Xperi : Q4 2019 Xperi Corporation Earnings Conference Call Presentation

Investor Presentation

Q4 2019

February 18, 2020

Safe Harbor

This document 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 strategic vision, addressable market opportunities, growth strategy, licensing opportunities, initiatives, and the Company's financial results, guidance and outlook. Material factors that may cause results to differ from the statements made include the plans or operations relating to the businesses of the Company; the completion of the proposed transaction with TiVo Corporation on anticipated terms and timing, including obtaining shareholder and regulatory approvals, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, cost savings, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the combined company's businesses and other conditions to the completion of the transaction; 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 document.

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.

2© 2020 Xperi

Diversified Business

Delivering a Broad Suite of Technologies…

Audio, Imaging and Sensing Solutions

Automotive Audio, Data,

and Digital Radio

Broadcast Solutions

The World's Most

Immersive Entertainment

Experience in the Home

IP and

ProductSemiconductor

Licensing Solutions

Semiconductor and

Interconnect Packaging

Technology & Solutions

Intellectual Property Licensing

3© 2020 Xperi

Diversified Business

We License Technology to the World's Biggest Brands Across the CE Space

Automotive		Mobile		Home

Electronic Image

Stabilization

Semiconductor

4© 2020 Xperi

Attractive Licensing Model

Strong Cash Flow with Effective Capital Allocation

$414M Billings

$169M OCF

Dividends	Debt Repayment
• Paid $40M in Dividends	• $150M reduction to
	outstanding debt

Investments

R&D

• Invested in new machine learning product initiative

Low Cap Ex and Cash Tax

• Cap Ex of approximately $9M
• Net Cash taxes of $15M

2019A

5© 2020 Xperi

Expansive Footprint

All Major IC Providers and OEMs Under Contract

Solutions are Deployed on all Major ICs

$

Product and Technology Licensing to all Major CE OEMs

$

6© 2020 Xperi

Broad Technology Portfolio

Delivering Best-in-Class Solutions Supported by IP

Select Product Licensing Solutions

Automotive

ICM

Diversified Patent Assets

Audio

25%

Mobile

Image Stabilization

Home

Semiconductor & IP Licensing Solutions*

NAND / DRAM

Patents

DBI / DBI Ultra

Image Sensors

ZiBondDBI

MEMS / RF

ZiBondDBI

Semiconductor

51%

7,000
6,000	1%

5,000		Machine Learning
4,000
3,000
2,000
1,000
00

Chart represents patent assets

23%Imaging

*Semiconductor & IP Licensing Solutions are incorporated in various ICs sold into the automotive, mobile and home markets

7© 2020 Xperi

Where You Will Find Xperi

Now and in the Future

				Smart Home/IoT
			Advanced Security
			Image Identification
Rear Seat	Advanced Audio		Intelligent Speakers
Entertainment
Personalization	Advanced
			Imaging &
			Audio Solutions		Advanced
				Smart	Home Theater
				Personalization
Connected Radio				Appliances
		Future Cockpit
			Data
Sound			Analytics

Connectivity

Advanced	Advanced Audio/Image
Detection and Car
In-Cabin Monitoring
Security Solutions
Solutions

8© 2020 Xperi

Product Licensing

Large Product Licensing Opportunities

New Advanced Machine Learning Platform to Drive Growth Through Expanded TAM and Higher ASPs

Automotive			Mobile			Home
Auto-head units		Smartphones		TVs
Broadcast		Tablets		Game consoles
infrastructure		PCs		AVRs and BD Players
In-cabin monitoring		Gaming headsets		Soundbars
technology
	Drones		Wireless speakers
				Activity cameras		Set-top-boxes
				AR/VR
	TAM				TAM				TAM
	~120M				~2.0B				~850M
	units				units				units

Advanced Machine Learning Hardware and Software Platform

Smart Home Electronics, Wearables, Mobile, Enterprise,

Industrial and Automotive Applications

10	© 2020 Xperi	*TAM: Total addressable market
Source: IHS, IDC, Parks Associates, Sensian Research, FutureSource and Xperi internal data

Automotive

Auto-Head Units, In-Cabin Monitoring Solutions

Current Platform

		Global automotive ecosystem driven by				~30M Units
		partnerships with all major IC, Tier 1,
					Annually
		OEMs and Broadcasters
		Key Initiatives

									ICM
	Increase HD				Deploy				Deliver In-Cabin
	Radio				Connected				Monitoring
	Penetration				Radio Globally				Solutions
	52%				1stcommercial				Won significant
				launch				occupancy
	penetration,
				scheduled				monitoring
	target ~65%
				for 2020				program

Vision

Deliver connected solutions that revolutionize the in-cabin

automotive experience

Source: IHS, IDC, Parks Associates, Sensian Research and Xperi internal data

11© 2020 Xperi

Recent Highlights

• HD Radio shipped on the Nissan Versa, Lincoln Corsair, and the Mazda CX30
• FCC opened a formal review of AM bandall-digital HD Radio broadcasting
• Announced first automotive partner for Connected Radio and expect more announcements as the year progresses
• Displayed demos of DMS solution with Nvidia, NXP, Texas Instruments, and Visteon that evidenced our expanding reach, and will enable an increasing number of Tier 1s to deliver ICM platform

Mobile

Phones, Tablets, PCs, Accessories, Drones, Activity Cameras, AR/VR

Current Platform

Global leader in advanced audio and image processing - partnered with all major ICs & 5 of top 10 Mobile OEMs

~290M Units

Annually

Recent Highlights

•	Gaming category finished the year up 18
	percent
•	Signed two leading PC gaming OEMs,
	and a gaming motherboard brand

Key Initiatives

										AR/VR
										Glasses
	Next-Gen Audio,								Promote IrisXR
				Drive
	Imaging				Leadership in				and Gaze
	Penetration				Gaming				Tracking
	Drive advanced				Expand mobile,				Continue to
	imaging and				headsets and				partner with key
	DTS:X Ultra				PC platform				mobile and
	solutions				wins				AR/VR players

• Continued success with Sound Unbound

Vision

Deliver integrated, intelligent, immersive, edge-based imaging and

audio solutions for all mobile devices

Source: IHS, IDC, Parks Associates, Sensian Research and Xperi internal data

12© 2020 Xperi

Home

TVs, Wireless Speakers, Soundbars, Consoles, Blu-ray, etc.

Current Platform

Global home ecosystem, driven by relationships with all major ICs, OEMs and content providers

Key Initiatives

~200M Units

Annually

Smart CE

Devices

Recent Highlights

•	Developed a new hardware and software
	machine learning and edge computing
	platform initially targeted at the market
	for smart electronics
•	Expanded the breadth and depth of our
	relationship with Vizio by signing a new
	license for DTS audio codecs and post-
	processing technologies for TVs and

Deliver DTS:X and Virtual:X

Increase penetration from soundbars to AVRs & TVs

Leverage Sight/ Sound combo

Drive program expansion across TVs and soundbars

Launch Machine

Learning

Platform

New hardware & software ML and edge computing platform

soundbars

• IMAX Enhanced is now available on four

streaming platforms, in 14 countries

worldwide with 17 device manufacturers

➢iQiyi joined as an IMAX Enhanced

digital retailer in China, with a

launch expected later this year

Vision

Transform home entertainment through integrated, intelligent,

audio, imaging and wireless solutions

Source: IHS, IDC, Parks Associates, Sensian Research, FutureSource and Xperi internal data

13© 2020 Xperi

IP Licensing and Semiconductor Solutions

IP Licensing and Semiconductor Solutions

DRAM, NAND, RF, MEMS, Sensors, Other Semiconductor Opportunities

Current Platform

Foundational semiconductor patents & technology, extensive track record of successful licensing and enforcement

~$450B Annual

Market

Recent Highlights

•	Signed a new patent and technology
	license agreement with SK hynix
•	SK hynix agreement provides access to
	broader semiconductor IP portfolio and

Key Initiatives

ZiBond

DBI /

DBI Ultra

Transition Away

Re-license

Tech Transfer to

From OSATs

Memory Co's

Key Players

NVIDIA litigation

New SK hynix

Engagements

filed, progress

agreement

in Memory,

with multiple

announced in

Sensors and

pipeline

Feb. 2020

RF markets

opportunities

Vision

Maintain strong IP licensing cash flow to fuel growth in product and technology business by delivering 3D interconnect solutions that enable the industry to scale beyond Moore's Law

Source: Gartner 2018

15© 2020 Xperi

includes technology transfer of DBI Ultra

technology

• Signed a one-time patent license with a

semiconductor company in Q4 2019 and

continued to add to our pipeline of

opportunities

Appendix

© 2020 Xperi

16

Fourth Quarter Actuals

	Q4 2019 Actuals	GAAP	Non-GAAP*
	Billings**	$126,688	$126,688
	Operating Expense	$95,386	$58,001
	Interest Expense**	$4,987	$4,987
	Other Income	$1,491	$907
	Cash Tax (net of refunds)**	$2,627	$2,627
	Diluted Shares Outstanding	49,566	52,292

*Non-GAAP reconciliations can be found in the appendix of this deck **Measures are the same for both the GAAP and Non-GAAP presentation

17© 2020 Xperi

Historical Billings by Market

		(in Thousands)	Q1 2018		Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019	Q3 2019	Q4 2019
		Automotive	$22,569		$20,774	$23,549	$19,889	$21,627	$22,205	$19,322	$18,625
		Home	$26,331		$19,209	$22,007	$22,920	$26,739	$19,351	$21,496	$24,740
		Mobile	$11,616		$9,525	$8,355	$10,522	$6,872	$6,909	$6,300	$8,329
		Audit Recoveries / Other	$716		$1,469	$566	$1,027	$5,652	$400	$926	$793
		Total Product Licensing	$60,516		$50,018	$54,478	$54,093	$55,891	$48,599	$48,043	$52,487
		Total Semi/IP Licensing	$43,037		$49,718	$46,109	$87,440	$43,414	$43,436	$42,586	$74,200
		Total Billings	$104,268		$100,694	$100,587	$141,798	$104,302	$92,302	$90,629	$126,688
				(in Thousands)		FY 2018	FY 2019
				Automotive		$86,781	$81,778
				Home		$90,466	$92,312
				Mobile		$40,017	$28,409
				Audit Recoveries / Other	$3,778	$7,785
				Total Product Licensing	$223,498	$210,285
				Total Semi/IP Licensing	$226,304	$203,636
18© 2020 Xperi		Total Billings		$447,347	$413,921

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, costs related to actual or planned business combinations, all forms of stock-based compensation, interest income from significant financing components under Topic 606, realized and 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.

19© 2020 Xperi

Reconciliation Tables

XPERI CORPORATION
RECONCILIATION FROM GAAP TO NON-GAAP OPERATING EXPENSES
(in thousands)
(unaudited)
		Three Months Ended		Twelve Months Ended
		December 31,		December 31,
		2019		2018		2019		2018
GAAP operating expenses	$	95,386	$	100,444	$	348,775	$	382,153
Adjustments to non-GAAP operating expenses:
Stock-based compensation --R&D		(4,350)		(3,478)		(14,643)		(13,168)
Stock-based compensation --SG&A		(4,372)		(5,453)		(16,911)		(17,843)
Amortization expense		(24,027)		(26,877)		(99,946)		(108,450)
M&A transaction costs		(4,636)		-		(4,636)		-
Acquisition & related expense --R&D		-		-		-		(59)
Acquisition & related expense --SG&A		-		-		-		(2,452)
Non-GAAP operating expenses	$	58,001	$	64,636	$	212,639	$	240,181
XPERI CORPORATION
RECONCILIATION FROM GAAP TO NON-GAAP OTHER INCOME
(in thousands)
(unaudited)
		Three Months Ended		Twelve Months Ended
		December 31,		December 31,
		2019		2018		2019		2018
GAAP other income	$	1,491	$	1,475	$	9,028	$	8,595
Adjustments to non-GAAP other income:
Interest income from significant financing components under Topic 606		(1,136)		(1,797)		(5,762)		(7,672)
Realized and unrealized (gain) loss on marketable equity securities		552		1,651		(10)		2,217
Non-GAAP other income	$	907	$	1,329	$	3,256	$	3,140

20© 2020 Xperi

Components of GAAP and Non-GAAP OpEx

	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,
		2019		2018		2019		2018
GAAP operating expense - components
Cost of revenue	$	2,219	$	3,884	$	8,460	$	13,291
Research, development and other related costs		33,233		30,532		112,345		106,406
Selling, general and administrative		34,828		34,645		122,897		127,907
Amortization expense		24,027		26,877		99,946		108,450
Litigation expense		1,079		4,506		5,127		26,099
Total operating expenses	$	95,386	$	100,444	$	348,775	$	382,153
		Three Months Ended		Twelve Months Ended
		December 31,		December 31,
		2019		2018		2019		2018
Non-GAAP operating expense - components
Cost of revenue	$	2,219	$	3,884	$	8,460	$	13,291
Research, development and other related costs		28,883		27,054		97,702		93,179
Selling, general and administrative		25,820		29,192		101,350		107,612
Litigation expense		1,079		4,506		5,127		26,099
Total operating expenses	$	58,001	$	64,636	$	212,639	$	240,181

21© 2020 Xperi