What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-08 compared with 2022-05-09 · 757 added, 255 removed, 608 unchanged (62% of the section changed)

1 unchanged sentence

XPERI HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED S TATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

Three Months Ended

Six Months Ended

Operating expenses:

8 unchanged sentences

Interest expense

Other income (expense), net

Income before taxes

Other income, net

Loss on debt extinguishment

Income (loss) before taxes

Provision for (benefit from) income taxes

Net income (loss)

net loss attributable to noncontrolling interest

Net income attributable to the Company

Income per share attributable to the Company:

Net income (loss) attributable to the Company

Income (loss) per share attributable to the Company:

Weighted average number of shares used in per share

3 unchanged sentences

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

XPERI HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

XPERI HOLDING CORP ORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Three Months Ended

Other comprehensive loss, net of tax:

Six Months Ended

Net income (loss)

Other comprehensive income (loss), net of tax:

Change in foreign currency translation adjustment

1 unchanged sentence

debt securities

Other comprehensive loss, net of tax

Comprehensive income

Other comprehensive income (loss), net of tax

Comprehensive income (loss)

comprehensive loss attributable to noncontrolling interest

Comprehensive income attributable to the Company

Comprehensive income (loss) attributable to the Company

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

XPERI HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDA TED BALANCE SHEETS

(in thousands, except for par value)

25 unchanged sentences

Commitments and contingencies (Note 15 )

Company stockholders’ equity:

Company stockholders’

Preferred stock:

13 unchanged sentences

Retained earnings

Total Company stockholders’ equity

Total Company stockholders’

Noncontrolling interest

1 unchanged sentence

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

XPERI HOLDING CORPORATION

XPE RI HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

Cash flows from operating activities:

4 unchanged sentences

Deferred income taxes

Loss on debt extinguishment

Changes in operating assets and liabilities:

8 unchanged sentences

Proceeds from sale of property and equipment

Net cash paid for acquisitions

Purchases of intangible assets

6 unchanged sentences

Repayment of debt

Proceeds from debt, net of debt discount and issuance costs

Proceeds from employee stock purchase program and exercise of stock options

13 unchanged sentences

Total Company Stockholders' Equity

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Treasury Stock

1 unchanged sentence

Noncontrolling

Balance at April 1, 2022

Issuance of subsidiary shares to noncontrolling interest

Other comprehensive loss

Cash dividends paid on common stock ($ 0.05 per share)

Issuance of common stock in connection with exercise of stock options

Issuance of restricted stock, net of shares canceled

Repurchases of common stock, shares exchanged

Shares exchanged and returned to assumed plans

Stock-based compensation expense

Balance at June 30, 2022

Total Company Stockholders' Equity

Six Months Ended June 30, 2022

Treasury Stock

Comprehensive

Noncontrolling

Balance at January 1, 2021

10 unchanged sentences

Stock-based compensation expense

Balance at March 31, 2022

Balance at June 30, 2022

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

XPERI HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

Total Company Stockholders' Equity

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Treasury Stock

2 unchanged sentences

Income (Loss)

Balance at April 1, 2021

Issuance of subsidiary shares to noncontrolling interest

Other comprehensive income

Cash dividends paid on common stock ($ 0.05 per share)

Issuance of common stock in connection with exercise of stock options

Issuance of restricted stock, net of shares canceled

Repurchases of common stock, shares exchanged

Repurchases of common stock

Stock-based compensation expense

Balance at June 30, 2021

Total Company Stockholders' Equity

Six Months Ended June 30, 2021

Treasury Stock

Comprehensive

Noncontrolling

Income (Loss)

Balance at January 1, 2021

9 unchanged sentences

Stock-based compensation expense

Balance at March 31, 2021

Balance at June 30, 2021

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

XPERI HOLDING CORPORATION

XPER I HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION

On December 18, 2019, Xperi Corporation (“Xperi”) entered into an Agreement and Plan of Merger and Reorganization with TiVo Corporation (“TiVo”) to combine in an all-stock merger of equals transaction (the “Mergers”).

Immediately following the consummation of the Mergers on June 1, 2020 , (the “Merger Date”), Xperi Holding Corporation (the “Company”), a Delaware corporation founded in December 2019 under the name “XRAY-TWOLF HoldCo Corporation,” became the parent company of both Xperi and TiVo.

NOTE 1 –

THE COMPANY AND BASIS OF PRESENTATION

Immediately following the consummation of the Mergers on June 1, 2020 (the “Merger Date”), Xperi Holding Corporation (the “Company”), a Delaware corporation founded in December 2019 under the name “XRAY-TWOLF HoldCo Corporation,”

became the parent company of both Xperi and TiVo.

The common stock of Xperi and TiVo were de-registered after completion of the Mergers.

On June 2, 2020, Xperi Holding Corporation’s common stock, par value $ 0.001 per share, commenced trading on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “XPER.”

Xperi Holding Corporation is a leading consumer and entertainment product/solutions licensing company and one of the industry’s largest intellectual property licensing platforms, with a diverse portfolio of media and semiconductor intellectual property and more than 11,000 patents and patent applications worldwide.

On June 2, 2020, Xperi Holding Corporation’s common stock, par value $ 0.001 per share, commenced trading on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “XPER.”

The Company creates extraordinary experiences at home and on the go for millions of consumers around the world, elevating content and how audiences connect with it in a way that is more intelligent, immersive and personal.

Powering smart devices, connected cars, entertainment experiences and more, the Company has created a unified ecosystem that reaches highly engaged consumers, uncovering significant new business opportunities, now and in the future.

The Company’s technologies are integrated into billions of consumer devices, media platforms, and semiconductors worldwide, driving increased value for partners, customers and consumers.

The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information.

The amounts as of December 31, 2021 have been derived from the Company’s annual audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021, filed on February 24, 2022 (the “Form 10-K”).

The Company’s technologies are integrated into billions of consumer devices, media platforms, and semiconductors worldwide, driving increased value for partners, customers and consumers.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

2 unchanged sentences

These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the year ended December 31, 2021, included in the Form 10-K.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022 or any future period and the Company makes no representations related thereto.

In the fourth quarter of 2018, the Company funded a new subsidiary, Perceive Corporation (“Perceive”), which was created to focus on delivering edge inference solutions.

As of March 31, 2022, the Company’s ownership interest in Perceive was approximately 80 %.

The operating results of Perceive have been consolidated in the Company’s condensed consolidated financial statements for all periods presented.

The Company is currently planning, subject to any required regulatory approvals, a separation of the Company’s product business and IP licensing business through a tax-efficient transaction, resulting in two independent, publicly traded companies.

The Company continues to evaluate the optimal timing of the contemplated business separation and currently anticipates that such separation will be completed in the second half of 2022.

The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022 or any future period and the Company makes no representations related thereto.

In the fourth quarter of 2018, the Company funded a new subsidiary, Perceive Corporation (“Perceive”), which was created to focus on delivering edge inference solutions.

As of June 30, 2022, the Company’s ownership interest in Perceive was approximately 80 %.

The operating results of Perceive have been consolidated in the Company’s condensed consolidated financial statements for all periods presented.

The Company currently anticipates that such separation will be completed in the fall of 2022.

Reclassification

Certain reclassifications have been made to prior period balances in order to conform to the current period’s presentation.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2022, as compared to the significant accounting policies described in the Form 10-K.

Certain reclassifications have been made to prior period balances in order to conform to the current period’s presentation.

NOTE 2 –

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes in the Company’s significant accounting policies during the six months ended June 30, 2022, as compared to the significant accounting policies described in the Form 10-K.

Use of Estimates

1 unchanged sentence

GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

The accounting estimates and assumptions that require management’s most significant, challenging, and subjective judgment include the estimation of licensees’ quarterly royalties prior to receiving the royalty reports, the determination of stand-alone selling price and the transaction price in an arrangement with multiple performance obligations, the estimation of variable consideration, the assessment of the recoverability of goodwill, the assessment of useful lives and recoverability of other intangible assets and long-lived assets, recognition and measurement of current and deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and purchase accounting resulting from business combinations, among others.

Actual results experienced by the Company may differ from management’s estimates.

The COVID-19 pandemic has resulted in a global slowdown of economic activity which has reduced demand for a broad variety of goods and services, while disrupting sales channels, marketing activities and supply chains.

The Company’s business operations have been negatively impacted by the COVID-19 pandemic and related events, and the Company expects this disruption may continue to have a negative impact on its revenue and results of operations, especially in light of the spread of the highly transmissible BA.2 Omicron subvariant and potential new variants that may arise in the future.

The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic;

the availability, distribution and effectiveness of vaccines;

the spread of new variants of COVID-19;

the continued or renewed imposition of protective public safety measures;

the continuing disruption of the global supply chain affecting the Company’s industry;

and the impact of the pandemic on the global economy and demand for consumer products.

The impact of the COVID-19 pandemic and related events, including actions taken by various government authorities in response, have increased market volatility and make the estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes more difficult.

As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities.

The accounting estimates and assumptions that require management’s most significant, challenging, and subjective judgment include the estimation of licensees’

quarterly royalties prior to receiving the royalty reports, the determination of stand-alone selling price and the transaction price in an arrangement with multiple performance obligations, the estimation of variable consideration, the assessment of the recoverability of goodwill, the assessment of useful lives and recoverability of other intangible assets and long-lived assets, recognition and measurement of current and deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and purchase accounting resulting from business combinations, among others.

Actual results experienced by the Company may differ from management’s estimates.

These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known.

The COVID-19 pandemic has had, and may continue to have, an adverse impact on the Company business.

The impact to date has included periods of significant volatility in markets the Company serves, in particular the automotive and broad consumer electronics markets.

Additionally, the pandemic has caused some challenges and delays in acquiring new customers and executing license renewals.

These factors have negatively impacted the Company's financial condition and results of operations, and may result in an impairment of the Company's long-lived assets, including goodwill, increased credit losses and impairments of investments in other companies.

The Company's operations and those of its customers have also been negatively impacted by certain trends arising from the COVID-19 pandemic, including labor market constraints, shortage of semiconductor components and manufacturing capacities, and delays in shipments, product development and product launches.

Moreover, the COVID-19 pandemic, its related impact, and United States federal, state and foreign government policies enacted to combat the pandemic have contributed to a recent rise of inflation that may increase the cost of the Company's operations and reduce demand for the Company's products and services and those of its customers, which may adversely affect the Company's financial performance.

The impact of the pandemic on the Company's overall results of operations remains uncertain for the foreseeable future and will depend on factors outside the Company's control.

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, “ Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ” (“ASU 2021-08”), which amends the guidance in ASC 805 to require that an entity (acquirer) recognize and measures contract assets and contract liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (“Topic 606”).

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, “

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ”

(“ASU 2021-08”), which amends the guidance in ASC 805 to require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (“Topic 606”).

As a result of the amendments, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its preacquisition financial statements.

2 unchanged sentences

The Company elected to early adopt the new standard on January 1, 2022 .

The adoption did not have an impact on the Company’s condensed consolidated financial statements.

The adoption did no t have an impact on the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).

ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides further clarification on the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.

2 unchanged sentences

The Company currently has debt agreements that reference LIBOR and will apply the amendments prospectively through December 31, 2022 as these contracts are modified to reference other rates.

NOTE 3 – REVENUE

NOTE 3 –

Revenue Recognition

1 unchanged sentence

Revenue is recognized net of sales taxes collected from customers which are subsequently remitted to governmental authorities.

In situations where foreign withholding taxes are withheld by the Company’s licensee, revenue is recognized gross of withholding taxes that are remitted directly by the licensee to a local tax authority.

Some of the Company’s contracts with customers contain multiple performance obligations.

For these contracts, the individual performance obligations are separately accounted for if they are distinct.

In an arrangement with multiple performance obligations, the transaction price is allocated among the separate performance obligations on a relative stand-alone selling price basis.

The determination of stand-alone selling price considers market conditions, the size and scope

of the contract, customer and geographic information, and other factors.

The determination of stand-alone selling price considers market conditions, the size and scope of the contract, customer and geographic information, and other factors.

When observable prices are not available, stand-alone selling price for separate performance obligations is based on the cost-plus-margin approach, considering overall pricing objectives.

8 unchanged sentences

In its IP Licensing segment, the Company licenses its innovations to leading companies in the broader entertainment and semiconductor industries, and those developing new technologies that will help drive the industries forward.

Licensing arrangements include access to one or more of the Company’s foundational patent portfolios and may also include access to some of its industry-leading technologies and proven know-how.

In its Product segment, the Company derives the majority of its revenue from licensing its technology to customers primarily through Technology License arrangements and Technology Solutions arrangements.

2 unchanged sentences

IP License Arrangements

In its IP Licensing segment, the Company licenses (i) its media patent portfolios (“Media IP licensing”) to multichannel video programming distributors, over-the-top video service providers, consumer electronics manufacturers, social media, and other new media companies and (ii) its semiconductor technologies and associated patent portfolios (“Semiconductor IP licensing”) to memory, sensor, radio frequency (“RF”) component, and foundry companies.

In its IP Licensing segment, the Company licenses (i) its media patent portfolio (“Media IP licensing”) to multichannel video programming distributors, over-the-top video service providers, consumer electronics manufacturers, social media, and other new media companies and (ii) its semiconductor technologies and associated patent portfolio (“Semiconductor IP licensing”) to memory, sensor, radio frequency component, and foundry companies.

The Company licenses its IP portfolios under three revenue models:

1 unchanged sentence

Fixed-fee Media IP licensing

The Company's long-term fixed-fee Media IP licensing agreements, which are related to the TiVo businesses following the Mergers, provide its customers with rights to future patented technologies over the term of the agreement that are highly

interdependent or highly interrelated to the patented technologies provided at the inception of the agreement.

The Company's fixed-fee Media IP licensing agreements, which are related to the TiVo businesses following the Mergers, provide its customers with rights to future patented technologies over the term of the agreement that are highly interdependent or highly interrelated to the patented technologies provided at the inception of the agreement.

The Company treats these rights as a single performance obligation with revenue recognized on a straight-line basis over the term of the fixed-fee license agreement.

4 unchanged sentences

Fixed-fee or minimum guarantee Semiconductor IP licensing

The Company enters into Semiconductor IP licenses that have fixed fee or minimum guarantee arrangements, whereby licensees pay a fixed fee for the right to incorporate the Company’s IP technologies in the licensee’s products over the license term.

In arrangements with a minimum guarantee, the fixed fee component corresponds to a minimum number of units or dollars that the customer must produce or pay, with additional per-unit fees for any units or dollars exceeding the minimum.

3 unchanged sentences

The Company recognizes revenue from per-unit or per-subscriber IP royalty licenses in the period in which the licensee's sales or production are estimated to have occurred, which results in an adjustment to revenue when actual sales or production are subsequently reported by the licensee, which is generally in the month or quarter following usage or shipment.

Estimating customers’ monthly or quarterly royalties prior to receiving the royalty reports requires the Company to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers, which could have a material impact on the amount of revenue it reports on a quarterly basis.

Estimating customers’

monthly or quarterly royalties prior to receiving the royalty reports requires the Company to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers, which could have a material impact on the amount of revenue it reports on a quarterly basis.

Technology License Arrangements

The Company licenses its audio, digital radio and imaging technology to consumer electronics (“CE”) manufacturers, automotive manufacturers or their supply chain partners.

The Company generally recognizes royalty revenue from licenses based on units shipped or manufactured.

Revenue is recognized in the period in which the customer’s sales or production are estimated to have occurred.

This may result in an adjustment to revenue when actual sales or production are subsequently reported by the customer, generally in the month or quarter following sales or production.

Estimating customers’ quarterly royalties prior to receiving the royalty reports requires the Company to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers, which could have a material impact on the amount of revenue it reports on a quarterly basis.

Certain customers enter into fixed fee or minimum guarantee agreements, whereby customers pay a fixed fee for the right to incorporate the Company’s technology in the customer’s products over the license term.

Estimating customers’

quarterly royalties prior to receiving the royalty reports requires the Company to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers, which could have a material impact on the amount of revenue it reports on a quarterly basis.

The Company generally recognizes the full fixed fee as revenue at the beginning of the license term when the customer has the right to use the technology and begins to benefit from the licens e , net of the effect of any significant financing components calculated using customer-specific, risk-adjusted lending rates, with the related interest income being recognized over time on an effective rate basis.

The Company generally recognizes the full fixed fee as revenue at the beginning of the license term when the customer has the right to use the technology and begins to benefit from the license, net of the effect of any significant financing components calculated using customer-specific, risk-adjusted lending rates, with the related interest income being recognized over time on an effective rate basis.

For minimum guarantee agreements where the customer exceeds the minimum, the Company recognizes revenue relating to any additional per-unit fees in the periods it believes the customer will exceed the minimum and adjusts the revenue based on actual usage once that is reported by the customer.

1 unchanged sentence

Technology Solutions customers are primarily multi-channel video service providers, CE manufacturers, and end consumers.

Technology Solutions revenue is primarily derived from licensing the Company’s Pay-TV solutions, Personalized Content Discovery, enriched Metadata, and viewership data;

selling TiVo-enabled devices like the Stream 4K;

2 unchanged sentences

For these solutions, the Company generally receives fees on a per-subscriber per-month basis or as a fixed fee, and revenue is recognized during the month in which the solutions are provided to the customer.

For most of the Technology Solutions offerings, substantially all functionality is obtained through the Company’s continuous hosting and/or updating of the data and content.

In these instances, the Company typically has a single performance obligation related to these ongoing activities in the underlying arrangement.

For those arrangements that include multiple performance obligations, the Company allocates the consideration as described above and recognizes revenue for each distinct performance obligation when control of the promised goods or services is transferred to the customer.

The Company also generates revenue from non-recurring engineering (“NRE”) services, advertising, and hardware products, each of which was less than 5% of total revenue for all periods presented.

Practical Expedients and Exemptions

5 unchanged sentences

Revenue Details

The following information depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors by disaggregating revenue by product category/end market and geographic location (presented in “Note 16 - Segment and Geographic Information ”).

Revenue disaggregated by product category/end market was as follows (in thousands):

Three Months Ended March 31,

Three Months Ended

Six Months Ended

IP Licensing revenue

10 unchanged sentences

Contract assets were recorded in the Condensed Consolidated Balance Sheets as follows (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

4 unchanged sentences

Total contract assets

The unbilled contracts receivable increase relates primarily to a change in billing process in the three months ended March 31, 2022.

This change has no impact on the Company’s cash flows.

The long-term unbilled contracts receivable increase relates primarily to the recognition of revenue from a multi-year contract with a customer in the three months ended March 31, 2022.

(1) The unbilled contracts receivable increase relates primarily to a change in billing process and to the recognition of revenue from long-term contracts with two customers in the six months ended June 30,2022.

The change in billing process has no impact on the Company’s cash flows.

(2) The long-term unbilled contracts receivable increase relates primarily to the recognition of revenue from a multi-year contract with one customer in the six months ended June 30, 2022.

Contract Liabilities

3 unchanged sentences

Allowance for Credit Losses

The allowance for credit losses, which includes the allowance for accounts receivable and unbilled contracts receivable, represents the Company’s best estimate of lifetime expected credit losses inherent in those financial assets.

The Company’s lifetime expected credit losses are determined using relevant information about past events (including historical experience), current conditions, and reasonable and supportable forecasts that affect collectability.

The Company monitors its credit exposure through ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary.

The Company monitors its credit exposure through ongoing credit evaluations of its customers’

financial condition and limits the amount of credit extended when deemed necessary.

In addition, the Company performs routine credit management activities such as timely account reconciliations, dispute resolution, and payment confirmations.

The Company may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

The Company’s long-term unbilled contracts receivable is derived from fixed-fee or minimum-guarantee arrangements, primarily with large well-capitalized companies.

It is generally considered to be of high credit quality due to past collection history and the nature of the customers.

The following table presents the activity in the allowance for credit losses for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31, 2022

Three Months Ended March 31, 2021

Accounts Receivable

Unbilled Contracts Receivable

Accounts Receivable

Unbilled Contracts Receivable

The following table presents the activity in the allowance for credit losses for the three and six months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

June 30, 2022

Six Months Ended

June 30, 2022

Unbilled Contracts

Beginning balance

2 unchanged sentences

Balance at end of period

(1) The charge off of accounts receivable in the first quarter of 2021 was primarily related to a customer whose account had been substantially reserved for credit losses in 2020 due to deteriorating financial condition and delinquent payment history.

Three Months Ended

June 30, 2021

Six Months Ended

June 30, 2021

Unbilled Contracts

Beginning balance

Provision for (reversal of) credit losses

Charged-off/other adjustments

Balance at end of period

(1) The charge off of accounts receivable during the six months ended June 30, 2021 was primarily related to a customer whose account had been substantially reserved for credit losses in 2020 due to deteriorating financial condition and delinquent payment history.

Additional Disclosures

The following table presents additional revenue and contract disclosures (in thousands):

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Revenue recognized in the period from:

Amounts included in deferred revenue at the beginning of

Performance obligations satisfied in previous periods (true

ups, licensee reporting adjustments and settlements)*

*True ups represent the differences between the Company’s quarterly estimates of per-unit royalty revenue and actual production/sales-based royalties reported by licensees in the following period.

Licensee reporting adjustments represent corrections or revisions to previously reported per-unit royalties by licensees, generally resulting from the Company’s inquiries or compliance audits.

Amounts included in deferred revenue at the

beginning of the period

Performance obligations satisfied in previous

periods (true ups, licensee reporting

adjustments and settlements) (1)

(1) True ups represent the differences between the Company’s quarterly estimates of per-unit royalty revenue and actual production/sales-based royalties reported by licensees in the following period.

Licensee reporting adjustments represent corrections or revisions to previously reported per-unit royalties by licensees, generally resulting from the Company’s inquiries or compliance audits.

Settlements represent resolutions of litigation during the period for past royalties owed pursuant to expired or terminated IP license agreements.

Remaining revenue under contracts with performance obligations represents the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) under certain of the Company’s fixed fee arrangements and engineering services contracts.

(2) Includes past royalty revenue from the settlement of a contract dispute with a large mobile imaging customer, and the execution of a long-term license agreement with a leading consumer electronics and OTT service provider.

The long-term license agreement is effective as of the expiration of the prior agreement.

The Company recorded revenue from both the settlement and the license agreement, referred to above, in the second quarter of 2022 and expects to record revenue from both the settlement and the license agreement in future periods.

The Company's remaining revenue under contracts with performance obligations was as follows (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

1 unchanged sentence

2022 (remaining 6 months)

NOTE 4 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

NOTE 4 –

COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Other current assets consisted of the following (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

3 unchanged sentences

Property and equipment, net, consisted of the following (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

4 unchanged sentences

Other long-term assets consisted of the following (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

2 unchanged sentences

Accrued liabilities consisted of the following (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

1 unchanged sentence

Third-party royalties

Accrued legal fees

Accrued expenses

1 unchanged sentence

Current portion of operating lease liabilities

Accrued income taxes

Other long-term liabilities consisted of the following (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

1 unchanged sentence

Accumulated other comprehensive loss consisted of the following (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

1 unchanged sentence

Foreign currency translation adjustment, net of tax

NOTE 5 – FINANCIAL INSTRUMENTS

NOTE 5 –

FINANCIAL INSTRUMENTS

The Company has investments in debt securities which include corporate bonds and notes, treasury and agency notes and bills, commercial paper, certificates of deposit, and in equity securities consisting of money market funds.

The Company classifies its debt securities as available-for-sale (“AFS”), which are accounted for at fair value with credit related losses recognized as a provision for credit loss expense in its Condensed Consolidated Statements of Operations and all non-credit related unrealized gains and losses recognized in accumulated other comprehensive income or loss on the Condensed Consolidated Balance Sheets.

Under ASU 2016-01 (Topic 321), equity securities are measured at fair value with unrealized gains and losses recognized in other income and expense, net, on the Condensed Consolidated Statements of Operations.

The following is a summary of marketable securities at March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022

The following is a summary of marketable securities at June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022

Allowance for Credit Losses

21 unchanged sentences

Total marketable securities

At March 31, 2022 and December 31, 2021, the Company had $ 266.8 million and $ 261.7 million, respectively, in cash, cash equivalents and short-term investments.

At June 30, 2022 and December 31, 2021, the Company had $ 285.8 million and $ 261.7 million, respectively, in cash, cash equivalents and short-term investments.

A significant portion of these amounts was held in marketable securities, as shown above.

The remaining balance of $ 164.4 million and $ 159.3 million at March 31, 2022 and December 31, 2021, respectively, was cash held in operating accounts not included in the tables above.

The remaining balance of $ 253.2 million and $ 159.3 million at June 30, 2022 and December 31, 2021, respectively, was cash held in operating accounts not included in the tables above.

Debt Securities

The gross realized gains and losses on sales of marketable debt securities were not material during the three months ended March 31, 2022 and 2021, respectively.

Unrealized losses on AFS debt securities were $ 0.2 million and $ 0.1 million, net of tax, as of March 31, 2022 and December 31, 2021, respectively.

The gross realized gains and losses on sales of marketable debt securities were not material during the three and six months ended June 30, 2022 and 2021, respectively.

Unrealized losses on AFS debt securities were $ 0.1 million and $ 0.1 million, net of tax, as of June 30, 2022 and December 31, 2021, respectively.

The Company evaluated whether the decline in fair value has resulted from credit losses or other factors and concluded these amounts were related to temporary fluctuations in value of AFS securities and were due primarily to changes in interest rates and market conditions of the underlying securities.

1 unchanged sentence

The Company does not intend to sell the debt securities and it is more-likely-than-not that it will not be required to sell the investments before recovery of their amortized cost bases.

The Company did no t recognize a provision for credit losses related to its AFS debt securities for the three months ended March 31, 2022 and 2021, respectively.

The following table summarizes the fair value and gross unrealized losses related to individual AFS debt securities at March 31, 2022 and December 31, 2021, which have been in a continuous unrealized loss position, aggregated by investment category and length of time (in thousands):

The Company did no t recognize a provision for credit losses related to its AFS debt securities for the three and six months ended June 30, 2022 and 2021, respectively.

The following table summarizes the fair value and gross unrealized losses related to individual AFS debt securities at June 30, 2022 and December 31, 2021, which have been in a continuous unrealized loss position, aggregated by investment category and length of time (in thousands):

Less Than 12 Months

12 Months or More

March 31, 2022

June 30, 2022

Cash and Cash Equivalents

9 unchanged sentences

Commercial paper

The estimated fair value of marketable debt securities by contractual maturity at March 31, 2022 is shown below (in thousands).

The estimated fair value of marketable debt securities by contractual maturity at June 30, 2022 is shown below (in thousands).

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

2 unchanged sentences

Non-marketable Equity Securities

As of March 31, 2022 and December 31, 2021, other long-term assets included equity securities accounted for under the equity method with a carrying amount of $ 4.7 million and $ 4.8 million, respectively, and equity securities without a readily determinable fair value with a carrying amount of $ 0.1 million and $ 0.1 million, respectively.

No impairments or adjustments to the carrying amount of the Company's equity securities without a readily determinable fair value were recognized in the three months ended March 31, 2022 and 2021, respectively.

NOTE 6 – FAIR VALUE

As of June 30, 2022 and December 31, 2021, other long-term assets included equity securities accounted for under the equity method with a carrying amount of $ 4.4 million and $ 4.8 million, respectively, and equity securities without a readily determinable fair value with a carrying amount of $ 0.1 million and $ 0.1 million, respectively.

No impairments or adjustments to the carrying amount of the Company's equity securities without a readily determinable fair value were recognized in the three and six months ended June 30, 2022 and 2021, respectively.

NOTE 6 –

The Company follows the authoritative guidance for fair value measurement and the fair value option for financial assets and financial liabilities.

8 unchanged sentences

The Company calculates the fair value of its Level 1 and Level 2 instruments based on the exchange traded price of similar or identical instruments, where available, or based on other observable inputs.

There were no significant transfers into or out of Level 1 or Level 2 that occurred between December 31, 2021 and March 31, 2022.

The following sets forth the fair value, and classification within the hierarchy, of the Company’s assets required to be measured at fair value on a recurring basis as of March 31, 2022 (in thousands):

There were no significant transfers into or out of Level 1 or Level 2 that occurred between December 31, 2021 and June 30, 2022.

The following sets forth the fair value, and classification within the hierarchy, of the Company’s assets required to be measured at fair value on a recurring basis as of June 30, 2022 (in thousands):

Active Markets

8 unchanged sentences

otherwise reported as AFS debt securities in the Condensed Consolidated Balance Sheet.

The following sets forth the fair value, and classification within the hierarchy, of the Company’s assets required to be measured at fair value on a recurring basis as of December 31, 2021 (in thousands):

Active Markets

9 unchanged sentences

Financial Instruments Not Recorded at Fair Value

The Company’s long-term debt is carried at amortized cost and is measured at fair value on a quarterly basis for disclosure purposes.

The carrying amounts and estimated fair values are as follows (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

Refinanced Term B Loans (1)

Total long-term debt, net

Carrying amounts of long-term debt are net of unamortized debt discount and issuance costs of $ 23.1 million and $ 24.3 million as of March 31, 2022 and December 31, 2021, respectively.

See “Note 9 – Debt ” for additional information.

If reported at fair value in the Condensed Consolidated Balance Sheets, the Company’s debt would be classified within Level 2 of the fair value hierarchy.

(1) Carrying amounts of long-term debt are net of unamortized debt discount and issuance costs of $ 22.0 million and $ 24.3 million as of June 30, 2022 and December 31, 2021, respectively.

See “Note 9 –

Debt ”

for additional information.

If reported at fair value in the Condensed Consolidated Balance Sheets, the Company’s debt would be classified within Level 2 of the fair value hierarchy.

The fair value of the debt was estimated based on the quoted market prices for the same or similar issues.

NOTE 7 – BUSINESS COMBINATION

On May 31, 2021, the Company completed its acquisition of certain assets and assumption of certain liabilities of MobiTV, Inc.

(“MobiTV”, and the acquisition, the “MobiTV Acquisition”), a provider of application-based Pay-TV video delivery solutions.

The acquisition expanded the Company’s IPTV Managed Service capabilities, which is expected to grow the addressable market for the Company’s IPTV products and further secure TiVo’s position as a leading provider of Pay-TV solutions.

NOTE 7 –

BUSINESS COMBINATION

On May 31, 2021, the Company completed its acquisition (the "MobiTV Acquisition") of certain assets and assumption of certain liabilities of MobiTV, Inc.

(“MobiTV”), a provider of application-based Pay-TV video delivery solutions.

The MobiTV Acquisition expanded the Company’s IPTV Managed Service capabilities, which is expected to grow the addressable market for the Company’s IPTV products and further secure TiVo’s position as a leading provider of Pay-TV solutions.

The net purchase price for the MobiTV Acquisition was $ 17.4 million in cash.

13 unchanged sentences

Total purchase price

The results of operations and cash flows relating to the business acquired pursuant to the MobiTV Acquisition have been included in the Company’s consolidated financial statements for periods subsequent to May 31, 2021, and the related assets and liabilities were recorded at their estimated fair values in the Company’s Consolidated Balance Sheet as of May 31, 2021.

The operations acquired in the MobiTV Acquisition are included in the Company’s Product segment.

NOTE 8 – GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

The changes to the carrying value of goodwill from January 1, 2022 through March 31, 2022 are reflected below (in thousands):

The operations acquired in the MobiTV Acquisition are included in the Company’s Product segment.

Supplemental Pro Forma Information

The following unaudited pro forma financial information assumes the MobiTV Acquisition was completed as of January 1, 2020.

The unaudited pro forma financial information as presented below is for informational purposes only and is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information.

This is not necessarily indicative of the results of operations that would have been achieved if the MobiTV Acquisition had taken place on January 1, 2020, nor is it necessarily indicative of future results.

Consequently, actual results could differ materially from the unaudited pro forma financial information presented below.

The following table presents the pro forma operating results as if the acquired operations of MobiTV had been included in the Company's Condensed Consolidated Statements of Operations as of January 1, 2020 (unaudited, in thousands):

Three Months Ended

Six Months Ended

June 30, 2021

Net loss attributable to Xperi Holding Corporation

The unaudited supplemental pro forma information above includes the following pro forma adjustments:

removal of certain elements of the historical MobiTV business that were not acquired, elimination of inter-company transactions between MobiTV and TiVo, adjustments for transaction related costs, and adjustments to reflect the impact of purchase accounting adjustments.

The unaudited supplemental pro forma information above does not include any cost saving synergies from operating efficiencies.

NOTE 8 –

GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

The changes to the carrying value of goodwill from January 1, 2022 through June 30, 2022 are reflected below (in thousands):

December 31, 2021

Goodwill adjustment related to Mergers in prior periods (1)

March 31, 2022 (2)

Reflects the correction of an error in the purchase price allocation for the Mergers to reduce goodwill and revenue.

The error was not material to the current period financial statements or any prior periods.

The Company's reporting units include the IP Licensing segment and the Product segment (defined further in “Note 16 - Segment and Geographic Information ”).

Of the carrying value of goodwill, approximately $ 322.3 million was allocated to the IP Licensing segment and approximately $ 527.8 million was allocated to the Product segment as of each of March 31, 2022 and December 31, 2021.

June 30, 2022 (2)

(1) The change to the carrying value of goodwill from December 31, 2021 through June 30, 2022 was an immaterial measurement period adjustment.

(2) The Company's reporting units include the IP Licensing segment and the Product segment (defined further in “Note 16 - Segment and Geographic Information ”).

Of the carrying value of goodwill, approximately $ 322.3 million was allocated to the IP Licensing segment and approximately $ 527.8 million was allocated to the Product segment as of June 30, 2022.

Goodwill at each reporting unit is evaluated for potential impairment annually, as of the beginning of the fourth quarter, and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable.

1 unchanged sentence

Identified intangible assets consisted of the following (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

9 unchanged sentences

Total intangible assets

As of March 31, 2022, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):

As of June 30, 2022, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):

2022 (remaining 6 months)

NOTE 9 – DEBT

NOTE 9 –

The outstanding amounts of debt were as follows (in thousands):

March 31, 2022

June 30, 2022

December 31, 2021

4 unchanged sentences

Refinanced Term B Loans

On June 8, 2021, the Company amended that certain Credit Agreement dated June 1, 2020 by and among the Company, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “2020 Credit Agreement”).

The 2020 Credit Agreement initially provided for a five-year senior secured term B loan facility in an aggregate principal amount of $ 1,050 million (the “2020 Term B Loan Facility”).

In connection with the amendment (the “Amendment”), the Company made a voluntary prepayment of $ 50.6 million of the term loan outstanding under the 2020 Credit Agreement using cash on hand.

The Amendment provided for, among other things, (i) a new tranche of term loans (the “Refinanced Term B Loans”) in an aggregate principal amount of $ 810.0 million, (ii) a reduction of the interest rate margin applicable to such loans to (x) in the case of base rate loans, 2.50 % per annum and (y) in the case of Eurodollar loans, LIBOR plus a margin of 3.50 % per annum, (iii) a prepayment premium of 1.00 % in connection with any repricing transaction with respect to the Refinanced Term B Loans within six months of the closing date of the Amendment, (iv) an extension of the maturity to June 8, 2028 , and (v) certain additional amendments, including amendments to provide the Company with additional flexibility under the covenant governing restricted payments.

The 2020 Credit Agreement initially provided for a five-year senior secured term B loan facility in an aggregate principal amount of $ 1,050 million (the “2020 Term B Loan Facility”).

In connection with the amendment (the “Amendment”), the Company made a voluntary prepayment of $ 50.6 million of the term loan outstanding under the 2020 Credit Agreement using cash on hand.

The Company commenced repaying quarterly installments under the Refinanced Term B Loans in the third quarter of 2021.

The obligations under the 2020 Credit Agreement, inclusive of any changes by the Amendment, continue to be guaranteed by Xperi, TiVo and certain other of the Company’s wholly-owned material domestic subsidiaries (collectively, the “Guarantors”) and continue to be secured by a lien on substantially all of the assets of the Company and the Guarantors.

The 2020 Credit Agreement, as amended, contains customary events of default, upon the occurrence of which, after any applicable cure period, the lenders will have the ability to accelerate all outstanding loans thereunder.

2 unchanged sentences

The 2020 Credit Agreement, as amended, requires the Company to maintain a total net leverage ratio of no greater than 3.00x in order access an annual basket from which to make restricted payments (such as dividend payments and share repurchases).

The Company was in compliance with all requirements as of March 31,

The Company was in compliance with all requirements as of June 30, 2022.

The 2020 Credit Agreement, as amended, also requires the Company to make additional cash payments on an annual basis beginning in March 2023 based on certain leverage ratios and excess cash flow generated for the immediately preceding fiscal year.

Certain lenders of the 2020 Term B Loan Facility participated in the Amendment and the changes in terms were not considered substantial.

Accordingly, the Company accounted for the refinancing event for these lenders as a debt modification under ASC 470-50, “Debt — Modifications and Extinguishments.” Under its policy, the Company elected to continue to defer the unamortized debt discount and issuance costs for these continuing lenders related to the partial pay-down of the debt.

Accordingly, the Company accounted for the refinancing event for these lenders as a debt modification under ASC 470-50, “Debt —

Modifications and Extinguishments.”

Under its policy, the Company elected to continue to defer the unamortized debt discount and issuance costs for these continuing lenders related to the partial pay-down of the debt.

Certain lenders of the 2020 Term B Loan Facility did not participate in the Amendment.

1 unchanged sentence

As a result, the Company recorded an $ 8.0 million loss on debt extinguishment in the second quarter of 2021, related to the write-off of unamortized debt discount and issuance costs for the portions of the 2020 Term B Loan Facility considered to be extinguished.

In connection with its entry into the Amendment, the Company incurred $ 6.8 million in debt financing costs, of which $ 4.2 million were capitalized in accordance with ASC 835-30 “Debt Issuance Costs” and, together with a portion of the unamortized debt discount and issuance costs from the 2020 Term B Loan Facility, are being amortized into interest expense over the term of the Amendment.

and, together with a portion of the unamortized debt discount and issuance costs from the 2020 Term B Loan Facility, are being amortized into interest expense over the term of the Amendment.

Under ASC 470-50, the remaining $ 2.6 million, primarily related to third-party fees, were recorded as selling, general and administrative expense in the second quarter of 2021.

Interest Expense and Expected Principal Payments

At March 31, 2022, $ 779.6 million in total debt was outstanding.

At June 30, 2022, $ 769.5 million in total debt was outstanding.

There were also $ 22.0 million of unamortized debt discount and issuance costs recorded as a reduction from the carrying amount of the debt.

Interest rate on the Refinanced Term B Loans, including the amortization of debt discount and issuance costs was 4.6 % and interest was payable monthly.

Interest expense was $ 8.4 million and $ 11.3 million for the three months ended March 31, 2022 and 2021, respectively.

Amortized debt discount and issuance costs, which were included in interest expense, amounted to $ 1.1 million and $ 2.3 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, future minimum principal payments for long-term debt are summarized as follows (in thousands):

Interest expense w as $ 9.4 mill ion and $ 17.9 million for the three and six months ended June 30, 2022, respectively.

Interest expense was $ 10.6 million and $ 21.9 million for the three and six months ended June 30, 2021, respectively.

Amortized debt discount and issuance costs, which were included in interest expense, amounted to $ 1.1 million and $ 2.2 million for the three and six months ended June 30, 2022, respectively, and $ 1.9 million and $ 4.1 million for the three and six months ended June 30, 2021, respectively.

As of June 30, 2022, future minimum principal payments for long-term debt are summarized as follows (in thousands):

2022 (remaining 6 months)

NOTE 10 – NET INCOME PER SHARE

NOTE 10 –

NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted shares (in thousands):

Three Months Ended

March 31, 2022

March 31,2021

Six Months Ended

Weighted average shares of common stock outstanding

7 unchanged sentences

The assumed proceeds calculation includes actual proceeds to be received from the employee upon exercise and the average unrecognized stock compensation cost during the period.

In the calculation of net income per share for the three months ended March 31, 2022 and 2021, 3.6 million and 1.1 million shares, respectively, subject to stock options and restricted stock awards and units were excluded from the computation of diluted net income per share as they were anti-dilutive.

NOTE 11 – STOCKHOLDERS’ EQUITY

For the three months ended June 30, 2022 and 2021, there was no difference in the weighted average number of common shares used for the calculation of basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive.

A total of 7.9 million shares and 5.8 million shares, subject to stock options and restricted stock awards and units, were excluded from the computation of diluted net loss per share for the three months ended June 30, 2022 and 2021, respectively, because including them would have been anti-dilutive.

For the six months ended June 30, 2022 and 2021, 3.8 million and 2.1 million shares, respectively, subject to stock options and restricted stock awards and units were excluded from the computation of diluted net income per share as they were anti-dilutive.

NOTE 11 –

STOCKHOLDERS’

Equity Incentive Plans

In connection with the Mergers and immediately prior to June 1, 2020, the Company adopted the Xperi Holding Corporation 2020 Equity Incentive Plan (the “2020 EIP”).

Under the 2020 EIP, the Company may grant equity-based awards to employees, non-employee directors, and consultants for services rendered to the Company (or any parent or subsidiary) in the form of stock options, stock awards, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and performance awards (or any combination thereof).

A total of 8,000,000 shares have been reserved for issuance under the 2020 EIP provided that each share issued pursuant to “full value” awards (i.e., stock awards, restricted stock awards, restricted stock units, performance awards and dividend equivalents) are counted against shares available for issuance under the 2020 EIP on a 1.5 to 1 ratio.

A total of 16,800,000 shares have been reserved for issuance under the 2020 EIP provided that each share issued pursuant to “full value”

awards (i.e., stock awards, restricted stock awards, restricted stock units, performance awards and dividend equivalents) are counted against shares available for issuance under the 2020 EIP on a 1.5 to 1 ratio.

At the 2022 Annual Stockholders Meeting on April 29, 2022, the Company's shareholders approved an amendment to the 2020 EIP and increased by 8.8 million the number of shares reserved for issuance.

The 2020 EIP provides for option grants designed as either incentive stock options or nonstatutory options.

2 unchanged sentences

Assumed Plans

On June 1, 2020, the Company assumed all then-outstanding stock options, awards, and shares available and reserved for issuance under all legacy Equity Incentive Plans of TiVo (collectively, the “Assumed Plans”).

Stock options assumed from the Assumed Plans generally have vesting periods of four years and a contractual term of seven years .

2 unchanged sentences

Shares reserved under the Assumed Plans will be available for future grants.

As of March 31, 2022, there were 1.8 million shares reserved for future grants under both the 2020 EIP and the Assumed Plans.

As of June 30, 2022, there were 6.4 million shares reserved for future grants under both the 2020 EIP and the Assumed Plans.

A summary of the stock option activity is presented below (in thousands, except per share amounts):

4 unchanged sentences

Options canceled / forfeited / expired

Balance at March 31, 2022

Balance at June 30, 2022

Restricted Stock Awards and Units

Information with respect to outstanding restricted stock awards and units (including both time-based vesting and performance-based vesting) as of March 31, 2022 is as follows (in thousands, except per share amounts):

Information with respect to outstanding restricted stock awards and units (including both time-based vesting and performance-based vesting) as of June 30, 2022 is as follows (in thousands, except per share amounts):

Restricted Stock and Restricted Stock Units

5 unchanged sentences

Awards and units canceled / forfeited

Balance at March 31, 2022

Balance at June 30, 2022

Performance Awards and Units

1 unchanged sentence

The value and the vesting of such performance awards and units are generally linked to one or more performance goals or certain market conditions determined by the Company, in each case on a specified date or dates or over any period or periods determined by the Company, and may range from zero to 200 percent of the grant.

For performance awards subject to a market vesting condition (“market-based PSUs”), the fair value per award is fixed at the grant date and the amount of compensation expense is not adjusted during the performance period regardless of changes in the level of achievement of the market condition.

Employee Stock Purchase Plans

Prior to the Mergers, the Company had implemented the Xperi Corporation 2003 Employee Stock Purchase Plan and the International Employee Stock Purchase Plan, both of which were terminated immediately prior to the effective time of the Mergers.

In connection with the Mergers and immediately prior to June 1, 2020, the Company adopted the Xperi Holding Corporation 2020 Employee Stock Purchase Plan (the “2020 ESPP”).

The 2020 ESPP is implemented through consecutive overlapping 24 -month offering periods, each of which is comprised of four six-month purchase periods.

3 unchanged sentences

The purchase price per share will equal 85 % of the fair market value per share on the start date of the offering period or, if lower, 85 % of the fair market value per share on the semi-annual purchase date.

An eligible employee’s right to buy the Company’s common stock under the 2020 ESPP may not accrue at a rate in excess of $ 25,000 of the fair market value of such shares per calendar year for each calendar year of an offering period.

If the fair market value per share of the Company’s common stock on any purchase date during an offering period is less than the fair market value per share on the start date of the 24 -month offering period, then that offering period will automatically terminate and a

new 24 -month offering period will begin on the next business day.

All participants in the terminated offering will be transferred to the new offering period.

As of March 31, 2022, there were 0.1 million shares reserved for grant under the Company’s 2020 ESPP.

As of June 30, 2022, there wer e 6.1 m illion shares reserved for grant under the Company’s 2020 ESPP.

At the 2022 Annual Stockholders Meeting on April 29, 2022, the Company's shareholders approved an amendment to the 2020 ESPP and increased by 6.0 million the number of shares reserved for issuance.

Stock Repurchase Programs

Following the termination of Xperi’s prior stock repurchase program after the closing of the Mergers, on June 12, 2020 the Board of Directors (the “Board”) of the Company authorized a new stock repurchase program providing for the repurchase of up to $ 150.0 million of the Company's Common Stock dependent on market conditions, share prices and other factors.

On April 22, 2021, the Board authorized an additional $ 100.0 million of purchases under the existing stock repurchase plan.

As of March 31, 2022, the Company has repurchased a total of approximately 10.0 million shares of common stock, since inception of the plan, at an average price of $ 17.24 per share for a total cost of $ 172.2 million.

As of June 30, 2022, the Company has repurchased a total of approximately 10.0 million shares of common stock, since inception of the plan, at an average price of $ 17.24 per share for a total cost of $ 172.2 million.

As of December 31, 2021, the Company had repurchased a total of approximately 9.0 million shares of common stock, since inception of the plan, at an average price of $ 17.29 per share for a total cost of $ 155.0 million.

1 unchanged sentence

No expiration date has been specified for this plan.

As of March 31, 2022, the total remaining amount available for repurchase under this plan was $ 77.8 million.

As of June 30, 2022, the total remaining amount available for repurchase under this plan was $ 77.8 million.

The Company plans to continue to execute authorized repurchases from time to time under the plan.

3 unchanged sentences

However, these withheld shares are not included in common stock repurchases under the Company's authorized share repurchase plan.

During the three months ended March 31, 2022 and 2021, the Company withheld 0.7 million and 0.3 million shares of common stock to satisfy $ 11.1 million and $ 7.4 million of required withholding taxes, respectively.

NOTE 12 – STOCK-BASED COMPENSATION EXPENSE

The effect of recording stock-based compensation (“SBC”) expense for the three months ended March 31, 2022 and 2021 is as follows (in thousands):

During the three months ended June 30, 2022 and 2021, the Company withheld 0.1 million and 0.1 million shares of common stock to satisfy $ 0.4 million and $ 1.0 million of required withholding taxes, respectively.

During the six months ended June 30, 2022 and 2021, the Company withheld 0.7 million and 0.4 million shares of common stock to satisfy $ 11.5 million and $ 8.3 million of required withholding taxes, respectively.

NOTE 12 –

STOCK-BASED COMPENSATION EXPENSE

The effect of recording stock-based compensation (“SBC”) expense for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

Cost of revenue, excluding depreciation and amortization of intangible assets

4 unchanged sentences

Net effect on net income (loss)

SBC expense categorized by various equity components for the three months ended March 31, 2022 and 2021 is summarized in the table below (in thousands):

SBC expense categorized by various equity components for the three and six months ended June 30, 2022 and 2021 is summarized in the table below (in thousands):

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

Restricted stock awards and units

2 unchanged sentences

Total stock-based compensation expense

In connection with termination of employment with a former executive on March 1, 2022, the Company entered into a Separation Agreement and Release with the executive, dated February 18, 2022 (the “Separation Agreement”).

Pursuant to the Separation Agreement, the Company approved, among other severance benefits, accelerated vesting of 372,244 of outstanding performance and time-based restricted stock units.

As a result of this modification, the Company recorded incremental SBC of approximately $ 2.2 million for the three months ended March 31, 2022.

There were no options granted in the three months ended March 31, 2022 and 2021.

There were no options granted in the three and six months ended June 30, 2022 and 2021.

The following assumptions were used to value the restricted stock units subject to market conditions granted during the period:

3 unchanged sentences

Expected volatility

*There were no market-based restricted stock units granted in the three months ended March 31, 2022.

ESPP grants occur in March and September.

5 unchanged sentences

Expected volatility

NOTE 13 – INCOME TAXES

For the three months ended March 31, 2022, the Company recorded an income tax expense of $ 21.5 million on pretax income of $ 45.5 million, which resulted in an effective tax rate of 47.3 %.

The income tax expense for the three months ended March 31, 2022 was primarily related to foreign withholding taxes, U.S.

federal base erosion and anti-abuse tax (“BEAT”), state income taxes, and unrealized foreign exchange loss from the prior year South Korea refund claims.

For the three months ended March 31, 2021, the Company recorded an income tax benefit of $ 4.0 million on pretax income of $ 0.5 million, which resulted in an effective tax rate of ( 786.4 )%.

The income tax benefit for the three months ended March 31, 2021 was primarily related to foreign withholding taxes, BEAT and unrealized foreign exchange loss from the prior year South Korea refund claims.

The Company’s negative effective tax rate is based on the projected 2021 GAAP U.S.

pretax loss and is significantly less than the 21 % U.S.

NOTE 13 –

For the three months ended June 30, 2022, the Company recorded an income tax expense of $ 22.1 million on pretax income of $ 15.7 million, and for the six months ended June 30, 2022 the Company recorded an income tax expense of $ 43.7 million on pretax income of $ 61.2 million, which resulted in an effective tax rate of 71.4 % for the six months ended June 30, 2022.

The income tax expense for the three and six months ended June 30, 2022 was primarily related to foreign withholding taxes, U.S.

federal income tax, state income taxes, and unrealized foreign exchange loss from the prior year South Korea refund claims.

The Company's effective tax rate was based on a projected 2022 GAAP pretax profit and is significantly higher than the 21 % U.S.

federal tax rate.

The Company's effective tax rate varies period over period because the most significant components of tax expense, foreign withholding taxes and foreign exchange gains or losses on the Korea withholding tax refund claims, are not directly affected by changes in pre-tax income.

For the three months ended June 30, 2021, the Company recorded an income tax benefit of $ 2.9 million on pretax loss of $ 4.7 million and for the six months ended June 30, 2021, the Company recorded an income tax benefit of $ 6.9 million on a pretax loss of $ 4.2 million, which resulted in an effective tax rate of 162.6 % for the six months ended June 30, 2021.

The income tax benefit for the three and six months ended June 30, 2021 was primarily related to foreign withholding taxes, U.S.

federal base erosion and anti-abuse tax (“BEAT”) and unrealized foreign exchange loss from the prior year South Korea refund claims.

The Company’s effective tax rate was based on the projected 2021 GAAP U.S.

pretax loss and is significantly higher than the 21 % U.S.

federal tax rate.

The Company's effective tax rate is the result of the most significant components of income tax expense, primarily driven by foreign withholding and BEAT.

The computed negative effective tax rate is applied to the year-to-date U.S.

profit resulting in an income tax benefit for the quarter ended March 31, 2021.

As of March 31, 2022, gross unrecognized tax benefits increased $ 3.6 million to $ 244.0 million compared to $ 240.4 million as of December 31, 2021.

The computed effective tax rate is applied to the year-to-date U.S.

profit resulting in an income tax benefit for the quarter ended June 30, 2021.

As of June 30, 2022, gross unrecognized tax benefits, excluding interest and penalties, were $ 240.4 million compared to $ 240.4 million as of December 31, 2021.

This was included in long-term deferred tax and other long-term liabilities on the Condensed Consolidated Balance Sheets.

Of this amount, $ 95.1 million would affect the effective tax rate if recognized.

As of March 31, 2021, unrecognized tax benefits of $ 228.7 million were included in long-term deferred tax and other long-term liabilities on the Condensed Consolidated Balance Sheets.

As of June 30, 2021, unrecognized tax benefits, excluding interest and penalties, of $ 233.9 million were included in long-term deferred tax and other long-term liabilities on the Condensed Consolidated Balance Sheets.

Of this amount, $ 92.6 million would affect the effective tax rate if recognized.

1 unchanged sentence

It is the Company's policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes.

The Company recognized interest and penalties related to unrecognized tax benefits of $ 0.2 million and $ 0.6 million for the three months ended March 31, 2022 and 2021, respectively.

Accrued interest and penalties were $ 3.1 million and $ 2.8 million as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022, the Company’s 2017 through 2021 tax years are generally open and subject to potential examination in one or more jurisdictions.

The Company recognized interest and penalties related to unrecognized tax benefits of $ 0.6 million and $ 0.8 million for the six months ended June 30, 2022 and 2021, respectively.

Accrued interest and penalties were $ 3.4 million and $ 2.8 million as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022, the Company’s 2017 through 2021 tax years are generally open and subject to potential examination in one or more jurisdictions.

Earlier tax years for the Company and its subsidiaries are also open in certain jurisdictions which are currently subject to examination.

1 unchanged sentence

The Company has submitted a withholding tax refund claim with the South Korean authorities and the final outcome is not anticipated to be settled within the next twelve months.

NOTE 14 – LEASES

NOTE 14 –

The Company leases office and research facilities, data centers and office equipment under operating leases which expire through 2029.

The Company’s leases have remaining lease terms of one year to eight years , some of which may include options to extend the leases for five years or longer, and some of which may include options to terminate the leases within the next 6 years or less.

Leases with an initial term of 12 months or less are not recorded on the balance sheets ;

1 unchanged sentence

Variable lease payments are expensed as incurred and are not included within the lease liability and right-of-use assets calculation.

As a practical expedient, the Company elected, for all office and facility leases, not to separate nonlease components (e.g., common-area maintenance costs) from lease components (e.g., fixed payments including rent) and instead to account for each separate lease component and its associated non-lease components as a single lease component.

As a practical expedient, the Company elected, for all office and facility leases, not to separate non-lease components (e.g., common-area maintenance costs) from lease components (e.g., fixed payments including rent) and instead to account for each separate lease component and its associated non-lease components as a single lease component.

As most of the leases do not provide an implicit rate, the Company generally, for purposes of discounting lease payments, uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date.

7 unchanged sentences

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

Fixed lease cost (1)

5 unchanged sentences

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Operating leases

March 31, 2022

June 30, 2022

December 31, 2021

3 unchanged sentences

Operating leases

Future minimum lease payments and related lease liabilities as of March 31, 2022 were as follows (in thousands):

Future minimum lease payments and related lease liabilities as of June 30, 2022 were as follows (in thousands):

Operating Lease Payments (1)

8 unchanged sentences

(1) Future minimum lease payments exclude short-term leases as well as payments to landlords for variable common area maintenance, insurance and real estate taxes.

NOTE 15 – COMMITMENTS AND CONTINGENCIES

NOTE 15 –

COMMITMENTS AND CONTINGENCIES

Purchase and Other Contractual Obligations

1 unchanged sentence

These arrangements primarily include unconditional purchase obligations to service providers.

As of March 31, 2022, the Company’s total future unconditional purchase obligations were approximately $ 116.6 million.

As of June 30, 2022, the Company’s total future unconditional purchase obligations were approximately $ 114.5 million.

Inventory Purchase Commitment

The Company uses contract manufacturers to provide manufacturing services for its products.

During the normal course of business, in order to manage manufacturing lead times and help ensure adequate supply, the Company enters into agreements with its contract manufacturers that either allow them to procure inventory based on criteria as defined by the Company or that establish the parameters defining the Company’s requirements.

A significant portion of the Company’s purchase commitments arising from these agreements consist of firm, non-cancelable and unconditional purchase commitments.

In certain instances, these agreements allow the Company the option to cancel, reschedule or adjust the Company’s requirements based on its business needs prior to firm orders being placed.

As of March 31, 2022, the Company had total purchase commitments for inventory of $ 9.8 million, of which $ 2.9 million was accrued in the Condensed Consolidated Balance Sheet.

A significant portion of the Company’s purchase commitments arising from these agreements consist of firm, non-cancelable and unconditional purchase commitments.

In certain instances, these agreements allow the Company the option to cancel, reschedule or adjust the Company’s requirements based on its business needs prior to firm orders being placed.

As of June 30, 2022, the Company had total purchase commitments for inventory of $ 5.5 million, of which $ 1.5 million was accrued in the Condensed Consolidated Balance Sheet.

Indemnifications

8 unchanged sentences

and the willingness of such party to engage in settlement negotiations.

To date, no such claims have been filed against the Company and no liability has been recorded in the Company’s financial statements.

As permitted under Delaware law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity.

To date, no such claims have been filed against the Company and no liability has been recorded in the Company’s financial statements.

The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited;

however, the Company believes, given the absence of any such payments in the Company’s history, and the estimated low probability of such payments in the future, that the estimated fair value of these indemnification agreements is immaterial.

In addition, the Company has directors’ and officers’ liability insurance coverage that is intended to reduce its

financial exposure and may enable the Company to recover any payments under the indemnification agreements, should they occur .

In addition, the Company has directors’

and officers’

liability insurance coverage that is intended to reduce its financial exposure and may enable the Company to recover any payments under the indemnification agreements, should they occur.

Contingencies

At each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of losses is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies.

The Company is currently unable to predict the final outcome of lawsuits to which it is a party and therefore cannot determine the likelihood of loss nor estimate a range of possible losses.

An adverse decision in any of these proceedings could significantly harm the Company’s business and consolidated financial position, results of operations or cash flows.

On June 23, 2017, Rovi Guides, Inc.

and TiVo Solutions Inc.

(together, “TiVo”) filed a patent infringement complaint against Videotron Ltd.

and Videotron G.P.

(together, “Videotron”) in Toronto, Canada, alleging infringement of six patents (“Videotron 1”).

Videotron was a prior licensee under the Rovi patent portfolio.

On June 10, 2022, the Court issued its decision in the case finding in favor of Videotron and its legacy illico platform.

Specifically, the Court found invalid each of the asserted claims of the four patents involved in the case.

In Canada, the prevailing party in patent litigation is entitled to reimbursement of certain of its costs and expenses.

Accordingly, while the exact reimbursement amount has yet to be determined, we have accrued $ 2.2 million for estimated expense reimbursement as of June 30, 2022.

This amount is included in litigation expense for the three and six months ended June 30, 2022.

The Company is currently unable to predict the final outcome of other lawsuits, including other patent infringement lawsuits in Canada, to which it is a party and therefore cannot determine the likelihood of loss nor estimate a range of possible losses.

An adverse decision in any of these proceedings could significantly harm the Company’s business and consolidated financial position, results of operations or cash flows.

The Company and its subsidiaries are involved in litigation matters and claims in the normal course of business.

1 unchanged sentence

The Company expects it or its subsidiaries will be involved in similar legal proceedings in the future, including proceedings regarding infringement of its patents, and proceedings to ensure proper and full payment of royalties by licensees under the terms of its license agreements.

The existing and any future legal actions may harm the Company’s business.

For example, legal actions could cause an existing licensee or strategic partner to cease making royalty or other payments to the Company, or to challenge the validity and enforceability of patents owned by the Company’s subsidiaries or the scope of license agreements with the Company’s subsidiaries, or could significantly damage the Company’s relationship with such licensee or strategic partner and, as a result, prevent the adoption of the Company’s other technologies by such licensee or strategic partner.

Litigation could also severely disrupt or shut down the business operations of licensees or strategic partners of the Company’s subsidiaries, which in turn would significantly harm ongoing relations with them and cause the Company to lose royalty revenue.

The costs associated with legal proceedings are typically high, relatively unpredictable, and not completely within the Company’s control.

These costs may be materially higher than expected, which could adversely affect the Company’s operating results and lead to volatility in the price of its common stock.

Whether or not determined in the Company’s favor or ultimately settled, litigation diverts managerial, technical, legal, and financial resources from the Company’s business operations.

Furthermore, an adverse decision in any of these legal actions could result in a loss of the Company’s proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from others, limit the value of the Company’s licensed technology or otherwise negatively impact the Company’s stock price or its business and consolidated financial results.

NOTE 16 – SEGMENT AND GEOGRAPHIC INFORMATION

The existing and any future legal actions may harm the Company’s business.

The costs associated with legal proceedings are typically high, relatively unpredictable, and not completely within the Company’s control.

These costs may be materially higher than expected, which could adversely affect the Company’s operating results and lead to volatility in the price of its common stock.

Whether or not determined in the Company’s favor or ultimately settled, litigation diverts managerial, technical, legal, and financial resources from the Company’s business operations.

NOTE 16 –

SEGMENT AND GEOGRAPHIC INFORMATION

The Company reports its financial results within two reportable segments:

(1) Intellectual Property (“IP”) Licensing and (2) Product.

There are certain corporate overhead costs that are not allocated to these reportable segments because these operating amounts are not considered in evaluating the operating performance of the Company’s business segments.

Reportable segments are identified based on the Company's organizational structure and information reviewed by the Company’s chief operating decision maker (“CODM”) to evaluate performance and allocate resources.

The Company’s Chief Executive Officer is also the CODM as defined by the authoritative guidance on segment reporting.

The IP Licensing segment consists primarily of licensing the Company’s innovations to leading companies in the broader entertainment and semiconductor industries, and those developing new technologies that will help drive the industries forward.

Licensing arrangements include access to one or more of the Company’s foundational patent portfolios and may also include access to some of its industry-leading technologies and proven know-how.

(1) Intellectual Property (“IP”) Licensing and (2) Product.

The Company’s Chief Executive Officer is also the CODM as defined by the authoritative guidance on segment reporting.

Licensing arrangements include access to one or more of the Company’s foundational patent portfolios and may also include access to some of its industry-leading technologies and proven know-how.

5 unchanged sentences

Although the CODM uses operating income to evaluate reportable segments, operating costs included in one segment may benefit other segments.

The following table sets forth the Company’s segment revenue, operating expenses and operating income for the three months ended March 31, 2022 and 2021 (in thousands):

The following table sets forth the Company’s segment revenue, operating expenses and operating income for the three and six months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

IP Licensing segment

12 unchanged sentences

(1) Unallocated operating expenses consist primarily of selling, marketing, general and administrative expenses, such as administration, human resources, finance, information technology, corporate development and procurement.

These expenses are not allocated because these amounts are not considered in evaluating the operating performance of the Company’s business segments.

A significant portion of the Company’s revenue is derived from licensees headquartered outside of the U.S., and it is expected that this revenue will continue to account for a significant portion of total revenue in future periods.

These expenses are not allocated because these amounts are not considered in evaluating the operating performance of the Company’s business segments.

The table below lists the geographic revenue for the periods indicated (in thousands):

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

Europe and Middle East

For the three months ended March 31, 2022 and 2021, there were one customer and no customers, respectively, that each accounted for 10% or more of total revenue.

As of both March 31, 2022 and December 31, 2021, there was one customer that individually accounted for 10% or more of total accounts receivable.

For the three months ended June 30, 2022 and 2021, there were one customer and no customers, respectively, that each accounted for 10% or more of total revenue.

For the six months ended June 30, 2022 and 2021, there were two customers and no customers, respectively, that each accounted for 10% or more of total revenue.

As of both June 30, 2022 and December 31, 2021, there were two customers and one customer that individuall y accounted for 10% or more of total accounts receivable.

NOTE 17 - SUBSEQUENT EVENTS

On April 29, 2022 , the Board declared a cash dividend of $ 0.05 per share of common stock, payable on June 21, 2022 to the stockholders of record at the close of business on May 31, 2022 .

At the 2022 annual stockholders meeting on April 29, 2022, shareholders approved (i) an amendment to the 2020 EIP adding an additional 8.8 million shares to the share reserve and (ii) an amendment to the 2020 ESPP adding an additional 6.0 million shares to the share reserve.

On July 1, 2022, the Company completed the acquisition ("Vewd Acquisition") of Vewd Software Holdings Limited ("Vewd") for total consideration of approximately $ 109 million, consisting of approximately $ 59 million of cash and $ 50 million of debt.

The term of the debt is 3 years with a fixed interest rate of 6 %.

Vewd is a leading global provider of over-the-top (“OTT”) and hybrid TV solutions.

The Company is currently evaluating the purchase price allocation following the consummation of the Vewd Acquisition.

It is not practicable to disclose the preliminary purchase price allocation or unaudited pro forma financial information for this transaction, given the short period of time between the acquisition date and the issuance of the Condensed Consolidated Financial Statements.

The operations acquired in the Vewd Acquisition will be included in the Company’s Product segment.

On J uly 29, 202 2 , the Board declared a cash dividend of $ 0.05 per share of common stock, payable on September 19, 2022 to the stockholders of record at the close of business on August 29, 2022 .

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to promote understanding of the results of operations and financial condition and should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited financial statements and notes thereto for the year ended December 31, 2021 found in the Form 10-K filed by Xperi Holding Corporation on February 24, 2022 (the “Form 10-K”).

This Quarterly Report contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995.

Words such as “expects,”

“anticipates,”

“plans,”

“believes,”

“seeks,”

“estimates,”

“could,”

“would,”

“may,”

“intends,”

“targets”

and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report.

The identification of certain statements as “forward-looking”

is not intended to mean that other statements not specifically identified are not forward-looking.

All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, product development, demand, acceptance and market share, growth rate, competitiveness, gross margins, levels of research, development and other related costs, expenditures, the outcome or effects of and expenses related to litigation and administrative proceedings related to our patents, our intent to enforce our intellectual property rights, our ability to license our intellectual property, tax expenses, cash flows, our ability to liquidate and recover the carrying value of our investments, our management’s plans and objectives for our current and future operations, our plans for quarterly dividends and stock repurchases, the levels of customer spending or research and development activities, general economic conditions, the impact of the COVID-19 pandemic and related events, the impact of the Mergers (as defined below) and other acquisitions on our financial condition and results of operations, our plans to separate our product and IP licensing businesses, and the sufficiency of financial resources to support future operations and capital expenditures.

Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us.

Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed under the heading “Risk Factors”

in our annual report on Form 10-K and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), such as our quarterly reports on Form 10-Q and our current reports on Form 8-K.

Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable.

Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report and are based on information currently and reasonably known to us.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report, other than as required by law.

Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects .

Business Overview

On December 18, 2019, Xperi Corporation (“Xperi”) entered into a definitive agreement with TiVo Corporation (“TiVo”), to combine in an all-stock merger of equals transaction (the “Mergers”).

Following consummation of the Mergers on June 1, 2020, Xperi Holding Corporation (“we”) became the parent company of both Xperi and TiVo.

We are a leading consumer and entertainment product/solutions licensing company and one of the industry’s largest intellectual property licensing platforms, with a diverse portfolio of media and semiconductor intellectual property and more than 11,000 patents and patent applications worldwide.

We create extraordinary experiences at home and on the go for millions of consumers around the world, elevating content and how audiences connect with it in a way that is more intelligent, immersive and personal.

Powering smart devices, connected cars, entertainment experiences and more, we have created a unified ecosystem that reaches highly engaged consumers, uncovering significant new business opportunities, now and in the future.

Our technologies are integrated into billions of consumer devices, media platforms, and semiconductors worldwide, driving increased value for partners, customers and consumers.

Headquartered in Silicon Valley with operations around the world, we have approximately 2,250 employees including the additions from the recent acquisition of Vewd Software Holdings Limited, and more than 35 years of operating experience.

We are currently planning, subject to any required regulatory approvals, a separation of our Product business and IP Licensing business through a tax-efficient transaction, resulting in two independent, publicly traded companies.

We currently anticipate that the separation will be completed in the fall of 2022.

COVID-19 Impact

The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business.

The impact to date has included periods of significant volatility in markets we serve, in particular the automotive and broad consumer electronics markets.

Additionally, the pandemic has caused some challenges and delays in acquiring new customers and executing license renewals.

These factors have negatively impacted our financial condition and results of operations, and may result in an impairment of our long-lived assets, including goodwill, increased credit losses and impairments of investments in other companies.

Our operations and those of our customers have also been negatively impacted by certain trends arising from the COVID-19 pandemic, including labor market constraints, shortage of semiconductor components and manufacturing capacities, and delays in shipments, product development and product launches.

Moreover, the COVID-19 pandemic, its related impact, and United States federal, state and foreign government policies enacted to combat the pandemic have contributed to a recent rise of inflation that may increase the cost of our operations and reduce demand for our products and services and those of our customers, which may adversely affect our financial performance.

Although a significant portion of our anticipated revenue for 2022 is derived from fixed-fee and minimum-guarantee arrangements, primarily from large, well-capitalized customers which we believe somewhat mitigates the risks to our business, our per-unit and variable-fee based revenue will continue to be susceptible to the volatility, labor shortages, supply chain disruptions, microchip shortages, and potential market downturns precipitated by the COVID-19 pandemic.

The impact of the pandemic on our overall results of operations remains uncertain for the foreseeable future.

Further discussion of the potential impacts on our business from the COVID-19 pandemic is provided under Part I, Item 1A –

Risk Factors of the Form 10-K.

Results of Operations

We derive the majority of our revenue from the licensing of our technologies and intellectual property (“IP”) rights to customers.

For our revenue recognition policy including descriptions of revenue-generating activities, refer to “Note 3 –

Revenue ”

of the Notes to Condensed Consolidated Financial Statements.

The following table presents our historical operating results for the periods indicated as a percentage of revenue:

Three Months Ended

Six Months Ended

Operating expenses:

Cost of revenue, excluding depreciation and amortization of intangible assets

Research, development and other related costs

Selling, general and administrative

Depreciation expense

Amortization expense

Litigation expense

Total operating expenses

Operating income

Interest expense

Other income (expense), net

Loss on debt extinguishment

Income before taxes

Provision for (benefit from) income taxes

Net income (loss)

Revenue (in thousands, except for percentages):

Three Months Ended

Increase/ (Decrease)

The increase in revenue for the three months ended June 30, 2022, compared to the same period in the prior year, was primarily due to the settlement of a contract dispute with a large mobile imaging customer and the execution of a long-term license agreement with a leading consumer electronics and OTT service provider, for which a portion of the total revenue was recognized in the second quarter of 2022.

The increase was partially offset by a decline in Product revenue from consumer hardware and legacy guides within the Pay TV market vertical and a one-time benefit to revenue in the second quarter of 2021 from a Stream 4K customer within the Media Platform market vertical.

Six Months Ended

Increase/ (Decrease)

The increase in revenue for the six months ended June 30, 2022, compared to the same period in the prior year, was primarily due to the execution of a new, multi-year license agreement with a large semiconductor company, the settlement of a contract dispute with a large mobile imaging customer, and the execution of a long-term license agreement with a leading consumer electronics and OTT service provider, for which a portion of the total revenue was recognized in the first two quarters of 2022.

The increase was partially offset by a decline in Product revenue driven largely by a decrease in revenue from consumer hardware and legacy guides within the Pay TV market vertical, one-time recovery of royalties from a customer in 2021 within Consumer Electronics market vertical, and one-time benefit to revenue in the second quarter of 2021 from a Stream 4K customer within the Media Platform market vertical.

Cost of Revenue, Excluding Depreciation and Amortization of Intangible Assets

Cost of revenue, excluding depreciation and amortization of intangible assets, consists primarily of employee-related costs, royalties paid to third parties, hardware product-related costs, maintenance costs and an allocation of facilities costs, as well as service center and other expenses related to providing our technology solution offerings and NRE services.

Three Months Ended

Increase/ (Decrease)

Cost of revenue, excluding depreciation and amortization of intangible assets

Cost of revenue, excluding depreciation and amortization of intangible assets is relatively flat for the three months ended June 30, 2022, compared to the same period in the prior year.

Six Months Ended

Increase/ (Decrease)

Cost of revenue, excluding depreciation and amortization of intangible assets

Cost of revenue, excluding depreciation and amortization of intangible assets is relatively flat for the six months ended June 30, 2022, compared to the same period in the prior year.

Research, Development and Other Related Costs

Research, development and other related costs (“R&D expense”) are comprised primarily of employee-related costs, stock-based compensation expense, engineering consulting expenses associated with new product and technology development, product commercialization, quality assurance and testing costs, as well as costs related to patent applications and examinations, reverse engineering, materials, supplies, and an allocation of facilities costs.

All research, development and other related costs are expensed as incurred.

Three Months Ended

Increase/ (Decrease)

Research, development and other related costs

The increase in R&D expense for the three months ended June 30, 2022, compared to the same period in the prior year, was primarily driven by higher personnel costs and increased bonus expense driven by expected higher bonus percentage attainment.

The increase in personnel costs was primarily driven by employees hired in connection with the acquisition of certain assets of MobiTV ("the MobiTV Acquisition") in May 2021.

Six Months Ended

Increase/ (Decrease)

Research, development and other related costs

The increase in R&D expense for the six months ended June 30, 2022, compared to the same period in the prior year, was primarily driven by higher personnel costs and increased bonus expense driven by expected higher bonus percentage attainment, partially offset by reductions in outside service and contractors expenditure in the first two quarters of 2022.

The increase in personnel costs was primarily driven by employees hired in connection with the MobiTV Acquisition in May 2021.

We believe that a significant level of R&D expense will be required for us to remain competitive in the future.

We also expect R&D expense to increase in future periods as a result of the Vewd acquisition which closed on July 1, 2022.

Selling, General and Administrative

Selling expenses consist primarily of compensation and related costs for sales and marketing personnel engaged in sales and licensee support, reverse engineering personnel and services, marketing programs, public relations, promotional materials, travel, trade show expenses, and stock-based compensation expense.

General and administrative expenses consist primarily of compensation and related costs for general management, information technology, finance personnel, legal fees and expenses, facilities costs, stock-based compensation expense, and professional services.

Our general and administrative expenses, other than facilities-related expenses, are not allocated to other expense line items.

Three Months Ended

Increase/ (Decrease)

Selling, general and administrative

The increase in selling, general, and administrative ("SG&A") expenses for the three months ended June 30, 2022, compared to the same period in the prior year, was primarily due to increased bonus expense driven by expected higher bonus percentage attainment and increased transaction costs related to the Vewd acquisition that closed subsequent to the second quarter of 2022, partially offset by a decrease in banker fees driven by the refinancing of debt that was completed in the second quarter of 2021.

Six Months Ended

Increase/ (Decrease)

Selling, general and administrative

The increase in SG&A expenses for the six months ended June 30, 2022, compared to the same period in the prior year, was primarily due to incremental stock-based compensation recognized in connection with the accelerated vesting of outstanding restricted stock units upon the separation of a former executive in the first quarter of 2022, an increase in costs related to planned business separation, increase in bonus expense driven by expected higher percentage attainment, partially offset by a reductions in the provision for credit losses and banker fees.

Depreciation Expense

Three Months Ended

Increase/ (Decrease)

Depreciation expense

Depreciation expense for the three months ended June 30, 2022 is relatively flat compared to the same period in the prior year.

Six Months Ended

Increase/ (Decrease)

Depreciation expense

Depreciation expense for the six months ended June 30, 2022 is relatively flat compared to the same period in the prior year.

Amortization Expense

Three Months Ended

Increase/ (Decrease)

Amortization expense

The decrease in amortization expense for the three months ended June 30, 2022, compared to the same period in the prior year, was primarily due to certain acquired intangible assets becoming fully amortized in late 2021 causing a decrease in the quarterly amortization expense in 2022 when compared to the same period in the prior year.

Six Months Ended

Increase/ (Decrease)

Amortization expense

The decrease in amortization expense for the six months ended June 30, 2022, compared to the same period in the prior year, was primarily due to certain acquired intangible assets becoming fully amortized in late 2021 causing a decrease in the quarterly amortization expense in 2022 when compared to the same period in the prior year.

Litigation Expense

Three Months Ended

Increase/ (Decrease)

Litigation expense

The increase in litigation expense for the three months ended June 30, 2022, compared to the same period in the prior year, was primarily due to a $2.2 million reserve recorded for estimated expense reimbursement due to Videotron as a result of the outcome of that litigation matter, partially offset by reduced case activity.

Six Months Ended

Increase/ (Decrease)

Litigation expense

The increase in litigation expense for the six months ended June 30, 2022, compared to the same period in the prior year, was primarily due to the previously mentioned $2.2 million reserve related to the Videotron matter, partially offset by reduced case activity.

We expect that litigation expense will continue to be a material portion of our operating expenses.

Litigation expense may fluctuate between periods because of planned or ongoing litigation, as described in Part II, Item 1 –

Legal Proceedings, and because of litigation planned for or initiated from time to time in the future in order to enforce and protect our intellectual property and contract rights.

Upon expiration of our customers’

licenses, if those licenses are not renewed, litigation may become necessary to secure payment of reasonable royalties for the use of our patented technology.

If we plan for or initiate such litigation, our future litigation expenses may increase.

Stock-based Compensation Expense

The following table sets forth our stock-based compensation (“SBC”) expense for the three and six months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

Six Months Ended

Cost of revenue, excluding depreciation and amortization of intangible assets

Research, development and other related costs

Selling, general and administrative

Total stock-based compensation expense

Stock-based compensation awards include employee stock options, restricted stock awards and units, and employee stock plan purchases.

The increase in SBC expense for the three months ended June 30, 2022, compared to the corresponding period in 2021, was primarily due to the increase in stock award grants made in 2021 resulting from the MobiTV Acquisition.

The increase in SBC expense for the six months ended June 30, 2022, compared to the corresponding period in 2021, was primarily a result of the accelerated vesting of outstanding restricted stock units upon the separation of a former executive, and secondarily from the increase in stock award grants made in 2021 resulting from the Mergers and the MobiTV Acquisition.

Interest Expense

Three Months Ended

Increase/ (Decrease)

Interest expense

The decrease in interest expense for the three months ended June 30, 2022, compared to the same period in the prior year, was primarily due to a lower average debt balance as compared to the same period in 2021 as we continue to pay down principal balance during the intervening period, and secondly to a reduction in interest rate as a result of the debt refinancing in June 2021.

Six Months Ended

Increase/ (Decrease)

Interest expense

The decrease in interest expense for the six months ended June 30, 2022, compared to the same period in the prior year, was primarily due to a lower average debt balance as compared to the same period in 2021 as we continue to pay down principal balance during the intervening period, and secondly to a reduction in interest rate as a result of the debt financing in June 2021.

We anticipate interest expense will decrease in 2022 when compared to 2021 as a result of a full year of the lower debt balance and amortization of debt discount and issuance costs.

However, those reductions are expected to be partially offset by increasing interest rates since the interest rate on our existing debt is variable.

In addition, we will incur additional interest expense as a result of $50.0 million debt assumed under the Vewd Acquisition which closed on July 1, 2022.

Other Income and Expense, Net

Three Months Ended

Increase/ (Decrease)

Other income, net

Other income, net for the three months ended June 30, 2022 is relatively flat compared to the same period in the prior year.

Six Months Ended

Increase/ (Decrease)

Other income, net

The decrease in other income, net for the six months ended June 30, 2022, compared to the same period in the prior year, was primarily driven by decrease in realized loss on investment and other miscellaneous income in the 2022 period, partially offset by an increase interest income due to the execution of a multi-year license agreement with a large semiconductor customer in the first quarter of 2021.

Loss on Debt Extinguishment

In June 2021, we refinanced the 2020 Term B Loan Facility by, among other things, lowering the interest rate on the debt.

Certain lenders of the original loan syndication did not participate in the refinancing.

Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment and recorded, in the second quarter of 2021, a loss on debt extinguishment of $8.0 million related to the write-off of unamortized debt discount and issuance costs for the portions of the 2020 Term B Loan Facility considered to be extinguished.

Provision for Income Taxes

Our provision for income taxes is based on our worldwide estimated annualized effective tax rate.

For jurisdictions in which a loss is forecast but no benefit can be realized for those losses, the tax is estimated separately.

In certain circumstances we also record the income tax effects of discrete transactions in the quarter in which the transaction has occurred.

Foreign withholding taxes, U.S.

federal and state income taxes, and unrealized foreign exchange loss from the prior South Korea refund claims are the primary drivers of income tax expense and the primary reasons for cash tax payments of income taxes.

For the three and six months ended June 30, 2022, our effective tax rate varies significantly from the 21% U.S.

federal tax rate due to foreign withholding taxes, state income taxes, and unrealized foreign exchange loss from prior South Korea refund claims.

For the three months ended June 30, 2022, we recorded an income tax expense of $22.1 million on pretax income of $15.7 million, and for the six months ended June 30, 2022 we recorded an income tax expense of $43.7 million on pretax income of $61.2 million, which resulted in an effective tax rate of 71.4% for the six months ended June 30, 2022.

The income tax expense for the three and six months ended June 30, 2022 was primarily related to foreign withholding taxes, U.S.

federal income tax, state income taxes, and unrealized foreign exchange loss from the prior South Korea refund claims.

For the three months ended June 30, 2021, we recorded an income tax benefit of $2.9 million on pretax loss of $4.7 million, and for the six months ended June 30, 2021, we recorded an income tax benefit of $6.9 million on pretax loss of $4.2 million, which resulted in an effective tax rate of 162.6% for the six months ended June 30, 2021.

The income tax benefit for the three and six months ended June 30, 2021 was primarily related to projected negative U.S.

effective tax rate applied to a year-to-date U.S.

profit before tax.

The year-over-year increase in income tax expense for the quarter ended June 30, 2022 is largely attributable to the application of a negative effective tax rate to the June 30, 2021 year-to-date U.S.

pre-tax income.

The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets are recoverable.

Such assessment is required on a jurisdiction-by-jurisdiction basis.

In making such assessment, significant weight is given to evidence that can be objectively verified.

After considering both positive and negative evidence to assess the recoverability of our net deferred tax assets, we determined that it was not more-likely-than-not that we would realize our federal, certain state and certain foreign deferred tax assets given the substantial amount of tax attributes that will remain unutilized to offset forecasted future tax liabilities.

In the future, we may release our deferred tax asset valuation allowance associated with our federal, state or foreign deferred tax assets depending on achievement of future profitability in relevant jurisdictions or the implementation of tax planning strategies that enable us to utilize deferred tax assets.

There can be no assurance that we will generate profits or implement tax strategies in future periods enabling us to fully realize our deferred tax assets.

The timing of recording a deferred tax asset valuation allowance or the reversal of such valuation allowance is subject to objective and subjective factors that cannot be known in advance.

We intend to continue maintaining a full valuation allowance on our federal deferred tax assets until there is sufficient evidence to support the reversal of all or a portion of these allowances.

However, given our current earning and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of our federal valuation allowance will no longer be needed.

Release of the valuation allowance would result in the recognition of certain federal deferred tax assets and a decrease to income tax expense for the period the release is recorded.

Segment Operating Results

We operate in two reportable segments:

(1) IP Licensing and (2) Product.

Our Chief Executive Officer has been determined to be the Chief Operating Decision Maker (“CODM”) in consideration with the authoritative guidance on segment reporting.

In our IP Licensing segment, we primarily license our innovations to leading companies in the broader entertainment and semiconductor industries, and those developing new technologies that will help drive the industries forward.

Licensing arrangements include access to one or more of our foundational patent portfolios and may also include access to some of our industry-leading technologies and proven know-how.

In our Product segment, we derive the majority of the revenue from licensing our technology to customers primarily through Technology License arrangements and Technology Solutions arrangements.

For Technology License arrangements, the customer obtains rights to the technology delivered at the commencement of the agreement.

For Technology Solutions arrangements, the customer receives access to a platform, media or data that includes frequent updates, where access to such updates is critical to the functionality of the technology.

We do not identify or allocate assets by reportable segment, nor does the CODM evaluate reportable segments using discrete asset information.

Reportable segments do not record inter-segment revenue and accordingly there are none to report.

Although the CODM uses operating income to evaluate reportable segments, operating costs included in one segment may benefit other segments.

The following table sets forth our segments’

revenue, operating expenses and operating income (in thousands):

Three Months Ended

Six Months Ended

IP Licensing segment

Product segment

Total revenue

Operating expenses:

IP Licensing segment

Product segment

Unallocated operating expenses

Total operating expenses

Operating income:

IP Licensing segment

Product segment

Unallocated operating expenses

Total operating income

For the three months ended June 30, 2022, the unallocated operating expenses were $73.3 million, compared to $69.1 million for the three months ended June 30, 2021.

The increase of $4.2 million was due principally to incremental bonus expense as a result of expected higher bonus percentage attainment and increased transaction costs related to the Vewd Acquisition that closed subsequent to the second quarter of 2022, partially offset by a decrease in banker fees as a result of the refinancing of debt that was completed in the second quarter of 2021.

For the six months ended June 30, 2022, the unallocated operating expenses were $144.9 million compared to $138.2 million for the six months ended June 30, 2021.

The increase of $6.7 million is primarily due to incremental stock-based compensation recognized in connection with the accelerated vesting of outstanding restricted stock units upon the separation of a former executive in the first quarter of 2022, an increase in costs related to planned business separation, and increase in bonus expense driven by expected higher bonus percentage attainment, partially offset by a reduction in the provision for credit losses, and reduced banker fees.

The revenue and operating income amounts in this section have been presented on a basis consistent with GAAP applied at the segment level.

As of June 30, 2022, we had a total of $850.1 million in goodwill, approximately $322.3 million of which was allocated to our IP Licensing segment and approximately $527.8 million of which was allocated to our Product segment.

IP Licensing Segment

Three Months Ended

Six Months Ended

Operating expenses:

Cost of revenue, excluding depreciation and amortization of intangible assets

Research, development and other related costs

Total operating expenses

Total operating income

IP Licensing revenue for the three months ended June 30, 2022 was $107.8 million as compared to $101.8 million for the three months ended June 30, 2021, an increase of $6.0 million.

The increase was primarily attributable to the execution of a long-term license agreement with a leading consumer electronics and OTT service provider for which a meaningful portion of the total revenue was recognized in the quarter, partially offset by a decline in revenue from Media IP licensing business due to past royalty revenue recorded in the second quarter of 2021.

IP Licensing revenue for the six months ended June 30, 2022 was $246.4 million as compared to $199.9 million for the six months ended June 30, 2021, an increase of $46.5 million.

The increase was primarily attributable to a new, multi-year license agreement with a large semiconductor customer and a new, long-term license agreement with a leading consumer electronics and OTT service provider for which a meaningful portion of the total revenue was recognized in the first six months of 2022.

Operating expenses for the three months ended June 30, 2022 were $38.5 million, as compared to $34.9 million for the three months ended June 30, 2021, an increase of $3.6 million.

The increase was primarily due to an increase in R&D costs due to increased headcount and personnel costs as well as investments in both Media and Semiconductor technology and an increase in litigation expense.

Operating expenses for the six months ended June 30, 2022 were $73.8 million, as compared to $68.4 million for the six months ended June 30, 2021, an increase of $5.4 million.

The increase was primarily due to an increase in R&D costs due to increased headcount and personnel costs as well as investments in both Media and Semiconductor technology.

Litigation expenses for the three months ended June 30, 2022, were $2.8 million, as compared to $1.7 million for the three months ended June 30, 2021, an increase of $1.1 million.

The increase was primarily due to a $2.2 million reserve recorded for estimated expense reimbursement due to Videotron as a result of the outcome of that litigation matter, partially offset by reduced case activity.

Litigation expenses for the six months ended June 30, 2022, were $3.9 million, as compared to $3.2 million for the six months ended June 30, 2021, an increase of $0.7 million.

The increase was primarily due to the reasons stated above.

We expect that litigation expense will continue to be a material portion of our operating expenses and may fluctuate between periods because of planned or ongoing litigation, as described in Part II, Item 1 –

Legal Proceedings, in this report, and because of litigation planned for or initiated from time to time in the future in order to enforce and protect our intellectual property and contract rights.

Operating income for the three months ended June 30, 2022 was $69.3 million, as compared to $67.0 million for the three months ended June 30, 2021, an increase of $2.4 million.

The increase was primarily due to reasons stated above, including the execution of a long-term IP license agreement with a leading consumer electronics and OTT service provider.

Operating income for the six months ended June 30, 2022 was $172.6 million, as compared to $131.4 million for the six months ended June 30, 2021, an increase of $41.2 million.

The increase was primarily due to reasons stated above, including the execution of a multi-year IP license agreement with a large semiconductor customer and a long-term IP license agreement with a leading consumer electronics and OTT service provider.

Product Segment

Three Months Ended

Six Months Ended

Operating expenses:

Cost of revenue, excluding depreciation and amortization of intangible assets

Research, development and other related costs

Total operating expenses

Total operating income

Product revenue for the three months ended June 30, 2022 was $126.2 million as compared to $120.4 million for the three months ended June 30, 2021, an increase of $5.8 million.

The increase was primarily attributable to the settlement of a contract dispute with a large mobile imaging customer partially offset by a decrease in revenue from consumer hardware and legacy guides within the Pay TV market vertical and a one-time benefit to revenue in the second quarter of 2021 from a Stream 4K customer within the Media Platform market vertical.

Product revenue for the six months ended June 30, 2022 was $245.1 million as compared to $244.0 million for the six months ended June 30, 2021, an increase of $1.1 million.

The increase was primarily attributable to increased revenue from the settlement of a contract dispute with a large mobile imagining customer partially offset by significant settlement of past royalties from a customer in the first quarter of 2021, and to continued supply chain constraints that impacted our customers’

shipment volumes in our Connected Car and Consumer Electronics businesses.

Operating expenses for the three months ended June 30, 2022 were $97.4 million, as compared to $105.0 million for the three months ended June 30, 2021, a decrease of $7.6 million.

The decrease was primarily due to lower amortization expense, partially offset by an increase in R&D cost primarily due to employees hired in connection with the MobiTV Acquisition in May 2021.

The lower amortization was attributable to certain intangible assets becoming fully amortized in the fourth quarter of 2021.

Operating expenses for the six months ended June 30, 2022 were $194.9 million, as compared to $213.6 million for the six months ended June 30, 2021, a decrease of $18.7 million.

The decrease was primarily driven by lower amortization expense, partially offset by an increase in R&D cost primarily due to employees hired in connection with the MobiTV Acquisition in May 2021.

The lower amortization was attributable to certain intangible assets becoming fully amortized in the fourth quarter of 2021.

Operating income for the three months ended June 30, 2022 was $28.8 million, as compared to $15.4 million for the three months ended June 30, 2021, an increase of $13.4 million.

The increase was primarily due to reasons stated above.

Operating income for the six months ended June 30, 2022 was $50.2 million, as compared to $30.4 million for the six months ended June 30, 2021, an increase of $19.7 million.

The increase was primarily due to reasons stated above.

Liquidity and Capital Resources

The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents as of and for the periods presented.

(in thousands, except for percentages)

June 30, 2022

December 31, 2021

Cash and cash equivalents

Short-term investments

Total cash, cash equivalents and short-term investments

Percentage of total assets

Six Months Ended June 30,

Net cash from operating activities

Net cash from investing activities

Net cash from financing activities

Our primary sources of liquidity and capital resources are our operating cash flows and our short-term investments.

Cash, cash equivalents and short-term investments were $285.8 million at June 30, 2022, an increase of $24.2 million from $261.7 million at December 31, 2021.

This increase resulted primarily from $87.0 million in cash generated from operations, $28.3 million in proceeds from sales of investments $26.1 million in proceeds from maturities of investments and $8.1 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans, which was partially offset by $10.4 million in dividends paid, $28.7 million in repurchases of common stock, $20.3 million in repayment of long-term debt, and $8.9 million of capital expenditures.

Cash and cash equivalents totaled $275.3 million at June 30, 2022, an increase of $74.2 million from $201.1 million at December 31, 2021.

On July 1, 2022, the Company closed the Vewd Acquisition for total consideration of approximately $109 million, consisting of approximately $59 million of cash and $50 million of debt.

The term of the debt is 3 years and the interest rate is fixed at 6%.

The primary objectives of our investment activities are to preserve principal and to maintain liquidity while at the same time capturing a market rate of return.

To achieve these objectives, we maintain a diversified portfolio of securities including money market funds and debt securities including corporate bonds and notes, municipal bonds and notes, commercial paper, treasury and agency notes and bills and certificates of deposit.

We invest excess cash predominantly in high-quality investment grade debt securities with less than three years to maturity.

Our marketable debt securities are classified as available-for-sale (“AFS”) with credit losses recognized as a credit loss expense and non-credit related unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income or loss.

For information about our material cash requirements, see “Liquidity and Capital Resources”

in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

Other than the principal payment of $20.3 million made by us under the Refinanced Term B Loans during the six months ended June 30, 2022, our cash requirements have not changed materially since December 31, 2021.

In addition to our cash requirements, we have returned cash to stockholders through both quarterly dividend payments and repurchases of our common stock under our stock repurchase plan.

Quarterly Dividends

In July 2022, our Board of Directors authorized payment of a quarterly dividend of $0.05 per share, to be paid in September 2022.

We anticipate that all quarterly dividends will be paid out of cash, cash equivalents and short-term investments.

Stock Repurchase Plan

On June 12, 2020, our Board of Directors terminated a prior stock repurchase program and approved a new stock repurchase plan (the “Plan”) providing for the repurchase of up to $150.0 million of our common stock dependent on market conditions, share price and other factors.

No expiration has been specified for this Plan.

On April 22, 2021, our Board of Directors authorized an additional $100.0 million of purchases under the Plan.

The stock repurchases may be made from time to time, through solicited or unsolicited transactions in the open market, in privately negotiated transactions, or pursuant to a Rule 10b5-1 plan.

Since the inception of the Plan, and through June 30, 2022, we have repurchased an aggregate of approximately 10.0 million shares of common stock at a total cost of $172.2 million at an average price of $17.24.

During the three months ended March 31, 2022, we repurchased an aggregate of approximately 1.0 million shares of common stock at a total cost of $17.3 million at an average price of $16.78.

We did not repurchase any stock during the three months ended June 30, 2022.

As of June 30, 2022, the total remaining amount available for repurchase under the Plan was $77.8 million.

We may continue to execute authorized repurchases from time to time under the Plan.

The amount and timing of any repurchases under the Plan depend on a number of factors, including but not limited to, the trading price, volume and availability of our common shares.

In addition, as we plan for the separation of our Product business and IP Licensing business we may reduce or suspend share repurchases as we plan for the capital needs of two independent businesses.

There is no guarantee that such repurchases under the Plan will enhance the value of our common stock.

From 2020 through the second quarter of 2022, we generated approximately $796 million of cash flows from operating activities.

While we expect to continue to generate cash flows from operating activities in 2022, the COVID-19 pandemic continues to present uncertainties as to the level of such cash flows as compared to prior years.

Additionally, transaction costs relating to the planned separation of our two business segments are expected to impact operating cash flows for at least the next 6 months.

We have taken actions to manage cash flows by reducing discretionary spending and other variable costs, and closely monitoring receivables and payables.

We believe that based on current levels of operations and anticipated growth, our cash from operations, together with cash, cash equivalents and investments currently available, will be sufficient to satisfy our currently anticipated cash requirements through at least the next twelve (12) months and thereafter for the foreseeable future.

Poor financial results, unanticipated expenses, unanticipated acquisitions of technologies or businesses, or unanticipated strategic investments could give rise to additional financing requirements sooner than we expect.

There can be no assurance that equity or debt financing will be available when needed or, if available, that such financing will be on terms satisfactory to us.

The sale of additional equity securities could result in dilution to our stockholders.

The incurrence of indebtedness would result in increased debt service obligations and may include covenants that would restrict our operations.

Cash Flows from Operating Activities

Cash flows provided by operations were $87.0 million for the six months ended June 30, 2022, primarily due to our net income of $17.5 million being further adjusted for non-cash items of depreciation of $11.4 million, amortization of intangible assets of $78.5 million and stock-based compensation expense of $32.3 million.

These increases were partially offset by $54.1 million in changes in operating assets and liabilities including payment during the first quarter of employee bonuses earned in 2021.

Cash flows provided by operations were $83.0 million for the six months ended June 30, 2021, primarily due to our net income of $2.7 million being further adjusted for non-cash items of depreciation of $11.2 million, amortization of intangible assets of $104.4 million, stock-based compensation expense of $28.1 million and a loss on debt extinguishment of $8.0 million.

These increases were partially offset by $77.9 million in changes in operating assets and liabilities including payments of employee annual bonuses earned in 2020.

Cash Flows from Investing Activities

Net cash provided by investing activities was $40.8 million for the six months ended June 30, 2022, primarily related to maturities and sales of securities of $54.3 million, partially offset by purchases of short-term investments of $4.5 million and capital expenditures of $8.9 million.

The sales of securities included activity in late June in anticipation of the Vewd Acquisition which closed on July 1, 2022.

Net cash used in investing activities was $6.2 million for the six months ended June 30, 2021, primarily related to purchases of short-term investments of $45.8 million, cash used in the MobiTV Acquisition of $17.4 million and capital expenditures of $4.9 million, partially offset by maturities and sales of securities of $61.9 million.

Capital Expenditures

Our capital expenditures for property, plant, and equipment consist primarily of purchases of computer hardware and software, information systems, production and test equipment.

During the six months ended June 30, 2022 and 2021, we spent $8.9 million and $4.9 million on capital expenditures, respectively, and we expect capital expenditures in 2022 to be between $20.0 million to $25.0 million.

These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents, and short-term investments.

There can be no assurance that current expectations will be realized and plans are subject to change upon further review of our capital expenditure needs.

Cash Flows from Financing Activities

Net cash used in financing activities was $51.3 million for the six months ended June 30, 2022 principally due to $20.3 million in repayment of indebtedness, $10.4 million in dividends paid, and $28.7 million in repurchases of common stock, partially offset by $8.1 million in proceeds due to the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Net cash used in financing activities was $117.2 million for the six months ended June 30, 2021 principally due to $63.8 million in repayment of indebtedness, $6.8 million in debt refinancing costs, $10.5 million in dividends paid, and $43.3 million in repurchases of common stock, partially offset by $7.2 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Long-term Debt

On June 8, 2021, we amended that certain Credit Agreement dated June 1, 2020 by and among us, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “2020 Credit Agreement”).

The 2020 Credit Agreement initially provided for a five-year senior secured term B loan facility in an aggregate principal amount of $1,050 million (the “2020 Term B Loan Facility”).

In connection with the amendment (the “Amendment”), we made a voluntary prepayment of $50.6 million of the term loan outstanding under the 2020 Credit Agreement using cash on hand.

The Amendment provided for, among other things, (i) a new tranche of term loans (the “Refinanced Term B Loans”) in an aggregate principal amount of $810.0 million, (ii) a reduction of the interest rate margin applicable to such loans to (x) in the case of base rate loans, 2.50% per annum and (y) in the case of Eurodollar loans, LIBOR plus a margin of 3.50% per annum, (iii) a prepayment premium of 1.00% in connection with any repricing transaction with respect to the Refinanced Term B Loans within six months of the closing date of the Amendment, (iv) an extension of the maturity to June 8, 2028, and (v) certain additional amendments, including amendments to provide us with additional flexibility under the covenant governing restricted payments.

We commenced repaying quarterly installments under the Refinanced Term B Loans in the third quarter of 2021.

At June 30, 2022, $769.5 million was outstanding under the Refinanced Term B Loans with an interest rate, including amortization of debt discount and issuance costs, of 4.56%.

Interest is payable monthly.

Under the existing loan agreements, we have future minimum principal payments for our debt of $20.3 million for the remainder of 2022, $40.5 million in each year from 2023 through 2027, with the remaining principal balance of $546.8 million due in 2028.

We are obligated to pay a portion of excess cash flow on an annual basis beginning in March 2023 based on certain leverage ratios and our excess cash flow generated for the immediately preceding calendar year.

The Refinanced Term B Loans contain customary covenants, and as of June 30, 2022, we were in full compliance with such covenants.

Critical Accounting Policies and Estimates

During the three and six months ended June 30, 2022, there were no significant changes in our critical accounting policies and estimates.

See “Note 2 –

Summary of Significant Accounting Policies”

of Notes to the Condensed Consolidated Financial Statements for additional detail.

For a discussion of our critical accounting policies and estimates, see Part II, Item 7 –

Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.

Recent Accounting Pronouncements

See “Note 2 –

Summary of Significant Accounting Policies”

of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption.

Quantitative and Qualitati ve Disclosures About Market Risk

For a discussion of our market risk, see Part II, Item 7A –

Quantitative and Qualitative Disclosures About Market Risk in the Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements