10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-41486
XPERI INC.
(Exact Name of Registrant as Specified in Its Charter)
(Address of Principal Executive Offices) (Zip Code)
(408) 519-9100
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class TradingSymbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share XPER New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act. Yes ☐No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☐
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes ☐ No ☒
As of June 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, there was no established public market for the registrant’s common stock, par value $0.01 per share. The registrant’s common stock began trading on the New York Stock Exchange on October 3, 2022.
The number of shares outstanding of the registrant’s common stock as of February 17, 2023 was 42,084,591.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s Proxy Statement for the registrant’s 2023 Annual Meeting of Stockholders will be filed with the Commission within 120 days after the close of the registrant’s 2022 fiscal year and are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.
XPERI INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2022
TABLE OF CONTENTS
Page
PART I
Item 1. Business 4
Item 1A. Risk Factors 21
Item 1B. Unresolved Staff Comments 48
Item 2. Properties 48
Item 3. Legal Proceedings 48
Item 4. Mine Safety Disclosures 48
PART II
Item 6. (Reserved) 50
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 61
Item 8. Financial Statements and Supplementary Data 62
Item 9A. Controls and Procedures 62
Item 9B. Other Information 62
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 62
PART III
Item 10. Directors, Executive Officers and Corporate Governance 63
Item 11. Executive Compensation 63
Item 14. Principal Accountant Fees and Services 63
PART IV
Item 15. Exhibits and Financial Statement Schedules 64
2
Cautionary Statement Regarding Forward-Looking Statements
This annual report on Form 10-K (this “Annual Report”) contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “intends,” “targets” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Annual Report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, product development, demand, acceptance and market share, growth rate, competitiveness, gross margins, levels of research, development and other related costs, expenditures, the outcome or effects of and expenses related to litigation and administrative proceedings, tax expenses, cash flows, our management’s plans and objectives for our current and future operations, the levels of customer spending or research and development activities, the impact of the COVID-19 pandemic and related events, the impact of any acquisitions on our financial condition and results of operations, general economic conditions, and the sufficiency of financial resources to support future operations and capital expenditures.
Although forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed below under the heading “Risk Factors” within Part I, Item 1A of this Annual Report and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), such as our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report, other than as required by law. Readers are urged to carefully review and consider the various disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
3
PART I
Item 1. Business
Corporate Information
Our principal executive offices are located at 2190 Gold Street, San Jose, California 95002 USA. Our telephone number is +1 (408) 519-9100. We maintain a corporate website at xperi.com. The reference to our website address does not constitute incorporation by reference of the information contained on this website. Xperi, the Xperi logo, TiVo, the TiVo logo, DTS, the DTS logo, Ergo, FotoNation, DTS HD, DTS Audio Processing, DTS:X Ultra, DTS Virtual:X, DTS Headphone:X, DTS Play Fi, DTS:X, DTS AutoSense, DTS AutoStage, and HD Radio are trademarks or registered trademarks of Xperi Inc. or its affiliated companies in the United States and other countries. All other company, brand and product names may be trademarks or registered trademarks of their respective companies.
Overview
On October 1, 2022 (the “Distribution Date”), the spin-off (the “Spin-Off” or the “Separation”) of the product business of Adeia Inc. (formerly known as Xperi Holding Corporation) (“Adeia” or the “Former Parent”) into Xperi Inc. (“we”, “our”, the “Company” or “Xperi”), a wholly owned subsidiary of Adeia, was completed. The Spin-Off was achieved through our Former Parent's distribution (the “Distribution”) of 100% of the shares of Xperi’s common stock to holders of our Former Parent’s common stock as of the close of business on the record date of September 21, 2022 (the “Record Date”). Each Adeia stockholder of record received four shares of Xperi common stock for every ten shares of Adeia common stock held on the Record Date. Following the Distribution, we became an independent, publicly-traded company with our common stock listed under the symbol “XPER” on the New York Stock Exchange (“NYSE”), and our Former Parent retains no ownership interest in Xperi.
In connection with the Spin-Off, we entered into a Separation and Distribution Agreement and several other agreements with our Former Parent to effect the Spin-Off and provide a framework for our relationship with our Former Parent after the Spin-Off. In addition to the Separation and Distribution Agreement, the other principal agreements entered into with our Former Parent include a Tax Matters Agreement, a Transition Services Agreement, an Employee Matters Agreement, a Cross Business License Agreement, and a Data Sharing Agreement. For additional information, see Note - 1 to our consolidated financial statements.
We are a leading consumer and entertainment technology company. We believe we create extraordinary experiences at home and on the go for millions of consumers around the world, elevating content and how audiences connect with it in a way that is more intelligent, immersive and personal. Powering smart devices, connected cars, entertainment experiences and more, we have created a unified ecosystem that reaches highly engaged consumers, uncovering significant new business opportunities, now and in the future. Our technologies are integrated into consumer devices and media platforms worldwide, driving increased value for partners, customers and consumers. We operate in one reportable business segment and currently group our business into four categories based on the markets served: Pay-TV, Consumer Electronics, Connected Car and Media Platform. Headquartered in Silicon Valley with operations around the world, we have approximately 2,100 employees and more than 35 years of operating experience.
Impact of the COVID-19 Pandemic
Please refer to the “Risk Factors” and Executive Summary section of Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” for information concerning the continuing effect of the COVID-19 pandemic and related macroeconomic conditions on our business.
Market Opportunity
Consumer preferences and behavior around media consumption are undergoing a significant transformation, driven by new platforms for content delivery, greater availability of diverse content, and an increase in time spent consuming video content. Video content delivery is rapidly shifting from linear broadcast to over-the-top (“OTT”) platforms, impacting not just how users consume content, but also the ad-supported programming ecosystem. Our technologies sit on the forefront of this transformation, enhancing consumer experiences where consumers spend their time the most – in their homes and in their cars.
4
Our technologies not only enhance user experiences, but also enable partners across the entire ecosystem to participate in the evolving content delivery value chain.
•
Shift to OTT and Streaming: OTT has rapidly become a mainstream content delivery mechanism through a wide variety of providers such as Netflix, Disney+ and YouTube. OTT media now accounts for 38% of weekly video viewing for adults ages 18 and older. Proliferation of OTT has created demand for a new generation of entertainment products that are centered on the OTT viewing experience. Consumers are increasingly looking for solutions that allow them to navigate across the fragmented and complex entertainment landscape of OTT content.
•
OTT Advertising Monetization: The shift to OTT has not only impacted user needs for entertainment devices, but also disrupted the ad-based programming model that was centered on linear TV programming. While delivering ad-based programming to OTT audiences has presented new challenges, it has also created opportunities for advertisers to deliver customized, highly relevant, and targeted ad content to a critical and growing demographic. There is a new set of industry participants that are looking for ways to monetize the ad-based ecosystem, including consumer electronics manufacturers, OEMs, and others that have historically not participated in the OTT value chain. Thus, we believe there is a significant market opportunity for tools that enable OEMs to monetize their products through recurring revenue streams across the lifecycle of the device rather than just a one-time monetization opportunity at the point-of-sale.
•
Marked Need for An Independent Media Platform: Close to half of Smart TVs each year are shipped into Western Europe and North America by leading electronics manufacturers who lack the scale required to support the technology, content, and monetization requirements of a streaming media platform. This creates a unique opportunity for an independent media platform that allows Smart TV OEMs to brand the experience, retain customer ownership, and participate in the long-term monetization throughout the typical 5-year lifecycle of TV ownership.
•
Increasing Consumption of Video Content: Average weekly video viewing has increased 10%, from 40 hours per week in 2015 to 44 hours per week in 2020, driven by a number of factors, including increased availability of content catering to various consumer tastes and preferences, new platforms for consumption such as personal devices (e.g., mobiles and tablets), and disruption from the COVID-19 pandemic. Consumers are increasing their spend on entertainment devices that deliver superior experiences and simplify the consumption of content across multiple platforms and devices. Omdia S.A. estimates revenues from the shipment of these platforms and devices in North America alone (including TVs, Smartphones, Tablets and PCs, Streaming Media Players, connected Blu-Rays players, and Video Game consoles) are expected to surpass $190 billion in 2023 and continue to grow by 3% year-over-year to 2025.
•
Growing Connectivity in Cars and the Future of Semi-Autonomous and Autonomous Vehicles: As the automobile dashboard interface becomes more integral to the in-car experience, purchasing a car for its infotainment capabilities starts to move up the list of purchase considerations for car buyers. A McKinsey survey reported that 37% of consumers state they are eager to switch to cars with increased connectivity and nearly half of high-end auto consumers express an interest in exploring the digital capabilities of their new cars. Autonomous and semi-autonomous driving technologies have made significant progress over the last several years and passenger cars are increasingly being fitted with autonomous driving features. If autonomous driving technologies become mainstream, the automobile will become a more common place for media consumption. Over time, we believe consumers will place significant importance on the quality of media delivery and will expect the quality of delivery in the car to be comparable to that of their living room.
•
Increasing Use of “Smart” Devices: Consumers have long relied on smartphones enabled with virtual assistants, talk-to-text, and other intelligent features, and increasingly want other home devices (as well as their automobiles) to be enabled with similar smart capabilities. “Smart” devices have created attractive opportunities to deliver personalized content discovery and highly differentiated experiences in the car, on par with consumers’ home media devices.
•
New Use Cases for Edge AI Computing: Artificial intelligence and machine learning (“AI/ML”) based technologies are finding new use cases in consumer devices and technologies at a rapid rate. Similar to consumer reliance on smart phones, consumers increasingly expect their smart speakers, virtual assistants, security cameras, and other devices to learn user behavior and adapt to it. However, consumer privacy and data protection are critical features that limit the ability to transfer personal data from the device to the cloud for computing, and such transfers are further limited by challenges such as low bandwidth and unreliable connectivity. AI/ML based technologies need to be built directly into consumer devices to address security and data concerns and deliver the experience users expect. The shift toward edge-based device capabilities is creating a potential opportunity for semiconductor components that are AI/ML capable, have low power requirements, and can be produced at reasonable cost.
5
Strategy
Our business focuses on creating extraordinary experiences at home and on the go for millions of consumers around the world, elevating content and how audiences connect with it, in a way that is more intelligent, immersive, and personal:
•
Pay-TV: We transform the traditional television user experience from linear multichannel video programming distributors (“MVPD”) with cloud-based DVRs into an immersive, intuitive, and hyper-personalized experience. Our iconic user experience, with enhanced imagery and relevant, personalized recommendations, enables consumers to navigate to the entertainment they love in an enjoyable and engaging experience.
•
Consumer Electronics: Our technologies enable clear, bright visuals and immersive sound, across nearly all platforms people listen, watch and play – at the movies, throughout the home and on the most popular mobile devices and gaming platforms. We continue to develop our machine-learning capabilities through our Perceive subsidiary which delivers datacenter-class accuracy and performance to edge-based devices at ultra-low power, performing tasks such as face recognition and audio/video event detection.
•
Connected Car: We seek to transform the automotive experience by bringing high-quality multimedia and personalization to the connected car. We immerse drivers in more of their favorite audio content, with crystal-clear, subscription-free digital radio. Our products are designed to give drivers confidence, as vehicles with our AI-powered in-cabin sensing solutions improve the safety, comfort, and security of everyone in the car. With autonomous vehicles pushing consumer expectations higher, we are innovating to create the dashboard of the future, accommodating more types of entertainment, from video to gaming and more.
•
Media Platform: We are uniquely positioned as an independent media platform that allows Smart TV OEMs to brand the experience, retain customer ownership and generate recurring revenues by participating in monetization throughout the approximate 5 year lifecycle of TV ownership. Our platform creates high viewer engagement with an unbiased, content-first user experience where Hybrid TV and streaming services integrate in a personalized way that makes it easy to find, watch and enjoy content across siloed ecosystems. We endeavor to connect advertisers and entertainment producers to audiences they cannot as easily reach on other platforms. Our unique footprint includes millions of traditional, linear TV households, where we deterministically capture viewership data throughout the home, as well as anyone streaming from our ad-supported content network. By creating an environment where users search less and watch more, we enable content producers to grow their audiences, and consumer brands to increase exposure to their marketing campaigns over time.
6
Pay-TV
7
Our Pay-TV business delivers a range of User Experience (UX) solutions servicing Pay-TV operators on a worldwide basis with products that address the evolving user experience around TV content consumption, creating a truly unified media experience. We integrate virtual channels of internet-delivered video directly into the consumer’s primary video consumption platform to provide universal search, discovery, and consumption regardless of where the content originates. Our solutions make it easy for consumers to find, watch, and enjoy content. The following are some of the key solutions we license to operators.
Electronic Program GuidesElectronic Program Guides is our interactive program guide offering that includes intuitive, easy-to-use TV listings navigation plus integrated video-on-demand (VOD) and digital video recorder (DVR) capabilities.
Our UX Solutions:
•
allow service providers to customize certain elements of the interactive program guide for their customers and to upgrade the programming features and services they offer;
•
provide content producers with a platform for monetizing their content;
•
allow viewers to build their own entertainment bundle to truly personalize their experience with current and future program information; and
•
are compatible with service providers’ linear, network DVR, Start-Over/Catch-Up subscription management, pay-per-view (PPV) and VOD services.
Our UX Solutions may include advertising and we typically share a portion of the advertising revenue with the service provider. Advertising revenue tied to our UX Solutions is included in the Media Platform category described below.
IPTV SolutionsThe TiVo internet protocol television (IPTV) Service is our most advanced platform, offering a fully integrated, cloud-based solution that powers the TiVo client software which operates on set-top-boxes in consumer homes, as well as applications that operate on third-party software platforms such as iOS and Android that power tablets, smartphones, and bring-your-own-device (BYOD) streaming devices. Our IPTV solution supports multiple services and applications, such as TV programming, broadband OTT video content, digital music, photos and other media experiences. Our latest generation UX, includes a new look and feel, and our latest IPTV platform integrates all of our most advanced technologies and solutions, including advanced cross-platform conversational voice search, personalized recommendations, predictions and insights, rich video metadata, robust data collection and new back-office capabilities.
TV as a Service IPTV Program We offer a Managed IPTV Service that is a customizable, cloud-enabled, end-to-end streaming video solution that enables operators to quickly launch a branded, fully compliant, full-featured Pay-TV service that leverages devices such as Apple TV, Android TV, and Amazon Fire TV.
Our Managed IPTV Service enables broadband operators, 5G network providers and cable operators to offer TV-as-a-service without having to invest in video head-end infrastructure or end-user set-top-boxes. Our TV as a Service IPTV solution includes a full cable programming lineup with local channels, DVR, recommendations, Dynamic Ad Insertion and more, all with the same ease as signing up for and using top streaming services.
Video MetadataOur metadata products are a critical component of delivering an interactive entertainment experience. We offer one of the industry’s most comprehensive metadata libraries, covering television, sports, movies, digital-first, celebrities, books, and video games. Our focus on quality, robustness and consistent international depth has made us a recognized leader in entertainment metadata services worldwide.
Customers typically pay us a monthly or quarterly licensing fee for the rights to use our metadata, receive regular updates, and integrate metadata into their own service.
Personalized Content Discovery, Natural Language Voice and InsightsPersonalized Content Discovery with conversation services provides our customers with a way to enable their customers (the device user) to quickly find, discover and access content across linear broadcast television, VOD, DVR, and OTT sources. The ongoing investment in our Personalized Content Discovery platform enables us to provide some of the most advanced capabilities in media personalization, prediction, and voice search. The advanced algorithms of our technology understand the nature and relationship of content information and the context surrounding a user’s behavior to deliver an advanced personalized content discovery experience. Our natural language voice solution, when combined with our advanced search and recommendations technology, enables a conversational
8
interaction between a viewer and their content experience. Engagement behaviors are then analyzed and optimized, thereby providing our customers with the ability to continuously engage and improve the consumer experience, with the ultimate goal of reducing churn.
Legacy TiVo DVR Subscriptions We offer a direct-to-consumer retail TiVo subscription in North America. The TiVo Service Platform includes a modular front-end that allows the basic platform to be used by hardware manufacturers to build set-top-boxes that support digital and analog broadcast, cable, internet TV, OTT and VOD services. Consumers purchase TiVo DVRs and companion TiVo Mini whole-home devices for a user experience upgrade to the set-top-box experience provided by a standard cable service.
Customers typically pay us a per-subscriber or per-device fee. Our search and recommendation solutions are widely deployed with many leading Pay-TV service providers including Charter Communications Inc. and Vodafone Group plc.
UX Business Operations and Technical SupportOur UX Business has technical support and certification operations to support our products:
•
we provide training, technical support and integration services to Pay-TV service providers who license our products;
•
we operate the internet-based services required for our service offerings including data delivery, search, recommendation, advertising, device management and media recognition;
•
we provide broadcast delivery of television programming data and advertising to UXs on TVs and set-top-boxes in major European markets and in Japan, and in North America, we deliver similar programming and advertising data via the internet;
•
we support our customers with porting and engineering services to ensure our interactive program guides and DVRs operate properly; and
•
we provide customer care for UX and DVR customers to resolve data, advertising, and consumer functional issues.
9
Consumer Electronics
10
Our Consumer Electronics business provides technology solutions delivered to our customers to enhance their entertainment experience in the home and on-the-go. Below are some of the key solutions we license:
Home and Mobile Audio SolutionsOur solutions consist of premier audio technology for high-definition entertainment experiences. Our DTS codec is designed to enable recording, delivery and playback of immersive high-definition audio and is incorporated by customers around the world into an array of consumer electronics devices. We provide products and services to entertainment media ecosystem partners such as motion picture studios, game developers and other content creators to facilitate the inclusion of compelling, realistic DTS-encoded audio within their content. The incorporation of our solutions into consumer end devices allows consumers to experience immersive and compelling audio wherever they choose to enjoy it. Home and mobile devices that incorporate DTS audio codec technology include TVs, PCs, smartphones, tablets, set top boxes, video game consoles, Blu-ray Disc players, audio/video receivers, soundbars, wireless speakers and home theater systems. We also offer DTS post-processing audio solutions designed to enhance the entertainment experience for users of consumer electronics devices, particularly those subject to the physical limitations of smaller speakers, such as TVs, PCs and mobile devices. DTS has been an exclusive licensing partner of IMAX Corporation for IMAX Enhanced since 2017. Through the IMAX Enhanced licensing program, consumers worldwide with best-in-class certified devices are able to experience IMAX’s expanded aspect ratio features and immersive DTS Sound on IMAX Enhanced content. In addition, our DTS Play-Fi technology leverages our audio and technology expertise to enable a variety of high-quality audio playback options across wireless speakers, set-top-boxes, TVs and mobile devices.
Our immersive audio solutions, such as DTS-HD and DTS:X, empower content creators to deliver more compelling content and are supported by major Hollywood studios, many cinema operators in the United States and Asia, and leading streaming service providers in the United States, Europe and Asia. We have licensed our audio technologies and related trademarks to substantially all the major consumer electronics product manufacturers worldwide. These customers include Denso, Harman, Hisense, LG, Microsoft, Panasonic, Samsung, Sony, and others.
Typically, our audio technologies are delivered as software code on integrated circuit (IC) chips. We license a defined and limited set of rights to incorporate our technology onto IC chips, and the IC manufacturers deliver these chips to our customers, the consumer electronics product manufacturers.
We have devoted significant time and resources to develop a broad range of solutions with key partners including Amlogic, Analog Devices, Cadence, Cirrus Logic, Mediatek, NXP, Qualcomm, Realtek, Synaptics, Texas Instruments, and others.
Perceive
In the machine learning area, our Perceive subsidiary delivers silicon and software solutions for edge inference. Perceive’s Ergo family of chips and associated software deliver breakthrough innovation – the ability to run datacenter-class AI models at the edge, delivering accuracy and high performance at ultra-low power, performing a wide range of tasks such as object detection, face recognition and audio/video event detection. These solutions enable efficient AI inference, reducing or eliminating the need to send data to the cloud, and are expected to have initial market applications in power sensitive electronic devices.
11
Connected Car
12
We group our Connected Car business into three main categories based on the products delivered to our customers: HD Radio, DTS AutoStage, and DTS AutoSense.
HD Radio HD Radio is the only digital terrestrial broadcast system approved by the FCC for AM/FM radio in the United States, offering additional channels, crystal-clear sound and advanced data services with no subscription fees. HD Radio enables a high-quality in-vehicle radio experience with innovative features and digital capabilities such as real time traffic and weather updates.
HD Radio is supported by more than 2,400 radio stations, including 98 of the top 100 most listened-to stations in the United States, and is incorporated into vehicles from Acura, Audi, BMW, Ford, Honda, Hyundai, Tesla, and Toyota, among many others.
DTS AutoStage DTS AutoStage is a comprehensive automotive infotainment offering, integrating our DTS premium audio solution, TiVo video platform, leading metadata capabilities, and legendary search and discovery algorithms to provide a vastly improved in-cabin entertainment experience. DTS AutoStage is a global system that enables car makers to use a single platform to deliver an enhanced infotainment experience for connected cars. Daimler launched the first series of automobiles featuring the DTS AutoStage platform in September 2020.
DTS AutoSense Built upon our legacy as a pioneer in computational imaging solutions, DTS AutoSense includes driver monitoring systems (“DMS”) and occupant monitoring systems (“OMS”) to enable a full suite of detection and analysis products to enhance safety for automakers. These technologies enable state-of-the-art attentiveness assessment and fatigue detection for the driver as well as in-cabin monitoring and customization options.
International agencies that publish automotive safety ratings are increasingly requiring in-cabin sensing solutions to award automakers higher safety ratings. To meet these requirements, DTS AutoSense is dedicated to enhancing the safety of passengers and drivers. DTS AutoSense uses a single camera and leverages our more than 20 years' experience with image processing and artificial intelligence. The solution’s advanced computer vision and machine learning techniques enable vehicles to sense, in real time, the presence of occupants and objects (for example, a laptop accidentally left in the vehicle). The technology can also enable personalization of infotainment recommendations, such as playlists, content, volume of music, choice of radio station options, in-cabin temperature adjustments or any setting that can be adapted to a user’s specific taste. BMW launched the first automobiles with DTS AutoSense in 2021.
13
Media Platform
14
Media Platform provides a means to monetize our solutions as consumers find, watch, and enjoy their favorite media entertainment on connected devices. We license proprietary streaming middleware solutions that connect advertisers and entertainment producers to audiences they cannot as easily reach on other platforms due to our content-first user experience that monetizes live and streaming TV. Our unique footprint includes millions of linear TV households, where we capture viewership data throughout the home, as well as anyone streaming from our ad-supported content network.
Media Platform includes the recently acquired Vewd Smart TV video app framework and core middleware solution, the TiVo OS, consumer devices that leverage the TiVo OS (TiVo Stream 4K), future consumer devices that leverage the TiVo OS (connected TVs and connected cars), and the monetization of TiVo OS.
Platform - TiVo OS
TiVo OS drives industry-leading consumer engagement by delivering rich metadata, personalization, natural language understanding and voice control, and content integration services. TiVo OS provides industry-leading content recommendations based on AI-defined insights encouraging consumers to continually discover their next new favorite. TiVo OS uniquely brings services from long-time partners such as Disney, Sling, and YouTube TV, among others, and seamlessly integrates local TV, free ad-supported TV ("FAST") and the most popular Ad-supported Video on Demand (“AVOD”), Subscription Video on Demand (“SVOD”), and virtual Multichannel Video Programming Distributor (“vMVPD”) services. As the TiVo OS footprint increases, the inventory of FAST and AVOD services such as our own TiVo+ network increases and provides a robust opportunity to monetize this unique, connected TV advertisement inventory.
Devices – TiVo Stream 4K
TiVo Stream 4K is a best-in-class streaming media player that currently leverages components of TiVo OS with market-leading networking, video and sound technologies to provide a powerful hardware platform on which TiVo OS can operate to upgrade any screen with an HDMI connection to a smart, connected device. TiVo Stream 4K is sold via online and traditional retail channels as well as through broadband partners seeking to provide a vMVPD service and streaming media player bundled offerings to their customers.
Devices – TiVo OS for TV
TiVo OS for TV is a Linux-based Smart TV operating system that leverages TiVo OS technologies, features, and capabilities. We expect the TiVo OS platform for Smart TVs to launch in 2023. TiVo OS for TVs will be licensed as a software-as-a-service to consumer electronic OEMs and will include the right to monetize all or part of the end-user content engagement over the life of the product. For Tier 2 and Tier 3 Smart TV OEMs, TiVo OS will provide a platform to participate in the fast-growing connected TV monetization value chain with scale and cross-platform end-user insight not available to OEMs on a standalone basis.
Monetization - TiVo OS
TiVo OS is primarily monetized through video or display advertisement impressions; subscription VOD, pay TV service bounties, and revenue shares; TV viewership data licensing; off-platform connected TV ads; and other opportunities on device clients that connect to and leverage TiVo OS.
As the platform scales, we expect to monetize through the following vehicles:
•
Ad Supported Content: The sale of ad inventory on services, including our own TiVo+ and certain third-party AVOD services.
•
SVOD and MVPD Services: Revenue shared by SVOD and virtual MVPD services on new user subscriptions activated or re-activated through our OS platform.
•
Home Screen Ad Placements: Ad placements on the TiVo OS platform’s home screen by streaming services, studios, and other consumer brands.
•
Data Licensing: Revenue from advertisers, advertising agencies, and networks to license data generated from TiVo platforms to inform their ad buying decisions.
•
Off-Platform Ads: Household identifications taken from the TiVo OS platform and used to target other media sources.
15
Monetization – TV Viewership Data
We offer TV viewership data with program airing data for millions of households. Broadcasters, MVPDs, content producers, advertising agencies and advertisers use our TV viewership data, alone or in combination with third-party data sources utilizing industry-leading data safe havens, to target promotions and advertising directly, or through third-party viewer segments, to monetize their subscriber customer base.
Monetization – Advertising Solutions
We provide advertisers with nationwide or regionally-targeted advertising on our various owned or operated devices. Advertisers place ads in a variety of display formats in both traditional linear television and digital advertising for internet delivered content, seamlessly incorporated into the user interface. Using our Personalized Content Discovery platform, we also target content promotions as “paid search” by directly including the sponsored content in user interface’s recommended content carousel. We work with service providers bundling their non-TiVo advertising inventory with our native inventory, thereby giving us a more significant national footprint.
Growth Factors
There are several facets of our product growth strategy. These growth drivers include: the delivery and monetization of the TiVo OS into Smart TVs, proliferation of in-cabin monitoring (AutoSense) and infotainment (AutoStage) solutions into the connected car market, increased adoption of our IPTV solutions in the Pay-TV market, and unit growth in consumer electronics from in-home Wi-Fi solutions (Play-Fi) and IMAX Enhanced. We have a long track record of developing premium solutions for the marketplace that provide an extraordinary experience for end users.
Competition
Pay-TV
There are a number of companies that produce and market advanced media solutions such as UXs, interactive program guides, DVRs, search, recommendation, natural language voice, metadata, and advanced data and analytics in the various formats which compete, or we believe will compete, with our products and services over time. Principal competitive factors include brand recognition and awareness, product and service functionality, innovation, ease of use, personalization, content access and availability, mobility and pricing. While we are competitive across this range of factors, we believe our primary competitive differentiation includes our ability to integrate all our products to create unique value for our customers.
Our platform faces competition from companies such as Synamedia, MediaKind, Kudelski, Enghouse Systems Limited, and from solutions developed by multiple system operators such as Comcast X1 and Liberty Global plc’s Horizon Media, which have created competing products that provide user interface software for use on set-top-boxes and CE and mobile devices. Such companies may offer more economically attractive agreements to service providers and CE manufacturers by bundling multiple products together. We face competition for our Pay-TV product offerings from customers who choose to build their own interactive program guide and DVR solutions. We believe that we provide a strong alternative to “do-it-yourself,” as we have innovative, high-quality products ready to be implemented, with local and network DVR, integrated data distribution infrastructure and content, as well as third-party services (such as VOD services). We differentiate our products by continuing to integrate our broad portfolio of products into a suite of solutions and services for our customers. We believe our solutions speed our customers’ time to market, are superior to “do-it-yourself” products, and can be deployed at a lower cost than internally built products.
In video metadata, we compete with other providers of entertainment-related content metadata such as Gracenote (a subsidiary of Nielsen Holdings plc) and Ericsson Group’s Red Bee Media, as well as a number of local metadata providers. While we do not believe that our competitors’ metadata sets offer the same comprehensive breadth of focus on media exploration, discovery, and management in as many regions of the world as we do, they present competition to our metadata business for each of their areas of focus.
Consumer Electronics
Our audio licensing products face competition from other third-party providers of similar solutions as well as internal engineering and design groups among industry IC providers and consumer electronics manufacturers.
16
Our primary competitor is Dolby Laboratories, which develops and markets, among other things, high-definition audio products and services. Dolby’s long-standing market position, brand, business relationships, resources and inclusion in various industry standards provide it with a strong competitive position.
In addition to Dolby, we compete in specific product markets with companies such as Fraunhofer IIS and various other consumer electronics product manufacturers. Many of these competitors have a wide variety of strengths that afford them competitive advantages, such as longer operating histories, greater resources, greater name recognition, or the ability to offer their technologies for a lower price or for free. We have historically competed effectively against these companies due in part to our brand being a premium offering that contains superior proprietary technology, the quality of our customer service, our inclusion in industry standards and our industry relationships.
Connected Car
Our HD Radio and DTS AutoStage solutions face competition from subscription-based digital service providers such as Sirius/XM, Pandora, Gracenote, and other digital audio and data service providers.
Our DTS AutoSense in-cabin monitoring technologies broadly compete with other image processing software vendors targeting the automotive industry, such as SmartEye and Seeing Machines, as well as engineering and design groups of tier one automotive suppliers that seek to provide similar technologies by employing different approaches with their internal teams.
Media Platform
TV Audience Data. We collect and analyze audience research data in an area where companies such as comScore, Inc. and Nielsen Holdings plc and other online data analytics companies compete for research spend from advertisers, advertising agencies and television networks. Other large companies are also focusing resources in this area including Comcast, Meta Platforms Inc. (Facebook) and Alphabet, Inc.’s Google business. Many of our existing customers are investing in platforms to enable their businesses with these capabilities. We believe that there is a significant opportunity for us as an independent data and technology provider, with proprietary access to critical data assets associated with consumers’ engagement with entertainment media.
TiVo Stream 4K. We compete against products with on-demand OTT streaming capabilities offered by internet CE manufacturers. For example, many CE manufacturers have television or internet-enabled streaming devices for accessing video over the internet such as Apple TV, Amazon Fire TV, Google Chromecast and Roku. TVs with integrated streaming capabilities from manufacturers such as Samsung, Vizio and LG also represent competition to the TiVo Stream 4K.
TiVo OS. We compete for Smart TV platform support with companies such as Roku, Alphabet, Inc’s Google TV and Amazon’s FireTV. We believe the overall OTT streaming market growth, our independent position, our differentiated end-user solution, and our more inclusive business model of sharing economics with Tier 2 and Tier 3 Smart TV OEMs represents an opportunity where we can establish a strong position.
In approaching content owners, advertisers and ad agencies to participate in the TiVo OS platform, we are competing with the same platforms and TV OEMs operating their own TV operating systems such as Samsung, Vizio and LG. In this fast-expanding connected TV advertising market, we believe our cross-platform data insight from Pay-TV and TiVo OS households will allow us to create and promote a unique and compelling offering for advertisers.
Over time, we expect to see new competitors and other competing technologies emerge.
Intellectual Property Portfolio
We operate in an industry in which innovation, investment in new ideas and protection of our intellectual property rights are critical for success. We protect our innovations and inventions through a variety of means, including, but not limited to, applying for patent, copyright, and trademark protection domestically and internationally, and protecting our trade secrets. As of December 31, 2022, we held approximately 753 United States issued patents and 185 patent applications, as well as approximately 984 foreign issued patents and 298 patent applications. The last of the issued patents to expire is in 2041.
17
Research & Development
As demonstrated by our portfolio of industry-recognized, widely-deployed advanced technologies, we have a long track record of innovating in the fields of audio, imaging, and video discovery. We believe that ongoing investment in R&D is required for us to remain competitive in the markets we serve.
Today, we have a collection of world-class talent and strong research and development capabilities in various locations throughout the world. Starting with core research, machine learning and advanced algorithm development, we continue to focus on next generation technology solutions. Our ongoing investment in R&D, supported by a strong industry network of partners, enables us to deliver differentiated, cost-effective solutions that enhance the end-user experience for an ever-larger universe of addressable markets.
Legislative and Regulatory Actions
A number of government and legislative initiatives have been enacted to encourage development and implementation of technologies that protect the rights and intellectual property of the content owners. For example, the United States and other countries have adopted certain laws, including the Digital Millennium Copyright Act of 1998 (“DMCA”) and the European Copyright Directive, which are aimed at the prevention of content piracy and the manufacture and sale of products that circumvent copy protection technologies.
Compatibility Between Cable Systems and CE Equipment
Beginning in 2003, the Federal Communications Commission (“FCC”) adopted regulations implementing an agreement between cable television system operators and CE manufacturers to facilitate the retail availability of so-called “plug and play” devices that use unidirectional CableCARDs, including digital televisions and other digital devices that enable subscribers to access cable television programming without the need for a set-top-box (STB) (but without the ability for consumers to use interactive content). In September 2020, the FCC eliminated rules requiring cable providers to support CableCARD. While the cable industry has continued to provide CableCARDs for third-party devices like ours, we cannot predict the ultimate impact of any new technical equipment regulations on our business and operations. Current FCC regulations no longer prohibit multi-channel video service providers from deploying navigation devices with combined security and non-security functions, and further developments with respect to these issues could impact the availability and/or demand for “plug and play” devices, particularly bi-directional devices and STBs, all of which could affect demand for UXs incorporated in STBs or CE devices. If the cable industry decided to cease providing CableCARD support for TiVo retail customers, recurring monthly retail services fees would be affected as customers would be likely to cancel TiVo service on their devices.
General Government Regulation
We are subject to a number of foreign and domestic laws and regulations that affect companies that import or export software and technology, such as the U.S. export control regulations as administered by the U.S. Department of Commerce.
We are also subject to a number of foreign and domestic laws that affect companies conducting business on the internet. Laws relating to user privacy, freedom of expression, content, advertising, accessibility, network neutrality, information security and intellectual property rights are being debated and considered for adoption by many countries throughout the world. Each jurisdiction may enact different standards, which could impact our ability to deliver or monetize data, services or other solutions through the internet.
In the United States, service providers have been subject to claims of defamation, libel, invasion of privacy and other data protection claims, torts, unlawful activity, copyright or trademark infringement, or other theories based on the nature and content of the materials searched and the ads posted or the content generated by users. In addition, several other federal laws could have an impact on our business. For example, the DMCA has provisions that limit, but do not eliminate, our liability for hosting or linking to third-party websites that include materials that infringe copyrights or other rights, so long as we comply with the statutory requirements of this act. The Children's Online Privacy Protection Act restricts the ability of service providers to collect information from minors and the Protection of Children from Sexual Predators Act of 1998 requires service providers to report evidence of violations of federal child pornography laws under certain circumstances.
The privacy regulatory landscape has been changing rapidly, and we may become subject to new privacy or cybersecurity laws and regulations in the U.S. and internationally. Such laws and regulations could affect our ability to process personal data (in particular, our ability to use certain data or personal information for purposes such as monetization, risk or fraud avoidance, and targeted marketing or advertising, or otherwise to provide data about the end-users and/or customers and their behavior), our
18
ability to control our costs by using certain vendors or service providers, or our ability to offer certain services in certain jurisdictions, which in turn could negatively affect our financial condition and business operations, and subject us to fines, penalties, or other liability. For example, the California Consumer Privacy Act, or CCPA, became effective on January 1, 2020. The CCPA created new individual privacy rights for consumers (as that word is broadly defined in the law) and placed increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA requires covered businesses to provide new disclosures to California consumers, and allows for a new cause of action for data breaches. The CCPA also provides a consumer with the right to (i) opt out of certain sales of personal information, (ii) know the personal information that the business maintains about the consumer, and (iii) request deletion of personal information. It is unclear how the CCPA will be interpreted, but as currently written, it will likely impact our business activities and exemplifies the vulnerability of our business not only to cyber threats but also the evolving regulatory environment related to personal data. The CCPA’s privacy measures were amended and strengthened by the California Privacy Rights Act, or CPRA, which became effective on January 1, 2023, with enforcement commencing on July 1, 2023. The CPRA bolstered the consumer rights granted under CCPA and took the right to opt out of certain sales of personal information further to include the right to opt out of the sharing of personal information.
We are also subject to international laws (including but not limited to the European Union’s General Data Protection Regulation) associated with data protection, privacy, and other aspects of our business in Europe, Asia, and elsewhere in the world, and the interpretation and application of data protection laws remains uncertain. Because our services are accessible worldwide, foreign jurisdictions may claim that we are required to comply with their laws. Further, the application of existing laws regulating or requiring licenses for certain businesses of our advertisers can be unclear.
Our operations in China may also be subject to privacy regulations. China passed the Personal Information Protection Law effective November 1, 2021, which creates a comprehensive set of data privacy and security obligations that not only apply to the processing of personal information within China, but also to the processing outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, individuals located in China. The law provides for various requirements on personal information protection, including obligations of obtaining informed consent and limiting to the minimum scope necessary for the collection and processing of personal information, requirements for conducting a personal information protection impact assessment for certain data processing activities, and responsibilities for adopting necessary measures to safeguard the security of the personal information. The law also requires a security assessment and regulatory approval, government certification and/or conclusion of a standard data transfer agreement with the overseas recipient before transferring personal information outside of China. Lastly, the law imposes significant fines of up to RMB 50 million (approx. $7.7 million) or 5% of annual revenue for violations of the law. Chinese data protection laws are still evolving and may impose additional restrictions on companies doing business in China. Our efforts to comply with these laws and regulations may result in increased costs of doing business.
Human Capital Resources
The opportunities for our success and growth depend in large part on our ability to attract, develop, and retain a talented and engaged workforce. In particular, we are competing for technical talent and we need to offer not only robust and attractive compensation packages but also provide broad opportunities for our employees to make an impact, grow, and develop. As of December 31, 2022, we had a global talent base consisting of approximately 2,100 full-time employees.
To enable our talent to actively contribute to – and have a positive impact on – the overall business and culture, we have developed a set of programs and initiatives that include competitive compensation and benefits offerings, skills and management development, diversity and inclusion initiatives, goal and performance management, and succession planning. In support of these efforts, our Board of Directors monitors these programs and initiatives and provides guidance and feedback as appropriate. Our goal is to provide a work environment that empowers our teams and enables them to enjoy a healthy and productive work-life balance for themselves, their families, and their community.
Our incentives are based on merit and we have a strong pay-for-performance culture. We benchmark our total rewards annually to ensure our compensation and benefit programs remain competitive with industry peers. Our compensation framework for employees reflects a combination of fixed and variable pay including base salary, bonuses, performance awards, and stock-based compensation. We offer employees benefits that vary by country and are designed to meet or exceed local laws and are competitive in the marketplace.
We invest in the career growth of our employees by providing a wide range of development opportunities, including face-to-face, virtual, social and self-directed learning, mentoring, coaching, and external development. Annual assessments are performed to identify talent needs based on department goals and to evaluate how each function is positioned from a talent perspective. We believe in the principles of a learning organization and strive to provide continuous educational opportunities
19
for our employees. In 2020, we invested in a global online learning platform. More than 200 courses and programs have been created, offering a wide range of skill development opportunities for employees to become more knowledgeable and effective in their roles. We also offer customized leadership and management development programs for our management teams.
We leverage our manager ecosystem, coupled with industry-standard performance management tools, to align corporate goals with employee objectives. Employees are encouraged to create and align individual, functional and team-based goals, track performance against goals, write self-evaluations, and solicit feedback.
We have demonstrated support and commitment to developing a culture of non-discrimination and embracing diversity, equity, and inclusion throughout our workforce. We have numerous employee resource groups (ERGs), employee-led, voluntary communities for groups that share similar backgrounds or identities. ERGs develop programming throughout the year supporting culture and belonging, encourage diversity, and empower employees to achieve their personal and career goals. Our current employee resource groups represent the LGBTQ+ community (PRIDE at Xperi), the Black community (Mahogany at Xperi, or MaX), women (Women in Tech, or WiT), and veterans (Veterans at Xperi, or VaX). We also have formed a Diversity, Equity and Inclusion council comprised of all levels of employees and senior executives. The purpose of the council is, among other things, to identify and address issues of diversity, equity and inclusion through multiple and unique perspectives from a diverse group of our employees. In June 2020, we joined the business coalition in support of the Equality Act, a measure that supports federal legislation that would provide the same basic protections to LGBTQ+ people as are provided to other protected groups under federal law. The Board of Directors believes that board diversity is important to serving the long-term interests of stockholders and takes diversity into consideration when identifying potential director candidates.
We measure employee experience by collecting insight and understanding of engagement and satisfaction. We use an employee engagement survey, executive roundtables and employee focus groups to solicit input. Task forces are regularly created to identify and address gaps, resulting in changes to policies and practices and benefits offerings. A recent survey to assess employee well-being during the initial work-from-home period related to the COVID-19 pandemic resulted in the payment of a working-from-home stipend to employees that covered certain costs associated with setting up home offices.
None of our employees are covered by a collective bargaining agreement or are represented by a labor union. We have not experienced any organized work stoppages and we consider the relationships with our employees to be positive.
Environmental, Social & Governance
Xperi will publish its latest Environmental, Social and Governance (“ESG”) report in March 2023. Our report will be available on the Xperi website.
Using insights from the development of our inaugural materiality assessment, we created our ESG program around three key focus areas: Culture and Belonging, Resilience, and Community Impact. As part of our Resilience pillar, we aim to be positive stewards of the environment. Climate change is one of the defining challenges facing our society today, and we are committed to doing our part to address this challenge head on. In 2022, we conducted our first greenhouse gas (GHG) inventory of our Scope 1, 2, and 3 emissions, establishing a baseline to understand our environmental impact. This will inform our goal-setting in the future as we work to address our carbon footprint. We have taken additional steps to reduce our impact through actions such as increasing energy efficiency within our office buildings, reducing the square footage of our office portfolio, and migrating the majority of on-premise IT assets towards more energy efficient solutions.
Available Information
Our internet address is xperi.com, where we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our SEC reports can be accessed through the investor relations section of our website. The information found on our website and in our ESG report is not incorporated into this or any other report we file with or furnish to the SEC.
20
Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. Risk factors that could cause actual results to differ from our expectations and that could negatively impact our financial condition and results of operations are summarized and set forth in detail below and elsewhere in this Annual Report on Form 10-K. If any of these risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. Under these circumstances, the trading price of our common stock could decline, and you may lose all or part of your investment. Further, additional risks not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity and stock price materially and adversely. You should consider carefully the risks and uncertainties summarized and set forth in detail below and elsewhere in this Annual Report on Form 10-K before you decide to invest in our common stock.
Summary of Risk Factors
We are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability and accessibility of our risk factor disclosures. This summary does not address all the risks that we face. We encourage you to carefully review the full risk factors contained in this Annual Report on Form 10-K in their entirety for additional information regarding the material factors that make an investment in our securities speculative or risky. The primary categories by which we classify risks include those related to: (i) our business, (ii) financial matters, (iii) regulatory and legal matters, and (iv) ownership of our common stock. Set forth below within each of these categories is a summary of the principal factors that make an investment in our common stock speculative or risky.
Risks Related to our Business Operations
•
We may not be able to develop and timely deliver innovative technologies and services in response to changes in our markets and industries.
•
Our products and services face intense competition from various sources, and we may not be able to compete effectively.
•
Our success depends, in part, on discretionary consumer and corporate spending, and factors such as unusually high levels of inflation and risk of recession in the near term could have an adverse effect on our business.
•
We may not be able to manage our disparate business operations efficiently, which may lead to disposition of such business and related assets.
•
Our business depends, in part, on royalty-based and advertising-based revenue models, which are inherently risky.
•
Our licensees may delay, refuse to or be unable to make payments to us due to financial difficulties or otherwise, or shift their licensed products to other companies to lower their royalties to us.
•
It is difficult for us to verify royalty amounts owed to us under our licensing agreements, and this may cause us to lose revenue.
•
Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.
•
We face competitive risks in the provision of entertainment offerings involving the distribution of digital content provided by third-party application and content providers through broadband.
•
Our pursuit of acquisitions and divestitures may adversely affect our business operations or stock price if we cannot successfully execute our strategies.
•
Our business and results of operations have been, and are expected to continue to be, impacted by the global COVID-19 pandemic and resulting macroeconomic factors.
•
If we fail to protect and enforce our intellectual property rights, contract rights, or our confidential information, our business may suffer.
•
We may not be able to protect our brand from third-party infringement or increase our brand awareness.
•
Our business may suffer if third parties assert that our products or services violate their intellectual property rights.
•
We may not be able to maintain enough content released in the DTS audio format, which may reduce demand for our technologies, products, and services.
21
•
Demand for our Connected Car technologies may be insufficient to sustain projected growth.
•
If we are unable to further penetrate the streaming and downloadable content delivery markets and adapt our technologies for those markets, our royalties and ability to grow our business could be adversely impacted.
•
The success of certain of our solutions depends on the interoperability of our technologies with consumer hardware devices.
•
Our failure to adequately manage our increasingly complex distribution agreements, including licensing, development and engineering services, may cause unexpected delays and loss of revenue in the deployment of advanced television solutions.
•
We make significant investments in new products and services that may not achieve technological feasibility or profitability or that may limit our growth.
•
Our products and services could be susceptible to errors, defects, or unintended performance problems that could result in lost revenue, liability or delayed or limited market acceptance.
•
Dependence on the cooperation of third parties for the provision and delivery of our metadata may adversely affect our revenue.
•
We depend on a limited number of third parties to design, manufacture, distribute and supply hardware devices upon which our TiVo software and service operate.
•
We maintain inventories of TiVo-branded products based on our demand forecast, which may be incorrect and lead to excess or insufficient inventory.
•
Qualifying, certifying and supporting our technologies, products and services is time-consuming and expensive.
•
We are exposed to the risks related to international sales and operations.
•
Uncertainty and instability resulting from the war between Russia and Ukraine could negatively impact our business, financial condition and operations.
•
Further deterioration of trade relations between the United States and China, other trade conflicts and barriers, economic sanctions, and national security protection policies could limit or prevent existing or potential customers from doing business with us.
•
Our systems, networks and online business activities and those of third parties that we utilize in our operations are subject to cybersecurity and stability risks, information technology system failures, and security breaches.
•
Some software we provide may be subject to “open source” licenses, which may restrict how we use or distribute our software or require that we release the source code of certain products subject to those licenses.
Risks Related to Financial Matters
•
If our goodwill and other intangible assets become impaired, we may be required to record a significant charge to earnings.
•
Changes in our tax rates or exposure to additional tax assessments may adversely affect our effective tax rates and negatively affect our business and financial condition.
Risks Related to Regulatory and Legal Matters
•
New governmental regulations or new interpretations of existing laws, including legislative initiatives, could cause legal uncertainties and result in harm to our business.
•
We need to safeguard the security and privacy of our customers’ confidential data and remain in compliance with laws that govern such data, and any inability to do so may harm our reputation and brand and expose us to legal proceedings or investigations, fines, penalties, or other liability.
•
Current and future governmental and industry standards may significantly limit our business opportunities.
•
Our activities to advertise, market and sell our services directly to consumers are highly impacted by constantly evolving state and federal laws and regulations.
22
Risks Related to the Separation
•
We may be unable to achieve some or all of the benefits that we expect to achieve from our separation.
•
If the Distribution, together with certain related transactions, were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then we and our stockholders could be subject to significant tax liability.
•
The Internal Revenue Service (“IRS”) may assert that the Mergers (as defined in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) cause the Distribution and other related transactions to be taxable to our Former Parent, in which case we could be subject to significant indemnification liability.
•
We are subject to continuing contingent tax-related liabilities of our Former Parent following the Distribution.
•
We may be required to adjust our tax accounts if our Former Parent utilizes certain pre-Separation tax attributes.
•
We agreed to numerous restrictions to preserve the tax-free treatment of the Distribution and certain related transactions in the United States, which may reduce our strategic and operating flexibility.
•
Our historical financial information may not be fully representative of the results we would have achieved as an independent, publicly-traded company and may not be a reliable indicator of our future results.
•
We may not enjoy the same benefits of diversity, leverage and market reputation as a standalone company that we enjoyed as a part of our Former Parent.
•
We assumed and are obligated to indemnify our Former Parent for certain liabilities. If we are required to make payments pursuant to these indemnities, we may need to divert cash to meet those obligations and our financial results could be negatively impacted. In addition, our Former Parent assumed, and will be obligated to indemnify us for certain liabilities. These indemnities may not be sufficient to insure us against the full amount of liabilities for which we will be allocated responsibility, and our Former Parent may not be able to satisfy its indemnification obligations in the future.
•
The Separation and related transactions may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal distribution requirements.
•
Our Former Parent may compete with us.
•
We may have received better terms from unaffiliated third parties than the terms we will receive in our agreements with our Former Parent.
Risks Related to Ownership of our Common Stock
•
If we fail to maintain effective internal control over financial reporting, our ability to produce accurate financial statements could be impaired, which could increase our operating costs and affect our ability to operate our business.
•
We cannot be certain that an active trading market for our common stock will be sustained and our stock price may fluctuate significantly.
•
We cannot guarantee the timing, amount or payment of dividends, if any, on our common stock in the future.
•
A stockholder’s percentage of ownership in us may be diluted in the future.
•
Certain provisions in our amended and restated certificate of incorporation and bylaws, Delaware law and in the Tax Matters Agreement may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.
•
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit the ability of our stockholders to obtain a favorable judicial forum for disputes with us.
•
For as long as we are an emerging growth company, we are not required to comply with certain requirements that apply to other public companies.
23
Risks Relating to Our Business Operations
We may not be able to develop and timely deliver innovative technologies and services in response to changes in our markets and industries.
The markets for our products, services and technologies are characterized by rapid change and technological evolution and obsolescence, new and improved product introduction, changing consumer demand, an increasingly competitive landscape, and evolving industry standards. We will need to continue to expend considerable resources on research and development in the future in order to continue to design, deliver and enhance innovative audio, imaging, media, entertainment, and semiconductor products, services and technologies. The development of enhanced and new technologies, products, and services is a complex, costly and uncertain process requiring high levels of innovation, highly skilled engineering and development personnel, and the accurate anticipation of technological and market trends. For example, we recently announced new design wins for TiVo OS, our embedded operating system, and DTS AutoSense, our in-car safety solution. If we fail to timely and successfully deliver these products to our customers, our future growth and profitability may be negatively impacted. Despite our efforts, we:
•
may not receive significant revenue from our current research and development efforts for several years, if at all;
•
cannot ensure that the level of funding and significant resources we are committing for investments in new products, services and technologies will be sufficient or result in successful new products, services or technologies;
•
cannot ensure that our newly developed products, services or technologies can be successfully protected as proprietary intellectual property rights or will not infringe the intellectual property rights of others;
•
cannot ensure that any new products or services that we develop will achieve market acceptance;
•
cannot prevent our products, services and technologies from becoming obsolete due to rapid advancements in technology and changes in consumer preferences;
•
cannot ensure that revenue from new products, services or technologies will offset any decline in revenue from our products, services and technologies which may become obsolete;
•
cannot ensure that our competitors and/or potential customers may not develop products, services or technologies similar to those developed by us, resulting in a reduction in the potential demand for our newly developed products, services or technologies; and
•
may not correctly identify new or changing market trends at an early enough stage to capitalize on market opportunities.
Furthermore, the decision by a party dominant in the value chain to provide competing technologies at very low or no cost could cause our customers and other manufacturers not to utilize our technologies or services. Our customers may choose to use technologies that their own in-house engineering teams have developed, or in which they have an interest. Accordingly, our revenue could decline if our customers choose not to incorporate our technologies in their products, or if they sell fewer products incorporating our technologies. Our failure to successfully develop new and improved products, services and technologies, including as a result of any of the risks described above, may reduce our future growth and profitability and may adversely affect our business, financial condition and results of operations.
Our success depends, in part, on discretionary consumer and corporate spending and factors, such as unusually high levels of inflation and rising risk of recession in the near term, could have an adverse effect on our business.
Our success depends, in part, on the level of discretionary consumer and corporate spending. Discretionary consumer and corporate spending is affected by many factors, including economic conditions affecting disposable consumer income and corporate spending, such as the rate of inflation, risk of recession, employment status, and interest and tax rates. Recent trends including unusually high inflation, increased perceived risk of recession and higher interest rates may negatively impact consumer and corporate spending. A decrease in discretionary consumer and corporate spending could result, in particular, in reduction in purchases of TVs, automobiles and consumer electronic devices, and reduction in monetization revenue. During past economic slowdowns and recessions, many consumers reduced their discretionary spending and advertisers reduced their advertising expenditures. Any such reductions could significantly impact our ability to generate revenue, and thus impact our business, financial condition and results of operations.
24
Our products and services face intense competition from various sources, and we may not be able to compete effectively.
We expect that our technologies will continue to compete with technologies of internal design groups at competing companies or from our customers. The internal design groups of these companies create their own audio, imaging, and media solutions. If these internal design groups introduce unique solutions superior to our technology, they may not need to license our technology. These groups may design technology that is less expensive to implement or that enables products with higher performance or additional features. Many of these groups have substantially greater resources, greater financial strength and lower cost structures which may allow them to undercut our price. They also have the inherent advantage of access to internal corporate strategies, technology road maps and technical information. As a result, they may be able to bring alternative solutions to market more easily and quickly. We face competitive risks across all our business, including:
•
our Media Platform faces significant competition from companies that produce and market TV operating systems, program guides as well as television schedule information in a variety of formats, including passive and interactive on-screen electronic guide services, online listings, over the top applications and against customers and potential customers who choose to build their own TV operating systems or interactive program guide;
•
our advanced video solutions compete with other CE products and home entertainment services (such as Roku, AppleTV, Amazon FireTV and Chromecast) as well as products and service offerings built by other service providers or their suppliers for consumer spending;
•
our Smart TV solutions compete with other operating systems for Smart TVs, including TV manufacturers with their own in-house solutions (e.g., Samsung with Tizen) or TV manufacturers that use competing third-party solutions (e.g., Google TV).
•
our Consumer Electronics and audio technologies compete with other providers of audio products and services such as Dolby and Sonos, with Dolby being the primary competitor in high-definition audio processing and enjoying advantages in selling its digital multi-channel audio technology, having introduced such technology before we did and having achieved mandatory standard status in product categories that we have not, including terrestrial digital TV broadcasts in the United States;
•
our Connected Car technologies compete with internal design groups of automotive manufacturers and other automobile technology suppliers that provide similar technologies by employing different approaches;
•
our embedded image processing technologies compete with other image processing software vendors such as SmartEye, Seeing Machines and ArcSoft, Inc., as well as internal design groups of automotive, mobile phone, and digital camera manufacturers; and
•
our competitive position is affected by the rate of adoption and incorporation of our technologies by semiconductor manufacturers, assemblers, foundries, manufacturers of consumer and communication electronics, and the automotive and surveillance industry.
In the future, our licensed technologies may also compete with other emerging technologies that may be less expensive and provide higher performance than our solutions. Companies with these competing technologies may also have greater resources. Technological change could render our technologies obsolete, and new, competitive technologies could emerge that achieve broad adoption and adversely affect the use of our technologies and intellectual property.
Some of our current or future competitors may have significantly greater financial, technical, marketing and other resources than we do, may enjoy greater brand recognition than we do, or may have more experience or advantages than we have in the markets in which they compete. Further, many of the consumer hardware and software products that include our technologies also include technologies developed by our competitors. In order for us to remain competitive in this market, we must continue to invest significant resources in innovation and product development in order to enhance our technologies and our existing products and services and introduce new high-quality technologies, products and services to meet the wide variety of such competitive pressures. Our ability to generate revenue from our business will suffer if we fail to do so successfully.
We may not be able to manage our disparate business operations efficiently, which may lead to disposition of such business and related assets.
Our effort to rationalize our disparate business operations could require our management to refocus on certain business operations while disinvesting in others. Additionally, as business strategy and product markets continue to evolve, we may dispose, discontinue, or divest product lines or business divisions. Disposing or discontinuing existing product lines or business
25
divisions, or separating business units, provides no assurance that operating expenses will be reduced or will not cause us to incur material charges associated with such decisions.
Furthermore, the disposition or discontinuance of an existing product line or business division, or separation or spinoff of a business unit, entails various risks, including the risk of not being able to obtain a purchaser, or, if obtained, that the purchase price may not be equal to at least the net asset book value for the product line or business unit, or the value that investors place on it as reflected by our stock price. Other risks of such actions include adversely affecting employee morale, managing the expectations of, and maintaining good relations with, customers of disposed or discontinued product lines or business divisions, which could prevent selling other products to them. We may also incur other significant liabilities and costs associated with disposal or discontinuance of product lines or business divisions, or separation of business units, including employee severance costs, relocation expenses, and impairment of lease obligations and long-lived assets. The effects of such actions may adversely impact our business, financial condition and results of operations.
Our business depends, in part, on royalty-based and advertising-based revenue models, which are inherently risky.
Our business is dependent, in part, on future royalties and/or advertising revenues paid to us by customers and partners. Royalty payments under our licenses may be based upon, among other things, the number of subscribers for Pay-TV, a percent of net sales, a per-unit sold basis or a fixed monthly, quarterly or annual amount. Advertising-related revenue may be based upon, among other things, the number of viewers who watch a particular service, availability of inventory, advertiser interest and opportunities to personalize advertisements. We are dependent upon our ability to structure, negotiate and enforce agreements for the determination and payment of royalties and advertising-based revenue, as well as upon our customers’ and partners’ compliance with their agreements.
We face risks inherent in royalty-based and/or advertising-based business models, many of which are outside of our control, such as the following:
•
the number of subscribers our Pay-TV customers have or the number of set top boxes our Pay-TV customers provide to their end-user subscribers;
•
the number of end users and time spent viewing content and advertising available within devices that incorporate our licensed technology;
•
the rate of adoption and incorporation of our technology by semiconductor manufacturers, assemblers, foundries, manufacturers of consumer and communication electronics, and the TV, automotive, consumer electronics, and surveillance industries;
•
the willingness and ability of suppliers to produce materials and equipment that support our licensed technology in a quantity sufficient to enable volume manufacturing;
•
the willingness and ability of advertisers to use our advertising placements that are available via our licensed technology;
•
the willingness and ability of content owners and content aggregators to make their content available via our licensed technology;
•
the willingness and ability of advertising technology partners to license their products and services to us for use in our licensed technology;
•
ability of our customers to purchase such materials and equipment on a cost-effective and timely basis;
•
the length of the design cycle and the ability of us and our customers to successfully integrate certain of our technologies into integrated circuits;
•
the demand for products that incorporate our licensed technology;
•
the cyclicality of supply and demand for products using our licensed technology;
•
the seasonal nature of advertising consumption and the associated variance to revenue based on those changes;
•
the impact of economic downturns; and
•
the impact of poor financial performance of our customers.
26
For example, the ability to enjoy digital entertainment content downloaded or streamed over the internet has caused some consumers to elect to cancel their Pay-TV subscriptions. If our Pay-TV customers are unable to maintain their subscriber bases, the royalties they owe us will decline.
Our licensees may delay, refuse to or be unable to make payments to us due to financial difficulties or otherwise, or shift their licensed products to other companies to lower their royalties to us.
A number of our customers may face severe financial difficulties from time to time, which may result in their inability to make payments to us in a timely manner, or at all. In addition, we have had a history of, and we may in the future experience, customers that delay or refuse to make payments owed to us under license or settlement agreements. Our customers may also merge with or may shift the manufacture of licensed products to companies that are not currently licensees of our technology. This could make the collection process complex, difficult and costly, which may adversely impact our business, financial condition, results of operations and cash flows.
It is difficult for us to verify royalty amounts owed to us under our licensing agreements, and this may cause us to lose revenue.
The terms of our license agreements often require our customers to document their use of our technology and report related data to us on a quarterly basis. Although our license terms generally give us the right to audit books and records of our customers to verify this information, audits can be expensive, time consuming, and may not be cost justified based on our understanding of our customers’ businesses, especially given the international nature of our customers. Our license compliance program audits certain customers to review the accuracy of the information contained in their royalty reports in an effort to decrease the likelihood that we will not receive the royalty to which we are entitled under the terms of our license agreements, but we cannot ensure that such audits will be effective to that end.
Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.
Our future success depends, in part, upon our ability to recruit and retain key management, technical, sales, marketing, finance, and other critical personnel. Competition for qualified management, technical and other personnel is intense, and we may not be successful in attracting and retaining such personnel. If we fail to attract and retain qualified employees, including internationally, our ability to grow our business could be harmed.
Competition for people with the specific skills that we require is significant. In order to attract and retain personnel in a competitive marketplace, we believe that we must provide a competitive compensation package, including cash and equity-based compensation. Volatility in our stock price may from time to time adversely affect our ability to recruit or retain employees. If we are unable to hire and retain qualified employees, or conversely, if we fail to manage employee performance or reduce staffing levels when required by market conditions, our business, financial condition and results of operations could be adversely affected.
We face competitive risks in the provision of entertainment offerings involving the distribution of digital content provided by third party application and content providers through broadband.
We have previously launched access in certain of our products and services to the entertainment offerings of Amazon Prime Video, Netflix, Hulu Plus, HBO Max, Disney+, VUDU, Paramount+, Peacock, and others for the distribution of digital content directly to broadband-connected TiVo devices. These entertainment offerings typically involve no significant long-term commitments. We face competitive, technological and business risks in our ongoing provision of entertainment offerings involving the distribution of digital content through broadband to consumer televisions with such offerings, including the availability of premium and high-definition content, as well as the speed and quality of the delivery of such content to partner devices. For instance, we face increased competition from a growing number of broadband-enabled devices from providers such as Roku, Apple TV, Amazon FireTV and Chromecast that provide broadband-delivered digital content directly to a consumer’s television connected to such a device. Additionally, we face competition from online content providers and other personal computer (“PC”) software providers who deliver digital content directly to a consumer’s PC, which in some cases may then be viewed on a consumer’s television. The TiVo OS solution faces competition from other Smart TV operating systems, as well as non-Smart TVs that utilize broadband-enabled devices. If we are unable to provide a competitive entertainment offering on our own, or an equivalent offering with other third parties, the attractiveness of the TiVo service to new users would be harmed as consumers increasingly look for new ways to receive and view digital content and our ability to retain and attract users would be harmed. Recent rapid transformation in licensing and distribution of digital content has made the industry less
27
predictable and more volatile and if we are unable to adapt to developments in the space our business, financial condition and results of operations may be harmed.
Our future success depends on our ability to establish and maintain licensing relationships with companies in related business fields, including:
•
Pay-TV service providers;
•
Operators of entertainment content distributors, including pay-per-view (“PPV”) and video-on-demand (“VOD”) networks;
•
TV OEMs and ODMs, CE, digital set-top hardware manufacturers, and personal computer manufacturers; TV main board manufacturers, and chip manufacturers;
•
motion-picture studios, networks streaming partners (including content aggregators and SVOD, FAST, and AVOD providers), and other content providers;
•
semiconductor and equipment manufacturers;
•
content rights holders;
•
retailers and advertisers and advertising technology partners;
•
digital rights management suppliers; and
•
internet portals and other digital distribution companies.
Substantially all of our license agreements are non-exclusive, and therefore our licensees are free to enter into similar agreements with third parties, including our competitors. Our licensees may develop or pursue alternative technologies either on their own or in collaboration with others, including our competitors.
Some of our third-party license arrangements require that we license others' technologies and/or integrate our solutions with others. In addition, we rely on third parties to report usage and volume information to us. Delays, errors or omissions in this information could harm our business. If these third parties choose not to support integration efforts or delay the integration of our solutions, our business, financial condition and results of operations could be harmed.
Relationships have historically played an important role in the entertainment industries that we serve. If we fail to maintain and strengthen these relationships, these industry participants may not purchase and use our technologies or facilitate the adoption of our technologies, which will harm our business, financial condition, results of operations and prospects and may make it more difficult for us to enter into new markets. In addition, if major industry participants form strategic relationships that exclude us, our business, financial condition, results of operations and prospects could be materially adversely affected.
Our pursuit of acquisitions and divestures may adversely affect our business operations or stock price if we cannot successfully execute our strategies.
We have made several acquisitions, domestically and internationally, and our current plan is to continue to acquire assets, technologies or companies that we believe are strategic to our future business. For example, on July 1, 2022, we acquired Vewd Software Holdings Limited (“Vewd”), a leading global provider of OTT and hybrid TV solutions, for approximately $103 million through a mixture of cash and debt (the “Vewd Acquisition”). Acquisitions, including the Vewd Acquisition, involve challenges in terms of successful integration of technologies, products, services and employees. We may not realize the anticipated benefits of acquisitions we may complete in the future, and we may not be able to incorporate any acquired services, products or technologies with our existing operations, or integrate personnel from the acquired businesses, in which case our business, financial condition and results of operations could be harmed.
If our growth continues, it may place a significant strain on our management team and on our operational and financial systems, procedures, and controls. Our future success will depend, in part, upon the ability of our management team to manage any growth effectively, requiring our management to:
•
recruit, hire, and train additional personnel;
•
implement and improve our operational and financial systems, procedures, and controls;
•
maintain our cost structure at an appropriate level based on the royalties, revenue and cash we forecast and generate;
28
•
manage multiple concurrent development projects; and
•
manage operations in multiple time zones with different cultures and languages.
Financing for future acquisitions may not be available on favorable terms, or at all. If we use our equity securities to fund the acquisition, it may result in significant dilution to our existing stockholders. If we identify an appropriate acquisition candidate for any of our businesses, we may not be able to negotiate the terms of the acquisition successfully, finance the acquisition or integrate the acquired business, products, service offerings, technologies or employees into our existing business and operations. Future acquisitions and divestitures may not be well-received by the investment community, which may cause the value of our stock to fall. We cannot ensure that we will be able to successfully complete any acquisition or divestiture in the future. Further, the terms of our indebtedness constrain our ability to make and finance additional acquisitions or divestitures.
Our business and results of operations have been, and are expected to continue to be, impacted by the global COVID-19 pandemic.
The COVID-19 pandemic and the resulting macroeconomic effects have had, and may continue to have, an adverse impact on our business. The impact to date has included periods of significant volatility in markets we serve, in particular the automotive and broad consumer electronics markets. Additionally, the pandemic has caused some challenges and delays in acquiring new customers and executing license renewals. These factors have negatively impacted our business, financial condition and results of operations, and may result in an impairment of our long-lived assets, including goodwill, increased credit losses and impairments of investments in other companies.
Our operations and those of our customers have also been negatively impacted by certain trends arising from the COVID-19 pandemic, including labor market constraints, inflationary pressures, shortage of semiconductor components and manufacturing capacities, and delays in shipments, product development and product launches. Moreover, the COVID-19 pandemic, its related macroeconomic impacts, and U.S. federal, state and foreign government policies enacted to combat the pandemic have contributed to a recent rise of inflation that may increase the cost of our operations and reduce demand for our products and services and those of our customers, which may adversely affect our business, financial condition and results of operations.
Our per-unit and variable-fee based revenue will continue to be susceptible to the volatility, labor shortages, supply chain disruptions, microchip shortages, and potential market downturns precipitated by the COVID-19 pandemic. The impact of the pandemic on our overall business, financial condition and results of operations remains uncertain for the foreseeable future.
If we fail to protect and enforce our intellectual property rights, contract rights, or our confidential information, our business may suffer.
We rely primarily on a combination of license, development and nondisclosure agreements and other contractual provisions, as well as patent, trademark, trade secret and copyright laws, to protect our technology and intellectual property. If we fail to protect our technology, intellectual property, or contract rights, our customers and others may seek to use our technology and intellectual property without the payment of license fees and royalties, which could weaken our competitive position, reduce our operating results and increase the likelihood of costly litigation. Others may also develop technologies that are similar or superior to our technologies, or duplicate our technologies.
We also rely on trade secret laws rather than patent laws to protect other portions of our proprietary technology. Trade secrets can be difficult to protect. The misappropriation of our trade secrets or other proprietary information could seriously harm our business. We protect our proprietary technology and processes, in part, through confidentiality agreements with our employees, consultants, suppliers and customers. We cannot be certain that these contracts have not been and will not be breached, that we will be able to timely detect unauthorized use or transfer of our technology and intellectual property, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by competitors. If we fail to use adequate mechanisms to protect our technology and intellectual property, or if a court fails to enforce our intellectual property rights, our business will suffer. We cannot be certain that these protection mechanisms can be successfully asserted in the future or will not be invalidated or challenged.
Further, the laws and enforcement regimes of certain countries may not protect our technology and intellectual property to the same extent as do the laws and enforcement regimes of the United States. In certain jurisdictions, we may be unable to protect our technology and intellectual property adequately against unauthorized use, which may adversely affect our business, financial condition and results of operations.
29
We may not be able to protect our brand from third-party infringement or increase our brand awareness.
Maintaining and strengthening our brands is important to maintaining and expanding our business, as well as to our ability to enter into new markets for our technologies, products and services. If we fail to promote and maintain these brands successfully, our ability to sustain and expand our business and enter into new markets may suffer. Much of the promotion of our brand depends, among other things, on hardware device manufacturing companies and service providers displaying our trademarks on their products. If these companies choose for any reason not to display our trademarks on their products, or if these companies use our trademarks incorrectly or in an unauthorized manner, the strength of our brand may be diluted or our ability to maintain or increase our brand awareness may be harmed. We generally rely on enforcing our trademark rights to prevent unauthorized use of our brand and technologies. Our ability to prevent unauthorized uses of our brand and technologies would be negatively impacted if our trademark registrations were overturned in the jurisdictions where we do business. We also have trademark applications pending in a number of jurisdictions that may not ultimately be granted, or if granted, may be challenged or invalidated, in which case we would be unable to prevent unauthorized use of our brand and logo in such jurisdictions. We have not filed trademark registrations in all jurisdictions where our brand and logo may be used.
Our business may suffer if third parties assert that our products or services violate their intellectual property rights.
Third parties may claim that our products or services infringe upon their intellectual property rights. Even if we believe that such claims are without merit, they can be time-consuming and costly to defend against and will divert management’s attention and resources away from our business. Furthermore, third parties making such claims may be able to obtain injunctive or other equitable relief that could block our ability to further develop or commercialize some or all of our products or services in the United States and abroad. Claims of intellectual property infringement also might require us to enter into costly settlement or license agreements, pay costly damage awards, or defend or indemnify our customers against judgments, damages, or other losses. Even if we have an agreement that provides for a third-party to indemnify us against such costs, the indemnifying party may refuse or be unable to perform its contractual obligations under the agreement. If we cannot or do not license the allegedly infringed intellectual property on reasonable terms, or need to substitute similar technology from another source, our business, financial condition, results of operations and cash flows could suffer.
We may not be able to maintain enough content released in the DTS audio format, which may reduce demand for our technologies, products, and services.
We expect to derive a significant percentage of our revenue from the technologies, products, and services that we offer to manufacturers of consumer electronics products. We believe that demand for our audio technologies in growing markets for multi-channel and/or high-resolution audio, including TVs, tablets, mobile phones, video game consoles, automobiles, and soundbars, will be based on the amount, quality, and popularity of content (such as movies, TV shows, music, and games) either released in the DTS audio format or capable of being coded and played in the DTS format. In particular, our ability to penetrate the growing markets in the network-connected space depends on the presence of streaming and downloadable content released in the DTS audio format. We generally do not have contracts that require providers of streaming and downloadable content to develop and release such content in a DTS audio format. Accordingly, our revenue could decline if these providers elect not to incorporate DTS audio into their content or if they sell less content that incorporates DTS audio.
In addition, we may not be successful in maintaining existing relationships or developing new relationships with other existing or new content providers. As a result, we cannot ensure that a sufficient amount of content will be released in a DTS audio format or that manufacturers will continue offering DTS decoders in the consumer electronics products that they sell.
Demand for our Connected Car technologies, including HD Radio, may be insufficient to sustain projected growth.
Demand for and adoption of our Connected Car technologies, including HD Radio, DTS AutoStage, and DTS AutoSense, may not be sufficient for us to continue to increase the number of customers for these technologies, which include IC manufacturers, manufacturers of broadcast transmission equipment, consumer electronics product manufacturers, component manufacturers, data service providers, manufacturers of specialized and test equipment and radio broadcasters, automobile manufacturers and Tier 1 suppliers to automobile manufacturers.
Demand for our automotive technologies, including HD Radio, DTS AutoStage, and DTS AutoSense, also may be impacted by declines in the automotive industry which historically has been cyclical and experienced downturns during declining economic conditions. The persistent downturn in the automotive markets resulting from the COVID-19 pandemic and related events reduced demand for these technologies. There is no guarantee that growth trends will return to our pre-pandemic level, and a sustained reduction in our automotive-based royalties may cause us to fail to meet our previously projected growth rates.
30
Furthermore, demand for and adoption of our DTS AutoStage and DTS AutoSense technologies and services may not continue to increase and may face increased competition from existing suppliers or new entrants providing the same or similar services.
Among other things, continuing and increased consumer acceptance of HD Radio technology will depend upon:
•
the number of radio stations broadcasting digitally using HD Radio technology;
•
the willingness of automobile manufacturers to include HD Radio receivers in their vehicles;
•
the willingness of Tier 1 suppliers to incorporate HD Radio technology into their products;
•
the cost and availability of HD Radio enabled products; and
•
the marketing and pricing strategies that we employ and that are employed by our customers and retailers.
Continuing and increased consumer acceptance of DTS AutoStage technology will depend upon, among other things:
•
the willingness of automobile manufacturers to include DTS AutoStage technology in their vehicles;
•
the willingness of Tier 1 suppliers to incorporate DTS AutoStage technology into their products;
•
the deployment of broadband connectivity in vehicles, including through built-in modems or phone tethering;
•
the demand by end users for the services provided by the DTS AutoStage technology in their vehicles;
•
the ability to scale and provide the DTS AutoStage services without service interruptions;
•
the ability to acquire content or licenses to content distributed by the DTS AutoStage services;
•
the continued participation and support by broadcasters and content owners of the DTS AutoStage technology and services; and
•
the marketing and pricing strategies that we employ and that are employed by our customers and retailers.
The DTS AutoStage technology is dependent on broadband connectivity within the vehicle. A slower deployment or adoption of broadband connectivity within automobiles could negatively impact the deployment of DTS AutoStage technology. The DTS AutoStage technology and services also rely upon content and metadata, which may have been licensed or acquired from third-party content owners or licensors, third-party service providers, and internet and intranet infrastructure outside of our control.
Continuing and increased consumer acceptance of DTS AutoSense technology will depend upon, among other things:
•
the willingness of automobile manufacturers to include DTS AutoSense technology in their vehicles;
•
the willingness of Tier 1 suppliers to incorporate DTS AutoSense technology into their products;
•
the demand by end users for the services provided by the DTS AutoSense technology in their vehicles;
•
legal, regulatory, safety, and industry requirements that may apply to DTS AutoSense; and
•
the marketing and pricing strategies that we employ and that are employed by our customers.
If we are unable to further penetrate the streaming and downloadable content delivery markets and adapt our technologies for those markets, our royalties and ability to grow our business could be adversely impacted.
Prior to the advent of streaming and downloadable content services, video and audio content was purchased and consumed primarily via optical disc-based media. The growth of the internet and network-connected device usage, along with the rapid advancement of online and mobile content delivery, has resulted in download and streaming services becoming mainstream with consumers in various parts of the world. We expect the shift away from optical disc-based media to streaming and downloadable content consumption to continue. If we fail to continue to further penetrate the streaming and downloadable content delivery market, our business could suffer.
The services that provide content from the internet are not generally governed by international or national standards and are thus free to choose any media format(s) to deliver their products and services. This freedom of choice on the part of online content providers could limit our ability to grow if such content providers do not incorporate our technologies into their services, which could affect demand for our technologies.
31
Furthermore, our inclusion in mobile and other network-connected devices may be less profitable for us than optical disc players. The online and mobile markets are characterized by intense competition, evolving industry standards and business and distribution models, disruptive software and hardware technology developments, frequent new product and service introductions, short product and service life cycles, and price sensitivity on the part of consumers, all of which may result in downward pressure on pricing. If we are unable to adequately and timely respond to the foregoing, our business, financial condition and results of operations could be adversely affected.
The success of certain of our solutions depends on the interoperability of our technologies with consumer hardware devices.
To be successful, we design certain of our solutions to interoperate effectively with a variety of consumer hardware devices, including PCs, tablets, smartphones, TVs, set-top boxes, video game consoles, MP3 devices, multi-media storage devices, portable media players, DVD players and recorders, Blu-ray players, digital still cameras, and digital camcorders. Certain of our TiVo products rely on multiple systems operator support of CableCARD. We depend on significant cooperation with manufacturers of these devices and the components integrated into these devices, as well as software providers that create the operating systems for such devices, to incorporate certain of our technologies into their product offerings and ensure consistent playback of encoded files. Currently, a limited number of devices are designed to support certain of our technologies. If we are unsuccessful in causing component manufacturers, device manufacturers and software providers to integrate certain of our technologies into their product offerings, those technologies may become less accessible to consumers, which would adversely affect our business, financial condition and results of operations.
Our failure to adequately manage our increasingly complex distribution agreements, including licensing, development and engineering services, may cause unexpected delays and loss of revenue in the deployment of advanced television solutions.
In connection with our deployment arrangements for TiVo products, we engage in complex licensing, development and engineering services arrangements with our marketing partners and distributors. These deployment agreements with television service providers usually provide for some or all of the following deliverables: software engineering services, solution integration services, hosting the TiVo service, maintenance and support. In general, these contracts are long-term and complex and often rely on the timely performance of such television service provider’s third-party vendors that are outside of our control. The engineering services and technology we agree to provide and/or develop may be essential to the functionality of the licensed software and delivered product or such software may involve significant customization and modification for each customer. We have experienced in the past, and may in the future, experience delays in delivery with television service providers as well as significant increases in expected costs of development and performance in certain instances. Additional delays could lead to additional costs and adverse accounting treatments, potentially resulting in us recognizing costs earlier than expected. If we are unable to deliver the contracted-for technology, including specified customizations and modifications, and services in a timely manner or at all, then we could face penalties in the form of unreimbursed engineering development work, loss of subscriber or minimum financial commitments on the part of our partners or in extreme cases, the early termination of such distribution agreements. In any such case, our business, financial condition and results of operation may be harmed.
We make significant investments in new products and services that may not achieve technological feasibility or profitability or that may limit our growth.
We have made and will continue to make significant investments in research, development, and marketing of new technologies, products and services, including audio, imaging and media, as well as through our Perceive subsidiary and its hardware and software solutions for high-performance inference at the edge. Investments in new technologies are speculative and technological feasibility may not be achieved. Commercial success depends on many factors including demand for innovative technology, availability of materials and equipment, selling price the market is willing to bear, competition and effective licensing or product sales. We may not achieve significant revenue from new product and service investments for a number of years, if at all. Moreover, new technologies, products and services may not be profitable, and even if they are profitable, operating margins for new products and businesses may not be as high as the margins we have experienced historically or originally anticipated.
For example, we have incurred, and expect to continue to incur, substantial research and development expenses through our Perceive subsidiary focused on delivering edge inference solutions. We do not have prior experience as a company in the development or marketing of similar hardware or software. We will need to continue to find and hire qualified and experienced personnel to advance this new business. In addition, chip technologies such as those we are developing are subject to supply chain disruptions, cost pressures, extensive competition, and a relentless pace of innovation. These new products could be copied or functionally surpassed by other designers, manufacturers, or innovators, some of whom may have far greater financial resources than us, and who may be able to develop products with greater capabilities or lower cost. Potential customers may also be hesitant in adopting new chip technologies or hardware and may instead turn to competitors who offer
32
competing products in different deployment models. Our technologies may also require potential customers to adapt their existing software to fully realize their advantages. Delays or reluctance by customers to adapt their software could affect the success of these technologies in the marketplace, which may adversely impact our business, financial condition and results of operation.
Our products and services could be susceptible to errors, defects, or unintended performance problems that could result in lost revenue, liability or delayed or limited market acceptance.
We develop and offer complex solutions, which we license and otherwise provide to customers. The performance of these solutions typically involves working with sophisticated software, computing and communications systems.
Due to the complexity of these products and services, and despite our quality assurance testing, the products may contain undetected defects or errors that may affect the proper use or application of such products or services by the customer. Because certain of our products and services are embedded in hardware, digital content and other software, or rely on stable transmissions, our solutions’ performance could unintentionally jeopardize our customers’ product performance. Because customers rely on our products and services as used in their hardware, software and applications, defects or errors in our products or services may discourage customers from purchasing our products or services.
These defects or errors could also result in product liability, service level agreement claims or warranty claims. Although we attempt to reduce the risk of losses resulting from these claims through warranty disclaimers and limitation of liability clauses in our agreements, these contractual provisions may not be enforceable in every instance. Any such defects, errors, or unintended performance problems in existing or new products or services, and any inability to meet customer expectations in a timely manner, could result in loss of revenue or market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation, increased insurance costs and increased service costs, any of which could materially harm our business, financial condition and results of operation.
Dependence on the cooperation of third parties for the provision and delivery of our metadata may adversely affect our revenue.
We use metadata in certain of our products and services, including Pay TV and Connected Car, and we distribute metadata as a revenue generating activity. We rely on third-party providers to deliver our metadata to our customers, including automobiles and some of the CE devices that include our user experience (UX) and interactive program guides. Further, our national data network provides customized and localized listings for pay TV and licensees of our data used in third-party products, including third-party interactive program guides. In addition, we purchase certain metadata from commercial vendors that we redistribute. The quality, accuracy and timeliness of that metadata may not continue to meet our standards or be acceptable to consumers. There can be no assurance that commercial vendors, including metadata providers, will distribute data to us without error, or at all, or that the agreements that govern some of these relationships can be maintained on favorable economic terms.
Technological changes may also impede the ability to distribute metadata. Our inability to renew these existing arrangements on terms that are favorable to us, or enter into alternative arrangements that allow us to effectively provide and transmit our metadata to customers, could have a material adverse effect on our businesses that leverage metadata, including our interactive program guide business, and could damage the attractiveness of our metadata offerings to our customers or could increase the costs associated with providing our metadata offerings, and cause our revenue or margins to decline, which would adversely impact business, financial condition and results of operation.
We depend on a limited number of third parties to design, manufacture, distribute and supply hardware devices upon which our TiVo software and service operate.
Our TiVo software and services operate on a number of hardware products, including DVR and non-DVR set-top-boxes and TVs with TiVo OS that are, or in the case of TVs with TiVo OS, will be, produced by third-party hardware companies. If we fail to effectively manage the integration of our software and services with our hardware partners’ devices, we or our manufacturing partners could suffer from product recalls, poorly performing products and higher than anticipated warranty costs. We have contracted for the design, manufacture and distribution of certain TiVo-branded DVRs and non-DVRs with a third-party partner. This third-party partner does not typically enter into long-term volume commitments with the major retail distributors. We currently rely on our TiVo-branded hardware partner’s relationships with major retail distributors, including Best Buy, Amazon and others, for the distribution of TiVo-enabled DVRs and non-DVR products within the United States. If one or several major retail partners were to discontinue selling TiVo-enabled products, the volume of such products sold to consumers could decrease, which could harm TiVo’s business.
33
For TiVo OS, we are relying on these third-party hardware companies to assist in the development, distribution and launch of a new market entry product. If one or more of these third parties is unable or unwilling to meet its obligations regarding such entry, the success of TiVo OS could be harmed.
We also depend on a third-party partner for certain TiVo-branded hardware devices that are sold through the TiVo website. If this third-party partner fails to perform its obligations, we may be unable to find alternative suppliers or deliver our products and services sold through the TiVo website in a timely manner or with the features and functionality customers expect. In addition, our third-party partner may depend on sole suppliers for key components and services in order to manufacture DVRs and non-DVR set top boxes which run our software, and they may be subject to risks of supply shortages and unexpected cost increases, including the supply chain disruption resulting from the COVID-19 pandemic and other macroeconomic factors. Additionally, certain features and functionalities of our TiVo service and DVRs depend on third-party components and technologies. If we or our third-party partners are unable to purchase or license such third-party components or technologies, we may not be able to offer certain related features and functionalities to our customers. In such a case, the desirability of our products to our customers could be reduced, thus harming our business, financial condition and results of operation.
We also rely on third parties to whom we outsource supply chain activities related to inventory warehousing, order fulfillment, distribution and other direct sales logistics to provide cost-effective and efficient supply chain services. We cannot be sure that these parties will perform their obligations as expected or that any revenue, cost savings or other benefits will be derived from the efforts of these parties. If one or several of our third-party supply chain partners were to discontinue service to us, our ability to fulfill sales orders through the TiVo website and distribute inventory timely, cost effectively, or at all, may be delayed or prevented, which could harm our business, financial condition and results of operation. Any of these events could require us to undertake unforeseen additional responsibilities or devote additional resources to commercialize our TiVo service. Any of these outcomes could harm our ability to compete effectively and achieve increased market acceptance and brand recognition.
We maintain inventories of TiVo-branded products based on our demand forecast, which may be incorrect and lead to excess or insufficient inventory.
In connection with our sales of TiVo-branded products through the TiVo website, we maintain an inventory of certain DVR and non-DVR products based on our demand forecast. Due to the seasonality in our business and the nature of long-lead time product development and manufacturing cycles, we make demand forecasts for these products well in advance of our peak selling periods. As such, we are subject to risks in managing the inventory needs of our business during the year, including estimating the appropriate quantity and mix of demand across our older and newer DVR and non-DVR products. Should actual market conditions differ from our estimates, our future results of operations could be materially affected. Our ability to forecast demand accurately and maintain appropriate inventory may also be adversely affected by factors that are difficult to predict, such as global supply chain disruptions. Excess purchase commitments as a result of unforeseen changes in our sales forecast, pricing terms or cost structures may require us to record a loss that may adversely affect our business, financial condition and results of operations.
Qualifying, certifying and supporting our technologies, products and services is time-consuming and expensive.
We devote significant time and resources to qualify and support our software products on various automotive, personal computer, CE and mobile platforms, including operating systems from Apple, Google and Microsoft. In addition, we maintain high-quality standards for products that incorporate our technologies, products and services through a quality control certification process. To the extent that any previously qualified, certified and/or supported platform, product or service is modified or upgraded, or our business expands into new regions that may have different or additional requirements, or we need to qualify, certify or support a new platform, product or service, we could be required to expend additional engineering time and resources, which could delay the launch of such technologies, products or services and add significantly to our development expenses, which may adversely affect our business, financial condition and results of operations.
We are exposed to the risks related to international sales and operations.
We derive a large portion of our total revenue from operations outside of the United States. Therefore, we face exposure to risks of operating in many foreign countries, including:
•
difficulties and costs associated with complying with a wide variety of complex laws, treaties, regulations and compliance requirements;
•
fluctuations in foreign currency exchange rates;
34
•
restrictions on, or difficulties and costs associated with, the repatriation of cash from foreign countries to the United States;
•
earnings and cash flows that may be subject to tax withholding requirements or the imposition of tariffs;
•