Xperi Q3 2026 Earnings Call Transcript
Xperi (NYSE:XPER) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Xperi Corporation reported a 2% year-over-year increase in revenue to $114 million for Q3 2026, driven by a doubling of Media Platform revenue and disciplined cost management.
The TiVo One ad platform saw a 40% increase in monthly active users to 6.8 million, while advertising and related revenue grew 280% year-over-year.
Connected Car’s AutoStage platform expanded its footprint to over 18 million vehicles, with new data monetization agreements boosting potential revenue streams.
Xperi strengthened strategic partnerships, including TiVo OS integration with MediaMarkt’s PEAQ brand, reinforcing its position in the European smart TV market.
The company narrowed its annual revenue guidance to $450-$462 million, increased its adjusted EBITDA margin outlook to 19%-21%, and improved its operating cash flow guidance to $20-$30 million.
Notable management changes were announced, with Robert Anderson planning to retire in 2027 and a focus on strategic transitions to ensure continuity and growth.
Full Transcript
Sam (Investor Relations)
There is an earnings presentation on our Investor Relations website at investor.xperi.com. We encourage you to download the presentation and follow along with today’s commentary. Before we begin, I would like to provide a few reminders. First, I would 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 anticipated business and financial performance as well as market and industry dynamics 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.
For more information on the risks and uncertainties that could cause our actual results to differ materially from what we discuss today, please refer to the Risk Factors and the MD&A sections in our SEC filings, including our Form 10-K for the year ended December 31, 2025, and our Form 10-Q for the quarter ended September 30, 2026, to be filed with the SEC. Please note 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 their most directly comparable GAAP measures, which can be found in the Investor Relations section of our website. Last, a replay of this conference call will be available on our website shortly after the conclusion of this call. I’ll now turn the call over to Xperi’s CEO Jon Kirchner.
Jon Kirchner (Chief Executive Officer)
Thank you, Sam, and thank you everyone for joining us on our third quarter 2026 earnings call. The third quarter results reflect continued execution against our strategic plan and meaningful progress in both scaling and monetizing our TiVo One ad platform. We delivered year-over-year revenue growth, maintained disciplined operating expense management, and generated positive operating cash flow while further expanding our audiences across the home and automotive markets.
Most importantly, advertising and related revenue accelerated significantly, driving Media Platform revenue to double year over year as we broadened our capabilities, deepened advertiser engagement and saw our scaled footprint begin to drive tangible financial results. Before I get into more detail about our results, I’d like to take a moment to share that today we announced that, after 13 years of leading the company through tremendous change, Robert Anderson will be retiring from Xperi in 2027 as part of a planned transition. The timing of his transition will be based on when a successor is identified and onboarded. Robert will address this topic in his remarks.
Now turning to our financial results for the quarter, revenue increased 2% year over year to $114 million. GAAP operating expense, excluding cost of revenue, decreased 9% while non-GAAP adjusted operating expense decreased by 7%. We had a GAAP net loss of $5.2 million and non-GAAP adjusted EBITDA of $23 million, representing 20% of revenue. GAAP net loss per share was $0.11, non-GAAP earnings per share was $0.24, and operating cash flow was $4 million.
Overall, these results reflect continued cost discipline and business transformation as we invest in our primary growth opportunities. Robert will review the results of the quarter in more detail in a few minutes as well as walk you through our guidance updates that narrowed revenue and increased our adjusted EBITDA and operating cash flow outlook for the year. Let me now touch on each of our four business areas, starting with Media Platform. TiVo One ad platform monthly active users reached 6.8 million at quarter end, an increase of 40% year over year. Within Media Platform, advertising and related revenue accelerated through the third quarter to reach approximately 280% year-over-year growth as we saw solid increases across ads and related revenue in both Europe and the United States. On a year-to-date basis, advertising and related revenue grew 90% versus the prior year.
As our direct sales and reseller network matures, we have realized substantive growth in our owned and operated homepage advertising unit, illustrating the effectiveness of the first impressions seen on smart TVs. We also expanded our data offering by adding ACR data to our first-party set-top box clickstream data in the United States, further expanding the data and insights capabilities we can offer advertisers and partners in both the United States and the UK.
In addition to ongoing licensing and renewals in our viewership data business, we notably signed an extension of a multi-year agreement during the quarter. TiVo One ARPU was $7.65, up 14% sequentially, reflecting the progress we’re making as our revenue grows and advertising capabilities and partner relationships scale. As a reminder, ARPU is a function of the relative rates of growth between ads and related revenue, the numerator in the calculation, and MAU footprint, the denominator in the calculation.
Against this background, we now expect our year-end MAU footprint to be above 7.5 million units and, given the timing of the additional footprint coming online, we now expect ARPU to be between $8 and $10 at year end, with the midpoint at 90% of our current year goal. As a further example of how our footprint scaling efforts and independent platform position are yielding results, MediaMarkt, the largest European consumer electronics retailer with over 1,000 retail locations, selected TiVo OS for its private label brand PEAQ. This brings us to 11 OEM design wins and is expected to further strengthen our position as the leading independent smart TV operating system in Europe. This is strategically important because leading retailers influence both consumer adoption and future OEM design decisions.
In addition, Skyworth launched new product lines with TiVo OS under their Panasonic, Metz and Coocaa brands in retail during the quarter, and Element smart TVs powered by TiVo became available through major US online retailers. As worldwide memory prices continue to be challenging for the supply chain, we continued our efforts to strengthen our value proposition for TiVo OS by advancing significant engineering work to reduce memory requirements for both 2K and 4K televisions, which is expected to provide meaningful cost savings and greater design flexibility for our OEM partners.
This is contributing to market share gains amongst our OEM partner base. Moving to Connected Car, the AutoStage footprint further expanded, now reaching more than 18 million vehicles shipped to date across 13 automotive brands. This growing scale is getting significant industry attention and we believe creates additional opportunities to monetize the platform through data analytics and advertising. During the quarter, the AutoStage Broadcaster Portal expanded from 300 to 550 US metro areas, and we entered into data monetization license agreements with eight additional broadcasters.
The portal provides broadcasters with detailed insight into listener behavior daily and helps them make more informed programming and advertising decisions. Revenue from this offering is advertising-related and thus is being reported within Media Platform. We also signed a multi-year HD Radio program with a large Asian Tier 1 supplier supporting multiple OEMs, and new HD Radio models launched across Hyundai, Kia, Volkswagen, Toyota, Honda, and Subaru.
These wins continue to reinforce the strength of our unique position and competitive advantage in automotive entertainment and the long-term opportunity it represents to build additional platform revenue streams from our installed footprint. Moving to our Pay TV business, our global IPTV subscriber base reached 3.42 million households at quarter end. We extended multi-year video-over-broadband agreements with Hotwire and Armstrong that include expanded commercial commitments. We also added four new Canadian ISP customers, further expanding adoption of TiVo video-over-broadband in Canada. We believe these wins demonstrate the continued relevance of our flexible video solutions as broadband operators seek cost-effective offerings that help improve customer retention and expand the value of their broadband relationships.
Moving to our consumer electronics business, during the quarter we continued to secure renewals and new agreements that expand the reach of our premium audio technologies. For example, we renewed a multi-year IMAX Enhanced agreement with TCL, extending DTS:X across a leading smart TV OEM. We also executed DTS:X agreements with Holotech for projectors and Trinnov for AV preamplifiers and processors, and signed an agreement with Evolution Digital for streaming devices.
Together, these arrangements broaden the presence of DTS:X across important home entertainment categories and reinforce the value of our solutions. Let me now cover the status of our 2026 goals. As I mentioned earlier, we expect TiVo One monthly active users to be above 7.5 million by year end, well ahead of this year’s goal of 7 million MAUs. Considering the expected timing of these new units coming online later in the quarter and the continuing development of the ad revenue pipeline, we now expect ARPU at December 31st to be between $8 and $10, or about 90% of our current year goal at the midpoint.
As a result of these factors, we now expect Media Platform revenue growth to be in the range of 60% year over year, inclusive of ads and related revenue growing more than 100% and partially offset by a decrease in middleware licensing year over year. With regard to AutoStage, per our stated goal, we’ve begun generating advertising and related revenue from the AutoStage footprint through the continued expansion of the Broadcaster Portal. In aggregate, our progress building audience scale, growing advertising and related revenue, expanding additional monetization capabilities into automobiles, and continued customer adoption of our platform clearly demonstrates that we are building valuable strategic momentum within our business.
Let me now turn the call over to Robert to discuss our financial results in more detail. Robert.
Robert Anderson (Chief Financial Officer)
Thanks, John. Let me start by reviewing the revenue results for the quarter. Overall revenue finished at $114 million, an increase of 2% year over year. Media platform revenue more than doubled year over year to $17 million. This growth was driven by higher advertising and related revenue due to increases in monthly active users on the TiVo One Ads platform, ad impressions, expanded advertising partnerships, and enhancements to our advertising products and services.
Additionally, we signed a new multi-year agreement for viewership data. These increases were partially offset by lower middleware revenue. Connected car revenue decreased 14% year over year to $30 million due primarily to HD Radio minimum guarantee agreements that were signed in the prior year. Pay TV revenue increased 7% year over year to $53 million, driven by Classic Guide’s minimum guarantee arrangements and continued IPTV licensing growth, partially offset by the expected decrease in core Pay TV product lines. IPTV revenue increased 7% to $26 million. Lastly, consumer electronics recorded $14 million of revenue, a decrease of 28% year over year, consistent with our expectations and reflecting a higher level of minimum guarantee agreement revenue recorded in the prior-year period.
Given that year-over-year revenue differences are often due to changing levels and timing of minimum guarantee arrangements, it may be helpful to review why we enter into these arrangements. Specifically, minimum guarantee arrangements ensure usage of our technology over multiple years of product cycles, lock in certainty of value, and create predictable cash flows. They are term-based contracts that have a high renewal rate—over 90%—and as such we consider minimum guarantee agreements to be reoccurring revenue within the ordinary course of our business.
Looking at revenue from the new categorization, our income statement licensing and other revenue decreased 8% year over year to $99 million, while advertising and related revenue grew over 280% to $15 million. On a year-to-date basis, advertising and related revenue has grown 90% year over year. Notably, the gross margin excluding depreciation and amortization for the advertising and related category was 31% in the quarter, making the year-to-date gross margin positive at 5%.
Continued scaling of advertising and data offerings are expected to expand our advertising margins meaningfully over the next few years, as a significant portion of our media platform cost of revenue is fixed due to platform costs, and margins on variable costs are often 50% or more. Looking at overall financial results, our GAAP operating expenses excluding cost of revenue decreased 9% year over year. Non-GAAP adjusted operating expense decreased by approximately $5 million, or 7%, to $61 million, primarily due to workforce reductions and lower outside spending. Non-GAAP cost of revenue increased by approximately $7 million year over year, primarily reflecting a mix shift towards advertising and related revenue, which has lower gross margins than our historical licensing business.
We posted non-GAAP adjusted EBITDA of approximately $23 million, essentially flat year over year, representing 20% of revenue compared with 21% in the prior-year period. Turning now to the balance sheet and statement of cash flow, we finished the third quarter of 2026 with $87 million of cash and cash equivalents, a decrease of approximately $4 million from the second quarter. Operating cash flow is $4 million, a decrease of approximately $4 million from the third quarter of 2025, driven primarily by the timing of certain cash collections that are expected to occur in the fourth quarter, partially offset by lower operating expense spending.
Free cash flow was a usage of approximately $3 million. As we work to more comprehensively frame our expectations for 2027, we continue to believe the company is deeply undervalued. As such, management and the Board are evaluating opportunities to leverage our previously approved share repurchase authorization to buy back stock in the months ahead. Turning now to our financial outlook for 2026, given that we have only one quarter remaining in the year, we are updating the range on our annual revenue outlook to $450 to $462 million, narrowing the range from our prior outlook of $440 to $470 million. In addition, we are increasing our annual adjusted EBITDA margin outlook to a range of 19% to 21%, up by 2 percentage points from our prior guidance. We are also increasing our annual operating cash flow outlook to a range of $20 to $30 million, up by $5 million from our prior outlook range.
Taken together with our expected capital spending outlook, our free cash flow outlook is now expected to be in the range of negative $5 million to positive $5 million. All other outlook metrics remain unchanged. Lastly, as John mentioned earlier, we’ve agreed on a planned transition where I will retire from Xperi in 2027 once we have identified and onboarded my successor. I’ve been with Xperi for 13 years and have had the opportunity to help the company navigate acquisitions, divestitures, a merger of equals, a public company spin-out, and more recently, our increased focus on growth through media platforms. I’m extremely proud of what we’ve accomplished and especially proud of the team we’ve built.
Until the transition is complete, I’ll work closely with John and the Board and with my successor to ensure continuity and a seamless handoff. After the transition, I’ll remain available to the company as needed. Let me now turn the call back over to John for a few closing remarks before we go to Q&A.
Jon Kirchner (Chief Executive Officer)
Thanks, Robert. As I mentioned earlier, I’d like to thank you for being a trusted partner to me and an important leader through a period of significant transformation for Xperi. We’re fortunate to have your continued leadership as we work to take the time necessary to ensure a smooth transition. Returning to our results, overall, the third quarter reflected strong execution against our strategic plan. We grew revenue, reduced operating expenses, delivered non-GAAP adjusted EBITDA of 20% of revenue, and generated positive operating cash flow. Notably, our platforms continued to scale and monetize. Media platform revenue more than doubled year over year as advertising and related revenue accelerated and achieved positive gross margins. TiVo One monthly active users grew 40% to 6.8 million, and we now expect to finish the year above 7.5 million MAUs.
In connected car, AutoStage is now shipped in more than 18 million vehicles to date, and the broadcaster portal expanded to 550 U.S. metro areas. Our strategic positioning as an independent media platform is working in the market, as evidenced by our continued footprint expansion and the growing revenue now being generated by our platforms. As we continue to drive business transformation and efficiency, two years ago we began a program to implement AI across the organization. In the past nine months, we’ve begun to see accelerating benefits, including improving speed, efficiency, product innovation, and creating additional opportunities to further lower our operating cost structure.
We’ll have more to share on this topic in February as we guide for 2027. For now, we’re pleased to narrow our revenue guidance and to improve our adjusted EBITDA guidance range for the year, along with improvements in expected operating cash flow. Let us now turn the call over for questions. Operator.
OPERATOR (Moderator)
We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A. Your first question comes from the line of Jason Crayer with Craig-Hallum.
Jason, please go ahead.
Thomas (Analyst at Craig-Hallum)
Hey guys, this is Thomas on for Jason. We saw some encouraging growth in the first half of the year with connected car, and a tough comp obviously this quarter. I know this is largely a product of the minimum guarantee deals you touched on, but can you speak to maybe what signs we can look for that might point to some more durability in the connected car business?
Jon Kirchner (Chief Executive Officer)
Well, I think, let me start with a bigger picture, which is that we continue to both renew and expand penetration across our OEM automotive partner vehicles. You know, HD Radio is currently running at about a 60% penetration rate on new cars in North America. And so while there’s some revenue volatility around things like MG, I think that has more to do with 606 treatment. The fact of the matter is that the HD Radio franchise is extremely strong, and I think another point of evidence around that is the continued growth in the AutoStage footprint, which—you know, they’re unrelated in that AutoStage is relevant globally—but it is an indication that our partners are continuing to support and believe in the quality of what we’re doing in the dash as far as aggregating content and offering next-generation radio experiences.
And it’s that second part, through the growth of the 18 million now vehicles with AutoStage, that has tremendous upside as we think about where we can go to unlock brand-new value in the radio space that still is largely an untargeted—and, if you will, a medium that has not changed from an advertising perspective in a very long time. It’s far behind your current digital TV ad experience where things are targetable and measurable and attribution is possible.
So, in short, I think things are going fantastically well in the automotive space for us. And it’s more than durable; it’s accelerating.
Thomas (Analyst at Craig-Hallum)
That’s helpful. And then maybe one more. You called out your goal of 7 million monthly active users by year-end, and it looks like you’re going to hit that goal and surpass it comfortably. But what milestones come after that as far as next steps for TiVo One, and can you walk us through, as we enter 2027, what things we should be keying in on there in the coming quarters?
Jon Kirchner (Chief Executive Officer)
Sure. I think what we expect to see is continued growth in the footprint for TiVo OS. We’ll obviously have more to say on how much we expect it to grow in the course of ’27. Whether it’s exemplified by recent deals with people like MediaMarkt Saturn or its other customers broadening their penetration on their platforms due to the fact that we’ve done some very innovative work around reducing memory requirements on our platform, I think you should expect to see audience scaling continue from an ARPU perspective.
That in turn sets us up for more ads and related revenue growth. So another key thing to focus on is, as our ads and related ads and data revenue effectively continues to accelerate as the footprint matures and we continue to deepen our relationships with advertisers, brands and agencies, I think that’s another key indicator. I think the nature of that revenue and how margins will continue to improve as we generate more scale, which allows us to cover what is a base of fixed platform cost. You’ll see the variable margins, obviously, and the gross margins related to that business continue to scale positively.
So it’s another thing to keep an eye on. And then within Connected Car, I think you’re going to see us continue to expand broadcaster portal coverage, where we’re going to have more customers. You’re going to see us extend the platform from a data perspective into the ads and related revenue in a more meaningful way. And that combination sets us up very uniquely. And this is important and I think not well understood, which is what we have in the car is truly unique. We have a platform of scale of connected vehicles now in excess of 18 million.
That number, by the way, will continue to grow pretty meaningfully over the next year or two. That allows us to provide data that the industry has never had, and in a very granular and near real-time sense. And I think that is something that has direct application and value for advertisers and certainly people that are looking for that data and information to take the $10 billion-plus ad market in radio and basically bring it fully into the modern age with respect to targeting, attribution and measurement.
OPERATOR (Moderator)
Your next question comes from the line of Steven Frankel with Rosenblatt. Stephen, please go ahead.
Steven Frankel (Analyst at Rosenblatt)
Thank you. Good afternoon, and Robert, congratulations on the next chapter. How should we think about the decay rate in the legacy pay TV business? You know, the numbers this quarter looked fine. It was actually up a little bit. What’s going on under the surface and how quickly do you expect that to decay from these levels?
Jon Kirchner (Chief Executive Officer)
Sure. So what we said, Steve, is you’re going to see a little bit of volatility through things like late-in-life MG agreements in some of the declining core segments of pay TV, which is what you saw this quarter. You saw revenue be up slightly on the basis of some classic guides-related MGs. But we think that business completely, if you will, bottoms out to the point where we no longer see the decline of the old part of the pay TV business dragging on pay TV in total in the next 12 to 18 months.
And the reason you’re going to see that all of a sudden flatten out or bottom out is because our IPTV business continues to grow meaningfully. Interestingly, our LTM on that business over the last 12 months, revenue is just over $100 million, which is a goal we set back in ’22 — to generate and build an IPTV business of more than $100 million. And now what it’s increasingly doing is beginning to balance out the decline. So in short, I think you see that overhang decline bottom out here as we get into ’28.
And with that, you’ll see us continue to extend what we’re doing within IPTV, even as the macro environment may continue to be under pressure, kind of innovating in ways to drive more value out of the existing subscriber base there, which will drive not only more subscription revenue, but ultimately also, because those IPTV units are on our TiVo One AD platform, provide the opportunity for us to add additional monetization that will flow through our media platform business.
Steven Frankel (Analyst at Rosenblatt)
Okay, that’s great. And then when we look at that advertising line, can we contribute the bulk of that to TiVo1, or is there still some of your traditional advertising business that flows through there at this point?
Robert Anderson (Chief Financial Officer)
This is Robert. There’s still a portion of our legacy advertising business in there, but the bulk of the growth on that line is advertising, and it is off of TiVo1.
Steven Frankel (Analyst at Rosenblatt)
Okay, great. That’s all I have. Thank you.
Jon Kirchner (Chief Executive Officer)
Thank you, Steve.
OPERATOR (Moderator)
Your next question comes from the line of Hamid Korsend with BWS Financial. Hamid, please go ahead.
Hamid Korsend (Analyst at BWS Financial)
Hi. So first off, could you just clarify your comment you made about AutoStage now getting noticed? You know, are you getting more inbounds — OEMs want to include AutoStage in their cars — or just, if you could enhance upon that, please.
Jon Kirchner (Chief Executive Officer)
Well, I think yes, Hamid. We have a tremendous amount of industry interest and, in fact, we have a product that kind of stands alone in the industry in terms of its feature set and the extent of the offering. So the big thing for us is working with customers to try to identify, as their products turn over — as head units turn over in cars — just where we can intersect their product roadmaps with AutoStage. Part of the excitement has to do with the fact that we can deliver not only a better experience for their customers, but unlock value that currently doesn’t exist in the car with respect to a better, more personalized experience, targeted and measurable advertising, and the data that relates to that, of course, being very relevant to brands and agencies that have long looked at radio as a powerful medium because so many people touch it on a weekly basis.
And radio is still the predominant entertainment medium in the car. However, it has largely been a medium that just could not offer the kind of direct targeting that a lot of the brands and today’s advertisers really are looking for. So in short, we’ve got this unique opportunity with this platform, and 18 million units in a fairly short period of time — the last couple of years — is pretty significant. And as I said, I think you’re going to see that number continue to move northward quite aggressively as more partners not only come online, but expand the number of vehicles that they have AutoStage in. And as that happens, the platform becomes even more interesting to the advertiser and brand universe because scale is so important in the U.S. And one simple example that we called out here today is we’ve expanded the broadcaster portal coverage to 550 U.S. metro areas, which means we have unique data and information in markets that are really not served by anybody else at scale and certainly not served on the kind of timely basis that we’re talking about, where data is available on a near-daily basis with respect to what’s happening.
Hamid Korsend (Analyst at BWS Financial)
Okay, and then could you also talk about your revenue guidance? It seems like the midpoint’s going down $4 million from the prior guidance, but it seems your profitability and the quality is actually improving, that you have a chance for free cash flow this quarter. What’s driving that? What’s different this time around that wasn’t three months ago?
Robert Anderson (Chief Financial Officer)
Sure, I can take that one, Hamed. So we changed our guidance range, or updated it rather, to 450 to 462. And if you look at the midpoint of that range, it’s actually up a million from our prior guidance range. We obviously narrowed it this quarter for the year just because we’re fundamentally guiding a shorter period of time. And we’re able to increase the EBITDA range by a couple of percentage points from our prior expectations. And really that reflects an improved spending profile compared to our earlier estimates.
And that also translates into an improved cash flow outlook as we very carefully manage our receivables and our expenses over the remainder of the year. Okay, thank you. Thank you, Hamid.
OPERATOR (Moderator)
Your next question comes from Matthew Galinko with Maxim Group. Matthew, please go ahead.
Matthew Galinko (Analyst at Maxim Group)
Hey, thanks for taking my question, Robert. Been a pleasure working with you over the years.
Robert Anderson (Chief Financial Officer)
Same here, Matt. It’s been quite some many years, in fact.
Matthew Galinko (Analyst at Maxim Group)
Yeah. John, can you talk maybe about the impacts you’re seeing to data on the memory efficiency campaign? You talked about it this quarter — I think you’ve talked about it in prior quarters — but are you seeing the technical gains that you were hoping for, and are you seeing an impact in your commercial conversations?
Jon Kirchner (Chief Executive Officer)
Absolutely, Matt. I think at one of the recent big industry events, the IFA consumer electronics show in Berlin in September, the client base was blown away at the ability for us to engineer our solution on a meaningfully smaller footprint — to the tune of potentially saving BOM costs in the tens of dollars, depending on the unit volume. In short, it highlights two things: we have an absolutely world-class engineering team — and I think well known and regarded in the industry for exactly that — and, secondly, that the decision we made quarters ago that this was going to be increasingly important, as it looked like the broader memory market conditions were going to continue to be challenging for our customers, taking the time and energy and investing the resources to address that issue squarely would lead to positive outcomes in the decision amongst our customers to give us either more share of production or, in some cases, people coming into the fold completely new, saying that this is a platform that makes more sense for them when they think about not only the performance of the product itself, but ultimately what the ultimate supply chain costs would be, in part due to the memory footprint.
So I think we have done tremendously well with that decision, and I think we’ll see the benefits of it play out here over the next — certainly beginning of the next couple of quarters as you get into the production that comes off people making decisions in the fall, but certainly through the balance of ’27 and ’28. And we, as always — right — we’re learning as we’re innovating and looking for additional ways that we can further improve either performance, speed, or reduce costs for our customers.
Matthew Galinko (Analyst at Maxim Group)
Perfect, thank you. And maybe as a follow-up, can you give us your updated thoughts on competition in the media platform market? How has that changed, as we’ve seen M&A in the space, and are you thinking about competition any differently today? Thanks.
Jon Kirchner (Chief Executive Officer)
Sure. I would say what has remained the same is it remains a very hyper-competitive market, and I think the reason it’s so competitive is because the size of the prize is incredibly meaningful. I think that’s evidenced by a couple of exits you’ve seen or some transactions you’ve seen recently around platforms in the space. That being said, I think in Europe in particular we are the leading independent platform. In terms of the number of owned-and-operated MAUs that are in the market, we continue to see people lean our direction even though the deals are not necessarily always easy to win, and sometimes they take a while. But at the end of the day there’s wide recognition of the quality of our product, the support people get, and ultimately the experience and the business model we have.
I think we’re going to continue to see that this is a high-attention space, and as we build further scale, drive ever more monetization. And as that monetization scale drives ever more margin, I think the asset that we have spent the last few years building the foundation for and now beginning to see that inflection point only becomes more valuable. One other observation is you’re seeing retailers start to see retail media as being very, very interesting and important. Obviously Walmart and their decision in and around Vizio is one example. But there are parties all over the world thinking about the best way to reach consumers. That living room platform is very important. And so I think we remain highly, highly convicted that as we build this out it only becomes a more attractive asset.
OPERATOR (Moderator)
Thank you. Thanks, Matt. Your next question comes from the line of Maximus Alexander with Stonegate Capital Partners. Maximus, please go ahead.
Maximus Alexander (Analyst at Stonegate Capital Partners)
Hello, good afternoon. I’ll be asking questions for Dave today. Wanted to start off with advertising revenue. Seeing it was essentially flat sequentially, but direct cost declined about 6 million. Kind of curious just to hear about what’s driving that improvement and how much of that should we expect to carry forward. Thank you.
Robert Anderson (Chief Financial Officer)
So the advertising and related revenue has continued to accelerate over the course of this year. I think it’s notable that on a year-to-date basis it’s grown 90% year over year. So year to date, year over year, 90% growth. And we’ve indicated we believe that’s going to be roughly 100% year over year growth when we finish the year. So that’s our goal for the year. I think you’ll see that this part of the business continues to grow at a very strong rate.
We’ll obviously give more guidance on the outlook for that at the end of the year. From a margin standpoint, we had a very strong improvement in the margin of that business. It was 31% gross margin in the third quarter and on a year-to-date basis it turned positive—so that would be 5%. We expect that that will also continue to expand since we have a degree of fixed costs in that structure, and as we continue to grow that business, the marginal dollars we generate will flow down through the gross margin statement.
Maximus Alexander (Analyst at Stonegate Capital Partners)
Great, thank you. And then I wanted to follow up on media. I believe it was last quarter you guys had mentioned that you were expecting roughly double this year, but during this call you also noted your expectations are closer to now 60%. What’s the change in expectations there?
Robert Anderson (Chief Financial Officer)
As for that particular part of the business, we have a few components within Media Platform. We have advertising-related revenue and also we have our legacy middleware platform. As we just mentioned, the advertising-related continues to grow at a very strong pace. It’s not quite the torrid pace we were expecting over the course of the year—we were expecting a little bit higher pace—but that’s come back some. And we’ve also had a decline year over year in the middleware category because we had some minimum guarantee revenue last year and also just per unit.
So when you see year over year, that’s actually the primary factor. If you sort of strip that piece out, it really will double. With the middleware in there, that is expected to be about 60% for the year.
Maximus Alexander (Analyst at Stonegate Capital Partners)
Great. Thank you for answering my questions.
OPERATOR (Moderator)
There are no further questions at this time. I will now turn the call back to Jon for closing remarks.
Jon Kirchner (Chief Executive Officer)
Thanks, operator. I’d like to thank our employees, partners and customers for their continued commitment and support as we work to further accelerate growth and momentum in our business as a leading independent media platform provider in both the home and the car. We look forward to sharing further updates on our year-end conference call. Meanwhile, please note that we’ll be participating at the 15th Annual ROTH Technology Conference in New York on November 18th and at the Sidoti Virtual Investor Conference on December 10th. Thanks, everybody, for joining today.
OPERATOR (Moderator)
This concludes today’s call. Thank you for attending. You may now disconnect.
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