Q1 2022 Xperi Holding Corp Earnings Call
Everyone. Thank you for standing by welcome to expiry first quarter 2022 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 in order to ask a question. Please press star one on your Touchtone telephone.
I'd now like to turn the call over to Joel <unk>.
From experience Gill. Please go ahead.
Good afternoon, everyone and thank you for joining us as we report our first quarter 2022 financial results with me on the call today are Jon Kirchner, Chief Executive Officer, and Robert Andersen Chief Financial Officer.
Today's earnings there's also an earnings presentation, which you can access along with the webcast.
Our web site.
Before we begin I would like to provide two reminders.
First today's discussion contains forward looking statements that are predictions projections or other statements about future events, which are based on management's current expectations and beliefs, and therefore subject to risks uncertainties and changes in circumstances for more information on the risks and uncertainties that could cause.
Our actual results to differ materially from what we discuss today.
Please refer to the risk factors section in our SEC filings, including our annual report on Form 10-K. 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 second we refer to certain.
non-GAAP financial measures, which exclude onetime or ongoing noncash acquired intangible amortization charges costs related to actual our planned business combination, including transaction fees and integration costs severance facility closures and retention bonuses.
Operations cost stock based compensation loss on debt extinguishment.
And debt refinancing costs and related tax effects. We have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in the earnings release and on the Investor Relations section of our website.
Recording of this conference call will be available on our Investor Relations website at Www dot exterior dot com.
Now I'll turn the call over to experienced CEO Jon Kirchner.
Thank you Jill and thank you everyone for joining us.
While we continue to operate in a volatile macro environment. The financial results for the first quarter demonstrate the continued progress that we're making against our strategic priorities that increases our confidence in our full year trajectory on.
On a combined basis, our total revenue for the first quarter was $257 million representing.
Representing 16% growth from the first quarter of 2021, primarily due to the previously announced micron license.
GAAP earnings per share was 24 cents compared to <unk> in Q1 of 2021, while our non-GAAP earnings per share was <unk> 92.
Compared to <unk> 59 in Q1 of 2021.
Let me provide a quick update on our previously announced business separation.
We remain on track to separate later this fall into two stand alone publicly traded companies.
Adia, our IP licensing business and our expiring product business.
The strategy behind the idea is to continue to extend the adoption of our innovations and licensing of its intellectual property across the broader media entertainment and semiconductor industries.
Audio will continue to grow as patent portfolios in size and relevance through ongoing investments that are principally focused on internal innovations as well as through targeted acquisitions and strategic management of its patent portfolios.
At the same time experience become more nimble and focused product business.
With a unique set of leading products and capabilities experience will be well positioned to execute on its strategy for creating extraordinary experiences at home and on the go for millions of consumers around the world.
Elevating content and how audiences connect with it in a way that is more intelligent immersive and personal.
We are excited by the growth potential of this business, which we intend to accomplish in three primary ways by.
By meeting the demand for advanced infotainment and in cabin safety in cars by enabling faster IP TV growth in the United States and abroad.
And by establishing our TV OS as a leading platform for the discovery management and monetization of TV based entertainment for tier two TV makers.
We continue to believe separation of these businesses will reduce business complexity and enable these two pure play platforms to be better positioned to grow and compete over the long term, thereby unlocking meaningful value for shareholders.
Focusing on audio we're very excited about the positioning of our IP business.
We have built a sophisticated and diverse IP platform that is planned to separate with nearly 10000 patent assets.
Almost 85% of which are homegrown.
In preparation for our separation, we built a media focused R&D function within the audio that.
In addition to our longstanding semi R&D team will continue to innovate and support the long term needs of the business.
The quality and breadth of our portfolio. In addition to our continuous innovation funnel has been a key contributor in our ability to renew and complete new license agreements with world, leading media Entertainment consumer electronics, social media and semiconductor companies.
We have worked diligently to enhance the visibility and sustainability around audio is future revenue streams and to strengthen its foundation in preparation for its journey as a successful Standalone company.
During the quarter, we renewed or entered into new license agreements with over 10 customers, including a long term renewal with a top 10 virtual multichannel video programming distributor.
Emphasizes the longevity of audio is intellectual property portfolios and Audi has continued importance to pay TV as it further expands into OTT streaming services.
Additionally, we continue to progress other significant licensing discussions that we expect to close in the second quarter.
And our Canadian litigation on Friday, the cord indicated that it intends to issue its judgment in our initial case against Videotron on June three 2022, and then it will advise the parties of the anticipated date of the judgment in our initial cases against Bell and Telus promptly after it issues the videotron judgment.
We remain very confident in the relevance of our IP portfolio and our ability to ultimately achieve a market base resolution in Canada, although predicting timing is always difficult.
As a reminder, we also filed second rounds of litigation against Videotron, and Bell, Canada last year.
Moving to our product business over the past two years, we've worked to transform and strategically position the business for profitable growth as it emerges as an independent company.
We continue to advance strategic initiatives in our four product categories.
Consumer electronics connected car and the media platform space.
Our pay TV product category includes classic guides IP television solutions content discovery, Tivo Linux platforms, consumer TV subscribers and hardware.
Our long term focus in this market is driving adoption of our higher value IP television solutions, which are positioned to offset subscriber declines in our traditional guidance business.
We're pleased with the progress we've made around IP TV as we continue to add new operators with our expanded product offerings, including a new win with Infinity linked communications.
Total IP TV subscribers continued to grow at a double digit rate quarter over quarter.
Notably our pay TV product category grew slightly on a year over year basis as growth from IP television through our expanded offerings more than offset the decline from our traditional guidance business.
Our second product category is consumer electronics, which includes Dts audio and imaging solutions in home and mobile IMAX enhanced licensing and our perceived business during the quarter, we signed key renewals with Sky worth in best buy for their sound bar and TV products, and we expanded our licensing relationship with.
<unk> to include Dakota post processing and play Fi support and sound bar and TV products.
Looking forward, we expect the consumer electronics product category to grow this year as the supply chain for game consoles begins to normalize and through growth in our play Fi wireless and mobile business. We expect additional growth to come from expansion of our IMAX enhanced ecosystem and from perceive as we expect to see the first products utilized.
Our technology come to market in late 2022 for the first part of 2023.
Our third product category as connected car, which includes HD radio music metadata Dts auto stage and Dts auto connected.
Connected car continues to be impacted by supply chain constraints, which we are closely monitoring.
We're working with our partners to try to mitigate shortages that could impact key components to deliver with our technology and anticipate an improving situation in the back half of 2022 is the supply chain stabilizes.
A few important highlights from the first quarter include BMW expanded shipments of the Dts auto sensor enabled IX model into more countries.
We also advanced engagement for occupancy monitoring solutions with numerous European and Asian car companies.
<unk> Mercedes Benz expanded shipments of Dts auto stage enabled models to more than 40 countries and over the quarter. We further advanced pipeline development with OEM customers in the U S Europe and Asia.
And finally, our GTS auto sense Neuromorphic driver monitoring solution was chosen as a 2022 winter for the artificial intelligence Excellence award presented by the business Intelligence group.
Our fourth and final product category as media platform, which captures the tivo stream OS the Tivo stream <unk> monetization and TV viewership data.
This is our fastest growing category and we expect double digit growth in this category in 2022, mostly driven by expansion in our advertising based monetization revenue.
At the same time, we're focused on partnerships with TV Oems chipset partners and content providers to bring the first Tvs powered by Tivo stream OS in late 2023 or early 2024 during.
During the quarter, we announced the integration of Youtube TV into Tivo stream, <unk> and Tivo stream OS strengthening the premium live TV viewing experience. Additionally, we launched tivo extend an end to end the advertising solution that enables incremental reach and frequency opportunities for connected TV advertisers.
We also advanced the Tivo stream ecosystem development across content partners Oems and chipset providers.
With that I'll turn the call over to Robert to discuss our financials Robert.
Thanks, John .
We have no debt this fiscal year has gotten off to a good start.
Total revenue for the first quarter was $257 million and.
An increase of 16% from $222 million in the first quarter of last year.
Primarily due to higher revenue from our IP licensing business.
<unk> revenue in Q1 was $139 million.
Up 41% from the first quarter of 2021.
Principally due to our previously announced deal with Microsoft.
Revenue in our product business was $119 million.
One 4% from $124 million, a year ago, due principally to a customer settlement for past unit shipments of approximately $5 million.
It occurred in the first quarter of 2021.
The pay TV product category, which represented 54% of total product revenue in the quarter Jenny.
<unk> generated $64 million of revenue.
Up slightly compared to the first quarter of 2021.
Due to IP TV growth from both <unk>, TV and new customer deployments.
Set by continued churn in the legacy pay TV subscribers.
Moving to consumer electronics category revenue of $28 million in the quarter accounted for 24%.
Product revenue.
Revenue in the category was down $3 million year over year due to the previously mentioned customer settlement of $5 million in the first quarter of last year.
Category would otherwise have exhibited growth, which is something we expect to occur in the category for 2022.
Our connected car category realized quarterly revenue of $20 million versus 23 million in the first quarter of 2021.
Due to continued supply chain constraints.
Because of the current macro environment, we expect this category to be flat year over year.
With supply chain constraints, improving in the second half of the year as John noted earlier.
And our final product category media platform.
For the first quarter was $7 million up.
19% year over year.
Well media platform currently accounts for only 6% of our total product revenue. We expect this category to grow double digits in 2022.
Primarily driven by connected television advertising.
On a non-GAAP basis cost of goods sold was $27 million in the quarter.
Down just slightly from last year.
non-GAAP operating expense was $118 million.
4% from Q1, 2021, due primarily to higher personnel costs and the inclusion of expenses from <unk> TV, which you acquired in mid 2021.
Q1 interest expense was $8 million.
Other income was $1 million.
Cash taxes paid in the quarter were $3 million.
Using cash tax and non-GAAP fully diluted shares of $112 million.
non-GAAP earnings per share for Q1 was <unk> 92.
Moving to the balance sheet, we finished the quarter with $267 million of cash and investments.
We paid down another $10 million of debt during the quarter, bringing our debt balance to $780 million.
Net debt at quarter end was $513 million down 18% from $624 million a year ago.
Yeah.
Operating cash flow for the quarter was $46 million.
$27 million in Q1, 2021, due primarily to lower payments for accrued compensation this past quarter.
Reduced interest expense and lower cash taxes.
During the quarter, we paid a cash dividend <unk> <unk> per.
Per share of common stock and repurchased $17 million of stock.
Leaving $78 million remaining on our existing share repurchase authorization.
Given the good start this past quarter and progress we have made to date, we are reiterating our previously announced guidance.
For the full year 2022.
As noted last quarter, our full year revenue guidance includes the micron license and.
It allows for a range of risk around supply chain challenges.
Revenue growth expectations for the year are attributable to factors in both audio and the product business.
So revenue guidance.
<unk> does not include benefit from the settlement, but significant outstanding disputes.
As noted last quarter, we expect spending to increase sequentially each quarter of the year.
With respect to capital allocation, we plan to continue paying our quarterly dividend and making scheduled debt amortization payments.
We also plan to buy back shares on an opportunistic basis.
Maintaining flexibility to address the capitalization needs of each business as we plan for separation.
That concludes our prepared remarks, let's now open the call to your questions operator.
Thank you, ladies and gentlemen, if you'd like to ask a question may do so by pressing star one on your telephone keypad star one for questions. Please make sure the new function on your phone is turned off so the signal can be read by our equipment.
Star one for questions, we'll pause a moment give everyone an opportunity to signal for questions.
We will take our first question from Matthew <unk> with Maxim Group. Please go ahead.
Hey, good afternoon, thanks for taking my questions.
Maybe if we could start with.
That did car X.
Expectations for the year I'm, just curious how we should think about linearity is that.
Strengthening in the back half of the year or do you sort of expect supply chain constraints to.
To start to wane in the back half of the year I guess help us understand some of the assumptions there.
And Matt This is Robert sure thing so we expect.
We can tell at the moment.
Fly chain constraints for automotive wood.
Would ease up in the second half of the year.
And so that's within our projections for our our annual outlook.
Okay. Thanks, and then.
On the media platform business.
I think it was nice growth annually, but sequentially. It was the client can you help us understand.
Okay.
Maybe the again the linearity of that business, what are the kind of puts and takes quarter to quarter.
And.
This seasonality we might expect.
In this business or I guess help us gauge.
What that should look like through the year.
Yeah.
Just taking a look at Q4.
I think we will see some puts and takes in any given quarter math, so I wouldnt over read.
Any particular linear quarter representation, we still tend to look at our numbers on an annual basis.
So I think we do expect that to be at very high grower, but I don't think theres anything thats, particularly.
Directionally that's important in taking a look at year over year.
In terms of executing on a sequential quarters.
Yes.
Also add that I think we're still.
Early in the process of building out scale with respect to this business and as a result, depending on.
On what's in the pipeline and how various components of that scale are coming online you may see it move around quarter to quarter, but the long term prognosis is we expect very meaningful growth.
Our.
Platform continues to grow and as the number of devices ultimately capable of being monetized driving user engagement continues to increase.
Got it.
And just last one from me I guess also in that business in terms of getting the <unk> product.
At the door and onto products.
I think you said late 2023 early 2024 to be.
Sterling on products that are there any.
I guess theres plenty of work to be done, but what are the major hurdles between now and then and.
Can you based on your engagements today can do.
Give us a sense of whether you expect that to be.
Relatively rapid uptake or your tickets can it be.
Pretty small ramp initially in the first year or two and then.
Celebrating as you get more momentum there.
We have a number of discussions going on in the pipeline that I think could lead to a range of outcomes.
None of which I think will be let's call. It very small, but I think the ramp rates differ depending on how the pipeline of all so I think we're very pleased with how discussions are going more broadly within the ecosystem.
And very much focused on this.
This not being if you will a slow dribble over ramp over a multiyear period, but rather.
The nature of our platform and some of the feedback we're getting.
Based on the quality of our user experience and our approach is good. So I think we'll have more to say on this as we get a little bit further along but suffice it to say, we're very pleased with more broadly now how the ecosystem discussions and the discussions with specific partners in the TV space or Bill.
Okay.
Great. Thank you.
We will take our next question from Hamas coarse sand with Dws financial Please go ahead.
Hi, So first question was with us.
So virtual mvpds.
Renewal.
How many more of these renewals are you expecting this year end.
Are the conversations constructive as far as.
The rate now versus when they were first signed.
I think we do an incredibly good job of.
Being consistent about how we approach rates across the various business lines.
That discipline is one of the things that sets us apart.
As well as the.
The quality and size of the patent portfolio, which as we've said.
Over time.
Just to be very relevant to operators in that space. So.
In short I think we continue to.
More broadly to hold the line and continue to be consistent in our approach.
There are always a number of renewals going on in any given year, we typically don't talk to the exact number.
At times it can be.
Misleading as to the aggregate pipeline of renewals, where you have got.
Significant differences, maybe in terms of size and relevant so.
I think what's important is people are renewing it.
Very high rate.
It speaks to the relevance and again the quality of what we're doing in the portfolio, we built and continue to look to innovate and expand.
And I think as we look ahead over the next few years, we have a high degree of confidence with respect to our ability to continue to move this business forward.
Okay.
Robert just given the performance here in Q1.
One has to assume that.
Much of it has to do with micron.
Was it what would need to happen before expiry too.
Exceed or reached the top end of the range.
What happened that you underperformer.
Okay ill go below the bottom end of the range.
Yes.
Well I think it's important to point out that we're very comfortable with the range we provided.
And then it range takes into consideration.
Various risks and opportunities we still see in the business for the remainder of the year.
We knew that Q1 would be a high quarter, because we had the micron deal.
When we gave guidance itself through the year.
Now to your question, but I think it depends on how things go supply chain perspective.
Higher and we would expect improved per unit reports in consumer electronics.
And then growth in TV services.
And then also how our AD monetization within the media platform business.
Alright, you could also say favorable outcomes for IP licensing within OTT.
I think on the lower end of the range. There, we would expect the supply chain issues to persist.
And then which results in lower per unit reports in consumer electronics.
And in some extent the converse of all I, just described and the delayed rollout of IP TV services lower ad monetization.
And delayed outcome from IP licensing.
But again I think we're quite comfortable with the range.
We've laid out for the year.
Okay, and then just given the conversations that Youre, having now has the tone changed given the macro environment. This last time you reported.
I mean, we certainly are seeing.
Broader macroeconomic challenges.
In reality, we saw those couple of months ago. When we gave guidance and took that into consideration as we laid out the year. So I think we.
While I think the environment is certainly challenging that's something we've taken consideration.
Okay, great. Thank you.
Awesome.
We will take our final question from Richard Shannon with Craig Hallum. Please go ahead.
Well great. Thanks, John .
Robert for taking my questions.
I guess, Robert just a quick one I just want to make sure that I heard.
Kind of a confirmation on all the moving parts within the products business has to grow through the year, but those are the same as you said last quarter I got three out of the four I just want to make sure. All four of them were unchanged is that correct.
Yes, there is no change in our views in fact on looking at what I wrote for last quarter, because they really haven't stance.
Haven't changed.
So I can cover them again, if it would be helpful.
I guess three of the four so I just want to make sure the portfolio is fine as it is.
We'll probably touch on that one again.
The second question, probably for John if I caught your prepared remarks on the topic of Ptv.
I think you said ITT IP TV growth over offset declines in the guide business.
You've talked about declines.
The guys are.
Overcoming the ITT grow IP TV growth.
Does this comment for the first quarter suggests that could see some upside there can you kind of talk about.
What youre seeing there and trends that will help us think about the rest of the year.
Sure I think it's hard it's hard to.
To exactly call what the net difference is going to be we've got a substantial pipeline of IP TV.
Business coming in depending on the rate of deployments, which were working very hard to partners too.
To support.
Depending on what that rate is relative to of course, the decline will determine whether it fully offsets and maybe even slightly grows or.
Nearly offsets.
I think our expectation currently.
Youll see pay TV flat to slightly down on the year and but that's not that's masking of course.
A meaningful continued sub decline.
Which everyone expects consistent with industry trends.
With fair amount of ICT group TV growth for us and I think it's that relative comparison rate of decline versus the rate of growth that will determine the final.
<unk> I think we'll have more to say as we maybe get in.
Two late summer with a better view of what's sitting in the back half.
Deployments are going to look like but I think we have.
Got it.
An outstanding job of.
Normalizing and.
Working to transform the pay TV business in a way where it is not a large drag on the overall business, but rather.
<unk> is beginning to move more towards where we think the future of that business lives and we're working to build scale economy and ultimate profitability around that shift.
As we continue to work through the next.
The next year or two.
Okay.
On the topic of pay television. Thank you.
Marks or maybe it was even in the presentation.
Head in front of me here, we talked about total IP team subs.
Continue to grow at a double digit rate quarter on quarter, what kind of.
Expectation that you have for the rest of the year on average or is it.
If you could kind of suggest how this first quarter relate to the rest of the year.
Simply put yes, it will continue to grow at attractive rates quarter over quarter.
Okay.
Perfect, maybe one or two other questions for me and I'll jump out of line.
I think they've got the sense after last quarter's call that you expected the second quarter to be the bottom in revenues for the year. Obviously after a really strong first quarter with micron and or is that still the expectation.
Well as we look at the year now I would say that we expect the remaining quarters of the year to be roughly equivalent.
So it just depends on how the deals that we forecast for the full year.
Why now for the year, so I would say fairly equivalent for the remainder of the year.
Okay.
Okay that is helpful. Let's here just giving you my list here.
Maybe one last one for John on the topic of hybrid bonding.
I think last quarter, you mentioned that after signing micron license.
License with 90% of DRAM and 50% of the NAND suppliers, so far and I guess my question is is there any visibility or expectation of.
Licensing.
More a higher portion of the NAND part of the market.
I would think it's fair to say that we have a very active pipeline.
Across the rest of the memory space as well as.
In logic and in some other places I think.
This is a trend that is going to continue for the next decade.
It's important to I think the long term value proposition of ever more powerful.
Trips and we think we continue to have.
Not only some five.
Foundational IP, but some of the industries.
Deepest knowledge about how to deploy.
The use of hybrid bonding in a broader.
Successful manufacturing environment so.
Overall I would say we are we're making good progress and we believe that over time those percentages will continue to increase within the broader member space.
Okay Fair.
Fair enough I think Thats all from me guys. Thank you.
Thanks Richard.
Ladies and gentlemen. This concludes today's question and answer session. At this time I would like to turn the conference back to your presenters for any additional or closing remarks.
Thanks, operator, and thanks, everyone for joining today's call. Both businesses have had a good start to 2022, and we look forward to keeping you updated on our progress in the coming months.
This concludes today's call. Thank you operator.
Thank you ladies and gentlemen, this does conclude today's conference. We appreciate your participation you may now disconnect.
Yes.
Okay.
Sure.