Adeia Inc (ADEA) 2021 Q4 法說會逐字稿

Good day, everyone, thank you for standing by. Welcome to the Xperi Fourth Quarter and Full Year 2021 Earnings Conference Call. (Operator Instructions) Following the presentation, the call will be open for questions. (Operator Instructions)

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

Good afternoon, everyone. Thanks for joining us as we report our fourth quarter and full year 2021 financial results. With me on the call today are Jon Kirchner, CEO; and Robert Andersen, CFO. In addition to today's earnings release there is also an earnings presentation, which you can access along with the webcast or on our IR website.

Before we begin, I would like to provide 2 reminders. First, today's discussion contains 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 Annual Report on Form 10-K for more information on the risks and uncertainties that could cause our actual results to differ materially from what we discuss today. 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 one-time or ongoing non-cash 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, expensed debt refinancing costs and related 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 webcast of this conference call will be available on our Investor Relations website at www.xperi.com.

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

Thanks, Geri, and thanks everyone for joining us. To start I would like to thank the entire Xperi team for continuing to successfully deliver against the key strategic objectives we set following our merger with TiVo nearly 2 years ago. We've accomplished a lot since we closed the merger amidst what turned to be just the early innings of a global pandemic. I'm proud of how our team has been navigating the shifting pandemic challenges to position the company for success.

Importantly, this has included creating 2 scale businesses poised to standalone and deliver strong returns for our shareholders. For the IP Licensing Business we've strengthened the core cash flow engine and have begun to build a much larger and more diversified IP platform, one with enhanced visibility and sustainability around its revenue streams. This past year we continue to bolster the foundation of that business, successfully completing license agreements with leading entertainment companies throughout the world, resulting in our announcement today of another step-up in our average annual baseline revenue to $375 million.

Additionally, we continued to make progress towards re-establishing our Semi IP business as the industry moves to adopt hybrid bonding as is evidenced by the Micron announcement today. We also announced today that Samir Armaly who has been running the IP business will depart Xperi on March 1. We came to this decision mutually with Samir as we evaluated our collective needs for a CEO candidate that can lead the IP business as a publicly-traded company over the long-term.

We'd like to thank Samir for his contributions as he has made and seen terrific progress under his leadership. He and his team have strengthened the foundation for the future of the IP business, which is sure to thrive as a standalone company. We've begun the search for an IP CEO and we're confident we'll find a leader who can build on the momentum generated over the last 18 months. In the meantime, under my oversight, the strong IP executive team will continue to drive the business forward during this transition.

On the product side, while the pandemic and the associated supply chain disruptions continue to present some unique challenges, we are excited to see major steps taken in our business transformation and a return to growth on the horizon. We have diligently pursued restructuring the business aligned with our strategic roadmap and to position the business for profitable growth as it emerges as an independent company. Another core tenant in our merger was bringing together a tremendous base of technology to help accelerate our innovation engine and broaden our IP licensing opportunities. In the IP business, we've taken important steps to expand the media R&D function to support the long-term needs of the business.

On the product side, we are pleased with several exciting new innovations in the Consumer Electronics, Connected Car and Pay-TV space. Here are a few examples. We're on track to deliver a unique streaming service offering with our TiVo Stream OS on TVs within the next 2 years, which will accelerate user engagement based monetization revenue.

At CES, we demonstrated our mood-based recommendation concept on a single operating platform, which uses emotion detection to drive music and other media recommendations in vehicles, creating more immersive and personalized next generation entertainment features, leveraging our in-cabin imaging and entertainment technologies. In addition, we launched our Single Camera Driver and Occupancy Monitoring solution, which keeps drivers, passengers, children, and pets safe with lower bond cost for car manufacturers. We are one of the first companies to demonstrate this technology.

All this progress brings us closer to standing up 2 separate businesses better positioned and with significant scale. Based on our separation program and current business outlook, our intent is to separate the IP and product businesses this fall. As we approach the separation, we'll share more specifics about the respective businesses, including key management, strategic and capital allocation priorities, financial profiles and transaction structure. Additionally we continue to view the forthcoming separation as a transformational event for both businesses reducing complexity for investors and enabling 2 pure-play platforms better positioned to grow and compete over the long-term.

One final but important update before we get into the business results. Earlier this month, we launched our first ESG annual report. ESG touches many aspects of our business from the relationships we build to the vitality of our workforce and to the way we respond to challenges. You can find this report on our website. Environmental and social issues are not simple to solve and through thoughtful candid conversations with senior leaders and employees across our global workforce, we explored views on diversity, inclusion, equity and our environmental footprint and completed a robust analysis to identify and prioritize the ESG issues material to our company. Exciting times are ahead as we continue our ESG journey.

With that, let us now cover the progress of the IP business and its goals for 2022. For those not following the webcast we are on Slide 4 of the investor deck. IP revenue in Q4 was $89.7 million. As a reminder in Q4 of 2020, we entered into a long-term license with Comcast and received a large payment for prior periods, which creates some challenging year-over-year comparisons. With the Comcast payments for prior periods excluded, IP revenue was up almost 20% year-over-year. For the full year, IP revenue came in at $391.2 million, significantly ahead of our previously announced $350 million average annual baseline. As is typical, our full year revenue reflects the execution of some agreements in 2021 that included catch-up or upfront license fees that will not carry over in 2022.

As we begin 2022, we're very excited about the position of our IP business, which has now generated more than $9 billion over the past 2 decades, illustrating a significant scale and longevity of that business. More than $1 billion of that revenue has been generated in just the last 2 years, highlighting that we are as relevant today as ever. Our strong execution in 2021 has enabled another step-up in our average annual baseline revenue for 2022, moving up from $350 million to $375 million, driven by new and improved agreements with leading entertainment companies around the world.

As is typical with IP businesses, each year we will have a few key agreements that are up for renewal and the timing of those renewals may have some impact on our quarterly revenue trends. However we're confident that we're well positioned to successfully complete those renewals within '22 and therefore they are included in the go-forward average annual baseline. Excluded from this baseline are any significant agreements that we expect to conclude with new customers as well as any revenue from agreements that reflect catch-up or upfront fees or other revenue that isn't expected to recur under accounting rules such as the upfront revenue recognized from the recent agreement with Micron.

Turning now to some of our previously identified growth areas on Slide 5. In Semi IP, the multiyear Micron license announced today is another significant milestone. This most recent agreement is further validation of the relevance and value of our foundational portfolio and expertise in hybrid bonding. Together with our previously announced agreements with other leading memory providers, we now have approximately 90% of the DRAM market and 55% of the NAND flash market under license. While the specific terms of the agreement are confidential, it is similar to the most recent deals we've included in the space adjusting for relevant market share differences. With Micron now under license we look forward to the opportunity to license the remaining memory players as well as new opportunities in logic where we're starting to see an increase in the announcements around the adoption and incorporation of hybrid bonding.

Turning to Canada. We continue to wait for a decision in our initial round of litigation. This decision has taken longer than we expected, although, we do not believe there is anything that can or should be read into that longer timeframe. We remain very confident in the relevance of our IP portfolio and our ability to ultimately achieve a market-based resolution in Canada, although predicting timing is always difficult. As a reminder, we also filed second rounds of litigation against Videotron and Bell Canada last year. Finally, in OTT we continue to engage with a pipeline of opportunities that represents our largest long-term growth driver. Last year we announced a number of key agreements in this category and we expect continued progress during 2022.

Moving to Slide 6. Lastly, we continue to actively prepare for separation. Today, another important step in that process, I'm pleased to announce our new brand for the IP Licensing business, Adeia. Ideas are at the heart of an IP business and this notion is embedded in our new name, which also means to license in Greek. As such, we believe Adeia is the right brand for our IP business moving forward. We will be doing higher profile marketing around the brand as we get closer to separation, but in the interim you can learn more about Adeia and our IP business at our new website www.adeia.com.

Moving to the product business on Slide 7. Beginning this quarter, we've chosen to recast our product revenue categories to better align with how we are now managing the business internally and to provide investors with greater visibility into what is driving our business as we approach separation. You can find the previous and revised category revenue history on our website under the interactive analyst center. This slide shows the major shifts. Total product revenue in Q4 was $124.7 million, down 7% from $133.8 million a year ago. Revenue was impacted by continued supply chain disruption across our business as well as some end-market specific dynamics, which I'll cover in more detail shortly.

Turning to Slide 8, and our first product category, Pay-TV. Pay-TV now includes Discovery, Video Metadata, TiVo Consumer Linear TV subscribers and hardware. Using this new breakdown, Q4 revenue was $66.1 million, down 6% year-over-year. Our long-term focus in this market is driving adoption of our higher value IPTV solutions, which are positioned to offset declines in our traditional guides business. While the consumer hardware and subscription businesses is in decline, we believe growth in IPTV should mostly offset declines within the Pay-TV category. We expect this category to be flat to slightly down in 2022, driven by declines in consumer subs and hardware, Discovery and our traditional guides business, mostly offset by growth in IPTV.

During the quarter, we completed the integration of MobiTV, now referred to as TiVo's Managed IPTV service. Notably, we're pleased with the progress we've made around IPTV, as we continue to add new operators with our expanded product offerings. Our total IPTV subscribers grew organically more than 5x year-over-year and double-digits every quarter in 2021. We also won several new IPTV customers including Breezeline, formerly Atlantic Broadband and help customers such as Cincinnati Bell launch and begin scaling IPTV.

Turning to Slide 9. Our second category is Consumer Electronics, which includes DTS audio and imaging solutions in home and mobile and our perceive business. Using this new breakdown, Q4 revenue was $24.5 million, down 13% year-over-year, driven by declines in our mobile business, which we expect to return to growth this year. Additionally, in Q4 2020, we signed about $3 million of multi-year minimum guarantee contracts that positively impacted that quarter due to revenue recognition rules.

During the quarter, we launched IMAX Enhanced on LG Soundbars and Vestel TVs. We also launched a streaming partnership with Disney+ with 13 Marvel blockbusters and Sony Pictures expanded their offerings to more than 160 unique IMAX Enhanced titles and a total of 798 SKUs across multiple languages. In addition, Play-Fi was named as CES 2022 Innovation Awards Honoree for 2 products; DTS Play-Fi Home Theatre in the smart home category and DTS Play-Fi apps for Android, Android TV and iOS in the software and mobile app category.

Our perceive subsidiary continued to make good progress on multiple fronts. Our set of software tools is in customer beta and we are supporting multiple design and prototyping efforts with customers to bring perceive-enabled products to market. Looking forward, we expect the Consumer Electronics category to grow this year through supply chain normalization and game consoles and growth in our Play-Fi wireless and mobile business. Longer term, we expect additional growth to come from expansion of our IMAX Enhanced ecosystem and perceive as we see the first products utilizing our technology come to market.

Moving to Slide 10. Our third category is Connected Car, which now includes Music Metadata in addition to HD Radio, AutoStage and AutoSense. Using this new breakdown, Q4 revenue was $22.4 million, down 10% year-over-year. Declines were driven by supply chain constraints, which we continue to monitor closely and are in line with IHS forecast. We are working with our partners to try to mitigate shortages that could impact key components with our technology. We anticipate an improving situation in the back half of '22, as the supply chain stabilizes. Given the complexity around forecasting this category with supply chain uncertainties, at this point we expect the category to be roughly flat in 2022.

A few important highlights from the quarter. Toyota will now be offering HD Radio across its entire next generation infotainment system and going forward nearly all new Toyota cars in the U.S. will have an HD Radio as a standard feature. In addition, 16 car companies have been testing AutoStage in Europe, North America and Asia. Today multiple partners including 2 major OEMs are in advanced stages of testing our solution. With respect to our AutoSense driver monitoring solution, our team has reached an important industry milestone by achieving A-SPICE certification. Also BMW has recently incorporated AutoSense occupancy monitoring in an additional car model and we continue to see progress in our customer pipeline for the technology.

Moving to Slide 11. On our fourth and final new category in the product business is Media Platform which captures the TiVo Stream OS, the TiVo Stream 4K, monetization and TV viewership data. Revenue in Q4 was $11.7 million, up 15% versus last year, driven by sales of the TiVo Stream 4K and increases in advertising revenue. In 2022, we expect double-digit growth in this category, mostly driven by expansion in our advertising base monetization revenue. This is our fastest growing category and we are focused on partnerships with TV OEMs, chipset partners and content providers to bring the first TVs powered by TiVo Stream OS in 2023 or 2024.

We expanded our partnerships to include YouTube TV and YouTube support for the TiVo Stream OS, integrating YouTube TV into the TiVo Stream 4K guide. We continue to integrate content onto the platform and added Discovery+, PBS and CineLife to TiVo Stream 4K and TiVo+. TiVo Stream 4K now covers all major streaming service.

On the monetization front, we're focused on expanding our capabilities within our ad technology stack and during the quarter we released our Video Price-Based Auction solution for our CTV ad inventory, resulting in increasing fill rates and CPMs. Lastly, TiVo's TV viewership data is captured in this category and was adopted by additional customers in the TV and digital advertising industry. The Trade Desk, a digital media buying platform built for the open internet is licensing TiVo's data to build audiences across the widest range of media channels to optimize the impact of advertising campaigns for its clients.

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

Thanks, Jon. Let me begin by reviewing our fourth quarter and full year results for 2021 on Slide 12. Looking at the big picture for 2021, our operational discipline helped drive earnings well above our outlook from the beginning of the year. In particular, while our revenue was in the middle of our expectations for the year, spending was significantly below midpoint of guidance ranges due to lower than planned numbers for litigation, delayed spending within the IP business for personnel and outside services and reduced spending in areas such as travel and product costs.

The result was non-GAAP earnings per share of $2.03, roughly 17% higher than the $1.74 midpoint initially estimated at the beginning of the year. Total revenue for the fourth quarter was $214.4 million. This was down from $433.9 million in fourth quarter of 2020, primarily due to a large back payment from Comcast agreement signed last year, which Jon noted earlier.

Revenue for the full year for 2021 was $877.7 million. Comparing to 2020 on a fully combined basis, revenue was down $269.7 million for 3 primary reasons. First, the significant Comcast back payment. Second, we had some larger Semi IP agreements for the revenue was recognized upfront in the first half of 2020 and third, within Consumer Electronics, we recognized more upfront revenue from minimum guarantee customer contracts in 2020, as compared to 2021. The total of these 3 items was approximately $300 million, more than the total year-over-year difference.

We also had year-over-year declines in traditional Pay-TV and Consumer Electronics that were more than offset by growth in IPTV, Connected Car, Media Platform and incremental IP Licensing revenue. Non-GAAP operating expense for the quarter, including COGS was $163.6 million, down $9.3 million from a year ago, primarily due to lower compensation expense and lower litigation spending. Q4 interest expense was $8.6 million and other income was $0.3 million of expense. Cash taxes paid in the quarter were $8.7 million. Using the cash tax and non-GAAP fully diluted shares of $112.5 million, non-GAAP earnings per share for Q4 was $0.30.

Moving to the balance sheet. We finished the year with $261.7 million in cash and investments. We paid down $10.1 million of our debt during the quarter to bring our year-end debt balance down to $789.7 million. Operating cash flow for the quarter was $68.9 million. Our adjusted free cash flow for the quarter was $65.3 million, which reflects operating cash flow adjusted for $5.7 million of property, plant and equipment spend and $2.1 million of merger and separation-related costs. Operating cash flow for the year was $234.7 million. During the quarter, Xperi paid a cash dividend of $0.05 per share of common stock and repurchased $25.1 million of stock.

Moving to our outlook on Slide 13. For the full year 2022, we expect revenue to be between $910 million, and $950 million. We expect revenue growth from 2021 attributable to factors in both the IP and product business. The growth in IP is mainly attributable to the Micron deal for which a meaningful portion of the revenue is taken upfront under ASC 606. Growth in the product business is expected in the Consumer Electronics category, driven by our mobile and wireless solutions and in the media platform category, driven by increases in advertising revenue. The guidance range does not include upside from settlement of any Canadian litigation or resolution of a contract dispute with the large mobile imaging customer. At the moment, we expect revenue to be strongest in the first quarter due to the Micron license, with Q2 lower than the remaining quarters of the year.

We expect COGS for the year to be between $120 million, and $130 million. GAAP operating expense for the year is expected to be between $725 million, and $755 million and non-GAAP operating expense is expected to be between $490 million, and $520 million. We expect expenses to gradually increase each quarter of the year. Please refer to our earnings release for a reconciliation between GAAP and non-GAAP expenses. We expect interest expense on our variable rate debt to be approximately $36 million, which reflect some rate increases throughout the year. Other income will be approximately $3 million and we expect cash taxes to be between $33 million, and $35 million. Also, we expect our basic number of shares to be 105 million and fully diluted shares on a non-GAAP basis to be 113 million.

Using the midpoints of the guidance ranges we would expect non-GAAP earnings per share for the full year to be approximately $2.06. Additionally, we expect to generate between $200 million, and $230 million of operating cash flow in 2022. With regard to capital allocation, I'm going to take a more flexible approach this year as we prepare to separate the businesses in the fall. This approach includes continuing to pay our quarterly dividend, schedule debt amortization and opportunistically buying back shares as we work to balance the capitalization needs of each business at separation.

Moving to Slide 14. The purpose of this graphic is to provide a visual forecast of expense increases. The expected year-over-year expense increase is primarily due to investments in key growth drivers. In the IP business, the increases are shown in the first 2 items, including personnel and R&D programs to prepare for continued growth as a standalone business and estimating litigation expense in a more normalized ranges. The expense increase is also attributable to a full year of expense from MobiTV, which was acquired in mid-2021 and for investment in areas such as Stream TV OS, In-Cabin Monitoring and systems infrastructure to support future growth.

That concludes our prepared remarks. We will now open the call to your questions. Operator?

(Operator Instructions) We'll take our first question from Hamed Khorsand with BWS Financial.

Just first off, could you just talk about the Micron license agreement and I understand you're recognizing the license payment upfront, but how about just as far as the ongoing license you would receive from the royalties? When would that kick-in? What's the timeline for that?

Yes, Hamed, good question. The financial terms of the license agreement itself are confidential, but what I can tell you is that due to ASC 606, a meaningful amount of the revenue is recognized and is included in our updated '22 revenue guidance. We expect additional revenue over to be recognized in future periods.

And then about your Connected Car, what is the timing of these 16 that are in trials. You've been talking a lot about -- in the past year about these different manufacturers testing it out. So, now you're providing a number. Is there a concise timeline as to you expect these models to be eventually approved on the market?

We expect kind of acceleration of adoption as we get into '23 '24, '25 time frame. We don't -- unfortunately, we don't have direct visibility into the exact timing of when certain things may happen. Our customers don't necessarily provide that information. It also depends on kind of what head unit platforms they're using as well and what their timing and kind of cycling those through maybe. But in short it's all part of a process that we've been on and I think we continue to see good traction and we believe that as expected as we move through the next couple of years we'll see increasing adoption and really start to see those solutions take flight.

And last question for me on the Media Platform side. Do you expect that segment of the business to actually be a contributor to earnings?

I think if you're seeing from a profitability standpoint we don't really break the segments out from an operating profit standpoint. So, I can't give you a crisp answer on that. We do -- what I will tell you is, we do expect it to grow and to contribute meaningfully going forward.

Yes, but I mean you've been basically giving away those Stream 4K dongles right for $29 or $39, expecting users to go up, so you could get profits from, are you reaching scale that, it's a contributing factor or are we still a year or 2 out before seeing anything of a contribution standpoint?

Yes, I think we are still smaller scale and where we're going with it given building out all the pieces of a long-term monetization slide, but here's what I can tell you Hamed is that the Stream 4K dongles are, they're an element of the broader strategy. But what we expect is that the embedded OS strategy will drive significantly more footprint and installation base that over time will not only support the investments we've made, but ultimately, yes, will be an important part of growth and profitability as we look ahead a couple of years from now.

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

I think I'll follow-up on 2 of the prior questions here. Just quickly with Micron, can you characterize the term of the license? How is it compared to other large memory licensees in the past?

I think we can say that it's a multi-year license agreement and probably duration is not dissimilar than licenses in the past. Beyond that we really can't say much more.

Following up on the AutoStage topic here, Jon you answered in terms of timing of these wins and it's obviously understandable not necessarily knowing that, but are these situations in which there is competition for the wins here or is it more down to kind of, dotting Is and crossing Ts, getting less testing done here? And if it's more competitive who would you be competing against here?

It's really nobody that has a comparative compatible -- competitive solution. There are certainly people in the market that have pieces of the feature offering in different places such as Europe for example. But I would characterize our pipeline as having a mix of all of the above, which is, we have people that are much further along that are obviously, excuse me, validating the use of the system. We have others that are more earlier stage and doing, if you will, comparable analyzes or how do all these features play relative to maybe a slightly lighter offering.

But, in general, directionally, we've been on this journey as you commonly are in automotive because of long product cycles and testing cycles, et cetera. But we are I think very, very enthused with the continued progress we're making towards what we expect to be a significant contributor in both AutoSense and AutoStage as we look ahead over the next couple of years. But the exact timing and the exact ramp rate will in part depend on when people complete some of the work that they're doing and obviously give us further information.

So, I guess you would characterize the competitive environment as if someone wants more full featured solution they would choose Xperi to something more bare-bones, there might be someone else? Is that fair or is there more direct competition going on here?

Yes, that's a fair characterization.

Okay, fair enough. Let me touch on Toyota and HD Radio here, obviously a nice win there with the U.S. cars. I can't recall and couldn't search for quickly to know, whether you've been in Toyota in international markets. Maybe, I guess maybe understanding that as well as the overlap of, well, let me just start with that question?

So, this is an HD Radio related win. So primarily, North America focused. And Toyota has been a valued customer for some time. Although, the extent of their prior implementation was kind of your midline and upper end vehicles. I think this represents a decision recognizing the importance of HD Radio in the broader infotainment suite and thus the decision to moving forward put it in all the vehicles. So, I think it's representative of the continued progress. We continue to make with the HD Radio ecosystem in North America and obviously it lays a foundation as well for follow-on next-generation entertainment features, which kind of ties into what we're doing with AutoStage and others. But we're certainly pleased and value the relationship with Toyota significantly.

Maybe jumping over to the number side here with the sales numbers for the year. Jon, I may not have been able to catch all of the, well, I guess, from both of you in your comments about how to think about the total revenue number of $910 million to $950 million for the year. You gave us a new baseline for the IP business at $375 million. I think what I heard was related to Micron that there -- since there's some upfront here, this is a part of the baseline. But implicit in the -- in this would be a number somewhat higher than $375 million for the year. Did I understand that correctly?

That's correct, yes.

Obviously, you haven't given us a sense of what the -- how much that is here, but I guess maybe just kind of trying to delve into the other side of this being the product business. Anyway you could help us characterize, I probably not going to quantify it, but can you characterize what level of growth we should see overall in products in this year?

We're currently forecasting low single-digit growth in the product area for the year. I mean I can lay out a little bit more in terms of the opportunities we see in terms of the growth if that's helpful. Let me go ahead and do that. I think on the high end or as we're seeing the growth, we expect that as we get out of some of the supply chain issue, we'd expect improved per unit reports in Consumer Electronics, growth in IPTV services, higher ad monetization within the Media Platforms and then favorable outcomes in the IP licensing for OTT.

Maybe 1 or 2 last quick questions here. Jon, on the IP spin-off here you talked about spin-off in the fall. To what degree is this contingent upon things like supply chain that are largely under your control and could that possibly slip if we get continued issues there and what are the risks do we have in terms of that timing?

I think we feel that operationally we are well on our way to clearly putting ourselves in a position to effect the separation. And I think we've taken into account as we've looked at the product business and both its prospects and continued transformation in the course of '22 as well as '23 and I think we feel very good that we can execute the separation as we plan in the fall. To the extent that there is some kind of a major unforeseen out of left field, some event that dramatically changes the prospects for the product business in the near-term, obviously, we would have to factor that in as we think about it.

But as we sit here today with kind of a, if you will, a range of outcomes we expect in the various markets as well as what we believe our visibility is into as we think about '23 growth, which we can see some things that we're excited about, we feel pretty good, very good confident that we will complete the separation as we indicated in the fall.

Maybe just 1 last quick question. I'll jump out of line here. If you could repeat for me the definition or the assumptions built into the kind of the IP business specifically around renewals. What's built in there and then I think you kind of referred to certain number of deals that you're hoping to renew this year. The amount of the renewals are those -- are those similar to what we've seen in past years or how would you characterize the scale of, I guess revenue replacement or renewal that's required this year?

Yes, it's, think of the annual baseline as an average. And so in some cases, in some years it will be higher, in some cases, lower. I think in the past that range is generally been plus or minus 10%. One of the factors that can impact that number, which is now set up at $375 million is catch-up or upfront fees. As is typical, some of deal include catch-up or upfront license fees that don't figure into our ongoing average annual baseline. Hopefully, that helps answer your question.

And we'll now take our final question from Matthew Galinko with Maxim Group.

I guess looking at perceive, couple of questions there. Do you have an updated view on when the first products may come to market?

I think we said last call that we expected the first products within the next 12 to 18 months. A couple of this was last fall. I think as we sit here today we've got various people in different stages of evaluation. And so I think within the next 12 months, I would expect that we'll see the first products come to market. But I think it continues to be the case as we've just completed delivering some customer beta tools that are allowing people to do a significant amount of further development and evaluation that it's naturally going to depend on some of their timeframes and how they pull through into various products.

But we are completely not only convinced that we have some very exciting technology, but the feedback we continue to get remains very strong. So, obviously, we're doing everything we can to help people along in their process and anxiously and excitedly await the release of the first products, so, others can maybe get a better glimpse into what we've been working on now for quite some time.

And then can you -- I think you mentioned sort of being in beta with the software stack developer kit. Can you talk about how close that is to being released ready to make it more of a sort of, I don't know bigger go-to market push, if you will? Are we close to that point where it's, you know, polished or are you still kind of in the early stages of beta and it's going to take few more iterations to really bring that to market?

We have -- we've been aggressively working on the tools I think as you know for the better part of the last year. And I think as we sit here today, we're very well on our way to in short order to being able to turn tools over to customers. We're doing ways that allow them to basically utilize the platform without us having to do a tremendous amount of handholding. And that the core elements of those tools really provide customers what they need as they evaluate the platform.

So, in short, as we had anticipated a while ago that work is coming to an end and I think it really sets up our ability to much more aggressively go out and try to sell into the market. But as I was saying earlier, most importantly, we're focused on helping those that are already under evaluation and doing I think important work with our help to make sure that they can fully work through and enable the platform in ways that can differentiate their products and get those first products to market. So, we've got kind of a dual set of priorities going on. One is obviously the completion of the tools in a broader sense, but the second is ensuring that the things we have in motion, we can ensure that they get over the finish line.

Maybe just lastly for me, your timeline to addressing the NAND players with hybrid bonding?

Well, I think we continue to obviously see trends that people are not only going to adopt hybrid bonding, but that it's going to be a key differentiating technology in memory, as well as in other areas such as logic and more. And so, I think you can reasonably conclude that we know who all those players are and that we've entertained conversations and we'll continue to. And I think the good news about Micron is it sends another important message to the rest of the industry that is not yet licensed. That there is an element of confidence around the importance of the IP and ultimately the utilization of those technology to ensure long-term competitiveness.

So, I can't give you a timeframe, because it's always difficult to say when licenses will conclude, particularly the more technical evaluations that go on in the Semi space. But what I can tell you is we're well on top of where the licensing opportunities exist and naturally looking to work to add value for our partners as best we can.

And that does conclude today's question-and-answer session. I'd like to turn the conference back over to Mr. Kirchner for any additional or closing remarks.

Thank you, operator, and thanks everyone for joining today's call. We've had a strong start to 2022 and look forward to achieving many important milestones this year. We look forward to keeping you updated on our progress in the coming months. Thank you for joining today.

That does conclude today's conference. We thank you all for your participation and you may now disconnect.