Q4 2023 Xperi Inc Earnings Call
Operator: Please wait; the conference will begin shortly. Good day, everyone.
Please wait the conference will begin shortly.
[music].
Operator: Thank you for standing by. Welcome to the Xperi fourth quarter and full year 2023 earnings conference call. During today's presentation, all parties will be in a listen-only mode.
Good day, everyone. Thank you for standing by welcome to the expiry fourth quarter and full year 2020 P 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 I would now like to turn the call over to Mark for Mike <unk>.
Operator: Following the presentation, the call will be open to questions. I would now like to turn the call over to Mike Iburg, Xperi's Head of Investor Relations. Please go ahead.
It's very head of Investor Relations. Please go ahead.
Michael R. Iburg: Thank you. Good afternoon, and thank you for joining us as Xperi reports its fourth quarter and full year 2023 financial results. With me on today's call are Jon Kirchner, Chief Executive Officer, and Robert Andersen, Chief Financial Officer. In addition to today's earnings release, there is an earnings presentation which you can access along with this webcast on our investor relations website at investor.xperi.com. Before we begin, I'd like to provide a few reminders.
Thank you John and good afternoon, and thank you for joining us as expiry reports its fourth quarter and full year 2023 financial results with me on today's call are Jon Kirchner, Chief Executive Officer, and Robert Andersen Chief Financial Officer.
In addition to today's earnings release, there was an earnings presentation, which you can access along with this webcast on our Investor Relations website at Investor Dot Xperia Dot com.
Before we begin I'd like to provide a few reminders.
Michael R. Iburg: First, I would like to note that, unless otherwise stated, all quarterly comparisons are due to the same quarter in the prior year. In addition, the first three quarters of 2022 were calculated on a carve-out basis prior to Xperi's separation from Xperi Holding Corporation on October 1st of 2022. Xperi Holding Corporation is now known as Audia.
I would like to note that unless otherwise stated all quarterly comparisons are to the same quarter in the prior year.
In addition, the first three quarters of 2022 were calculated on a carve out basis prior to Experi separation from <unk> holding corporation on October one of 2022.
Extra holding corporation is now known as audio.
Michael R. Iburg: As a result, all full-year comparisons will be to carve out financials in the prior year. Second, today's discussion contains forward-looking statements, that is, 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 discussed today, please refer to the Risk Factors and MD&A section of our SEC filing, including our most recent form 10-K and 10-Q. 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 of our website.
As a result, all full year comparisons will be to carve out financials in the prior year.
Second today's discussion contains forward looking statements that are predictions projections or other statements about future events.
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.
Please refer to the risk factors and MD&A section of our SEC filings, including our most recent Form 10-K and 10-Q.
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 of our website.
Michael R. Iburg: Lastly, a replay of this conference call will be available on our website shortly after the conclusion of this call. With that, I would now like to turn the call over to Xperi CEO, Jon Kirchner. Thank you, Mike.
Lastly, a replay of this conference call will be available on our website. Shortly after the conclusion of this call.
With that I would now like to turn the call over to expiry CEO Jon Kirchner.
Jon E. Kirchner: And thank you, everyone, for joining us on our fourth quarter and full year 2023 earnings call. We continued to make progress on both our strategic priorities and profitability during the quarter while delivering solid financial results for the full year. I'll let Robert walk you through the details in just a moment, but let me first touch on a few financial highlights. Revenue in the quarter was $137 million, up 1% from the prior year. Adjusted EBITDA was $13.4 million for the quarter, or 10% of revenue, compared to $3.6 million in the prior year quarter.
Thank you Mike and thank you everyone for joining us on our fourth quarter and full year 2023 earnings call.
We continued to make progress on both our strategic priorities and profitability during the quarter, while delivering solid financial results for the full year.
I'll, let Robert walk you through the details in just a moment, but let me first touch on a few financial highlights.
Revenue in the quarter was $137 million up 1% from the prior year.
Adjusted EBITDA was $13 4 million for the quarter or 10% of revenue compared to $3 6 million in the prior year quarter.
Jon E. Kirchner: In addition to improved profitability, we had strong operating cash flow of $21 million in the crowd, and ended the year at break-even for operating cash. These results represent a significant milestone for Xperi as we reach new quarterly highs for revenue, adjusted EBITDA, and adjusted EBITDA margins. This demonstrates the progress of our business transformation efforts and positions us well for the future. Consistent with the strategy outlined at our separation in the fall of 2022 and despite some economic and geopolitical uncertainty, we are pleased to have delivered on our goal of mid-single-digit revenue growth and improved profitability in 2023. Before we talk about our strategy in 2024, let me take a moment to address the recently completed sale of AutoSense and the related images. For years, we've been pursuing an opportunity inside the automotive cabin that leverages our deep imaging expertise, specifically Driver and Occupant Monitoring.
In addition to improved profitability, we had strong operating cash flow of $21 million in the quarter and ended the year at breakeven for operating cash flow.
These results represent a significant milestone for experience as we reached new quarterly highs for revenue adjusted EBITDA and adjusted EBITDA margin.
This demonstrates the progress of our business transformation efforts and positions us well for the future.
Consistent with the strategy outlined at our separation in the fall of 2022, and despite some economic and geopolitical uncertainties. We are pleased to have delivered on our goal of mid single digit revenue growth and improved profitability in 2023.
Before we talk about our strategy in 2024, let me take a moment to address the recently completed sale of auto sense and the related imaging business.
For years, we've been pursuing an opportunity inside the automotive cabin that leverages, our deep imaging expertise specifically driver an occupant monitoring.
Jon E. Kirchner: Our belief was that the market would meaningfully develop by 2025 and present an attractive margin and growth opportunity for Xperi. However, while we've been very successful at winning new customers, there have been two important changes over the past 18 months that have impacted the long-term opportunity for this business within Xperi. First, due to the growing importance of these products as critical safety systems, our OEM partners increased their expectations for the scope of support they wanted us to provide. This has resulted in a significantly increased cost structure that is hard to justify for a business that is not core to our long-term strategy. Second, the increasingly competitive environment has negatively impacted pricing compared to our original projection.
Our belief was that the market would meaningfully developed by 2025 and presented an attractive margin and growth opportunity for experience.
While we've been very successful at winning new customers. There have been two important changes over the past 18 months that have impacted the long term opportunity for this business within experience.
First due to the growing importance of these products is critical safety systems, our OEM partners increase their expectations for the scope of support they wanted us to provide.
This has resulted in a significantly increased cost structure that was hard to justify for a business that is not core to our long term strategy.
Second the increasingly competitive environment is negatively impacted pricing compared to our original projections as a result, the timeline for achieving attractive returns on our investment in this business was pushed out beyond what we had anticipated.
Jon E. Kirchner: As a result, the timeline for achieving attractive returns on our investment in this business has been pushed out beyond what we had anticipated, given more attractive opportunities and independent media platforms and related entertainment technologies that are consistent with our long-term strategy. We decided to sell the business. After a thorough sales process that began last spring, we ultimately reached an agreement with Tobii AB, a publicly traded technology company based in Sweden with a long history of providing imaging technology solutions and a focused strategy on automotive safety. The proceeds from the transaction, which are a minimum of $43 million and up to $62 million, including earnouts, were structured to be paid out over time to align Toby's payments to Xperi with some of the expected cash flow Toby would generate from the business.
Given more attractive opportunities and independent media platforms and related entertainment technologies that are consistent with our long term strategy, we decided to sell the business.
After a thorough sales process that began last spring, we ultimately reached an agreement with Tobi AEP.
Publicly traded technology company based in Sweden, with a long history of providing imaging technology solutions, and our focused strategy and automotive safety.
The proceeds from the transaction, which are a minimum of $43 million and up to $62 million, including earn outs were structured to be paid out over time to align toby's payments to experience with some of the expected cash flow Tobey would generate from the business.
Jon E. Kirchner: As a result, the structure of the deal allows us to focus our attention and investment dollars on high-growth, higher-return entertainment solutions while still participating in the future upside of automotive safety. Going forward, we're focused on three growth solutions where we see strong potential and differentiation. These are Connected TV Advertising, where we offer our TiVo operating system to power smart TVs and monetize ad-supported viewing.
As a result, the structure of the deal allows us to focus our attention and investment dollars on high growth higher return entertainment solutions, while still participating in the future upside of the automotive safety market.
Going forward.
We're focused on three growth solutions, where we see strong potential and differentiation. These.
Our connected TV advertising, where we offer our tivo operating system to power Smart Tvs and monetize AD supported viewing.
Jon E. Kirchner: In-Cabin Entertainment, where DTS Autostage combines broadcast radio, internet metadata, and video to enhance the automotive experience and drive long-term monetization, and TiVo Video over Broadband, where we offer an industry-leading, content-first streaming platform for our customers' IPTV linear video households, as well as broadband-only households. Each of these markets is growing rapidly and is expected to roughly double over the next five years. We continue to strengthen our position in each market and are increasingly well positioned to grow our revenue as these markets expand. We updated this slide to reflect the recent divestiture of AutoSense and provide an update on our progress through the end of 2023, with no change to our three-year target. By the end of 2025, our goal is to have a footprint of at least 7 million active TVs running Arteva OS, 2.8 million video over broadband subscribers, and 10 million cars with DTS Auto.
In cabin entertainment or Dts auto stage combines broadcast radio Internet matter data and video to enhance the automotive experience and drive long term monetization.
And Tivo video over broadband, where we offer an industry leading content for streaming platform for our customers' IP TV linear video households, as well as broadband only households.
Each of these markets is growing rapidly and is expected to roughly double over the next five years.
We continue to strengthen our position in each market and are increasingly well positioned to grow our revenue as these markets expand.
We updated this slide to reflect the recent divestiture of <unk> and provide an update on our progress through the end of 2023 with no change to our three year targets by the end of 2025. Our goal is to have a footprint of at least 7 million active Tvs running our Tivo OS $2 8 million video over broadband.
<unk> and 10 million cars with Dts auto stage.
Jon E. Kirchner: If we achieve these targets, we'll have 20 million monetizable endpoints, with at least 10 million households and 10 million cars for which Xperi provides the core entertainment platform. Our progress in 2023 gives us increased confidence in our ability to achieve these targets beyond 2022. As we do so, we expect these three growth initiatives to generate over $310 million in revenue in 2026. Let me walk you through some of our recent achievements that reflect our progress. Within Media Platform, our TiVo OS value proposition continues to resonate with TV OEMs, which is underscored by our recently signed partnership with Skyworth, a top 10 global TV manufacturer, to integrate TiVo OS into their 2024 TV lineup. [inaudible] with three of these being top ten global TV manufacturers.
If we achieve these targets, we will have 20 million monetize able endpoints with at least 10 million households in 10 million cars in which experience provides the core entertainment platform or.
Our progress in 2023 gives us increased confidence in our ability to achieve these targets exiting 2025.
As we do so we expect these three growth initiatives to generate over $310 million of revenue in 2026.
Let me walk you through some of our recent achievements that reflect our progress.
Within media platform, our Tivo OS value proposition continues to resonate with TV Oems, which is underscored by our recently signed partnership with Sky Worth a top 10 global television manufacturer to integrate Tivo OS into their 2020 for TV lineup.
This brings the total number of TV Oems integrating the Tivo operating system to five with three of these being top 10 global TV manufacturers.
<unk> is currently shipping smart Tvs powered by Tivo into seven European countries, including the U K and Germany with plans to continue expanding into additional countries throughout the balance of 2024 under more than a dozen brands such as JBC telephone can invest del <unk>.
Jon E. Kirchner: Vestel is currently shipping smart TVs powered by TiVo into seven European countries, including the UK and Germany, with plans to continue expanding into additional countries throughout the balance of 2024 under more than a dozen brands such as JVC, Telefunken, and Vestel. Additionally, Sharp and Argos, a leading UK consumer electronics retailer, expect to have smart TVs powered by TiVo in retail stores this spring across Europe and the UK, with Argos launching TiVo's TVs powered by TiVo under their house brand, Bush.
Additionally, sharpen Argos, a leading UK consumer electronics retailer expect to have smart Tvs powered by Tivo and retail stores. This spring across Europe, and the U K with Argos launching Tivo Tvs powered by Tivo under their house brand Bush.
Overall, it was a great quarter of execution for our independent media platform strategy.
And for driving our long term growth prospects.
Our connected car business also saw continued positive momentum during the quarter.
Jon E. Kirchner: Overall, it was a great quarter of execution for our independent media platform strategy and for driving our long-term growth process. Our connected car business also saw continued positive momentum during the quarter. The highlight was BMW's rapid deployment of DTS auto stage video service powered across select new cars in production and certain late model vehicles already on the road through and over the air up. BMW has also shared its intention to roll out DTS auto stage video service to their mini brand of vehicles in the future. In addition, we were awarded three new auto stage design wins in the quarter with major Asian and European automotive partners.
The highlight was bmw's rapid deployment of Dts auto stage video service powered by Tivo across select new cars in production and certain late model vehicles already on the road through an over the air update.
BMW is also shared its intention to rollout auto stage video service to their many branded vehicles in the future.
In addition, we were awarded three new auto stage design wins in the quarter with major Asian, and European Automotive partners.
Finally, when we reported Q4 2022, a year ago, we shared an estimate of the total dollar value of committed revenue for the enacted for the connected car business unit at the end of 2023, even considering the auto sense divestiture. We are pleased to report that the current level of committed connected car business grew over 10.
<unk> to greater than $300 million.
Within the pay TV business video over broadband or IP TV solution continues to make steady progress generating $60 million in revenue in 2023.
Jon E. Kirchner: Finally, when we reported Q4 2022 a year ago, we shared an estimate of the total dollar value of committed revenue for the connected car business. At the end of 2023, even considering the AutoSense divestiture, we are pleased to report that the current level of committed connected car business revenue grew over 10% to greater than $300 million. Within the pay TV business, video over broadband, or IPTV, continues to make steady progress, generating $60 million in revenue in 2023. This is helping to offset the secular decline from our core pay TV solutions, which continue to decline at expected rates consistent with the broader market. For the full year of 2023, overall pay TV revenue was down less than 2%, supported by the strong growth in video over broadband.
This is helping to offset the secular decline from our core pay TV solutions, which continued to decline at expected rates consistent with the broader market.
For the full year of 2023 overall pay TV was down less than 2% supported by the strong growth in video over broadband.
Turning to consumer electronics, we signed several important multi year IMAX enhanced license agreements with major consumer electronics manufacturers, including <unk> and <unk>.
In addition, we executed a new Dts X Dakota agreement with a major U S retailer for their house brand of certain consumer electronics products. We also signed a major renewal with Masimo, a leading provider of audio equipment with brands such as Denon Miranda definitive technology in Polk audio.
With regard to perceive we continue our development efforts to deliver perceived technology to a big tech partner for future commercialization.
While also advancing our efforts on large language model compression.
Jon E. Kirchner: Turning to consumer electronics, we've signed several important multi-year IMAX-enhanced license agreements with major consumer electronics manufacturers, including High Sense and Xtreme. In addition, we executed a new DTSX-Dakota agreement with a major U.S. retailer for their house brand of certain consumer electronics products. We also signed a major renewal with Mossimo, a leading provider of audio equipment with brands such as Denon, Marantz, Definitive Technology, and Polk Audio.
Recognizing the magnitude of the opportunity with large language models and the need for continued continued investment we have initiated a process to explore strategic alternatives for proceed with the help of Centerview partners.
We've accomplished.
<unk> a lot over the past year, but we recognize that we have more work to do before Robert walks you through our financial outlook for 2024, I want to provide a few business metrics, we'll be using to gauge our progress this year.
Within media platform, we want a ctv's powered by Tivo and all five major European countries and in the U S market by year end in.
Jon E. Kirchner: With regard to Perceive, we continue our development efforts to deliver Perceive technology to a big tech partner for future commercialization, while also advancing our efforts on large language model compression. Recognizing the magnitude of the opportunity with large-language models and the need for continued investment, we have initiated a process to explore strategic alternatives for PERCEIVE with the help of Centerview Partners. We've accomplished a lot over the past year, but we recognize that we have more work to do. Before Robert walks you through our Financial Outlook for 2021, I want to provide a few business metrics we'll be using to gauge our progress this year. Within Media Platform, we want to see TVs powered by TiVo in all five major European countries and on the U.S. market by year-end. In addition, I'm pushing the team to sign at least one new TVOEM this year.
In addition, I am pushing the team to sign at least one new TV OEM. This year. Our goal is to exit 2024 was six TV Oems and an active tivo OS footprint of 2 million sets.
Within pay TV, our goal is to deliver more than 10, additional tivo broadband wins and exit 2024 with $2 4 million subscribers up from the $1 9 million today.
For connected car im challenging the business to deliver three additional auto stage wins with at least one including video and exit 2024 with an installed base of 7 million vehicles.
By delivering on these key growth initiatives, coupled with continued business transformation efforts, we expect improved profitability and cash flow in 2020 for.
Further it will be much better positioned to accelerate revenue growth and operating leverage in 2025 and beyond.
Jon E. Kirchner: Our goal is to exit 2024 with six TV OEMs and an active TiVo OS footprint of 2 million. Within Pay TV, our goal is to deliver more than 10 additional TiVo broadband wins and exit 2024 with 2.4 million subscribers, up from the 1.9 million today. For Connected Car, I'm challenging the business to deliver three additional autostage wins, with at least one including video.
With that I'll turn the call over to Robert to discuss our financials Robert.
Thanks, John.
Turning to cover two main areas. During this call first I'll go through the financial results for the quarter and the year include.
Including commentary on certain items within the results.
Second I'll provide financial guidance and commentary for fiscal 2024.
Beginning with the quarter's results, let me remind listeners that all comparisons in my comments are to the same quarter in the prior period.
Total revenue for the fourth quarter was $137 million.
<unk>, 1%.
Pay TV <unk>, our largest revenue category was down less than 1% during the quarter, we saw modest declines in our core pay TV business.
Jon E. Kirchner: And exit 2024 with an installed base of 7 million vehicles. By delivering on these key growth initiatives, coupled with continued business transformation, we expect improved profitability and cash flow in 2024. Further, we'll be much better positioned to accelerate revenue growth and operating leverage in 2025 and beyond. With that, I'll turn the call over to Robert to discuss our financials.
Partially offset by strong growth in our video over broadband IP television solutions.
Consumer electronics was up 16% Pri.
Primarily due to growth in mobile solutions and a modest revenue contribution from <unk>.
Connected car was up 17%, primarily due to revenue recognized in connection with an auto development.
And milestone.
Media platform is down 34% due to a decline in revenue relating to a prior year minimum guarantee contract for our smart TV middleware solutions as well as year over year declines in monetization from the writers and actors strikes that push fall premieres into 2024.
Robert J. Andersen: Thanks, Jon. I plan to cover two main areas during this call. First, I'll go through the financial results for the quarter and the year, including commentary on certain items. Second, I'll provide financial guidance and commentary for fiscal 2024. Beginning with the quarter's results, let me remind listeners that all comparisons in my comments are to the same quarter in the previous year. Total revenue for the fourth quarter was $137 million, up one percent.
For the full year 2023 revenue growth rates were in line with guidance previously provided with media platform growing the fastest connected car growing low to mid teens consumer electronics clothing low single digits.
And pay TV modestly declining.
Given the importance of our Tivo video of our broadband offering as a growth factor for experience, we're providing more detail within the pay TV business for this annual view.
Video over broadband grew by 38% over the past year to $60 million. This strong growth occurred in the prior year as well as video of our broadband business more than doubled between 2021, and 2000 $22 million to $44 million.
Robert J. Andersen: KTV, our largest revenue category. During the quarter, we saw modest declines in our core pay TV business. Partially offset by strong growth in our video over broadband IPTV, primarily due to growth in mobile solutions and a modest revenue contribution. Connected Car was up 17%, primarily due to revenue recognized in connection with an AutoSense development milestone. Media Platform is down 34% due to a decline in revenue relating to a prior year minimum guarantee contract for our Smart TV middleware solution, as well as year-over-year declines in monetization from the writers' and actors' strikes, to push fall premieres into 2020. For the full year 2023, revenue growth rates were in line with guidance previously provided, with Media Platform Growing the Fast. Connected Car Growing Low to Mid-Teen, Consumer Electronics glowing in low single digits
Core pay TV products, including classic guides discovery and consumer hardware and subscriptions finished the year at $185 million a.
The decline of 10%, which is in line with industry trends.
Our non-GAAP gross margin for the quarter was $105 million or 77% an increase of approximately 350 basis points from last year.
This improvement is due to a mix shift within consumer electronics toward higher margin products.
non-GAAP adjusted operating expense for the quarter was $98 million down 6% from the prior year, primarily due to cost optimization efforts.
Our adjusted EBITDA was $13 million, resulting in an adjusted EBITDA margin of 10%.
After accounting for tax and interest expense, our non-GAAP earnings per share was <unk> 11.
non-GAAP tax in the quarter was $2 million, which was lower than planned due to the one time release of evaluation allowance and one of the company's foreign subsidiaries for.
Robert J. Andersen: Pay TV modestly to: Given the importance of our TiVo video over broadband offering as a growth vector for Xperi, we're providing more detail within the pay TV business for this annual view. Video over broadband grew by 38% over the past year to 60 million. This strong growth occurred in the prior year as well, as video over broadband business more than doubled between 2021 and 2022 to 44 million. Core Pay TV products, including Classic Guides, Discovery, and Consumer Hardware and Subscriptions, finished the year at $185 million, a decline of 10 percent, which is in line with industry standards. Our non-GAAP gross margin for the quarter was $105 million, or 77%, an increase of approximately 350 basis points. This improvement is due to a mix shift within consumer electronics toward higher-margin products. Non-GAAP adjusted operating expense for the quarter was $98 million, down 6% from the prior year, primarily due to cost optimization.
For the full year, adjusted EBITDA was $35 million or 7% of revenue and non-GAAP EPS was one.
The company ended the quarter with $154 million of cash and cash equivalents, including $12 million in cash classified as assets held for sale.
Related to the auto sense, an imaging business sale to Tobey.
It is important to highlight that our sale agreement with Toby did not include the cash held within the legal entities being sold.
Following the closing of the transaction at the end of January the cash balance within the sold legal entities was returned to Experian mid February.
As John mentioned earlier, our cash flow from operations in the quarter was $21 million due.
Due to strong management of working capital, resulting in breakeven operating cash flow for the full year.
Before we go through the outlook for 2024, I would like to take a moment and provide a pro form of revenue view of 2023 that.
That accounts for the auto sensor relating imaging business divestiture.
In the accompanying presentation the top table shows our revenue by end market as reported.
Robert J. Andersen: Our adjusted EBITDA was $13 million, resulting in an adjusted EBITDA margin of 10%. After accounting for tax and interest, our non-GAAP earnings per share was $11,000. Non-GAAP tax in the quarter was $2 million, which was lower than planned due to the one-time release of a valuation allowance in one of the company's foreign subsidiaries.
Bottom table shows pro forma numbers that remove the auto sense and imaging revenue of approximately $29 million.
<unk>, reducing the consumer electronics category by $20 million and the connected car category by $9 million.
These adjustments create a baseline for 2023 revenue of $492 million, which we will use for relative comparison purposes as we post revenue numbers during 2024.
Robert J. Andersen: For the full year, adjusted EBITDA was $35 million, or 7% of revenue, and non-GAAP EPS was $1 million. The company entered the quarter with $154 million of cash and cash equivalents, including $12 million in cash classified as assets held for sale related to the AutoSense and imaging business sale to Tobin. It is important to highlight that our sale agreement with Tobii did not include the cash held within the legal...
Moving now to our outlook for the year, we are providing the following guidance ranges and commentary.
We expect full year revenue to be in the range of $500 million to $530 million.
At the midpoint this represents approximately 4% growth over our normalized 2023.
Because we expect the monetization of Tivo OS footprint to ramp in the second half of 2020 for Q.
Q1, and Q2 of this year are expected to be relatively flat to 2023 with.
Robert J. Andersen: Thus, following the closing of the transaction at the end of January, the asset was returned to Xperi in mid-2010. As Jon mentioned earlier, our cash flow from operations in the quarter was $21 million due to strong management of working capital, resulting in a break-even operating cash flow for the full year. Before we go through the outlook for 2024, I would like to take a moment and provide a pro-form revenue view of 2023 that accounts for the Autospin Relating Imaging Business Diversion. In the accompanying presentation, the top table shows our revenue by end market as reported. The bottom table shows pro forma numbers that remove the AutoSense and imaging revenue of approximately $29 million, specifically reducing the consumer electronics category by $20 million and the Connected Car category by nine.
With modest growth in Q3 and accelerating growth in Q4.
Within the markets. We serve we expect continued growth in media platform video of our broadband and connected car.
Growth is partially offset by expected declines in core pay TV products.
And consumer electronics in 2020 for CE is expected to be negatively impacted by the timing of certain multi year minimum guarantee renewals in prior years for which we were required to recognize the revenue upfront under ASC 606, but for which we generally collect cash over time.
Hi.
Let me note that we signed minimum guarantee arrangements each year, which create longer term commitments from our customers.
Across our business contracts categorized by point in time revenue recognition, which include minimum parent guarantee contracts represent approximately 15% to 20% of total revenue each year.
We expect non-GAAP adjusted EBITDA margin to be in the range of 12% to 14%, yielding approximately $67 million of adjusted EBITDA at the midpoint.
Robert J. Andersen: These adjustments create a baseline for 2023 revenue of $492 million, which we will use for relative comparison purposes as we post revenue numbers during 2020. Moving now to our outlook for the year, we are providing the following guidance, ranges, and comments. We expect full-year revenue to be in the range of $500 to $530 million.
The expected increase in adjusted EBITDA yield.
Compared to 2023 is due to expanded gross margin from profitable revenue growth and cost reductions associated with our ongoing transformation initiatives.
Let me provide a few other comments beyond these two main categories. We expect non-GAAP gross margins to be in the range of 75% to 77% depending on revenue mix largely consistent with last year.
We expect non-GAAP operating expense to decline in 2024 relative to 2023 with Q1 expense being somewhat higher than the other three quarters due in part to the timing of the auto since transaction.
Robert J. Andersen: At the midpoint, this represents approximately 4% growth over a normalized 2020. Because we expect the monetization of the TiVo OS footprint to ramp in the second half of 2024, Q1 and Q2 of this year are expected to be relatively flat. Modest growth in Q3, and accelerating growth in Q4. Within the markets we serve, we expect continued growth in media platforms, video over broadband, and connected cars. This growth is partially offset by expected declines in core pay-to-play products and Consumer Electronics.
We expect operating cash flow for the year to be in the range of $20 million to $30 million with Q1 being a usage of cash in the remaining quarters being a source of cash.
We expect non-GAAP tax for the year to be approximately $20 million and we expect this expense category to be relatively linear for the year.
Capital expense is expected to be approximately $20 million for the year.
Going forward the company is conforming to the Treasury stock method for calculating share dilution.
As a result, both GAAP and non-GAAP basic share count is.
Robert J. Andersen: In 2024, CE is expected to be negatively impacted by the timing of certain multi-year minimum guarantee renewals in prior years, for which we were required to recognize the revenue up front under ASC-606, but for which we generally collect cash over time. Let me note that we sign minimum guarantee arrangements each year, which create longer-term commitments from our customers. Across our business, contracts categorized by point-in-time revenue record, which include minimum parent guarantee contracts, represent approximately 15-20% of total revenue each year. We expect the non-gap adjusted EBITDA margin to be in the range of 12 to 14, yielding approximately $67 million of adjusted EBITDA at the mid-period.
In 2024 is expected to average 46 million shares for the year.
And fully diluted share count is expected to average approximately $48 million for the year.
Before we open the call for questions I'd like to hand, it back to John for a few additional comments John.
Thanks Robert.
We've covered a lot of material today than I thought it would be helpful. If I have summarized how I'll be measuring our success as we move through 2024.
At a high level of my expectations for expiry are to continue the business transformation initiatives, we began several years ago to streamline and optimize the organization, which.
Which will be measured by the significantly improved profitability and positive cash flow outlined in our 24 outlook on a strategic.
<unk> level as we drive the business units to deliver the specific key growth milestones outlined earlier in the call. We expect that to set us up for accelerated revenue growth and increased operating leverage in 2025 and beyond.
Robert J. Andersen: The Estimated Increase in Adjusted EBITDA Yield, The reason for the delay compared to 2023 is due to expanded gross margin from profitable revenue on cost reductions associated with their ongoing transformation. Let me provide a few other comments beyond these two main categories. We expect non-GAAP gross margins to be in the range of 75 to 77%, depending on revenue, largely consistent with last year. We expect non-GAAP operating expense to decline in 2024 relative to, Q1 expense being somewhat higher than the other three quarters due in part to the timing of the Autosense transaction. We expect operating cash flow for the year to be in the range of $20 to $30 million, with the key one being a usage of cash and the remaining quarters being a source of income. We expect non-GAAP tax for the year to be approximately $20 million.
Lastly, as you May know a shareholder of the company has nominated directors to serve on our board given that we're here to discuss the quarter and our outlook for the business, we will not be taking questions on this call regarding the nominations or the annual meeting.
With that I'll turn the call over to the operator for questions operator.
At this time, if you would like to ask a question. Please press star followed by the number one on your thoughts on keypad, both boss just for a moment to compile the Q&A roster.
Your first question comes from the line of Jason <unk> from Craig Collins. Please go ahead.
Great. Thank you guys John.
John just maybe if you can start out.
Can you level set or maybe reset.
Robert J. Andersen: And we expect this expense category to be relatively linear. Capital expense is expected to be approximately $20 million. Going forward, the company is conforming to the treasury stock method for calculating shares. As a result, both the GAAP and non-GAAP basic share count for 2024 is expected to average 46 million shares for the year. The fully diluted share count is expected to average approximately 48%.
What the process looks like on the Tivo broadband side like so youre starting to strike. These partnerships with broadband providers, what does that look like for the consumer is there an opt in process or is there an opt out process and what do you expect the timeline look like for monetization there.
Well I think what youre going to see is youre going to see our subscriber ship grow by virtue of.
Our effort to give our partners.
Robert J. Andersen: Before we open the call for questions, I'd like to hand it back to Jon for a few additional, [inaudible] Thanks, Robert. We've covered a lot of material today, and I thought it would be helpful if I summarized how I'll be measuring our success as we move through 2020. At a high level, my expectations for Xperi are to continue the business transformation initiatives we began several years ago to streamline and optimize the organization, which will be measured by the significantly improved profitability and positive cash flow outlined in our 24 algorithms. At a strategic level, as we drive the business units to deliver the specific key growth milestones outlined earlier in the call, we expect that to set us up for accelerated revenue growth and increased operating leverage in 2025 and beyond. Lastly, as you may know, a shareholder of the company has nominated directors to serve on our board. Given that we're here to discuss the quarter and our outlook for the business, we will not be taking questions on this call regarding the nominations or the annual. With that, I'll turn the call over to the operator for questions. Operator.
A service offering that can attract and retain broadband based customers with video related offerings. So.
This is an extension on what we've been doing more broadly and IP TV.
And we're pleased to have the the recent announcements, but I think we'll continue to build momentum as theres quite a bit of interest, but I think it broadly fits under the heading of our continued growth within IP television and that we have a.
I think a strong a strong offering for for our partners in that space.
And then maybe on the.
On the TV hardware side of things you've been in market for several months now in Europe I'm. Just curious can you give us an update on what youre seeing or any specific.
Tumor trends or feedback or how things are progressing there.
I think the feedback has been good I think thats part of the reason.
We are seeing not only additional.
Partners within the program, but I think people aggressively moving to to prepare their sets for distribution in the market. So.
We know both distribution and production is ramping up I think this is broadly consistent with what we kind of expected kind of towards the end of last year coming into this year. So I think it's I think we'll have a lot more to say on the topic as we work our way through this year, but as we sit here now.
Operator: At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad. We'll pause just for a moment to compile the Q&A roster. Your first question comes from the line of Jason Kreyer from Craig Hollum. Please go ahead.
I think I think the team continues to do an outstanding job of executing and the feedback has been good.
Okay, and then lastly for me just on perceived.
Jason Michael Kreyer: Great. Thank you, guys. Um, Jon, just maybe if you could start out, you know, can you level set or maybe reset, you know, what the process looks like on the TiVo broadband side?
Can you give us an update on how we should think about how that fits into operating expenses today, because I think that's moved around a little bit from where we were a year ago and so just with that going under a strategic review it does that change any anything from last year on what that contributes to expenses.
Jon E. Kirchner: Like, you're starting to strike these partnerships with broadband providers. What does that look like for the consumer? Is there an opt-in process? Or is there an opt-out process?
Sure. This is Robert I can take that one.
Jon E. Kirchner: And what does the timeline to look like for monetization there? Well, I think what you're going to see is that you're going to see our subscribership grow by virtue of our effort to give our partners, you know, a service offering that can attract and retain broadband-based customers with video-related offerings. So, you know, this is an extension of what we've been doing more broadly in IPTV. And we're pleased to have the recent announcements, and I think we'll continue to build momentum as there's quite a bit of interest. But I think it broadly fits under the heading of our continued growth within IPTV and that we have a, you know, I think a strong offering for our partners in that space. And then maybe on the TV hardware side of things, you've been in the market for several months now in Europe.
Perceive we have several things that have occurred here one we've started to recognize revenue under perceive bid.
Beginning in the second half of last year and that will continue through this year.
We have moderated our spend within perceive to some extent.
And then as we think about fiscal year 'twenty four.
We are we have announced that we are in a strategic process for perceive. So I think you can expect that we would.
B looking to conclude that.
During during the middle of this year.
Great. Thank you Darryl I think another way of putting it Jason is not likely.
To have a material impact on our expense load.
Think about it in terms of on a net basis in.
In terms of low single digit millions, yes, I think thats correct low single digits.
Jon E. Kirchner: I'm just curious, can you give us an update on what you're seeing or any specific consumer trends or feedback or how things are progressing there? I think the feedback has been good. I think that's part of the reason why we're seeing, not only additional partners within the program, but I think people are aggressively moving to prepare their sets for distribution in the market. So, you know, both distribution and production are ramping up. I think this is broadly consistent with what we kind of expected, you know, kind of towards the end of last year going into this year. So, you know, I think we'll have a lot more to say on the topic as we work our way through this year.
Okay got it thank you.
Your next question comes from the line of handmade Carson from Dws financial. Please go ahead.
Okay. So first off I wanted to ask you about the goal you had set out for you John.
John.
Related to TB, why one is it becoming incrementally harder to secure third TVO ashwin.
No well.
There is a universe right of people, who don't make there or don't.
Develop.
And license their own proprietary systems.
And so within that universe, there are certainly.
Larger and smaller players I think we obviously are engaged with a number of parties, but but I think we have our eyes on I think a a subset that.
Jon E. Kirchner: But as we sit here now, I think the team continues to do an outstanding job executing, and the feedback has been good. Okay, and then lastly, for me, just on Perceive, can you give us an update on how we should think about how that fits into operating expenses today? Because I think that's moved around a little bit from where we were a year ago. And so just with that going under a strategic review, does that change anything from last year and how that contributes to expenses? For Perceive, we have several things that have happened here. One, we've started to recognize revenue under Perceive, beginning in the second half of last year, and that will continue through this year. We have moderated our expend within Perceive to some extent.
I think we had said a couple of years ago as we got to somewhere between five and seven we felt very good that we could.
We could achieve our objective of at least 7 million units or more in terms of installed base and so I think we're very focused on achieving.
Those core milestones I think there's clearly upside there and I think we'll continue to engage with partners so that number.
Picks up over time, but as we sit here today, we've got some very specific plans to ensure we can deliver on the very milestones we set out previously in getting that at last.
Jon E. Kirchner: And then as we think about fiscal year 24, you know, we have announced that we are in a strategic process for PERCEIVE, so things can expect we would be looking to conclude that during the middle of the discussion. I think another way of putting it, Jason, is not likely to have a material impact on our expense load. Think about it in terms of on a net basis, in terms of low single-digit millions. Yeah, I think that's correct. Okay, got it, thank you. Your next question comes from the line of Hamed Khorsand from BWS Financial. Please go ahead. Hi, so first off, I want to ask you about the goal you had set out for his team, Jon, related to TV. Why one? Is it becoming incrementally harder to secure the tvOS wins? No.
Next one is part of that.
Okay and then on the.
Broadband.
Gulf of broadband product does that how does that change the scale of your.
Yes.
Revenue does that improvement at all to offset pay TV.
Anyway. This year or this is more of a 25 of them.
No I think I think it all contributes to growth within the broader video over broadband slash IP TV category.
I think the other thing that's important to recognize is there's a fair amount of fixed infrastructure.
Jon E. Kirchner: Well, I think there's a universe, right, of people who don't make their own or don't develop and license their own proprietary systems. And so, you know, within that universe, there are certainly larger and smaller players. I think we obviously are engaged with a number of parties, but I think we have our eyes on, you know, I think a subset that I think we said a couple of years ago, as we got to somewhere between five and seven, we felt very good that we could achieve our objective of at least 7 million units or more in terms of installed base. And so, you know, I think we're very focused on achieving those core milestones. I think there's clearly an upside here.
Associated with running the services and so as you as you see.
More incremental volume come into into the network you can deliver that it ever would ever better.
Incremental margin and so we've spent a lot of time working to build the back end to be able to be properly scale, where we see that real operating leverage and I think this program as we add more subscribers simply contribute to that.
Jon E. Kirchner: And, you know, I think we'll continue to, you know, engage with partners so that that number ticks up over time. But as we sit here today, we've got some very specific plans to ensure we can deliver on the very milestones we set out previously, and getting that next one is part of it. Okay. And then on the broadband, Motego for broadband product, how does that change the scale of your TV revenue? Does that improve it at all to offset pay TV at all this year, or is this more of a 25 event?
And.
And will that will continue to bear out as we move our way towards our broader goals of at least $2 9 million subscribers.
Within the platform.
Okay and then the last question I had was.
Regarding your TV monetization.
Why did the strike.
No impact in Q4 and not the rest of the year.
As far as revenue is concerned.
Yes.
I would say not.
I don't know that it would be fair to characterize it it didn't have an impact prior there too but certainly.
They're oftentimes are.
Jon E. Kirchner: No, I think it all contributes to growth within the broader, you know, video over broadband slash IPTV category. I think the other thing that's important to recognize is that, you know, there's a fair amount of fixed infrastructure associated with running these services. And so, you know, as you see more incremental volume, you know, come into the network, you can deliver that at ever better incremental margin. And so, you know, we've spent a lot of time, you know, working to build the back end to be able to be properly scaled where we see that real operating leverage. And I think this program, as we add more subscribers, will simply contribute to that, and, you know, it will continue to bear out as we move our way towards our broader goals of at least 2.9. Okay, and then the last question I had was regarding your TV monetization: why did the strike have an impact in Q4 and not the rest of the year as far as revenue is concerned?
From a seasonality perspective, there are things that tend to happen in Q4 and entertainment that.
Obviously, the market was softer as if people were <unk>.
Shifting certain things into 224, and I think the good news is the entertainment market is showing.
<unk> a recovery I think the broader market is still a bit soft as one thinks about the scatter the broader scatter market, but we think that too will improve over over time.
Okay. Thank you.
Okay.
As we have no further questions in our queue. At this time I will now turn the call over to Jon Kirchner for brief closing remarks.
Thanks, operator, and thanks, everyone for joining today's call.
We're excited about our continued strategic momentum and solid operating performance I'd like to thank our employees customers and partners for helping US continue to achieve our objectives. We look forward to reviewing our Q1 results with you in May operator. This concludes today's call.
Jon E. Kirchner: I would say, I'm not saying, I don't know that it would be fair to characterize that it didn't have an impact prior there, too, but certainly, from a seasonality perspective, there are things that tend to happen in Q4 in entertainment that, you know, obviously, the market was softer as if people were shifting certain things into 24, and I think the good news is the entertainment market is showing signs of recovery.
This concludes today's conference call. Thank you for your participation and you may now disconnect have a nice day excellent.
Please wait the conference will begin shortly.
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Jon E. Kirchner: I think the broader market is still a bit soft, as one thinks about, you know, the scatter market, but, you know, we think that, too, will improve over time. Okay, thank you. Thank you. Bye. As we have no further questions in our queue at this time, I will now turn the call over to Jon Kirchner for brief closing remarks. Thanks, operator. And thanks, everyone, for joining today's call. We're excited about our continued strategic momentum and solid operating performance. I'd like to thank our employees, customers, and partners for helping us continue to achieve our objective. We look forward to reviewing our Q1 results with you in... Operator, this concludes today's conference call. Thank you for your participation, and you may now disconnect. Have a nice day, everyone. Please wait; the conference will begin shortly.
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