Q2 2024 Xperi Inc Earnings Call
Operator: Thank you for standing by. My name is Mandeep, and I'll be your operator today. At this time, I'd like to welcome everyone to the Xperi Q2 2024 earnings call. All lines are being placed on mute to prevent any background noise.
Mandeep: Thank you for standing by. My name is Mandeep and I'll be your operator today. At this time, I'd like to welcome everyone to the Xperi Q2 2024 earnings call.
Speaker Change: All lines being placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Mike Iburg.
Operator: After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mike Iburg, head of investor relations. You may begin.
Mike Iburg: Head of Investor Relations. You may begin.
Mike Iburg: Good afternoon, and thank you for joining us as Xperi reports its second quarter 2024 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.
Mike Iburg: Thank you.
Mike Iburg: Good afternoon and thank you for joining us as Xperi reports its second quarter 2024 financial results.
Speaker Change: 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.
Mike Iburg: First, I would like to note that, unless otherwise stated, all quarterly comparisons are to the same quarter in the prior year. Second, today's discussions contain forward-looking statements that are predictions, projections, or other statements about future events, which are based on management's current expectations and beliefs, and therefore subject to risks, uncertainties, and changes in circumstances. 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 in our SEC filings, including our most recent Form 10-K and Form 10-Q.
Speaker Change: Before we begin, I'd like to provide a few reminders. First, I would like to note that unless otherwise stated, all quarterly comparisons are to the same quarter in the prior year.
Mike Iburg: 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. Lastly, a replay of this conference call will be available on our website shortly after the conclusion of this call. I would now like to turn the call over to Xperi CEO, Jon Kirchner.
Speaker Change: Second, today's discussion contains forward-looking statements that are predictions, projections, or other statements about future events.
Speaker Change: which are based on management's current expectations and beliefs, and therefore subject to risks, uncertainties, and changes in circumstances.
Speaker Change: 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 in our SSE filings, including our most recent Form 10-K and 10-Q.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Lastly, a replay of this conference call will be available on our website shortly after the conclusion of this call. I would now like to turn the call over to Xperi CEO , Jon Kirchner.
Jon Kirchner: Thank you, Mike, and thank you, everyone, for joining us on our second quarter 2024 earnings call. Since our separation from Adia, we've focused our efforts on a multi-year business transformation designed to drive revenue growth and margin expansion. Many of the steps we've taken and decisions we've made are now coming to fruition and yielding the positive results we expected. For example, we've streamlined the product portfolio with the divestiture of AutoSense, providing greater alignment with our key growth markets and allowing us to benefit from the associated cost reductions.
Jon Kirchner: Thank you, Mike, and thank you, everyone, for joining us on our second quarter 2024 earnings call.
Jon Kirchner: Since our separation from Adia, we've focused our efforts on a multi-year business transformation designed to drive revenue growth and margin expansion. Many of the steps we've taken and decisions we've made are now coming to fruition and yielding the positive results we expected.
Jon Kirchner: We've streamlined the product portfolio with the divestiture of auto sets, providing greater alignment with our key growth markets and allowing us to benefit from the associated cost reductions.
Jon Kirchner: We've taken steps to remove organizational complexity, improve our systems, and simplify our processes, which has also contributed to improved profits. These transformational actions have been accomplished while making targeted investments to support our strategic initiatives and achieving major milestones in key growth areas. Today, these initiatives better position the company for long-term success. In conjunction with this transformation effort and in preparation for our next cycle of growth, we've expanded our Board of Directors with the addition of Jeremy Gorman and Rod Randall, two highly qualified candidates who have hit the ground running, adding value with their insights and expertise in ad tech, monetization, automotive, and capital allocation.
Jon Kirchner: We've taken steps to remove organizational complexity, improve our systems, and simplify our processes, which has also contributed to improved profitability.
Jon Kirchner: These transformational actions have been accomplished while making targeted investments to support our strategic initiatives and achieving major milestones in key growth areas.
Jon Kirchner: Today, these initiatives better position the company for long-term success.
Jon Kirchner: In conjunction with this transformation effort and in preparation for our next cycle of growth,
Jon Kirchner: We've expanded our board of directors with the addition of Jeremy Corman and Rod Randall, two highly qualified candidates who have hit the ground running, adding value with their insights and expertise in ad tech, monetization, automotive, and capital allocation.
Jon Kirchner: I'll let Robert walk you through the financial details in just a moment, but let me first touch on a few highlights. Strong performance in connected car and IPTV was a highlight in the quarter. These were offset by the expected decline in consumer electronics due to the large number of multiyear deals closed last year and media platform softness due to a unique initial ad buy last year. The net result was Q2 revenue of approximately $120 million, up 1% sequentially and down 2% from the year-ago quarter when adjusting for the AutoSense divestiture, consistent with the commentary provided on our last call. Non-GAAP-adjusted operating expense declined $15 million, or 15% from the prior year, due mainly to the recent divestiture and also from our ongoing cost optimization efforts.
Jon Kirchner: I'll let Robert walk you through the financial details in just a moment, but let me first touch on a few highlights.
Robert Andersen: Strong performance in Connected Car and IPTV were the highlights in the quarter. These were offset by the expected decline in consumer electronics due to the large number of multi-year deals closed last year, and media platform softness due to a unique initial ad buy last year.
Robert Andersen: The net result was Q2 revenue of approximately $120 million, up 1% sequentially, and down 2% from the year ago quarter when adjusting for the AutoSense divestiture, consistent with the commentary provided on our last call.
Speaker Change: Non-gap adjusted operating expense declined $15 million or 15% from the prior year, due mainly to the recent divestiture and also from our ongoing cost optimization efforts.
Jon Kirchner: Adjusted EBITDA was $15 million, or 12% of revenue, nearly tripling both sequentially and from the prior year quarter. We remain focused on three key growth opportunities where we see strong potential and differentiation. These are Connected TV Advertising, where we offer our TiVo media platform to power smart TVs and other broadband devices and monetize their usage; 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 provide subscribers access to our industry-leading content-first streaming platform for broadband-only and IPTV linear Each of these markets is expected to roughly double over the next five to seven years.
Speaker Change: Adjusted EBITDA was $15 million, or 12% of revenue, nearly tripling, both sequentially and from the prior year quarter.
Speaker Change: We remain focused on three key growth opportunities where we see strong potential and differentiation.
Speaker Change: These are Connected TV Advertising where we offer our TiVo media platform to power smart TVs and other broadband devices and monetize their usage.
Speaker Change: In-cabin entertainment where DTS Autostage combines broadcast radio, internet metadata, and video to enhance the automotive experience and drive long-term monetization.
Speaker Change: and TiVo Video over Broadband where we provide subscribers access to our industry-leading content-first streaming platform for broadband-only and IPTV linear households.
Speaker Change: Each of these markets is expected to roughly double over the next five to seven years. We continue to strengthen our position in each market and believe we're increasingly well positioned to grow our revenue as these markets expand.
Jon Kirchner: We continue to strengthen our position in each market and believe we're increasingly well-positioned to grow our revenue as these markets expand. Consistent with past communications, our goal is to have 20 million monetizable endpoints by the end of 2025, consisting of approximately 10 million devices in the home and 10 million in cars. Breaking this down, we expect an active footprint of 7 million devices, comprised of connected TVs and other broadband devices, including our video over broadband solutions, where ARPU comes from the viewing of ad-supported content and usage of our TiVo media platform.
Jon Kirchner: Additionally, we expect approximately 3 million IPTV households utilizing our video over broadband solution, where we primarily earn subscription revenue on a per household basis. And lastly, we expect to have DTS AutoStage in 10 million cars, which we will monetize through license fees, upselling features, and advertising. We expect these 20 million monetizable endpoints to generate nearly $200 million of incremental revenue in 2026 relative to 2023. Let me walk you through some of our recent achievements that reflect our progress.
Speaker Change: Consistent with past communications, our goal is to have 20 million monetizable endpoints by the end of 2025, consisting of approximately 10 million devices in the home and 10 million in cars.
Speaker Change: Breaking this down, we expect an active footprint of 7 million devices comprised of connected TVs and other broadband devices, including our video over broadband solutions, where ARPU comes from the viewing of ad-supported content and usage of our TiVo media platform.
Speaker Change: Additionally, we expect approximately 3 million IPTV households utilizing our video over broadband solution where we primarily earn subscription revenue on a per household basis.
Speaker Change: And lastly, we expect to have DTS AutoStage in 10 million cars, which we will monetize through license fees, upselling features, and advertising.
Speaker Change: We expect these 20 million monetizable endpoints to generate nearly 200 million dollars of incremental revenue in 2026 relative to 2023.
Jon Kirchner: Within Media Platform, we hosted a very successful industry launch event in London at the end of May, showcasing the TiVo operating system as well as our recently announced TiVo One cross-screen ad platform. The launch included a number of key partners, including OEMs, retailers, content providers, and advertisers. A video summary of the event is available on our Investor Relations website. A week after we reported earnings in May, Panasonic announced that they were our sixth TiVo OS partner. We previously referred to Panasonic in our earnings materials as a Japanese global brand.
Speaker Change: Let me walk you through some of our recent achievements that reflect our progress. Within Media Platform we hosted a very successful industry launch event in London at the end of May, showcasing the TiVo operating system as well as our recently announced TiVo One cross-screen ad platform.
Speaker Change: The launch included a number of key partners including OEMs, retailers, content providers, and advertisers. A video summary of the event is available on our Investor Relations website.
Speaker Change: A week after we reported earnings in May, Panasonic announced they were our sixth TiVo OS partner. We previously referred to Panasonic in our earnings materials as a Japanese global brand.
Jon Kirchner: Panasonic Smart TVs powered by TiVo are now available in Europe. More recently, we signed our seventh Smart TV partner to integrate TiVo OS into their Smart TV lineup. This latest partner is a top-five supplier of Smart TVs into the U.S. market, with plans to launch TVs powered by TiVo in the U.S. next spring. Today, smart TVs powered by TiVo are available in 15 countries across Europe, including the largest economies under 17 different brands. Arteva OS production volumes are increasing, with daily activations accelerating.
Speaker Change: Panasonic Smart TVs, powered by TiVo, are now available in Europe .
Speaker Change: More recently, we signed our seventh smart TV partner to integrate TiVo OS into their smart TV lineup. This latest partner is a top five supplier of smart TVs into the US market with plans to launch TVs powered by TiVo in the US next spring.
Speaker Change: Today, smart TVs powered by TiVo are available in 15 countries across Europe , including the largest economies under 17 different brands.
Speaker Change: Our TiVo OS production volumes are increasing with daily activations accelerating. At this stage of the rollout, our primary focus is to ensure maximum customer satisfaction and user engagement with these smart TVs powered by TiVo.
Jon Kirchner: At this stage of the rollout, our primary focus is to ensure maximum customer satisfaction and user engagement with these smart TVs powered by TiVo. Importantly, we're receiving data from activated units, allowing us to study consumer engagement and viewership behaviors, and validate our ability to monetize ad-supported content. These initial steps will allow us to maximize platform value over time. Overall, we're encouraged by our progress and remain on track to achieve our year-end target of 2 million active connected devices. Within Connected Car, we saw continued positive momentum during the quarter.
Speaker Change: Importantly, we're receiving data from activated units, allowing us to study consumer engagement and viewership behaviors, and validate our ability to monetize ad-supported content. These initial steps will allow us to maximize platform value over time.
Speaker Change: Overall, we're encouraged by our progress and remain on track to achieve our year-end target of 2 million active connected devices.
Jon Kirchner: We were awarded a multi-year program with a major Asia-based Tier 1 automotive supplier to integrate our DTS Aversive Audio Codec into their entertainment platform for planned deployment in millions of vehicles over the next several years. We continue to make progress in furthering HD radio penetration in the North American market as automotive OEMs including Ford, General Motors, Audi, Volvo, Acura, Mazda, and Lotus incorporate HD radio into additional models. Auto Stage is now deployed in more than 7 million vehicles worldwide, an increase of over a million cars in the last three months, and we expect this footprint to grow as automotive OEMs begin production of the 2025 models later this fall. The market for in-cabin entertainment is growing rapidly.
Speaker Change: Within Connected Car, we saw continued positive momentum during the quarter.
Speaker Change: We were awarded a multi-year program with a major Asia-based Tier 1 automotive supplier to integrate our DTS immersive audio codec into their entertainment platform for planned deployment into millions of vehicles over the next several years.
Speaker Change: We continue to make progress in furthering HD radio penetration in the North American market as automotive OEMs, including Ford, General Motors, Audi, Volvo, Acura, Mazda, and Lotus incorporate HD radio into additional models.
Speaker Change: Autostage is now deployed in more than 7 million vehicles worldwide, an increase of over a million cars in the last three months, and we expect this footprint to grow as automotive OEMs begin production of the 2025 models later this fall.
Jon Kirchner: Our near-term approach to this market is to take the steps necessary to expand our footprint and enhance end-user customer satisfaction and engagement, which we believe will strategically position us to maximize the long-term revenue potential. Within Pay TV, video over broadband, or the IPTV solution, continues to make steady progress, surpassing 2.25 million subscriber households in the quarter and rapidly closing in on our year-end target of 2.4 million subscribers. This is helping to offset the secular decline in some of our core Pay TV solutions.
Speaker Change: The market for in-cabin entertainment is growing rapidly. Our near-term approach to this market is to take the steps necessary to expand our footprint and enhance end-user customer satisfaction and engagement, which we believe will strategically position us to maximize the long-term revenue potential.
Jon Kirchner: Additionally, we expanded our relationship with three TiVo operators, Service Electric Cablevision, by not only renewing our IPTV agreements but also adding TiVo broadband. This brings the total number of TiVo broadband providers to 10 and significantly increases our available footprint of video over broadband active devices in both the U.S. and Canada. Lastly, within our legacy pay TV products, we sign classic guide renewals with Claro VTR and Liberty Latin America. These multi-year transactions are instrumental in ensuring the longevity of our legacy solutions.
Speaker Change: Within Pay TV, Video over Broadband, our IPTV solution, continues to make steady progress, surpassing 2.25 million subscriber households in the quarter, and rapidly closing in on our year-end target of 2.4 million subscribers.
Speaker Change: This is helping to offset the secular decline in some of our core pay TV solutions. Additionally, we expanded our relationship with three TiVo operators, Service Electric Cablevision, HTC and Eastlink,
Speaker Change: by not only renewing our IPTV agreements, but also adding TiVo broadband.
Speaker Change: This brings the total number of TiVo broadband providers to 10 and significantly increases our available footprint of video over broadband active devices in both the U.S. and Canada.
Speaker Change: Lastly, within our legacy pay TV products, we sign classic guides renewals with Claro VTR and Liberty Latin America. These multi-year transactions are instrumental in ensuring the longevity of our legacy solutions.
Jon Kirchner: Turning to Consumer Electronics, we signed multiple license agreements with HP to integrate our DTS-X decoder into the Commercial Division's laptops and PCs, in addition to expanding their commitment to our Headphone-X solution for HP's HyperX brand. We have also signed a license agreement with Tencent Music Entertainment to provide our DTS encoded content and post-processing technology to Tencent and QQ Music, and Play4Dream, a leading esports entertainment platform, has selected IMAX Enhanced with immersive sound from DTS for their virtual reality headset.
Speaker Change: Turning to Consumer Electronics, we signed multiple license agreements with HP to integrate our DTS-X decoder into the Commercial Division's laptops and PCs in addition to expanding their commitment to our Headphone-X solution for HP's HyperX brand.
Speaker Change: We also signed a license agreement with Tencent Music Entertainment to provide our DTS encoded content and post-processing technology to Tencent and QQ Music.
Speaker Change: And Play4Dream, a leading esports entertainment platform, has selected IMAX Enhanced with immersive sound from DTS for the virtual reality headset.
Jon Kirchner: With respect to Perceive, we remain in the process of evaluating strategic alternatives, and we expect this review to be complete by the end of summer. Meanwhile, Perceive has significantly reduced its cash burn and remains on track to deliver technology to a big tech partner for product commercialization. Against our year-end objectives within Media Platform, we are now in the five largest European countries and expect to be in the U.S. market later this year.
Speaker Change: With respect to Perceive, we remain in the process of evaluating strategic alternatives and we expect this review to be complete by the end of summer. Meanwhile, Perceive has significantly reduced its cash burn and remains on track to deliver technology to a big tech partner for product commercialization.
Speaker Change: Against our year-end objectives within Media Platform, we are now in the five largest European countries and expect to be in the U.S. market later this year.
Jon Kirchner: We announced our 6th TiVo OS partner last quarter and announced our 7th today, and we believe we're on track to have approximately 2 million active devices by year end. Within Pay TV, we announced 6 additional TiVo broadband wins so far and are on track to add at least 10 this year. Our IPTV footprint currently stands at 2.25 million subscriber households, and we expect to exceed our year-end target of 2.4 million subscribers. For Connected Car, we remain in active conversations on specific opportunities and expect to deliver three additional AutoStage wins, with at least one including video, by year-end. AutoStage is now deployed in over 7 million cars, and we will continue to drive our pipeline as aggressively as possible to expand the AutoStage footprint.
Speaker Change: We announced our 6th TiVo OS partner last quarter and announced our 7th today, and we believe we're on track to have approximately 2 million active devices by year-end.
Speaker Change: Within Pay TV, we announced six additional TiVo broadband wins so far, and are on track to add at least ten this year. Our IPTV footprint currently stands at 2.25 million subscriber households. We expect to exceed our year-end target of 2.4 million subscribers.
Speaker Change: For Connected Car, we remain in active conversations on specific opportunities and expect to deliver three additional AutoStage wins, with at least one including video, by year end.
Speaker Change: Autostage is now deployed in over 7 million cars, and we will continue to drive our pipeline as aggressively as possible to expand the Autostage footprint.
Jon Kirchner: In summary, we expect our operational progress, coupled with ongoing business transformation efforts, will allow us to achieve our profitability objectives in 2024 and accelerate growth and profitability in the years ahead. With that, I'll turn the call over to Robert to discuss our financials.
Speaker Change: In summary, we expect our operational progress, coupled with ongoing business transformation efforts, will allow us to achieve our profitability objectives in 2024 and accelerate growth and profitability in the years ahead.
Robert Andersen: Thanks, Jon. Before I go through the quarter's results, let me remind listeners that, as usual, all comparisons in my comments are to the same quarter in the prior year. Total revenue for the second quarter was approximately $120 million, down 6% from last year's reported revenue and down 2% when adjusting for the AutoSense and related imaging solutions to Vetester that occurred earlier this year. With that in mind, and in order to compare apples to apples, let me compare this quarter's revenue by market against last year's results excluding the divestiture.
Speaker Change: Thanks, Jon. Before I go through the quarter's results, let me remind listeners that, as usual, all comparisons in my comments are to the same quarter in the prior year.
Speaker Change: Total revenue for the second quarter was approximately a hundred and twenty million dollars, down six percent from last year's reported revenue, and down two percent when adjusting for the AutoSense and related imaging solutions to Vetester that occurred earlier this year.
Speaker Change: With that in mind, and in order to compare apples to apples, let me compare this quarter's revenue by market against last year's results excluding the divestiture.
Robert Andersen: ATB, our largest revenue category, was up 5%, bringing first half pay TV revenue to essentially flat compared to the first half of last year. The Q2 increase was primarily driven by IPTV growth, which was up 45% year-over-year, along with classic guide revenues, and renewals from Claro VTR and Liberty Latin America, which Jon mentioned earlier. Given the importance of IPTV as a strategic growth initiative, we've included supplemental disclosure in the Appendix of the Earnings Presentation, which provides IPTV revenue within the pay TV category for the past six quarters. Going forward, we plan to provide this additional level of disclosure on a quarterly basis.
Speaker Change: ATV, our largest revenue category, was up 5%.
Speaker Change: bringing first-half pay TV revenue to essentially flat compared to the first half of last year.
Speaker Change: The Q2 increase was primarily driven by IPTV growth, which was up 45% year-over-year, along with classic guide revenues, renewals from Claro VTR and Liberty Latin America, which Jon mentioned earlier.
Speaker Change: Given the importance of IPTV as a strategic growth initiative, we've included a supplemental disclosure in the Appendix of the Earnings Presentation, which provides IPTV revenue within the pay TV category for the past six quarters.
Speaker Change: Going forward, we plan to provide this additional level of disclosure on a quarterly basis.
Robert Andersen: Consumer electronics was down 40 percent, primarily due to multi-year license renewals that occurred last year, along with lower royalty revenue in Q2 from market-based softness in certain end products. Connected Car was up 41%, primarily due to a significant multi-year program with an Asian-based, Tier 1 Automotive Supplier for our DTS in-cabin Kodak, where accounting rules required us to recognize all revenue up front. The media platform was down 25% year over year, primarily due to a decline in advertising revenue from a unique initial ad buy with the customer that occurred last year.
Speaker Change: Consumer electronics was down 40% primarily due to multi-year license renewals that occurred last year, along with lower royalty revenue in Q2 from market-based softness in certain end products.
Speaker Change: Connected Car was up 41%, primarily due to a significant multi-year program with an Asian-based
Speaker Change: Tier 1 automotive supplier for our DTS in-cabin Kodak, where accounting rules required us to recognize all revenue up front.
Speaker Change: Media platform was down 25% year-over-year, primarily due to a decline in advertising revenue from a unique initial ad buy with the customer that occurred last year.
Robert Andersen: Additionally, a portion of the advertising decline is associated with our legacy classic guide business due to the reduced footprint, as well as certain advertisers shifting spend to better align with programming that moves later in the year. While the trends within Media Platform are currently driven by the legacy pay TV ad products, we remain confident in the future growth of our Media Platform business as our TiVo OS and video over broadband footprint come online over the coming quarter.
Speaker Change: Additionally, a portion of the advertising decline is associated with our legacy classic guides business due to the reduced footprint as well as certain advertiser shifting spend to better align with programming that move to later in the year.
Speaker Change: While the trends within media platform are currently driven by the legacy pay TV ad products, we remain confident in the future growth of our media platform business as our TiVo OS and video over broadband footprint comes online over the coming quarters.
Robert Andersen: Similar to last year, we have included a first half revenue slide, which will help provide perspective on the various revenue comparisons. As I just mentioned, pay TV was essentially flat through the first six months, which is consistent with our expectations that the overall pay TV business would be flat to modestly lower as a growth in IPTV offsets most of the decline in legacy pay TV. Consumer Electronics was down 30% for the first half, broadly in line with our expectations for 2024, before we begin to see revenue growth return in 2025. Meanwhile, Connected Car continued to show strong growth of 33% in the first half, based on increased HD radio volumes and the significant multi-year deal in Asia mentioned earlier.
Speaker Change: Similar to last year, we have included a first half revenue slide, which will help provide perspective to the various revenue comparisons.
Speaker Change: As I just mentioned, pay TV is essentially flat through the first six months.
Speaker Change: which is consistent with our expectations that the overall pay TV business would be flat.
Speaker Change: to modestly lower as growth in IPTV offsets most of the decline in legacy pay TV.
Speaker Change: Consumer Electronics was down 30% for the first half, broadly in line with our expectations for 2024.
Speaker Change: before we begin to see revenue growth return in 2025.
Speaker Change: Meanwhile, Connected Car continued to show strong growth of 33% in the first half based on increased HD radio volumes and the significant multi-year deal in Asia mentioned earlier.
Robert Andersen: Media Platform was down 5% for the first half due to the items noted for Q2. As our TV footprint expands, we expect monetization from these connected devices to offset the decline in classic guide advertising, and the overall media platform business should begin to grow as early as Q4 of this year. Our non-GAAP gross margin for the quarter was $92 million, yielding a 76.5% margin, essentially flat on a percentage basis from the prior year.
Speaker Change: Media Platform was down 5% for the first half due to the items noted for Q2.
Speaker Change: As our TV footprint expands, we expect monetization from these connected devices to offset the decline in classic guides advertising, and the overall media platform business should begin to grow as early as Q4 of this year.
Speaker Change: Our non-GAAP gross margin for the quarter was $92 million, yielding a 76.5% margin, essentially flat on a percentage basis from the prior year.
Robert Andersen: Non-GAAP adjusted operating expense for the quarter was $83 million, down 15% from the prior year, largely due to the recent divestiture and also from cost optimization as a result of our ongoing business transformation effort. Non-GAAP tax for the quarter was $4 million. This was somewhat lower than our expectation due to the timing of certain elements within the tax estimate. Nonetheless, we still expect non-GAAP taxes for the year to be in the range of $20 million.
Speaker Change: non-GAAP adjusted operating expense for the quarter was $83 million, down 15% from the prior year, largely due to the recent divestiture, and also from cost optimization as a result of our ongoing business transformation efforts.
Speaker Change: non-GAAP tax in the quarter was $4 million.
Speaker Change: This was somewhat lower than our expectation due to the timing of certain elements within the tax estimate.
Speaker Change: Nonetheless, we still expect non-GAAP taxes for the year to be in the range of $20 million.
Robert Andersen: Our adjusted EBITDA was $15 million, resulting in an adjusted EBITDA margin of 12%. After accounting for tax and interest expense, our non-GAAP earnings per share was $0.12. Moving to the balance sheet, the company entered the quarter with $93 million of cash and cash equivalents. Operating cash flow, with a $2 million use of cash, primarily driven by changes in working capital and one-time items.
Speaker Change: Our adjusted EBITDA was $15 million, resulting in an adjusted EBITDA margin of 12%.
Speaker Change: After accounting for tax and interest expense, our non-GAAP earnings per share was $0.12.
Speaker Change: Moving to the balance sheet, the company entered the quarter with $93 million of cash and cash equivalents.
Speaker Change: Operating cash flow with a two million dollar use of cash primarily driven by changes in working capital and one-time items.
Operator: Moving to our outlet for 2024, we are making no changes to the guidance ranges previously provided. That concludes our prepared remarks. Let's now open the call for questions. Operator.
Speaker Change: Moving to our outlook for 2024, we are making no changes to the guidance ranges previously provided.
Speaker Change: That concludes our prepared remarks. Let's now open the call for questions. Operator?
Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad, raise your hand, and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Our first question comes from the line of Steve Frankel with Rosenblatt. Please go ahead.
Speaker Change: Thank you. We will now begin the question and answer session. If you dialed in and would like to ask a question, please press star 1 on your telephone keypad, raise your hand, and join the queue.
Speaker Change: If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue.
Speaker Change: Our first question comes from the line of Steve Frankel with Rosenblatt. Please go ahead.
Steven Frankel: Good afternoon. Thank you.
Jon Kirchner: John, maybe we can start with the AutoStage pipeline. I know you guys have laid out a goal and... kind of getting into the later part of the year. What's your confidence level in getting those deals in by the end of the year? And were there any deals that maybe you expected to get this quarter that got pushed into the back half?
Steve Frankel: Good afternoon and thank you.
Steve Frankel: Jon, maybe we can start with the auto stage pipeline. I think you guys have laid out a goal and we're kind of getting into the later part of the year. What's your confidence level in getting those deals in?
Speaker Change: By the end of the year and were there any deals that maybe you expected to get this quarter that got pushed into the back half of the year?
Jon Kirchner: Steve, no. No deals, I would say, unexpectedly pushing out.
Speaker Change: Steve, no. No deals, I would say, unexpectedly pushing out. I think we're working a pretty robust pipeline across the board.
Jon Kirchner: I think we're working on a pretty robust pipeline across the board for both auto stage audio as well as the video element. So I think we feel good about being able to hit our metrics for the year. And I think the bigger picture is that, you know, we're building quite a footprint that, through a combination of license fees and, we believe, ultimately, opportunities in terms of upselling features, as well as subscription fees, will set the stage downstream for really ad-based monetization in a much bigger way. So I think we feel very, very good about what's happening in the automotive space right now.
Speaker Change: for both auto stage audio as well as the video element. So I think we feel good about being able to hit our...
Speaker Change: you know, hit our metrics for the year.
Speaker Change: You know, we're building quite a footprint that, you know, through a combination of license fees and, you know, we believe ultimately opportunities in terms of upselling features, as well as subscription fees, will set the stage downstream for really ad-based monetization in a much bigger way. So I think we feel very, very good about what's happening in the automotive space right now.
Jon Kirchner: You mentioned a DTS codec win in the automotive space in Asia. What's the use case for that? Is that primarily video, or will there be music adoption that will drive the use of that codec on the music side?
Speaker Change: Okay, and you mentioned a DTS-CODEC win in the automotive space in Asia. What's the use case for that? Is that primarily video or will there be
Speaker Change: Music Adoption that will drive the use of that codec on the music side. Primarily video.
Jon Kirchner: Primarily videos.
Jon Kirchner: And then lastly, I know it's early days for TiVo OS, but maybe give us a couple of learnings from the early units in the market, kind of what do you think you've done right, where do you think you need to make improvements to drive modernization to where you want it to go? Sure. So I think first and foremost, I mean,
Speaker Change: Okay, and then lastly, I know it's early days on TiVo OS, but maybe give us a couple of learnings from the early.
Speaker Change: From the early units in market, what do you think you've done right? Where do you think you need to make improvements to drive monetization to where you want it to go?
Jon Kirchner: Sure, so I think, first and foremost, I mean, our primary focus is ensuring maximum customer satisfaction, you know, in terms of engagement and viewership, because those are the key ingredients that, you know, will ultimately drive monetization. And I think from a B2B perspective, working with our partners to ensure that the process behind the scenes of getting, you know, the end client software, you know, onto TVs and, you know, working with them aggressively through the QA process will ensure that our footprint will continue to, you know, roll out and accelerate, and ultimately, be activated.
Speaker Change: Sure, so I think first and foremost, I mean, our primary focus is ensuring maximum customer satisfaction, you know, in terms of engagement and viewership, because those are the key ingredients that, you know, in turn will ultimately drive monetization. And I think from a B2B perspective,
Speaker Change: Working with our partners to ensure that the process behind the scenes of getting, you know, the end client software, you know, onto TVs and, you know, working with them aggressively through the QA process, you know, will ensure that our footprint will continue to, you know, roll out and accelerate and ultimately
Jon Kirchner: So I think, you know, we continue to work with partners and adjust, as need be, to some of their needs. And, you know, obviously, we're not in control of the ultimate schedule or pace at times with respect to production, but I think our teams have done an outstanding job of working with our partners to support them so they can be in a position to get these TVs through the channel and out there.
Speaker Change: Yeah.
Speaker Change: be activated. So I think, you know, we continue to work with partners and adjust as need be to some of their needs and, you know, obviously we're not in control of the ultimate schedule or pace at times of, with respect to production, but I think our teams have done an outstanding job of working with our partners to support them so they can be in a position to get these done. Thank you. Thank you.
Jon Kirchner: And then obviously, we're not only learning with respect to, you know, how they're being activated and what people, of course, are viewing, but how to optimize that. And that optimization process will continue for, you know, for a long time. And it, you know, it becomes much more meaningful from a revenue perspective as you have a bigger footprint and you're really starting to drive more meaningful amounts of revenue. But I would say the team is closely learning and watching what's happening, but we feel very good about the accelerating activations as well as our ability to hit our year-end goal of 2 million active devices.
Speaker Change: TV's
Speaker Change: through the channel and out there. And then obviously we are not only learning with respect to how they're being activated and what people of course are viewing, but how to optimize that and that optimization process will continue for a long time. And it becomes much more meaningful from a revenue perspective as you have a bigger footprint and you're really starting to drive more meaningful amounts of revenue. But I would say the...
Speaker Change: The team is closely learning and watching what's happening, but we feel very good about the accelerating activations, as well as kind of our ability to hit our year-end goal of 2 million active devices.
Speaker Change: Great, thank you.
Hamed Khorsand: Our next question comes from a line from Hamed Khorsand with BF. BWS Financial. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Our next question comes from a line of Hamed Khorsand with BWS Financial. Please go ahead.
Jon Kirchner: Hi, could you just talk about what your pipeline is for consumer electronics and how your expectations for 2025 are for it to grow so that, you know, it's not present this year?
Hamed Korsand: Hi, could you just talk about what your pipeline is for consumer electronics and how your expectations for 2025 is to, for it to grow that, you know, it's not present this year?
Jon Kirchner: Well, I think from a bigger picture. There are a number of audio-related markets that are reasonably mature. And so you're kind of you're kind of you ebb and flow a bit with the industry. And we have pretty wide penetration. One of the things that impact kind of the revenue trajectory is what we talked about in our prepared remarks, which is, you know, you've got, in some cases, multi-year deals, you know, being cut, which in some cases can accelerate rev rev rev.
Speaker Change: Well, I think from a bigger picture,
Speaker Change: You know there's a number of audio related markets that are reasonably mature and so you're kind of um you're kind of you ebb and flow a bit with with the industry and we have
Speaker Change: One of the things that impacts kind of the revenue trajectory is what we talked about in our prepared remarks, which is, you know, you've got in some cases multi-year deals, you know, being cut, which in some cases can accelerate REVREC, and so you go through these periods of bigger spikes, and then, you know, you've got a pretty wide penetration.
Jon Kirchner: And so you go through these periods of bigger spikes and then, you know, the absence of them, and then they come back. And we expect that to happen, in part, in 25, although, as always, there's a lot of things, you know, a lot of different discussions going on with our various partners, you know, in CE more broadly, as well as the growth of things like IMAX Enhance and some of our other programs also impact what the growth rates may be.
Speaker Change: absence of them and then they come back and we expect that to happen in part in 25.
Speaker Change: As always, there's a lot of things, you know, a lot of different discussions going on with our various partners, you know, in CE more broadly, as well as the growth of things like IMAX, Enhance, and some of our other programs also impact what the growth rates may be. So, I think it's too early to comment specifically on how we think about, you know, 25 Outlook, but what we've said is over time.
Jon Kirchner: So I think it's too early to comment specifically on how we think about, you know, 25 Outlook, but what we've said is over time, we expect the CE business to, you know, kind of grow in the lower single digits, although, you know, that's if you look at it over a wider window and that, as you look at it year to year, it may move around in lumpiness in part because of the way deals are And Hamed, maybe one last point that's important.
Speaker Change: We expect the CE business to, you know, to kind of, to grow in the lower single digits. Although, you know, that's if you look at it over a wider window. And that, you know, as you look at it year to year, it may move around in lumpiness in part because of the way deals are structured. And Hamed, maybe one last point that's important.
Jon Kirchner: You know, multi-year deals, although they lead to some lumpiness, I think are important because they further not only solidify but build the depth of the relationships we have with many of these partners, where we have better long-term visibility about the inclusion of our technologies on their platforms. And, of course, they drive opportunities to further build on those relationships in ways that can potentially expand either the dollar content or the technology content available on their platform.
Hamid: You know multi-year deals although they lead to some
Hamid: You know, to some lumpiness, I think, are important because it further not only solidifies but builds the depth of the relationships we have with many of these partners where we have.
Hamid: You know, better long-term visibility about the inclusion of our technologies on their platforms. And of course, you know, it drives also the opportunities to further build on those relationships in ways that potentially can expand either the dollar content or the technology content.
Jon Kirchner: Okay, and then my other question was, are you seeing any competitive landscape changes as far as your auto is concerned, given what's going on in Europe and the U.S. between different automakers? No, I would...
Hamid: available on their platforms.
Speaker Change: Okay and then my other question was are you seeing any competitive landscape changes as far as your auto is concerned given what's going on in Europe and the US between different automakers?
Jon Kirchner: No, I would say, you know, the automotive business, as you well know, from a bigger picture, is next. You know, as we've recently seen, you know, news come out from some of the majors talking about, you know, some softness. But, you know, as far as we think about the efforts to develop and build market share around our AutoSense program and our video efforts, I think they're going extremely well.
Speaker Change: No. I would say, you know, the automotive business, as you well know, you know, from a bigger picture, is next.
Speaker Change: as we've recently seen news come out from some of the majors talking about some softness. But as far as how we think about the efforts to develop and build market share around our AutoSense program and our video efforts, I think they're going extremely well.
Jason Kreyer: Our next question comes from a line from Jason Kreyer with Craig Hallam. Please go ahead.
Speaker Change: Okay, thank you.
Speaker Change: Our next question comes from a line of Jason Kreyer with Craig Hallam. Please go ahead.
Jason Kreyer: Great, thank you. You commented with some kind of early TBOS takeaways earlier.
Jason Kreyer: Great, thank you. You commented with some kind of early TIVO OS takeaways earlier. I'm just curious, you know, more around consumer engagement, utilization, interaction. You know, you're in 15 European countries now, so just curious, you know, the devices that are out there in the market, are you seeing what you want to see in terms of, you know, consumer utilization and activation? And does that, you know, give you encouragement on the longer term monetization opportunity?
Jon Kirchner: I'm just curious, you know, more around consumer engagement, utilization, and interaction. You know, you're in 15 European countries now. So, just curious, the devices that are out there in the market, are you seeing what you want to see in terms of consumer utilization and activation? And does that give you encouragement on the longer-term monetization opportunity?
Jon Kirchner: I think we're absolutely encouraged by what we're seeing. I would say that, you know, because Europe is a bit too fragmented, which we knew kind of going in, as we build bigger footprints, particularly in your large five, so think the UK, France, Italy, Germany, Spain. So I think the short answer in the near term, based on where we are, yes, I think we're pleased by what we're seeing.
Speaker Change: I think we're absolutely encouraged by what we're seeing. I would say that
Speaker Change: You know, because Europe is a bit big fragmented, you know, which we knew, which we we knew kind of going in.
Speaker Change: You know, as we build bigger footprints, particularly in your large five, so think the UK, France, Italy, Germany, Spain, you know, where your ultimate goal is to build a bigger populace of units, I think we'll, you know, we'll not only learn more, but we'll have more insights into how those units are fully being used and also how we can optimize, you know, content carousels, et cetera, to drive, you know, the best possible user experience, but also, you know, ultimately, you know, drive meaningful long-term monetization. So I think the short answer in the near term, based on where we are, yes, I think we're pleased by what we're saying.
Jon Kirchner: I think there's obviously a lot more data to collect, and as these footprints grow, I think we'll have not only a better handle on where we need to make adjustments, because there will be some, but also, I think, you know, further support the confidence we have that, over the long run, we will not only build a meaningful footprint, but we'll be able to monetize it.
Speaker Change: There's obviously a lot more, you know, data to collect and as these footprints grow, I think we'll have not only a better handle on, you know, where we need to make adjustments, because there will be some, but also, I think, you know, further support the confidence we have that over the long run, we will not only build a meaningful footprint, but we'll be able to monetize it.
Jon Kirchner: Thank you. And then any updated views on what you see as the market appetite for autostage video? You know, what you think the adoption curve could look like, or, you know, what maybe markets have a better opportunity for autostage video? I would tell you we are talking to
Speaker Change: Thank you. And then, any updated views on what you see as the market appetite for auto-stage video? You know, what you think adoption curve could look like or, you know, what maybe markets have a better opportunity in auto-stage video?
Jon Kirchner: I would tell you we are talking to most of the major automakers around video. I would say they're all engaged in the broader topic one way or the other, and I would say, you know, we are doing very well in those conversations, in some cases running tests for people so they have a better, you know, a better handle on how it could work. So, you know, I think the long-term opportunity is good, and, as usual, depending on our customers, you know, product roadmaps, you know, some are more able and interested in moving sooner, potentially through OTA-type updates to existing vehicles.
Speaker Change: I would tell you we are talking to most of the major automakers around video. I would say they're all engaged in the broader topic one way or the other.
Speaker Change: And I would say, you know, we are doing very well in those conversations, in some cases running tests for people to where they have a better, you know, a better handle on how it could work.
Speaker Change: So, you know, I think the long-term opportunity is good and, you know, as usual, depending on our customers, you know, product roadmaps, you know, some are more able and interested in moving sooner, potentially through OTA-type updates to existing vehicles, others are more interested in planning.
Jon Kirchner: Others are more interested in planning in their roadmaps to have video intersect what they're doing, oftentimes, you know, two, three years down the line, and I would say we have a blend of all of those conversations going right now. In general, I would say they're going well, and, as we said in our previous objectives and also in today's remarks, we expect to land at least one more video customer before the end of the year.
Speaker Change: In the roadmaps, video intersect what they're doing, oftentimes, you know, two, three years down the line. And I would say we have a blend of all of those conversations going right now.
Speaker Change: In general, I would say they're going well, and I think, as we said in our previous objectives and also in today's remarks, we expect to land at least one more video customer before the end of the year.
Speaker Change: All right, got it. Thank you.
Matthew Galinko: Again, if you'd like to ask a question, press star, then number one on your telephone keypad. Our next question comes from Matthew Galinko with Maxim Group. Please go ahead.
Speaker Change: Again, if you'd like to ask a question, press star, then number one on your telephone keypad.
Speaker Change: Our next question comes from a line of Matthew Galinko with Maxim Group. Please go ahead.
Matthew Galinko: Hey, thanks for taking my questions. I just wanted to, you know, follow up on North American OEMs with TiVo OS. It sounds like we have, you know, one launching in the end of 24 and then another in spring 25. Do I understand that correctly? Are there two OEMs that are now targeting North America, or can you just clarify that?
Matthew Galinko: Hey, thanks for taking my questions. I just wanted to, I guess, follow up on North American OEMs with TiVo OS. It sounds like we have
Matthew Galinko: You know, one launching in, you know, end of 24 and then another in spring 25. Do I understand that correctly? Is it two OEMs that are now targeting North America, or can you just clarify that?
Jon Kirchner: Matt, we said we'd signed an additional one, and we previously expected to have one or two of them in the market here in the shorter term. So I think we are beginning to build a pipeline of potential U.S.-based tvOS footprints, and I think some of that will take more shape as we get into 2025.
Matt Wee: Matt Wee
Speaker Change: We said we've signed an additional one, and we previously expected to...
Matt Wee: to have one or two of them in the market here in the shorter term. So, you know, I think we are beginning to build a pipeline of U.S.-based potential tvOS footprint.
Jon Kirchner: Okay, thanks. And then, I guess as a follow-up, how far down the path are you in terms of, you know, signing OEMs for TOOS? Are you, you know, kind of coming towards the end of that process, or is there still more room to work? There is more pipeline, and I think as people see the product.
Speaker Change: Please see the complete disclaimer at https://sites.google.com
Speaker Change: Okay, thanks. And then I guess as a follow-up...
Speaker Change: How far down the path are you in terms of signing OEMs for TOLS? Are you kind of coming towards the end of that process, or is there still more room to work?
Jon Kirchner: There is more pipeline, and I think as people see the product, uh, and get a sense of customer satisfaction and the smoothness with which manufacturers have been able to implement our technology stack, I think the interest is, there's still plenty of interest in the pipeline, maybe the best way to say it. So I don't think we're necessarily running out of potential customers here, but, as you can imagine, there is a ton of focus on our team's part to work to ensure that the seven partners we have can really ramp because they, in and of themselves, can represent very, very meaningful volumes over time.
Speaker Change: There is more pipeline, and I think as people see the product,
Speaker Change: Get a sense of the customer satisfaction and the smoothness with which manufacturers have been able to implement our technology stack.
Speaker Change: I think the interest is, there's still plenty of interest there in the pipeline, maybe that's the best way to say it.
Speaker Change: We're not necessarily running out of potential customers here, but I think, as you can imagine, there is a ton of focus.
Speaker Change: on our team's part to work to ensure that the seven
Speaker Change: Partners we have can really ramp because they, in and of themselves, can represent very, very meaningful
Jon Kirchner: And I think that'll allow us to clearly continue to build our footprint. But, you know, we are, you know, continuing to engage others. And, you know, I would say with every bit of progress, you often find others are beginning to, you know, take a look and at least have conversations on the margins. So we'll continue to work.
Speaker Change: volumes over time, and I think that'll allow us to clearly continue to build our footprint. But, you know, we are, you know, continuing to engage others and, you know, I would say with every bit of progress, you know, you oftentimes find others are beginning to at least, who maybe weren't so interested, are beginning to, you know, take a look and at least
Speaker Change: I have conversations on the margins, so we'll continue to work it.
Speaker Change: Great, thank you.
Operator: That concludes our Q&A session. I will now turn the call back over to Jon Kirchner for closing remarks.
Speaker Change: That concludes our Q&A session. I will now turn the call back over to Jon Kirchner for closing remarks.
Jon Kirchner: Thanks, Operator, and thanks, everyone, for joining today's call. We're excited about our continued strategic momentum. I'd like to thank our employees, customers, and partners for helping us continue to achieve our objectives. We look forward to reviewing our Q3 results with you in early November. Operator, this concludes today's call.
Jon Kirchner: Thanks, Operator, and thanks, everyone, for joining today's call.
Jon Kirchner: We're excited about our continued strategic momentum. I'd like to thank our employees, customers, and partners for helping us continue to achieve our objectives. We look forward to reviewing our Q3 results with you in early November . Operator, this concludes today's call.
Operator: This concludes today's call. You may now disconnect.
Operator: This concludes today's call. You may now disconnect.
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