Rubric Capital Management Issues Open Letter to Xperi Inc. Stockholders in Response to Company’s Highly Misleading Investor Presentation
Corrects the Record on
Urges Stockholders to Vote FOR Rubric’s Nominees
The full text of the letter follows:
Dear Fellow Xperi Stockholders,
Upon reading the investor presentation issued by Xperi on
While we are not interested in being dragged into a tit-for-tat rebuttal of the myriad issues with Xperi’s presentation, we felt it was important to address some of the Company’s most egregious statements so stockholders can evaluate for themselves if this is the Board they wish to continue to represent them.
Xperi’s Post-Spin Underperformance
When discussing its underwhelming performance in its presentation, Xperi admits that its shares have “underperformed for the 19-month period since the Spin-Off.” However, in an attempt to paint a rosier picture for stockholders, the Company proceeds to tout a total shareholder return (TSR) that excludes a full quarter of trading, thereby moving the goalposts and inflating its TSR by 58%.1 Xperi’s rationale for the exclusion is that it took time for the stock to “season” post-spin off – a concept that Xperi has apparently contrived for just this occasion.
Xperi’s Share Repurchase Program is Nothing More than Window Dressing
On
Moreover, we have no faith that the Company will execute the share repurchase program in any substantive way, seeing as it “does not obligate the Company to repurchase any specific number of shares of common stock, has no time limit, and may be modified, suspended, or discontinued at any time without notice at the discretion of the Board.”2
This lack of commitment and absence of any timeframe against which the share repurchase program will be executed belies an utter lack of seriousness.
Xperi’s Presentation of Dilution is a Mockery of the Truth
Xperi makes the egregious claim that its dilution has been in-line with or below its peers. Only in the most dishonest sense is this true.
In 2023, Xperi’s GAAP diluted share count grew by 2.3%. Unfortunately for stockholders, when calculating diluted share count for a company with negative GAAP earnings – like Xperi in 2023 – GAAP accounting EXCLUDES stock options, restricted stock units and employee stock purchase plans. As such, basic and diluted share count are the same.
To put this in layman’s terms, Xperi is attempting to advance a false narrative regarding its dilution by hoping no one will notice the 53% increase in options, RSUs and other dilutive items. Without proper explanation in its presentation, Xperi makes a mockery of the term “fully diluted share count.”
Xperi’s Discussion of Executive Compensation Makes Creative Use of Timeframe
Xperi’s discussion of executive compensation once again attempts to mischaracterize the truth. When comparing Xperi’s Summary Compensation Table to CEO
Perceive Expense Characterization is Puzzling at Best
Perceive has existed for six years, and in each public disclosure Xperi has made regarding its annual investment in the business, investors have been given numbers that range from
Negative
“I think if you add it all together, you can figure it's in the kind of
“Annual Investment of $20M” – 2022 Xperi Investor Day Presentation,
However, Xperi claims in its presentation that its cumulative investment in Perceive is “significantly less than
Xperi Highlighting Director Ownership Actually Reinforces Rubric’s Points
When highlighting that the current directors own shares in the Company, Xperi conveniently omits that virtually all of those shares were grants, with only de minimus shares purchased with their own capital.
-
Darcy Antonellis has effectively purchased 1,816 shares of the 38,232 shares reported owned (less than 5% of the total).4 -
David Habiger has effectively purchased 7,452 shares of the 47,616 shares reported owned (less than 16% of the total).5
While the Company touts its minimum stock ownership requirements,6 neither
Lastly, not one of the incumbent directors has purchased a single share of stock in the Company nor in Xperi’s predecessor since 2020.
These directors, and the Xperi Board at large, have shown no commitment to further aligning their interests with stockholders. Rubric, on the other hand, owns more than 23x as many shares as all independent Board members combined. We are squarely aligned with stockholders in driving improved value at Xperi – our capital is actually at stake just like non-insider stockholders who have not been awarded their ownership positions.
Xperi is Lagging Behind its Targets
At its 2022 Investor Day, Xperi laid out a series of 3-5 year targets, which the Company reiterated in yesterday’s presentation.
- 12-15% Revenue CAGR from 2022
- 25-30% Adj EBITDA Margin
Xperi fails to acknowledge in its presentation, however, that its performance has significantly lagged its stated targets – calling into question the Company’s credibility and ability to execute.
From 2022 to the midpoint of its 2024 guidance, adjusted for
This implies Xperi needs to grow its topline by 34% to hit the midpoint of its guidance in 2025 (Year 3) or at a CAGR of 20% by 2027 (Year 5). Given the Company’s guidance for 2024 implies less than 5% revenue growth and consensus calls for 7% in 2025, we believe – and analysts apparently agree – the likelihood of Xperi achieving its guidance ranges is slim.
Rubric Has Negotiated in Good Faith and Xperi’s Statements Omit Worrisome Behavior
Throughout this entire process, Rubric has emphasized its desire to work constructively with Xperi to put qualified candidates on the Board to help empower Xperi for the next phase of its evolution. While Xperi claims in its presentation to share this objective, the Board’s disingenuous attempts to “settle” include:
- Offering to put none of Rubric’s nominees on the Board; and
-
Offering to put Rubric nominee
Deborah Conrad on the Board while expanding the Board with another two unnamed candidates.
Moreover, when describing the chronology of our settlement discussions, Xperi omits key events about which stockholders deserve to know.
First, Rubric signaled its willingness to expand the Board to nine directors by adding Xperi’s two Board-identified candidates as well as both Rubric nominees. The Board rejected that compromise and appears unwilling to entertain any slate which includes Rubric nominee
Second, Xperi has, on multiple occasions, circumvented negotiations with Rubric and twice privately offered
So, we ask our fellow stockholders, who is operating in bad faith: Rubric, who has signaled an openness to expanding the Board to accommodate nominees from both sides, or Xperi, who has attempted to disenfranchise stockholders from the choice of voting for
The List Goes On
These are just a handful of the countless misleading statements put forth by the Company in yesterday’s presentation. Ultimately, Rubric believes Xperi stockholders will see through the half-truths and outright falsehoods presented by an Xperi Board seemingly focused on subverting stockholder interests and securing comfortable, high paying directorships for themselves. Enough is enough. We encourage stockholders to vote the WHITE proxy card “FOR” the election of
Vote the WHITE proxy card TODAY
If you have any questions, require assistance in voting your WHITE universal proxy card, or need additional copies of Rubric’s proxy materials, please contact our proxy solicitor
Sincerely,
Managing Partner
1 Source: Bloomberg. Calculated as of
2 Source: Xperi Form 8-K filed on
3 See proxy statement filed by
4
5
6 Per Xperi’s proxy statement filed on
7 Source: Xperi regulatory filings.
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