Good day, ladies and gentlemen, thank you for standing by. And welcome to the Tessera Fourth Quarter and Fiscal Year 2016 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. This call is being recorded today Wednesday, February 22, 2017. I would now like to turn the call over to Geri Weinfeld, Senior Director of Investor Relations for Tessera. Geri, please go ahead.

Good afternoon, everyone. Thanks for joining us as we report our fourth quarter 2016 and full-year financial results. With me on the call today are Tom Lacey, CEO; Jon Kirchner President; and Robert Anderson, CFO. Before we began, I would like to provide two reminders. First, today's discussion contains forward-looking statements that are predictions, projections or other statements about future events, which are based on management's current expectations and beliefs and therefore subject to risks, uncertainties and changes in circumstances. Please refer to the risk factors section in our SEC filings including our most recent Form 10-K and 10-Q 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 certain non-GAAP financial measures which exclude discontinued operations, restructuring and other exit costs, acquisition and related expenses, acquired intangible asset amortization, charges for acquired in-process research and development, stock-based compensation expense, impairment charges on long-lived assets and goodwill, expense reductions from insurance recoveries and impudent an estimated 31% effective tax rate on the pretax earnings of the Company. We will provide reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in earnings release and on the Investor Relations section of our website. The reporting of this conference call will be available on our Investor Relations website at www.tessera.com and unauthorized recording of this webcast is not permitted. After mid-night to night you can access this conference call at www. Xperi.com. Tom?

Thanks, Geri. And thanks everyone for joining us on the call today either live here on the call or on a webcast recording. Jon, Robert and I are extremely excited to be conducting our first post-merger conference call to share the progress we made in 2016 and update on the integration progress and our outlook for 2017. The format of this and subsequent calls will be as follows; I will open with a high level overview and an update on our integration status. Jon will give an update on our product licensing business; I will then provide updates on our Invensas, and IP licensing business. Finally, Robert will provide a financial update including our results, outlook and capital allocation strategies. Afterwards, three of us would be delighted to take your questions. As an FYI much of what we will cover today on this call can be found in our new investor deck which was posted to our investor website within the hour. Let me start with an overview. Since the closing we are even more optimistic about the future of the combined company. Our confidence has grown in the outlook for the business. The strategic and tactical benefits of the DTS combination are everything we expected and more. This transition has been even more seamless than expected given the significant similarities between our two cultures and combined leadership outlook in all of our employees is the passion to create technologies that transform our daily lives and the work ethic to make these transformations occur. There is a real sense of energy and focus here. Next, let me proceed with a brief summary of the Company renaming and branding we announce pre-market today. This is an extremely exciting new chapter for all of our stakeholders. In order to better reflect the…

Thanks, Tom and welcome everyone. I share Tom’s enthusiasm as we introduce our customers and partners to an impressive portfolio of solutions that enhance all aspects of the human and consumer electronics experience. As a combined Company, the strength of our audio, digital radio and imaging solutions establishes us as a market leader in innovative and partner-focused product licensing. Our vision for Xperi’s product licensing business is to create more intelligent, immersive and personalized experiences. We want our environment smart, connected and personalized and our employees are relentlessly dedicated to delivering on this vision. Within the Product Licensing segment, we focused our business activities around three revenue generating end markets; automotive, mobile are on the go and home. During this call, I will discuss the progress we made during the past year in each of these markets, the key areas we are focused on to drive further penetration of our solutions, and what to expect from us over the next 12 months. Beginning with automotive. Cars have become a major entertainment hub and will become ever more so as we move towards autonomous driving. We currently have a number of solutions meant to enhance entertainment value in cars and over the long-term, we are working to enhance safety value as well. In 2016, our automotive business represented about 30% of our product licensing revenue excluding the impact of purchase accounting. We see three key growth drivers in the automotive market. Near-term, continued penetration of our HD Radio technology in cars shipped in North America. Mid-term penetration of our connected radio solution in cars across the globe, and longer-term cross selling synergies which will better enable the penetration of imaging products in cars such as driver, monitoring and surround camera solutions. The largest revenue contributor to this category is our HD…

Thank you, Jon, awesome. Our Invensas business continues to make excellent progress in developing, optimizing and commercializing our broad portfolio of innovative semiconductor technologies. We see growth from our Invensas business coming through our foundational wafer bonding technologies, ZiBond and direct bond interface or DBI platforms. We are currently focused on the following markets to drive this growth. Number one, broadening our customer base in the image sensor market. Number two, expanding into new applications including MEMS and RF devices, and number three, ultimately expanding into DRAM, 2.5D logic, and 3D IC assemblies. For some additional context, there are many applications where wafer bonding is critical to the consumer electronics device. Our solutions unable the next generation of devices to be smaller, faster, use less power and contain more functionality. Today our Zibond and DBI are found in more than 1 billion smartphones and counting. One of the areas in which we have focused on broadening our customer base is the image sensor market, where we have already licensed market leaders like Sony and very recently OmniVision. As we work towards expanding into new applications such as MEMS, RF devices, DRAM, 2.5D logic, and 3D IC assemblies. We have focused on bringing up internal wafer preparation and bonding capabilities as well as developing in qualifying a supply chain to support our technology development and commercialization efforts. In 2016, we signed several licensing agreements in this category including Sandia National Lab and MIT Lincoln Labs. In Q4, we signed a license agreement with Teledyne DALSA, one of the largest pure-play MEMS foundries in the world and recently initiated technology transfer activities. The progress we've made in these markets to-date is encouraging and we expect to make announcements around further penetration in these areas in the coming quarter and beyond. Next I'll…

Thank you, Tom. And thanks to everyone for joining us on the call today. DTS acquisition and the work we are doing recognized both revenue and cost synergies across the combined business, positions us to deliver meaningful value to our shareholders this year and into the future. In terms of cost benefits, our integration efforts are ahead of schedule and we currently forecast a net of $11 million of non-GAAP costs synergy during fiscal year 2017 and exiting the year at an annualized run rate of $15 million of non-GAAP cost synergies consistent with our prior expectations. I would like to go into more detail on our fourth quarter results then our full-year highlights, and finally a preview of our expectations for 2017. Please note that with all of my comments I'll begin with GAAP and then provide a comparable non-GAAP figure. Our GAAP to non-GAAP reconciliations can be found on our website in the earnings release. As a reminder, in Q4 we recognized the cost of DTS operations for one month, but due to purchase accounting rules relating to minimum guaranteed contracts and quarter lag revenue recognition for royalty reports only a very small amount of DTS related revenue was recorded on our books even though we will receive the cash from the contracts. It is also important to note that the purchase accounting rules impact both our GAAP and non-GAAP results. Total revenue for the fourth quarter was $70.1 million. This was towards the low end of our outlook to a delay in the contract signing which the cash receivable is completed in early Q1. Compared with the fourth quarter of 2015, revenue increased by $8 million or 13% primarily due to higher episodic revenue. Total revenue for the full-year was $259.6 million down 5% versus 2015. The…

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions] And we'll take our first question from Krish Sankar with Bank of America Merrill Lynch.

Thanks for taking my question. I had a few of them first one, Robert you mentioned about $54 million from DTS – revenue is not going to be recognized due to purchase accounting. When will that eventually be recognized?

It's never going to be recognized. So it just becomes an asset on our balance sheet. And we recognize the cash as we collected from what would normally have occurred. So even though you don't see it as revenue we get the cash.

Gotcha and then in Q4, how many days of DTS rev did you recognize and just completed quarter?

We had a very small amount. It was less than $0.25 million of DTS revenue was recognized.

Gotcha. All right, and then couple other question, I think you mentioned that there is one significant re-licensing matter this year, is it fair to assume that’s the one of the DRAM customer appears?

We’re not identifying it necessarily, but I think it's a significant customer. So it's worth us pointing it out as an activity we have for this year.

Is there any timeline, is it going to be in the first half or second half of this year?

Let me add Tom take that one.

Sure. More actively talking to the right people and whatnot and we would expect to get it done and certainly the goal is to get it done as soon as we can Krish. And my expectation would be that we do get it done in the first half of the year, but we'll see when we got all hands on deck to try to get that done just as soon as we can, given it's a material event we would certainly disclose when that does happen.

Gotcha. Gotcha and then a couple other questions just on a follow up, I think when you guys did the DTS acquisition, expectations are like something around like $0.80 in EPS secretion clearly that's not happening this year, but is that still a fair enough target assume based on post purchase accounting issue?

Yes I think that that assumption still holds true that was never there was suggested on the call when we did the announcement and I think the map still – it still works out. But the purchase accounting has a pretty significant impact and one thing I’ll mention here Krish that’s probably worth taking a look at the investor deck we've posted on to our website, which will show some of the specifics of the impact.

Got it. All right. And then two last questions, one is, the full-year revenue guidance $370 million to $445 million, is that a way you can parse it down between recurring and episodic and also between the legacy Tessera and the DTS business?

It wouldn't be a complete call unless you ask that question Krish, so I appreciate it. We don't plan to breakout the episodic and recurring nor the business segments in our guidance.

All right. And the last question then if you guys said the relicensing matter with the big customers baked into your guidance, so I’m kind of curious how do you handicap that, like what is the probability of success? Are you assuming that they are going to renew at the same rate or is there like some kind of thing that you assume that’s going to factored in your full-year guidance?

And I think as we look at the year, obviously at this vantage point a variety of things that can occur. So one of the reasons why we've given a fairly wide range is there is a fairly wide number of matters that are on the table. So I wouldn't say it's baked into our guidance. It is part of our guidance.

Got it. If I can just squeeze in one last, is this customer whom you relicensing both the customer of legacy Tessera and DTS?

Yes, it is.

Got it. Thank you, guys. Thank you very much.

You are welcome.

Hey, Krish. Just a couple of other points. Number one and I mentioned it just briefly in my introduction. There's an investor deck that's on the investor portion of our website and has some of the details and more details on some of the purchase accounting.

Yes. Got it. Thanks.

And again on the accretion portion it is being recognized, you see it in the cash flow for sure.

Yes. You can see it in the EPS column.

Got it. All right. Thank you very much. Very helpful.

You are welcome.

And next we’ll move to Gary Mobley with Benchmark.

Hi, guys.

Hey, Gary.

Welcome to the call Jon and Geri.

Thank you.

Thank you.

Okay. So just to clarify, Robert I know you didn't have the specifics in your press release, but the non-GAAP EPS guidance range for 2017, I think you said the lower end to the $1.15, but I missed the upper end?

The upper end if $2.69.

And Jon, I think you mentioned just prior to, I guess on your last earnings call you mentioned a goal of reaching $185 million to $190 million in revenue for the year 2016, excluding any impact from accounting rules and what not, or you went within that range as you concluded the year, and do you see building on the growth sort of working towards that 2020 forecast that you had outlined previously?

Nothing has fundamentally changed with our growth outlook as we think about the audio business. In fact, I think what is interesting is the opportunity set that comes from having convergent technology solutions, imaging and audio as we look a few years downstream, but to your first question, yes, our business performed as expected and well during the course of 2016, and of course we've hit the ground running as we've joined Tessera over the past 90 days or so.

And Robert I know the Tessera businesses had some seasonal patterns in the past and surely the DTSI business is got to have some seasonal pattern, so all things considered how do you see outside of these accounting rules that you're dealing within near-term the seasonal breakout of any given fiscal year?

Well there's a lot of things that can move around this year. I'm always aware of that and that's probably a little bit more so as we combine with the DTS business. As we sit here today, I would say that the revenue is more backend loaded, so we would see probably 55% to 60% of our revenue in the second half and that should give you I think a little bit of a feel since we've given you in Q1.

Okay. And the recurring revenue for the Tessera business, if I’m not mistaken it ended about $244 million versus the initial goal of $250 million and you sort of identified which should be occurred in the latter part of the fourth quarter and subsequently in the first quarter?

Yes. I think it's important to know; we don't guide to recurring or episodic, so that may have been analysts numbers, but that was not our number.

Okay. Well can we agree that…

I think what you're getting at was there anything that happened that was unexpected during the year and there wasn't Gary we call the guidance was 250 to 270 and we finished just 260, we finished within guidance.

Okay.

So actually recurring revenue is the highest it's been in five years a group slightly over last year.

Do you assuming your successful and renewing the one big agreement in the year. Do you think you can grow the recurring revenue in 2017.

Absolutely, yes.

Okay. That is it for me. Thank you.

Thank you.

And next move on to Matthew Galinko with Sidoti.

Good afternoon, guys, thanks for taking my questions. First, one is did you engage with any new Greenfield opportunities in the fourth quarter or continuing to engage with additional close in that classification if you will?

Yes and yes.

Okay. And has the progress with Broadcom had any influence on the willingness for folks that you are engaging with to have discussions?

I think it's you know they're not going to disclose that per say Matt, right. So I think it's fair to say people are watching. And if fact in trial already in Germany and we've got a couple of things coming down the pike here in the next month or two people are watching.

Got it, all right. So you also in your script called out progress in iris authentication I know you touched on the deal that you signed in India. I'm just wondering if there's you know I assumes there's more in the pipeline there but is there I think you could talk about in terms of you know that that moving more quickly in the 17 timeframe or are getting out to the device in the 70, 80 timeframe.

Well here's, here's what I would do that the industry interest and advanced biometric solutions is certainly growing as you begin to see real deployment and I think you know some of the security challenges around fingerprint sensing are also becoming more well known which kind of I think drives people a direction that we're going anyway given that we have both an iris space solution and we have face recognition technology that when combined provides a pretty incredible lift in the accuracy of the solution. So yes there are other things in the pipeline. I still think you know in the grand scheme of the size of our combined business the biometric piece is going to remain fairly small on a revenue basis. But that being said I think there are some exciting things happening in the - you know I think the jet the broad industry trend towards mobile based authentication plays very well into the footprint of business that we have. And we're hitting the gas pedal about as hard as we can on that business but it'll take while to the further develop as you know country-by-country people get more comfortable with you know having biometric information stored and whatnot and use for a variety of various validation authentication and security purposes.

Got it. And maybe just last one for me put I jump back in the queue. The litigation frame seems a little wider than you typically had disclosed and if we hit the high end of that range, we'd be quite a bit above where we've been in the past two years? Can you just talk about let's get to the you know extremes of the range?

Yes, this is Robert. It's impressively difficult one for us to forecast particularly at the beginning of the year as we kind of look out over the next kind of remainder of the year and we've given a bit of a broad range because it really depends on how cases proceed how discussions proceed and so forth. We have given a range I think in terms of our operating model, but I think if you look at it as a percentage of revenue it's actually within the type of range we've had previously. So I don't think it's that dramatically different we've been at the high end of our prior range previously and that's pretty close to these numbers.

Got it. All right. Thank you.

You’re welcome.

And next we will move to Richard Shannon with Craig-Hallum.

Hi, guys. Thank you for taking my questions as well.

Hi, Richard.

Hi. I guess my first question is how do you guys expect to offer some sort of segment reporting on a go forward basis? So unclear to me based on the prepared comments is how we should try to do this, I mean obviously not going to do a Tessera versus DTS. Are you going to see at this home versus mobile versus auto or how should we expect this to be done in the future?

Great question, Richard. We will be segment in the business on product licensing, which will really be a combination of our audio and imaging businesses. And that should probably be clear in the way that Jon addressed the remarks. And the other segment of our business will be semiconductor and IP licensing, which was what Tom addressed. So that's how you'll see it reflected in our financials for 2016 and going forward.

Okay. So it sounds like a product licensing is most if not all DTS plus FotoNation?

That’s correct, yes.

Okay. Okay, helpful. Let’s see here. I'm asking a question or two on the guidance, once assume and then I guess, I'll ask the question most of have asked already which is relative to the customer relicensing, here the big one. Is the low end of the range is that assume any revenues from this customer or is that a zero shot at the low end there?

Yes, I think it's probably fair to say that that's a zero shot.

Okay.

That gives a reason for the width of the range.

Okay. Is there any assumes benefit in that range from anything coming out of the Broadcom case and it related cases from the Broadcom litigation.

Not specifically, I mean it's certainly a possible outcome, but the way we think about the revenue range is there's a variety of things that can occur that is one of them. We obviously have a degree of confidence and reaching an agreement on a Greenfield to share. But it is not – it's just a piece of the probability waiting.

In the Greenfield, you’re expecting to settle or to complete this year is not – are you saying that that's a Broadcom case or could be could be different?

Yes, I think with Greenfield it's best not to get into specifics about the discussions and probably it doesn't necessarily help us.

Yes, understand. Just want to make sure and I understand which you’re saying, but some well understood. No problem with that. Let’s see here. Robert, I tried to do the calculations based on one of the slides and here and the numbers I came up told me I can't add time off today. But your Slide 21, talked about a long-term operating margin target of 55% plus as I recall and similar to what you said at the time of the acquisition? For 2017, I know if you want to talk about the non-GAAP number with or without the accounting changes here, but what's the operating margin range here for the yearly numbers?

Yes. So for an operating margin, it's going to vary because we've given such a wide range if we’re on the high end of this, see here – yes, it's going to be in the high fifty's, for at the high end of our range and that's without the impact of purchase accounting. So we would actually be pretty close to the operating margin that we're talking about here. However, I think and then we've mostly focused on is on the EPS. So I think let's take one thing at a time. With Slide 21 giving you a lot of pieces to understand them all this year because I think it was critical. Given all the change that occurred of the company that to provide those that non-GAAP long-term operating model target is something that will communicate more going forward. We wanted to say we haven't taken our eye up on that ball. If we look at the guidance we've provided and I take out the impact the purchase accounting, we really start to see some pretty interesting EPS numbers similar to what was discussed earlier. So if we take the high end of our range in the middle of all the expenses, we're talking about non-GAAP EPS in the $315 million to $317 million range. I don't want to think all the [indiscernible] of a lot of building, so.

Well, I appreciate. You're leaving some of that. That's right. One last question for me, I'll jump on a line. I can’t really mention in the same in your prepared remarks that what should we think about for free cash flow for you guys this year?

Well, let me not give you free cash flow, but let's stick with operating cash flow. They're fairly close to us in both cases since we have pretty minimal CapEx. And based on the guidance range, we've given – it's obviously pretty wide itself, it's just over $100 million to as much as $180 million and again that's just based on the revenue range we've provided.

Right. Perfect. Well you've given us more enough to think a lot and to have fun with as you put it Robert, so I think that's…

Sure. Thanks.

Next we’ll move to Jim Colgan with Frontier Capital.

So I look through your guidance on Slide 21 and just trying to make sure I fully understand it with the purchase accounting. So in the first quarter, if you were able to recognize revenue, your revenue would come in at $94 million and $96 million?

Yes, that's correct. You'd add another $34 million.

Okay. And for the fiscal year maybe the cash flow if you will instead of revenue if you add back $424 million to $500 million for the revenue range of $462 million midpoint?

That’s right.

That’s right, okay. So when I look at your non-GAAP range of $1.15 to $2.69, if I look at the cash flow that should occur given that you're going to not be able to recognize revenues to your non-GAAP earnings. Is it fair to say that the cash flow should be about $0.75 a share more than the non-GAAP EPS on both ranges the $1.15 and the $2.69?

Yes. The difference related to the purchase accounting is about $0.72. You need to tax effect that and I gave you the non-GAAP rate.

But Jim that’s impressive you did that so quickly. You got it.

Okay.

You can help Richard build this model.

Yes. So the cash flow is going to be pretty significant even if the relicensed didn't happen you're going to be close to $2 and then with the opportunity to be over $3 in free cash flow.

That's correct.

Okay. I think I understand where you went with this. Okay, thanks for the time. Appreciated.

No problem Jim.

And we’ll move to a follow-up question from Krish Sankar with Bank of America Merrill Lynch.

Hey, thanks for taking the follow-up. Just had two quick ones. One is what kind of seasonality does the DTS business have?

We’ve talked about this a little bit which is we're not providing specific seasonality for each of the pieces of the business, but rather said that if you look at it as a whole this were weighted more heavily to the second half to the degree of 55% to 60% of our revenue in the second half.

Is that what we should assume going forward? It is just a 2017 event?

I would stay with 2017 for now. I think when we get out a little bit more it's best that we give some closer guidance, but I think from where we're seeing it at the moment that's a good proxy to work with.

Gotcha. And then one quick follow-up. I think you guys mentioned in your prepared comments auto with 30% of revenues. I'm just curious is that all coming from the DTS side?

Yes.

Yes.

Got it.

30% of the product licensing revenue.

And that are for 2016, right?

Correct.

All right. Thank you. End of Q&A

And that will conclude today's question-and-answer session. At this time, I would like to turn the call back over to management for any additional or closing remarks.

Michele, thank you and thanks for hosting the call today. In summary, we're very pleased with our strategic and business performance in 2016, perhaps most importantly, hopefully it came through in the call today, and we are really excited about the prospects ahead of us and the exciting momentum we're experiencing as a result of the acquisition of DTS. The combination is truly compelling and we deliver strong cash flow and increasing value to our shareholders as we start to see revenue and operating synergies emerge. Again, as I'm sure you can tell Jon, Robert, and I are extremely confident and pleased with the opportunity set of our transform and effective today are now re-branded company Xperi. We have a deep and talented group of employees who are executing very well. The integration is fully on track and we expect to be able to generate meaningful growth as we address much larger market opportunities together than either of our standalone companies could previously. Again, thanks for your interest in Xperi. We look forward to seeing you guys on the road over the next few months and updating you on our next call. Again, thanks for joining us.

Thank you. That concludes today's call and thank you for your participation. You may now disconnect.