Corrects the Record on Xperi’s Myriad
Falsehoods and Manipulations
Urges Stockholders to Vote FOR Rubric’s Nominees Thomas A. Lacey and Deborah
S. Conrad on the WHITE Proxy
Card
Rubric Capital Management LP (“Rubric”), an investment advisor
whose managed funds and accounts collectively own approximately
9.0% of the outstanding shares of common stock of Xperi Inc. (NYSE:
XPER) (“Xperi” or the “Company”), today issued an open letter to
Xperi’s stockholders in response to an investor presentation
released by the Company in connection with its 2024 Annual Meeting
of Stockholders.
The full text of the letter follows:
Dear Fellow Xperi Stockholders,
Upon reading the investor presentation issued by Xperi on April
30, 2024, we were struck by one, overriding thought: “What contempt
this Board must have for its own stockholders.”
While we are not interested in being dragged into a tit-for-tat
rebuttal of the myriad issues with Xperi’s presentation, we felt it
was important to address some of the Company’s most egregious
statements so stockholders can evaluate for themselves if this is
the Board they wish to continue to represent them.
Xperi’s Post-Spin Underperformance
When discussing its underwhelming performance in its
presentation, Xperi admits that its shares have “underperformed for the 19-month period since the
Spin-Off.” However, in an attempt to paint a rosier
picture for stockholders, the Company proceeds to tout a total
shareholder return (TSR) that excludes a full quarter of trading,
thereby moving the goalposts and inflating
its TSR by 58%.1 Xperi’s rationale for the exclusion is that
it took time for the stock to “season” post-spin off – a concept
that Xperi has apparently contrived for just this occasion.
Xperi’s Share Repurchase Program is Nothing More than Window
Dressing
On April 29, 2024, Xperi disclosed the authorization of an up to
$100 million share repurchase program. Regrettably, the share
repurchase program now looks like nothing more than window
dressing, as the Company includes the 8% share price rise triggered
by the disclosure when calculating the returns it proudly showcases
throughout its presentation. Convenient timing, to say the
least.
Moreover, we have no faith that the Company will execute the
share repurchase program in any substantive way, seeing as it
“does not obligate the Company to
repurchase any specific number of shares of common stock, has no
time limit, and may be modified, suspended, or discontinued at any
time without notice at the discretion of the
Board.”2
This lack of commitment and absence of any timeframe against
which the share repurchase program will be executed belies an utter
lack of seriousness.
Xperi’s Presentation of Dilution is a Mockery of the
Truth
Xperi makes the egregious claim that its dilution has been
in-line with or below its peers. Only in the most dishonest sense
is this true.
In 2023, Xperi’s GAAP diluted share
count grew by 2.3%. Unfortunately for stockholders, when
calculating diluted share count for a company with negative GAAP
earnings – like Xperi in 2023 – GAAP accounting EXCLUDES stock options, restricted stock units
and employee stock purchase plans. As such, basic and diluted share
count are the same.
To put this in layman’s terms, Xperi is attempting to advance a
false narrative regarding its dilution by hoping no one will notice
the 53% increase in options, RSUs and
other dilutive items. Without proper explanation in its
presentation, Xperi makes a mockery of the term “fully diluted
share count.”
Xperi’s Discussion of Executive Compensation Makes Creative
Use of Timeframe
Xperi’s discussion of executive compensation once again attempts
to mischaracterize the truth. When comparing Xperi’s Summary
Compensation Table to CEO Jon Kirchner’s realized compensation in
2022 and 2023, the Company fails to account for the fact that Mr.
Kirchner’s pay includes a cliff grant with a 3-year timeframe
(2023-2025). As such, Mr. Kirchner is not yet
able to realize this compensation. Therefore, of course his
realized compensation will lag the Summary Compensation Table for
the time being; that doesn’t mean the compensation isn’t likely to
be realized.
Perceive Expense Characterization is Puzzling at Best
Perceive has existed for six years, and in each public
disclosure Xperi has made regarding its annual investment in the
business, investors have been given numbers that range from $17 to
$25 million.
April 2020
Negative $17M in FCF in 2020E3
February 2021
“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.” – Robert Andersen, Xperi CFO, February 23, 2021
September 2022
“Annual Investment of $20M” – 2022 Xperi Investor Day
Presentation, September 22, 2022
However, Xperi claims in its presentation that its cumulative
investment in Perceive is “significantly less than $100 million.”
This means that the Company’s prior
disclosures were either erroneous, to a level that beggars belief,
or Xperi is once again misleading investors about the scale of its
investment to mask its poor capital allocation.
Xperi Highlighting Director Ownership Actually Reinforces Rubric’s Points
When highlighting that the current directors own shares in the
Company, Xperi conveniently omits that virtually all of those shares were grants, with
only de minimus shares purchased with their own capital.
- Darcy Antonellis has effectively purchased 1,816 shares of the
38,232 shares reported owned (less than 5% of the
total).4
- David Habiger has effectively purchased 7,452 shares of the
47,616 shares reported owned (less than 16% of the
total).5
While the Company touts its minimum stock ownership
requirements,6 neither Ms. Antonellis nor Mr. Habiger would come
remotely close to satisfying the minimum if award grants were
excluded and they actually had to put their own money at stake.
Lastly, not one of the incumbent directors has purchased a
single share of stock in the Company nor in Xperi’s predecessor
since 2020.
These directors, and the Xperi Board at large, have shown no
commitment to further aligning their interests with stockholders.
Rubric, on the other hand, owns more than
23x as many shares as all independent Board members
combined. We are squarely aligned with stockholders in
driving improved value at Xperi – our capital is actually at stake
just like non-insider stockholders who have not been awarded their
ownership positions.
Xperi is Lagging Behind its Targets
At its 2022 Investor Day, Xperi laid out a series of 3-5 year
targets, which the Company reiterated in yesterday’s
presentation.
- 12-15% Revenue CAGR from 2022
- 25-30% Adj EBITDA Margin
Xperi fails to acknowledge in its presentation, however, that
its performance has significantly lagged its stated targets –
calling into question the Company’s credibility and ability to
execute.
From 2022 to the midpoint of its 2024 guidance, adjusted for
AutoSense, Xperi has achieved a (i) 4.6% Revenue CAGR and (ii) 2023
Adj EBITDA Margin of 6.7%, missing its original guidance of ~10% by
33%.7
This implies Xperi needs to grow its topline by 34% to hit the
midpoint of its guidance in 2025 (Year 3) or at a CAGR of 20% by
2027 (Year 5). Given the Company’s guidance for 2024 implies less
than 5% revenue growth and consensus calls for 7% in 2025, we
believe – and analysts apparently agree – the likelihood of Xperi
achieving its guidance ranges is slim.
Rubric Has Negotiated in Good
Faith and Xperi’s Statements Omit Worrisome Behavior
Throughout this entire process, Rubric has emphasized its desire
to work constructively with Xperi to put qualified candidates on
the Board to help empower Xperi for the next phase of its
evolution. While Xperi claims in its presentation to share this
objective, the Board’s disingenuous attempts to “settle”
include:
- Offering to put none of Rubric’s nominees on the Board;
and
- Offering to put Rubric nominee Deborah Conrad on the Board
while expanding the Board with another two unnamed candidates.
Moreover, when describing the chronology of our settlement
discussions, Xperi omits key events about which stockholders
deserve to know.
First, Rubric signaled its willingness to expand the Board to
nine directors by adding Xperi’s two Board-identified candidates as
well as both Rubric nominees. The Board rejected that compromise
and appears unwilling to entertain any slate which includes Rubric
nominee Thomas Lacey.
Second, Xperi has, on multiple occasions, circumvented
negotiations with Rubric and twice privately offered Mr. Lacey a
paid consultant position if he would step down from Rubric’s
slate.
So, we ask our fellow stockholders, who is operating in bad
faith: Rubric, who has signaled an openness to expanding the Board
to accommodate nominees from both sides, or Xperi, who has attempted to disenfranchise stockholders
from the choice of voting for Mr. Lacey to the Board by dangling a
monetary offer directly to him in an apparent attempt to escape the
accountability he would bring to the boardroom?
The List Goes On
These are just a handful of the countless misleading statements
put forth by the Company in yesterday’s presentation. Ultimately,
Rubric believes Xperi stockholders will see through the half-truths
and outright falsehoods presented by an Xperi Board seemingly
focused on subverting stockholder interests and securing
comfortable, high paying directorships for themselves. Enough is
enough. We encourage stockholders to vote the WHITE proxy card “FOR” the election of
Thomas A. Lacey and Deborah S. Conrad to restore accountability, alignment and action
to the Xperi Board.
Vote the WHITE
proxy card TODAY
If you have any questions, require
assistance in voting your WHITE universal proxy card, or
need additional copies of Rubric’s proxy materials, please contact
our proxy solicitor Okapi Partners at (855) 305-0856 or via email
at info@okapipartners.com.
Sincerely,
David Rosen Managing Partner Rubric Capital Management LP
1 Source: Bloomberg. Calculated as of April 26, 2024. 2 Source:
Xperi Form 8-K filed on April 29, 2024. 3 See proxy statement filed
by Xperi Corporation on April 22, 2020 in connection with the
proposed merger with TiVo Corporation. 4 Ms. Antonellis purchased
4,542 shares of Xperi Holding Corporation (“Xperi Holding”) in
August 2020. Pursuant to the spin-off, stockholders of Xperi
Holding received four shares of Xperi common stock for every ten
shares of Xperi Holding owned as of September 21, 2022. 5 Mr.
Habiger purchased 17,251 shares of Xperi Holding in
August/September 2020 and 1,388 shares of Xperi Corporation in
November 2017. Pursuant to the spin-off, stockholders of Xperi
Holding received four shares of Xperi common stock for every ten
shares of Xperi Holding owned as of September 21, 2022. 6 Per
Xperi’s proxy statement filed on April 17, 2024, minimum for
directors is 3X annual cash retainer (excluding committee and chair
retainers); current annual cash retainer is $50,000. 7 Source:
Xperi regulatory filings.
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version on businesswire.com: https://www.businesswire.com/news/home/20240430553212/en/
Media: Jonathan Gasthalter/Sam Fisher Gasthalter & Co. (212)
257-4170 Investors: Jason W. Alexander/Bruce H. Goldfarb Okapi
Partners LLC (212) 297-0720
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