Please stand by we’re about to begin. Good day, everyone. Thank you for standing by. Welcome to the Xperi Fourth Quarter and Full 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 opened for questions. [Operator Instructions]. I would now like to turn the call over to Geri Weinfeld, Vice President of Investor Relations for Xperi. Geri, please go ahead.

Good afternoon, everyone. Thanks for joining us as we report our fourth quarter and full year 2021 financial results. With me on the call today are Jon Kirchner, CEO; and Robert Andersen, CFO. In addition to today’s earnings release, there is also an earnings presentation, which you can access along with the webcast or on our IR website. Before we begin, 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 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 discuss 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 exclude one-time or ongoing non-cash acquired intangibles 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, expensed debt refinancing costs, and related tax effects. We provide a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the earnings release and on the Investor Relations section of our website. The webcast of this conference call will be available on our Investor Relations website at www.xperi.com. I’ll now turn the call over to Xperi’s CEO, Jon Kirchner.

Thanks, Geri, and thanks everyone for joining us. To start, I’d like to thank the entire Xperi team for continuing to successfully deliver against the key strategic objectives we set following our merger with TiVo nearly two years ago. We’ve accomplished a lot since we closed the merger amidst what turned out to be just the early innings of a global pandemic. I’m proud of how our team has been navigating the shifting pandemic challenges to position the company for success. Importantly, this has included creating two scale businesses poised to stand alone and deliver strong returns for our shareholders. For the IP Licensing business, we’ve strengthened the core cash flow engine, and have begun to build a much larger and more diversified IP platform, one with enhanced visibility and sustainability around its revenue streams. This past year, we continued to bolster the foundation of that business successfully completing license agreements with leading entertainment companies throughout the world, resulting in our announcement today of another step up in our average annual baseline revenue to $375 million. Additionally, we continue to make progress towards reestablishing our Semi IP business as the industry moves to adopt hybrid bonding, as is evidenced by the Micron announcement today. We also announced today that Samir Armaly, who has been running the IP business will depart Xperi on March 1. We came to this decision mutually with Samir, as we evaluated our collective needs for a CEO candidate that can lead the IP business as a publicly traded company over the long term. We’d like to thank Samir for his contributions, as he has made and seem terrific progress under his leadership. He and his team have strengthened the foundation for the future the IP business, which is sure to thrive as a standalone company. We’ve…

Thanks, Jon. Let me begin by reviewing our fourth quarter and full year results for 2021 on slide 12. Looking at the big picture for 2021, our operational discipline helped drive earnings well above our outlook from the beginning of the year. In particular, while our revenue was in the middle of our expectations for the year, spending was significantly below midpoint guidance ranges, a little lower than planned numbers for litigation, delayed spending within the IP business for personnel and outside services, and reduced spending in areas such as travel and product costs. The result was non-GAAP earnings per share of $2.03, roughly 17% higher than the $1.74 midpoint initially estimated at the beginning of the year. Total revenue for the fourth quarter was $214.4 million. This was down from 433.9 million in the fourth quarter of 2020, primarily due to a large back payment from Comcast agreement signed last year, which Jon noted earlier. Revenue for the full year for 2021 was $877.7 million compared to 2020 on a fully combined basis, revenue was down $269.7 million for three primary reasons; first, the significant Comcast back payment; second, we had some larger Semi IP agreements, where the revenue was recognized upfront in the first half of 2020; and third, within Consumer Electronics, we recognize more upfront revenue for minimum guarantee customer contracts in 2020 as compared to 2021. The total of these three items was approximately 300 million more than the total year-over-year difference. We also had year-over-year declines in traditional Pay-TV and Consumer Electronics that were more than offset by growth in IPTV, Connected Car, media platform, and incremental IP Licensing revenue. Non-GAAP operating expense for the quarter, including COGS was $163.6 million, down 9.3 million from a year ago, primarily due to lower compensation expense and…

[Operator Instructions] We’ll take our first question from Hamed Khorsand with BWS Financial, please go ahead.

Hi. Just a first off, could you just talk about the Micron license agreement? And I understand you’re recognizing the license payment upfront but how about just as far as the ongoing license you would receive from the royalties? When would that kick in? What’s the timeline for that?

Yeah, Hamed Good question. The financial terms of the license agreement itself are confidential but what I can tell you is that, due to ASC 606, a meaningful amount of the revenue is recognized, and it’s included in our updated ‘22 revenue guidance. We expect additional revenue over to be recognized in future periods.

Okay. And then, about your Connected Car, what is the timing of these 16 that are in trials? You’ve been talking a lot about in the past year, about these different manufacturers testing it out. So now you’re providing a number? Is there a concise timeline as to you expect these models to be eventually approved, then on the market?

We expect kind of acceleration of adoption, as we get into ‘23, ‘24, ‘25 timeframe. Unfortunately, we don’t have direct visibility into the exact timing of when certain things may happen. Our customers don’t necessarily provide that information. It also depends on kind of what head unit platforms they’re using as well, and what their timing in kind of cycling those through maybe. But in short it’s all part of a process that we’ve been on and I think we continue to see good traction. And we believe that, as expected, as we move through the next couple of years, we’ll see increasing adoption and really start to see those solutions take flight.

And last question for me, on the Media Platform side, do you expect that that segment of the business to actually be a contributor to earnings?

I think if you’re saying from a profitability standpoint, well, we don’t we don’t really break the segments out from an operating profit standpoint. So I can’t give you a crisp answer on that. We do -- what I will tell you is, we do expect it to grow, and to contribute meaningfully going forward.

Yes, but I mean, you’ve been basically giving away those Stream 4K dongles, right, for $29 or $39 expecting users to go up so you could get profits from. Are you reaching scale that it’s a contributing factor or are we still a year or two out before seeing anything of a contribution standpoint?

Yeah, I think we are still smaller scale and where we’re going with it, given building out all the pieces of a long-term monetization play. But here’s what I can tell you, Hamed, is that this Stream 4K dongles are -- they’re an element of the broader strategy but what we expect is that the embedded OS strategy will drive significantly more footprint and installation base that over time will not only support the investments we’ve made, but ultimately, yes, will be an important part of growth and profitability as we look ahead a couple of years from now.

Okay, thank you.

Thank you. We’ll take our next question from Richard Shannon with Craig-Hallum.

Hi, guys, thanks for taking my question as well. I think I’ll follow up on two of the prior questions here. Just quickly with Micron, can you characterize the term of the license? How is it compared to other large memory licensees in the past?

I think we can say that it’s a multi-year license agreement, and probably duration is not dissimilar than licenses in the past. Beyond that, we really can’t say much more.

Okay, fair enough. Following up on the AutoStage topic here, Jon, you answered in terms of timing of these wins? And it’s obviously understandable, not necessarily knowing that, but are these situations in which there is competition for the winds here? Or is it more down to kind of get dotting eyes and crossing Ts getting the last testing done here? And if it’s more competitive, who would you be competing against there?

There’s really nobody that has a comparative compatible competitive solution. There are certainly people in the market that have pieces of the feature offering in different places such as Europe, for example. But I would characterize our pipeline as having a mix of all of the above, which is we have people that are much further along that are obviously, excuse me, validating the use of the system. We have others that are more earlier stage and doing, if you will, comparable analyses of how do all these features play relative to maybe a slightly lighter offering. But in general directionally, we’ve been on this journey as you commonly are in automotive because of long product cycles and testing cycles, etc. But we are, I think, very, very enthused with the continued progress we’re making towards what we expect to be a significant contributor in both AutoSense and AutoStage, as we look ahead over the next couple of years, but the exact timing and the exact ramp rate will, in part, depend on when people complete some of the work that they’re doing and, obviously, give us further information.

Okay. So I guess so you would characterize the competitive environment as someone wants a more full-featured solution, they would choose to Xperi something more bare bones might be some someone else, is that fair or is there more direct competition going on here?

Yeah, that’s a fair characterization.

Okay, fair enough. Let me touch on Toyota and HD radio here. Obviously a nice win there, with US cars, I can’t recall and could search for quickly to notice for the event in Toyota in international markets. I guess, maybe understanding that as well as the overlap of -- well, let me let me just start with that question.

So this is an HD Radio related wins, so primarily North America focused, and Toyota has been a valued customer for some time, although the extent of their prior implementation was kind of your midline and upper end vehicles. I think this represents a decision recognized the importance of HD radio in the broader infotainment suite and thus the decision to moving forward, put it in all the vehicles. So I think it’s representative of the continued progress we continue to make with the HD Radio ecosystem in North America and obviously, it lays the foundation as well for follow on next generation entertainment features, which kind of ties into what we’re doing with AutoStage and others. But we’re certainly pleased and value the relationship with Toyota significantly.

Okay. That’s helpful. Maybe jumping over to the numbers side here with the sales numbers for the year. Jon, I mean, may not have been able to catch all of the -- well, I guess, from both of you and your comments about how to think about the total revenue number of 910, 950 for the year. You gave us a new baseline for the IP business was 375. I think what I heard was related to Micron that there -- since there’s some upfront here, this isn’t part of the baseline, but implicit in this would be a number somewhat higher than 375 for the year. Did I understand that correctly?

That’s correct. Yes.

Okay. Obviously, you haven’t given us a sense of what the -- how much that is here. But I guess maybe just kind of trying to delve into the other side of this being the product business, what -- any way to help us characterize it, probably not going to quantify it, but can you characterize what level of growth we should see overall in products in this year?

We’re currently forecasting low single digit growth in the product area for the year. I mean, I can lay out a little bit more in terms of the opportunities we see in terms of growth that’s helpful. Let me go ahead and do that. I think that’s on the high end, or as we’re seeing the growth, we expect that, as we get out of some of the supply chain issued, we’d expect improved per unit reports in Consumer Electronics, growth in IPTV services, higher ad monetization within the Media Platforms, and then favorable outcomes in the IP Licensing for OTT.

Okay. Okay, fair enough. Maybe one or two last quick questions here. Jon, on the IP spin off here, you’re talking about spin off in the fall. To what degree is this contingent upon things like supply chain that are largely under your control? And could that possibly slip if we get continued issues there? And what other risks do we have in terms of that timing?

I think we feel that, operationally, we are well on our way to clearly putting ourselves in a position to affect the separation. And I think we’ve taken into account, as we’ve looked at the product business, and both its prospects and continued transformation in the course of ‘22 as well as ‘23 and I think we feel very good that we can execute the separation, as we plan on the fall. To the extent that there is some kind of a major unforeseen out of left field some event that dramatically changes the prospects for the product business in the near term, obviously, we would have to factor that in, as we think about it. But as we sit here today, with kind of a, if you will, a range of outcomes we expect in the various markets as well as what we believe our visibility is into, as we think about ‘23 growth, which we can see some things that we’re excited about. We feel pretty good, very good, confident that we will complete the separation, as we indicated, in the fall.

Okay, fair enough. Maybe just one last quick question. I’ll jump out a line here. If you could repeat for me that the definition or the assumptions built into the kind of the IP business, specifically around renewables, what’s built in there, and then I think you kind of referred to certain number of deals that you’re hoping to renew this year, the amount of the renewables, are those similar to what we’ve seen in past years or how would you characterize the scale of, I guess, revenue replacement or renewal that’s required this year?

Yeah, think of the annual baseline as an average. And so in some cases -- some years it’ll be higher and some cases lower. I think in the past that range is generally about plus or minus 10%. One of the factors that can impact that number, which now set up a 375 is catch up or upfront fees. As it is typical, some of the deals include catch up or upfront license fees that don’t figure into our ongoing average annual baseline. So hopefully that helps answer your question.

Okay. Yeah, I think that does. I think that’ll be all for me, guys. Thank you very much.

Thank you. We’ll now take our final question from Matthew Galinko with Maxim Group.

Hey, good afternoon, and thanks for taking my questions. I guess, looking at Perceive, couple of questions there. Do you have an updated view on when the first products may come to market?

I think we said last call that we expected the first products within the next 12 to 18 months, a couple of this was last fall. I think as we sit here today, we’ve got various people in different stages of evaluation and so I think within the next 12 months, I would expect that we’ll see the first products come to market. But I think it continues to be the case, as we’ve just completed delivering some customer beta tools that are allowing people to do a significant amount of further development and evaluation that it’s naturally going to depend on some of their timeframes and how they pull through into various products. But we are completely not only convinced that we have some very exciting technology, but the feedback we continue to get remains very strong. So obviously, we’re doing everything we can to help people along in their process, and anxiously and excitedly await the release of the first product, so others can maybe get a better glimpse into what we’ve been working on now for quite some time.

Thanks. That’s helpful. And then can you -- I think you mentioned sort of being in beta with the software stack developer kit, can you talk about how close that is to being release ready to make it more of a sort of, I don’t know, bigger go to market push, if you will? Are we close to that point where it’s polished or are you still kind of in the early stages of a beta, and it’s going to take a few more iterations to really bring that to market?

We have been aggressively working on the tools, I think, as you know, for the better part of the last year. And I think, as we sit here today, we’re very well on our way to, in short order, to being able to turn tools over to customers in ways that allow them to basically utilize the platform without us having to do a tremendous amount of hand holding and that the core elements of those tools really provide customers what they need, as they evaluate the platform. So, in short, as we had anticipated a while ago, that work is coming to an end, and I think it really sets up our ability to much more aggressively go out and try to sell into the market. But as I was saying earlier, most importantly, we’re focused on helping those that are already under evaluation and doing, I think, important work with our help to make sure that they can fully work through and enable the platform in ways that can differentiate their products and get those first products to market. So we’ve got kind of a dual set of priorities going on. One is obviously the completion of the tools in a broader sense, but the second is ensuring that the things we have in motion, we can ensure that they get over the finish line.

Got it. Okay. Maybe just lastly for me, in your timeline to addressing the NAND player hybrid bonding?

Well, I think we continue to, obviously, see trends that people are not only going to adopt hybrid bonding, but that it’s going to be a key differentiating technology in memory, as well as in other areas, such as logic and more. And so I think you can reasonably conclude that we know who all those players are, and that we’ve entertained conversations and will continue to and I think the good news about Micron is it sends another important message to the rest of the industry that is not yet licensed. You know, that it -- that there’s an element of confidence around the importance of the IP and ultimately the utilization of this technology to ensure long-term competitiveness. So, I can’t give you a timeframe because it’s always difficult to say when licenses will conclude, particularly, the more technical evaluations that go on in the semi space. But what I can tell you is we’re well on top of where the licensing opportunities exist and naturally looking to work to add value for our partners as best we can.

Great. All right. Thank you.

Thank you. That does conclude today’s question and answer session. I’d like to turn the conference back over to Mr. Kirchner for any additional or closing remarks.

Thank you, operator and thanks, everyone for joining today’s call. We’ve had a strong start to 2022 and look forward to achieving many important milestones this year. We look forward to keeping you updated on our progress in the coming months. Thank you for joining today.

Thank you. That does conclude today’s conference. We do thank you all for your participation and you may now disconnect.