Xperi's Q3 IP Licensing Boost Offsets Supply Chain-Based Revenue Declines

Xperi posted better-than-expected revenue and earnings in Q3, but the company shaved full-year top-end revenue guidance by $10 million to $890 million as supply chain constraints continue to affect product shipments, management said on the company’s Monday earnings call.

Revenue grew 8.2% this year to $219.4 million year on year on 27% revenue increases in IP, offset by declines in the product business due to supply chain interruptions, said CEO Jon Kirchner. Product revenue of $117.7 million was down 4% year on year on decreases in connected car, mobile devices, game consoles and consumer hardware. The company had growth in the IPTV business. Xperi began seeing signs of the impact of supply chain troubles in late September, which affected per unit royalties, Kirchner said.

In OTT, Xperi’s largest growth driver, the company continued to engage with a “strong pipeline” of streaming services around expanded renewals and new license agreements, Kirchner said. He cited Monday’s announcement that Disney+ will have 13 Marvel titles in Xperi's Imax expanded aspect ratio beginning Friday (see 2111080026). Kirchner said the over-the-top video push is about "long-term ecosystem building.” Relevant content and a growing number of devices in the market “feed on each other so that you can deliver the highest quality experience to the largest group possible.” Having Disney+ aboard will “over time not only encourage others to join from a content perspective,” he said, but affect hardware sales, which will “make this more attractive for other people to participate.” Xperi worked on the Disney+ deal "for some time."

In the consumer experience category, revenue dropped 6% year on year to $46.1 million on declines in mobile, game consoles and consumer hardware, Kirchner said. Xperi had a “solid quarter” for unit sales of the TiVo Stream 4K media player and is making progress on building out the TiVo Stream platform, he said. New platform content partners include QVC, Hallmark Movies & More, Magnolia Pictures and Kevin Hart’s Laugh Out Loud. It expanded the relationship with Pluto TV to integrate 33 new channels, and it added Acorn TV to the subscription VOD lineup, he said.

Xperi’s pay-TV revenue slipped 2% from Q3 2020, less than expected, which Kirchner said supports its strategy that “higher value IPTV solutions are mostly offsetting declines in our traditional interactive program guides.” Q3 was Xperi’s first full quarter with MobiTV following the completion of the acquisition in Q2. The company worked with Cable One, Service Electric, Cablevision, Blue Ridge and Armstrong to launch their IPTV offerings.

The connected car category was hit by increased supply chain constraints, with revenue dropping 6% year on year to $17.4 million. Despite the supply chain issues, 24 new models launched with HD Radio technology in the U.S. and Mexico, and Xperi launched HD Radio in two new categories: trucks with Daimler, and motorcycles with BMW, Kirchner said. Xperi was approved for ISO 9001 certification for HD Radio, an affirmation of global auto industry quality standards, he said. HD Radio penetration could benefit from attention to emergency alerts and other safety applications “that are very much on the minds of government and government regulators,” Kirchner said.

For 2022, overall volume for connected car is forecast to be lower, though Xperi expects “some relief” from supply chain issues, said Chief Financial Officer Robert Anderson. “We'll know a lot more when we get through February,” he said, saying the company expects further supply chain impact next year.

In Xperi’s nascent Perceive business, developing edge-based machine-learning technology, a key customer canceled a product slated for 2022, Kirchner said. The company is working with other partners to develop products, but the supply chain environment has stretched production schedules: “The exact timing of when the first Perceive-enabled product will come to market is uncertain, but likely within the next 12 to 18 months,” he said.

Commenting on Xperi’s potential role in the metaverse, Kirchner said the company has developed “deep IP expertise, products and solutions in the spatial audio, imaging, personalization, discovery, AI presence and awareness areas.” Many of the enabling technologies are already in the market. The metaverse is “the next frontier,” he said.