Xperi Corporation (XPER) Q4 2020 Earnings Call Transcript

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Xperi Corporation (XPER)
Q4 2020 Earnings Call
Feb 23, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Xperi Fourth Quarter Fiscal Year 2020 Earnings Conference Call. [Operator Instructions] Tuesday, February 23, 2021.

I would now like to turn the call over to Geri Weinfeld, Vice President of Investor Relations for Xperi. Geri, please go ahead.

Geri Weinfeld -- Investor Contact

Good afternoon, everyone. With me on the call today are Jon Kirchner, CEO; and Robert Andersen, CFO. Also on the call is Samir Armaly, President of IP Licensing, who will be available along with Jon and Robert to answer questions during the Q&A portion of this call. Before we begin, I would like to provide two reminders. First, today's discussions contain forward-looking statements that are predictions, projections or other statements about future events, which are based on management's current expectations and beliefs and, therefore, subject to risks, uncertainties and changes in circumstances.

Please refer to the Risk Factors section in our SEC filings, including our most recent Form 10-Q, for more information on the risks and uncertainties that could cause our actual results to differ materially from what we discuss today, including, but not limited to, risks associated with the TiVo transaction, the development and launch of new products and any potential impact of the coronavirus. Please note that the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after this call.

Second, we refer to certain non-GAAP financial measures, which exclude onetime or ongoing noncash acquired intangibles amortization charges; costs related to actual or planned business combinations, including transaction fees, integration costs, severance, facility closures and retention bonuses; separation costs; stock-based compensation; loss on debt extinguishment; realized and unrealized gains or losses on marketable equity securities and associated tax effects. We have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in the earnings release and on the Investor Relations section of our website. The recording of this conference call will be available on our Investor Relations website at www.xperi.com.

I'll now turn the call over to Jon Kirchner.

Jon Kirchner -- Chief Executive Officer

Thanks, Geri, and thanks, everyone, for joining us. It will be difficult to begin a discussion around last year's performance without reference to the COVID-19 pandemic. It was a year like no other, and our employees came together seamlessly to deliver on our mission to provide extraordinary experiences in the home, on the go and in the car. And while we're impacted by the pandemic in some areas of our business, we exited the year with strong results and key accomplishments. 2020 was a transformative year. We closed our merger with TiVo, made significant progress on integration, and we were able to achieve 90% of the $50 million in run rate synergies from the combination.

Importantly, by the time we finish the first quarter, we will have reached the $50 million run rate synergy target we set for the transaction, nine months ahead of schedule. We closed one of the largest IP licensing deals in the history of both companies, took steps to increase product business profitability and announced several new product offerings. Altogether, we made incredible progress last year, and we will continue our transformation of the business in 2021 with improved profitability and opportunities for growth as we look ahead over the next few years. Now on to the results. For today's call, all 2020 and year-over-year performance comparisons will be discussed as if Xperi and TiVo were combined for all periods.

This approach will give the best view of progress on the overall business, and these numbers can be found in the Interactive Analyst Center on our Investor Relations website. Despite operating in a global pandemic, we are thrilled with our full year 2020 performance and execution. Combined 2020 revenue of $1.15 billion far exceeded our expectations as we came into the merger. We generated $416 million in operating cash flow and had $453 million in adjusted free cash flow. On the capital allocation front, we paid down $176 million of debt issued in connection with the merger, bringing our net debt balance to $617 million.

Since the merger, we bought back $70 million of stock at an average price of $14.25, and we paid out $10.7 million in dividends. In our IP licensing business, we successfully closed transformational deals that underscore the foundational nature of our innovations and their long-term value in multiple licensing markets. Thus, this high-margin business is in the enviable position of having tremendous scale, stable revenue and cash flow, long-term visibility and meaningful growth opportunities. On the media side of our IP business, we successfully entered into a long-term agreement with Comcast that extends into 2031, illustrating the continued relevance and value of our media IP portfolio well into the future.

On the semi side of our IP business, we entered into an important patent licensing and technology transfer agreement with SK hynix, reinforcing our leading IP position in hybrid bonding as that market continues to develop. In our product business, despite COVID-related headwinds, we executed against our plan to deliver a range of new products before the end of 2020. This should help improve the growth trajectory in the product business over the next few years. The products launched include the TiVo Stream 4K; DTS AutoStage, our Connected Radio solution; and DTS AutoSense, our in-cabin monitoring solution. In addition, we saw strong industry interest in our new Perceive Ergo chip for edge-based AI applications.

Importantly, we have restructured the product business to improve focus, strategic positioning, profitability and longer-term growth prospects. We are also working to adjust our product portfolio to drive greater cost efficiencies and realize revenue synergies resulting from having a broader base of technology. In support of these objectives, we also increased certain investments in areas of the business that we believe will enhance our growth prospects and improve leverage and efficiency over the next three to five years. On the integration front, we've made substantial progress against a list of more than 1,000 tasks, many of which are now fully complete, positioning the product and IP businesses to be ready to operate independently during 2021 and a critical step as we prepare for ultimate separation.

Over the last few months, we've evaluated uncertainties with respect to the shape of the COVID pandemic recovery, its impact on our product business and our internal progress on the complex systems work needed to successfully separate our businesses. As a result of these factors, we now expect that our original time line to separate the business in mid-2021 will be pushed out to the first half of 2022. We believe that this time line will enable us to best position both the product and IP businesses for success as independent public companies and thereby create the most value for shareholders. Moving to more specifics in the IP and product segments. IP licensing revenue, including the impact of purchase accounting, was $300.4 million in Q4, up 132% year-over-year.

This increase was mainly driven by the catch-up payments under our new Comcast agreement, somewhat offset by onetime revenue in Q4 2019 in our semi IP business. For the full year, revenue was $635.6 million, up 58% year-over-year. We entered 2021 with a significant step-up in our historical annual run rate for our IP business. After Comcast, our average revenue baseline is now approximately $350 million, which supports our position as one of the largest IP licensing companies in the world. As we enter the year, we are pleased with the exciting and continued momentum we see in our IP business. Already in 2021, we have announced a number of key renewals with leading companies around the world, further solidifying our $350 million IP revenue baseline.

These include multiyear agreements with Cox, Sony and TCL. Additionally, as we've highlighted previously, there are a number of key growth areas for the IP business that would be incremental to that $350 million baseline. In the aggregate, we believe these growth areas represent an opportunity in the low hundreds of millions per year when fully realized. The first opportunity is greater penetration in OTT video markets. With our recent agreements, we have successfully licensed 100% of the top 10 traditional pay-TV providers in the United States, which accounts for approximately 70 million subscribers. The OTT market is currently experiencing explosive growth.

For example, the largest providers of subscription video-on-demand in the United States now have approximately 200 million subscribers in the aggregate, driven in part by the recent launch of a number of new services. While these services have a significantly lower ARPU when compared to traditional pay-TV, the scale of the overall OTT video market continues to grow and presents an increasingly important licensing opportunity for our IP business. While we are at a comparatively earlier stage of licensing the key providers in this market, we are confident that the fundamental innovations from our patent portfolios will be similarly relevant to these new and widely adopted OTT video services.

This will be an area of increased focus for us and one that we are very excited about. The second opportunity for us is continuing to license the traditional pay-TV market in Canada. We've already successfully licensed a number of leading Canadian pay-TV providers, including Shaw and Rogers. As you know, we are currently in litigation with several Canadian pay-TV providers and expect some decisions from this initial round of litigation in the Q2, Q3 time frame. But the timing of resolution and whether additional litigation will be necessary remains uncertain. Third, on the semiconductor front, and consistent with our prior messaging, our $350 million baseline revenue is exclusive of any semiconductor revenue.

This revenue has been -- has historically been more episodic and, therefore, more difficult to forecast than our media IP revenue. We believe that near-term revenue opportunities may be comparatively smaller than in years past, as our semi IP business goes through a period of transition as the market for our more advanced technologies further develops. We remain confident that the opportunity for our semiconductor technologies and, in particular, hybrid bonding, is significant and will play out over the next few years as the industry increasingly adopts our foundational IP. Now on to the product business. Total product revenue for the quarter, including the impact of purchase accounting, was $133.5 million, down 2% year-over-year.

Growth in the Connected Car and Consumer Experience categories was offset by declines in the pay-TV category. Product revenue for the year was $511.9 million, down 6% year-over-year. Consumer Experience revenue in Q4 was $56 million, up 11% year-over-year. Revenue for the year in this category was $209.9 million, up 3% year-over-year. Growth in Q4 was driven by increases in monetization, game consoles and mobile. Game console was driven by the launch of two new consoles that resulted in a strong Q4. And our mobile business continues to show strength in gaming headsets, which grew 44% year-over-year. Our TiVo hardware business grew significantly versus 2019 due to continued momentum for the TiVo Stream 4K.

We improved monetization in our consumer hardware business, driven by higher user engagement on our content-first platform and an increased user base. TiVo Plus, our AVOD streaming platform, grew from 26 to 145 linear channels in 2020 and added tens of thousands of AVOD viewing hours. Importantly, we've seen a 393% quarter-over-quarter growth in terms of total viewership for our premium AVOD catalog, and partner feedback indicates we're delivering significantly higher than average hours per user per month compared to other Android distribution platforms. We continue to expand our connected TV advertising footprint across operators and across our Stream 4K product.

This footprint expansion, coupled with the new -- excuse me, with the launch of new beta and ad products and a strengthening market for connected TV and entertainment advertising, contributed to growth in monetization this quarter. We also added to our IMAX Enhanced ecosystem. Sony announced its BRAVIA CORE service, launching soon with the largest IMAX Enhanced movie collection. The IMAX Enhanced program has seen growing success with local studios in China, including the IMAX Enhanced release of The Eight Hundred, the highest grossing film worldwide in 2020. Tencent and iQIYI are now both streaming in China, supporting this growing pipeline of IMAX Enhanced titles.

Lastly, iQIYI and Hisense launched IMAX Enhanced on certain TV models. iQIYI is the sixth streaming service worldwide to launch IMAX Enhanced and the second streaming service in China. Importantly, we expect to see significant expansion on the content side of the IMAX Enhanced ecosystem as we progress through 2021, which should in turn drive greater device growth and revenue. Connected Car delivered Q4 revenue of $22 million, up 12% year-over-year, as we're seeing a return to strength in North American auto sales. For the full year, revenue was $70.5 million, down 14% year-over-year due to the impact of the pandemic on car sales in late Q1 and Q2 of 2020. In Q4, eight new car models with various brands launched with HD Radio.

In addition, the FCC officially approved commercial AM all-digital broadcasting, creating additional incentives for car OEMs to adopt HD Radio technology. In total, more than eight million cars shipped with HD Radio last year. And overall, when taking into account our audio and radio solutions, Xperi technology has now been shipped at over 100 million vehicles on the road. With the merger of Xperi and TiVo, we greatly expanded our next-generation infotainment offering, branding the platform as DTS AutoStage. This system launched with Mercedes in Q4. We are adding additional features such as lyrics to the platform and integrating metadata and personalization capabilities going forward.

Future generations of the DTS AutoStage product will represent a full suite of features, and we continue to expand our global broadcast footprint to enable the DTS AutoStage experience in cars. We've branded our in-cabin monitoring solutions as DTS AutoSense, which are available across four OEM providers, including three light truck and bus suppliers in Asia and one major European passenger vehicle manufacturer coming to market later this year. To date, we had 20 different design wins for the product. The solution now has over 600 million kilometers of actual road drive time behind it. Moving on to pay-TV. Pay-TV revenue was $55.7 million, up slightly sequentially and down 16% year-over-year, primarily due to a onetime payment received in Q4 2019.

For the full year, revenue was $232.7 million, down 10% year-over-year. As expected, we continue to see churn in our legacy pay-TV business. Over time, we expect this churn to be partially offset by growth in new TiVo IPTV deployments. Our contracted customer IPTV deployments in 2020 were heavily disrupted by the COVID-19 pandemic. We've been actively working with our operator partners to enable new consumer self-install with no-contact deployment options. As a result of these efforts, we're starting to see a positive trend in new household deployments in the U.S. and Latin America. In addition, we added two new operator TiVo IPTV design wins in the period.

And lastly, with our Perceive subsidiary, we continue to make progress with early partners to bring a smart security camera product to market later this year. As evidence of the innovation around our Ergo platform, our chip has received a number of industry awards validating its unique capabilities. These include the CES Innovation Awards 2021 honoree in the Embedded Technologies category and the Best of Sensors Awards 2020 Start-up of the Year. As we continue to see the opportunities for Ergo to evolve, we are accelerating certain investments during 2021 to position the platform for greater scalability in '22 and beyond.

These investments primarily relate to expanding our field applications engineering capability and the productization of tools that will allow our customers to quickly and easily develop their solutions on our platform. And during 2021, we have a clear set of priorities that are aimed to position the product and IP businesses for growth while we complete the integration and prepare our businesses for independent success. On the IP licensing side, these include increasing penetration into OTT and new media markets, licensing the remaining pay-TV operators in Canada on market-based terms consistent with our existing licensing program and expanding our hybrid bonding technology footprint.

On the product side, these include driving our TiVo Stream and IMAX Enhanced programs in connected TVS, accelerating our DTS AutoStage and DTS AutoSense progress with Tier one suppliers and OEMs, expanding TiVo IPTV deployments and launching Perceive's Ergo chip in our first partner products and completing the productization of our platform tools.

With that, I'll turn the call over to Robert to discuss our financials.

Robert Andersen -- Chief Financial Officer

Thanks, Jon. Let me begin with financial results for the 2020 fourth quarter and full year. As Jon noted earlier, in order to provide more meaningful comparisons, I'll be describing revenue and cash flow base numbers on a fully combined basis as if Xperi and TiVo were combined for all periods. Combined numbers can be found in the Interactive Analyst Center on our Investor Relations website. Total revenue for the fourth quarter was $433.9 million, up from $265.7 million in the fourth quarter of 2019. The increase was mainly driven by the Comcast settlement and growth in the Consumer Experience and Connected Car categories, offset by lower revenue from semiconductor IP.

As Jon mentioned, the full year revenue on a combined basis for 2020 was $1.15 billion, up 21% from $948.2 million in 2019. Fourth quarter GAAP operating expense, including COGS, was $244.1 million. GAAP expense was significantly higher than the fourth quarter of last year due to our merger with TiVo. GAAP operating expense for the full year, including COGS, was $714.4 million. On a non-GAAP basis, Q4 total operating expense, including COGS, was $173.6 million. Q4 interest expense was $13.3 million, and other income was $1 million.

Cash taxes paid in the quarter were $12.4 million. So using cash tax and non-GAAP fully diluted shares of 112.3 million, non-GAAP earnings per share for Q4 was $2.10. We ended the quarter with 105.5 million basic shares outstanding, and we bought back just over one million shares of common stock during the quarter at an average price of $19.82 for a total of $20 million. As of the end of the fourth quarter, we had $80 million of share repurchase authorization remaining. Moving to the balance sheet. We finished the quarter with $257.1 million in cash and investments, up by $54 million from the third quarter. We paid down $163 million of our debt during the quarter to bring our year-end debt balance down to $873.8 million.

We also purchased a substantial number of patent assets during the quarter for a total of $50 million. These assets provide valuable coverage in key existing IP markets and are equally important in some of the areas we are focused on for future growth. Operating cash flow for the quarter was $298.2 million, up from $136.8 million a year ago due primarily to the Comcast settlement and balanced by lower cash from semi IP customers and delayed cash payment for operating spend at the end of 2019. Our adjusted free cash flow for the quarter was $296.8 million. Adjusted free cash flow reflects operating cash flow adjusted for $4.4 million of property, plant and equipment and $3 million of merger- and separation-related costs.

For the second half of the year, excluding prior period payments from Comcast, we returned approximately 50% of free cash flow through dividends and share buybacks, which is in line with our target objectives. During the quarter, Xperi paid a cash dividend of $0.05 per share of common stock. In terms of guidance, we believe an annual view provides the best measure of the business, as there are always certain deals in our annual forecast for which it is difficult to determine timing by quarter. I will, however, provide some guidelines on what we expect on seasonality for revenue and expenses. For the full year of 2021, we expect revenue to be between $860 million and $900 million.

For comparison purposes to last year, it is worth noting there was approximately $300 million of nonrecurring revenue in 2020 relating to the media and semiconductor IP licenses. For revenue, we would expect the first and fourth quarters of the year to be slightly higher than the second and third. We expect COGS for the year to be between $115 million and $125 million. GAAP operating expense for the year is expected to be between $760 million and $790 million, and non-GAAP operating expense is expected to be between $475 million and $505 million. Please refer to our earnings release for a reconciliation between GAAP and non-GAAP expenses. And we expect depreciation costs to be approximately $25 million.

Overall, we expect non-GAAP expense to decline by approximately $35 million year-over-year, primarily due to realized merger synergies and other cost reductions. While we expect litigation spend to be lower in 2021, the savings is balanced by investments in systems infrastructure and business growth initiatives. For expenses, we would expect the first half spending to be slightly lower than the second half. We expect interest expense to be approximately $43 million, significantly less year-over-year on a combined basis due to debt paydown and more favorable borrowing terms. Other income will be approximately $4 million, and cash taxes will be between $35 million and $38 million.

Also, we expect our basic number of shares to be 105 million and fully diluted shares on a non-GAAP basis to be 112 million. These are the midpoints of the guidance ranges. We would expect non-GAAP earnings per share for the full year 2021 to be approximately $1.74. Additionally, we expect to generate between $180 million and $220 million of operating cash flow and between $185 million and $225 million of adjusted free cash flow in fiscal 2021.

That concludes our prepared remarks. Let's now open the call to your questions. Operator?

Questions and Answers:

Robert Andersen -- Chief Financial Officer

[Operator Instructions] We'll take our first question from Matthew Galinko with Sidoti & Company. Please go ahead.

Matthew Galinko -- Sidoti & Company -- Analyst

Thank you for taking my question. So maybe just firstly, I saw, I guess, investments in productizing Perceive and I think expanding some -- maybe some field support for that. Can you elaborate a little bit more on what does it mean to productize what you have so far? What are the milestones we should be looking for? And is that based on feedback from your initial partners and bringing that to market? And I mean, I guess just to cap off a multi-part question, do you expect an acceleration in identifying and ramping up with partners as you maybe automate it a little bit more?

Jon Kirchner -- Chief Executive Officer

Sure, Matt. So the hardware side of the chip is done. It's a very innovative hardware design, but it is closely coupled with software that basically makes the platform work, where you get incredible power savings yet performance and accuracy. And so the investments we're making are very much around the software tool set because it basically is a different way of doing neural networks and, if you will, translating standard networks that people are typically using today in the cloud onto this chip platform, which, of course, is very, very small and low power, if not a trivial task. And one of the things we've learned and continue to work on, and we've known this going in but continue to work on, is how do we make it really easy for people to run algorithms that they may otherwise be running in the cloud and basically port them onto this device.

So that process and those tools, coupled with field applications engineering support to help people, particularly first time going through the process of working on what is fundamentally a new and pretty revolutionary platform, is our focus. As we get through the completion of the tools, which should occur more or less as we approach late spring into the middle of this year, at least in their first instantiations, we do believe that customers will be able to more rapidly evaluate not only the platform but then ultimately proceed with confidence around incorporating the chip and design. So we see the pipeline expanding as we get toward the latter part of the year. And certainly, we expect to see business acceleration in '22 and beyond as a result of those investments and the continued efforts by the team.

Matthew Galinko -- Sidoti & Company -- Analyst

Got it. If I could just sneak one follow-up on that. Basically, we've talked in prior quarters about other potential use of Perceive beyond the kind of the security camera or smart camera market. So I know you called out that opportunity today. But is there anything else once you get that product position done and we move into the back half of the year not only following -- that you expect to be pulled into or that you're starting to see interest from that you think is relevant?

Jon Kirchner -- Chief Executive Officer

Very much so. Security cameras are just literally the initial target application based on some -- a lot of internal we have -- expertise we have in terms of world-class imaging. But when you really think about the platform, I would think about it this way, which is any device where you'd like to bring intelligence, much greater intelligence into the fold, and the way to think about that is there are billions upon billions, tens of billions of sensors in the world of all kinds, and they're delivering information and intelligence around everything from imaging to audio to thermal to other sorts of sensing. And the idea behind Perceive that is so powerful is that anywhere you have today which has a sensor that just basically feeds raw data into some other SoC or some other processor to try to figure out or send it to the cloud, what it means, the Perceive chip right there, locally in a private way and in an incredibly powerful way, can turn that raw data into better information and really apply intelligence to then figure out what happens downstream.

So applications are wearables, consumer white goods, AR-related things, VR-related things, mobile phones, automotive, other consumer electronics, enterprise, industrial, I mean, the list goes on and on and on. And so it's a vast, vast potential market really because these are all the places, if you look around, where people are beginning to apply artificial intelligence in different ways. And the ability to move some of that computation out of the cloud directly on -- into the local environment saves money on data traffic up and down to the cloud. It improves accuracy. It improves privacy. There's a whole series of benefits that come in and around when you can really develop something that is genuinely powerful and low power in its operation and put it at the edge. And so that's the vision and the opportunity behind Perceive. We are, in fact, engaged with customers in a number of these areas that I mentioned, and the feedback continues to be outstanding.

Matthew Galinko -- Sidoti & Company -- Analyst

Thank you.

Operator

We'll take our next question from Eric Wold with B. Riley Securities. Please go ahead.

Eric Wold -- B. Riley Securities -- Analyst

Thank you. Good afternoon guys. A couple of questions just kind of diving on the outlook a little bit. I guess, one, thinking back to last year as you were kind of maybe starting to come out of the pandemic a little bit, you expressed some cautiousness around the potential pace of the recovery of the product segment this year as the economy came back to life. Can you update us on where your thoughts are there? And given what kind of transpired over the past few months, kind of what you've seen at the start of the year? And kind of where you're seeing maybe signals of your strength in that segment for the year? And where you might be seeing some signals of weakness?

Robert Andersen -- Chief Financial Officer

Eric, this is Robert. I can start out and Jon, if you want to make kind of over-the-top comments. I'd say at this point in the year, and given where we are amid the pandemic, we expect the product business to be roughly flat year-over-year. And the upside range would be probably in the neighborhood of a few percentage points. We have seen some recovery in automotive, which we noted in Q4. I think we are taking, I believe, a rather cautious outlook for 2021 at this stage.

Eric Wold -- B. Riley Securities -- Analyst

Got it. And where do you see maybe the most risk in the various kind of subsegment in product or most uncertainty is maybe a better way to phrase it?

Robert Andersen -- Chief Financial Officer

Well, I think we -- go ahead, Jon, if you want to take it. I was going to say we see some risk on the per unit basis in 2021, which would be in the consumer segment. And there's also upside there, too. There's also some chip shortages we've noticed in auto. So I think we're taking a bit more of a conservative view there.

Jon Kirchner -- Chief Executive Officer

Yes. I would add, Eric, that I think in pay-TV, obviously, cord cutting continues. I think the pace of IPTV deployments, which is an area that is an offset for us in that space, we see as improving. That's good news. The extent to which it improves and these systems get deployed during the course of the year will also determine kind of what the, if you will, what the net impact of that is on other areas of the business that are expected to recover. And that is certainly aspects of the home through game consoles, certainly some of what we're seeing -- growth that we're seeing around connected TV-related things, including Stream 4K growth and, as Robert touched, on automotive.

Eric Wold -- B. Riley Securities -- Analyst

Got it. And then kind of the last question, kind of in the guidance, the $860 million to $900 million of revenue guidance for the year, maybe you can just dive into that a little bit and kind of let us know kind of what the drivers are there in terms of baseline growth, if you're assuming any major renewals during the year, if you're assuming any major licensing litigation, just to kind of get a sense of kind of baseline, which I assume this is mostly baseline, kind of everything else kind of becomes potential upside to that?

Robert Andersen -- Chief Financial Officer

Sure. This is Robert. I think as we look at the range, we recognize -- generally speaking, we'll call our midpoint are most likely. Working to that midpoint, I'd say we have a pipeline of smaller IP opportunities for which we have good visibility as well as a range of product and unit shipment scenarios as we work our way through the shape of the pandemic recovery that get us to the midpoint. Getting to the higher end, we would need certain new deals, especially in IP, and higher per unit reports from our customers. It's all within the range of possibilities, of course. Does that give you a feel for it, Eric?

Eric Wold -- B. Riley Securities -- Analyst

Yes. That's perfect.

Jon Kirchner -- Chief Executive Officer

And if I may, Eric, just one other thing. I think to be crystal clear, what's not in the guide is IP deals for which we don't have direct line of sight. Our guidance history, and I think our experience tells us, you're better off not including large things that may occur until they occur. And so there's opportunities on the media side, there's opportunities obviously on the semi side that would take you not only to the top but well above the top of the range. But at this point of the year, as Robert said, we're not inclined to guide that way until we get better visibility into where these things sit.

Eric Wold -- B. Riley Securities -- Analyst

Perfect. Thank you.

Operator

We'll take our next question from Hamed Khorsand with BWS Financial. Please go ahead.

Hamed Khorsand -- BWS Financial -- Analyst

All right. So first off I just want to ask you is, where do you stand with embedding TiVo Stream 4K into TVs for this year or if it's being pushed down to next year?

Jon Kirchner -- Chief Executive Officer

We continue to work on the process of, obviously, both working on the technical end of that as well as the business partnership of that end. I don't think -- we may be surprised, but I would not expect to necessarily see TV models. I think we've all largely talked in terms of '22 being the first time you'd see kind of that transition. So we'll continue to focus in part on sales of Stream 4K and continue to build out some footprint but obviously working aggressively behind the scenes to set up for the real end game, which is getting our technology and our technology stack embedded on TVs as we get into '22 and beyond.

Hamed Khorsand -- BWS Financial -- Analyst

And within the TiVo Stream 4K, you're seeing this greater increase in viewership, especially on the ads. Does that help you in any way as far as the ad rates go? Or -- and how has that been perceived with your different ad customers?

Jon Kirchner -- Chief Executive Officer

I think there's clear interest in what we're doing from a search and recommendation and a user engagement perspective that has benefits from an advertiser perspective, certainly a distribution platform perspective. And I think it also is of interest as we think about presenting our technology stack and our platform opportunity to connect to TV folks who are obviously -- to the extent that they will participate in downstream economics, they're interested in how much user engagement will be on the platform. So I think it's still -- for us, as we move into that space, it's still earlier days. But I think we have the benefit of the history of building world-class UX interfaces for pay-TV for a lot of years. And I think we're taking that expertise and then obviously coupling it with building out the infrastructure necessary to support greater monetization because over the next three to five years, we see a tremendous amount of expected growth in AVOD, in particular. And the trends around OTT are very strong, and there's room for us to play. And I think as we do, the growth will be meaningful and quite attractive.

Hamed Khorsand -- BWS Financial -- Analyst

And just one last question is on the international front. Are you able to be a little bit more aggressive with COVID restrictions going away as far as capturing new IPTV customers?

Jon Kirchner -- Chief Executive Officer

I think we're very -- we continue to be very active in certain markets like Latin America and whatnot. And we continue to engage with potential customers around the globe. So I don't know that I have a better answer for you other than I think short of some of the COVID-related impact that we're really seeing any barriers to further opportunities for growth, there's the natural just inherent decisions that operators need to make about -- around those investments and from a system perspective, etc.. But in general, I think we've got -- we booked quite a bit of business, IPTV-related. And now we're actively working with partners to get these units deployed. And as they get deployed, we'll see the revenue benefits of that flow through.

Hamed Khorsand -- BWS Financial -- Analyst

Okay. Thank you.

Operator

We'll take our next question from Mitch Steves with RBC Capital Markets.

Mitch Steves -- RBC Capital Markets -- Analyst

Hey guys. Thank you for taking my question. I have a really big picture one. I think it's kind of on a lot of investors' minds. So when you talk about the product and the licensing revenue now that they're a combined entity, what's kind of the real long-term growth we should expect? I realize in your guidance this year, which -- where you think that auto may be a little bit weaker than you originally thought due to supply constraints. So how do we think about the long-term growth of the combined entity now? And if you could break that into the divisions you have, that would be extremely helpful.

Jon Kirchner -- Chief Executive Officer

I think you've got different pieces. As we look at the more traditional kind of CE business, ex perhaps growth around new media-related growth of monetization and ads and whatnot, user engagement-related revenue, that business is kind of a single -- mid-single-digit grower over time if you look at the various pieces of it. Or at least, historically, it kind of has been, even though it goes up and down somewhat. Automotive, with the number of things we're working on in infotainment and safety, we believe that the opportunities there could represent multiyear growth rates in the high single to low double digits, just bigger picture. There's clearly quite a bit of potential explosive growth that would exist in Ergos, our Perceive subsidiary's opportunity, which is huge because obviously, to the extent that it takes off, it's a -- it's really a vector unto itself with regard to what will be explosive growth. And we haven't yet quantified what that potentially looks like, although it was pretty clear that it is large.

Similarly, as you think about media and kind of AVOD, if you go with an embedded TV stack and you start to monetize that, the growth there could be very, very significant and significantly greater, greater than what you might see out of the traditional CE or hardware business. So overall, I think you've got a different portfolio that is going to be moving at different rates. I think we're heavily focused on how do we put ourselves in the best position to realize some of that outsized growth in a couple of key areas, while we continue to work on improving business efficiency and whatnot and profitability to really ensure that whether we're growing over time in the single digits or in the double digits on a blended basis, that we can do so very profitably and ultimately continue to improve our strategic positioning in the marketplace.

Mitch Steves -- RBC Capital Markets -- Analyst

Okay. So to sort of be crystal clear here, that means that next year, you would expect that to be growing mid-single digits by that point as a total entity in '22?

Jon Kirchner -- Chief Executive Officer

I'm sorry. Could you ask question again?

Mitch Steves -- RBC Capital Markets -- Analyst

So by 2022 -- so this year is a kind of a digestion year. It would be safe to assume we should grow mid-singles for the total company at this point?

Jon Kirchner -- Chief Executive Officer

I don't think we're guiding to '22 at this point. I don't think we're in a position to do that. Do we believe that as you look over the next couple of years that we should grow meaningfully? The answer is yes. To what degree that slides into '22 or '23, '24, I think, obviously, as we get further through '21, we'll have more to say.

Mitch Steves -- RBC Capital Markets -- Analyst

Okay. I understand. Thank you.

Operator

We'll take our next question from Richard Shannon with Craig-Hallum. Please go ahead.

Richard Shannon -- Craig-Hallum -- Analyst

Well, great guys. Thank you for taking my question. Maybe just a technical question on your guidance, what's implied there for sales in 2021 here. Can you give us the baseline for IT? And I think, Jon, you mentioned you kind of expect product to be flat, and I think you implied automotive is growing. Does that mean the other two segments are going to be down year-on-year? Or can you provide any more color to that?

Robert Andersen -- Chief Financial Officer

I can take this, Richard. This is Robert. So I think we did mention that we expect product to be roughly flat year-over-year. There are instances where it can be growing. It sort of depends on how the year progresses in terms of unit shipments and new deals. I think we were expecting some smaller IP opportunities for which we have really good visibility at this stage. So that gets you into the middle of our range. And as I mentioned earlier, we do have larger strategic opportunities or -- pardon me, we do have other deals that would get us kind of to the higher end of the range. The range itself does not include large strategic deals from an IP perspective.

Jon Kirchner -- Chief Executive Officer

Yes. So let me just further elaborate. So as you think about it, you've got -- car, we expect to grow. Market's up roughly 10% -- 9%, 10%. If you look at some of the IHS data, you can perhaps apply a bit of caution to that just because of some of the supply issues. And I think we expect our Consumer Experience business to grow as well, but that will be offset by continued pay-TV base decline. So that's the cocktail on how to think about the three pieces. And then Robert, I think, addressed the bigger question about where do we fit in terms of the guidance range.

Richard Shannon -- Craig-Hallum -- Analyst

That is helpful. My next question is, you talked about the impending split of your IP and product businesses to be delayed until 2022 time line. I think I may have missed your language here, Jon. But is that entirely due to COVID dynamics or is there other things built into that? And then kind of following on that topic is, when should we hear more about you from that plan about timing, about how the business really splits up, I guess?

Jon Kirchner -- Chief Executive Officer

I think you've got a couple of things that we touched on in the script. We've clearly got impact from the shape of the COVID recovery and trying to deal with the uncertainty of that. We believe that shareholders are best served by basically affecting the separation at a time when both businesses are really ready to stand on their own two feet and ultimately have attractive growth stories with reasonable visibility for investors. I mean, it's one thing if we think that you've got to be able to be in a position to demonstrate in fairly short order post-separation how this is -- that you're tracking. So you've got the pandemic shape of the recovery issue impacting how we think about '21. I think hopefully, by the time we work through '21 and we're looking at '22, we're in a very different place and have much better visibility.

Secondarily, there's some fairly complex systems work that's going on that we think is -- it's critical to get it right not only for the benefit of, of course, enabling the two businesses to operate independently and be public and meet all the requirements related thereto. But equally important so that we can ensure by modernizing our systems that we can, if you will, develop some best-in-class infrastructure for both businesses that will lower the cost of operation and be far more efficient for each of these businesses as we go forward because obviously, we want to affect the most attractive businesses we can. And that includes not only the growth story and the growth trajectory and the performance but equally, kind of on the cost side of the equation, we want to make sure that we can deliver them as profitably as possible.

So when you put those things together, I think you look at the first half of '22 more realistically than what we've concluded was originally, I thought, around '21. And the last thing to just be aware of as we think about this is that we will, though, in the course of this year internally begin operating on an independent basis because we think it's important that the business teams have their sea legs underneath them so that as we complete the balance of the work and get into '22, we're clicking on all cylinders as we affect the legal separation and then move on.

Richard Shannon -- Craig-Hallum -- Analyst

Okay. Fair enough, Jon. Appreciate those details. Last question for me is related to your auto business, kind of a two-parter actually here. In Connected Radio, which I think you're calling AutoStage, yes, AutoStage, I think you talked about Mercedes as kind of a key initial customer there. Maybe you can give us a sense of what we should expect in terms of customer announcements this year, top 10 OEMs, how many can we see, etc.. And then again, kind of similar with AutoSense, you just announced four OEMs that you have wins with. What should we see for this year in terms of customer engagement and wins there?

Jon Kirchner -- Chief Executive Officer

I think the challenge with this one is that our customers naturally don't like us running their -- what they're doing with their vehicle models. So I think, one, you're just going to have to stay tuned. I can tell you that we do expect, obviously, more models within the customers that we have, so in this case, with AutoStage. I can also tell you that the pipeline remains extremely active. And in the back half of this year, you will see the first AutoSense customer ship with a major European partner. We're super proud of that. And as we said, we've already got nearly 20 design wins with respect to that product. So hopefully, in due course, we can share more information with you. But I'm not at liberty to really discuss who it is and when it may happen.

Richard Shannon -- Craig-Hallum -- Analyst

Okay, fair enough. That's all for me guys. Thank you.

Operator

We'll take our next question from Brett Hendrickson with Nokomis Capital. Please go ahead.

Brett Hendrickson -- Nokomis Capital -- Analyst

Good afternoon guys. Jon, I hear you talking about Perceive and all the exciting things going on. And I do appreciate that you guys are both tactically but considerately, if that's the word, looking at the separation of the licensing and the product businesses. And I just wonder, when you're in that discussion and the optimal timing of it, does it make sense to at least either now or maybe 18 months from now consider -- I think Perceive is planned to go with the products business. But might Perceive be better off as its own division at some point?

I see -- I just -- I see the valuations that these SPACs are paying for businesses. And to put it nicely, some of the semiconductor -- public semiconductor companies now have an extremely low cost of capital. And I just -- I know even within the last 48 hours, we had a public company sell off one of its divisions in part through a SPAC and keep shares in the new SPAC. And would that be a way to highlight the value and create even more shareholder value? Is that worth -- at least worth considering? I know it's still early in the game for Perceive, but I wanted to hear your thoughts on it.

Jon Kirchner -- Chief Executive Officer

Yes. I think in general, I think we and the Board are routinely talking about all the ways that you might go about generating value and balancing, of course, the risk of these things and ultimately, taking advantage of market circumstance. So I would say we're certainly aware of what's going on in the marketplace. I think a key point, though, is as you think about the cycle of value creation, we're probably, I think, from my perspective, still slightly early in being able to much more publicly and emphatically demonstrate the potential of the platform. We've gotten -- of course, we've gotten plenty of feedback.

We've got some very interesting customers, etc., etc.. But if you think about it, we're not that far away, exactly to your point, where we can perhaps be more public about all the reasons we're so excited. And as that happens, I think, obviously, we'll continue to assess what the options are. But we think there is a lot of value there, and we're obviously constantly and consciously thinking about how do we best maximize long-term value associated with that endeavor.

Brett Hendrickson -- Nokomis Capital -- Analyst

Yes. Good to hear. And I know you can't comment on it. But I mean, we've seen some of these businesses come public with less design wins and less meat on the bone than you've already put on the bone at Perceive and have $1 billion-plus valuations. And so I guess without commenting on that, I guess the question would be, when you and the Board sit around and talk about the different paths to value creation over the next three or four years, and you're long-term investors so we hope you're thinking in that kind of time frame, do you -- at least, if you thought about the rest of the products business and the licensing business and Perceive separately, is it fair to say that of the total enterprise value that you see in the future years, Perceive is a material part of it even as a stand-alone? I mean, it's a material part of what could be a multibillion-dollar valuation for all the sum of the parts.

Jon Kirchner -- Chief Executive Officer

Yes. We believe it can be very material. And then -- so to your point, do you play it in an integrated way? Or do you play it over time as the platform picks up more inertia, might it very well be able to send on its own and deliver a lot of value? Again, thoughts that aren't lost on us. We believe today, everything is a function of where you are in the cycle and the innovation you're trying to bring. Right now, it's best being where it is. But over time, for the reasons you described and particularly if it's more broadly adopted, as we expect it to become, it will, in fact, be a significant component of value. And as we have better line of sight to that, we'll obviously figure out how best to manage that situation.

Brett Hendrickson -- Nokomis Capital -- Analyst

I appreciate that. So my last quick question, sort of related. You've attracted value investors like us who are obviously attracted to the free cash flow and the free cash flow yield. And so we absolutely appreciate the stock buyback that's starting to get going in here. When I think about the free cash flow, and sorry if I missed it, how much investment is in Perceive this year that kind of gets deducted from the free cash flow guidance you all gave? Is it -- can you give us any brackets around how much that investment is kind of noncore? I don't want to call it noncore. But what would the free -- give us a sense of what the free cash flow might be if you weren't making that growth investment right now in the rest of the business?

Robert Andersen -- Chief Financial Officer

Yes. This is Robert. In terms of our investment in Perceive, there's sort of -- you had it right. There's a direct investment, and then there's sort of indirect investment, which is the support and other apps development that goes on supporting Perceive. But I think if you add it all together, you can figure it's in the kind of $20 million to $25 million range each year, or at least for 2021.

Brett Hendrickson -- Nokomis Capital -- Analyst

That's what I was guessing. But that's -- if I was to adjust free cash flow yield, it makes it even higher. So, I appreciate that, Robert. Thanks for your time gentlemen.

Robert Andersen -- Chief Financial Officer

Thank you Brett.

Operator

With no further questions in the queue, I would like to turn the conference back to Jon Kirchner for any additional or closing remarks.

Jon Kirchner -- Chief Executive Officer

Thanks, operator, and thanks, everyone, for joining us on today's call. I want to close by thanking our employees for their efforts to successfully navigate through the pandemic thus far and to deliver -- and for the delivery on our key strategic priorities. We've made great progress in 2020 toward our longer-term goals, and we enter '21 with continued momentum. And I'm personally quite excited about that. To our shareholders, I look forward to sharing updates, obviously, probably virtually as we go through the year. And at some point, hopefully, we'll be able to get back to doing so in person. Thank you for joining us. And operator, this concludes today's call.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Geri Weinfeld -- Investor Contact

Jon Kirchner -- Chief Executive Officer

Robert Andersen -- Chief Financial Officer

Matthew Galinko -- Sidoti & Company -- Analyst

Eric Wold -- B. Riley Securities -- Analyst

Hamed Khorsand -- BWS Financial -- Analyst

Mitch Steves -- RBC Capital Markets -- Analyst

Richard Shannon -- Craig-Hallum -- Analyst

Brett Hendrickson -- Nokomis Capital -- Analyst

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