Thank you for standing by and welcome to the Xperi Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I’d now like to turn the call over to Mike Iburg, Head of Investor Relations. You may begin.

Thank you, operator. Good day everyone. Thank you for standing by and welcome to Xperi’s third quarter 2024 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, there will be an open Q&A session. I will now like to turn – sorry, good afternoon and thank you for joining us today as Xperi reports its third quarter 2024 financial results. With me on today’s call are Jon Kirchner, Chief Executive Officer; Robert Andersen, Chief Financial Officer. In addition to today’s earnings release, there is a presentation which can be accessed along with this webcast on our investor relations website at investor.xperi.com. Before we begin, I’d like to provide a few reminders. First, I’d like to note that unless otherwise stated, all comparisons are to the same period in the prior year. Second, today’s discussion contains forward-looking statements about our business – anticipated business and financial performance that are predictions, projections and other statements about future events, which are based on management’s expectations and beliefs and therefore subject to risks and uncertainties and changes in circumstances. For more information on the risks and uncertainties that could cause our financial results to differ materially from we discussed today, please refer to our Risk Factors and MD&A section of our SEC filings, including our most recent Form 10-K and 10-Q. Please note that the company does not intend to update or alter these forward-looking statements to reflect the 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 the most directly comparable GAAP measure, 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 will now turn the call over to our CEO, Jon Kirchner.

Thank you, Mike, and thank you everyone for joining us on our third quarter 2024 earnings call. Our successful efforts in streamlining the business through our multi-year cost transformation efforts are increasingly showing results, while quarterly results will naturally fluctuate. We believe our performance this quarter provides an important indication of our ability to increase the margin profile for the business over the next several years as we work to continue to drive strategic growth and optimize costs. I’ll let Robert walk you through the financial details in just a moment, but let me first provide a brief overview of the quarter. The macro environment in which we operate has been and may continue to be mixed. Inflation, reduced discretionary spending, CE and global automotive challenges have impacted our business and we’ve seen some partner delays with respect to the timing of certain rollouts of our TiVo OS Smart TVs. That said, we continue to see demand for our differentiated solutions and are making strategic progress in the areas of the business that we expect to drive significant long term growth. Importantly, we continue to focus our business and media platforms and licensing as we believe these have the greatest long-term growth and profit potential. To this end, we have now completed a period of product rationalization with the sale of the AutoSense and related imaging business as well as the recent sale of Perceive. While each divestiture results in a reduction in run rate revenue, they also contribute a meaningful step forward in profitability and strategic focus. The positive effects of the AutoSense sale and our continued business transformation efforts can be seen in the profitability numbers posted today. Turning to the quarter just reported. Strong performance in Pay TV and Connected Car were the highlights in the quarter.…

Thanks Jon. With that backdrop, let me now discuss the quarter’s financial results. Total revenue for the third quarter was approximately $133 million, up 2% from last year’s recorded revenue and up 6% when adjusting for the AutoSense and related imaging solutions divestiture 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. Pay TV, our largest revenue category is up 35% compared to last year bringing year-to-date Pay TV revenue to up 12% compared to the first nine months of last year. The Q3 increase was primarily driven by a large multi-year classic guides minimum guarantee deal in core Pay TV. The structure of the deal required us to recognize most of the revenue upfront even though the cash will be collected over time. This deal also reduces the expected rate of core Pay TV decline for the year. Pay TV also benefited from IPTV growth, which continued its trend of double-digit year-over-year revenue growth. Consumer electronics was down 38% in part due to prior-year minimum guarantee agreements along with lower royalty revenue in Q3 from market-based softness in certain end products such as gaming consoles. Connected Car was up 11% year-over-year due primarily to higher revenue from the auto stage and was up 25% year-to-date due to the significant multi-year program with an Asia-based Tier 1 automotive supplier for our DTS in-cabin codec that occurred in the second quarter. Despite this growth, we are seeing signs of weakness in the automotive market as we enter Q4. Media platform was down 39% in the quarter due primarily to minimum guarantee deals that occurred last year for our core middleware products and was down 18% year-to-date, while the trends within…

Thank you. [Operator Instructions] Your first question comes from the line of Jason Kreyer from Craig-Hallum Capital. Your line is open.

Great, thank you. This is Cal [ph] on for Jason here. So I just kind of wanted to start with some of the puts and takes on what you’re seeing with the TiVo OS device shipments. I know you noted something kind of getting pushed into 2025, but it sounds like broadly things are kind of accelerating here. So just wanted to get a sense of your confidence in reaching that 2 million unit goal by the year end? And is there any way to quantify that kind of implies about 5 million units for next year to hit your goal. I mean, is there any kind of upside scenarios there given the acceleration you’ve seen there?

Well, I think we’re both comfortable that roundabout year-end we’ll hit the 2 million mark and we have visibility. So there’s – there’s certainly been compared to when we expected to see some of these units kind of shift more in the summer timeframe, some things that push later in the year. So while that isn’t necessarily favorable given our attempt to get that viewership beginning to be monetized, and that’s what’s shifting into 2025. We still feel very good about both the pipeline and the increased activity, and as we said on the call we’re seeing accelerating activity. And as it relates to 2025, we have very good line of sight with evermore partners coming online to, I think, our ability to achieve that goal of 7 million units as we exit 2025 into 2026. So, overall I think we feel very good about the strategic progress despite a little bit of short-term delay as people have moved some things around. And I think an important thing to understand is we don’t control the timing on a lot of this as well that we’re an ingredient provider but other people are making decisions about the market, the industry and their own needs.

Perfect. And then I guess, secondly for me. Can you kind of just give, I know it’s kind of early still, but just any update to some of the monetization you’re seeing on TiVo OS and maybe just kind of give us a sense of some of the monetization tailwinds you would expect to see as you continue to achieve a greater scale in some of these markets?

Well, I think, at this point the monetization revenue is not material in part because the footprint still remains relatively small. One of the important things about ultimately monetizing footprint is you need certain scale within each market to begin to bundle audience segments that are both relevant and interesting to advertisers. So there’s nothing out there that we see that would indicate that we won’t be able to monetize the engagement and the viewership. Millions of hours are being consumed on these TVs that are more newly out there. So there will be an optimization equation that kind of as the audiences get bigger, as the footprint gets bigger, as you move through 2025 and into 2026 that will allow you to get more – drive more revenue. But in short, all the pieces we believe are in place and certainly the industry more broadly, this increasingly is the path for ad supported viewing where consumers are spending more – more time and energy in their entertainment choices.

Great, thank you very much.

Thank you Cal.

Your next question comes from the line of Steve Frankel from Rosenblatt. Your line is open.

Good afternoon, Jon. I want to follow up on this on TiVo OS and the delays you’re talking about in of some units coming to market. Does that include what you previously talked about in terms of an entry into the North American market for this holiday season?

We expect that a partner is heading into production here in late November for some U.S. destined TVs that should be here around year end. So, it remains to be seen as to how much of a presence they’ll have at that point. But I think we have every bit of confidence that as you get into 2025, you’ll see at least two of our partners in the U.S. market. And obviously we’re going to work aggressively to try to build, even on that footprint further to the extent again.

Yes. And so are you also saying you’re seeing some delays in Europe with some of the existing partners as well? Is this just volume relative to earlier expectations or partners that you thought would launch?

Yes, totally correct, Steve. It is. It has more to do with the volumes of when certain things are going to happen. We had expected certain volumes to hit, bigger earlier in summer and we’ve had some people push around their own plan, some cases move a little slower. And based on that, we’ve seen this time shift. But as I said, as you got into Q4, we’ve been seeing, folks kind of accelerate some of the things we expected a little bit earlier. So, it maintains for us, a high degree of confidence over, that our platform is being, I think, embraced by now, seven partners. They’re committed to it, they’re working with us. The plumbing [ph] is even though there may be smaller numbers of units out there as we’re approaching that million mark. We’re seeing that they are in fact activated, that they are connected and we’re getting data off these, these units, even though they’re a little bit more, let’s call it widely dispersed across various parts of Europe.

And it’s worth noting, Steve, these the units that have shipped and are in market, we’re getting good reviews from customers and are not being returned, which is absolutely critical. So it’s a good product, which I think matters a lot.

And Jon, your confidence in hitting the seven, does that depend on winning any new partners? Or do you think with the 7 million you have today, you could drive enough volume to hit the 7 million units?

The latter. We have all the partners we need to be able to drive those numbers or better.

Great. And then you also talked about some softness in the U.S. market. Are we talking here about end demand? Or are you talking about decision cycles maybe getting extended so you’re not getting designed in when you thought you would?

I think we’re seeing some softer demand in some cases. I mean, certainly things like game consoles being down relative to some of our expectations. I would say there hasn’t been any meaningful shifts in market share as we think about our more traditional CE businesses. And in automotive, while we continue to see good directional progress with what we’re doing strategically with things like AutoStage. We are seeing a bit of a weakening as you think about broader volumes out there. And you don’t have to go very far to look at the headlines on various automotive reports that all is not going swimmingly. And so I think we’re trying to manage through that. And again, this is about relative expectations that we may have had at the beginning of the year relative to the fact that, we might. We’re still seeing obviously positive progress.

Okay, great. Thank you.

Your next question comes from the line of Hamed Khorsand from BWS Financial. Your line is open.

Hi. So first question is, I guess the overhang that you’re talking about in the auto and consumer electronics market. That’s been a topic that’s been going on since the beginning of the year, even last year. So why did it take so long before you actually started to see it?

Well, you got to remember, Hamed we’ve got our products in a lot of different submarkets within CE and we build our kind of our annual guidance ranges based on a whole bunch of possible scenarios, puts and takes, allowing for the fact that things are almost always different by the time you get to the end of the year than maybe they were expected at the beginning, but usually within the zone you’re trying to lay out. I think a difference here is a combination of factors, including some expectations around what would be stronger reports later in the year turned out to be weaker. And based on that, we made the decision to adjust the range, but importantly, not only maintaining but even increasing our profitability, guidance.

Okay. And are you walking back from getting one more TV OEM before the end of the year?

Well, we originally said that our goal, our goal was to get one. We got that one. We got one. I think we are still working on a pipeline of other partners. So, certainly it is within the cards that that may occur as well, but so we’re not stopping from a pipeline development perspective, the good news is, is that, as Robert said, I think very well our product is getting very strong reviews and its function. And from a deployment perspective amongst their partners, the deployments have gone relatively smoothly. Little to no product is coming back, which is critical in the TV space. And I think we’re going to be able to build on that as other potential partners are looking at this possibility and thinking about how do they, potentially join the platform.

Okay. And then Robert, can you help bridge this operating cash flow a little bit better than how you described it? I mean, that’s a quite a big chunk going away and you’re assuming it comes back next year?

Well, it’s. Yes, it’s a question of, what did we expect at the beginning of the year and how has that changed. And so I described it as three primary things. Number one is, just the level of minimum guarantee deals that we’ve done this year. It is higher from what we’re forecasting at the moment. And keep in mind, a minimum guarantee deal is very good business for us because it gives us certainty to our relationship with that customer. But the RevRec [ph] rules are such that we generally take most of the revenue upfront and collect the cash over the duration of the contract. The contract lengths for MGs are kind of two or three years. And so that’s generally the period of time that we see it. So, I would say that’s probably of this difference, maybe 30 million of that. When we look at the probably number two issue is unusual items that occur during the year. Most of these are related to the divestiture, primarily related to Perceive and this is transaction costs, severance costs, cash taxes, and other business transformation pieces that we hadn’t estimated at the beginning of the year, but that actually impact cash, even though we may pro forma these out on a non-GAAP basis. So, and I think the last one is just that we have slightly lower revenue that we guided. So that’s kind of the three pieces. Does that help clarify how to think about this?

A little bit. But let me ask another question. Is that if you’re running on a non-GAAP basis profitably and you’re adjust EBITDA positive, given the accounts receivable on the balance sheet, does that mean you end next year with something like $300 million in cash?

I don’t, I’m not in a position to guide next year for cash. But I think you can assume that as we collect the cash from these minimum guarantee deals, as long as our level doesn’t increase of doing MGs, our level of cash collection will be higher than fundamentally than revenue.

You have something like $125 million unbilled and then another hundred and change and build accounts receivable and then you have another $100 million cash. So that’s where I’m getting my numbers. I’m just trying to have confidence your accounts receivable.

Well, I do as well. I mean, we have not had a collection, broad collection issues, near term challenges, but that we, our collections have been consistent and strong. We have high quality partners that we work with. So I mentioned on the call of the $125 million that you mentioned in the unbilled receivables and roughly two-thirds of that is current. To the extent it’ll be billed within the next 12 months and converted into cash, I think that’s worth understanding as well, Hamed.

Okay, thank you.

Thank you.

And there are no further questions at this time. I will turn the call back over to Jon Kirchner for some final closing remarks.

Thanks, Operator and thanks everyone for joining us on today’s call. We’re pleased with our continued strategic and financial progress and we look forward to reviewing our Q4 results with you in February. Operator, this concludes today’s call.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.