Participants

Mike Iburg; VP, Investor Relations; Xperi Inc.

Jon Kirchner; Chief Executive Officer, Director; Xperi Inc

Robert Andersen; Chief Financial Officer; Xperi Inc

Hamed Khorsand; Analyst; BWS Financial Inc.

Matthew Galinko; Analyst; Maxim Group

Presentation

Operator

Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Xperi First Quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw that question again, press star one.
Thank you. I would now like to say it's actually Mike Iburg, Head of Investor Relations. Mike, you may begin your conference.

Mike Iburg

Thanks, Krista. Good afternoon and thank you for joining us as Experian reports its first quarter 2024 financial results. With me on today's call are Jon Kirchner, Chief Executive Officer, and Robert Anderson, Chief Financial Officer. In addition to today's earnings release. There was an earnings presentation which you can access along with this webcast on our Investor Relations website at investor dot Experian.com.
Before we begin, I'd like to provide a few reminders. First, I would like to note that unless otherwise stated, all quarterly comparisons are to the same quarter of the prior year. Second, today's discussions contains forward-looking statements that are predictions, projections or other statements about future events, which are based on management's current expectations and beliefs and therefore, subject to risks, uncertainties and changes in circumstances for more information on the risks and uncertainties that could cause our actual results to differ materially from our from what we discuss today. Please refer to the risk factors and MD&A section of our SEC filings incur, 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 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 measures 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 experienced CEO, Jon Kirchner.

Jon Kirchner

Thank you, Mike, and thank you, everyone, for joining us on our first quarter 2024 earnings call. We continued to advance our transformation in the first quarter, delivering solid financial results across our key growth areas and continuing to make progress on several strategic initiatives. I'll let Robert walk you through the details in just a moment, but let me first touch on a few financial highlights.
During the quarter, we saw strong progress across our key growth areas. Growth in media platform connected car and video over broadband helped offset expected declines in our core consumer electronics and pay-TV markets, resulting in Q1 revenue of $119 million.
Revenue was down 6% from the prior year. Without adjusting for the recent auto sensing, imaging divestiture were 3% on an adjusted basis. Non-GAAP adjusted operating expenses declined 8% in the quarter, mainly due to the divestiture and our ongoing cost optimization efforts. Looking forward, we expect further expense reductions in 2024 as we continue to optimize the organization.
Adjusted EBITDA was over $5 million for the quarter or 5% of revenue. We remain focused on three key growth opportunities where we see strong potential and differentiation. These are connected TV advertising where we offer our TV operating system to power smart TVs and monetize ad-supported viewing in-cabin entertainment or DTS. auto stage combines broadcast radio, Internet, metadata and video to enhance the automotive experience and drive long-term monetization and TV video over broadband, where we offer an industry-leading content first streaming platform for broadband only and IPTV. linear households each of these markets is expected to roughly double over the next five to seven years.
We continue to strengthen our position in each market and believe we are increasingly well positioned to grow our revenue as these markets expand. As mentioned last quarter, our goal is to have 20 million monetizable endpoints by the end of 2025 with at least 10 million households and 10 million cars in which Experian provides the core entertainment platform in doing so relative to 2023, we expect these three growth initiatives to generate nearly $200 million of incremental revenue in 2026.
Let me walk you through some of our recent achievements that reflect our progress within media platform. We're pleased to share that later this month, we are hosting an industry launch event in London, showcasing the Xevo operating system, along with a number of our key partners, including OEMs, retailers, content providers and advertisers. We're pleased to announce that an additional Japanese global brand is expected to launch smart TVs powered by TiVo in retail stores across Europe in the U.K. prior to the UEFA EURO 2024, which begins June 14th. Separately, Argo, some major UK retailer as TVs powered by TiVo online and in stores today under their Bush House brand.
Argo's TVs are one of the first smart TVs to incorporate freely the new UK streaming service backed by Britain's public service broadcasters delivering live TV over broadband. Best sale continues to expand distribution and is now shipping smart TVs powered by TiVo into most major European countries under a dozen different brands.
In summary, we're focused on growing our TVOOS. footprint and our European partners are working closely with us to rapidly expand into additional countries. Our ability to move quickly into adjacent markets is facilitated by our cloud native excuse me, cloud native Turbo Services platform through which we've been able to rapidly scale across many countries while meeting the specific regional requirements for live TV, localized content language, popular subscription services and regulations. Overall, the initial launch across various countries has been very encouraging.
Within connected car, we saw continued positive momentum during the quarter. Dts auto stages addressing consumer demands for a better entertainment experience, driven by the extended amount of time people spend in their cars. Traditional broadcast radio is still the most prominent form of in-vehicle entertainment and auto stage. With this dynamic user interface and access to secondary and tertiary radio stations has created additional demand and interest in HD radio as more and more car manufacturers adopt auto stage HD radio is steadily increasing its penetration within the North American market.
In 2021. Hd Radio was a standard feature and 52% of all cars produced for North America. By the end of 2023 that number had an increase to 58%. We continue to work with all of the domestic automotive brands and believe we can increase our HD radio penetration further, a good example of our recent progress is that Honda and Genesis will now include HD radio as standard in cars built for the North American market. Today, auto stages deployed in more than 6 million vehicles worldwide, a 50% increase over the last nine months. And autos stage video service powered by TiVo is now deployed in hundreds of thousands of cars across seven countries.
Within pay TV video over broadband or IPTV. solution continues to make steady progress, surpassing 2 million subscriber households in the quarter and continuing its trend of double digit growth. This is helping to offset the secular decline in some of our core pay TV solutions.
We've mentioned TV broadband several times now, and I thought it might be helpful to provide a quick overview of this new offering. Turbo broadband utilizes our content first user interface to deliver popular streaming content from a variety of partners, including premium subscription, video-on-demand, TV plus our free ad-supported content network and customer-specific linear channels to an operator's broadband only customer base. This gives operators access to a low cost video content package they can offer to their broadband-only subscribers.
Given that much of the content is ad-supported, we have the ability to monetize the viewing of that content in partnership with our operator customers who recognize that video services remain a key offering to support higher per subscriber RPU and lower customer churn. During the quarter, we signed three new TV broadband operators, Medco blue peak and Buckeye broadband, bringing our total number of broadband providers to seven and representing a serviceable available footprint of more than 1 million U.S. households for potential monetization.
Turning to consumer electronics, Disney plus in collaboration with IMAX. and DTS. announced the global streaming premiere of clean rock Montreal, the most successful IMAX concert film ever featuring immersive sound from DTS. this film, along with 18 fan favorite Marvel titles will soon be available for streaming on Disney plus and the IMAX Enhanced format with DTSX. immersive sound. There are now more than 350 movies available in IMAX Enhanced with DTS X. The expanded portfolio of IMAX Enhanced titles supports the integration of RDTS. to coder into our partners' AV. and TV. portfolios.
Further, to that point, we recently signed several important multiyear DTSX. license renewals with major consumer electronics manufacturers, including TCL high scents and Xiaomi, we continue to look for opportunities to expand the DTS. footprint. And in the most recent quarter, we executed new DTS X decoder license agreements with two global PC manufacturers, Susan MSI., to integrate our decoder onto their motherboards.
With respect to perceive, as we previously announced, Centerview Partners was engaged as an independent financial adviser to assist the Board with its strategic review of our perceived business back in February. That process is progressing and is expected to be completed by the end of summer. While that process is ongoing. Proceed continues to generate revenue has significantly reduced its cash burn and remains on track to deliver technology to a big tech partner for Product Commercialization perceive is also advancing its efforts on large language model compression.
Last quarter, we provided a list of business metrics we intend to use to measure our performance in 2024. I'd like to provide an update on the steady progress we've made through the first quarter. Within media platform, we want to see TVs powered by TVO. in all five major European countries and in the U.S. market. By year end, our partners are currently shipping into most of the largest European countries and continue to expand. In addition, our plans to launch in the US market remain on track for later this year.
We have a goal to exit 2024 with at least six TV partners and an active TDOS. footprint of 2 million devices. I'm pleased to share that we've added a Japanese global brand as our six TVOS. partner negotiations with additional TV partners are progressing and our TBOS. footprint is expected to accelerate as we move through the year. I look forward to updating you on our progress on our next call.
Our goal within pay TV is to deliver more than 10 additional TV broadband wins and exit 2024 with 2.4 million video over broadband subscribers. As I mentioned earlier, we surpassed 2 million subscriber households and added three new TV broadband partners during the first quarter, which keeps us on track to achieve these targets for connected car.
Our goal is to deliver three additional auto stage wins with at least one, including video and exit 2024 with an installed base of 7 million vehicles. Today, we announced that auto stages now deployed and over 6 million vehicles. Conversations with automotive OEMs are progressing and the pipeline continues to build with consistent progress against these key growth initiatives, coupled with our ongoing business transformation efforts, we expect to deliver the improved profitability and cash flow outlined in our 2024 outlook. And we remain well positioned to accelerate revenue growth and operating leverage in 2025 and beyond. With that, I'll turn the call over to Robert to discuss our financials. Robert?

Robert Andersen

Thanks, John. Before I go through the quarter's results, let me remind listeners that as usual All comparisons in my comments are to the same quarter in the prior year. Total revenue for the quarter was $119 million, down 6% from last year's reported revenue, approximately half of which was due to revenue from auto cents. and related imaging solutions in the prior 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 ATV, our largest revenue category was down 6% during the quarter, similar to Q1 of last year. This change was driven by expected declines in core pay TV solutions, including the consumer DVR business as well as the timing of certain agreements. The decline was partially offset by growth in our video over broadband IPTV solutions, which continue to grow at strong double-digit rates.
Consumer electronics was down 21%, primarily due to a decline in the number of multiyear license renewals that occurred last year, which we noted in the guidance section of our last earnings call. Connected car was up 23% due to significant growth from both our HD radio and audio stage solutions media platform was up 25%, primarily due to strength in our TBOS. middleware solutions.
Our non-GAAP gross margin for the quarter was $90 million or 76%, a decrease of approximately 270 basis points from the prior year. This decline is primarily due to a different revenue mix compared to the prior year quarter. Non-gaap adjusted operating expense for the quarter was $91 million, down 8% from the prior year, largely due to the recent divestiture and also from cost optimization as a result of our ongoing business transformation efforts.
Non-gaap tax in the quarter was $2 million. This was somewhat lower than our expectation due to the timing of certain elements within the tax estimate. Nonetheless, we still expect non-GAAP taxes for the year to be in the range of $20 million. Our adjusted EBITDA was $5 million, resulting in an adjusted EBITDA margin of 5%. After accounting for tax and interest expense, our non-GAAP loss per share was $0.05.
Moving to the balance sheet the Company ended the quarter with $95 million of cash and cash equivalents. Operating cash flow in the quarter, which was a $50 million use of cash, was in line with our expectations due to the seasonal timing of cash-based events, the two primary drivers of cash used for payment of variable compensation and changes in working capital.
Compared to the first quarter of last year, which was a $43 million use of cash. We had a 20% reduction in the amount of variable compensation paid along with reduced spending within the core business. This was more than offset by the amount and timing of billings and related collections by our cash tax, increased severance and divestiture related costs.
As we highlighted on our last call. Our cash flow is typically a use of cash in Q1, followed by cash generation in the subsequent quarters as we continue to expect operating cash flow to be in the range of $20 million to $30 million for 2024. We started the year with over $150 million in cash and equivalents on the balance sheet. We also have the expectation of positive cash flow for both this year and going forward as the business grows with these in mind, along with possible cash inflow from the divestiture of non-core assets. Our Board of Directors recently provided authorization for share repurchases of up to $100 million.
From a capitalization perspective, we plan to maintain a cash balance of approximately $100 million for operating purposes prior to any utilization of the repurchase plan. As we begin to return capital to shareholders, we expect to take a balanced approach that considers the capital needs for business growth and debt paydown.
Moving now to our outlook for 2024. We are reaffirming the guidance ranges provided on the last call and remind listeners of our prior commentary, we expect full year revenue to be in the range of $500 million to $530 million at the midpoint. This represents approximately 4% growth over a normalized 2023 because we expect to begin monetizing our TVOS. footprint in the second half of 2024, along with the expected timing of certain agreements, Q2 of this year is expected to be relatively flat to slightly down from 2023, with modest growth in Q2 three and accelerating growth in Q4.
We expect non-GAAP adjusted EBITDA margin to be in the range of 12% to 14%. Importantly, we expect revenue growth and the impact of lower costs through business transformation efforts to drive meaningfully higher EBITDA in the second half of the year. Our outlook for gross margin, OpEx, cash flow, taxes, share count and CapEx, it remained the same. Lastly, as you may know, a shareholder of the company has nominated directors to serve on our Board. Given the we are here to discuss the quarter and our outlook for the business, we will not be taking questions on this call regarding the nominations or the annual meeting. That concludes our prepared remarks. Let's now open the call for questions. Operator?

Question and Answer Session

Operator

Hamed Khorsand, BWS Financial. Please go ahead.

Hamed Khorsand

So the first question I had was given the timing of lending, your sixth TV brand, how does that look as far as active TVs? Would that count actually go up as your goal is concerned and where do you sit as far as getting a seventh one and maybe this year?

Jon Kirchner

IHi Hamed. I would say that we have a an active pipeline of that. We continue to continue to work with potential partners to join our ecosystem. So I would expect that over time, there will be others hub timing, always a bit of an uncertain and uncertain matter, but I think with the six that we have as well is what we're seeing in the market as people begin to expand distribution, I think we're comfortable that we're going to hit our 2 million or 2 million target for the year. And certainly the six brand, which will be coming to market it relatively quickly will contribute to that.

Hamed Khorsand

Okay. And then could you just comment on the pay TV that revenues declining at least faster than I was expecting. So why the degradation there as much as you've seen, you're not making up on the IPTV side and comment on.

Robert Andersen

Within Pay TV, if you recall, last year was also down 6% in Q1 and then ended the year down less than 2%. So I'd say from where we're sitting today in pay TV appears to be on track to come in over the course of the year. We expect the video over broadband will largely help to offset declines within the core Pay TV business.

Hamed Khorsand

Okay. Thank you.

Operator

Matthew Galinko, Maxim Group.

Matthew Galinko

Please go ahead and thanks for taking my question. I think you touched on expecting it our US launch this year for TV or for a brand in the US. Can you maybe I know you mentioned timing is always challenging, but I assume there's a goal to get it in before, you know, but Q4. But can you kind of touch on how important it would be to get in, you know, kind of earlier in the year or kind of how seasonality would affect the on kind of the ramp up there? And household covered, obviously contingent on timing within the year.

Jon Kirchner

But obviously, it's our objective to work with the partners to have TVs and retail for the for the strong kind of holiday buying season. And as we get closer, we may have more to say about that.
Exactly. I think one thing to understand is that even if those sets are in retail, monetization begins to occur after they're sold and ultimately installed. So some of the monetization related revenue we expect in the course of this year will be primarily coming from European installations that are happening earlier in the cycle. And then we expect to get the benefit of that cumulative and growing installed base as we go through all of 24 as we move into 2025 and monetization begins to further ramp.

Matthew Galinko

Got it. Thank you. And then my follow-up question is about HT. radio. I think you mentioned that auto stage is pulling HD. radio kind of towards that higher penetration rate for North American auto. Can you maybe expand a little bit more on how strong of a pole is that from kind of the new technology deployment is it possible to drive now into the mid-60% range or kind of what, but what are we looking at over the next couple of years?

Jon Kirchner

Well, I think we set it a number of years ago that we thought roughly mid 60s was it's a reasonable long-term target for HD radio penetration. And I think what our partners are saying is that our in-cabin entertainment platform, which combines HD radio on auto stage and now extends into video service really does represent a best in class experience that most of our customers would love to extend to their customers and gives gives a chance to further differentiate the vehicle as people increasingly are making decisions about vehicle purchases.
Once you get past brand and perhaps size you're getting into what does the infotainment platform look like and feel like. And I think that differentiation has had a kind of a combined effect on some of the business. We're doing with underlying HD radio, but also keep in mind auto stages, not just a US phenomenon, right is one of the one of the great things about the platform because it can run on top of any underlying radio system, including FM or DAB. So it's being deployed around the world today. And I think that gives us further long-term expansion and monetization opportunities that footprint builds globally.

Matthew Galinko

Great.
Thank you.

Operator

If you would like to ask a question, please press star one on your telephone keypad. Concludes our question and answer session. I will now turn it back to the Xperi team for closing remarks.

Jon Kirchner

Thanks, operator, and thanks, everyone, for joining today's call. But we are excited about our continued strategic momentum. And I'd like to thank our employees, customers and partners for helping us continue to achieve our objectives, and we look forward to reviewing our Q2 results with you in August.
Operator, this concludes today's call concludes today's conference call. Thank you for your participation, and you may now disconnect.