TIVO CORPORATION Item 8.01 Other Events
As previously disclosed, onDecember 18, 2019 ,TiVo Corporation , aDelaware corporation ("TiVo"), entered into an Agreement and Plan of Merger and Reorganization, dated as ofDecember 18, 2019 , as amended onJanuary 31, 2020 (the "Merger Agreement"), by and among Xperi Corporation, aDelaware corporation ("Xperi"),XRAY-TWOLF HoldCo Corporation , aDelaware corporation ("HoldCo"),XRAY Merger Sub Corporation , aDelaware corporation, andTWOLF Merger Sub Corporation , aDelaware corporation. A definitive joint proxy statement/prospectus was filed with theSecurities and Exchange Commission (the "SEC") by HoldCo onApril 22, 2020 , in connection with, among other things, the Merger Agreement. Certain Litigation As previously disclosed in the joint proxy statement/prospectus,between March 3 and March 11, 2020 , six lawsuits were filed by purported stockholders of TiVo in connection with the proposed merger between TiVo and Xperi. Two lawsuits were brought as putative class actions and are captionedJordan Rosenblatt v.TiVo Corporation , et al., No. 1:20-cv-00327 (D. Del. filedMar. 3, 2020 ) andGary Smith v.TiVo Corporation , et al., No. 1:20-cv-02104 (S.D.N.Y. filedMar. 9, 2020 ). Four lawsuits were brought by the plaintiffs individually and are captionedAlex Makarounis v.TiVo Corporation , et al., No. 1:20-cv-01917 (S.D.N.Y. filedMar. 4, 2020 ),Shiva Stein v.TiVo Corporation , et al., No. 5:20-cv-01680 (N.D. Cal . filedMar. 9, 2020 ),Chandra Auberry v.TiVo Corporation , et al., No. 1:20-cv-02170 (S.D.N.Y. filedMar. 11, 2020 ), andCraig Henning v.TiVo Corporation , et al., No. 1:20-cv-01314 (E.D.N.Y. filedMar. 11, 2020 ) (collectively, the "Complaints"). The Complaints name as defendants TiVo and the TiVo board of directors. The Rosenblatt complaint additionally names as defendants Xperi, Xperi Merger Sub and TiVo Merger Sub. While TiVo believes that the disclosures set forth in the joint proxy statement/prospectus comply fully with all applicable law and denies the allegations in the pending actions described above, in order to moot plaintiffs' disclosure claims, avoid nuisance and possible expense and business delays, and provide additional information to its stockholders, TiVo has determined voluntarily to supplement certain disclosures in the joint proxy statement/prospectus related to plaintiffs' claims with the supplemental disclosures set forth below (the "Supplemental Disclosures"). Nothing in the Supplemental Disclosures shall be deemed an admission of the legal merit, necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary, the TiVo specifically denies all allegations in the various litigation matters that any additional disclosure was or is required or material. SUPPLEMENTAL DISCLOSURES This supplemental information should be read in conjunction with the joint proxy statement/prospectus, which should be read in its entirety, including, in connection with the information set forth under "Certain Financial Forecasts" below, the cautionary notes regarding the risks and limitations associated with relying on prospective financial information. The inclusion in this supplement to the joint proxy statement/prospectus of certain summary unaudited prospective financial information should not be regarded as an indication that any of TiVo, Xperi or their respective affiliates, officers, directors or other representatives, or any other recipient of this information, considered, or now considers, it to be material or to be reliably predictive of actual future results, and the unaudited prospective financial information should not be relied upon as such. To the extent defined terms are used but not defined herein, they have the meanings set forth in the joint proxy statement/prospectus. The disclosure under the heading "Opinion of TiVo's Financial Advisor - TiVo Financial Analyses - Selected Publicly Traded Companies Analysis" on page 91 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the fourth paragraph under the heading "Selected Publicly Traded Companies Analysis" in its entirety with the following: "Although none of the selected companies is directly comparable to TiVo, the companies included were chosen based on considerations that LionTree deemed relevant in its professional judgment and experience, and because they are publicly traded companies with operations that for purposes of this analysis may, in certain respects, be considered similar to certain operations of TiVo. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect TiVo." The disclosure under the heading "Opinion of TiVo's Financial Advisor - TiVo Financial Analyses - Selected Publicly Traded Companies Analysis" on page 92 of the joint proxy statement/prospectus is hereby amended and supplemented by adding the column titled "Enterprise Value" to the table comparing multiples for such selected companies and for TiVo as follows: -------------------------------------------------------------------------------- EV / EV / 2019E 2020E Enterprise Selected Companies EBITDA EBITDA ValueIntellectual Property Licensing : InterDigital, Inc. 11.8x 11.4x$ 1,325 Qualcomm Technologies, Inc. 16.9x 14.5x$ 105,888 Rambus, Inc. 9.0x 8.8x$ 1,427 Xperi (based on consensus estimates). 7.1x 9.7x$ 1,385 Mean 11.2x 11.1x Median 10.4x 10.6x Product: Amdocs, Ltd. 11.6x 11.1x$ 9,499 comScore, Inc. NM 19.5x$ 497 Qualcomm Technologies, Inc. 9.2x 9.1x$ 1,993 Kudelski, S.A. 9.4x 9.2x$ 822 Nielsen Holdings, Plc. 8.4x 8.3x$ 15,503 Roku, Inc. NM NM$ 17,713 SeaChange International, Inc. NM 8.9x$ 158 Mean 9.6x 11.0x Median 9.3x 9.2x The disclosure under the heading "Opinion of TiVo's Financial Advisor - TiVo Financial Analyses - Sum-of-the-Parts DCF Analysis" on page 92 and 93 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the first five paragraphs under the heading "Sum-of-the-Parts DCF Analysis" in their entirety with the following: "Sum-of-the-Parts DCF Analysis. LionTree performed a sum-of-the-parts discounted cash flow analysis, which is designed to provide an implied value of a company by calculating the present value of (a) projected unlevered free cash flows up to a certain point in time, and (b) the terminal value of future cash flows in subsequent years estimated using a range of terminal multiples applied to the last twelve (12) months (LTM) estimated EBITDA for the forecasted period. As part of the discounted cash flow analysis, LionTree separately analyzed the present value of (i) ProductCo, and (ii) IPCo, both excluding and including the Litigation Opportunity, and based on the TiVo Forecasts (which were prepared on a planned separation basis). For purposes of this analysis, stock-based compensation was treated as a cash expense. In relation to the valuation of ProductCo, LionTree calculated terminal values for this business as ofDecember 31, 2022 , by applying a range of terminal multiples of 8.0x to 10.0x to ProductCo's 2022 estimated EBITDA of$79.9 million . The present values of the cash flows and terminal values were then calculated using discount rates ranging from 9.0% to 11.0%, based on TiVo's estimated weighted average cost of capital, or WACC, to arrive at an enterprise value illustrative range. In relation to the valuation of IPCo, LionTree calculated terminal values for this business as ofDecember 31, 2022 , by applying a range of terminal multiples of 4.75x to 5.75x to IPCo's 2022 estimated EBITDA (both excluding and including the Litigation Opportunity-$242.7 million and$348.2 million , respectively). The present values of the cash flows and terminal values were then calculated using discount rates ranging from 9.0% to 11.0%, based on TiVo's estimated WACC. In each case, LionTree then added the estimated net present value of the TiVo tax attributes (of$192 million , including net operating losses, R&D tax credits and foreign tax credits and applying the same discount rates) to arrive at an enterprise value illustrative range. LionTree derived such discount rates by application of the capital asset pricing model, which requires certain company-specific inputs, including the company's target capital structure weightings, the cost of long-term debt, future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics forthe United States financial markets generally. The range of terminal multiples was estimated by LionTree utilizing its professional judgment and experience, taking into account, among other things, TiVo Forecasts, current and historical trading data and the current and historical EBITDA trading multiples for TiVo. For IPCo specifically, terminal multiples were determined based on LionTree's professional judgment and reflect TiVo's management perspectives on future IP renewal cycles relating to its existing intellectual property portfolio and historical renewal rates versus prior licensing cycles. In relation to the Litigation Opportunity, terminal multiples reflect TiVo's management's view and assumptions of the licensing potential (including potential catch up payments) of the Litigation Opportunity. LionTree then calculated a range of implied equity values per share of TiVo common stock by subtracting estimated consolidated net debt (of$631 million ) as ofDecember 31, 2019 , from the consolidated estimated enterprise value derived using the sum-of-the-parts discounted cash flow method and dividing such amount by the number of fully diluted shares outstanding of TiVo common stock (which was 133.2 million shares) as ofDecember 13, 2019 , resulting in the following implied per share equity reference ranges for the TiVo common stock (both excluding and including the Litigation Opportunity):" -------------------------------------------------------------------------------- The disclosure under the heading "Opinion of TiVo's Financial Advisor - Xperi Financial Analyses - Selected Publicly Traded Companies Analysis" on page 94 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the fourth paragraph under the heading "Selected Publicly Traded Companies Analysis" in its entirety with the following: "Although none of the selected companies is directly comparable to Xperi, the companies included were chosen based on considerations that LionTree deemed relevant in its professional judgment and experience, and because they are publicly traded companies with operations that for purposes of this analysis may, in certain respects, be considered similar to certain operations of Xperi. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect Xperi." The disclosure under the heading "Opinion of TiVo's Financial Advisor - Xperi Financial Analyses - Selected Publicly Traded Companies Analysis" on page 95 of the joint proxy statement/prospectus is hereby amended and supplemented by adding the column titled "Enterprise Value" to the table comparing multiples for such selected companies and for Xperi as follows: EV / EV / 2019E 2020E Enterprise Selected Companies EBITDA EBITDA Value Product: Dolby Laboratories, Inc. 13.1x 11.8x$ 6,104 IMAX, Corp. 9.2x 8.6x$ 1,394 Mean 11.1x 10.2x Median 11.1x 10.2xIntellectual Property Licensing : InterDigital, Inc. 11.8x 11.4x $
1,325
Rambus, Inc. 9.0x 8.8x $
1,427
TiVo (based on consensus estimates). 7.4x 7.2x$ 1,457 Mean 9.4x 9.1x Median 9.0x 8.8x Xperi:
Xperi (TiVo Adjusted Xperi Forecasts) 7.0x 8.4x
The disclosure under the heading "Opinion of TiVo's Financial Advisor - Xperi Financial Analyses - Sum-of-the-Parts DCF Analysis" on page 95 and 96 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the first five paragraphs under the heading "Sum-of-the-Parts DCF Analysis" in their entirety with the following: "Sum-of-the-Parts DCF Analysis. LionTree performed a sum-of-the-parts discounted cash flow analysis, which is designed to provide an implied value of a company by calculating the present value of (a) projected unlevered free cash flows up to a certain point in time, and (b) the terminal value of future cash flows in subsequent years estimated using a range of terminal EBITDA multiples applied to the last twelve (12) months (LTM) estimated EBITDA for the forecasted period. As part of the discounted cash flow analysis, LionTree separately analyzed the present value of the following business segments: (i) the Product segment, (ii) theIP Licensing segment, and (iii) the Edge Processing segment, and based on the TiVo Adjusted Xperi Forecasts. For purposes of this analysis, stock-based compensation was treated as a cash expense. In relation to the valuation of each segment, LionTree calculated terminal values for this business as ofDecember 31, 2024 , by applying a range of terminal multiples of 9.0x to 11.0x to the 2024 estimated EBITDA attributable to each of the Product and Edge Processing segments based on the TiVo Adjusted Xperi Forecasts (which was$125.4 million and$24.4 million , respectively), and a range of terminal multiples of 3.0x to 5.0x to the 2024 estimated EBITDA attributable to theIP Licensing segment based on the TiVo Adjusted Xperi Forecasts (which was$40.9 million ) and based on future renewal rates of Xperi licenses estimated by TiVo's management. The present values of the cash flows and terminal values were then calculated using discount rates ranging from 8.75% to 10.75%, based on the estimated WACC of Xperi and the TiVo Adjusted Xperi Forecasts, to arrive at an enterprise value illustrative range for each segment. In relation to the valuation of theIP Licensing segment, terminal value was calculated based on adjusted terminal EBITDA from ongoing pipeline customers excluding specific opportunities expected to conclude in 2024 in the TiVo Adjusted Xperi Forecasts) and including corporate costs. In relation to the valuation of the Edge Processing segment, it was assumed that Xperi would buy out the twenty-percent (20%) of the Edge Processing segment that it does not currently own pursuant to a call right with respect to the remaining equity interests held by existing minority investors which include founders and employees. -------------------------------------------------------------------------------- LionTree derived such discount rates by application of the capital asset pricing model, which requires certain company-specific inputs, including the company's target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics forthe United States financial markets generally. The range of terminal multiples was estimated by LionTree utilizing its professional judgment and experience, taking into account, among other things, TiVo Adjusted Xperi Forecasts, current and historical trading data and the current and historical EBITDA trading multiples for Xperi. For theIP Licensing segment specifically, terminal multiples were determined based on LionTree's professional judgment and reflect TiVo's management perspectives on future IP renewal cycles relating to Xperi existing and future IP portfolio beyond 2024. LionTree then calculated a range of implied equity values per share of Xperi common stock by subtracting estimated consolidated net debt (of$240 million ) as ofDecember 31, 2019 , from the consolidated estimated enterprise value derived using the sum-of-the-parts discounted cash flow method and dividing such amount by the number of fully diluted shares outstanding of Xperi common stock (which was 52.5 million shares) as ofDecember 13, 2019 , resulting in the following implied per share equity reference range for the Xperi common stock:"
The disclosure under the heading "Opinion of TiVo's Financial Advisor - Pro Forma Financial Analyses - Estimated Synergies Valuation" on page 96 and 97 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the first two paragraphs under the heading "Estimated Synergies Valuation" in their entirety with the following:
"In relation to the valuation of the cost synergies, LionTree calculated terminal values for these synergies (net of the costs to achieve such synergies) as ofDecember 31, 2024 , by applying a range of terminal value multiples of 6.0x to 8.0x to the 2024 estimated cost synergies (of$57 million ), which terminal value multiples were determined based on LionTree's professional judgment and experience. The present values of the cash flows and terminal values were then calculated using discount rates ranging from 8.9% to 10.9%, based on the estimated average of Xperi and TiVo WACC, and taking into account certain metrics deemed relevant based on LionTree's professional judgment. This analysis indicated a present value of cost synergies as ofDecember 31, 2019 , ranging from$330 million to$431 million , with a midpoint of$378 million . In relation to the valuation of the revenue synergies, LionTree calculated terminal values for these synergies as ofDecember 31, 2024 , by applying a range of terminal value multiples of 7.0x to 9.0x to the 2024 estimated revenue synergies (of$62.5 million ), which terminal value multiples were determined based on LionTree's professional judgment and experience. The present values of the cash flows and terminal values were then calculated using discount rates ranging from 8.9% to 10.9%, based on the estimated average of Xperi and TiVo WACC, and assuming a contribution margin of fifty-percent (50%) based on the estimate of TiVo's management, and taking into account certain metrics deemed relevant based on LionTree's professional judgment. This analysis indicated a present value of revenue synergies as ofDecember 31, 2019 , ranging from$170 million to$226 million , with a midpoint of$197 million ." The disclosure under the heading "Opinion of TiVo's Financial Advisor - Pro Forma Financial Analyses - Dis-Synergy Avoidance Valuation" on page 97 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the paragraph under the heading "Dis-Synergy Avoidance Valuation" in its entirety with the following: "Dis-Synergy Avoidance Valuation. LionTree performed an analysis of the dis-synergy resulting from the non-separation of ProductCo and IPCo. The dis-synergy avoidance estimates were prepared by TiVo's management and comprise only a portion of the additional ongoing expenses that were projected to occur in TiVo's 2020 planned separation as estimated and adjusted by the management of TiVo. In relation to the valuation of the dis-synergy, LionTree calculated terminal values for this dis-synergy as ofDecember 31, 2022 (of$11.9 million ), by applying a range of terminal multiples of 6.0x to 8.0x to 2022 estimated EBITDA for the dis-synergy, which terminal value multiples were determined based on LionTree's professional judgment and experience. The present values of the cash flows and terminal values were then calculated using discount rates ranging from 8.9% to 10.9%, based on the estimated average of Xperi and TiVo WACC, and taking into account certain metrics deemed relevant based on LionTree's professional judgment. This analysis indicated a present value of dis-synergy as ofDecember 31, 2019 , ranging from$76 million to$98 million , with a midpoint of$87 million ." -------------------------------------------------------------------------------- The disclosure under the heading "Financial Forecasts - Certain TiVo Forecasts" on page 117 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the table and accompanying footnotes on page 117 with the following: Scenario A Scenario B TiVo Management Forecasts for TiVo Excluding the Litigation Opportunity Including the Litigation Opportunity (Stand-Alone, Pre-Merger Basis(1)) 2020 2021 2022 2020 2021 2022 ProductCo Revenue$ 365 $ 387 $ 417 $ 365 $ 387 $ 417 Adjusted EBITDA(2)$ 30 $ 62 $ 80 $ 30 $ 62 $ 80 D&A$ (14 ) $ (14
)
$ (25 ) $ (25
)
$ (9 ) $ 23
$ (34 ) $ (5 ) $ 12 $ (34 ) $ (5 ) $ 12 IPCo Revenue$ 316 $ 340 $ 365 $ 342 $ 389 $ 470 Adjusted EBITDA(2)$ 194 $ 220 $ 243 $ 220 $ 270 $ 348 D&A$ (1 ) $ (1
)
$ (10 ) $ (10
)
$ 184 $ 210
$ 133 $ 156
Combined (on a separated basis) Revenue$ 681 $ 726 $ 781 $ 707 $ 776 $ 887 Gross Profit$ 501 $ 547 $ 592 $ 527 $ 596 $ 697 Adjusted EBITDA(2)(4)$ 224 $ 282 $ 323 $ 250 $ 331 $ 428
(1) The projected financial data provided in this table has not been updated to
reflect TiVo's current views of its future financial performance, and should
not be treated as guidance with respect to projected results for fiscal 2020
or any other period.
(2) "Adjusted EBITDA" is defined as GAAP operating income (loss) excluding
depreciation, amortization of intangible assets, restructuring and asset
impairment changes, equity-based compensation, merger, transformation and
integration costs and other one-time items identified by TiVo management, and
is a non-
(3) Unlevered Free Cash Flow is calculated as adjusted EBITDA less tax payable
within the period, less stock-based compensation, less deferred revenue, and
less capital expenditures and net change in net working capital.
(4) Includes approximately
planned and announced 2020 separation of TiVo's Product and
businesses into ProductCo and IPCo, across R&D, public company expenses and
other separation-related expenses.
The disclosure under the heading "Financial Forecasts - Certain TiVo Forecasts"
on page 118 of the joint proxy statement/prospectus is hereby amended and
supplemented by replacing the table and accompanying footnotes on page 118 with
the following:
2020 2021 2022 2023 2024
Product Segment
Billings $ 219 $ 232 $ 252 $ 277 $ 300
Adjusted EBITDA(1) $ 65 $ 77 $ 96 $ 113 $ 125
Stock-Based Compensation $ (27 ) $ (27 ) $ (28 ) $ (26 ) $ (25 )
Depreciation $ (7 ) $ (7 ) $ (8 ) $ (8 ) $ (5 )
Amortization $ (85 ) $ (65 ) $ (4 ) $ (5 ) $ (5 )
EBIT $ (54 ) $ (22 ) $ 57 $ 75 $ 91
Unlevered Free Cash Flow(2) $ 32 $ 53 $ 49 $ 67 $ 82
IP Licensing Segment
Billings $ 166 $ 98 $ 105 $ 134 $ 93
Adjusted EBITDA(1) $ 119 $ 46 $ 59 $ 94 $ 63
Stock-Based Compensation $ (3 ) $ (3 ) $ (4 ) $ (4 ) $ (4 ) --------------------------------------------------------------------------------
2020 2021 2022 2023 2024
Depreciation $ (1 ) $ (1 ) $ (1 ) $ (1 ) $ (1 )
Amortization $ (10 ) $ (8 ) $ (1 ) $ (1 ) $ (1 )
EBIT $ 106 $ 34 $ 54 $ 89 $ 58
Unlevered Free Cash Flow(2) $ 90 $ 30 $ 35 $ 66 $ 40
Edge Processing Segment
Billings $ 5 $ 20 $ 42 $ 81 $ 122
Adjusted EBITDA(1) $ (20 ) $ (12 ) $ 1 $ 12 $ 24
Stock-Based Compensation $ (1 ) $ (2 ) $ (5 ) $ (8 ) $ (10 )
Depreciation $ 0 $ (1 ) $ (1 ) $ (2 ) $ (2 )
Amortization $ (2 ) $ (6 ) $ (1 ) $ (1 ) $ (2 )
EBIT $ (22 ) $ (21 ) $ (6 ) $ 1 $ 10
Unlevered Free Cash Flow(2) $ (19 ) $ (42 ) (3) $ (6 ) $ 0 $ 8
Total
Billings $ 390 $ 350 $ 402 $ 493 $ 514
Gross Profit $ 375 $ 330 $ 373 $ 446 $ 449
Adjusted EBITDA(1) $ 164 $ 111 $ 156 $ 220 $ 213 (1) Adjusted EBITDA represents earnings before interest, taxes, depreciation and
amortization, adjusted for stock-based compensation expense and one-time
items identified by TiVo management, and is a non-
measure.
(2) Unlevered Free Cash Flow is calculated as adjusted EBITDA less tax payable
within the period, less stock-based compensation, less capital expenditures
and patent acquisitions, and less net change in net working capital.
(3) Includes
existing put/call structure relating to the buyout of up to 20% of the Edge
Processing Segment that Xperi does not own.
The disclosure under the heading "SUMMARY" on page 26 of the joint proxy statement/prospectus is hereby amended and supplemented by including the following as a new subsection immediately after the disclosure under the subheading "Comparative Per Share Market Price":
COVID-19
As disclosed in TiVo's most recent Quarterly Report on Form 10-Q, filed with theSEC onMay 6, 2020 , the recent outbreak of the Coronavirus Disease 2019, or COVID-19, which has been declared by theWorld Health Organization to be a "public health emergency of international concern," is impacting worldwide economic activity. As a public health epidemic, COVID-19 poses the risk that TiVo or its workforce, suppliers and other partners may be prevented from conducting business activities as normal for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. For example, inMarch 2020 , TiVo announced its workforce would work remotely as a result of the pandemic as it reviewed its processes related to workplace safety, including social distancing and sanitation practices . . .
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