the history of building World class a UX interfaces.
For you know pay.
Pay TV for for a lot of years and I think we're taking that expertise and then obviously a coupling it with them.
Building out the infrastructure necessary to support for monetization.
Because over the next three to five years, we see a tremendous.
Amount of expected growth in and they bought in particular.
And you know the trends around OTT or are very strong and there's room for us to play.
As we do the growth will be meaningful and quite attractive.
Okay and just one last question is on the international front.
Are you able to be a little bit more aggressive with COVID-19 restrictions going away as far as capturing new IP TV customers.
You know I think we're very we continue to be very active in certain markets like Latin America, and whatnot and we continue to engage.
With potential customers.
Around the globe, So no I don't.
<unk>.
I don't know that I have a better answer for you other than I think.
Sort of short of some of the the Covid related impact that we're really seeing any barriers to further.
For further.
Opportunities for for growth, whereas the natural just inherent.
Decisions for the operators need to make about around those investments in from a system perspective et cetera, but you know in general I think we've got we booked quite a bit of business ICT related.
And now we're actively working with partners to get those units deployed and as they get deployed well see the revenue benefits of that flow through.
Okay. Thank you.
We'll take our next question from Mitch Steves with RBC capital markets.
Hey, guys. Thanks for taking my question I didn't wasn't really a big picture. One I think that's kind of all a lot of investors mindful when he talks about the product for the licensing revenue.
Ideally, what what's kind of a real long term growth, we should expect to realize your guidance this year, which where do you think they'll auto maybe a little bit weaker than you thought it'll supply constraints for how do we think about the long term growth for the combined lets you know and if you could break that into the divisions you have other extremely helpful.
Oh.
I I think you know you've got you've got different pieces as we look at.
You know as we look at the more traditional kind of CE business.
Thanks.
Perhaps growth around new media related growth of monetization in ads and whatnot user engagement related revenue.
That business is a kind of a single net.
Mid single digit grower, you know overtime, if you look at the various pieces of it or at least for historically, you know, which kind of has been even though it goes up and down.
Somewhat automotive.
With the number of things, we're working on in infotainment and safety.
We believe that the opportunities there.
Could represent a multi year growth rates in the high single to low double digits.
Just bigger picture.
There is there's clearly.
Quite a bit of potential explosive growth of linzess.
Those pursue.
Subsidiaries opportunity, which is huge because obviously people are simple.
It takes off.
Yeah.
So.
It's really a a vector unto itself with would go to to be able to work with.
The explosive growth.
Haven't really quantified what that potentially looks like for those that's.
It's pretty close.
But it was mortgage similar.
Similarly, as you think about.
Media.
You know in Canada, We've got you know people with an embedded T v's back and start to monetize that the growth there could be very very significant and significantly greater.
Greater than.
What you might see out of the traditional seat your hardware business. So overall.
Overall, I think you've got a different portfolio that or there's going to be moving at different rates.
I think we're heavily focused on how do we.
Put ourselves in the best position to realize some of that outsized.
Outsized growth in a couple of key areas, while we continue to work on improving business efficiency and whatnot and profitability to really ensure that whether we're growing you know overtime.
You know in the single digits or in the double digits on a blended basis that we can do so very profitably.
We continue to improve our strategic positioning in the marketplace.
Okay. So just to start.
Crystal clear here that didn't get next year, you would expect.
But given growth mid single digits for that part for the total true.
In total too.
Yes.
I'm sorry could you ask the question again.
So by 2022.
This year is that kind of a joke digestion here.
It'd be safe to assume we should grow mid singles for the total company at this point.
Well I don't I don't think we're guiding to 'twenty two at this point I don't feel like we're in a position to do that do we believe that debt as you as you look over the next couple of years that we should grow meaningfully answered meaningfully the answer is yes to what degree that slides into 'twenty two.
For $23 20 for I think you know obviously as we get further through 'twenty, one we'll have more to say.
Okay understood. Thank you.
We'll take our next question from Richard Shannon with Craig Hallum. Please go ahead.
Well great guys. Thanks for taking my questions.
Maybe just a technical question on your your guidance whats implied there for sales in 2021 here.
Can you give us the baseline for I T and I think John you mentioned, you kind of expect product to be flat and I think you implied automotive is growing is that mean the other two segments are going to be down year on year can you provide any more color to that.
I can take this Richard this is Robert So I think we you know we did mention that we expect chronic to be roughly flat year over year. There are instances, where it can be growing it sort of depends on how the year progresses in terms of unit shipments.
And new deals.
We are expecting some.
Smaller IP opportunities for which we have really good visibility at this stage. So that gets you into the middle of our range from as I mentioned earlier, we do have larger strategic opportunities.
<unk>.
Pardon me, we do have.
Other deals that would get us to the higher end of the range. The range itself does not include large strategic deals.
From an IP perspective.
Yes.
Let me just further elaborate so if you think about it.
You've got a car, we expect to grow markets up roughly.
910 per cent. If you look at somebody IHS data you can perhaps supply a bit of caution to that just because there are some of the supply issues.
And I think we expect our consumer experience business.
To grow.
You know as well, but that'll be offset by continued.
Our pay TV base decline. So that's the that's the cocktail of how to think about the three pieces.
And then Robert I think address the bigger question about where do we sit in terms of the guidance range.
Okay. That's helpful. Thanks for that my next question is you talked about the split of your IP and product businesses to be delayed until 2022 as I said I think I may have missed your language here, John but is that entirely due to COVID-19 dynamics or is there other things built into that and then kind of following on that topic as you know once you.
We hear more about you from that plan about timing about how.
How this other business splits up I guess.
I think you've got you've got a couple of things as we touched on in the script. We've clearly got impact from you know the shape of the Covid recovery and trying to deal with the uncertainty that we believe that shareholders are best served by you know basically affecting the separation at a time.
When both businesses are.
We are really ready to stand on their own two feet.
And ultimately have attractive growth stories with reasonable visibility for investors I mean, it's one thing if we think of it that you've got to be able to be in a position to demonstrate.
You know in fairly short order post post separation now versus you know.
But you are that you are tracking so you've got the pandemic.
Shape for the recovery issue impacting how we think about 'twenty, one I think hopefully by the time, we worked through 'twenty one.
We're looking at 'twenty two we're in a very different place and have much better visibility.
Secondarily are there are some fairly complex systems work that's going on.
That we think is.
It's critical to get it right.
Not only for the benefit of of course, enabling the two businesses to operate independently and be public and meet all the requirements.
Related there too.
But equally important so that we can ensure by modernizing our systems that we can if you will develop some best in class infrastructure for both businesses that will lower the cost of operation and be far more efficient for.
For each of these businesses as we go forward because obviously we want to.
We wanted to effect the most attractive business businesses, we can and that includes not only the growth story and the growth trajectory and the performance is pretty good.
Really you know kind of on the cost side of the equation, we want to ensure that we can deliver them as profitably as possible. So when you put those things together. Thank.
You look at the first half of 'twenty two more realistically then what we concluded was originally a thought around 'twenty, one and the last thing to just be aware of.
We are as we think about this.
Debt.
We will go in the course of this year internally began operating on an independent.
The basis, because we think it's important that the.
Business teams have their sea legs underneath them. So that you know as we complete the balance of the work and get into 'twenty two.
You know, we're clicking on all cylinders as we effect the legal separation and then move on.
Okay Fair enough. John appreciate those details last question for me is related to auto, but I'm just kind of a two parter actually here.
And connected radio, which I think you're calling for autos stage are there other.
Page.
I think you've talked about sudden where say there's kind of a key initial customer there. If you could give us a sense of what we should expect in terms of customer announcements this year.
The top.
Top 10 Oems, how many can we see et cetera, and then again kind of similar with auto since you just announced.
For oriented you had wins with look book, what should we see for this year in terms of the customer engagement Windsor.
I think the challenge with this one is that our customers are naturally don't like us from running there.
What they're doing with their vehicle models.
So you know I think one that's going to have to stay tuned, but I can tell you that.
We do expect you know obviously more models within the customers that we have so you.
In this case with other stage.
I can also tell you debt.
You know the pipeline remains extremely active and in the back half of this year you will see the first auto sense customer ship.
With a major European partner.
We're super proud of that and as we said you know we've already got.
Nearly 20 design wins with respect to you know two to that product. So yeah. Hopefully in due course, we can share more information with you, but I'm not at Liberty to really discuss who it is and it may happen.
Yeah.
Okay Fair enough. That's all from me guys. Thank you.
We'll take our next question from Brett Hendrickson with.
Okay. Mr Capital. Please go ahead.
Hey, Thanks for taking my question.
John I hear you talking about perceive and all the exciting things going on and I do appreciate that you guys are.
Both tactically, but considerably if that's a word.
You know looking at the separation of the licensing and product businesses and I, just wonder with with here in that discussion in the in the optimal timing of it.
It makes sense to at least either now or maybe 18 months from now consider.
I think perceive as planned to go with the products business, but might perceive to be better off.
As its own division at some point I see.
I just I see the valuations that these stocks are paying for businesses.
To put it nicely some of the stomach.
Semiconductor public semiconductor companies now have an extremely low cost of capital and then just I know even within the last 48 hours we had a.
Public companies sell off one of its divisions in part to its back and keep shares and in the news back in would that be where the highlight the value and create even more shareholder value is that what it worth at least worth considering.
I know, it's still early in the game for perceived but wanted to hear your thoughts on it.
I think in general I think we and the board routinely talking about you know all the ways that you might.
You know go about generating value and balancing of course, the risk of these things and ultimately taking advantage of market circumstance. So.
I would say, we're certainly aware of what's going on in the marketplace. I think the key point, though is you know as.
As you think about the cycle of value creation.
We're we're probably I think from my perspective.
Still slightly early.
You know in being able to much more publicly and emphatically demonstrate.
For the potential of the platform, we've got and of course, we've got plenty of feedback we've got some very interesting customers etcetera, etcetera, but if you think about if you think about it we're not that far away exactly to your point, where we can perhaps be more public.
How about all.
All the the the reasons, we're so excited and as that happens.
I think.
You know obviously, we'll continue to assess what the what the options are but we think there is a lot of value there and we're obviously.
Instantly and consciously thinking about you know how do we best.
Maximize long term value associated with that endeavor.
Yeah, it's good to hear and I know and I know you can't comment on it but I mean, we've seen some of these businesses come public with less design wins, and then less meat on the bones and then you've already put on the bone I perceive that have.
$1 billion, plus valuation and so I guess the without commented on that I guess the question would be when you and the board's sit around and talk about the different paths for value creation over the next three or four years and we're long term investors day.
I hope you're thinking of that kind of time frame.
I do.
Do you at least if you thought about the rest of the products business and the license business and proceed separately, it's fair to say that of the total enterprise value that you see in the future years perceive.
Material part of it even though the stand alone I mean, it's a material part of what part of it.
It could be a multibillion dollar valuations for all of a sudden day parts.
Yes, we believe it can be very material and then so to your point you know do you play it in an integrated way or do you play it over time as the platform picks up more inertia.
Might very well be able to stand on its own.
Deliver a lot of value again, not net thoughts that aren't lost on us.
We believe today everything is a function of where you are in the cycle and the innovation you're trying to bring.
Right now, it's best being where it is but over time you know for the reasons you described and particularly if it's more broadly adopted as we expect it will become.
It will impact the <unk>.
A significant component of value and as we.
Yes.
A better line of sight to that will obviously figure out how best to manage that situation.
I appreciate that John last quick question sort of related you know you've attracted value investors like US who are obviously attracted to the free cash flow and free cash flow yield.
And so we obviously appreciate for stock buyback.
Starting to get going here.
Think about the free cash flow and sorry, if I missed it how much investment has been perceived this year that kind of gets deducted from it from a free cash flow guidance. You all gave it but can you give us any brackets around how much of that investment is kind of non core I don't want to call. It non core but you know what.
What would give us a sense of what the free cash flow might be if you werent, making that growth investment right now and the rest of the business.
Yeah. This is Robert Tom in terms of our investment are perceived as sort of you had it right. There's a direct investment and then there's sort of indirect investment which is for support and other.
Apps development that goes on supporting Percy I think if you if you add it all together you can figure it's in.
$20 million to $25 million range each year or.
At least for 2021.
That's what I was guessing, but that's a.
But for others to adjusted free cash flow yield it makes it even more so that's I appreciate that thanks for your time gentlemen.
Okay. Thanks for calling.
Yes.
With no further questions in the queue I would like to share the conference back to John Kirshner for any additional or closing remarks.
Thanks, operator, and thanks, everyone for joining us on today's call.
Wanted to close by thanking our employees for their efforts to successfully navigate through the pandemic, thus far and to deliver on and for the delivery on our key strategic priorities and we've made great progress.
In 2020 towards our longer term goals and we enter 'twenty one with.
Continued momentum in on I personally quite excited about that.
To our shareholders I look forward to sharing updates obviously profit virtually as we go through the year and at some point hopefully, we'll be able to get back to doing so in person.
Thank you for joining us for an operator this concludes today's call.
Ladies and gentlemen, this concludes today's conference and we appreciate your participation you may now disconnect.
Okay.
Yes.
Yeah.
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