Xperi Inc.

Please stand by. Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Xperia first quarter fiscal year 2021 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will be open for questions. In order to ask a question, please press star 1 on your touchtone telephone. This call is being recorded today, Tuesday, May 5th, 2021. I'd now like to turn the call over to Geri Weinfeld, Vice President of Investor Relations, Worksbury. Geri, please go ahead.

Good afternoon, everyone. Thanks for joining us as we report our first quarter of fiscal year 2021 financial results. With me on the call today are Jon Kirchner, CEO, and Robert Andersen, CFO. Also on the call is Samira Armali, President of IP Licensing, who will be available along with Jon and Robert to answer questions during the Q&A portion of the call. Before we begin, I'd like to provide two reminders. First, today's discussion contains forward-looking statements that are predictions, projections, or other statements about future events which are based on management's current expectations and beliefs and therefore subject to risks, uncertainties, and changes in circumstances. Please refer to the risk factors section in our SEC filings including our annual report on Form 10-K for more information on the risks and uncertainties that could cause our actual results to differ materially from what we discussed today. Please note that the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after this call. Second, we refer to certain non-GAAP financial measures which include one-time or ongoing non-cash acquired intangible amortization charges, Costs related to actual or planned business combinations, including transaction fees, integration costs, severance, facility closures, and retention bonuses, separation costs, stock-based compensation, loss on debt extinguishment, realized and unrealized gains, or losses on marketable equity securities and associated tax effects. We've provided reconciliations of these non-GAAP measures, the most directly comparable GAAP measures, in the earnings release and on the investor relations section of our website. Lastly, all 2021 and year-over-year performance comparisons will be discussed as Xperi and TiVo were combined for all periods. This approach will give the best view of progress on the overall business, and these numbers can be found in the interactive analyst center on our investor relations website. The webcast of this conference call will be available on our Investor Relations website at www.experi.com. I'll now turn the call over to Jon Kirchner.

Thanks, Geri, and thanks, everyone, for joining us. Q1 revenue was in line with our expectations at $221.6 million, and our non-GAAP EPS was 59 cents, representing a strong start to the year. We generated $26.7 million in operating cash flow, up 124% versus Q1 last year on a fully combined basis, and $29.7 million in adjusted free cash flow, up 84% versus last year. We also bought back $25 million of stock during the quarter. Importantly, our board recently authorized an increase of $100 million to our existing stock repurchase plan, underscoring the confidence we have in our cash flow outlook for the year and the long-term prospects for both our IP and product businesses. These results and the strategic progress we made in Q1 put us on track to meet the annual outlook we provided last quarter. As it relates to the global semiconductor supply chain issues, our outlook reflects the most current information from customers and industry analysts. However, we'll continue to monitor this as we move forward. At a high level, we made solid progress on the following initiatives. Building on the Baseline Revenue for our IP Business and Advancing Opportunities in the Various IP Growth Areas We've Identified, Increasing the Footprint and Available Content for the TiVo Stream, Expanding IMAX Enhanced Ecosystems, Advancing Discussions with Key OEM Partners for our AutoStage and AutoSense Products, Progressing the Adoption of our IPTV Self-Installed Solution, and Further Developing the Platform Toolset for Customers of Perceive. The purpose of these initiatives is to facilitate long-term growth. While growth will not be linear, as we look out over the next four years through 2025, we expect these efforts to help drive figures in the mid single digits to low teens for the product business, excluding any growth from perceived, and in the mid to high single digits for the IP business. Let us begin with a discussion of our IP licensing business. IP licensing revenue in Q1 was $98 million. Media IP revenue was up more than 30% year-over-year. This increase is reflective of the previously discussed step-up in our baseline IP revenue from the Comcast license along with the significant momentum in renewals in the early part of the year. These renewals include agreements with leading companies such as Cox, Sony, and TCL. We've also recently renewed an agreement with Frontier, one of the top 10 traditional pay TV providers in the United States. This growth was offset by expected declines in our semi-IP business as we worked to reposition that business for future growth. The decline of approximately $60 million in semi-IP revenue resulted in our overall IP revenue being down 28% year over year. The momentum we are seeing within our media IP business reinforces our confidence in the $350 million average annual baseline. Additionally, we believe we have opportunities to potentially exceed that average annual baseline this year. We're also extremely pleased with the progress we've made integrating our legacy IP businesses since the merger last year, which has resulted in an even stronger combined IP business today. We remain focused on the various strategic IT growth opportunities we previously laid out in OTT, Canada, and SEMI that collectively represent an opportunity in the lower hundreds of millions of dollars in incremental annual revenue above our $350 million average baseline. We will provide relevant updates on these efforts throughout the year as they occur. With respect to the opportunity in Canada, We continue to expect some decisions from this initial round of litigation in the Q2-Q3 timeframe, although the timing of ultimate resolution and whether additional litigation will be necessary remains uncertain. That being said, we remain confident in our ultimate success in Canada and are pleased that the pending litigation has not slowed down progress with other licensing engagements in that market. Against this backdrop of significant progress and success, Upon separation, we will be squarely positioned to be the largest standalone public IP licensing company and believe our leading IP platform will create further opportunities for meaningful growth and value creation for our shareholders. Moving to the product business. Total product revenue for the quarter was $123.6 million, down 13% versus last year. primarily driven by minimum guarantees taken in Q1 of last year in the consumer experience category, declines in the pay TV category due to subscriber churn consistent with industry trends, and a shift in revenue under a customer contract to the IP business due to updated reporting from the customer. In the consumer experience category, revenue was $51.3 million, down 19% year over year. The decline was primarily due to the upfront revenue recognition on a two-year minimum guarantee contract signed in Q1 of last year. Excluding minimum guarantees, our per-unit business would have been down slightly year over year. On the TiVo Stream front, our team has never been more engaged and excited as we continue to make progress on a fully embedded OS for smart TVs. Additionally, we continue to explore other opportunities to expand our footprint, and increased monetization through the TiVo Stream platform. During the quarter, the number of activated TiVo Stream 4Ks grew quarter over quarter, increasing our stream footprint. On the content front, we saw significant expansion of the TiVo Plus service with the Q1 launch of IMDb TV, Amazon's free ad-supported service. We also added services such as Paramount Plus, as well as TV Everywhere, which includes offerings from ABC, CBS, Fox, and NBC. For the IMAX enhanced ecosystem, we signed a multi-year agreement with Xiaomi, which includes a commitment for IMAX enhanced on Xiaomi TVs. Key to growing this ecosystem is content, and during the quarter, we released an update to our encoding tools, which will enable easier and more cost-effective enhancement of film and episodic libraries for IMAX enhanced. Importantly, during the quarter, we signed a significant agreement with a major streaming content service, which will support IMAX enhanced delivery. We'll provide details on this later this year in connection with the launch. Moving to the connected car category, revenue was $20 million, up 16% year over year, as we continue to see a return to strength in automotive sales. 14 new models launched with HD radio technology in North America. In addition, Following the FCC's approval of all digital AM broadcasting, we've licensed nine new AM all-digital stations. For GTS AutoStage, we continue to build out our broadcast and content infrastructure while engaging with car manufacturers. We developed five new broadcast apps for 36 stations in Europe, and we put in place important aggregation agreements in Asia and Europe. We also license TiVo metadata to a top-five global streaming music service, which will facilitate the use of advanced features in the DTS AutoStage product. The DTS AutoStage platform is now live and in vehicles in 30 countries, and we are in discussions with major auto companies in Asia, the US, and Europe regarding global and regional launches. As auto companies have differing interests and features, We are engaging each company in roadmap discussions and expect further launches to be confirmed later this year. For DTF's AutoSense, our in-cabin monitoring platform, we are on target for a global launch of our occupancy monitoring system this summer, and our driver monitoring solution continues to deploy on trucks and commercial vehicles in Asia. Lastly, reaching an important milestone in our development of car safety systems, We achieved ISO 9001 certification for the design, development, and deployment of software computer vision technologies, an important quality mark for the sell-in of DTS AutoSense solutions. Moving to our pay TV business, revenue was $52.3 million, down 16% year-over-year and 6% sequentially due to subscriber churn consistent with industry trends. and a shift in revenue allocated under a customer contract in favor of the IP business. We currently expect this to be the lowest pay TV revenue quarter of the year. As the pay TV industry declines, we expect subscriber declines in our legacy guides business to be partially offset by increasing ARPU as this business shifts to IP TV, where we offer broader capabilities and services of higher value to our customers. Demand for the TiVo IPTV video service continued to grow during the first quarter, with deployments increasing close to 100% quarter over quarter on a small but rapidly growing base. Customer adoption of the TiVo self-install process also continued to increase in the quarter, as most operator partners that have chosen our Android TV-based IPTV solution have plans to increasingly offer the self-install option as part of their installation strategy over time. Additionally, during the quarter, Vodafone and Sharp Corporation extended agreements to license certain TiVo products. The Vodafone agreement provides them with access to a range of TiVo products, including content discovery, conversational voice, and insight data analytics. The Sharp renewal provides one of the industry's most advanced interactive program guides to viewers throughout Japan. Lastly, our perceived team signed an additional customer contract and is working through product integration and production grant plans. We've made solid progress with our developer tools and are on track to enter beta with select customers over the next few months. We continue to see keen interest in our products and solutions and are excited to work with customers on their designs, integrating our solutions into their products and broadening the addressable market through Perceive. With that, I'll turn the call over to Robert to discuss our financials. Robert.