Q1 2023 Xperi Inc Earnings Call
Good day, everyone. Thank you for standing by welcome to the X very first quarter 2023 earnings conference call.
During today's presentation, all parties will be any listen only mode.
Following the presentation the call will be open for questions.
I would now like to turn the call over to Mike I Bird expiry head of Investor Relations. Mike. Please go ahead.
Good afternoon, and thank you for joining us as Experi reports its first quarter of 2023 financial results.
With meal today's call or John Kirshner, Chief Executive Officer, and Robert Anderson, Chief Financial Officer.
In addition to that as earnings release, there was a presentation, which you can access along with this webcast on our Investor Relations website at an investor Dot <unk> Dot com.
Before we begin I would like to provide a few reminders first I would like to note that unless otherwise stated all comparisons are to the same quarter in the prior year. In addition, the first quarter of 2022 is calculated on a carve out basis prior to experienced separation from experience holding corporation on October .
First of 2022 <unk>.
Expert holding corporation is now known as audio Inc.
Second today's discussion contains forward looking statements that our predictions projections and 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 discussed today. Please refer to the risk factors and M. DNA section and our SEC filings, including our most recent Form 10-K. Please.
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.
Third we refer to certain non-GAAP financial measures, which are detailed in the earnings release and accompanied by reconciliations to their most directly comparable GAAP measures, which can be found in the investor Relations section on our website.
Lastly, a replay of this conference call will be available on our website. Shortly after the conclusion of this call I will now turn the call over to experience C E O John Kirshner.
Thank you Mike and thank you everyone for joining us on our first quarter of 2023 earnings call.
We are pleased to deliver another quarter of significant business progress and solid financial results for Q1 of 2023.
With these accomplishments we remain on track to achieve our full year outlook and long term strategic objectives.
Revenue in the quarter was $127 million, an increase of 7% from the prior year.
We expanded our gross margin sequentially reduced our operating expenses and significantly increased our adjusted EBITDA from the year ago period.
I'll, let Robert walk you through the details in just a moment.
In addition to a strong quarter for consumer electronics, we continued to achieve major milestones in each of our key growth areas with significant progress in media platform connected car and IP television.
The announcement of a second top 10 Smart T V O M integrating our tivo operating system and the additional design wins for in vehicle infotainment platform validate our independent media platform approach and are prime examples of our continued momentum.
As discussed it last fall's Investor day, we offer a wide range of solutions designed to create extraordinary entertainment experiences for end users as well as improved safety comfort and convenience in the car.
Four of our solutions are in markets that are expected to expand rapidly over the next several years.
While the other solutions are in markets that are more mature and relatively stable over a longer term horizon.
We refer to these areas as growth and core respectively.
As I mentioned last quarter, our strategy is focused on driving revenue growth in the following key areas.
Connected T V advertising, where we offer our tivo operating systems to power Smart Tv's and monetize AD supported viewing.
P T V, where we offer our industry leading content first video platform.
In vehicle infotainment, where our Dts auto stage combines broadcast radio and Internet meta data to enhance the in cabin experience and.
In in vehicle monitoring, where Dts auto combines our imaging technology and machine learning to improve safety comfort and convenience.
Each of these markets is expected to expand rapidly over the next several years as internet connectivity streaming and consumer expectations cause entertainment to be more ubiquitous and advertising dollars shift to new delivery methods.
With decades of experience, we've leveraged our industry, leading technology to target. These specific market opportunities with independent media platforms that are differentiated unbiased and tailored to provide a personalized consumer experience.
We believe these attribute will allow us to participate in the rapid expansion of these markets and drive revenue revenue grow through a combination of license fees and monetization.
Given the significant progress we've made over the last several months.
I'd like to provide a bit more detail on some of our major accomplishments since our last earnings call.
Within our media platform business, we signed a second top 10 Smart T V to integrate our tivo operating system into their product lineup with plans to launch initially in Europe next year.
This is an exciting development is the signing of a second OEM clearly validates the market appeal of are offering and leaves us well positioned for longterm monetization Grove.
As we outline last quarter or solution provides several key advantages to TVO M's, we offer a truly independent media platform with unbiased search and discovery that is not influenced by a particular content provider or advertiser.
Our unique business model enables smart T V Oems to brand the experience retained customer ownership and participate in usage based economics over the life of the product. These.
These aren't Tivo Tv's they are Oh am branded Tvs powered by Tivo.
From experienced perspective, with the Tivo operating system as the conduit for consuming content on Smart Tv's will.
We will be able to capture a portion of the AD revenue generated by consumers as they view AD supported content over the life of the T V.
With our second T B O a OEM on board or even better position to participate in the growth of connected T V advertising, which is expected to more than double to become a 28 billion dollar market in 2026.
Lastly, we've been working collaboratively in our partnership with versatile to bring the first powered by <unk> by Tivo T V's to market in Europe .
While our software stack is ready given market dynamics and based on retail planning with versatile. We now expect the first shipments in Europe to be in the second half of 2023 and preparation for the holiday buying season.
This will have no impact on our guidance for the year is only a small amount of monetization revenue was expected in late 2023.
With best sales volumes, increasing as it's rollout expands and a second top 10 OEM expected to begin shipping next year, we expect monetization revenue to begin to grow meaningfully in 2024 and beyond.
Overall, we are very pleased with our continued progress on our independent media platform strategy and its long term growth prospects.
Are connected car business also had a strong quarter. The automotive industry is making extensive investments and connected car is internet connectivity is turning the cabin into a personal entertainment space.
As part of this transformation, we were awarded a new program for Dts Auto stage R. N vehicle infotainment platform with a major Japanese automobile manufacturer.
This global program is expected to incorporate auto stage into North American vehicles. Later this year, followed by Europe and Asia in 2024.
Our auto stage, an auto sent solutions have now been awarded a combined total of more than 10 automotive OEM programs that include over 100 specific car models.
These program wins, our technology is expected to be incorporated into tens of millions of vehicles globally over the next five years.
In addition to these next Gen platforms. We also continue to make progress and are well established HD radio business.
HD radio solution, which is the North American standard for digital radio has been launched in 12 additional models for the U S market and sex additional models for Mexico, increasing our penetration and new car production.
Lastly, we're pleased to extend our relationship with Harmon a major tier one automotive supplier, citing a multiyear license renewal, which we expect will incorporate HD radio into millions of cars over the next six years, demonstrating the resilience of this technology and providing a stable revenue stream for years to come.
Together these wind set the stage for meaningful longterm connected car revenue growth as in vehicle infotainment and monitoring are expected to double becoming a $40 billion market in 2000 2007.
Within our pay T V business, we're also making progress despite the continued industry decline in certain legacy Paytv platforms.
R. I P. T V platform continues to experienced double digit double digit subscriber growth with new rollouts by major service providers across the Americas.
For example, Eastland a major Canadian cable provider has launched Tivo I P T V across their Canadian footprint.
It's clear that our content agnostic approach, bringing all entertainment together for consumers to find watching enjoy provides a superior customer experience and is gaining traction with service providers and broadband operators.
In addition friendly T V a leading affordable live television provider for the whole family with more than 750000 subscribers.
Selected tivo as their personalised content in discovery platform.
As a result will be providing search discovery and personalized recommendations to their large subscriber footprint.
Turning to consumer electronics, as we approach our 30th anniversary of D. T S. The technology and durability of our audio business remains strong.
During the quarter, we signed a series of major multiyear license renewals for a dts audio enhancing technology. These.
These license agreements allow many of the largest consumer electronics manufacturers to continue integrating Dts audio and play Fi into their products for the next several years validating the value of these innovative technologies.
Let me now turn to perceive.
As we've previously shared we continue to expect first revenue in 2023.
The bigger picture, however is rapidly growing more interesting <unk>.
The launch of Chad G. P. T five months ago marked a real inflection point in the field of machine learning.
These large models gained traction it has spurred significant discussion about more rapid and wide scale deployments and the challenges associated with scalability.
The advanced compression software developed by our perceive team is.
Is highly relevant to that challenge and represents a significant opportunity for value creation as companies grapple with the potential for runaway costs as the technology is more broadly used.
Perceived technology advantages, specifically targeting performance and power efficiency modern now more than ever and we believe the future is bright as we complete work on larger language models in the near term and demonstrate our progress to customers and partners across the industry.
In summary, it was a successful quarter from many perspectives, we continue to hit specific milestones that both validate our solutions and reaffirm our strategy.
A solid financial results confirm we're on the right path and as these design wins convert into revenue over time, we expect to achieve our long term financial targets.
With that I'll turn the call over to Robert to discuss our financials Robert.
Thanks, John .
Let's get straight into the numbers as Mike noted earlier, unless otherwise noted all comparisons are against the same quarter in the prior year.
Total revenue for the first quarter was $127 million an increase of 7%. This increase was primarily driven by consumer electronics.
And media platform.
Partially offset by a decline in pay television.
Paytv, our largest revenue category was down 6% as strong growth and I P. T V was more than offset by declines in our core paytv product lines, such as classic guides and consumer hardware subs.
Consumer electronics was up 31%.
Even by growth in home audio and video solutions from renewable signed in the quarter.
Some of which were minimum guarantee arrangements in which the revenue was taken upfront.
Additionally, we had strong reported shipments of game consoles.
Connected car was up 4% due primarily to growth and our auto since an auto stage products.
As well as modest growth in H D radio.
Media platform was up 34% driven by growth in monetization and contribution from the viewed acquisition.
Or non-GAAP gross margin for the quarter was $100 million or 79% and improvement of over 110 basis points.
Driven primarily by a revenue mix shift towards consumer electronics, which is our highest gross margin category.
non-GAAP adjusted operating expense for the quarter was $99 million up 4% from the prior year carve out financials.
Put down 5% sequentially.
Our adjusted EBITDA was $7 million, an increase of approximately 70% from the prior year.
Yielding a 5% adjusted EBITDA margin.
After accounting for tax and interest expense or non-GAAP earnings per share was four cents.
Moving to the balance sheet accompany it ended the quarter with $111 million of cash and cash equivalents.
Our cash flow from operations in the quarter was a usage of $43 million due to the timing of bonus payments and certain collections.
Specifically the employee bonus payout, which occurs annually in Q1 was approximately $32 million similar to last year's amount.
We also saw an increase in accounts receivable and other assets of about $12 million most of which has now been collected.
Overall, we expect operating cash flow to be positive for the balance of the year and to be approximately breakeven for the fiscal year.
Turning to our financial outlook for 2023, we are reaffirming the previous guidance ranges and providing the following commentary.
As provided on the last earnings call. We continue to expect a full year revenue to be in the range of $510 million to $540 million.
Full year adjusted EBITDA margin is expected to be in the range of 6% to 10%.
Also unchanged, we expect cash taxes, and non-GAAP tax for the year to be in the range of $20 million to $25 million.
Although the Q1 non-GAAP tax expenses relatively modest had half a million dollars, we expect a higher non-GAAP tax expense for the remaining quarters of the year.
Basic share count is still expected to average $43 million for the year and fully diluted share count is expected to average approximately $49 million for the year.
That concludes our prepared remarks, let's now open the call for questions.
Nope with time, we will begin our question and answer session.
In order to ask the question Star then the number one on your telephone keypad.
You would like to withdraw your question again.
Star one on your telephone keypad will pause for just a moment to compile the question and answer roster.
Your first question comes in the lineup.
<unk> W asked financial your mind <unk>.
Hi could you just talk about the so upfront revenues that you regenerate.
From the renewals and how.
How are you expecting to fall into place as far as the guidance is is concerns just given though.
Seems that cute one's gonna be very high.
Electrons Rev.
Revenue quarter.
Hi, This is Robert I can take that one.
So the upfront revenues that we experienced in Q1 is part of our.
Plan for the year. So it was known in advance.
How these would play out so they are part of our guidance range for the year.
And I think the way, we think about it as they really are a.
An affirmation of our Dts licensing business. So, we'll we'll be getting revenue actually will be getting payments for these <unk>.
Contracts over many years, so I really nice way to start the year.
And effectively part of our plan for the year.
Okay.
Any update as far as what you're seeing on the auto since especially with.
Within the U S market, if there's been a adoption sure technology.
I would say that the the interest in in cabin safety solutions continues to grow we are meaningfully engaged with.
A sizable pipeline of automakers.
From a standards perspective, there isn't necessarily any any major event that has occurred of late.
But I do think the industry globally is clearly moving that direction and I think we continue to have unique.
Technology.
A ton of Dalmane expertise that is going to help us continue to win business in that space.
And my final question was this T V O M that you've one was this because of lifestyle that you want it or was this because of roku.
Making their own television.
Think it really speaks to and validates our approach of there's real desire for an independent media platform where.
The T V.
TB Oh, Yeah I'm Ken.
On their own brand on the customer.
Participate in longterm economics.
And I think that that business model and that approach coupled with a world class you actually why search wreck and discovery capability that we offer I think is driving a lot of residents with with television makers.
And I think.
It's just it's the next step and what we believe to be a robust pipeline and.
I think more than anything just says that we're on to something important here that I think is going to have meetings meaningful impact to our business and growth over the next couple of years.
Okay. Thank you.
Your next question comes from the line I've taken <unk> from Craig Helen Yeah mine, it's open.
Good afternoon, guys. Thank you curious as you approach the launch of the T O O S being built into these T. V's <unk> first later this year just curious the strategy on consumer interaction or maybe it's consumer awareness. Just says these are the first devices tivo built in and I'm wondering if there's like a.
Broader marketing campaign that goes along with that.
Yes, we are working in partnership with our with our television partners to highlight.
Some of the.
Vantages of the interface.
As well as the fact that you know that there's.
New and innovative and new and innovative technology on the television platform. So in short.
I think it will be coupled with.
Claire Claire marketing, but I think more than anything what we want is as people turn on the T V that they have a great.
Content first user experience because that's the very thing that that is the very reason people are buying Tvs right as they want to get to the content. They want to watch and the simplest and easiest ways and understand where it's available and I think we've we've designed our product in a way that facilitates that.
I think.
As a result, the learning curve will be relatively short you know and I think the satisfaction that comes with the experience will will drive even more interest in the platform overtime.
And then last weekend, the new fronts, you guys kind of foreshadowed move into the domestic market with Tivo O S. I'm just curious what the process is that you go through there if you're identifying Oems, having engagements or how does that process of look over the course of this year.
I expect that will continue to make progress on our pipeline naturally we're talking to people globally.
So I would say stay tuned, but you know I.
I think as.
As we indicated when we first announced first L, which is great to have their partnership, but we thought there would be more than I think today. We've we've shared some additional news that quite clearly validate that view and I think it will continue.
Okay, I'm gonna squeeze and just one more unconnected car or are we just seen more auto manufacturers can move away from things like car play an Android auto curious if if you think that creates a bigger opportunity for auto stages you go forward.
In short I think automakers are increasingly looking to differentiate their cabins and certainly to you know to offer nexgen experiences around the core media platforms or the media delivery sources that are in the car and I think certainly auto stage and as we move into video, which we <unk>.
Checked to see.
And this next generation of cars here as part of our broader platform.
I think that you know that the.
The fact that we are an independent platform for the automakers to help <unk>.
Further customize and create the experience they want in the cabin leveraging our technology base and having easy access to next Gen radio among among other things I think that bodes well and and certainly you know I think as you mentioned some of the other competing.
Competing tech.
<unk> technologies in the car as people look to own their own experiences were a great partner to do that.
Perfect. Thank you.
Your next question comes from the line at <unk> Glare from Steven Your line is open.
Yeah, Hey, guys. Congrats on the second Smart T V. When that's awesome you know just high level I'm wondering if if there's just any further details you could provide on that when maybe when specifically you might see the launch within 2024 first half catalyst or back happened.
You know does it look and feel similar to the arrangement with festival and and maybe maybe you could size. It up I guess relative to the initial when that vessel that that can be helpful.
Yeah, they're <unk>, they're a top 10 provider as we said I think we'll be able to maybe share a bit more information as we get into fall, which is why I suspect this will likely become public.
Yeah, So who the brand is business model here is consistent across our television manufacturers and.
As for exact timing and sizing I think I think that's under discussion.
You know as we continue to work with this partner so I would say stay tuned.
Got it and then how about just how quickly.
This was able to come to fruition just to you know.
Global set you know how how fast these can come about.
Out of mind, how long would you say you've been talking with this specific.
Oh, Yeah and then.
Gage you know from initial contact to actually committing to launch you know how long that process can take especially in this environment, where you're you've got.
Wrote because of the world building their own T V. 's and you know maybe some are accelerating their plans to look for partners like like what you can provide a tivo.
You know I I would say the sales cycle, you know often times it inside it it's inside a year.
You know, but it varies it varies based on the state of readiness the technical complexity of you know.
What the television makers, specifically trying to do.
The chipsets that that.
Currently running in their T V's et cetera. So you know in a lot of that pretty validation work precedes the ultimate you know agreement the business agreement. So you know I I think probably.
Probably have more to say on this as as we get further along in our pipeline and maybe I can give you a better you know <unk>.
A better indication of kind of what both sides of the goalposts look like but I I would I would say this has been you know this has been a very this outcome as a result of steady engagement and we're thrilled to have them on board and look forward to to go into market with them.
Awesome, and then I'm not I might've missed it but I'm not sure if he touched on it any update on the the best Little T V launch specifically when those T. V's will will hit retail just curious if we should start to expect some revenue contribution and two Q or is it back half twenty-three contribution late twenty-three Nick.
What is.
Is what we'd expect and I think what we what we saw is based on some retail planning, even though our software stack is ready to go that the timing of of T. V. 's in Europe professed sales hitting retailers is likely coming in before the holiday buying season, so it's going to be second half.
Got it and then alright last one media platform revenues of 33 per cent in the corridor I mean, obviously, a very strong resolved I think maybe just a little short of where we were modeling I'm wondering if did that did that number come in line with your expectations for the call.
Order and I'm curious if at this stage you you guys would see or experienced any advertising pressure in the market like would you be able to call that out or are you guys and just a touch of ramp mode that that you you kind of don't really feel it but just.
Just general commentary on on that revenue remember where it came in.
Yeah. So let me let me just address from from a from a broader market perspective definitely were saying there is there is some softness.
But we have a number of things going in that category. So that helps you know.
Blunt the impact of that Robert more you'd like to add.
Sure I would say that in terms of what we were expecting neck, we were more or less in line with within that category, we're not yet experiencing the value. We ultimately expect to receive within monetization until we really get a foothold into the.
<unk> market so the upside for us this quarter as contributions from viewed and growth in monetization, which was reasonable I think but that category. I think is really emerging for us as an interesting growth category going forward.
Awesome great. Thanks, so much I appreciate it.
At this time, if you would like to ask a question Press Star then the number one on your telephone keypad.
There are no further questions at this time I would like to turn the call back number typically centers.
Thanks, operator, and thanks, everyone for joining today's call.
We're excited about our continued success and financial performance I'd like to thank our employees customers and partners for helping US achieve these strong results. We look forward to reviewing our queue to results with you in early August .
This concludes today's call.
Okay, Great Today's conference call you may now disconnect.
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