Prepared remarks
Good day, everyone, and thank you for standing by. Welcome to the Xperi Second Quarter '26 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will be open for questions. I would now like to turn the call over to Samuel Levenson from Arbor Advisory Group. Samuel? Please go ahead.
Good afternoon, and thank you for joining us as Xperi reports its second quarter '26 financial results. With me on today's call are Jon E. Kirchner, Chief Executive Officer, and Robert J. Andersen, Chief Financial Officer. In addition to today's earnings release, there is an earnings presentation on our Investor Relations website at investor.xperi.com. We encourage you to download the presentation and follow along with today's commentary. Before we begin, I would like to provide a few reminders. First, unless otherwise stated, all comparisons are to the same period in the prior year. Second, today's discussion contains forward-looking statements about our anticipated business and financial performance as well as market and industry dynamics that are predictions, projections, or other statements about future events, which are based on management's current expectations and beliefs and therefore subject to risks, uncertainties, and changes in circumstances. For more information on the risks and uncertainties that could cause our actual results to differ materially from what we discuss today, please refer to the risk factors and MD&A sections in our SEC filings, including our Form 10-K for the year ended 12/31/2025 and our Form 10-Q for the quarter ended 06/30/2026 to be filed with the SEC. Please note the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after this call. Third, we refer to certain non-GAAP financial measures, which are detailed in the earnings release and are accompanied by reconciliations to their most directly comparable GAAP measures, which can be found in the Investor Relations section of our website. Last, a replay of this conference call will be available on our website shortly after the conclusion of this call. I will now turn the call over to Xperi's CEO, Jon E. Kirchner.
Thank you, Samuel, and thank you everyone for joining us on our second quarter '26 earnings call. The results of the second quarter clearly demonstrate strong execution against our strategic plan, including accelerated advertising and related revenue growth of over 50%. We continued to scale our platforms in both the home and automotive markets, which we believe provides sustainable competitive differentiation and drives long-term growth. During the quarter, we continued to expand our TiVo 1 footprint, advanced our advertising capabilities and partner integrations, and saw continued momentum in our growth areas within media platform, connected car, and pay TV. Turning to our financial results for the quarter, we were pleased with our performance. Let me summarize a few of the achievements. Overall revenue grew 8% year over year to finish at $114 million. Non-GAAP operating expenses decreased by 6%. Adjusted EBITDA finished at 21% of revenue, up 7 percentage points from last year. Non-GAAP earnings per share finished at $0.28, more than double last year's number, and the company generated $15 million of operating cash flow. Let me now go through each of our four business areas, starting with media platform. TiVo 1 monthly active users totaled 6.3 million at quarter end, representing approximately 70% year-over-year footprint growth. Media platform revenue grew 44% year over year, driven primarily by continued progress in advertising and related revenue. The trailing 12-month ARPU for TiVo 1 was $6.70, down slightly from the first quarter as a result of the trailing 12-month footprint growth rate exceeding the revenue growth rate. We expect ARPU to increase later this year as anticipated advertising and related revenue growth accelerates, and we continue to expect we will achieve our goal for the year with an ARPU above $10. From an advertising perspective, we successfully executed homepage video campaigns in the U.S. and Europe with global advertising brands ranging from the entertainment, insurance, automotive, and technology industries. We also saw advanced integration of the TiVo 1 ad platform with key partners, including Kargo, to enable seamless transactions for our unique homepage hero video inventory. Recent industry events continue to highlight the strategic value of the TV homepage as one of the most important discovery and monetization points in the entertainment ecosystem. The industry increasingly recognizes that TV operating systems' first-party data and direct access to consumers at the start of their entertainment journey are becoming critical strategic assets. We believe this dynamic is driving greater interest from advertisers, content owners, and distribution partners in working with independent TV OS platforms like TiVo 1 that can help them reach consumers before viewing decisions are made. We successfully expanded our content with the launch of TiVo channels, adding free ad-supported local content across more than 20 countries, which we are confident further enhances the consumer experience and supports potential future monetization opportunities. In terms of data related to advertising, we launched new TiVo viewership and audience insights data in the U.K. market, expanding the capabilities we can offer to advertisers and partners. Importantly and separately, in the U.S., we achieved a significant milestone and began licensing listening data and analytics to broadcasters through the broadcaster portal product that sits on top of our AutoStage platform. Given this is advertising and related revenue, we will be classifying it under media platform rather than within connected car. Moving to Connected Car, momentum continued with 42% year-over-year footprint growth in the second quarter. We exceeded 17 million cumulative vehicles shipped with DTS AutoStage across 13 automotive brands, and BYD joined the AutoStage program as our 14th automotive brand, committing to deploy our audio and video solution across export models in its portfolio. We also expanded DTS AutoStage video powered by TiVo, now available in 100 countries across major OEM brands, including BMW, Mercedes-Benz, and Audi, further establishing AutoStage video as a leading connected car video solution. As previously mentioned in media platform, we had an important win for our DTS AutoStage broadcaster portal. Cumulus is one of the largest U.S. broadcasters and operators of AM/FM radio stations and has signed as our first licensed customer. The portal gives broadcasters a clear, data-driven view of listener behavior powered by large-scale aggregated in-car listening data. This enables more accurate audience insights, more informed programming decisions, and stronger alignment with advertiser needs. In another win supporting the long-term adoption of our technologies, we signed a multiyear HD Radio program with a large Asian Tier 1 supplier to enable future HD Radio shipment growth. Additionally, automotive brands, including BMW, Toyota, Mercedes-Benz, and Volkswagen, launched new vehicle models with HD Radio in the United States, Canada, and Mexico. Moving to our pay TV business, as noted earlier, our IPTV subscriber household base continued to grow, reaching 3.4 million global IPTV subscriber households at quarter end, representing 13% year-over-year growth. We also expanded our advertising reach by executing a partnership for programmatic dynamic ad insertion with NCTC, with three of its members—Summit Broadband, EPB, and Buckeye—adopting TiVo as their platform. In addition, we signed three new operators for TiVo managed service IPTV and closed multiple renewals across our IPTV and discovery solutions, demonstrating continued partner commitment to the TiVo platform. Importantly, as operators increasingly look to build their business across the broadband spectrum, they are looking for video solutions that help drive customer retention and enhance their offerings with lighter and different bundles of content from their historical pay TV solutions. TiVo has continued to achieve wins with operators as we have developed a range of solutions to meet their needs. This will continue to drive IPTV- and broadband-related growth in the pay TV business. Moving to our consumer electronics business, during the quarter we continued to secure renewals and commitments that support the ongoing adoption of our consumer audio technologies. We closed a multiyear renewal for DTS Audio Solutions, including new commitments for DTS Clear Dialog across multiple TV and PC brands. We also renewed DTS agreements with leading TV, audio, and video receiver brands, including Sony, Yamaha, Pioneer, and Insignia. In addition, we renewed DTS agreements for PC and mobile devices with MSI and Tecno Mobile. Overall, these renewals reflect our strong market position with unique audio technologies across a broad range of consumer electronics categories. As we look at our progress against the '26 growth goals we outlined earlier this year, we remain encouraged by the trajectory of the business. TiVo 1 monthly active users reached 6.3 million at quarter end, closing in on our target of more than 7 million by year end. Media platform revenue again grew at a very strong rate of 44%, reflecting continued progress in advertising and related revenue as our footprint scales and our product capabilities expand. In connected car, AutoStage continued to exceed our original footprint goals, and the addition of BYD as our 14th automotive brand further expands the long-term opportunity for our connected car platform. Importantly, we are also beginning to see tangible evidence of demand for the data and analytics capabilities, as demonstrated by our first customer for the AutoStage Broadcaster Portal. Taken together, our second quarter progress reinforces our confidence in the strategic direction of the business and our ability to execute our goals for the year. Let me now turn the call over to Robert to discuss our financial results in more detail.
Thanks, Jon. Let me start by reviewing the revenue results for the quarter. Overall, revenue finished at $114 million, an increase of 8% year over year and consistent with our expectations. Media platform revenue grew 44% year over year to $18 million, driven primarily by continued growth in advertising and related revenue from a host of sources including homepage video campaigns, new advertising clients, and the scaling of our ad-related capabilities. Our Connected Car revenue grew 60% year over year to $40 million, due primarily to the signing of two significant minimum guarantee deals in the second quarter that represent additional long-term commitments to our HD Radio platform. Pay TV revenue decreased 11% as expected to finish at $45 million, driven by a decrease in core pay TV revenue partially offset by continued growth from our IPTV solutions revenue. IPTV revenue increased 10% year over year to $26 million. Lastly, consumer electronics recorded $12 million of revenue and experienced a decrease of 35% year over year due to minimum guarantee arrangements for codec and audio solutions that were recorded in last year's revenue. Given the significant growth within media platform from advertising and related revenue, we have surpassed an accounting threshold of 10% of total revenue. This quarter we will now be separately reporting advertising and related revenue along with the associated cost of revenue on our income statement going forward. It is important to note that cost of advertising and related revenue includes a fixed cost base that will be amortized over time. Thus, while we currently show an 8% negative gross margin for the advertising and related revenue category, we expect margin to turn positive as we enter 2027 and then to be an accretive growth contributor going forward as we move toward comparable industry media platform margins, in the 60% range. Looking at overall financial results, our GAAP operating expenses, excluding cost of revenue, improved 10% year over year and non-GAAP adjusted operating expense improved 6% year over year due primarily to workforce reductions that have occurred over the past year. We posted non-GAAP adjusted EBITDA of $24 million, an improvement of over 60% compared to last year. On a percentage basis, adjusted EBITDA was 21% of revenue, an improvement of 7 percentage points from last year. GAAP net loss was $1.5 million, or a net loss of $0.03 per share, and non-GAAP earnings per share was $0.28. Turning now to the balance sheet and statement of cash flow, we finished the second quarter of '26 with $91 million of cash and cash equivalents, an increase of $20 million from last quarter and keeping us on solid financial footing. Operating cash flow was $15 million in the second quarter of '26, an improvement of $5 million from the second quarter of '25. We had $8 million of free cash flow in the quarter, an improvement of $3 million from last year. Also, at the beginning of the quarter, we received the final $12 million payment related to the sale of Perceive to Amazon, of which $11.3 million was categorized as cash flow from financing activities within our statement of cash flows and the balance was classified within operating activities. In terms of financial outlook for the year, we are maintaining our annual outlook as previously disclosed with two updates. First, we are adjusting our capital expenditure outlook from a range of $15 million to $20 million to approximately $25 million. This change is primarily due to longer persistent issues in the memory market that have caused customers to request our engineering team to modify our software platforms to reduce memory requirements. We are also seeing significant memory-related cost increases in the purchase of necessary capital equipment. As a result, we expect these investments will position TiVo OS to continue to take market share as a highly cost-efficient media platform for our OEM partners. Second, we are lowering our stock-based compensation outlook from approximately $31 million to approximately $29 million. This change is primarily due to recent workforce reductions that reduced the forecasted stock-based compensation expense below our original expectation. Let me now turn the call back over to Jon for a few closing remarks before we go to Q&A.
Thanks, Robert. Overall, we are very pleased with the continued strong execution against our strategic growth plan. In 2026, we are making a decisive pivot from years of investment in building our foundation toward accelerated monetization of our connected TV and automotive audiences. With over 6 million TiVo 1 monthly active users, over 3 million global IPTV households, and over 17 million vehicles equipped with DTS AutoStage, we believe we have a unique and sustainable competitive advantage to leverage our increasingly scaling first-party data and empower advertisers to monetize these significant audiences. The results of our efforts are bearing fruit. Q2 advertising and related revenue increased 54% year over year. We began monetization of our automotive audience in the quarter by licensing Cumulus as our inaugural launch partner for advanced analytics in our DTS AutoStage broadcaster portal, and we added BYD as our 14th automotive OEM with DTS AutoStage. These are just a few of the tangible examples of the operational and financial progress that we are achieving, and they demonstrate the continued progress we have made thus far in 2026. I would like to take this opportunity to thank the entire global Xperi team for their commitment to our success and to working to drive long-term shareholder value. With that, let me now turn the call over to the operator so that we can take your questions.
Questions and answers
Thank you. We will now begin the Q&A session. If you have dialed in and would like to withdraw your question, simply press 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press 1 to join the queue. Our first question comes from the line of Jason Kreyer with Craig-Hallum. Your line is open.
All right. Thanks, guys. So John, I wanted to get your thoughts on the recent acquisition of Roke. It seems like with the takeout of Roke and then Vizio getting taken out before that, there is a void in this industry for an independent OS platform. Just wondering if you think that creates opportunity for expansion at TiVo, whether that be more OEMs that want to partner or perhaps just shifting a greater mix of inventory into TiVo. So wondering if your outlook for the opportunity changes at all.
I think yes to all of the above is the short answer, Jason. I think that Fox's acquisition of Roke could validate the strategic value of the TV OS, the home screen, having first-party CTV data and direct-to-consumer access at the start of the entertainment journey. I think we are uniquely positioned as an independent with a business model that aligns incentives across OEMs, advertisers, content providers, and distribution partners. As the market narrows in some places, I expect more strategic opportunity for us. Not dissimilar from other industry changes over the past two years, I think in many ways it bolsters the case we are making and continuing to advance in the marketplace. That also goes a step further with Robert's recent comment about memory and the low memory requirements of the TiVo platform. Historically, we have been one of the most efficient TV OS implementations. We have a lot of technical expertise on how to do this. The memory crunch and cost pressures have customers looking at everything and asking how to deliver solutions with even lower BOM costs and lower memory usage. Given that, there is demand saying, if you can help us figure this out, more business could come your direction. We have jumped all over that to support our partner and customer base, and these investments in the near term will be beneficial as we get into 2027 and beyond.
Correct?
Correct. And I would add that infotainment remains an area of focus and a point of differentiation for automakers. Our continued signing of longer-term multiyear deals around things like HD Radio and the adoption of AutoStage, as well as implementing AutoStage beyond audio into video, demonstrates that this is an area of focus for our customers. While ultimate unit volumes in automotive are impacted by trends such as inflation, tariffs, trade, and supply chain issues, the in-cabin experience is a key differentiator in the purchase journey and remains very strong. We are well positioned. Uniquely, we are building a media platform that has first-party data coverage coming out of both the living room and the cabin. That dataset is increasingly of interest to advertisers and has generated strong interest within the radio world as people look for better targeting, measurement, and understanding of what is happening inside the car. All of what is happening in the car, combined with the continued advancement of the living room, bodes well for the business strategy we laid out and how we will differentiate ourselves in a competitive, highly valuable market.
That is a great point you made. Thanks, John.
Our next question comes from the line of Matthew Galinko with Maxim Group.
Hey, thanks for taking my questions. Maybe my first is around the Cumulus deal. Can you maybe go into a little bit more detail on how long you were working on that? What the structure might look like, and if it increases the likelihood of signing additional partners in that area?
Going in reverse, Matthew, I absolutely expect there to be more. We have a very robust pipeline of interest. This is something we have been working on for some time, developing the broadcaster portal product in conjunction with working with customers and broadcast partners to identify their real needs and gaps in information coming off radio and out of the car. The product was designed interactively with a number of our key customers, and Cumulus has been part of that. We are proud to have them as our first customer. The business model is licensing subscriptions—access to information based on the number of stations and the amount of coverage across the U.S. that are relevant, priced on that basis. Deals will range in size based on those attributes, but I fully expect a number of others. There is growing intensity around the real-time data people are getting off our vehicles as we approach 17 million worldwide, well over half active in the U.S. People are seeing data they have never seen before, and that is a tremendous position for us to be in. Thank you.
As a follow-up, specifically on the Pay TV business: this was a relatively steeper drop on the core side than in prior quarters, but maybe an acceleration on the IPTV side. Can you go a little bit deeper into the trends we are seeing on the two sides of the pay TV business and the run rate we should be thinking about for the coming quarters? Is there anything anomalous in Q2?
This is Robert. I am not sure if there was anything specific in Q2 from a comparability standpoint. Overall, the core part continues to decline, and that has been impacted to some extent by us exiting the hardware business and the attendant subscriptions that would ultimately go with it. So that has continued to decrease year over year. We have seen pretty good positive growth in double digits for IPTV. The broader question is when those start to balance each other. As we have looked out over the next year or two, we do see a balancing equation whereby we expect the legacy pay TV declines to be balanced by IPTV growth, probably in the mid-'27 to mid-'28 time frame. Somewhere along those lines. I do not think there is anything specific to this quarter that is anomalous; it can vary a little bit quarter to quarter.
I would add that we are seeing active cord-cutting in certain parts of the market. We are also largely exiting the consumer-facing hardware and subscription piece, and as those tails roll off, year-over-year timing can affect the comparisons. The key thing is getting to a point where the declines bottom out, become stable, and then you see the benefit of the work we've done to grow IPTV, which continues to perform well with our partners. That is when the discussion of declines begins to fade and you start to see neutral to growth dynamics.
Our next question comes from the line of Dave Storms with Stonegate. Your line is open.
I wanted to start with TiVo monthly active users; there was nice sequential growth there and it looks like you're well on track to hit the 7 million stated goal. Should we expect that cadence to be smooth and linear, or will it be more dependent on partnerships in the pipeline that might make that lumpy? Any commentary would be great.
It is not linear. It depends on territories, activations, partner launches, retail timing, sell-through, and other factors. We knew coming into this year that it could be lighter early and then pick up meaningfully. Looking ahead to year end, we feel the 7 million goal will be achieved. We continue to invest a lot of time because we believe we can keep growing that footprint over time. As we grow and optimize advertising and content engagement on the platform and ultimately attach advertising to it—with many of these TVs having a useful life of five-plus years—there is a lot of downstream revenue potential. So expect some quarter-to-quarter variability rather than a smooth linear cadence.
Similar question on AutoStage vehicles. It looks like you've been growing roughly a million vehicles per quarter for the last couple quarters. How quickly could the integration from BYD accelerate that growth, or will that take time from a logistics standpoint?
It will contribute meaningfully given the size of BYD's current installed base and their growth. Some vehicles may be included via over-the-air updates as well as new models. While I can't speak to specific plans, BYD is the world's largest electric vehicle manufacturer and has a strong presence outside the U.S. Volume will positively contribute to AutoStage growth. Their presence in Europe is also important because we believe the AutoStage listening, analytics, and data play has a lot of upside in Europe. Thirdly, seeing a company like BYD choose Xperi solutions for both AutoStage audio and video sends a strong message to the market and supports broader industry adoption.
That is great. Thank you for taking my questions, and good luck next quarter.
Our final question comes from Hamed Khorsand with BWS Financial. Your line is open.
Hi. Could you talk a little bit more about the minimum guarantees in auto that you were talking about for HD Radio? How will that play out for the rest of the year as far as your auto revenue is concerned?
Sure. We had a very strong quarter from a Connected Car perspective, and that was indeed driven by minimum guarantees. As we think about the overall year and how we expect things to progress, we certainly have other minimum guarantees that will occur in the second half of the year. It's hard to say the exact mix, but we certainly expect automotive to be up for the year. Historically, minimum guarantees have been in the low to mid single digits as a percentage of revenue. For this year, the weight is a bit higher, so it will be more significant—on the order of mid-20s percentage when summed across the year. That gives you a sense of the contribution from minimum guarantee arrangements.
Given how you've grown TiVo 1 subscribers so quickly, does that play a role in dilution of ARPU because you are growing so rapidly?
One thing to understand about ARPU is there are two components: revenue growth and footprint growth. In periods where footprint grows faster than revenue, ARPU tends to decline until you reach a more normalized base state and move into optimization with smaller relative percentage gains. That is what you saw this past quarter—a slight dip in ARPU because MAUs grew faster than revenue. For 2026, we expect to end the year around 7 million MAUs, and based on that and our expectation of a very strong back half in advertising, we think that will drive ARPU up toward our expectation of around $10. Over time, we will continue to take steps to optimize the platform to improve fill rates and provide data augmentation to drive higher CPMs and greater value from our inventory. The hardest thing is getting footprint in a competitive market; once you have it, you can monetize more effectively over time.
Okay. Great. Thank you.
That concludes our Q&A session. I will now turn the conference back over to Mr. Jon Kirchner for closing remarks.
Thanks, operator. As we move into the back half of the year and continue to expect to see momentum in our business, we are grateful for the continued support of our customers, partners, and shareholders. Our multiyear pivot is taking shape; the collection of assets we have spanning the home and the car is quite unique in the industry. We look forward to sharing further updates on our next quarterly conference call. Thanks, everyone, for joining today.
Ladies and gentlemen, this concludes today's call. We thank you for your participation.