owner dongle
Xperi Holding (NASDAQ:XPER) There’s one name I haven’t mentioned yet, but a quick look shows that this business, which has just made an interesting acquisition, is hugely profitable, reason enough to take a look at the prospects for this business. is when more corporate developments have become available.
two shops under one roof
Xperi is both a product and an IP license business under one roof. The products business includes consumer entertainment products, entertainment products for in-car entertainment and related applications.
The IP licensing business includes more than 10,000 patents and applications covering fundamental aspects of the video experiences on the platform, as well as the semiconductor packaging and processing technology business. Based on the share of sales, the product business generates around 60% of sales, the remaining sales are attributable to the profitable IPO license business.
The company posted a massive revenue of $878 million in 2021, down slightly from the prior year. The company reported only $13 million in GAAP operating income in the form of interest expense and taxes, resulting in a full year loss of $55 million. However, that was after accounting for $203 million in depreciation charges. This translates to a GAAP loss of $0.53 per share compared to adjusted earnings of $2.03 per share as I am happy to adjust for all but half a dollar per share of stock based compensation expense Disclosing a realistic earnings number is $1.50 per share.
Year-end net debt was $565 million, excluding stock-based compensation expense, with EBITDA slightly trending around a quarter billion on a realistic basis. With 104 million shares outstanding, the company supported a $1.6 billion share valuation at $15 per share at the start of the year, or a company valuation of nearly $2.2 billion if we include net debt. Based on earnings power of $1.50 per share, the valuation at 10 times actual earnings isn’t challenging.
For 2022, the company forecast revenue growth to $910 million to $950 million while not providing a clear earnings guidance as the combination of a 10x earnings multiple and modest growth sounds pretty compelling.
some perspective
Xperi has been a public company since 2003 as its shares were actually trading at around the same level. After jumping from $50 in 2007, shares fell back to $10 during the financial crisis. The stock rose again towards the $50 mark in 2015 and 2016 but has since declined, falling to $15 and trading near its lows.
On the corporate side, Xperi took a big step in 2020 when it completed its merger with TiVo. The deal was valued at $1.2 billion when it was announced in late 2019, with the combination being valued at $3.0 billion at the time. The reason for this was to combine product revenue and IP revenue to create diversified revenue streams, a move the company is now trying to reverse with the company’s announcement that it is divesting the business.
Also, the company had a great first quarter as the company closed a large IP deal. Micron Technology (MU), Revenue increased 16% to $257 million with non-GAAP earnings reported at $0.92 per share. If we roll back the stock-based compensation expense, earnings were $0.55 per share, a very pleasing result, trending above $2 per share.
In May, Xpri announced that it had found a new executive for its IP licensing business, a split that was seen later that year. The spin-off is also highly interesting and, depending on the details of the spin-off announced in February 2022, could well turn out to be extremely favorable. That’s very soon after the merger with TiVo is essentially complete. Undoing with this anticipated spin-off.
In June, Xperi announced a $10 million increase in full-year revenue guidance and is now reporting revenue in the mid-$940 million with a similar increase in cash flow guidance.
Amidst all this good news, Xperi announced the purchase of Vewd Software in early July. Founded in 2002, the company is an independent OTT software provider for smart TV markers, connected cars and other applications, mainly in Europe. The deal is valued at $109 million, which is about 5% of Xperi’s valuation, as the deal is expected to add about $10 million in the second half of this year, giving a run rate of about $20 million results. . The resulting 5x revenue multiple looks slightly stable as no specific margin guidance was given nor was the growth rate given.
final remark
It looks like the pre-spin-off company is seeing solid momentum, while all valuations are undemanding. Of course, it will be a challenge to see how the deals will be differentiated and what the company cost attribution will look like, but the valuation here doesn’t seem very challenging to me. This is certainly the case as the company has seen some real momentum on the corporate front recently.
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