Q1 2021 Xperi Holding Corp Earnings Call
[music].
Please standby.
Good day, ladies and gentlemen, thank you for standing by welcome to the expiry first quarter fiscal year 2021 earnings conference call.
On today's presentation, all parties will be in a listen only mode. Following the presentation. The call will be opened for questions in order to ask a question. Please press star one on your Touchtone telephone.
This call is being recorded today Tuesday may five 2021, I would now like to turn the call over to Geri Weinfeld, Vice President of Investor Relations for ex Barry Geri. Please go ahead.
Good afternoon, everyone.
Thanks for joining us as we report our first quarter of fiscal year 2021 financial results with me on the call today are John Byrd share CEO and Robert Andersen CFO also on the call is Samir <unk> President of IP licensing, who will be available along with John and Robert to answer questions. During the Q&A portion of.
The call.
<unk>, we begin I'd like to provide you a reminder, current.
Today's discussion contains forward looking statements that are predictions projections or other statements about future events, which are based on management's current expectations and beliefs, and therefore subject to risks uncertainties and changes in circumstances. Please.
Please refer to the risk factors section in our SEC filings, including our annual report on form 10-K for more information on the risks and uncertainties that could cause our actual results to differ materially from what we discussed today. Please note that the company does not intend to update or alter these forward looking statements to reflect events or.
On a arising after this call.
We refer to certain non-GAAP financial measures, which exclude onetime or ongoing non cash acquired intangibles amortization charges costs related to actual our planned business composite combinations, including transaction fees and integration costs severance facility closures on retention bonuses separation cost.
Stock based compensation loss on debt extinguishment.
Realized and unrealized gains or losses on marketable equity securities and associated tax effects, we provide.
Reconciliations of these non-GAAP measures the most directly comparable GAAP measures in the earnings release and on the Investor Relations section of our website lastly.
Lastly, all 2021 and year over year performance comparisons will be discussed as it expiry and Tivo were combined for all periods. This approach will get the best view of progress on the overall business and these numbers can be found in the interactive analyst Center on our Investor Relations website the web.
Cash at this conference call will be available on our Investor Relations website at Www Dot <unk> Dot Com I will now turn the call over to Jon Kirchner.
Thanks, Jerry and thanks, everyone for joining us.
Q1 revenue was in line with our expectations with $221 $6 million and our non-GAAP EPS was <unk> 59.
Representing a strong start to the year.
We generated $26 $7 million on operating cash flow of 124% versus Q1 last year on a fully combined basis from $29 $7 million on adjusted free cash flow on the 18th.
4% versus last year.
We also work on $25 million of stock during the quarter.
Importantly, our board recently authorized an increase of $100 million to our existing stock repurchase plan underscoring the confidence we have on our cash flow outlook for the year and the long term prospects for both our IP and product businesses.
These results from our strategic progress we made in Q1 put us on track to meet the annual outlook, we provided last quarter.
So as it relates to the global semiconductor supply chain issues. Our outlook reflects the most current information from customers and industry analysts. However will continue to monitor this as we move forward.
So at a high level, we made solid progress on the following initiatives Bill.
Building on the baseline revenue for IP business and advancing opportunities into various IP growth areas we've identified.
Increasing the footprint on available content for the Tivo stream.
Expanding IMAX enhanced ecosystems advair.
Advancing discussions with key OEM partners for auto stage in auto since products.
Progressing the adoption of our IP TV self install solution and.
And further developing the platform tool set for customers are perceived.
The purpose of these initiatives is to facilitate long term growth.
So our growth will not be linear as we look out over the next four years through 2025, we expect these efforts to help drive CAGR in the mid single digits to low teens for the product business, excluding any growth from proceed.
And in the mid to high single digits for the IP business.
Let us begin with a discussion of our IP licensing business IP licensing revenue in Q1 was $98 million.
Media IP revenue was up more than 30% year over year.
This increase is reflective of the previously discussed step up in our baseline IP revenue from our Comcast license along with the significant momentum in renewables in the early part of the year.
These renewals include agreements with leading companies such as Cox some NIM Tcl.
We've also recently renewed an agreement with frontier one of the top 10 traditional pay TV providers in the United States.
This growth was offset by expected declines in assembly and IP business as we work to reposition that business for future growth.
The decline of approximately $60 million in semi IP revenue resulted in our overall IP revenue being down 28% year over year.
The momentum we are seeing within our media IP business reinforces our confidence in the $350 million average and low baseline.
Additionally, we believe we have opportunities to potentially exceed that average annual baseline this year.
We're also extremely pleased with the progress we've made integrating our legacy IP businesses since the merger last year, which has resulted in an even stronger combined IP business today.
We remain focused on the various strategic IP growth opportunities, we previewed previously laid out and OTT cash.
Canada in semi to collectively represent an opportunity on the lower hundreds of millions of dollars in incremental annual revenue above our $350 million average baseline.
We will provide relevant updates on these efforts throughout the year as they occur.
With respect to the opportunity in Canada.
We continue to expect some decisions from this initial round of litigation in the Q2 Q from the timeframe.
Although the timing of ultimate resolution and whether additional litigation will be necessary remains uncertain.
That being said we remain confident in our ultimate success in Canada and are pleased that the pending litigation has not slowed down progress with other licensing engagements in that market.
Against this backdrop of significant progress and success upon separation will be squarely positioned to be the largest standalone public IP licensing company and believe our leading IP platform will create further opportunities for meaningful growth and value creation for our shareholders.
Moving to the product business totaled.
Total product revenue for the quarter was $123 6 million.
Down 13% versus last year, primarily driven by minimum guarantees taken in Q1 of last year on the consumer experience category declines on the pay TV category due to subscriber churn consistent with industry trends and a shift in revenue under a customer contract to the IP business due to updated report.
Moving from the customer.
From a consumer experience category revenue was $51 $3 million down.
Down 19% year over year to.
The decline was primarily due to the upfront revenue recognition on a two year minimum guarantee contracts signed in Q1 of last year.
Excluding minimum guarantees are per unit business would have been down slightly year over year.
On the Tivo stream front, our team has never been more engaged and excited as we continue to make progress on our fully embedded OS for smart Tvs.
Additionally, we continue to explore other opportunities to expand our footprint and increased monetization through the tivo stream platform.
During the quarter the number of activated Tivo stream <unk> grew quarter over quarter increase in our screen footprint.
And on the content front, we saw a significant expansion of the Tivo service with a Q1 launch of Imdb TV Amazon's free AD supported service. We also added services, such as Paramount plus as well as TV everywhere, which includes offerings from ABC CBS Fox and NBC.
For the IMAX enhanced ecosystem, we signed a multiyear agreement with Xiaomi, which includes a commitment for IMAX enhanced on Xiaomi Tvs.
Key to growing this ecosystem is constant and during the quarter, we released an update to our encoding tools, which will enable easier and more cost effective enhancement of film and episodic libraries for IMAX enhanced.
Importantly, during the quarter, we signed a significant agreement with a major streaming content service, which will support IMAX enhanced delivery.
We will provide details on this later this year in connection with the launch.
Moving to the connected car category.
Revenue was $20 million up 16% year over year as we continue to see a return to strength in automotive sales.
<unk> thousand 14, new models launched with HD Radio technology in North America. In addition, following the FCC's approval of all digitally on broadcasting with licensed nine new AAM all digital stations.
For GTS auto stage, we continue to build out our broadcasting content infrastructure, while engaging with car manufacturers.
We developed five new broadcast apps with 36 stations in Europe.
We put in place important aggregation agreements in Asia and Europe.
We also license Tivo metadata to a top five global streaming music service, which will facilitate the use of advanced futures with Etfs auto stage product.
The Bts auto stage platform is now live and in vehicles in 30 countries and we are in discussions with major auto companies in Asia. The U S from Europe regarding global and regional launches.
As auto companies have differing interest and features we are engaging each company roadmap discussions and expect further launches to be confirmed later this year.
The Dts audio sensor in cabin monitoring platform, we are on target for our global launch of our occupancy monitoring system. This summer and our driver monitoring solution continues to deploy on trucks and commercial vehicles from Asia.
Lastly, reaching an important milestone in our development of car safety systems, We achieved ISO 9001 certification for the design development and deployment of software computer vision technologies and important quality Mark for the settlement on the Bts auto sensor solutions.
Moving to our pay TV business revenue was $52 $3 million down 16% year over year, and 6% sequentially due to subscriber churn consistent with industry trends and a shift in revenue allocated under a customer contract in favor of VIP business.
We currently expect this to be the lowest pay TV revenue quarter or per year.
As the pay TV industry declines, we expect subscriber declines on our legacy <unk> business to be partially offset by increasing our pools. There's been some shifts to IC TV, where we offer broader capabilities and services at higher value to our customers.
Demand for the Tivo IP TV video service continued to grow during the first quarter with deployments, increasing close to 100% quarter over quarter on a small but rapidly growing base cuts.
Customer adoption of the Tivo self install process also continued to increase from the quarter as most operator partners that have chosen our Android TV based on IP TV solution.
Plans to increasingly offer the self install option as part of their installation strategy over time.
Additionally, during the quarter, Vodafone and sharp corporation extended agreements for licensed certainty, though products.
Vodafone agreement provides them with access to a range of tivo products, including content discovery conversational voice insights data analytics to.
The sharp renewables provides one of the industry's most advanced interactive program guides to viewers throughout Japan.
Lastly, on <unk> signed an additional customer contract and is working through product integration and production ramp plans.
We've made solid progress with our developer tools and are on track to enter data with select customers over the next few months.
We continue to see keen interest in our products and solutions and are excited to work with customers on their designs integrating our solutions into their products and broadening the addressable market for perceive.
With that I'll turn the call over to Robert to discuss on our financials Robert.
Thanks, John as previously.
We noted in order to provide more meaningful comparisons.
When discussing both non-GAAP non non-GAAP and cash flow based numbers.
Prior periods are presented on a fully combined basis from the merged companies.
Let me begin with financial results for the quarter.
Experienced first quarter revenue was $221 $6 million.
Which is on track with our internal plan for the quarter and.
From a strong start for the year.
On a non-GAAP basis, our operating expense, excluding Cogs was $113 million.
Down $25 1 million or 18% year over year.
Due to lower personnel expense reduced litigation cost and lower outside spend.
Non-GAAP cost of goods sold of $27 $2 million was about $1 million lower than in 2020 as higher costs for hardware products such as the streams for Kay.
Were more than offset by a change in <unk> expense allocation methodology in connection with the merger.
And reserves reduced personnel expense.
Cash taxes paid in the quarter were $5 $9 million.
He is on the total cash tax number for the first quarter non-GAAP earnings per share was 59.
We ended the quarter with $104 9 million basic shares outstanding.
As John mentioned during the quarter, we bought back one 1 million shares of common stock for a total of $25 million.
Since closing the merger, we have spent $95 million to.
To repurchase $6 million on our shares.
Yielding an average repurchase price of $15 from 87.
We plan to continue repurchasing shares consistent with our balanced capital allocation strategy.
Moving to the balance sheet, we finished the quarter with $237 million in cash and investments.
We also paid down $13 million of that during the quarter.
Operating cash flow for the quarter was $26 7 million.
From a $11 9 million a year ago on a fully combined basis.
Due to $68 million from reduced spending changes in working capital cash tax and interest expense.
And more than offset $53 million and lower collections, primarily from semiconductor IP.
Our adjusted free cash flow from the quarter was $29 $7 million.
Adjusted free cash flow reflects operating cash flow.
Adjusted for $1 $8 million of property plant and equipment spend.
And $4 8 million of merger and separation related costs.
It's worth noting that our cash flow is not linear throughout the year.
The first quarter typically being the lowest quarter up per year.
During the quarter experience paid quarterly cash dividend of <unk> <unk> per common stock.
Let me lastly comment.
On our outlook for the year.
Given the strong first corner and our pipeline of activity.
We still see revenue for the year being in the range of $860 million to $900 million.
With Q4 being our strongest quarter.
As John mentioned this revenue range reflects the most current information we have from customers.
Industry analysts regarding the global semiconductor supply chain constraints. However, we will continue to monitor this as we move forward.
Also as a reminder.
<unk> inherent uncertainty on the timing of resolution the annual outlook does not include revenue associated with the resolution on Canadian litigation on.
Our execution of large semi IP licenses.
Sure.
On the expense side, we expect our annual expenses to be consistent with our prior guidance.
We had lower spending in the first quarter.
On the deferral of certain expenses to later in the year.
Also while litigation expense can be difficult to forecast. We currently expect it to be approximately $25 million for the year significantly lower than last year.
Welcome to the litigation expense is expected to occur in the second share.
Additionally, certain R&D investments ramp up over the next few quarters as a result, we expect operating expense to step up each quarter throughout the remainder of the year.
Given the strong start to the year, we are reaffirming our full year 2021 outlook communicated on our last earnings call.
That concludes our prepared remarks.
Now open the call to your questions operator.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to Larsen with free chart equipment again press star one to ask a question from a pause for a moment to allow everyone an opportunity to signal for questions.
And we'll take our first question on day from Richard Shannon with Craig Hallum.
Hi, guys. Thanks for taking my questions here, a few things I could ask about.
Yeah.
Yes, John.
John I think you mentioned this on the last call, but maybe.
Love to get a little bit more thoughts here, either qualitatively than quantitatively if youre willing to you talked about your IP baseline at 350 million here with some potential upside that could be in the low hundreds of millions per dollars annually.
You called out the OTT Canadian pay TV and <unk> IP, if I've got that right.
Can you give us a sense of both timing of when these could happen and I know that the pay TV part of litigation dependent.
And then also maybe split up.
To degree to which you have visibility on which ones can be bigger contributors to that ultimate upside is in the low hundreds of millions that you mentioned.
Sure so.
Big picture.
As you know that day.
The timing of that.
Getting certain things resolved in the IP space is always uncertain.
But we feel very good about the pipeline and on that Samir to specifically address some of your questions. Because I think people are living it every day so sooner certainly.
Think we feel good as John said about the pipeline really in all three areas. We think can each one individually will contribute meaningfully to that growth that we identified.
Haven't really side any of the opportunities individually beyond what we have said with respect to the Canadian litigation.
With that while Canada is a smaller number of subscribers than what we had in our recent Comcast resolution in the aggregate because we have a different pricing mechanism with some of the smaller operators. We do believe if we resolve all of the Canadian opportunities that in the aggregate it will be at large.
The annual contribution that we've received from the recent Comcast resolution, So Canada at large, but we're equally confident and excited about the other opportunities as well.
Okay, Great. That's helpful. Maybe question on on the on pay TV.
<unk>.
Obviously understand the industry dynamics here, but youre exposed to here, but you're also talking about some improvements in our <unk> business certainly had some great activations from a small base from the first quarter would you what's your visibility on an outlook going forward. This year and ultimately when does that make that pay TV business to kind of flatten out or even start to start.
To improve.
I think it really depends on the on the pace of adoption Richard I think a lot of.
Our customers put on hold certain IP TV deployment efforts when COVID-19 hit in part because truck rolls were not possible.
And I think we're coming out of that now on a very positive way I think the good news is we have quite a bit of business already booked and inked that we're going to be looking to service. So I think we have we have broader visibility.
That this is going to be an attractive market for us and we should be able to generate meaningful growth I think the question. We're still grappling with is just what is going to be the exact timing.
Adoption.
Not only among specific customers, but across our broader customer base.
But I think exactly as you point out.
On the IP TV element will meaningfully reduce some of the decline youre seeing in provide an important offset.
Secondly, a key point of.
Differentiation is that.
The monetization prospects horizon, TV are significantly greater than what we perhaps seen traditional and.
In our <unk> business and I think that that bodes well also is it on.
Offsetting that potential growth drivers looking forward.
Okay. That's helpful. Maybe I'll ask one question and jump back in the queue here.
Last quarter I think you would describe auto census, having 20 designs. It didn't hear an update today, but I'm wondering if there's any way you can quantify that in any way and then as we think big picture about auto sense within the context of your connected car segments here when does this become a material number for you.
We've talked about the potential.
Ramp of more advanced safety systems accelerating as you get into the 'twenty three 'twenty four time frame.
Thank the the level of activity amongst other items automotive partners, both tier ones and Oems.
In and around this area I think continues.
And I think we are on schedule to see the.
The first release from our customers leveraging our solution here in the back half of this year. So I think.
As we as we maybe get more information about the exact timing of when we may see more models and more customers.
Come to market I think we'll be in a better position to give you visibility, but I think without a doubt.
This trend will accelerate over the next five to seven years. We're in the very early innings now and it's going to continue to to growth just because various.
There is safety.
Safety standards.
That are impacting how people are thinking thinking about this there is natural.
I think broader desires within the auto industry to make the driving experience safer and I think people.
Realize that this technology is really ready for prime time in many cases to materially advanced in the.
Cabin experience.
Just a follow up on that John.
You seem to be implying that these 20 designs or whatever the number is today are mostly kind of ramping in the 'twenty three 'twenty through 'twenty four timeframe, rather than the sounds like one or maybe slightly more than one ramping in the second half of the year is that a fair.
Understanding of the kind of a timeframe for deployment.
I wouldn't necessarily paint it in that exact fashion I think youll start to see multiple models and in the course of this year and then I think interesting question is how does that acceleration begin to hit 22, but certainly as you get out into.
End of 'twenty, three and beyond.
C more and greater diversity amongst those.
The offering our systems.
Okay. That's helpful perspective, I'll jump out of line.
Our next question will come from Ahmed Chris on with Dws financials.
Alright. Thank you for taking the question. This is actually about <unk> <unk> per Amit just one quick question.
The Big news the big topic, everyone is talking about is supply constraints on chips and I wondered if you could provide a color on how that is impacting you, but more importantly, how it's impacting your customers, especially when youre talking about connected auto. Thank you.
Sure. So I would say feedback from our customer base, which keep in mind, we're doing doing business with.
Automotive brands sold in the United States.
And extensively around.
On the world.
Is that it is a mixed bag I think without a doubt.
It will have it will impact the.
Perhaps would have been the.
The size of the global automotive recovery, but I think.
So far we think while it will trim.
Overall growth number.
By a few percentage points.
We have yet to see at least from people were doing more business with as opposed to less an indication that it's going to materially impact our business beyond what we've already factored in and thought about and our respective guidance range, but I think it is.
This is an evolving thing and we will all need to stay close to it.
Okay. Thank you.
And as a reminder, press star one if you have a question, we'll hear from Matthew <unk> with Sidoti.
Hey, good afternoon. Thanks.
My first question I think you mentioned.
Integration of IMAX enhanced to a streaming service.
Are there any additional detail or color you could provide around that today, maybe region or reach of the streaming service just.
Or are we waiting until the back half to hear something.
I think I can share that initially.
Its initial relevance will be on North America, but but not much more I can share.
As it relates to it just because with confident customer confidentiality issues.
But.
I do believe as we have.
Said that it's a significant.
Development in the further on.
The advancement of the IMAX enhanced ecosystem, so stay tuned and we'll certainly have more to say about it is.
With this launch.
Alright, Thanks, and then.
Similar question you referenced customer win second customer win I think can perceive given where you are building out tool sets.
How long.
At least from from the work that you need to do do you think it'll take to get.
Our product to the shelf can obviously, there is I guess stuff beyond your control but.
Whats the time to market there.
And.
I guess, what's the.
I guess, what's the motivation for a customer moving today on on something versus waiting a few months or until maybe the next generation of their product. Thanks.
Sure.
I think from.
From a customer samples like anything right.
<unk> looking to differentiate their products in the <unk>.
<unk> marketplace, So I think.
Our tool.
Our tools availability has been a constraint we've talked about that in terms of the people people's independent ability to easily.
Corporate our platform.
Into their products. So we're addressing that as those tools become available later this year I think that will certainly open up pipeline opportunities for customers to develop and ship product in the course of 'twenty two and certainly.
You don't have a more so as you get into 'twenty three.
From the folks we've already been working with quite extensively.
I would expect that you'll see product in the marketplace by early next year if not before.
We expect to see some chip.
Shipments in the course of this year, but I think one of the other.
Elements of this as you point out as we're now a smaller piece on a bigger puzzle given all the components people are looking to.
Need to incorporate to build some of these products. So I think.
That is clearly going to be a factor that is within our control we'll have to see where it goes but in general we feel great about pipeline expansion, we feel very very good about the technical development pretty much on schedule with what we have laid out.
And we think the market opportunity per perceive from remains incredibly large.
Got it. Thank you and then last one from me is on.
On your slide deck, it looks like your Tivo stream roadmap on from a three step to a two step so I'm curious what Tom.
Kind of what what got cut out from that process, what are the sort of learned along the way.
Changed your.
Perception on strategy.
Sure. So originally in.
As we approach the combination.
We have done a lot of planning around kind of a three phase approach starting with.
The stream <unk> product.
As a dongle that attaches to Tvs moving into it.
Intuit embedded application where.
We would be low.
Let's say the preferred.
User interface choice on.
On a broader platform built.
Originally around the notion that it would live on top of <unk>.
<unk>.
TB.
Then thirdly going all the way into a much deeper embedded.
Solution embedded OS wear.
We're a bigger provider, where we're really deep.
The sole primary interface for the broader content search and discovery.
On engagement.
What has changed is last fall.
Google came out and said that day.
Intend to go beyond their core OS level, offering and really getting to the UX.
Business and in so doing.
Eclipses one's ability to.
Reasonable would be an alternative that might otherwise available on their lower levels on platform.
And so we've really jumped two from.
Phase, one which is.
Strained for K.
Lay into working aggressively on getting our solutions embedded in Tvs.
A deeper level. So that's essentially what's happened that work is ongoing and continues very well continue to have partner discussions that I think are.
Quite quite engaged around it and we think we have a pretty unique solutions.
That drives higher engagement and therefore, greater monetization for everybody involved in the ecosystem and so.
At the end of the day I think we feel.
I feel very good about the ongoing efforts that get us into phase III. Our efforts are really designed not only to accomplish that but ideally to try to move that timeframe and as much as one can so.
You can build larger footprints.
Of devices and in turn drive engagement in monetization around that.
Great. Thank you.
Our final question will be a follow up from Richard Shannon with Craig Hallum.
Hi, guys. Thanks for taking my follow ups.
John on your last call you talked about your product licensing business expecting it to be roughly flat. This year you've maintained your guidance for the year. So we have expectations that can that can be the case and then does that help you and would it help us think about that product business, having overall flattened out and maybe worst being flat next year and possibly <unk>.
Is that competitive.
Is that a viewpoint that you support at this point.
I think we expect growth in.
Our product and our IP business as we look out beyond 'twenty, one certainly in 'twenty two I think the.
Question.
Well.
One that will get better.
Better handle on as we go.
Towards the end of the year.
Just how much growth, we'll be able to deliver on these businesses based on the various things we're working on in their state of play so.
In short.
We are tracking our plans.
For this year, I think very well execution growth.
On a direct economic way as well as.
In a strategic way remains very very strong and I think.
I think we'll have a very good year and as we look at as we look forward into 'twenty, two I think it'll be an interesting.
The discussion when that time comes just.
How much of it in our outlook has changed with respect to relative rates of growth as you go into 'twenty.
Richard I think that's where we're maybe maybe noting some of the.
On a growth rate that John mentioned in his comments as we look out over the next four years, we're expecting CAGR from the mid single digits to low teens for the product business.
Excluding any growth from perceive.
And in the mid to high single digits for the IP business.
Okay that is helpful.
Last comment our last question from me just on the IP spin out less current last call you talked about this being a first half 'twenty two.
We get from one quarter close from that just wanted to confirm that's still your expected timeframe.
Would you expect to hear more definitive plans or about that is that something in the next quarter or is it more towards the end of the year, how should we push we expect there.
Yes, two first half of net here and you'll hear more as you get deeper into fall as we get growth.
Okay, Great. That's all from me guys. Thank you.
That will conclude today's question and answer session I will now turn the conference over to Jon Kirchner for any additional or closing remarks.
Thanks, operator, and thanks, everyone for joining today's call I want to thank our employees for their dedication towards executing on our strategy and operating plans I look forward to providing updates over the coming months and hope to see many of you at the upcoming technology and media conferences, we're presenting it including Needham Bear and J P. Morgan.
Operator. This concludes today's call. Thank you.
Thank you. This concludes today's call. Thank you for your participation you may now disconnect.
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