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Xperi Corporation Announces Fourth Quarter and Full Year 2017 Results
[February 13, 2018]

Xperi Corporation Announces Fourth Quarter and Full Year 2017 Results


Xperi Corporation (Nasdaq: XPER) (the "Company" or "we") today announced financial results for the fourth quarter and full year ended December 31, 2017.

"2017 was a year of change for our company and despite some challenges, we achieved a number of significant milestones which we believe will drive meaningful long-term shareholder value," said Jon Kirchner, chief executive officer of Xperi. "We successfully completed the integration of Tessera and DTS, met our synergy targets, and now operate as one company. Importantly, we refined Xperi's long-term strategy to better position us to drive long term growth, increased cash flow and enhanced shareholder value. Over the year, we generated $147 million in operating cash flow, returned approximately $55 million to shareholders in the form of dividends and stock repurchases, and paid down $100 million of debt just after year end."



           
Financial Highlights

($ in millions, except per share data)

       

Q4 2017

 

Q4 2016

 

FY 2017

 

FY 2016

                     
Revenue       $126.6   $70.1   $373.7   $259.6
GAAP Net Income (Loss)       $5.6   $(9.3)   $(56.6)   $56.1
Non-GAAP Net Income       $40.1   $23.3   $71.8   $106.7
GAAP EPS (LPS)       $0.111  

$(0.19)

  $(1.15)   $1.12
Non-GAAP EPS       $0.77   $0.45   $1.37   $2.06
                     
Other Relevant Metrics      

Q4 2017

 

Q4 2016

 

FY 2017

 

FY 2016

Purchase Accounting Impact       $6.0 2   $0   $51.62   $0
Operating Cash Flow       $61.6   $40.6   $147.3   $153.9
Cash, Cash Equivalents & S-T Investments       $200.7   $113.0   $200.7   $113.0
Total Debt       $594.0   $600.0   $594.0   $600.0
Debt Principal Paid       $1.5   $0   $6.0   $0
 

1 GAAP EPS for Q4 2017 reflects the impact of tax adjustments, primarily from the Tax Cuts and Jobs Act, which increased the tax provision by approximately $6.3 million as compared to the estimate in the Company's preliminary GAAP EPS disclosure on January 24, 2018. This adjustment reduced the Company's earnings per share from the previous estimate of $0.24 per diluted share to $0.11 per diluted share.

2 Purchase Accounting Impact represents receipts from contracts with customers that are not recorded as revenue due to purchase accounting rules, but which would have been recorded as revenue if not for the acquisition of DTS. Internally, management includes the cash flow impact from these contracts when evaluating the Company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team.

Stock Repurchase Program

During the fourth quarter of 2017, the Company repurchased approximately 269 thousand shares of common stock for an aggregate amount of $5.3 million. These purchases were executed under the Company's stock repurchase program. As of December 31, 2017, the Company had approximately $142.8 million remaining under its current repurchase program.

Dividends

On December 13, 2017, the Company paid $9.9 million to stockholders of record on November 22, 2017, for the quarterly cash dividend of $0.20 per share of common stock.

Additionally, on February 1, 2018, the Board of Directors approved a regular quarterly dividend of $0.20 per share of common stock, payable on March 22, 2018, to stockholders of record on March 1, 2018.

Debt Repricing

On January 23, 2018, the Company completed a successful repricing of its Term B Loans, reducing its borrowing rate by 75 basis points, to a new rate of Libor plus 250 basis points. In connection with the repricing, the Company paid down $100 million of its outstanding debt.

Financial Guidance

Consequent with the introduction of the new revenue accounting standard, ASC 606, the Company announced it would begin using billings as a key measure of business progress. As a result, the Company's outlook is now based on billings rather than revenue. For additional information regarding the Company's approach to guidance, please review the "ASC 606 Business Metrics and Guidance Approach" presentation given by the Company on January 25, 2018 at http://investor.xperi.com/events.cfm.

                 

Q1 2018

     

GAAP Outlook

     

Non-GAAP Outlook

Billings

      $99M to 104M       $99M to 104M
           
                 

FY 2018

     

GAAP Outlook

     

Non-GAAP Outlook

Billings

      $415M to 445M       $415M to 445M

Operating Expense

      $394M to 412M       $245M to 263M

Cash Tax Payments

      $16M to 20M       $16M to 20M

Fully Diluted Shares

      50.5 million       52.5 million

Operating Cash Flow

      $120M to 145M       $120M to 145M
 

Conference Call Information

The Company will hold its fourth quarter 2017, earnings conference call at 2:00 PM Pacific time (5:00 PM Eastern time) on Tuesday, February 13, 2018. To access the call in the U.S., please dial +1 800-239-9838, and for international callers dial +1 323-794-2551, approximately 15 minutes prior to the start of the conference call. The conference ID is 8471030. The conference call will also be broadcast live over the Internet at www.xperi.com and available for replay for 90 days at www.xperi.com.

Safe Harbor Statement

This press release contains forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those projected, particularly with respect to the Company's financial results and guidance and the Company's long-term strategy. Material factors that may cause results to differ from the statements made include the plans or operations relating to the businesses of the Company; market or industry conditions; changes in patent laws, regulation or enforcement, or other factors that might affect the Company's ability to protect or realize the value of its intellectual property; the expiration of license agreements and the cessation of related royalty income; the failure, inability or refusal of licensees to pay royalties; initiation, delays, setbacks or losses relating to the Company's intellectual property or intellectual property litigations, or invalidation or limitation of key patents; fluctuations in operating results due to the timing of new license agreements and royalties, or due to legal costs; the risk of a decline in demand for semiconductors and products utilizing our audio and imaging technologies; failure by the industry to use technologies covered by the Company's patents; the expiration of the Company's patents; the Company's ability to successfully complete and integrate acquisitions of businesses; the risk of loss of, or decreases in production orders from, customers of acquired businesses; financial and regulatory risks associated with the international nature of the Company's businesses; failure of the Company's products to achieve technological feasibility or profitability; failure to successfully commercialize the Company's products; changes in demand for the products of the Company's customers; limited opportunities to license technologies due to high concentration in applicable markets for such technologies; the impact of competing technologies on the demand for the Company's technologies; and other developments in the markets in which the Company operates, as well as management's response to any of the aforementioned factors. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this release.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the Risk Factors included in the Company's recent reports on Form 10-K and Form 10-Q and other documents of the Company on file with the Securities and Exchange Commission (the "SEC"). The Company's SEC filings are available publicly on the SEC's website at www.sec.gov. Any forward-looking statements made or incorporated by reference herein are qualified in their entirety by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company or its business or operations. Except to the extent required by applicable law, the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

About Xperi Corporation

Xperi Corporation (Nasdaq: XPER) and its brands, DTS, FotoNation, HD Radio, Invensas and Tessera, are dedicated to creating innovative technology solutions that enable extraordinary experiences for people around the world. Xperi's solutions are licensed by hundreds of leading global partners and have shipped in billions of products in areas including premium audio, broadcast, automotive, computational imaging, computer vision, mobile computing and communications, memory, data storage, and 3D semiconductor interconnect and packaging. For more information, please call 408-321-6000 or visit www.xperi.com.

Xperi, DTS, Invensas, FotoNation, HD Radio, Tessera and their respective logos are trademarks or registered trademarks of affiliated companies of Xperi Corporation in the United States and other countries. All other company, brand and product names may be trademarks or registered trademarks of their respective companies.

Recurring and IP Episodic Revenue

Recurring revenue is defined as revenue from a license agreement or other agreement that is scheduled to occur over at least one year of time. IP episodic revenue is Semiconductor and IP licensing business revenue payable within one year pursuant to a contract. IP episodic revenue includes non-recurring engineering fees, initial license fees, back payments resulting from audits, damages awarded by courts or other tribunals, and lump sum settlement payments.

Importantly, a source of IP episodic revenue may become a source of recurring revenue, when, for example, a company settles litigation with the Company by paying a settlement amount and entering into a license agreement that calls for an initial license fee and ongoing royalty payment over several years. In this scenario, the settlement amount would be episodic revenue, as would the initial license fee, and the ongoing royalties would be recurring revenue.

Non-GAAP Financial Measures

In addition to disclosing financial results calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP), the Company's earnings release contains non-GAAP financial measures adjusted for discontinued operations, either one-time or ongoing non-cash acquired intangibles amortization charges, acquired in-process research and development, acquisition and related expenses, all forms of stock-based compensation, restructuring and other related exit costs, and related tax effects. The non-GAAP financial measures also exclude the effects of FASB Accounting Standards Codification 718, "Stock Compensation" upon the number of diluted shares used in calculating non-GAAP earnings per share. Management believes that the non-GAAP measures used in this release provide investors with important perspectives into the Company's ongoing business performance. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. All financial data is presented on a GAAP basis except where the Company indicates its presentation is on a non-GAAP basis.

Set forth below are reconciliations of Company's reported GAAP net income (loss) to non-GAAP net income and GAAP to non-GAAP operating expenses guidance for 2018.

Xperi PR:
Jordan Miller, +1 818-436-1082
jordan.miller@xperi.com
or
Xperi Investor Relations:
Geri Weinfeld, +1 818-436-1231
geri.weinfeld@xperi.com

SOURCE: XPERI CORP
XPER-E

   

XPERI CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
December 31, December 31,
2017 2016*
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 138,260 $ 65,626
Short-term investments 62,432 47,379
Accounts receivable, net 17,010 15,863
Unbilled contract receivables 10,866 51,923
Other current assets   16,949     19,150  

Total current assets

  245,517     199,941  
 
Property and equipment, net 34,442 38,855
Intangible assets, net 431,789 541,879
Goodwill 385,574 382,963
Other assets   12,702     22,798  

Total assets

$ 1,110,024   $ 1,186,436  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,233 $ 7,531
Accrued legal fees 7,483 7,505
Accrued liabilities 47,969 29,086
Current portion of long-term debt 34,451 6,000
Deferred revenue   2,686     895  

Total current liabilities

  96,822     51,017  
 
Long-term deferred tax liabilities 15,085 32,565
Long-term debt, net 545,211 577,239
Other long-term liabilities 17,330 17,830
 
Stockholders' equity:
Common stock 60 59
Additional paid-in capital 686,660 644,194
Treasury stock (319,397 ) (300,114 )
Accumulated other comprehensive loss (303 ) (148 )
Retained earnings   68,556     163,794  

Total stockholders' equity

  435,576     507,785  
 

Total liabilities and stockholders' equity

$ 1,110,024   $ 1,186,436  
 
* Derived from audited financial statements
 
       
XPERI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017 2016 2017 2016

Revenue:

Royalty and license fees

$ 126,647   $ 70,135   $ 373,732   $ 259,565  

Total revenue

  126,647     70,135     373,732     259,565  
Operating expenses:

Cost of revenue

1,938 313 6,308 551

Research, development and other related costs

27,684 15,740 105,849 44,738

Selling, general and administrative

36,446 37,315 144,649 72,065

Amortization expense

27,455 13,744 111,930 31,870

Litigation expense

  9,129     8,531     36,496     20,953  

Total operating expenses

  102,652     75,643     405,232     170,177  
Operating income (loss) 23,995 (5,508 ) (31,500 ) 89,388
Interest expense (7,416 ) (2,409 ) (28,292 ) (2,409 )
Other income and expense, net   444     1,264     1,449     3,736  
Income (loss) before taxes 17,023 (6,653 ) (58,343 ) 90,715
Provision for (benefit from) income taxes   11,379     2,649     (1,785 )   34,626  
Net income (loss) $ 5,644   $ (9,302 ) $ (56,558 ) $ 56,089  
Basic and diluted net income (loss) per share:
 

Net income (loss) per share - basic

$ 0.11   $ (0.19 ) $ (1.15 ) $ 1.14  

Net income (loss) per share - diluted

$ 0.11   $ (0.19 ) $ (1.15 ) $ 1.12  
Cash dividends declared per share $ 0.20   $ 0.20   $ 0.80   $ 0.80  

Weighted average number of shares used in per share calculations - basic

  49,217     48,603     49,251     49,187  

Weighted average number of shares used in per share calculations - diluted

  49,638     48,603     49,251     50,190  
 
 
XPERI CORPORATION

RECONCILIATION FROM GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME

(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017 2016 2017 2016
 
GAAP net income (loss) $ 5,644 $ (9,302 ) $ (56,558 ) $ 56,089
 
 
Adjustments to GAAP net income:
Stock-based compensation expense:
Research, development and other 3,853 3,042 13,277 7,104
Selling, general and administrative 5,648 7,019 20,185 13,997
Amortization of acquired intangibles 27,455 13,744 111,930 31,870
Acquisition transaction costs 9,339 1,837 11,100
Severance from DTS acquisition:
Research, development and other 510 1,379 734 1,379
Selling, general and administrative 350 4,716 638 4,716
Post acquisition retention bonus to DTS employees:
Research, development and other 883 255 3,375 255
Selling, general and administrative 2,785 986 11,128 986
Insurance settlement - - - (5,000 )
Tax adjustments for non-GAAP items (7,051 ) (7,837 ) (34,785 ) (15,774 )
       
Non-GAAP net income $ 40,077   $ 23,341   $ 71,761   $ 106,722  
 
Non-GAAP net income per share - diluted $ 0.77   $ 0.45   $ 1.37   $ 2.06  
Weighted average number of shares used in per share
calculations excluding the effects of stock based compensation - diluted   52,344     51,321     52,238     51,884  
 
 
 
XPERI CORPORATION
EPISODIC AND RECURRING REVENUE
(in thousands)
(unaudited)
 
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017 2016 2017 2016
Revenue:

Episodic

$ 36,073 $ 10,100 $ 39,823 $ 15,786

Recurring

  90,574     60,035     333,909     243,779  

Total revenue

$ 126,647   $ 70,135   $ 373,732   $ 259,565  
 
               
XPERI CORPORATION
RECONCILIATION FOR GUIDANCE ON
GAAP TO NON-GAAP OPERATING EXPENSE
(in millions)
(unaudited)
 
Twelve months ended
December 31, 2018
Low High
 

Cost of revenue

$ 7 $ 10
R&D expense 115 121
SG&A expense 133 137
Litigation expense 30 35
Amortization   109     109  
GAAP expense   394     412  
 
Stock-based compensation - R&D (15 ) (15 )
Stock-based compensation - SG&A (22 ) (22 )
Acquisition & Related Expense - SG&A (3 ) (3 )
Amortization   (109 )   (109 )
Total of non-GAAP adjustments   (149 )   (149 )
   
Non-GAAP expense $ 245   $ 263  
 


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