What changed in this filing

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Item 1. Financial Statements

2023-05-08 compared with 2022-11-09 · 501 added, 977 removed, 563 unchanged (72% of the section changed)

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Operating expenses:

Cost of revenue, excluding depreciation and amortization of intangible assets

Research, development and other related costs

Research and development

Selling, general and administrative

Depreciation expense

Amortization expense

Litigation expense

Goodwill impairment

Total operating expenses

Operating income (loss)

Operating income from continuing operations

Interest expense

Other income and expense, net

Loss on debt extinguishment

Loss before taxes

Income from continuing operations before income taxes

Provision for income taxes

net loss attributable to noncontrolling interest

Net loss attributable to the Company

Loss per share attributable to the Company:

Weighted average number of shares used in per share

calculations-basic

Weighted average number of shares used in per share

calculations-diluted

Net income from continuing operations

Net loss from discontinued operations, net of tax

Net loss attributable to non-controlling interest in

discontinued operations

Net income attributable to the Company

Income (loss) per share:

Continuing operations

Discontinued operations

Continuing operations

Discontinued operations

Weighted average number of shares used in per share calculations-basic

Weighted average number of shares used in per share calculations-diluted

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPR EHENSIVE INCOME (LOSS)

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

Other comprehensive income (loss), net of tax:

Change in foreign currency translation adjustment

Net unrealized loss on available-for-sale

debt securities

Other comprehensive loss, net of tax

Comprehensive loss

Net unrealized losses on available-for-sale debt securities

Other comprehensive income (loss), net of tax

Comprehensive income

Comprehensive loss attributable to noncontrolling interest

Comprehensive loss attributable to the Company

Comprehensive income attributable to the Company

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

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(in thousands, except for par value)

September 30,

Current assets:

Cash and cash equivalents

Available-for-sale debt securities

Accounts receivable, net of allowance for credit losses of $ 1,463 and $ 713 , respectively

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Intangible assets, net

Goodwill, net

Long-term income tax receivable

Other long-term assets

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Accrued liabilities

Current portion of long-term debt, net

Current portion of long-term debt

Deferred revenue

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Deferred revenue, less current portion

Long-term deferred tax liabilities

Long-term debt, net

Noncurrent operating lease liabilities

Long-term income tax payable

Other long-term liabilities

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Commitments and contingencies (Note 15 )

Company stockholders’

Stockholders’

Preferred stock:

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authorized 15,000 shares;

and no shares issued and outstanding)

authorized 15,000 shares and no shares issued and outstanding)

Common stock:

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authorized 350,000 shares, issued 119,174 shares, outstanding 106,285 shares;

authorized 350,000 shares, issued 113,460 , outstanding 103,260 shares)

authorized 350,000 shares, issued 117,392 shares, outstanding 105,167 shares)

Additional paid-in capital

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Accumulated other comprehensive loss

Retained earnings (accumulated deficit)

Total Company stockholders’

Noncontrolling interest

Accumulated deficit

Total stockholders’

Total liabilities and equity

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(in thousands)

Nine Months Ended

September 30, 2022

September 30, 2021

Three Months Ended

March 31, 2023

March 31, 2022

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash from operating activities:

Adjustments to reconcile net income to net cash from operating activities:

Depreciation of property and equipment

Amortization of intangible assets

Goodwill impairment

Stock-based compensation expense

Deferred income taxes

Loss on debt extinguishment

Patent assets received in lieu of cash

Amortization of debt issuance costs

Changes in operating assets and liabilities:

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Purchases of property and equipment

Proceeds from sale of property and equipment

Cash paid for acquisitions, net of cash acquired

Purchases of intangible assets

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Repayment of debt

Debt refinancing costs

Proceeds from employee stock purchase program and exercise of stock options

Repurchases of common stock

Repurchases of common stock for tax withholdings on equity awards

Net cash from financing activities

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Income taxes paid, net of refunds

Debt acquired in a business acquisition

Cash flows above are presented on a consolidated basis and therefore also include $ 135.0 million of cash and cash equivalents included in current assets of discontinued operations in the condensed consolidated balance sheet as of March 31, 2022.

Refer to "Note 7 –

Discontinued Operations" for additional information related to cash flows from discontinued operations.

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

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

Total Company Stockholders' Equity

Three Months Ended September 30, 2022

Treasury Stock

Comprehensive

Retained Earnings

Noncontrolling

(Accumulated Deficit)

Balance at July 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 common stock in connection with employee stock purchase plan

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 September 30, 2022

Total Company Stockholders' Equity

Nine Months Ended September 30, 2022

(in thousands, except per share amount)

Three Months March 31, 2023

Paid-In Capital

Treasury Stock

Comprehensive

Retained Earnings

Noncontrolling

(Accumulated Deficit)

Other Comprehensive Income (Loss)

Stockholders' Equity

Balance at January 1, 2023

Issuance of subsidiary shares to noncontrolling interest

Other comprehensive loss

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 common stock in connection with employee stock purchase plan

Issuance of restricted stock, net of shares canceled

Repurchases of common stock, shares exchanged

Shares exchanged and returned to assumed plans

Repurchases of common stock

Withholding taxes related to net share settlement of restricted awards

Stock-based compensation expense

Balance at September 30, 2022

Balance at March 31, 2023

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

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

Total Company Stockholders' Equity

Three Months Ended September 30, 2021

Treasury Stock

Comprehensive

Noncontrolling

Income (Loss)

Balance at July 1, 2021

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 common stock in connection with employee stock purchase plan

Issuance of restricted stock, net of shares canceled

Repurchases of common stock, shares exchanged

Repurchases of common stock

Stock-based compensation expense

Balance at September 30, 2021

(in thousands, except per share amount)

Total Company Stockholders' Equity

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Treasury Stock

Comprehensive

Noncontrolling

Income (Loss)

Comprehensive Loss

Noncontrolling Interest

Balance at January 1, 2022

Issuance of subsidiary shares to noncontrolling interest

Net income (loss)

Other comprehensive loss

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Stock-based compensation expense

Balance at September 30, 2021

Balance at March 31, 2022

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO COND ENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –

THE COMPANY AND BASIS OF PRESENTATION

(formerly known as Xperi Holding Corporation) (the "Company") a Delaware corporation, is one of the industry’s largest intellectual property ("IP") licensing platforms, with a diverse portfolio of media and semiconductor intellectual property and more than 9,500 patents and patent applications worldwide.

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, 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.”

On October 1, 2022, the Company completed the previously announced separation ("the Separation") of its product business into a separate, independent publicly traded company, Xperi Inc.

("Xperi Inc.").

The Separation was structured as a spin-off (the "Spin-off"), which was achieved through the Company's distribution (the "Distribution") of 100 percent of the outstanding shares of Xperi Inc.'s common stock to holders of the Company's common stock as of the close of business on the record date of September 21, 2022 (the "Record Date").

(the “Company”), a Delaware corporation, is one of the industry’s largest intellectual property (“IP”) licensing platforms, with a diverse portfolio of media and semiconductor IP and more than 9,950 patents and patent applications worldwide.

On October 1, 2022, the Company completed the previously announced separation (“the Separation”) of its product business into a separate, independent, publicly-traded company, Xperi Inc.

(“Xperi Inc.”).

The Separation was structured as a spin-off, which was achieved through the Company’s distribution of 100 percent of the outstanding shares of Xperi Inc.’s common stock to holders of the Company’s common stock as of the close of business on the record date of September 21, 2022 (the “Record Date”).

Each Company stockholder of record received four shares of Xperi Inc.

common stock for every ten shares of Company common stock that it held on the Record Date.

Following the Separation, the Company retains no ownership in Xperi Inc., which is now listed under the ticker symbol "XPER" on the New York Stock Exchange.

Effective at the open of business on October 3, 2022, the Company's shares of common stock, par value $ 0.001 per share, began trading on the Nasdaq Global Select Market under the new ticker symbol "ADEA".

is a leading consumer and entertainment product/solutions licensing 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, Xperi Inc.

has created a unified ecosystem that reaches highly engaged consumers and uncovers significant new business opportunities, now and in the future.

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

The Company's financial results for the three and nine months ended September 30, 2022 include Xperi Inc., and the discussion in these notes to the interim unaudited condensed consolidated financial statements describes the historical results and business of Xperi Inc.

With the completion of the Separation, the Company will no longer consolidate Xperi Inc.

into its financial results and the historical results of Xperi Inc.

will be presented as discontinued operations in the Company's consolidated financial statements beginning in the fourth quarter of 2022.

Additionally, as a result of the Separation, the Company changed its organizational structure in the fourth quarter of 2022, resulting in one reportable segment:

Following the Separation, the Company retains no ownership in Xperi Inc., which is now listed under the ticker symbol “XPER”

on the New York Stock Exchange.

Effective at the open of business on October 3, 2022, the Company’s shares of common stock, par value $ 0.001 per share, began trading on the Nasdaq Global Select Market under the new ticker symbol “ADEA”.

The accounting requirements for reporting the separation of Xperi Inc.

as a discontinued operation were met when the Separation was completed.

Accordingly, the historical financial results of Xperi Inc.

for periods prior to the Separation are presented as net loss from discontinued operations, net of tax on the Condensed Consolidated Statements of Operations.

For further information on discontinued operations, see “Note 7 –

Discontinued Operations”

Unless noted otherwise, discussion in the Notes to the Condensed Consolidated Financial Statements pertains to continuing operations.

Additionally, as a result of the Separation, the Company changed its operational structure in the fourth quarter of 2022, resulting in one reportable segment:

IP Licensing.

Since these organizational changes did not occur until the fourth quarter of 2022, the periods presented in this Form 10-Q are reported under historical segments.

See “Note 16 - Segment and Geographic Information ”

for additional information.

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 consolidated 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 amounts as of December 31, 2022 have been derived from the Company’s annual audited Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 1, 2023 (the “Form 10-K”).

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

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In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented.

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 and nine months ended September 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 September 30, 2022, the Company’s ownership interest in Perceive was approximately 77 %.

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

As of October 1, 2022 the Company had no ownership interest in Perceive as Xperi Inc.

retained the ownership interest in connection with the Separation.

These Condensed Consolidated Financial Statements should be read in conjunction with the annual audited Consolidated Financial Statements and notes thereto included in the Form 10-K as of and for the year ended December 31, 2022.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023 or any future period and the Company makes no representations related thereto.

Reclassification

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2023, as compared to the significant accounting policies described in the Form 10-K.

Use of Estimates

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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.

The accounting estimates and assumptions that require management’s most significant, challenging and subjective judgment include identifying the performance obligations in the contract, estimating variable consideration, estimating quarterly royalties prior to receiving the royalty reports from the licensees, determining standalone selling prices, allocating consideration in a contract with multiple performance obligations, 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.

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 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.

ASU 2021-08 is effective for public business entities for fiscal years beginning after December 15, 2022 and early adoption is permitted.

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

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

Recent Accounting Pronouncements

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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.

ASU 2020-04 provides optional expedients and exceptions for applying U.S.

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.

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ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”), which deferred the application dates of Topic 848 to December 31, 2024.

The Company currently has debt agreements that reference LIBOR and will apply the amendments prospectively through December 31, 2024 as these contracts are modified to reference other rates.

The Company does not anticipate the adoption will have a material impact to the Company’s Condensed Consolidated Financial Statements.

NOTE 3 –

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services, which may include various combinations of goods and services which are generally capable of being distinct and accounted for as separate performance obligations.

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

Revenue is recognized when control of the intellectual property (“IP”) rights is transferred to a customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for the licensing of the Company’s IP, which may include various combinations of IP rights and services which are generally capable of being distinct and accounted for as separate performance obligations.

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.

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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.

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.

In a contract with multiple performance obligations, the transaction price is allocated among the separate performance obligations on a relative standalone selling price basis.

The determination of standalone 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, standalone selling price for separate performance obligations is based on the adjusted market assessment approach to estimate the price that a customer in the relevant market would be willing to pay for licensing the Company’s IP rights.

The allocation of transaction price among performance obligations in a contract may impact the amount and timing of revenue recognized in the Condensed Consolidated Statements of Operations during a given period.

When a contract with a customer includes a variable transaction price, an estimate of the consideration that the Company expects to be entitled to for transferring the promised goods or services is made at contract inception.

The amount of variable consideration is estimated at contract inception by considering all available information (historical, current and forecast) at the time and is updated as additional information becomes available.

When a contract with a customer includes variable consideration, an estimate of the consideration which the Company expects to be entitled to for transferring the promised IP rights or services is made at contract inception and in each subsequent reporting period until the uncertainty associated with the variable consideration is resolved.

The amount of variable consideration is estimated by considering all available information (historical, current, and forecast) and is updated as additional information becomes available.

The estimate of variable consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Subsequent changes in the transaction price resulting from changes in the estimate of variable consideration are allocated to the performance obligations in the contract on the same basis as at contract inception.

When variable consideration is in the form of a sales-based or usage-based royalty in exchange for a license of IP, or when a license of IP is the predominant item to which the variable consideration relates, revenue is recognized at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied.

When variable consideration is in the form of a sales-based or usage-based royalty in exchange for a license of IP, revenue is recognized at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied.

Description of Revenue-Generating Activities

The Company operates in two business segments.

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 these 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.

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.

IP License Arrangements

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:

(i) fixed-fee Media IP licensing, (ii) fixed-fee or minimum guarantee Semiconductor IP licensing, and (iii) per-unit or per-subscriber IP royalty licenses.

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, logic, sensors, radio frequency component and foundry companies.

The Company generally licenses its IP portfolios under three models:

(i) fixed-fee Media IP licensing, (ii) fixed-fee or minimum guarantee Semiconductor IP licensing, and (iii) per-unit or per-subscriber Media IP or Semiconductor IP royalty licensing.

Fixed-fee Media IP Licensing

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.

At times, the Company enters into license agreements in which a licensee is released from past patent infringement claims or is granted a license to ship an unlimited number of units or for an unlimited number of subscribers over a future period for a fixed fee.

In these arrangements, the Company allocates the transaction price between the release for past patent infringement claims and the future license which requires significant management judgment.

In determining the stand-alone selling price of the release for past patent infringement claims and the future license, the Company considers such factors as the number of units shipped in the past or the number of past subscribers and the relevant geographies of the shipped units or subscribers, the future number of subscribers or units, as well as the licensing rate the Company generally receives for per-subscriber or units shipped in the same geographies.

As the release from past patent infringement claims is generally satisfied at execution of the agreement, the transaction price allocated to the release from past patent infringement claims is generally recognized in the period the agreement is executed and the amount of transaction price allocated to the future license is recognized ratably over the future license term.

The Company’s long-term, fixed-fee Media IP licensing contracts provide its customers with rights to future patented technologies over the term of the contract that are highly interdependent or highly interrelated to the patented technologies provided at the inception of the contract.

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 contract.

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.

The Company has entered into Semiconductor IP licenses that have a fixed fee or a minimum guarantee, 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 contracts 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.

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 IP 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.

Per-unit or per-subscriber IP royalty licenses

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.

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

Per-unit or Per-subscriber Media IP or Semiconductor IP Royalty Licensing

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.

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.

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.

Technology Solutions Arrangements

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;

and advertising.

For Technology Solutions, the Company provides on-going media or data delivery, hosting and access to its platform, and software updates.

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.

IP License Contracts with Multiple Performance Obligations

At times, the Company enters into long-term license contracts with more than one performance obligation, which may include releases from past patent infringement claims or one or more prospective licenses.

In these arrangements, the Company allocates the transaction price between releases for past patent infringement claims and prospective licenses based on their relative standalone selling prices, which requires significant management judgment.

In determining the standalone selling price of each performance obligation, the Company considers such factors as the number of past and projected future subscribers, units shipped and units manufactured, as well as the per-subscriber or per-unit licensing rates the Company generally receives from licensees of comparable sizes in comparable markets and geographies.

As a release from past patent infringement claims is generally satisfied at execution of the contract, the transaction price allocated to the release from past patent infringement claims is generally recognized in the period the contract is executed.

Transaction price allocated to prospective Media IP licenses is recognized ratably over the license term, and transaction price allocated to prospective Semiconductor IP licenses is recognized upon execution of the contract.

Practical Expedients and Exemptions

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The Company applies a practical expedient when disclosing revenue expected to be recognized from unsatisfied performance obligations to exclude contracts with customers with an original duration of less than one year ;

amounts attributable to variable consideration arising from (i) a sales-based or usage-based royalty of an intellectual property license or (ii) when variable consideration is allocated entirely to a wholly unsatisfied performance obligation;

amounts attributable to variable consideration arising from (i) a sales-based or usage-based royalty of an IP license or (ii) when variable consideration is allocated entirely to a wholly unsatisfied performance obligation;

or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.

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

September 30,

Nine Months Ended

September 30,

IP Licensing revenue

Consumer Electronics

Connected Car

Media Platform

Total Product revenue

Total revenue

Contract Balances

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The amount of unbilled contracts receivable may not exceed their net realizable value and are classified as long-term assets if the payments are expected to be received more than one year from the reporting date.

Contract assets also include the incremental costs of obtaining a contract with a customer, principally sales commissions when the renewal commission is not commensurate with the initial commission, and deferred engineering costs for significant software customization or modification and set-up services to the extent deemed recoverable.

Contract assets also include the incremental costs of obtaining a contract with a customer, principally sales commissions when the renewal commission is not commensurate with the initial commission.

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

September 30, 2022

March 31, 2023

December 31, 2022

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Total contract assets

(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 nine months ended September 30,2022.

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

(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 nine months ended September 30, 2022.

(1) The long-term unbilled contracts receivable increase relates primarily to the recognition of revenue from two long-term semiconductor patent portfolio license agreements entered into during the three months ended March 31, 2023.

Contract Liabilities

Contract liabilities are mainly comprised of deferred revenue related to technology solutions arrangements, multi-period licensing, and other offerings for which the Company is paid in advance while the promised good or service is transferred to the customer at a future date or over time.

Deferred revenue also includes amounts received related to professional services to be performed in the future.

Deferred revenue arises when cash payments are received, including amounts which are refundable, in advance of performance obligations being completed.

Contract liabilities are comprised of deferred revenue related to multi-period licensing arrangements for which the Company is paid in advance, while the underlying performance obligation is satisfied at a future date or over time.

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.

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.

The allowance for credit losses represents the Company’s best estimate of lifetime expected credit losses inherent in accounts receivable and unbilled contracts receivable.

The Company’s long-term unbilled contracts receivable is derived from fixed-fee or minimum-guarantee Semiconductor IP licensing and is primarily comprised of contracts 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 and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended

September 30, 2022

Nine Months Ended

September 30, 2022

Unbilled Contracts

Beginning balance

Provision for (reversal of) credit losses

Charged-off/other adjustments

Balance at end of period

Three Months Ended

September 30, 2021

Nine Months Ended

September 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 nine months ended September 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.

The Company allowance for credit losses at March 31, 2023 and December 31, 2022 was $ 1.5 million and $ 0.7 million, respectively and it is presented as part of accounts receivable, net in the Condensed Consolidated Balance Sheets.

Additional Disclosures

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Revenue recognized in the period from:

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.

(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 was 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.

(3) Includes past royalty revenue from the execution of long-term license agreements with three customers during the nine months ended September 30, 2021.

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.

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

September 30, 2022

December 31, 2021

Amounts included in deferred revenue at the beginning of the period

Performance obligations satisfied in previous periods (1)

(1) Performance obligations satisfied in previous periods consist of settlements of litigation for past royalties owed pursuant to expired or terminated IP license agreements and revenue from releases for past patent infringement claims.

March 31, 2023

Revenue from contracts with performance obligations expected to be satisfied in:

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

September 30, 2022

March 31, 2023

December 31, 2022

Prepaid income taxes

Prepaid insurance

Prepaid expenses

*All inventory is finished goods.

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

September 30, 2022

March 31, 2023

December 31, 2022

Equipment, furniture and other

Building and improvements

Leasehold improvements

1 unchanged sentence

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

September 30, 2022

March 31, 2023

December 31, 2022

Long-term deferred tax assets

Non-current income tax receivable

Accrued liabilities consisted of the following (in thousands):

September 30, 2022

March 31, 2023

December 31, 2022

Employee compensation and benefits

Third-party royalties

Accrued legal fees

Accrued income taxes

Accrued expenses

Accrued severance

Current portion of guarantee (1)

Current portion of operating lease liabilities

Accrued income taxes

(1) Refer to “Note 15 –

Commitments and Contingencies”

for further detail on the nature of the guarantee.

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

September 30, 2022

December 31, 2021

Long-term income tax payable

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

September 30, 2022

March 31, 2023

December 31, 2022

Unrealized loss on available-for-sale debt securities, net of tax

Foreign currency translation adjustment, net of tax

Long-term portion of guarantee (1)

(1) Refer to “Note 15 –

Commitments and Contingencies”

for further detail on the nature of the guarantee.

NOTE 5 –

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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 September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022

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 losses 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, in the Condensed Consolidated Statements of Operations.

The following is a summary of marketable securities at March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023

Allowance for Credit Losses

6 unchanged sentences

Cash and cash equivalents

Available-for-sale debt securities

Total marketable securities

December 31, 2022

1 unchanged sentence

Marketable securities

Corporate bonds and notes

Commercial paper

4 unchanged sentences

Cash and cash equivalents

Available-for-sale debt securities

Total marketable securities

At September 30, 2022 and December 31, 2021, the Company had $ 272.5 million and $ 261.7 million, respectively, in cash, cash equivalents and short-term investments.

At March 31, 2023 and December 31, 2022, the Company had $ 82.4 million and $ 114.6 million, respectively, in cash and cash equivalents.

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

The remaining balance of $ 239.7 million and $ 159.3 million at September 30, 2022 and December 31, 2021, respectively, was cash held in operating accounts not included in the tables above.

The remaining balances of $ 48.9 million and $ 81.5 million at March 31, 2023 and December 31, 2022, respectively, consisted of 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 and nine months ended September 30, 2022 and 2021, respectively.

Unrealized losses on AFS debt securities were not significant as of September 30, 2022 and December 31, 2021, respectively.

The gross realized gains and losses on sales of marketable debt securities were immaterial during the three months ended March 31, 2023 and 2022.

Unrealized losses on AFS debt securities were immaterial as of March 31, 2023 and December 31, 2022.

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 and nine months ended September 30, 2022 and 2021, respectively.

The following table summarizes the fair value and gross unrealized losses related to individual AFS debt securities at September 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):

The Company did not recognize a provision for credit losses related to its AFS debt securities for the three months ended March 31, 2023 and 2022, respectively.

No impairment charges were recorded on the AFS debt securities for the three months ended March 31, 2023.

The following table summarizes the fair value and gross unrealized losses related to individual AFS debt securities at March 31, 2023 and December 31, 2022, 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

September 30, 2022

March 31, 2023

Cash and Cash Equivalents

6 unchanged sentences

AFS Debt Securities

Corporate bonds and notes

Commercial paper

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

The estimated fair value of marketable debt securities by contractual maturity at March 31, 2023 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.

Due in one year or less

Non-marketable Equity Securities

As of September 30, 2022 and December 31, 2021, other long-term assets included equity securities accounted for under the equity method with a carrying amount of $ 4.1 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 nine months ended September 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.

The Company carries its financial instruments at fair value with the exception of its long-term debt.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

7 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 September 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 September 30, 2022 (in thousands):

There were no significant transfers into or out of Level 1 or Level 2 that occurred between December 31, 2022 and March 31, 2023.

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, 2023 (in thousands):

Active Markets

4 unchanged sentences

(1) Reported as cash and cash equivalents in the Condensed Consolidated Balance Sheet.

(2) Reported as cash and cash equivalents if purchased with an original maturity of three months or less at the date of purchase;

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

(2) Reported as cash and cash equivalents as these were purchased with original maturities of three months or less at the date of purchase.

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, 2022 (in thousands):

3 unchanged sentences

Money market funds - equity securities (1)

Corporate bonds and notes - debt securities (2)

Commercial paper - debt securities (2)

(1) Reported as cash and cash equivalents in the Condensed Consolidated Balance Sheet.

(2) Reported as AFS debt securities in the Condensed Consolidated Balance Sheet.

(3) Reported as cash and cash equivalents if purchased with an original maturity of three months or less at the date of purchase;

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

(2) Reported as cash and cash equivalents as these were purchased with original maturities of three months or less at the date of purchase.

Financial Instruments Not Recorded at Fair Value

1 unchanged sentence

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

September 30, 2022

March 31, 2023

December 31, 2022

Refinanced Term B Loans (1)

Senior Unsecured Promissory Note

Total long-term debt, net

(1) Carrying amounts of long-term debt are net of unamortized debt discount and issuance costs of $ 20.9 million and $ 24.3 million as of September 30, 2022 and December 31, 2021, respectively.

(1) Carrying amounts of long-term debt are net of unamortized debt discount and issuance costs of $ 18.7 million and $ 19.9 million as of March 31, 2023 and December 31, 2022, respectively.

See “Note 9 –

4 unchanged sentences

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.

Purchase Price Allocation

The MobiTV Acquisition has been accounted for as a business combination, using the acquisition method.

The following table presents the allocation of the purchase price to the identifiable assets acquired and liabilities assumed based on the fair values at the acquisition date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded to goodwill, all of which is expected to be deductible for tax purposes.

The following table sets forth the final purchase price allocation with no measure period adjustments identified (in thousands):

Estimated Useful

Other current assets

Property and equipment

Operating lease right-of-use assets

Identifiable intangible assets:

Total identifiable intangible assets

Other long-term assets

Accrued liabilities

Noncurrent operating lease liabilities

Total purchase price

MobiTV Results of Operations

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.

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):

DISCONTINUED OPERATIONS

On October 1, 2022, the Company completed the Separation of its product business into a separate, independent, publicly-traded company, Xperi Inc.

The accounting requirements for reporting the Separation of Xperi Inc.

as a discontinued operation were met when the Separation was completed.

Accordingly, the historical financial results of Xperi Inc.

prior to the Separation are presented as discontinued operations and, as such, are excluded from continuing operations and results of operations from all periods presented.

For further information on the Separation, see “Note 1 –

The Company and Basis of Presentation ”.

The Company’s presentation of discontinued operations excludes general corporate overhead costs, which were historically allocated to Xperi Inc., that do not meet the requirements to be presented in discontinued operations, although such costs are not reflective of the on-going operations of the Company.

Such allocations included labor and non-labor costs related to the Company’s corporate support functions (e.g., administration, human resources, finance, accounting, tax, information technology, corporate development, legal, among others) that historically provided support to Xperi Inc.

prior to the Separation.

In addition, discontinued operations excludes the historical intercompany balances and transactions between the Company and Xperi Inc.

that were eliminated in consolidation.

In connection with the Separation, the Company incurred separation costs of $ 43.3 million from January 1, 2020 to March 31, 2023.

Separation costs primarily consist of third-party advisory, consulting, legal and professional services, IT and employee bonus costs directly related to the Separation, as well as other items that are incremental and one-time in nature.

Out of these costs, $ 28.6 million were incurred prior to the Separation and are included in net loss from discontinued operations, net of tax.

The remaining separation costs of $ 14.7 million were incurred after the Separation and are reflected in continuing operations within operating expenses in the Company's Condensed Consolidated Statement of Operations.

During the three months ended March 31, 2022, the Company incurred $ 2.8 million in separation costs, which are included in net loss from discontinued operations, net of tax.

During the three months ended March 31, 2023, the Company incurred $ 1.0 million in separation costs, which are included in continuing operations as part of selling, general and administrative expenses.

The Company and Xperi Inc.

entered into various agreements to effect the Separation and provide a framework for their on-going relationship, including a separation and distribution agreement, transition services agreement, employee matters agreement, tax matters agreement, cross business license agreement and data sharing agreement.

The transition services agreement consists of services that Xperi Inc.

and its subsidiaries will provide to the Company and its subsidiaries for a transitional period, as defined in the agreement.

The services to be provided include back office functions and assistance with regard to administrative tasks relating to day-to-day activities as needed, including finance, accounting and tax activities, IT services, customer support, facilities services, human resources, and general corporate support, as well as pass-through services provided by certain vendors.

The impact of these transition services on the Company’s Condensed Consolidated Financial Statements for the three months ended March 31, 2023 was not material.

Net Loss from Discontinued Operations

The financial results of Xperi Inc.

for the three months ended March 31, 2022 are presented as net loss from discontinued operations, net of tax, on the Condensed Consolidated Statements of Operations.

The following table presents financial results of Xperi Inc.

(in thousands):

Three Months Ended

Nine Months Ended

September 30, 2021

Net loss attributable to the Company

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.

On July 1, 2022 (the "Acquisition Date"), the Company completed the acquisition of Vewd Software Holdings Limited ("Vewd" and the acquisition, the "Vewd Acquisition"), a provider of over-the-top ("OTT") and hybrid TV solutions .

The acquisition establishes the Company as a leading independent streaming media platform through its TiVo brand and the largest independent provider of smart TV middleware globally.

The total consideration was approximately $ 102.9 million, consisting of approximately $ 52.9 million of cash and $ 50 million of debt.

See “Note 9 –

Debt ”

for additional information.

Preliminary Purchase Price Allocation

The Vewd Acquisition has been accounted for as a business combination, using the acquisition method.

The following table presents the preliminary allocation of the purchase price to the identifiable assets acquired and liabilities assumed based on the fair values at the acquisition date (in thousands):

Estimated Useful

Cash and cash equivalents

Accounts receivable

Unbilled contracts receivable

Other current assets

Property and equipment

Operating lease right-of-use assets

Identifiable intangible assets:

Customer relationships - large

Customer relationships - small

Non-compete agreements

Total identifiable intangible assets

Other long-term assets

Current liabilities

Long-term deferred tax liabilities

Noncurrent operating lease liabilities

Other long-term liabilities

Total purchase price

The above preliminary purchase price allocation, including the purchase consideration, is based on preliminary valuations and assumptions and is still subject to change within the measurement period as additional information is received, including potential changes to prepaid income taxes, current and non-current income taxes payable, deferred taxes, and other working capital adjustments.

The final purchase price allocation is expected to be completed as soon as practicable, but not later than one year from the date of the acquisition.

The following is a description of the method used to determine the fair values of significant assets and liabilities.

Identifiable Intangible Assets

Identifiable intangible assets primarily consist of technology, customer relationships, non-compete agreements and trade name.

In determining the fair value, the Company utilized various forms of the income and cost approaches depending on the asset being fair valued.

The estimation of fair value required significant judgment related to cash flow forecasts, discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors.

Inputs were generally determined using historical data supplemented by current and anticipated market conditions, and growth rates.

The technology was valued using the excess earnings method.

Significant assumptions used under this method include forecasted revenues and growth, estimated technology obsolescence, contributory asset charges, and the discount rate.

The customer relationships were valued using the cost approach, based on estimated customer acquisition costs.

The excess of the consideration transferred over the fair value of assets acquired and liabilities assumed was recognized as goodwill.

The goodwill is generated from operational synergies and cost savings the Company expects to achieve from the combined operations, as well as the expected benefits from future technologies that do not meet the definition of an identifiable intangible asset and Vewd’s knowledgeable and experienced workforce.

Approximately $ 0.4 million of the acquired goodwill is expected to be deductible for tax purposes.

Vewd Results of Operations

The results of operations and cash flows related to the Vewd Acquisition have been included in the Company's condensed consolidated financial statements for periods subsequent to July 1, 2022, and the related assets and liabilities were recorded at their estimated fair values in the Company's Condensed Consolidated Balance Sheet as of July 1, 2022.

For the three and nine months ended September 30, 2022, the acquired Vewd business contributed $ 2.5 million of revenue and $ 10.1 million of operating loss, respectively, to the Company's operating results.

The operations acquired in the Vewd Acquisition are included in the Company's Product segment.

Transaction Costs

In connection with the Vewd Acquisition, the Company incurred significant one-time expenses such as transaction related costs and severance and retention costs.

For the three and nine months ended September 30, 2022, transaction related costs including transaction bonuses, legal and consultant fees, were $ 4.0 million and $ 6.1 million, respectively.

For the three and nine months ended September 30, 2022, severance and retention costs associated with the Vewd Acquisition were $ 2.1 million.

Supplemental Pro forma Information

The following unaudited pro forma financial information assumes the Vewd Acquisition was completed as of January 1, 2021.

The unaudited pro forma financial information as presented below is for information 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 Vewd Acquisition had taken place on January 1, 2021, 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 Vewd had been included in the Company's Condensed Consolidated Statements of Operations as of January 1, 2021 (unaudited, in thousands):

March 31, 2022

Operating expenses:

Cost of revenue

Research and development

Selling, general and administrative

Depreciation expense

Amortization expense

Litigation expense

Total operating expenses

Operating loss

Other income and expense, net

Loss before taxes

Provision for income taxes

Net loss from discontinued operations, net of tax

net loss attributable to noncontrolling interest

Net loss attributable to discontinued operations

Net Cash Flows of Discontinued Operations

The following table presents selected financial information related to cash flows from discontinued operations (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Net loss attributable to the Company

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

adjustments for transaction related costs and severance and retention costs, adjustments for amortization of intangible assets, and elimination of inter-company transactions between Vewd and the Company.

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

March 31, 2022

Net cash from operating activities

Net cash from investing activities

NOTE 8 –

GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

The changes to the carrying value of goodwill from January 1, 2022 through September 30, 2022 were as follows (in thousands):

December 31, 2021

Goodwill adjustment related to Mergers in prior periods (1)

Vewd Acquisition (2)

Impairment charge (3)

September 30, 2022 (4)

(1) Reflects the correction recorded in the period ended March 31, 2022 of an immaterial error in the purchase price allocation for the Mergers to reduce goodwill and revenue.

(2) In connection with the Vewd Acquisition, the Company recorded $ 68.1 million of goodwill, representing the preliminary fair value as of the Acquisition Date.

Goodwill relating to the Vewd Acquisition was allocated to the Company's Product segment.

See “Note 7 –

Business Combinations ”

for additional details.

(3) 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.

During the three-months ended September 30, 2022, indicators of potential impairment for the Product reporting unit were identified such that management concluded it was more-likely-than-not that goodwill was impaired and a quantitative interim goodwill impairment assessment should be performed as of September 30, 2022.

Indicators of potential impairment included a sustained decline in Xperi Holding Corporation’s stock price during the second half of the third quarter of 2022, reflective of rising interest rates and continued decline in macroeconomic conditions.

The Company proceeded to perform a fair value analysis of the Product reporting unit using the market capitalization approach.

Under this approach, management estimated the fair value of the Product reporting unit as of September 30, 2022 using quoted market prices of the common stock of Xperi Inc., which as of October 1, 2022 comprised the former Product segment of the Company, over its first ten trading days following the Separation, and a control premium representing the synergies a market participant would achieve upon obtaining control of Xperi Inc.

As a result of the fair value analysis, the Company recognized a goodwill impairment charge of $ 354.0 million during the three months ended September 30, 2022, which was allocated to the Company's Product segment.

The Company also assessed the recoverability of indefinite-lived intangible assets related to the Product reporting unit and concluded that no impairment existed as of September 30, 2022, as their estimated fair values exceeded their carrying amounts.

No impairment indicators were identified with respect to other long-lived assets.

No goodwill impairment charge was recognized related to the Company's IP Licensing segment.

(4) 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 $ 241.9 million was allocated to the Product segment as of September 30, 2022.

The carrying value of goodwill at March 31, 2023 and December 31, 2022 was $ 313.7 million.

There were no changes to the carrying value of goodwill from January 1, through March 31, 2023.

Goodwill at its 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.

The process of evaluating goodwill for potential impairment is subjective and requires significant estimates, assumptions and judgments particularly related to the identification of reporting units, the assignment of assets and liabilities to reporting units and estimating the fair value of each reporting unit.

No impairment charges were recognized for the three months ended March 31, 2023 and 2022.

Identified Intangible Assets

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

September 30, 2022

March 31, 2023

December 31, 2022

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Trademarks/trade name

Non-competition agreements

Total finite-lived intangible assets

Indefinite-lived intangible assets

TiVo Tradename/trademarks

Total intangible assets

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

As of March 31, 2023, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):

2023 (remaining 9 months)

1 unchanged sentence

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

September 30, 2022

March 31, 2023

December 31, 2022

Refinanced Term B Loans

Senior Unsecured Promissory

Unamortized debt discount and issuance costs

10 unchanged sentences

The 2020 Credit Agreement, as amended, also contains customary representations and warranties and affirmative and negative covenants that, among other things and subject to certain exceptions, restrict the ability of the Company and its subsidiaries to create or incur certain liens, incur or guarantee additional indebtedness, merge or consolidate with other companies, transfer or sell assets and make restricted payments.

The Separation did not require the Company to obtain any waivers under the 2020 Credit Agreement, and the Company completed the Separation in compliance with all of the covenants contained in the 2020 Credit Agreement.

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 September 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.

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

Accordingly, the Company accounted for the refinancing event for these lenders as a debt extinguishment.

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.

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.

The Company was in compliance with all requirements as of March 31, 2023.

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

The additional cash payments are applied to the remaining principal balance due at final maturity.

Accordingly, the Company made additional cash payments of $ 73.5 million during the three months ended March 31, 2023 under the excess cash flow provisions.

The payments were made earlier than required under the 2020 Credit Agreement.

After the Separation, the Company remains the obligor under the Refinanced B Term Loans.

Senior Unsecured Promissory Note

In connection with the Vewd Acquisition as disclosed in "Note 7 –

Business Combinations" , on July 1, 2022, TiVo Product Holdco LLC, which was subsequently renamed to Xperi Inc., issued a senior unsecured promissory note (the “Promissory Note”) to the sellers of Vewd in a principal amount of $ 50.0 million.

The issuer’s obligations under the Promissory Note are guaranteed by the Company prior to the spin-off transaction.

Indebtedness outstanding under the Promissory Note bears an interest rate of 6.00 % per annum, payable in cash on a quarterly basis.

If a certain qualified spin-off transaction occurs, the interest rate will be increased to the greater of (a) 6.00% and (b) the sum of (i) the highest interest rate payable under any credit facility or bonds, debentures, notes or similar instruments where the issuer or any guarantor borrows money or guarantees obligations on a secured basis on or after the date of such spin-off transaction, plus (ii) 2.00 %.

The Promissory Note will mature on July 1, 2025 .

The issuer may, at any time and on any one or more occasions, prepay all or any portion of the outstanding principal amount, plus accrued and unpaid interest, if any, under the Promissory Note without premium or penalty.

In addition, the Promissory Note has mandatory prepayment provisions upon certain change of control or asset sale events.

The Promissory Note includes certain covenants that restrict the issuer and each guarantor’s ability to, among other things, incur certain indebtedness or engage in any material line of business substantially different from those lines of business conducted by such entities on the closing date of the acquisition.

The Promissory Note does not contain any financial covenants.

After the Separation, Xperi Inc.

is the obligor under the Senior Unsecured Promissory Note.

Interest Expense and Expected Principal Payments

At September 30, 2022, $ 809.4 million in total debt was outstanding.

At March 31, 2023, $ 665.6 million in total debt was outstanding.

There were also $ 18.7 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 6.02 % and interest was payable monthly.

Interest rate on the Promissory Note was 6.00 % and interest was payable quarterly.

Interest expense was $ 13.2 million and $ 31.1 million for the three and nine months ended September 30, 2022, respectively.

Interest expense was $ 8.5 million and $ 30.4 million for the three and nine months ended September 30, 2021, respectively.

Amortized debt discount and issuance costs, which were included in interest expense, amounted to $ 1.1 million and $ 3.3 million for the three and nine months ended September 30, 2022, respectively, and $ 1.2 million and $ 5.3 million for the three and nine months ended September 30, 2021, respectively.

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

The interest rate on the Refinanced Term B Loans as of March 31, 2023, including the amortization of debt discount and issuance costs, was 9.43 % and interest is payable monthly.

Interest expense was $ 15.9 million and $ 8.4 million for the three months ended March 31, 2023 and 2022, respectively.

Amortized debt discount and issuance costs, which were included in interest expense, amounted to $ 1.2 million and $ 1.1 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, future minimum principal payments for long-term debt, excluding any additional principal payment required by the excess cash flow provision, are summarized as follows (in thousands):

2023 (remaining 9 months)

3 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net income from continuing operations

Net loss attributable to discontinued operations

Net income attributable to the Company

Weighted average shares of common stock outstanding

Total common shares-basic

Effect of dilutive securities:

Restricted stock awards and units

Total common shares-diluted

Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period, excluding any unvested restricted stock awards that are subject to repurchase.

Diluted net income per share is computed using the treasury stock method to calculate the weighted average number of shares of common stock and, if dilutive, potential common shares outstanding during the period.

Potentially dilutive common shares include unvested restricted stock awards and units and incremental common shares issuable upon the exercise of stock options, less shares repurchased from assumed proceeds.

Effect of dilutive securities associated with options

Effect of dilutive securities associated with restricted stock awards and units

Weighted average common shares - dilutive

Basic net income (loss) per share

Net income from continuing operations

Net loss attributable to discontinued operations

Net income attributable to the Company

Diluted net income (loss) per share

Net income from continuing operations

Net loss attributable to discontinued operations

Net income attributable to the Company

Anti-dilutive employee stock-based awards, excluded

Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period, excluding any unvested restricted stock units that are subject to repurchase.

Diluted net income (loss) per share is computed using the treasury stock method to calculate the weighted average number of shares of common stock and, if dilutive, potential common shares outstanding during the period.

Potentially dilutive common shares include unvested restricted stock units and incremental common shares issuable upon the exercise of stock options, less shares repurchased from assumed proceeds.

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.

For the three months ended September 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 7.2 million shares and 5.5 million shares, respectively, subject to stock options and restricted stock awards and units were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive.

For the nine months ended September 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 potential dilutive shares outstanding was anti-dilutive.

A total of 5.9 million and 5.6 million shares, respectively, subject to stock options and restricted stock awards and units were excluded from the computation of diluted net income per share because including them would have been anti-dilutive.

NOTE 11 –

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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”).

The 2020 Equity Incentive Plan

On June 1, 2020, the Company adopted the 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 16,800,000 shares have been reserved for issuance under the 2020 EIP provided that each share issued pursuant to “full value”

A total of 16.8 million 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.

At the 2022 Annual Stockholders Meeting o n April 29, 2022, th e 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.

Options generally are granted with an exercise price not less than the value of the common stock on the grant date and have a term of ten years from the date of grant and vest over a four-year period.

The vesting criteria for restricted stock awards and restricted stock units is generally the passage of time or meeting certain performance-based objectives, and continued employment through the vesting period generally over four years for time-based awards.

Assumed Plans

2 unchanged sentences

Awards of restricted stock and restricted stock units assumed from the Assumed Plans are generally subject to a four year vesting period.

The number of shares subject to stock options and restricted stock unit awards outstanding under these plans are included in the tables below.

The number of shares subject to stock options and restricted stock units outstanding under these plans are included in the tables below.

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

As of September 30, 2022, there were 6.1 million shares reserved for future grants under both the 2020 EIP and the Assumed Plans.

As of March 31, 2023, there were 3.2 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 September 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 September 30, 2022 is as follows (in thousands, except per share amounts):

Balance at March 31, 2023

Restricted Stock Units

Information with respect to outstanding restricted stock units (including both time-based vesting and performance-based vesting) as of March 31, 2023 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 September 30, 2022

Balance at March 31, 2023

Performance Awards and Units

Performance awards and units may be granted to employees or consultants based upon, among other things, the contributions, responsibilities and other compensation of the particular employee or consultant.

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.

Performance awards may be granted to employees or consultants based upon, among other things, the contributions, responsibilities and other compensation of the particular employee or consultant.

The value and the vesting of such performance awards 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”).

On June 1, 2020, the Company adopted the 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.

The first offering period commenced on September 1, 2020 and will end on August 31, 2022.

Each subsequent offering period under the 2020 ESPP will be twenty-four (24) months long and will commence on each September 1 and March 1 during the term of the plan.

The first offering period commenced on September 1, 2020 and ended on August 31, 2022.

Due to the Separation, the next offering period under the 2020 ESPP plan commenced on December 1, 2022 and will end on November 30, 2024.

Each subsequent offering period under the 2020 ESPP will be twenty-four (24) months long and will commence on each December 1 with four six-month purchase periods.

Participants may contribute up to 100 % of their base earnings and commissions through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date.

3 unchanged sentences

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

As of September 30, 2022, there were 5.5 million 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.

As of March 31, 2023, there were 5.5 million shares reserved for grant under the Company’s 2020 ESPP.

Modification of Equity Awards

In connection with the Separation and under the provisions of the existing plans described above, the Company’s outstanding stock options and equity awards were converted to units denominated in the equity of the Company, Xperi Inc., or both.

The number of units and exercise prices of outstanding stock options and equity awards were converted based on the conversion ratios established in the Employee Matters Agreement that the Company entered into in connection with the Separation.

The intent of the conversion ratios was to preserve the value of the awards immediately before and after the Separation.

Upon the Separation, employees holding stock options and equity awards denominated in the Company’s pre-Separation stock received a number of otherwise-similar stock options and awards in post-Separation Company’s stock and/or Xperi Inc.’s stock based on the conversion ratios outlined for each group of employees.

For purposes of the vesting of these equity awards, continued employment or service with the Company or with Xperi Inc.

is treated as continued employment for purposes of both the Company’s and Xperi Inc.’s equity awards and the vesting terms of each converted grant remained unchanged.

There were no changes to the plan terms described above with the exception that the price on the grant date, or October 1, 2022 was adjusted to exclude the value of Xperi Inc.

based on the conversion ratios applied to other equity awards.

Stockholders of the Company’s common stock are entitled to receive dividends when declared by the Company’s board of directors (the “Board”).

During the three months ended March 31, 2023 and 2022, dividends declared were $ 0.05 per common share.

The capacity to pay dividends in the future depends on many factors, including the Company’s financial condition, results of operations, capital requirements, capital structure, industry practice and other business conditions that the Board considers relevant.

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 June 12, 2020 the Board authorized a 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 September 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.

As of March 31, 2023, the Company had 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.

The shares repurchased are recorded as treasury stock and are accounted for under the cost method.

No expiration date has been specified for thi s plan.

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

No expiration date has been specified for this plan.

As of March 31, 2023, the total remaining amount available for repurchase under this plan w as $ 77.8 million.

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

The Company issues restricted stock units as part of the equity incentive plans described above.

In connection with the stock repurchase program, all shares repurchased by the Company as of June 1, 2020 and recorded as treasury stock were canceled and retired.

The Company accounts for stock repurchases using the cost method and records retirement of treasury stock as a reduction of the cumulative treasury stock paid-in capital balance.

Once the cumulative balance is reduced to zero, any remaining difference resulting from the retirement of treasury stock is recorded as a reduction of retained earnings.

The Company issues restricted stock awards as part of the equity incentive plans described above.

For the majority of restricted awards, shares are withheld to satisfy required withholding taxes at the vesting date.

Shares withheld to satisfy required withholding taxes in connection with the vesting of restricted awards are treated as common stock repurchases in the Condensed Consolidated Financial Statements because they reduce the number of shares that would have been issued on vesting.

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

During the three months ended September 30, 2022 and 2021, the Company withheld 0.3 million and 0.3 million shares of common stock to satisfy $ 3.8 million and $ 7.1 million of required withholding taxes, respectively.

During the nine months ended September 30, 2022 and 2021, the Company withheld 0.9 million and 0.7 million shares of common stock to satisfy $ 15.3 million and $ 15.4 million of required withholding taxes, respectively.

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, 2023 and 2022, the Company withheld 0.7 million and 0.7 million shares of common stock to satisfy $ 6.6 million and $ 11.1 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 nine months ended September 30, 2022 and 2021 is as follows (in thousands):

The effect of recording stock-based compensation (“SBC”) expense for the three months ended March 31, 2023 and 2022 is as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenue, excluding depreciation and amortization of intangible assets

Research, development and other related costs

Research and development

Selling, general and administrative

Total stock-based compensation expense

Tax effect on stock-based compensation expense

Net effect on net income (loss)

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Restricted stock awards and units

Employee stock purchase plan

Employee stock options

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 during the first quarter of 2022.

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

There were no restricted stock units subject to market conditions granted during the three months ended September 30, 2022.

The following assumptions were used to value the restricted stock units subject to market conditions granted during the nine months ended September 30, 2022:

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

There were no options granted in the three months ended March 31, 2023 and 2022.

The following assumptions were used to value the restricted stock units subject to market conditions granted during the three months ended March 31, 2023:

Expected life (years)

2 unchanged sentences

Expected volatility

ESPP grants generally occur in March and September of each calendar year.

Due to the anticipated separation of the Product business, there were no ESPP grants during the three months ended September 30, 2022.

The following assumptions were used to value the ESPP shares granted during the nine months ended September 30, 2022:

September 2021

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

Prior to the Separation, ESPP grants occurred in March and September.

Due to the Separation, the offering period under the 2020 ESPP plan commenced on December 1, 2022 as discussed in “Note 11 –

Stockholders' Equity.

Accordingly, there were no ESPP grants during the three months ended March 31, 2023.

The following assumptions were used to value the ESPP shares granted during the three months ended March 31, 2022:

Expected life (years)

3 unchanged sentences

NOTE 13 –

For the three months ended September 30, 2022, the Company recorded an income tax expense of $ 0.9 million on pretax loss of $ 389.0 million, and for the nine months ended September 30, 2022 the Company recorded an income tax expense of $ 44.5 million on pretax loss of $ 327.8 million, which resulted in an effective tax rate of ( 13.6 )% for the nine months ended September 30, 2022.

The income tax expense for the three and nine months ended September 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 U.S.

GAAP pretax loss and varies from 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 September 30, 2021, the Company recorded an income tax expense of $ 42.7 million on pretax loss of $ 3.7 million and for the nine months ended September 30, 2021, the Company recorded an income tax expense of $ 35.8 million on a pretax loss of $ 7.9 million, which resulted in an effective tax rate of ( 452.3 )% for the nine months ended September 30, 2021.

The income tax expense for the three and nine months ended September 30, 2021 was primarily related to foreign withholding taxes, base erosion and anti-abuse tax (“BEAT”) and unrealized foreign exchange loss from the prior year South Korea refund claims, which have remained relatively fixed on a forecast basis quarter over quarter.

The negative tax rate is the result of the relatively fixed tax expense recorded against a small pre-tax loss.

For the three months ended March 31, 2023, the Company recorded an income tax expense of $ 11.8 million on pretax income of $ 40.8 million, which resulted in an effective tax rate of 28.9 % for the three months ended March 31, 2023.

The income tax expense for the three months ended March 31, 2023 was primarily related to foreign withholding taxes, U.S.

federal and state income taxes, and unrealized foreign exchange loss from the prior year South Korea refund claims, offset by U.S.

foreign tax credits.

The Company’s effective tax rate was based on a projected 2023 U.S.

GAAP pretax loss and varies significantly from the 21 % U.S.

GAAP pretax income and varies from the 21 % U.S.

federal tax rate.

As of September 30, 2022, gross unrecognized tax benefits, excluding interest and penalties, were $ 240.3 million co mpared 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, $ 89.8 million w ould affect the effective tax rate if recognized.

As of September 30, 2021, unrecognized tax benefits, excluding interest and penalties, of $ 229.1 millio n were included in long-term deferred tax and other long-term liabilities on the Condensed Consolidated Balance Sheets.

Of this amou nt, $ 96.3 million would affect the effective tax rate if recognized.

The Company is unable to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease.

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 $ 0.8 million and $ 1.1 million for the nine months ended September 30, 2022 and 2021, respectively.

Accrued interest and penalties were $ 3.7 million and $ 2.8 million as of September 30, 2022 and December 31, 2021, respectively.

As of September 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.

In addition, in the U.S., any net operating losses or credits that were generated in prior years but not yet fully utilized in a year that is closed under the statute of limitations may also be subject to examination.

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.

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 South Korea withholding tax refund claims, are not directly affected by changes in pre-tax income.

For the three months ended March 31, 2022, the Company recorded an income tax expense of $ 5.5 million on pretax income of $ 61.4 million, which resulted in an effective tax rate of 9.0 %.

The income tax expense for the three months ended March 31, 2022 was primarily related to foreign withholding taxes, state income taxes and unrealized foreign exchange loss from the prior year South Korea refund claims.

The recorded effective tax rate was lower than the applicable statutory tax rate due to income earned in jurisdictions for which a full valuation allowance was recorded.

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 seven 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 7 years or less.

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

The Company leases office and research facilities and office equipment under operating leases which expire through 2027.

The Company’s leases have remaining lease terms of two to four 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 five years or less.

Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets;

expense for these leases is recognized on a straight-line basis over the lease term.

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 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 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 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.

The Company subleases certain real estate to third parties.

The sublease portfolio consists of operating leases for previously exited office space.

Certain subleases include variable payments for operating costs.

The subleases are generally co-terminus with the head lease, or shorter.

Subleases do not include any residual value guarantees or restrictions or covenants imposed by the leases.

Income from subleases is recognized as a reduction to selling, general and administrative expenses.

The components of operating lease costs were as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Fixed lease cost

Variable lease cost

sublease income

Total operating lease cost

(1) Includes short-term leases, which were immaterial.

Other information related to leases was as follows (in thousands, except lease term and discount rate):

Three Months Ended

September 30,

Nine Months Ended

September 30,

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

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Operating leases

September 30, 2022

March 31, 2023

December 31, 2022

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Operating leases

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

Future minimum lease payments and related lease liabilities as of March 31, 2023 were as follows (in thousands):

Operating Lease Payments (1)

Sublease Income

Net Operating Lease Payments

2023 (remaining 9 months)

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These arrangements primarily include unconditional purchase obligations to service providers.

As of September 30, 2022, the Company’s total future unconditional purchase obligations were approximatel y $ 109.8 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 o rders being placed.

As of September 30, 2022, the Company had total purchase commitments for inventory of $ 3.2 million, of which $ 0.7 million was accrued in the Condensed Consolidated Balance Sheet.

As of March 31, 2023, the Company’s total future unconditional purchase obligations were approximatel y $ 3.5 million, including $ 1.3 million due in the remainder of 2023, $ 1.3 million due in 2024 and the remaining $ 0.9 million due in 2025.

Prior to the Separation, Adeia Media LLC, a subsidiary of the Company (“Adeia Media”), and a subsidiary of Xperi Inc.

(“Xperi Sub”) entered into an agreement (the “Specified Agreement”) with a third party pursuant to which Adeia Media guarantees the performance of Xperi Sub under the Specified Agreement, including its payment obligations to such third party.

In connection with the Separation, Adeia Media and Xperi Sub entered into a separate cross business agreement (the “Cross Business Agreement”) effective as of October 1, 2022, under which Adeia Media agreed to make guarantee payments to Xperi Sub in amounts based on certain of its operating expenses and other minimum performance obligations under the Specified Agreement through 2031.

Consequently, on October 1, 2022, the Company recognized a guarantee liability pursuant to ASC 460 “Guarantees”

of $ 19.7 million, which represents the fair value of Adeia Media’s projected payments of such operating expenses during the term of the Cross Business Agreement.

Subsequent changes to the carrying value of the guarantee are recognized as part of the Company’s results of operations.

The maximum potential amount of future payments subject to the guarantee is approximately $ 7.5 million per annum between 2023 and 2031 .

As of March 31, 2023 and December 31, 2022, the balance of the guarantee liability was $ 19.7 million and $ 20.5 million, respectively.

During the three months ended March 31, 2023, the Company made guarantee payments of $ 0.5 million and recognized other income of $ 0.3 million in the Condensed Consolidated Statement of Operations as a result of a change in the carrying value of the guarantee liability.

Indemnifications

In the normal course of business, the Company provides indemnifications of varying scopes and amounts to certain of its licensees, customers, and business partners against claims made by third parties arising from the use of the Company's products, intellectual property, services or technologies.

In the normal course of business, the Company provides indemnifications of varying scopes and amounts to certain of its licensees, customers, and business partners against claims made by third parties arising from the use of the Company’s intellectual property, services or technologies.

The Company cannot reasonably estimate the possible range of losses that may be incurred pursuant to its indemnification obligations, if any.

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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.

Litigation related

On June 23, 2017, Adeia Guides Inc.

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On June 10, 2022, the Federal Court of Canada 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 remaining patents involved in the case.

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

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

The Company accrued $ 2.2 million for estimated expense reimbursement during the second quarter of 2022.

This accrual was included in litigation expense.

Accordingly, the Company accrued and paid $ 2.5 million for expense reimbursement during the year ended December 31, 2022.

On September 12, 2022, Adeia Media filed a notice of appeal with the Federal Court of Appeal of Canada appealing the decision of the Federal Court of Canada.

On January 19, 2018, Adeia Media filed a patent infringement complaint against BCE Inc., Bell Canada, Bell Aliant Regional Communications Inc., Bell MTS Inc., and Northerntel, L.P.

(collectively, “Bell”) in Toronto, Canada, alleging infringement of six patents (“Bell 1”).

On February 2, 2018, Adeia Media filed a patent infringement complaint against Telus Corporation, Telus Communications Inc., and Telus Communications Company (collectively, “Telus”) in Toronto, Canada, alleging infringement of the same six patents asserted in Bell 1 (“Telus 1”).

On January 30, 2023, Adeia Media filed its opening memorandum of fact and law.

Videotron's memorandum of fact and law was filed on April 17, 2023.

On January 19, 2018, Adeia Media filed a patent infringement complaint against Bell Canada (and four of its affiliates) (collectively, "Bell") in Toronto, Canada, alleging infringement of six patents (“Bell 1”).

On February 2, 2018, Adeia Media filed a patent infringement complaint against Telus Corporation (and two of its affiliates) (collectively, "Telus") in Toronto, Canada, alleging infringement of the same six patents (“Telus 1”).

Bell 1and Telus 1 were heard together for purposes of pre-trial and trial proceedings.

On October 7, 2022, the Federal Court of Canada issued its confidential decision in the two cases finding in favor of Bell and Telus and their respective IPTV services, Bell Fibe TV and Telus Optik TV.

On October 7, 2022, the Federal Court of Canada issued its decision in the two cases finding in favor of Bell and Telus and their respective IPTV services, Bell Fibe TV and Telus Optik TV.

Specifically, the Court found invalid each of the asserted claims of the four remaining 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, the Company has accrued $ 2.5 million for estimated expense reimbursement during the third quarter of 2022.

This accrual was included in litigation expense.

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.

Accordingly, the Company accrued $ 2.6 million for expense reimbursement in the third quarter of 2022.

On November 7, 2022, Adeia Media filed a notice of appeal with the Federal Court of Appeal of Canada appealing the decision of the Federal Court of Canada.

The Company is 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.

In the past, the Company and its subsidiaries have litigated to enforce their respective patents and other intellectual property rights, to enforce the terms of license agreements, to protect trade secrets, to determine the validity and scope of the proprietary rights of others and to defend itself or its customers against claims of infringement or invalidity.

In the past, the Company and its subsidiaries have litigated to enforce their respective patents, to enforce the terms of license agreements, to determine the validity and scope of the proprietary rights of others and to defend itself or its customers against claims of infringement or invalidity.

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 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.

Litigation could also severely disrupt or shut down the business operations of licensees, which in turn could 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

As of September 30, 2022, 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.

The Company changed its operational structure in the fourth quarter of 2022, resulting in one reportable segment:

Intellectual Property ("IP") Licensing.

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.

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

The Company does 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.

The Company does not allocate other income and expense to reportable segments.

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 and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

IP Licensing segment

Product segment

Total revenue

Operating expenses:

IP Licensing segment

Product segment

Unallocated operating expenses (1)

Total operating expenses

Operating income (loss):

IP Licensing segment

Product segment

Unallocated operating expenses (1)

Total operating income (loss)

(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.

(2) Includes goodwill impairment charge of $ 354.0 million that was allocated to the Company's Product segment.

See “Note 8 –

Goodwill and Identified Intangible Assets ”

for additional details.

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.

A 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 portion of total revenue in future periods.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Europe and Middle East

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

For the nine months ended September 30, 2022 and 2021, there were no customers that accounted for 10% or more of total revenue.

As of September 30, 2022 and December 31, 2021, there were two customers and one customer, respectively, that individually accounted for 10% or more of total accounts receivable.

NOTE 17 - SUBSEQUENT EVENTS

Completion of Separation of Xperi Inc.

from Adeia Inc.

On October 1, 2022, the Company completed the Separation of its Product business into a new public company, Xperi Inc.

In connection with the Separation, which was structured as a Spin-Off, the Company entered into several agreements with Xperi Inc.

on October 1, 2022, that, among other things, effect the Spin-off and provide a framework for the Company's relationship with Xperi Inc.

after the Spin-off.

For the three months ended March 31, 2023 and 2022, two customers each accounted for 10% or more of total revenue.

At March 31, 2023, the Company had two customers representing 43 % and 16 % of aggregate accounts receivable, respectively.

At December 31, 2022, the Company had two customers representing 36 % and 29 % of aggregate accounts receivable, respectively.

NOTE 17 –

SUBSEQUENT EVENTS

Declaration of Cash Dividends

On October 20, 2022 , the Company's Board of Directors declared a cash dividend of $ 0.05 per share of common stock, payable on December 21, 2022 to the stockholders of record at the close of business on November 30, 2022 .

On May 4, 2023 , the Board declared a cash dividend of $ 0.05 per share of common stock, payable on June 20, 2023 , for the stockholders of record at the close of business on May 30, 2023 .

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 us on February 24, 2022 (the “Form 10-K”).

Except where otherwise indicated, the results of operations discussed herein present the results of Xperi Holding Corporation prior to giving effect to the Separation described herein.

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.

The following discussion is intended to promote understanding of the results of operations and financial condition and should be read in conjunction with our condensed consolidated financial statements and notes thereto, and with our audited financial statements and notes thereto for the year ended December 31, 2022 found in the Form 10-K filed by us on March 1, 2023 (the “Form 10-K”).

This section of this Form 10-Q generally discusses quarter over quarter comparisons of 2023 against 2022.

Except where otherwise indicated, the quarter over quarter comparisons and results of operations discussed herein present the results of Adeia Inc.

after giving effect to the Separation described herein.

This quarterly report on Form 10-Q (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.

In this context, forward-looking statements often address expected future business, financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "could," "seek," "see," "will," "may," "would," "might," "potentially," "estimate," "continue," "target," similar expressions or the negatives of these words or other comparable terminology that convey uncertainty of future events or outcomes.

All forward-looking statements by their nature address matters that involve risks and uncertainties, many of which are beyond the Company’s control, and are not guarantees of future results.

All forward-looking statements by their nature address matters that involve risks and uncertainties, many of which are beyond our control, and are not guarantees of future results.

These and other forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements.

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Important risk factors that may cause such a difference include, but are not limited to:

the Company’s ability to implement its business strategy;

the Company’s ability to enter into new and renewal license agreements with customers on favorable terms;

the Company’s ability to retain and hire key personnel;

uncertainty as to the long-term value of the Company’s common stock;

legislative, regulatory and economic developments affecting the Company’s business;

our ability to implement our business strategy;

our ability to enter into new and renewal license agreements with customers on favorable terms;

our ability to retain and hire key personnel;

uncertainty as to the long-term value of our common stock;

legislative, regulatory and economic developments affecting our business;

general economic and market developments and conditions;

the Company’s ability to grow and expand its patent portfolios;

changes in technology and development of competing technology in the industries in which in which the Company operates;

the evolving legal, regulatory and tax regimes under which the Company operates;

our ability to grow and expand our patent portfolios;

changes in technology and development of competing technology in the industries in which we operate;

the evolving legal, regulatory and tax regimes under which we operate;

unforeseen liabilities and expenses;

risks associated with the Company’s indebtedness, unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, including Russia’s invasion of Ukraine, and natural disasters;

the Company’s ability to achieve the intended benefits of, and its ability to recognize the anticipated tax treatment of, the recent spin-off of its product business;

and the extent to which the COVID-19 pandemic continues to have an adverse impact on the Company’s business, results of operations, and financial condition will depend on future developments, including measures taken in response to the pandemic, which are highly uncertain and cannot be predicted.

risks associated with our indebtedness;

unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, including Russia’s invasion of Ukraine, and natural disasters;

our ability to achieve the intended benefits of, and our ability to recognize the anticipated tax treatment of, the recent spin-off of our product business;

and the extent to which the COVID-19 pandemic continues to have an adverse impact on our business, results of operations, and financial condition will depend on future developments, including measures taken in response to the pandemic, which are highly uncertain and cannot be predicted.

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 Part II, Item 5 hereof and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), such as our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K.

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

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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 became the parent company of both Xperi and TiVo.

On October 1, 2022, Adeia Inc.

(formerly known as Xperi Holding Corporation) ("Adeia", "we") completed the previously announced separation ("the Separation") of its product business into an independent publicly traded company, Xperi Inc.

("Xperi Inc.").

The Separation was structured as a spin-off , which was achieved through Adeia's distribution of 100 percent of the outstanding shares of Xperi Inc.'s common stock to holders of Adeia's common stock as of the close of business on the record date of September 21, 2022 (the "Record Date").

(formerly known as Xperi Holding Corporation) (“Adeia”, “we”) completed the previously announced separation (“the Separation”) of its product business into an independent, publicly-traded company, Xperi Inc.

(“Xperi Inc.”).

The Separation was structured as a spin-off, which was achieved through Adeia’s distribution of 100 percent of the outstanding shares of Xperi Inc.’s common stock to holders of Adeia’s common stock as of the close of business on the record date of September 21, 2022 (the “Record Date”).

Each Adeia stockholder of record received four shares of Xperi Inc.

common stock for every ten shares of Adeia common stock that it held on the Record Date.

Following the Separation, Adeia retains no ownership interest in Xperi Inc., which is now listed under the ticker symbol "XPER" on the New York Stock Exchange.

Effective at the open of business on October 3, 2022, Adeia's shares of common stock, par value $0.001 per share, began trading on the Nasdaq Global Select Market under the new ticker symbol "ADEA".

Following the Separation, we are a leading intellectual property ("IP") licensing platform in the consumer and entertainment space, with a diverse portfolio of media and semiconductor intellectual property and more than 9,500 patents and patent applications worldwide.

Following the Separation, Adeia retains no ownership interest in Xperi Inc., which is now listed under the ticker symbol “XPER”

on the New York Stock Exchange.

Effective at the open of business on October 3, 2022, Adeia's shares of common stock, par value $0.001 per share, began trading on the Nasdaq Global Select Market under the new ticker symbol “ADEA”.

Following the Separation, we are a leading IP licensing platform in the consumer and entertainment space, with a diverse portfolio of media and semiconductor intellectual property and more than 9,950 patents and patent applications worldwide.

In order to serve an increasingly connected world, we invent, develop, and license fundamental innovations that enhance billions of devices and shape the way millions of people explore and experience entertainment.

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Through providing the IP that helps to power smart devices, entertainment experiences and more, we have created a unified ecosystem that reaches highly-engaged consumers and uncovered new business opportunities.

Headquartered in Silicon Valley with operations around the world, we have approximately 2,200 employees, including approximately 2,100 employees that will be part of Xperi Inc.

after the Separation, and more than 35 years of operating experience.

COVID-19 Impact

Headquartered in Silicon Valley with more than 35 years of operating experience, we have approximately 120 employees, with substantially all of our employees located in the U.S.

COVID-19 Impact and Macroeconomic Conditions

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 the markets we serve, in particular the automotive and broad consumer electronics markets.

The pandemic has also 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.

Further, 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, shortages of semiconductor components, decreased 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 have an adverse effect on demand for its customers' products and services and in turn the Company's licensing revenues, 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 from large, well-capitalized customers, 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 to date has included periods of significant volatility in the markets we serve, in particular the broad consumer electronics market.

The pandemic has also caused challenges and delays in acquiring new customers and executing license renewals.

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

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

Moreover, since the onset of the COVID-19 pandemic, United States federal, state and foreign government policies enacted to combat the pandemic have contributed to a recent rise of inflation that has increased, and may continue to increase, the cost of our operations and have had, and may continue to have, an adverse effect on demand for our customers' products and services and in turn our licensing revenues, which has had and may continue to have an adverse effect on our financial performance.

Although a significant portion of our revenue is derived from fixed-fee and minimum-guarantee arrangements from large, well-capitalized customers, our per-unit and variable-fee based revenue will continue to be susceptible to the volatility, labor shortages, supply chain disruptions, microchip shortages and 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 COVID-19's potential impact on our business is provided under Part I, Item 1A –

Further discussion of COVID-19’s potential impact on our business is provided under Part I, Item 1A –

Risk Factors of the Form 10-K and in Part II, Item 5 –

Risk Factors of this Form 10-Q.

Key Developments

The accounting requirements for reporting the Separation of Xperi Inc.

as a discontinued operation were met when the Separation was completed on October 1, 2022.

Accordingly, the financial results of Xperi Inc.

for the three months ended March 31, 2022 are presented as net loss from discontinued operations, net of tax on the Condensed Consolidated Statements of Operations.

Unless noted otherwise, the discussion of our results of operations pertain to continuing operations.

Additionally, the operating results from continuing operations for all periods presented and those prior to the Separation, include certain general corporate overhead costs that do not meet the requirements to be presented in discontinued operations, although such costs are not reflective of our on-going operations.

Such general corporate overhead costs include labor and non-labor costs related to our corporate support functions (e.g., administration, human resources, finance, accounting, tax, information technology, corporate development and legal, among others) that historically provided support to Xperi Inc.

prior to the Separation.

In addition, discontinued operations excludes the historical intercompany balances and transactions between the Company and Xperi Inc.

that were eliminated in consolidation.

In connection with the Separation, we incurred separation costs of $43.3 million from January 1, 2020 to March 31, 2023.

Separation costs primarily consist of third-party advisory, consulting, legal and professional service, IT and employee bonus costs directly related to the Separation, as well as other items that are incremental and one-time in nature.

Out of these costs, $28.6 million were incurred prior to the Separation and are included in net loss from discontinued operations, net of tax.

The remaining separation costs of $14.7 million were incurred after the Separation and are reflected in continuing operations within operating expenses in our Condensed Consolidated Statement of Operations.

During the three months ended March 31, 2023 and 2022, we incurred $1.0 million and $2.8 million separation costs, respectively.

Reportable Segments

Upon completion of the Separation, in the fourth quarter of 2022, we changed our organizational structure to operate and report in one segment:

IP Licensing.

We believe that this structure reflects our current operational and financial management following the completion of the Separation and provides the best structure for us to focus on growth opportunities.

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

We primarily license our innovations to leading companies in the broader entertainment and semiconductor industries, and those companies developing new technologies that will help drive these industries forward.

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

Financial Highlights

For the three months ended March 31, 2023:

Revenue was $117.3 million, a decrease of 15% from $138.5 million in the same period in 2022

Diluted earnings per share (EPS) was $0.26, an increase of 8% from $0.24 in the same period in 2022

Net income was $29.0 million, an increase of 16% from $24.9 million in the same period in 2022

Cash flows from operations were $63.4 million, an increase of 37% from $46.3 million in the same period in 2022

We made $83.6 million in principal payments towards our term loan, bringing the outstanding balance to $665.6 million as of March 31, 2023.

Results of Operations

We derive the majority of our revenue from licensing our technologies and IP rights to customers.

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

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

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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:

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Operating expenses:

Cost of revenue, excluding depreciation and amortization of intangible assets

Research, development and other related costs

Research and development

Selling, general and administrative

Depreciation expense

Amortization expense

Litigation expense

Goodwill impairment

Total operating expenses

Operating income (loss)

Operating income from continuing operations

Interest expense

Other income and expense, net

Loss on debt extinguishment

Income (loss) before taxes

Provision for (benefit from) income taxes

Income from continuing operations before income taxes

Provision for income taxes

Net income from continuing operations

Revenue (in thousands, except for percentages):

Three Months Ended

September 30,

Increase/ (Decrease)

The decrease in revenue during the three months ended September 30, 2022, as compared to the same period in the prior year, was primarily due to a decrease in IP licensing revenue as a result of non-recurring revenue from a license agreement recognized during the three months ended September 30, 2021.

The overall decrease in IP licensing revenue was partially offset by an increase in Product revenue from the consumer electronics market vertical offset by declines in revenue from consumer hardware and legacy guides within the Pay TV market vertical and revenue from the connected car market vertical.

Nine Months Ended

September 30,

Increase/ (Decrease)

The increase in revenue during the nine months ended September 30, 2022, as compared to the same period in the prior year, was primarily due to the recognition of license revenue associated with an IP technology and license agreement with a large semiconductor company, the settlement of a contract dispute with a large mobile imaging customer in the second quarter of 2022, and the execution of a long-term license agreement with a leading consumer electronics and OTT service provider.

These increases were partially offset by a decline in Product revenue primarily due to 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 non-recurring engineering ("NRE") services.

Three Months Ended

September 30,

Increase/ (Decrease)

Cost of revenue, excluding depreciation and amortization of intangible assets

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

Nine Months Ended

September 30,

Increase/ (Decrease)

Cost of revenue, excluding depreciation and amortization of intangible assets

The decrease in cost of revenue, excluding depreciation and amortization of intangible assets during the nine months ended September 30, 2022, as compared to the same period in the prior year, was primarily driven by lower hardware product-related costs due to a decline in hardware product sales.

Research, Development and Other Related Costs

Research, development and other related costs (“R&D expense”) consist 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.

The decrease in revenue during the three months ended March 31, 2023, as compared to the same period in 2022, was primarily attributable to the execution of a new, multi-year license agreement with Micron Technology in the first quarter of 2022 for which a meaningful portion of the total revenue was recognized in such quarter, partially offset by the execution of two long-term license agreements with Kioxia and Western Digital for which a portion of revenue was recognized up-front during the quarter ended March 31, 2023.

Research and Development (in thousands, except for percentages):

Research and development expense (“R&D expense”) consists primarily of employee-related costs, stock-based compensation expense, engineering consulting expenses associated with new IP development, as well as costs related to patent applications and examinations, reverse engineering, materials, supplies and an allocation of facilities costs.

All R&D expense is expensed as incurred.

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

Three Months Ended

September 30,

Increase/ (Decrease)

Research, development and other related costs

The increase in R&D expense during the three months ended September 30, 2022, as compared to the same period in the prior year, was primarily driven by higher personnel costs including variable compensation programs.

Nine Months Ended

September 30,

Increase/ (Decrease)

Research, development and other related costs

The increase in R&D expense during the nine months ended September 30, 2022, as compared to the same period in the prior year, was primarily driven by higher personnel costs including variable compensation, which was partially offset by a decrease in outside engineering services.

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

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, 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.

Research and development

The increase in R&D expense during the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to an increase in patent prosecution costs associated with an increase in patent filings, professional services costs and personnel costs as a result of increased headcount.

Selling, General and Administrative (in thousands, except for percentages):

Selling, general and administrative (“SGA”) expenses consist primarily of compensation and related costs for sales and marketing personnel engaged in sales and licensee support, marketing programs, public relations, promotional materials, travel, trade show expenses, compensation and related costs for general management, information technology, finance personnel, corporate legal fees and expenses, facilities costs, stock-based compensation expense and professional services.

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

Three Months Ended

September 30,

Increase/ (Decrease)

Selling, general and administrative

The increase in selling, general, and administrative ("SG&A") expenses during the three months ended September 30, 2022, as compared to the same period in the prior year, was primarily due to increased variable compensation, increased transaction costs related to the Vewd Acquisition, and an increase in costs related to the Separation.

Nine Months Ended

September 30,

Increase/ (Decrease)

Selling, general and administrative

The increase in SG&A expenses during the nine months ended September 30, 2022, as compared to the same period in the prior year, was primarily due to increased stock-based compensation associated 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 the Separation, an increase in variable compensation, partially offset by decreases in the provision for credit losses and banker fees.

Depreciation Expense

Three Months Ended

September 30,

Increase/ (Decrease)

Depreciation expense

The decrease in depreciation expense during the three months ended September 30, 2022, as compared to the same period in the prior year, was primarily to certain property and equipment, which became fully depreciated in the third quarter of 2022, partially offset by an increase in depreciation expense associated with property and equipment that was acquired in connection with the Vewd Acquisition.

Nine Months Ended

September 30,

Increase/ (Decrease)

Depreciation expense

The decrease in depreciation expense during the nine months ended September 30, 2022, as compared to the same period in the prior year, was primarily due to certain property and equipment, which became fully depreciated in the third quarter of 2022, partially offset by an increase in depreciation expense associated with property and equipment that was acquired in connection with the Vewd Acquisition.

Amortization Expense

The decrease in SGA expense during the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to a decrease in certain general corporate overhead costs incurred prior to the Separation and that did not meet the requirements to be presented in discontinued operations.

Such costs are not reflective of our on-going operations and include labor and non-labor costs related to our corporate support functions (e.g., administration, human resources, finance, accounting, tax, information technology, corporate development, legal, among others) that historically provided support to the former product business.

The decrease was partially offset by an increase in advertising expense, professional services costs and personnel costs as a result of increased headcount.

Amortization Expense (in thousands, except for percentages):

Three Months Ended

September 30,

Increase/ (Decrease)

Amortization expense

The decrease in amortization expense during the three months ended September 30, 2022, as compared to the same period in the prior year, was primarily due to certain acquired intangible assets, which became fully amortized in late 2021, partially offset by an increase in amortization expense due to intangible assets acquired in connection with the Vewd Acquisition.

Nine Months Ended

September 30,

Increase/ (Decrease)

Amortization expense

The decrease in amortization expense during the nine months ended September 30, 2022, as compared to the same period in the prior year, was primarily due to certain acquired intangible assets, which became fully amortized in late 2021, partially offset by an increase in amortization expense due to intangibles assets acquired in connection with the Vewd Acquisition in the third quarter of 2022.

Litigation Expense

Amortization expense was relatively consistent for the three months ended March 31, 2023, as compared to the same period in 2022.

Litigation Expense (in thousands, except for percentages):

Three Months Ended

September 30,

Increase/ (Decrease)

Litigation expense

Litigation expense was relatively consistent for the three months ended September 30, 2022, compared to the same period in the prior year.

Nine Months Ended

September 30,

Increase/ (Decrease)

Litigation expense

Litigation expense was relatively consistent for the nine months ended September 30, 2022, compared to the same period in the prior year.

We expect that litigation expense will continue to be a material portion of our operating expenses, as it is used to enforce and protect our IP and contract rights.

The increase in litigation expense during the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to increased legal fees as a result of increased case activity.

We expect that litigation expense will continue to be a significant portion of our operating expenses, as it is used to enforce and protect our IP and contract rights.

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

Legal Proceedings.

If our customers' licenses are not renewed upon expiration and those customers continue to use our patented technology, 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.

Goodwill impairment

The increase in goodwill impairment of $354 million during the three and nine months ended September 30, 2022, as compared to the same period in the prior year, was driven by a goodwill impairment charge recognized related to the Company's Product reporting unit and segment due to changes in the circumstances that indicated the carrying amount of goodwill may not be recoverable.

Stock-based Compensation Expense

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

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

SBC 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 September 30, 2022, as compared to the corresponding period in 2021, was primarily due to the increase in stock award grants made.

The increase in SBC expense for the nine months ended September 30, 2022, as 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 from the increase in stock award grants made.

Interest Expense

Interest Expense (in thousands, except for percentages):

Three Months Ended

September 30,

Increase/ (Decrease)

Interest expense

The increase in interest expense during the three months ended September 30, 2022, as compared to the same period in the prior year, was primarily due to an increase in interest rates on our variable interest rate debt.

Nine Months Ended

September 30,

Increase/ (Decrease)

Interest expense

Interest expense during the nine months ended September 30, 2022 was relatively consistent compared with the same period in the prior year.

We anticipate interest expense will increase in 2022 when compared to 2021 as a result of the effect of rising interest rates on our existing variable-rate debt, partially offset by a full year of the lower debt balance and amortization of debt discount and issuance costs.

In addition, Xperi Inc.

will incur interest expense as a result of the $50.0 million of debt in connection with the Vewd Acquisition which closed in the third quarter of 2022.

Other Income and Expense, Net

The increase in interest expense during the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to increased interest rates on our variable interest rate debt due to the rising interest rate environment, partially offset by a lower debt balance and amortization of debt discount and issuance costs.

We anticipate interest expense will increase in 2023, when compared to 2022, as a result of the effect of rising interest rates on our existing variable-rate debt, partially offset by the lower debt balance and amortization of debt discount and issuance costs.

Other Income and Expense, Net (in thousands, except for percentages):

Three Months Ended

September 30,

Increase/ (Decrease)

Other income and expense, net

Other and expense income, net during the three months ended September 30, 2022 was relatively consistent compared to the same period in the prior year.

Nine Months Ended

September 30,

Increase/ (Decrease)

Other income and expense, net

The decrease in other income and expense, net during the nine months ended September 30, 2022, compared to the same period in the prior year, was primarily driven by a decrease in realized loss on marketable investments, partially offset by an increase in interest income.

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.

The increase in other income and expense, net during the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to an increase in interest income from significant financing components from revenue contracts, partially offset by a decrease in realized loss on marketable investments.

Provision for Income Taxes

2 unchanged sentences

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

Foreign withholding taxes, U.S.

Foreign withholding

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 payments of income taxes.

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

For the three months ended March 31, 2023 and March 31, 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 September 30, 2022, we recorded an income tax expense of $0.9 million on pretax loss of $389.0 million, and for the nine months ended September 30, 2022 we recorded an income tax expense of $44.5 million on pretax loss of $327.8 million, which resulted in an effective tax rate of (13.6)% for the nine months ended September 30, 2022.

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

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

For the three months ended September 30, 2021, we recorded an income tax expense of $42.7 million on pretax loss of $3.7 million and for the nine months ended September 30, 2021, we recorded an income tax expense of $35.8 million on a pretax loss of $7.9 million, which resulted in an effective tax rate of (452.3)% for the nine months ended September 30, 2021.

The income tax expense for the three and nine months ended September 30, 2021 was primarily related to foreign withholding taxes, base erosion and anti-abuse tax (“BEAT”), and unrealized foreign exchange loss from the prior year South Korea refund claims, which have remained relatively fixed on a forecast basis quarter over quarter.

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

pre-tax income.

Three Months Ended

Increase/ (Decrease)

Provision for income taxes

For the three months ended March 31, 2023, we recorded an income tax expense of $11.8 million on pretax income of $40.8 million, which resulted in an effective tax rate of 28.9%.

The income tax expense for the three months ended March 31, 2023 was primarily related to foreign withholding taxes, U.S.

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

For the three months ended March 31, 2022, we recorded an income tax expense of $5.5 million on pretax income of $61.4 million, which resulted in an effective tax rate of 9.0%.

The income tax expense for the three months ended March 31, 2022 was primarily related to foreign withholding taxes, state income taxes, and unrealized foreign exchange loss from the prior year South Korea refund claims.

The year-over-year increase in income tax expense for the quarter ended March 31, 2023 is largely attributable to the 2022 valuation allowance for certain jurisdictions.

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 that will enable 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

As of September 30, 2022, 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 these 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.

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

In our 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):

In making such an 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 the positive evidence outweighed the negative evidence primarily due to cumulative income from our IP Licensing business on a continuing operations basis and the expectation of sustained profitability in future periods.

Accordingly, we concluded that it was more-likely-than-not that we would realize our federal and certain state deferred tax assets.

As a result, during the fourth quarter of 2022, we released the valuation allowance on the federal deferred tax assets and certain state deferred tax assets.

We will maintain a full valuation allowance on our foreign deferred tax asset as the expectation of future taxable income is uncertain.

Net loss from discontinued operations, net of tax

Our results of operations for the three months ended March 31, 2022 include three months of Xperi Inc.’s operations, which are presented as net loss from discontinued operations, net of tax in the Condensed Consolidated Statement of Operations.

Xperi Inc.’s results of operations for the three months ended March 31, 2022 were as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

IP Licensing segment

Product segment

Total revenue

March 31, 2022

Operating expenses

IP Licensing segment

Product segment

Unallocated operating expenses

Total operating expenses

Operating income (loss):

IP Licensing segment

Product segment

Unallocated operating expenses

Total operating income (loss)

IP Licensing Segment

IP Licensing revenue for the three months ended September 30, 2022 was $89.3 million as compared to $101.6 million for the three months ended September 30, 2021, a decrease of $12.3 million.

The decrease was primarily attributable to non-recurring revenue from a license agreement recognized during the three months ended September 30, 2021.

IP Licensing revenue for the nine months ended September 30, 2022 was $335.6 million as compared to $301.5 million for the nine months ended September 30, 2021, an increase of $34.1 million.

The increase was primarily attributable to the recognition of license revenue associated with an IP technology and license agreement with a large semiconductor company and the execution of a long-term license agreement with a leading consumer electronics and OTT service provider.

Operating expenses for the IP Licensing segment for the three months ended September 30, 2022 were $39.1 million, as compared to $34.7 million for the three months ended September 30, 2021, an increase of $4.4 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 and an increase in litigation expense primarily driven by a $2.5 million reserve recorded for estimated expense reimbursement owed to Bell and Telus as a result of the expected outcome of that litigation matter.

The increase in litigation expense was partially offset by reduced case activity.

Operating expenses for the IP Licensing segment for the nine months ended September 30, 2022 were $112.8 million, as compared to $103.1 million for the nine months ended September 30, 2021, an increase of $9.7 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 increase in litigation expense.

The increase in litigation expense was primarily due to a $2.2 million reserve recorded in the second quarter of 2022 related to the Videotron matter and a $2.5 million reserve recorded in the third quarter of 2022 for estimated expense reimbursement owed to the Bell and Telus as a result of the expected outcome of that litigation matter.

The increases were partially offset by reduced case activity.

Operating income for for the IP Licensing segment the three months ended September 30, 2022 was $50.2 million, as compared to $67.0 million for the three months ended September 30, 2021, a decrease of $16.8 million.

The decrease was primarily due to reasons stated above.

Operating income for the nine months ended September 30, 2022 was $222.8 million, as compared to $198.4 million for the nine months ended September 30, 2021, an increase of $24.4 million.

The increase was primarily due to reasons stated above.

Product Segment

Product revenue for the three months ended September 30, 2022 was $121.6 million as compared to $117.7 million for the three months ended September 30, 2021, an increase of $3.9 million.

The increase was primarily driven by an increase in minimum guarantee (“MG”) revenue in Consumer Electronics partially offset by decreases in revenue from the Pay-TV and Connected Car market verticals.

Product revenue for the nine months ended September 30, 2022 was $366.7 million as compared to $361.7 million for the nine months ended September 30, 2021, an increase of $5.0 million.

The increase was primarily driven by increased revenue from the settlement of a contract dispute with a large mobile imagining customer in the second quarter of 2022 and increased revenue from the Consumer Electronics market vertical.

The increases were partially offset by decreases in revenue from the Pay-TV and Connected Car market verticals.

Operating expenses for the Product segment for the three months ended September 30, 2022 were $463.2 million, as compared to $116.8 million for the three months ended September 30, 2021, an increase of $346.4 million.

The increase was primarily driven by the goodwill impairment charge recognized during the third quarter of 2022, increase in R&D cost primarily due to employees hired in connection the Vewd Acquisition in July 2022 and increase in variable compensation.

The increases were partially offset by decreases in depreciation and amortization expense due to certain fixed assets and acquired intangible assets reaching the end of their useful lives over the past twelve months and decrease in litigation expense due to reduced case activity.

Operating expenses for the Product segment for the nine months ended September 30, 2022 were $658.1 million, as compared to $330.4 million for the nine months ended September 30, 2021, an increase of $327.7 million.

The increase was primarily driven by the goodwill impairment charge described above, increase in R&D costs primarily due to employees hired in connection with the MobiTV Acquisition in the second quarter of 2021 and the Vewd Acquisition in the third quarter of 2022 and increase in variable compensation.

The increases were partially offset by decreases in amortization expense due to certain acquired intangible assets reaching the end of their useful lives over the past twelve and decrease in litigation expense due to reduced case activity.

Operating loss for the Product segment for the three months ended September 30, 2022 was $341.5 million, as compared to operating income of $0.9 million for the three months ended September 30, 2021, a decrease of $342.4 million.

Operating loss for the nine months ended September 30, 2022 was $291.3 million, as compared to operating income of $31.3 million for the nine months ended September 30, 2021, a decrease of $322.7 million.

The decreases were primarily due to reasons stated above.

Operating loss

Other income and expense, net

Loss before taxes

Provision for income taxes

Net loss from discontinued operations, net of tax

net loss attributable to noncontrolling interest

Net loss attributable to discontinued operations

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.

The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents for the three months ended March 31, 2023 and 2022.

(in thousands, except for percentages)

September 30, 2022

March 31, 2023

December 31, 2022

Cash and cash equivalents

Short-term investments

Total cash, cash equivalents and short-term investments

Percentage of total assets

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash from operating activities

1 unchanged sentence

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 $272.5 million at September 30, 2022, an increase of $10.8 million from $261.7 million at December 31, 2021.

This increase resulted primarily from $142.0 million in cash generated from operations, $28.3 million in proceeds from sales of investments $35.2 million in proceeds from maturities of investments and $14.3 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 $50.5 net cash paid for the Vewd Acquisition, $15.6 million in dividends paid, $32.6 million in repurchases of common stock, $30.4 million in repayment of long-term debt, and $12.6 million of capital expenditures.

Cash and cash equivalents totaled $271.1 million at September 30, 2022, an increase of $70.0 million from $201.1 million at December 31, 2021.

Our primary sources of liquidity and capital resources are our operating cash flows.

Cash and cash equivalents were $82.4 million at March 31, 2023, a decrease of $32.1 million from $114.6 million at December 31, 2022.

This decrease resulted primarily from $83.6 million in repayment of our indebtedness, $5.3 million in dividends paid, and $0.4 million of capital expenditures, partially offset by $63.4 million of cash generated from operations and $0.4 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

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.

Debt securities include 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.

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

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.

Other than the principal payment of $30.4 million made by us under the Refinanced Term B Loans during the nine months ended September 30, 2022, our cash requirements have not changed materially since December 31, 2021.

The gross realized gains and losses on sales of marketable debt securities were immaterial during the three months ended March 31, 2023 and 2022.

Unrealized losses on AFS debt securities were immaterial as of March 31, 2023 and December 31, 2022.

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, 2022.

Other than the principal payment of $83.6 million made by us under the Refinanced Term B Loans during the three months ended March 31, 2023, our cash requirements have not changed materially since December 31, 2022.

We expect to continue to make additional payments on our existing debt from cash generated from operations.

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

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

In March 2023, we paid quarterly dividends of $0.05 per share of common stock.

In May 2023, our board of directors (the “Board”) authorized payment of a quarterly dividend of $0.05 per share, to be paid in June 2023.

We anticipate that all quarterly dividends will be paid out of cash and cash equivalents.

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.

On June 12, 2020, our Board terminated a prior stock repurchase program and approved a new stock repurchase plan (the “Plan”), which provides 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.

On April 22, 2021, our Board 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 September 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.

Since the inception of the Plan, and through March 31, 2023, 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.

As of March 31, 2023, 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.

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

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 Separation of our two business segments are expected to impact operating cash flows for at least the next three months.

While we expect to continue to generate cash flows from operating activities in 2023, the COVID-19 impact and macroeconomic conditions continue to present uncertainties as to the level of such cash flows as compared to prior years.

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 months and thereafter for the foreseeable future.

We believe that based on current levels of operations and anticipated growth, our cash from operations, together with cash and cash equivalents currently available, will be sufficient to satisfy our currently anticipated cash requirements through at least the next 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.

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Cash Flows from Operating Activities

Cash flows provided by operations were $142.0 million for the nine months ended September 30, 2022, primarily due to our net loss of $372.3 million being further adjusted for non-cash items of depreciation of $16.8 million, amortization of intangible assets of $119.3 million, goodwill impairment charges of $354.0 million, and stock-based compensation expense of $49.3 million.

These increases were partially offset by $27.5 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 $165.9 million for the nine months ended September 30, 2021, primarily due to our net loss of $43.7 million being adjusted for non-cash items of depreciation of $18.0 million, amortization of intangible assets of $156.8 million, stock-based compensation expense of $42.5 million, and a loss on debt extinguishment of $8.0 million.

These increases were partially offset by a reduction of $7.1 million in deferred income taxes and $8.3 million in changes in operating assets and liabilities.

Our cash flows are presented on a consolidated basis and therefore, also include $135.0 million of cash and cash equivalents included as current assets of discontinued operations in the condensed consolidated balance sheet as of March 31, 2022.

Cash flows provided by operations were $63.4 million for the three months ended March 31, 2023, primarily due to our net income of $29.0 million being adjusted for non-cash items of amortization of intangible assets of $23.7 million, deferred income taxes of $2.4 million, amortization of debt issuance costs of $1.2 million and stock-based compensation expense of $3.6 million.

These increases were partially offset by $2.5 million in changes in operating assets and liabilities including payment during the quarter of employee bonuses earned in 2022.

Cash flows provided by operations were $46.3 million for the three months ended March 31, 2022, primarily due to our net income of $24.0 million being further adjusted for non-cash items of depreciation of $5.9 million, amortization of intangible assets of $39.3 million and stock-based compensation expense of $16.8 million.

These increases were partially offset by $40.8 million in changes in operating assets and liabilities including payment during the quarter of employee bonuses earned in 2021.

Cash Flows from Investing Activities

Net cash used in investing activities was $4.3 million for the nine months ended September 30, 2022, primarily related to maturities and sales of securities of $63.4 million, partially offset by net cash paid for the Vewd Acquisition of $50.5 million, purchases of short-term investments of $4.5 million and capital expenditures of $12.6 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 $11.6 million for the nine months ended September 30, 2021, primarily related to purchases of short-term investments of $65.4 million, cash used in the MobiTV Acquisition of $17.4 million and capital expenditures of $8.3 million, partially offset by maturities and sales of securities of $79.7 million.

Net cash used in investing activities was $0.4 million for the three months ended March 31, 2023, primarily related to capital expenditures.

Net cash provided by investing activities was $3.1 million for the three months ended March 31, 2022, primarily related to maturities and sales of securities of $12.0 million, partially offset by purchases of short-term investments of $4.5 million and capital expenditures of $4.3 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 nine months ended September 30, 2022 and 2021, we spent $12.6 million and $8.3 million on capital expenditures, respectively, and we expect capital expenditures in the fourth quarter of 2022 to be immaterial.

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

During the three months ended March 31, 2023 and 2022, we spent $0.4 million and $4.3 million on capital expenditures, respectively, and we expect capital expenditures in the remainder of 2023 to be approximately $4.6 million.

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

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Cash Flows from Financing Activities

Net cash used in financing activities was $64.3 million for the nine months ended September 30, 2022 primarily due to $30.4 million in repayment of indebtedness, $15.6 million in dividends paid, and $32.6 million in repurchases of common stock, partially offset by $14.3 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 $157.9 million for the nine months ended September 30, 2021 primarily due to $73.9 million in repayment of indebtedness, $6.8 million in debt refinancing costs, $15.8 million in dividends paid, and $75.2 million in repurchases of common stock, partially offset by $13.8 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Net cash used in financing activities was $95.1 million for the three months ended March 31, 2023 due to $83.6 million in repayment of indebtedness, $5.3 million in dividends paid, $6.6 million in repurchases of common stock, partially offset by $0.4 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Net cash used in financing activities was $35.7 million for the three months ended March 31, 2022 due to $10.1 million in repayment of indebtedness, $5.2 million in dividends paid, and $28.3 million in repurchases of common stock, partially offset by $8.0 million in proceeds due to 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 (the "Amendment") 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”).

On June 8, 2021, we amended (the “Amendment”) 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”).

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

On July 1, 2022, TiVo Product Holdco LLC, which was subsequently renamed to Xperi Inc., issued a senior unsecured promissory note (the “Promissory Note”) to the sellers of Vewd in a principal amount of $50.0 million.

The issuer’s obligations under the Promissory Note are guaranteed by the Company prior to the Separation.

Indebtedness outstanding under the Promissory Note bears an interest rate of 6.00% per annum, payable in cash on a quarterly basis.

The Promissory Note will mature on July 1, 2025.

In addition, the Promissory Note has mandatory prepayment provisions upon certain change of control or asset sale events.

At September 30, 2022, $759.4 million was outstanding under the Refinanced Term B Loans with an interest rate, including amortization of debt discount and issuance costs, of 6.02%.

At March 31, 2023, $665.6 million was outstanding under the Refinanced Term B Loans with an interest rate, including amortization of debt discount and issuance costs of $18.7 million.

Interest is payable monthly.

Under the existing loan agreements, we have future minimum principal payments for our debt of $10.1 million for the remainder of 2022, $40.5 million in each year from 2023 through 2026, with the remaining principal balance of $587.3 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 September 30, 2022, we were in full compliance with such covenants.

At September 30, 2022, $50 million was outstanding under the Promissory Note with an interest rate of 6.00%.

Interest is payable quarterly.

The Promissory Note will mature on July 1, 2025.

The Promissory Note does not contain any financial covenants.

As of September 30, 2022, we were in full compliance with such covenants.

After the Separation, we own the debt under the Refinanced B Term Loans and Xperi Inc.

owns the debt under the senior unsecured promissory note.

Under the existing loan agreements, we have future minimum principal payments for our debt of $30.4 million for the remainder of 2023 and $40.5 million in each year from 2024 through 2026, with the remaining principal balance of $473.3 million due in 2028.

After the Separation, we own the debt under the Refinanced B Term Loans.

Additionally, we paid $73.5 million during the three months ended March 31, 2023, based on certain leverage ratios and our excess cash flow generated during the year ended December 31, 2022.

The payments were made earlier than required under the 2020 Credit Agreement.

We are obligated to continue to pay a portion of excess cash flows on an annual basis.

The Refinanced Term B Loans contain customary covenants, and as of March 31, 2023, we were in full compliance with such covenants.

Critical Accounting Policies and Estimates

During the three and nine months ended September 30, 2022, there was a significant change in our critical accounting policies and estimates.

During the three months ended March 31, 2023, there were no significant changes in our critical accounting policies and estimates.

See “Note 2 –

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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.

Valuation of goodwill and intangible assets

We make judgments about the recoverability of intangible assets whenever events or changes in circumstances indicate that impairment may exist.

If such facts and circumstances exist, we assess recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts.

Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets.

If the useful life is shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life.

Such changes could result in impairment charges or higher amortization expense in future periods, which could have a significant impact on our operating results and financial condition.

We perform an annual review of the valuation of goodwill in the fourth quarter, or more often if indicators of impairment exist.

Triggering events for impairment reviews may be indicators such as adverse industry or economic trends, restructuring actions, lower projections of profitability, or a sustained decline in our market capitalization.

Evaluations of possible impairment and, if applicable, adjustments to carrying values require us to estimate, among other factors, future cash flows, useful lives, and fair market values of our assets.

When we conduct our evaluation of goodwill, the fair value of goodwill is assessed using valuation techniques that require significant management estimates and judgment.

Should conditions be different from management’s last assessment, significant impairments of goodwill may be required, which would adversely affect our operating results.

In performing the quantitative impairment test for goodwill, the fair value of the reporting unit is compared to its carrying amount.

We utilize the market capitalization approach to determine the fair value of a reporting unit.

Under the market capitalization approach, the fair value of a reporting unit is estimated based on the trading price of our stock as of the test date, or trading prices over a short period of time immediately prior or subsequent to the test date if such prices more reasonably represent the estimated fair value as of the test date, which is further adjusted by a control premium representing the synergies a market participant would achieve when obtaining control of the business.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K.

Recent Accounting Pronouncements

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

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

Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on 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