Xperi Inc

NYSE:XPER

Earnings Call Analysis

Xperi Reports Revenue Growth Amid Cost Optimization and Market Challenges

In Q3 2024, Xperi achieved $133 million in revenue, up 2% from last year, driven by a strong performance in Pay TV. Although they expect revenue to dip to $490-$505 million for the full year due to market softness, adjusted EBITDA margin guidance is increased to 14%-16%. Their recent divestitures have slashed operating costs by 18%, enhancing profitability. The cash position is projected to exceed $100 million by year-end, and they aim for 20 million monetizable endpoints by 2025, potentially generating an additional $200 million in revenue by 2026.

Overview of Financial Performance

In the third quarter, Xperi reported total revenue of approximately $133 million, reflecting a modest increase of 2% from the prior year and a sharper 6% increase when adjusted for the divestiture of AutoSense. This growth was largely driven by a significant 35% increase in revenue from Pay TV, which constitutes the company's largest revenue stream. The increase in Pay TV can be attributed to a major multiyear minimum guarantee deal, which allowed for the recognition of revenue upfront. However, the overall performance was tempered by declines in other segments, particularly Consumer Electronics and Media Platforms.

Cost Management and Profitability

Xperi successfully reduced its non-GAAP adjusted operating expenses to $82 million, marking an 18% decrease (or $18 million) from the prior year. This cost reduction was achieved through workforce optimization and divestitures that streamlined operations, enhancing profitability. The adjusted EBITDA for the quarter reached $31 million, translating to a healthy margin of 24%, despite recent challenges in the market.

Guidance Adjustments for 2024

Looking ahead, Xperi updated its revenue guidance for 2024 to a range of $490 million to $505 million, reflecting softness in core licensing markets, particularly in Consumer Electronics and automotive sectors. These revisions were also influenced by delays in monetization revenue, previously set for the fourth quarter but now expected to shift into 2025 due to partner delays. Despite the lower revenue outlook, the company increased its adjusted EBITDA margin guidance to a range of 14% to 16%, demonstrating confidence in ongoing cost transformation efforts.

Key Growth Areas and Future Prospects

Xperi is targeting significant growth across three key areas: Connected TV Advertising, In-Cabin Entertainment, and TiVo Video-Over-Broadband solutions. The company aims to achieve 20 million monetizable endpoints by the end of 2025, consisting of 10 million in homes and another 10 million in vehicles. Achieving this target could drive an incremental revenue of nearly $200 million by 2026 relative to 2023. Specific strategies include expanding the activated device footprint and enhancing monetization opportunities across its platforms as viewing habits evolve toward ad-supported content.

Balance Sheet and Cash Flow Position

The company's balance sheet remains robust, ending the quarter with $73 million in cash and cash equivalents and $126 million in unbilled receivables, of which around two-thirds are expected to convert into cash over the next year. Adjusted operating cash flow for 2024 is anticipated to be a cash usage of $50 million to $60 million, influenced by the increased minimum guarantee deals and one-time costs associated with divestitures. Overall, with the recent sale of the Perceive subsidiary expected to net around $60 million, Xperi anticipates ending the year with over $100 million in cash.

Market Segment Performance

In terms of segment performance, Pay TV continues its upward trajectory, bolstered by strong subscription growth. The Connected Car segment also reported a year-to-date increase of 25%, driven partly by a significant long-term deal for in-cabin entertainment. Conversely, Consumer Electronics saw a drastic decline of 38%, which the company attributes to prior year agreements and current market challenges. The Media Platform sector also struggled with a 39% downturn, primarily impacted by previous minimum guarantee deals. Management expresses cautious optimism, believing long-term growth will ultimately be driven by the strategic shift toward digital and subscription-based services.

Earnings Call Transcript 2024-Q3

[Operator]

Thank you for standing by, and welcome to the Xperi Third Quarter 2024 Earnings Conference Call. [Operator Instructions]



I'd now like to turn the call over to Mike Iburg, Head of Investor Relations. You may begin.

[Michael Iburg, executive]

Thank you, operator. Good day, everyone. Thank you for standing by, and welcome to Xperi's Third Quarter 2024 Earnings Conference Call. During today's presentation all parties will be in a listen only mode. Following the presentation we will be an open Q&A section. I will now like to turn -- sorry.



Good afternoon, and thank you for joining us today as Xperi reports its third quarter 2024 financial results. With me on today's call are Jon Kirchner, Chief Executive Officer; Robert Anderson, Chief Financial Officer. In addition to today's earnings release, there is a presentation which can be accessed along with this webcast on our Investor Relations website at investor.xperi.com.



Before we begin, I'd like to provide a few reminders. First, I'd like to note that unless otherwise stated, all comparisons are to the same period in the prior year. Second, today's discussion contains forward-looking statements about our business, anticipated business and financial performance that are predictions, projections and other statements about future events, which are based on management's expectations and beliefs and therefore, subject to risks and uncertainties and changes in circumstances. For more information on the risks and uncertainties that could cause our financial results to differ materially from what we discuss today, please refer to our Risk Factors and MD&A section of our SEC filings, including our most recent Form 10-K and 10-Q. 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.



Third, we refer to certain non-GAAP financial measures, which are detailed in the earnings release and accompanied by reconciliations to the most directly comparable GAAP measure, which can be found in the Investor Relations section of our website. Lastly, a replay of this conference call will be available on our website shortly after the conclusion of this call.



I will now turn the call over to our CEO, Jon Kirchner.

[Jon Kirchner, executive]

Thank you, Mike, and thank you, everyone, for joining us on our third quarter 2024 earnings call. Our successful efforts in streamlining the business through our multiyear cost transformation efforts are increasingly showing results. While quarterly results will naturally fluctuate, we believe our performance this quarter provides an important indication of our ability to increase the margin profile for the business over the next several years as we work to continue to drive strategic growth and optimize costs. I'll let Robert walk you through the financial details in just a moment, but let me first provide a brief overview of the quarter.



The macro environment in which we operate has been and may continue to be mixed. Inflation, reduced discretionary spending, CE and global automotive challenges have impacted our business, and we've seen some partner delays with respect to the timing of certain rollouts of TiVo OS Smart TVs. That said, we continue to see demand for our differentiated solutions and are making strategic progress in the areas of the business that we expect will drive significant long-term growth.



Importantly, we continue to focus our business in media platforms and licensing as we believe these have the greatest long-term growth and profit potential. To this end, we have now completed a period of product rationalization with the sale of the AutoSense and related imaging business as well as the recent sale of Perceive. While each divestiture results in a reduction in run rate revenue, they also contribute a meaningful step forward in profitability and strategic focus. The positive effects of the AutoSense sale and our continued business transformation efforts can be seen in the profitability numbers posted today.



Turning to the quarter just reported. Strong performance in Pay TV and Connected Car were the highlights in the quarter. This strength was primarily driven by a large multiyear classic guide minimum guarantee deal in Pay TV, partially offset by declines in Consumer Electronics and Media Platform. The net result was Q3 revenue of approximately $133 million, up 11% sequentially, up 2% from the year ago quarter and up 6% when adjusting for the AutoSense divestiture.



Non-GAAP adjusted operating expenses declined 18% or $18 million from the prior year due mainly to our ongoing cost optimization efforts, which included a meaningful reduction in headcount in Q3 as well as from the AutoSense divestiture earlier this year. Adjusted EBITDA was $31.4 million or 24% of revenue, more than tripling from the prior year quarter.



We remain focused on three key growth opportunities where we see strong potential and differentiation. These are Connected TV Advertising, where we offer our TiVo Media platform to power Smart TVs and other broadband devices and monetize their usage; In-cabin Entertainment, where DTS AutoStage combines broadcast radio, Internet metadata and video to enhance the automotive experience and drive long-term monetization; and TiVo Video-Over-Broadband, where we provide subscribers access to our industry-leading content-first streaming platform for broadband-only and IPTV linear households. Each of these markets is expected to roughly double over the next 5 to 7 years.



We continue to strengthen our position in each market and believe we are increasingly well positioned to grow our revenue as these markets expand. Consistent with past communications, our goal is to have 20 million monetizable endpoints by the end of 2025, consisting of approximately 10 million in home and 10 million in cars. Breaking this down in homes, we expect an active footprint of 7 million devices comprised of Connected TVs and other broadband devices, including our Video-Over-Broadband solutions, where ARPU comes from the viewing of ad-supported content and usage of our TiVo Media platform.



Additionally, we expect approximately 3 million IPTV households utilizing our Video-Over-Broadband solution, where we primarily earn subscription revenue on a per household basis. Lastly, we expect to have DTS AutoStage in 10 million cars, which we will monetize through license fees, upselling features and advertising. We believe that achieving our goal of 20 million monetizable endpoints should generate nearly $200 million of incremental revenue in 2026 relative to 2023.



Let me walk you through some of our recent achievements that reflect our progress. Within Media Platform, in Q3, we saw some partner delays shift certain Smart TV volume into Q4 of this year into early 2025. These shifts, at least in part, reflect the mixed industry environment mentioned earlier. As a consequence, these delays have reduced our monetization expectations for 2024.



Importantly, our activated device footprint is approaching 1 million units, and we're tracking toward our target of 2 million units by year-end. This reflects some recent Q4 acceleration in our device footprint and growing commitments to our platform. Overall, we're confident that our partner pipeline remains on track to achieve our 7 million unit footprint goal by the end of 2025 and position us to grow monetization revenue through 2025 and beyond as our footprint continues to expand.



Today, Smart TVs "Powered by TiVo" are generally available across Europe, including in the largest markets under numerous different brands. At this stage of the rollout, our primary focus is to ensure maximum customer satisfaction and user engagement with Smart TVs "Powered by TiVo". We continue to receive data from activated units, and we're encouraged by viewing engagement as we look to maximize platform value over time. Within Connected Car, we saw some growth and positive strategic momentum.



However, there are also some clear signs of emerging weakness in the market, which may impact our per unit HD Radio business. We were awarded 2 new DTS AutoStage design wins, one with video with a Japanese automotive OEM, which we expect will go into production next year. AutoStage is now deployed in more than 8 million vehicles across 146 countries with 5 million vehicles in North America having both HD Radio and AutoStage.



The market for in-cabin entertainment continues to grow, and our near-term approach to this market is to take the steps necessary to expand our footprint and enhance end-user customer satisfaction and engagement. We believe this footprint will strategically position us to build upon baseline licensing revenue with additional monetization revenue opportunities longer term.



Lastly, even as the overall market may be softening, we continue to make progress in the North American market as automotive OEMs are adding HD Radio to new models, enhancing potential penetration over time. Within Pay TV, Video-Over-Broadband or IPTV solution continues to make impressive progress, surpassing 2.4 million subscriber households in the quarter and reaching our year-end target. We also expanded TiVo Broadband with the signing of 2 new operators, bringing the total number of operators to 12 with 8 incremental this year.



Additionally, we executed an agreement with NCTC for a new broadband TV solution, providing a low-cost over-the-top content bundle for operators. Our rapidly growing Video-Over-Broadband footprint, combined with this new low-cost offering, expands our opportunity for U.S.-based monetization through our TiVo platform along with Smart TVs. Lastly, within our legacy Pay TV products, we signed a significant multiyear classic guide renewal with Panasonic. These multiyear transactions contribute to the long-term economic value of our legacy solution.



Turning to consumer electronics. We launched DTS Clear Dialogue, a new on-device solution that leverages the latest advancements in AI-based audio processing to improve dialogue intelligibility for TVs. A recent Xperi survey of 1,200 U.S. adults revealed that 84% of consumers have experienced trouble understanding dialogue during TV shows and movies. In response, over 3/4 of survey respondents said they use captions or subtitles with 1 in 3 reporting they're always on or often turned on. At IFA Berlin, our Clear Dialogue solution won 2 Best of IFA awards.



And lastly, we signed multiple DTS codec renewals with existing customers, Vestel, Honor and Masimo. With respect to Perceive, we said we would complete our strategic review by the end of summer, and we announced the sale of Perceive assets to Amazon on August 19 for gross proceeds of $80 million in cash. The transaction closed on October 2, and following additional tax planning that reduced our initial tax estimate by approximately $8 million, we now expect to net approximately $60 million from the transaction.



Against an ambitious set of year-end objectives, after 3 quarters, we've delivered against many of our core goals for 2024 with a number of important activities expected to happen between now and year-end. Overall, despite certain challenges, we continue to make significant strategic and financial progress toward our long-term objectives. With that, I'll turn the call over to Robert to discuss the financials. Robert?

[Robert Andersen, executive]

Thanks, Jon. With that backdrop, let me now discuss the quarter's financial results. Total revenue for the third quarter was approximately $133 million, up 2% from last year's reported revenue and up 6% when adjusting for the AutoSense and related Imaging Solutions divestiture that occurred earlier this year. With that in mind and in order to compare apples-to-apples, let me compare this quarter's revenue by market against last year's results, excluding the divestiture.



Pay TV, our largest revenue category, was up 35% compared to last year, bringing year-to-date Pay TV revenue to up 12% compared to the first 9 months of last year. The Q3 increase was primarily driven by a large multiyear classic guide minimum guarantee deal in core Pay TV. The structure of the deal required us to recognize most of the revenue upfront, even though the cash will be collected over time. This deal also reduces the expected rate of core Pay TV decline for the year. Pay TV also benefited from IPTV growth, which continued its trend of double-digit year-over-year revenue growth.



Consumer electronics was down 38%, in part due to prior year minimum guarantee agreements along with lower royalty revenue in Q3 from market-based softness in certain end products such as gaming consoles. Connected Car was up 11% year-over-year, due primarily to higher revenue from AutoStage and was up 25% year-to-date due to the significant multiyear program with an Asia-based Tier 1 automotive supplier for our DTS in-cabin codec that occurred in the second quarter.



Despite this growth, we are seeing signs of weakness in the automotive market as we enter Q4. Media platform was down 39% in the quarter due primarily to minimum guarantee deals that occurred last year for our core Middleware products; was down 18% year-to-date. While the trends within Media Platform are currently driven by the Middleware and legacy Pay TV ad products, we remain confident in the future growth of our Media Platform business as our TiVo OS and Video-Over-Broadband footprint expands over the coming quarters.



Non-GAAP adjusted operating expense for the quarter was $82 million, down 18% or $18 million from the prior year. This year-over-year improvement was largely due to the reduction of approximately 100 personnel, most of whom were based in the U.S., along with other cost savings actions. The improvement was also due to the divestiture of AutoSense and related imaging solutions earlier this year as well as lower run rate spending on the Perceive subsidiary, for which the sale completed at the beginning of October. Non-GAAP tax in the quarter was $6 million.



Our adjusted EBITDA was $31 million, resulting in an adjusted EBITDA margin of 24%. After accounting for tax and interest expense, our non-GAAP earnings per share attributable to the company was $0.51. Moving to the balance sheet. The company ended the quarter with $73 million of cash and cash equivalents. The balance sheet also shows total unbilled receivables of $126 million, an increase of $44 million since the beginning of this year due to the higher amount of minimum guaranteed deals completed.



Approximately 2/3 of the overall unbilled receivables amount are expected to be billed in the next 4 quarters and converted to cash. With regard to the $50 million of debt that's on our balance sheet, which matures in July 2025, we're planning to refinance most, if not all, of the debt early next year. We are already underway on the refinancing process. Operating cash flow was a $4 million use of cash, primarily driven by changes in working capital and onetime items. With regard to capital allocation, during the third quarter, we repurchased $10 million worth of stock or 1.1 million shares at an average price of $8.92. Given our belief that our share price does not fully reflect the value of the business, we expect to make additional share repurchases in the coming quarters.



Our capital allocation strategy is to continue to return excess capital to shareholders while maintaining an adequate amount of cash for investment in key growth drivers and working to deleverage and reduce borrowing costs over time.



Moving to our outlook for the remainder of 2024, we are making the following changes to the guidance ranges previously provided. We are updating our revenue range to $490 million to $505 million to reflect softness in our core licensing markets such as CE and automotive relative to our expectations earlier in the year. Further, monetization revenue expected in the fourth quarter has largely shifted into 2025 due to partner delays with respect to TV footprint in certain markets.



Despite the lower revenue range, we are increasing our adjusted EBITDA margin range to 14% to 16% due to progress with respect to our business transformation efforts. Full year operating cash flow is now expected to be a $50 million to $60 million usage of cash. The change in forecast is due to 3 main factors. First, we have a larger amount of minimum guaranteed deals in the second half, which were not contemplated in the original forecast and for which the cash will be collected in future periods. Second, we incurred about $30 million of onetime costs for the divestitures and related business transformation, including transaction costs, severance costs, cash taxes and other onetime costs that were not anticipated earlier in the year. Third, as just noted, our forecast for revenue is also lower, which impacts operating cash.



Importantly, with the Perceive transaction closing 2 days after the end of Q3, we expect to end the year with well over $100 million of cash on the balance sheet. Non-GAAP tax expense is now expected to be approximately $25 million, which is $5 million higher than the prior estimate, primarily due to tax incurred as part of the Perceive sale transaction. Our estimate for capital expenditures stays the same at approximately $20 million. As a result of the share repurchases, our estimated share count for basic shares is reduced by 1 million to approximately 45 million and fully diluted shares is reduced by 2 million to approximately 46 million. That concludes our prepared remarks. Let's now open the call for questions. Operator?

[Operator]

[Operator Instructions]Your first question comes from the line of Jason Kreyer from Craig-Hallum Capital.

[Jason Kreyer, analyst]

This is Cal on for Jason here. So I just kind of wanted to start with some of the puts and takes on what you're seeing with the TiVo OS device shipments. I know you noted something kind of getting pushed into 2025. But it sounds like broadly, things are kind of accelerating here. So I just wanted to get a sense of your confidence in reaching that 2 million unit goal by the year-end. And is there any way to quantify that kind of implies about 5 million units for next year to hit your goal. I mean, is there any kind of upside scenarios there given the acceleration you've seen there?

[Jon Kirchner, executive]

Well, I think we're both comfortable that around about year-end, we'll hit the 2 million mark, and we have visibility. So there's certainly been compared to when we expected to see some of these units kind of shift more in the summertime frame and things have pushed later in the year. So while that isn't necessarily favorable given our attempt to get that viewership beginning to be monetized, and that's what's shifting into '25. We still feel very good about both the pipeline and the increased activity. And as we said on the call, we're seeing accelerating activity.



And as it relates to '25, we have very good line of sight with ever more partners coming online to, I think, our ability to achieve that goal of 7 million units as we exit '25 into '26. So overall, I think we feel very good about the strategic progress despite a little bit of short-term delay as people have moved some things around. And I think an important thing to understand is we don't control the timing on a lot of this as well. We're an ingredient provider, but other people are making decisions to look at both the market, the industry and their own.

[Jason Kreyer, analyst]

Perfect. And then I guess, secondly for me, can you kind of just give -- I know it's kind of early still, but just any update to some of the monetization you're seeing on TiVo OS. And maybe just kind of give us a sense of some of the monetization tailwinds you would expect to see as you continue to achieve a greater scale in some of these markets?

[Jon Kirchner, executive]

Well, I think at this point, the monetization revenue is not material in part because the footprint still remains relatively small. One of the important things about ultimately monetizing footprint is you need certain scale within each market to begin to bundle audience segments that are both relevant and interesting to advertisers. So there's nothing out there that we see that would indicate that we won't be able to monetize the engagement and the viewership. Millions of hours are being consumed on these TVs that are more newly out there. So there will be an optimization equation that kind of as the audiences get bigger, as the footprint gets bigger as you move through '25 and into '26 that will allow you to drive more revenue. But in short, all the pieces, we believe are in place and certainly, the industry more broadly, this increasingly is the path for ad-supported viewing where consumers are spending more time and energy in their entertainment choices.

[Operator]

Your next question comes from the line of Steve Frankel from Rosenblatt.

[Steven Frankel, analyst]

I want to follow up on this on TiVo OS. The delays you're talking about in of some units coming to market, does that include what you previously talked about in terms of an entry into the North American market for this holiday season?

[Jon Kirchner, executive]

We expect that a partner is heading into production here in late November for some U.S. destined TVs that should be here around year-end. So it remains to be seen as to how much of a presence they'll have at that point. But I think we have every bit of confidence that as you get into '25, you'll see at least 2 of our partners in the U.S. market. And obviously, we're going to work aggressively to try to build even on that footprint further to the extent we can.

[Steven Frankel, analyst]

And so are you also saying you're seeing some delays in Europe with some of the existing partners as well? Is this just volume relative to earlier expectations or partners that you thought were launch.

[Jon Kirchner, executive]

Yes, totally correct, Steve. It has more to do with the volumes of when certain things are going to happen. We had expected certain volumes to hit bigger earlier in summer, and we've had some people push around their own plan, in some cases, move a little slower. And based on that, we've seen this time shift. But as I said, as we got into Q4, we've been seeing folks kind of accelerate some of the things we expected a little bit earlier. So it maintains for us a high degree of confidence over that our platform is being, I think, embraced by now 7 partners. They're committed to it. They're working with us. The pluming is even though there may be smaller numbers of units out there as we're approaching that $1 million mark, we're seeing that they are, in fact, activated, that they are connected and we're getting data off these units even though they're a little bit more, let's call it, widely dispersed across various parts of Europe.



And it's worth noting, Steve, the units that have shipped and are in market, getting good reviews from end customers and are not being returned, which is absolutely critical. So it's a good product, which I think matters a lot.

[Steven Frankel, analyst]

And Jon, your confidence in hitting the 7, does that depend on winning any new partners? Or do you think with the 7 you have today, you could drive enough volume to hit the 7 million units?

[Jon Kirchner, executive]

The latter. We have all the partners we need to be able to drive those numbers or better.

[Steven Frankel, analyst]

Great. And then you also talked about some softness in the U.S. market. Are we talking here about end demand? Or are you talking about decision cycles maybe getting extended, so you're not getting designed in when you thought you would?

[Jon Kirchner, executive]

I think we're seeing some softer demand in some cases. I mean, certainly, things like game consoles being down relative to some of our expectations. I would say there hasn't been any meaningful shift in market share as we think about our more traditional TV businesses. And in automotive, while we continue to see good directional progress with what we're doing strategically with things like AutoStage. We are seeing a bit of a weakening as you think about broader volumes out there, and you don't have to go very far to look at the headlines on various automotive reports that all is not going swimmingly. And so I think we're trying to manage through that. And again, this is about relative expectations that we may have had at the beginning of the year relative to the fact that we're still seeing obviously positive progress.

[Operator]

Your next question comes from the line of Hamed Khorsand from BWS Financial.

[Hamed Khorsand, analyst]

So first question is, I guess, the overhang that you're talking about in the auto and consumer electronics market, that's been a topic that's been going on since the beginning of the year, even last year. So why did it take so long before you actually start to see it?

[Jon Kirchner, executive]

Well, you got to remember, Hamed, we've got our products in a lot of different submarkets within TV. And we build our kind of our annual guidance ranges based on a whole bunch of possible scenarios, puts and takes, allowing for the fact that things are almost always different by the time you get to the end of the year than maybe they were expected at the beginning, but usually within the zone you're trying to lay out. I think the difference here is a combination of factors, including some expectations around; what would be stronger reports later in the year turned out to be weaker, and based on that, we made the decision to adjust the range. But importantly, not only maintaining but even increasing our profitability guidance.

[Hamed Khorsand, analyst]

Okay. And are you walking back from getting one more TV OEM before the end of the year?

[Jon Kirchner, executive]

Well, we originally said that our goal was to get one. We got one. I think we are still working on a pipeline of other partners. So certainly, it is within the cars, that may occur as well. But we're not stopping from a pipeline development perspective. The good news is that, as Robert said, I think, very well, our product is getting very strong reviews and its function, and from a deployment perspective amongst our partners, the deployments have gone relatively smoothly. Little to no product is coming back, which is critical in the TV space. And I think we're going to be able to build on that as other potential partners are looking at this possibility and thinking about, how do they potentially join the platform.

[Hamed Khorsand, analyst]

And then Robert, can you help bridge this operating cash flow a little bit better than how you described them? I mean that's quite a big chunk going away and you're assuming it comes back next year.

[Robert Andersen, executive]

Well, it's a question of what do we expect at the beginning of the year and how has that changed? And so, I described it as 3 primary things. Number one is just the level of minimum guarantee deals that we've done this year. It is higher from what we're forecasting at the moment. And keep in mind, the minimum guarantee deal is a very good business for us because it gives us certainty to our relationship with that customer. But the Rev Rec rules are such that we generally take most of the revenue upfront and collect the cash over the duration of the contract. The contract lengths for MGs are kind of 2 or 3 years. And so that's generally the period of time that we see it. So I would say that's probably of this difference, maybe $30 million of that.



When we look at the probably #2 issue is unusual items that occurred during the year. Most of these are related to the divestiture, primarily related to Perceive. And this is transaction costs, severance costs, cash taxes and other business transformation pieces that we hadn't estimated at the beginning of the year, but they actually impact cash, even though we may pro forma these out on a non-GAAP basis.



And I think the last one is just that we have slightly lower revenue that we guided. So that's kind of the 3 pieces. Does that help clarify how to think about this?

[Hamed Khorsand, analyst]

A little bit, but let me ask another question. If you're running on a non-GAAP basis profitably and your adjusted EBITDA positive, given the accounts receivable on the balance sheet, does that mean you end next year with something like $300 million in cash?

[Robert Andersen, executive]

I'm not in a position to guide next year for cash, but I think you can assume that as we collect the cash from these minimum guarantee deals as long as our level doesn't increase of doing MGs, our level of cash collection will be higher than fundamentally than revenue.

[Hamed Khorsand, analyst]

You have something like $125 million unbilled and then another $100 million and change in billed accounts receivable, and then you have another $100 million in cash. So that's where I'm getting my numbers. I'm just trying to understand your accounts receivable.

[Robert Andersen, executive]

Well, I do as well. I mean we have not had a collection, broad collection issues, near-term challenges, but that our collections have been consistent and strong. We have high-quality partners that we work with. So I mentioned on the call, of the $125 million that you mentioned in the unbilled receivables, roughly 2/3 of that is current to the extent it will be billed within the next 12 months and converted into cash. So I think that's worth understanding as well, Hamed.

[Operator]

And there are no further questions at this time. I will turn the call back over to Jon Kirchner for some final closing remarks.

[Jon Kirchner, executive]

Thanks, operator, and thanks, everyone, for joining us on today's call. We're pleased with our continued strategic and financial progress, and we look forward to reviewing our Q4 results with you in February. Operator, this concludes today's call.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.