Xperi Corporation Announces Fourth Quarter and Full Year 2018 Results

SAN JOSE, Calif.–(BUSINESS WIRE)–Xperi Corporation (Nasdaq: XPER) (the “Company” or “we”) today announced
financial results for the fourth quarter and full year ended December
31, 2018.

2018 was a good year for Xperi. We continued to deliver on our
strategic vision and reached several important milestones within each of
our markets. HD Radio penetration reached 52% of new cars sold in North
America, we signed a significant partnership with IMAX that will help
drive future codec penetration in the home and beyond and we released
our 3D Facial Recognition technology that we expect a partner to launch
in a new smartphone this quarter. Notably, in December we reached a
significant settlement with Samsung in our IP licensing business, and
interest in our hybrid bonding technologies continues to grow,” said Jon
Kirchner, chief executive officer of Xperi.

Financial Highlights

($ and share count in thousands)

      GAAP       Non-GAAP
        Q4 2018     Q4 2017 Q4 2018     Q4 2017
Billings 1       $ 141,798     $ 130,209 $ 141,798     $ 130,209
Total Operating Expense 2       $ 100,444     $ 102,652 $ 64,636     $ 61,168
Interest Expense 1       $ 6,804     $ 7,416 $ 6,804     $ 7,416
Other Income / (Expense) 2       $ 1,475     $ 444 $ 1,329     $ 444
Cash Tax Payments 1       $ 10,911     $ 4,064 $ 10,911     $ 4,064
                       
Diluted Shares Outstanding       48,559     49,638   51,241     52,344
       
Other Relevant Metrics               Q4 2018         Q4 2017
Operating Cash Flow               $ 66,500         $ 61,496
                     
      GAAP       Non-GAAP
        FY 2018     FY 2017 FY 2018     FY 2017
Billings 1       $ 447,347     $ 422,476 $ 447,347     $ 422,476
Total Operating Expense 2       $ 382,153     $ 405,232 $ 240,181     $ 242,128
Interest Expense 1       $ 25,665     $ 28,292 $ 25,665     $ 28,292
Other Income / (Expense) 2       $ 8,595     $ 1,449 $ 3,140     $ 1,449
Cash Tax Payments 1       $ 23,679     $ 15,678 $ 23,679     $ 15,678
                       
Diluted Shares Outstanding       48,823     49,251   51,573     52,238
       
Other Relevant Metrics       FY 2018     FY 2017
Operating Cash Flow 3       $ 135,133     $ 147,265
Cash, Cash Equivalents and S-T Investments       $ 154,364     $ 200,692
1   Measures are the same for both the GAAP and Non-GAAP presentation.
2 See tables for reconciliations.
3 Operating Cash Flow is down year-over-year primarily due to higher
cash taxes and one-time retention bonuses paid in 2018 in connection
with the acquisition of DTS.

Stock Repurchase Program

During the fourth quarter of 2018, the Company repurchased approximately
305 thousand shares of common stock for an aggregate amount of $4.2
million. These purchases were executed under the Company’s stock
repurchase program. As of December 31, 2018, the Company had
approximately $101 million remaining under its current repurchase
program.

Dividends

On December 19, 2018, the Company paid $9.7 million to stockholders of
record on November 28, 2018, for the quarterly cash dividend of $0.20
per share of common stock.

Additionally, on January 30, 2019, the Board of Directors approved the
quarterly dividend of $0.20 per share of common stock, payable on March
27, 2019, to stockholders of record on March 13, 2019.

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 GAAP 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 https://investor.xperi.com/events-and-presentations/event-details/2018/ASC-606-Business-Metrics–Guidance-Approach/default.aspx.

Q1 2019

     

GAAP Outlook

     

Non-GAAP Outlook

Billings 1

      $102M to 106M       $102M to 106M

Operating Expense 2

      $89.5M to 92.5M       $56M to 59M

Interest Expense 1

      $7M       $7M

Other Income / (Expense) 2

      $2.4M       $0.4M

Cash Tax Payments 1

      $6.5M       $6.5M

Diluted Shares Outstanding

      49.5M       51.5M
1   Measures are the same for both the GAAP and Non-GAAP presentation.
2 See tables for reconciliations.

The Company’s 2019 outlook is as follows:

FY 2019

     

GAAP Outlook

     

Non-GAAP Outlook

Billings 1

      $395M to 415M       $395M to 415M

Operating Expense 2

      $357M to 372M       $225M to 240M

Interest Expense 1

      ~$26M       ~$26M

Other Income / (Expense) 2

      ~$8.7M       ~$1.5M

Cash Tax Payments 1

      $22M to 26M       $22M to 26M

Diluted Shares Outstanding

      50.0M       52.0M

Operating Cash Flow 1

      $120M to 140M       $120M to 140M
1   Measures are the same for both the GAAP and Non-GAAP presentation.
2 See tables for reconciliations

Conference Call Information

The Company will hold its fourth quarter 2018 earnings conference call
at 2:00 PM Pacific Time (5:00 PM Eastern Time) on Wednesday, February
20, 2019. To access the call in the U.S., please dial 1-877-260-1479,
and for international callers dial +1 334-323-0522, approximately 15
minutes prior to the start of the conference call. The conference ID is
5363783. The conference call will also be broadcast live over the
Internet at https://investor.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, the Company’s strategic
vision, and expected launch of the Company’s 3D Facial Recognition
technology. 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; pricing
trends, including the Company’s ability to achieve economies of scale;
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 +1 408-321-6000 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.

Billings

Billings reflect amounts in an accounting period invoiced to customers,
less any credits issued to or paid to customers, plus amounts due under
certain licensing-related contractual arrangements that may not be
subject to an invoice. Management evaluates the Company’s financial
performance in part based on billings due to the close alignment between
billings and cash receipts from licensing activity, and believes
billings is an important metric to provide to readers of our financial
results. Billings may vary materially from revenue recorded under U.S.
GAAP.

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
either one-time or ongoing non-cash acquired intangibles amortization
charges, acquired in-process research and development, all forms of
stock-based compensation, interest income from significant financing
components under Topic 606, unrealized gains or losses on marketable
equity securities, restructuring and other related exit costs.
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 the Company’s reported GAAP to
non-GAAP financial metrics.

– Tables Follow –

XPER-E

XPERI CORPORATION
FINANCIAL INFORMATION SCHEDULE

COMPONENTS OF GAAP AND NON-GAAP OPERATING EXPENSE

(in thousands)
(unaudited)
                 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018   2017   2018   2017
GAAP operating expense – components
Cost of revenue $ 3,884 $ 1,938 $ 13,291 $ 6,308
Research, development and other related costs 30,532 27,684 106,406 105,849
Selling, general and administrative 34,645 36,446 127,907 144,649
Amortization expense 26,877 27,455 108,450 111,930
Litigation expense   4,506   9,129   26,099   36,496
Total operating expenses $ 100,444 $ 102,652 $ 382,153 $ 405,232
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018   2017   2018   2017
Non-GAAP operating expense – components
Cost of revenue $ 3,884 $ 1,938 $ 13,291 $ 6,308
Research, development and other related costs 27,054 22,438 93,179 88,463
Selling, general and administrative 29,192 27,663 107,612 110,861
Litigation expense   4,506   9,129   26,099   36,496
Total operating expenses $ 64,636 $ 61,168 $ 240,181 $ 242,128
 
XPERI CORPORATION
RECONCILIATION FROM GAAP TO NON-GAAP OPERATING EXPENSES
(in thousands)
(unaudited)
               
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017     2018     2017  
GAAP operating expenses $ 100,444   $ 102,652   $ 382,153   $ 405,232  
Adjustments to non-GAAP operating expenses:
Stock-based compensation –R&D (3,478 ) (3,853 ) (13,168 ) (13,277 )
Stock-based compensation –SG&A (5,453 ) (5,648 ) (17,843 ) (20,185 )
Amortization expense (26,877 ) (27,455 ) (108,450 ) (111,930 )
Acquisition transaction costs (1,837 )
Acquisition & related expense–R&D (1,393 ) (59 ) (4,109 )
Acquisition & related expense–SG&A       (3,135 )   (2,452 )   (11,766 )
Non-GAAP operating expenses $ 64,636   $ 61,168   $ 240,181   $ 242,128  
 
XPERI CORPORATION
RECONCILIATION FROM GAAP TO NON-GAAP OTHER INCOME/(EXPENSE)
(in thousands)
(unaudited)
               
Three Months Ended Twelve Months Ended
December 31, December 31,
  2018     2017   2018     2017
GAAP other income/(expense) $ 1,475   $ 444 $ 8,595   $ 1,449
Adjustments to non-GAAP other income/(expense):
Interest income from significant financing components under Topic 606 (1,797 ) (7,672 )
Unrealized loss on marketable equity securities   1,651       2,217    
Non-GAAP other income/(expense) $ 1,329   $ 444 $ 3,140   $ 1,449
 
XPERI CORPORATION
RECONCILIATION FOR GUIDANCE ON
GAAP TO NON-GAAP OPERATING EXPENSE
(in millions)
(unaudited)
               
Three months ended Twelve months ended
March 31, 2019 December 31, 2019
Low High Low High
GAAP expense $ 89.5   $ 92.5   $ 357.0   $ 372.0  
Stock-based compensation–R&D (3.5 ) (3.5 ) (13.5 ) (13.5 )
Stock-based compensation–SG&A (4.5 ) (4.5 ) (17.5 ) (17.5 )
Amortization expense   (25.5 )   (25.5 )   (101.0 )   (101.0 )
Total of non-GAAP adjustments   (33.5 )   (33.5 )   (132.0 )   (132.0 )
Non-GAAP expense $ 56.0   $ 59.0   $ 225.0   $ 240.0  
 
XPERI CORPORATION
RECONCILIATION FOR GUIDANCE ON

GAAP TO NON-GAAP OTHER INCOME/(EXPENSE)

(in millions)

(unaudited)
       
Three months ended Twelve months ended
March 31, 2019     December 31, 2019
GAAP other income/(expense) $ 2.4   $ 8.7  
Adjustments to non-GAAP other income/(expense):
Interest income from significant financing components under Topic 606   (2.0 )   (7.2 )
Non-GAAP other income/(expense) $ 0.4   $ 1.5  
 

Contacts

Xperi PR Contact:
Jordan Miller, +1 818-436-1082
jordan.miller@xperi.com

Xperi
Investor Relations Contact:

Geri Weinfeld, +1 818-436-1231
geri.weinfeld@xperi.com

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