What changed in this filing

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Item 1. Financial Statements

2023-08-07 compared with 2023-05-08 · 297 added, 201 removed, 863 unchanged (37% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

Operating expenses:

11 unchanged sentences

Net loss from discontinued operations, net of tax

Net loss attributable to non-controlling interest in

discontinued operations

Net income attributable to the Company

Net income (loss)

Net loss attributable to non-controlling interest

in discontinued operations

Net income (loss) attributable to the Company

Income (loss) per share:

9 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss), net of tax:

4 unchanged sentences

Comprehensive loss attributable to noncontrolling interest

Comprehensive income attributable to the Company

Comprehensive income (loss) attributable to the Company

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

3 unchanged sentences

Cash and cash equivalents

Available-for-sale debt securities

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

42 unchanged sentences

(in thousands)

Three Months Ended

March 31, 2023

March 31, 2022

Six Months Ended

June 30, 2023

June 30, 2022

Cash flows from operating activities:

14 unchanged sentences

Purchases of property and equipment

Proceeds from sale of property and equipment

Purchases of intangible assets

17 unchanged sentences

Income taxes paid, net of refunds

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.

Unpaid purchases of property and equipment at the end of the period

Cash flows above are presented on a consolidated basis and therefore also include $ 144.8 million of cash and cash equivalents included in current assets of discontinued operations in the condensed consolidated balance sheet as of June 30, 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.

1 unchanged sentence

(in thousands, except per share amount)

Three Months March 31, 2023

Three Months Ended June 30, 2023

Paid-In Capital

Treasury Stock

Other Comprehensive Income (Loss)

Other Comprehensive Loss

Stockholders' Equity

Balance at April 1, 2023

Other comprehensive loss

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

Issuance of common stock in connection with employee stock purchase plan

Issuance of restricted stock, net of shares canceled

Withholding taxes related to net share settlement of restricted awards

Stock-based compensation expense

Balance at June 30, 2023

Six Months Ended June 30, 2023

Paid-In Capital

Treasury Stock

Other Comprehensive Loss

Stockholders' Equity

Balance at January 1, 2023

Other comprehensive income

Other comprehensive loss

Cash dividends paid on common stock ($ 0.10 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

1 unchanged sentence

Stock-based compensation expense

Balance at March 31, 2023

Balance at June 30, 2023

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

2 unchanged sentences

Total Company Stockholders' Equity

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Treasury Stock

1 unchanged sentence

Noncontrolling Interest

Stockholders' Equity

Balance at April 1, 2022

Issuance of subsidiary shares to noncontrolling interest

Other comprehensive loss

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

Issuance of common stock in connection with exercise of stock options

Issuance of restricted stock, net of shares canceled

Repurchases of common stock, shares exchanged

Stock-based compensation expense

Balance at June 30, 2022

Total Company Stockholders' Equity

Six Months Ended June 30, 2022

Treasury Stock

Comprehensive Loss

Noncontrolling Interest

Stockholders' Equity

Balance at January 1, 2022

9 unchanged sentences

Stock-based compensation expense

Balance at March 31, 2022

Balance at June 30, 2022

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

26 unchanged sentences

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.

The results of operations for the three months and six months ended June 30, 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

2 unchanged sentences

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2023, 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 and six months ended June 30, 2023, as compared to the significant accounting policies described in the Form 10-K.

Use of Estimates

4 unchanged sentences

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.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

8 unchanged sentences

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.

In the second quarter of 2023 , the Company adopted Topic 848 and modified its debt agreement to reference to other rates.

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

NOTE 3 –

24 unchanged sentences

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.

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 component 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 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.

22 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

Unbilled contracts receivable

Other current assets

Sales commissions recorded in other current assets

Long-term unbilled contracts receivable (1)

Other long-term assets

Sales commissions recorded in other long-term assets

Total contract assets

(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

4 unchanged sentences

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

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.

The Company allowance for credit losses at June 30, 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

1 unchanged sentence

Three Months Ended

Six Months Ended

Revenue recognized in the period from:

3 unchanged sentences

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 (in thousands).

March 31, 2023

June 30, 2023

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

3 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

Prepaid income taxes

Prepaid insurance

Prepaid expenses

Prepaid insurance

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

March 31, 2023

June 30, 2023

December 31, 2022

3 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

1 unchanged sentence

Accrued liabilities consisted of the following (in thousands):

March 31, 2023

June 30, 2023

December 31, 2022

Employee compensation and benefits

Accrued legal fees

Accrued income taxes

Accrued expenses

Current portion of guarantee (1)

Current portion of operating lease liabilities

Accrued legal fees

Current portion of guarantee (1)

(1) Refer to “Note 15 –

2 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

6 unchanged sentences

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 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

The following is a summary of marketable securities at June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023

Allowance for Credit Losses

Marketable securities

Municipal Bonds and Notes

Treasury and Agency Notes and Bills

Commercial paper

4 unchanged sentences

Cash and cash equivalents

Available-for-sale debt securities

Total marketable securities

December 31, 2022

7 unchanged sentences

Cash and cash equivalents

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 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.

At June 30, 2023 and December 31, 2022, the Company had $ 60.5 million and $ 114.6 million, respectively, in cash and cash equivalents.

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

The remaining balances of $ 50.5 million and $ 81.5 million at June 30, 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 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 gross realized gains and losses on sales of marketable debt securities were immaterial during the three and six months ended June 30, 2023 and 2022, respectively.

Unrealized losses on AFS debt securities were immaterial as of June 30, 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.

In addition, the contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments.

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 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):

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 basis.

The Company did not recognize a provision for credit losses related to its AFS debt securities for the three and six months ended June 30, 2023 and 2022, respectively.

No impairment charges were recorded on the AFS debt securities for the three and six months ended June 30, 2023.

The following table summarizes the fair value and gross unrealized losses related to individual AFS debt securities at June 30, 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

March 31, 2023

June 30, 2023

Cash and Cash Equivalents

AFS Debt Securities

Municipal Bonds and Notes

Treasury and Agency Notes and Bills

Commercial paper

5 unchanged sentences

Commercial paper

The estimated fair value of marketable debt securities by contractual maturity at March 31, 2023 is shown below (in thousands).

The estimated fair value of marketable debt securities by contractual maturity at June 30, 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.

12 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, 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):

There were no significant transfers into or out of Level 1 or Level 2 that occurred between December 31, 2022 and June 30, 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 June 30, 2023 (in thousands):

Active Markets

2 unchanged sentences

Money market funds - equity securities (1)

Municipal bonds and notes - debt securities (2)

Treasury and agency notes and bills - debt securities (3)

Commercial paper - debt securities (3)

(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 as these were purchased with original maturities of three months or less at the date of purchase;

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

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

9 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

1 unchanged sentence

Total long-term debt, net

(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.

(1) Carrying amounts of long-term debt are net of unamortized debt discount and issuance costs of $ 17.6 million and $ 19.9 million as of June 30, 2023 and December 31, 2022, respectively.

See “Note 9 –

17 unchanged sentences

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.

In connection with the Separation, the Company incurred separation costs of $ 43.7 million from January 1, 2020 to June 30, 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 remaining separation costs of $ 15.1 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 and six months ended June 30, 2022, the Company incurred $ 3.0 and $ 5.8 million in separation costs, respectively, which are included in net loss from discontinued operations, net of tax.

During the three and six months ended June 30, 2023, separation costs were not material.

The Company and Xperi Inc.

3 unchanged sentences

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 impact of these transition services on the Company’s Condensed Consolidated Financial Statements for the three and six months

ended June 30, 2023 was not material.

Net Loss from Discontinued Operations, Net of Tax

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.

for the three and six months ended June 30, 2022 are presented as net loss from discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations.

The following table presents financial results of Xperi Inc.

1 unchanged sentence

Three Months Ended

March 31, 2022

June 30, 2022

Six Months Ended

June 30, 2022

Operating expenses:

15 unchanged sentences

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

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

Net cash from operating activities

2 unchanged sentences

GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

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.

The carrying value of goodwill at June 30, 2023 and December 31, 2022 wa s $ 313.7 million.

There were no changes t o the carrying value of goodwill from January 1, through June 30, 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.

No impairment charges were recognized for the three and six months ended June 30, 2023.

Identified Intangible Assets

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

March 31, 2023

June 30, 2023

December 31, 2022

5 unchanged sentences

Total intangible assets

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

As of June 30, 2023, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):

2023 (remaining 6 months)

1 unchanged sentence

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

March 31, 2023

June 30, 2023

December 31, 2022

9 unchanged sentences

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

On May 30, 2023, the Company amended the 2020 Credit Agreement to replace the reference to LIBOR as the base rate with the reference to the Secured Overnight Financing Rate “SOFR”

as administered by the Federal Reserve Bank of New York.

The new reference rate is effective July 1, 2023.

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

3 unchanged sentences

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

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

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

Accordingly, the Company made additional cash payments of $ 73.5 million during the six months ended June 30, 2023 under the excess cash flow provisions.

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

1 unchanged sentence

Interest Expense and Expected Principal Payments

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

At June 30, 2023, $ 645.5 million in total debt was outstanding.

There were also $ 17.6 million of unamortized debt discount and issuance costs recorded as a reduction from the carrying amount of the debt.

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):

The interest rate on the Refinanced Term B Loans as of June 30, 2023, including the amortization of debt discount and issuance costs, was 9.58 % an d interest is payable monthly.

Interest expense was $ 15.4 million and $ 31.3 million for the three and six months ended June 30, 2023, respectively.

Interest expense was $ 9.4 million and $ 17.9 million for the three and six months ended June 30, 2022, respe ctively.

Amortized debt discount and issuance costs, which were included in interest expense, amounted to $ 1.1 million and $ 2.2 m illion for the three and six months ended June 30, 2023, respectively, and $ 1.1 million and $ 2.2 million for the three and six months ended June 30, 2022, respectively.

As of June 30, 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 6 months)

3 unchanged sentences

Three Months Ended

Six Months Ended

Net income from continuing operations

26 unchanged sentences

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 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.

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.

7 unchanged sentences

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

As of March 31, 2023, there were 3.2 million shares reserved for future grants under both the 2020 EIP and the Assumed Plans.

As of June 30, 2023, there were 2.8 million shares reserved for future grants under both the 2020 EIP and the Assumed Plans.

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

4 unchanged sentences

Options canceled / forfeited / expired

Balance at March 31, 2023

Balance at June 30, 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) :

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

Balance at June 30, 2023

Performance Awards and Units

6 unchanged sentences

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.

Due to the Separation, the next offering period under the 2020 ESPP plan commenced on December 1, 2022.

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.

4 unchanged sentences

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

Due to the fair market value per share of Company’s common stock on May 31, 2023 as compared to the fair market value per share on December 1, 2022, the offering period was automatically terminated and a new 24-month offering period began on June 1, 2023 and will end on May 31, 2025.

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.

As of June 30, 2023, there were 5.4 million shares reserved for grant under the Company’s 2020 ESPP.

Modification of Equity Awards

8 unchanged sentences

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.

During the three and six months ended June 30, 2023 and 2022, quarterly dividends declared were $ 0.05 and $ 0.10 per common share, respectively.

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.

2 unchanged sentences

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

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.

As of June 30, 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 this plan.

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

As of June 30, 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.

6 unchanged sentences

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

During the three months ended March 31, 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.

During the three months ended June 30, 2023 and 2022, the Company with held 0.1 mill ion and 0.1 million shares of common stock to satisfy $ 0.9 million and $ 0.4 million of required withholding taxes, respectively.

During the six months ended June 30, 2023 and 2022, the Company withheld 0.8 million and 0.7 million shares of common stock to satisfy $ 7.5 m illion and $ 11.5 million of required withholding taxes, respectively.

NOTE 12 –

STOCK-BASED COMPENSATION EXPENSE

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

The effect of recording stock-based compensation (“SBC”) expense for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):

Three Months Ended

Six Months Ended

Research and development

3 unchanged sentences

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 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:

As a result of this modification, the Company recorded incremental SBC of approximately $ 2.2 million during the six months ended June 30, 2022.

There were no options granted during the three and six months ended June 30, 2023 and 2022.

The following assumptions were used to value the restricted stock units subject to market conditions granted in the following months during the three and six months ended June 30, 2023 and 2022:

Expected life (years)

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Expected volatility

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:

Due to the Separation, the offering period under the 2020 ESPP plan commenced on December 1, 2022, and due to the fair value of the Company’s common stock on May 31, 2023 as compared to December 1, 2022, a new offering period commenced on June 1, 2023.

ESPP grants occurs in June and December, as discussed in “Note 11 –

Stockholders’

The following assumptions were used to value the ESPP shares for these grants:

Expected life (years)

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NOTE 13 –

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 income 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 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.

The Company’s income tax provision and effective tax rate for interim periods are based on its estimated annual effective tax rate adjusted for discrete items during the period.

For the three and six months ended June 30, 2023, the Company recorded income tax expense of $ 2.4 million and $ 14.2 million, respectively.

For the three and six months ended June 30, 2022, the Company recorded income tax expense of $ 10.6 million and $ 16.1 million, respectively.

The effective tax rate varies from the 21 % U.S.

federal tax rate primarily due to foreign exchange gain or loss on prior year South Korea withholding tax refund claims.

The decrease in income tax expense for the three and six months ended June 30, 2023, as compared to the same period in the prior year was primarily due to a decrease in pretax income.

NOTE 14 –

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Three Months Ended

Six Months Ended

Fixed lease cost

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Three Months Ended

Six Months Ended

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

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Operating leases

March 31, 2023

June 30, 2023

December 31, 2022

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Operating leases

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

Future minimum lease payments and related lease liabilities as of June 30, 2023 were as follows (in thousands):

Operating Lease Payments (1)

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These arrangements primarily include unconditional purchase obligations to service providers.

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.

As of June 30, 2023, the Company’s total future unconditional purchase obligations were approximately $ 3.3 million, including $ 1.1 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.

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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.

As of June 30, 2023 and December 31, 2022, the balance of the guarantee liability was $ 19.1 million and $ 20.5 million, respectively.

During the three months and six months ended June 30, 2023, the Company made guarantee payments of $ 0.6 million and $ 1.1 million, respectively.

The Company recognized other income of $ 0.3 million during the six months ended June 30, 2023 in the Condensed Consolidated Statement of Operations as a result of a change in the carrying value of the guarantee liability.

Indemnifications

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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”).

Videotron filed its memorandum of fact and law 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.

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

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

Accordingly, the Company paid $ 2.6 million for expense reimbursement in the second quarter of 2023.

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.

On June 2, 2023, Adeia Media filed its opening memorandum of fact and law.

The Bell and Telus memorandum of fact and law is due August 18, 2023.

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.

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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.

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.

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

Six Months Ended

Europe and Middle East

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.

For the three months ended June 30, 2023 and 2022, there were three and two customers, respectively, that each accounted for 10% or more of total revenue.

For the six months ended June 30, 2023 and 2022, there were three customers, respectively, that each accounted for 10% or more of total revenue.

The following table sets forth revenue generated from customers which comprise 10% or more of total revenue for the periods indicated:

Three Months Ended

Six Months Ended

* denotes less than 10% of total revenue.

As of June 30, 2023, the Company had one customer representing 54 % of aggregate accounts receivable.

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

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Declaration of Cash Dividends

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 .

On J uly 27, 2023 , the Board declared a cash dividend of $ 0.05 per share of common stock, payable on September 18, 2023 for the stockholders of record at the close of business on August 28, 2023 .

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

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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.

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 our control, and are not guarantees of future results.

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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”.

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 10,000 patents and patent applications worldwide.

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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.

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.

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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.

for the three and six months ended June 30, 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.

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.

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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.

In connection with the Separation, we incurred separation costs of $43.7 million from January 1, 2020 to June 30, 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.

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The remaining separation costs of $15.1 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

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Financial Highlights

For the three months ended March 31, 2023:

For the three months ended June 30, 2023:

Revenue was $83.2 million, a decrease of 23% from $107.8 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

Diluted earnings per share (EPS) was $0.01, a decrease of 93% from $0.14 in the same period in 2022

Net income was $1.4 million, a decrease of 91% from $15.2 million in the same period in 2022

Cash flows from operations were $28.7 million, a decrease of 30% from $40.8 million in the same period in 2022

We made $20.1 million in principal payments towards our term loan, bringing the outstanding balance to $645.5 million as of June 30, 2023

For the six months ended June 30, 2023:

Revenue was $200.5 million, a decrease of 19% from $246.3 million in the same period in 2022

Diluted earnings per share (EPS) was $0.27, a decrease of 60% from $0.67 in the same period in 2022

Net income was $30.4 million, a decrease of 57% from $71.0 million in the same period in 2022

Cash flows from operations were $92.1 million, an increase of 6% from $87.0 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.

We made $103.8 million in principal payments towards our term loan, bringing the outstanding balance to $645.5 million as of June 30, 2023

Results of Operations

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Three Months Ended

Six Months Ended

Operating expenses:

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Three Months Ended

Six Months Ended

Increase/ (Decrease)

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.

Increase/ (Decrease)

The decrease in revenue during the three months ended June 30, 2023, as compared to the same period in 2022, was primarily attributable to the execution of a long-term license agreement with a leading consumer electronics and OTT service provider in the second quarter of 2022 for which a meaningful portion of the total revenue was recognized in such quarter, and in part due to a decline in royalty revenue from certain Pay-TV customers.

The decrease in revenue during the six months ended June 30, 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, the execution of a long-term license agreement with a leading consumer electronics and OTT service provider in the second quarter of 2022, for which a meaningful portion of the total revenue was recognized in the respective quarters, and in part due to a decline in royalty revenue from certain Pay-TV customers.

These declines were partially offset by the execution of two long-term license agreements with Kioxia and Western Digital in the first quarter of 2023 for which a portion of revenue was recognized up-front in such quarter.

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

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Three Months Ended

Six Months Ended

Increase/ (Decrease)

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.

The increase in R&D expense during the three and six months ended June 30, 2023, as compared to the same periods 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.

Selling, general and administrative (“SGA”) expenses consist primarily of compensation and related costs for sales and marketing personnel engaged in sales and licensee support, 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

Six Months Ended

Increase/ (Decrease)

Selling, general and administrative

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.

The decrease in SGA expense during the three and six months ended June 30, 2023, as compared to the same periods 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.

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Three Months Ended

Six Months Ended

Increase/ (Decrease)

Amortization expense

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

The decrease in amortization expense during the three and six months ended June 30, 2023, as compared to the same periods in 2022, was primarily due to certain intangible assets acquired in prior years, which became fully amortized during 2022.

Litigation Expense (in thousands, except for percentages):

Three Months Ended

Six Months Ended

Increase/ (Decrease)

Litigation expense

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.

The decrease in litigation expense during the three months ended June 30, 2023, as compared to the same period in 2022, was primarily due to a $2.2 million reserve recorded in the second quarter of 2022 for estimated expense reimbursement due to Videotron as a result of the outcome of that litigation matter, partially offset by reduced case activity.

The increase in litigation expense during the six months ended June 30, 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.

3 unchanged sentences

Three Months Ended

Six Months Ended

Increase/ (Decrease)

Interest expense

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.

The increase in interest expense during the three and six months ended June 30, 2023, as compared to the same periods 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 continue to increase in the second-half of 2023, when compared to the second-half of 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

Six Months Ended

Increase/ (Decrease)

Other income and expense, net

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.

The increase in other income and expense, net during the three and six months ended June 30, 2023, as compared to the same periods 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

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

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

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

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 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.

Three Months Ended

Six 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 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.

Our income tax provision and effective tax rate for interim periods are based on the estimated annual effective tax rate adjusted for discrete items during the period.

For the three months ended June 30, 2023, we recorded an income tax expense of $2.4 million on pretax income of $3.8 million, and for the six months ended June 30, 2023, we recorded an income tax expense of $14.2 million on pretax income of $44.6 million, which resulted in effective tax rates of 61.9% and 31.8%, respectively, for the three and six months ended June 30, 2023.

For the three months ended June 30, 2022, we recorded an income tax expense of $10.6 million on pretax income of $25.7 million, and for the six months ended June 30, 2022, we recorded an income tax expense of $16.1 million on pretax income of $87.1 million, which resulted in effective tax rates of 41.0% and 18.5%, respectively, for the three and six months ended June 30, 2022.

The effective tax rate varies from the 21% U.S.

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

The decrease in income tax expense for the three and six months ended June 30, 2023, as compared to the same period in the prior year was primarily due to a decrease in pretax income.

We periodically evaluate the realizability of our net deferred tax assets based on all available evidence, both positive and negative.

After considering the evidence to assess the recoverability of our net deferred tax assets, we concluded that it was more-likely-than-not that we would realize our federal and certain state deferred tax assets.

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):

Our results of operations for the three and six months ended June 30, 2022 include three and six 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 and six months ended June 30, 2022 were as follows (in thousands):

Three Months Ended

March 31, 2022

June 30, 2022

Six Months Ended

June 30, 2022

Operating expenses

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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 for the three months ended March 31, 2023 and 2022.

(in thousands, except for percentages)

March 31, 2023

The following table presents selected financial information related to our liquidity and significant sources and uses of cash, cash equivalents and short-term investments for the six months ended June 30, 2023 and 2022.

(in thousands)

June 30, 2023

December 31, 2022

Cash and cash equivalents

Percentage of total assets

Three Months Ended March 31,

Available-for-sale debt securities

Total cash, cash equivalents and short-term investments

Six Months Ended June 30,

Net cash from operating activities

2 unchanged sentences

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.

Cash, cash equivalents and short-term investments were $84.3 million at June 30, 2023, a decrease of $30.2 million from $114.6 million at December 31, 2022.

This decrease resulted primarily from $103.8 million in repayment of our indebtedness, $10.6 million in dividends paid, $23.8 million in purchases of short-term investments, and $1.5 million of capital expenditures, partially offset by $92.1 million of cash generated from operations and $1.1 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.

1 unchanged sentence

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.

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”

The gross realized gains and losses on sales of marketable debt securities were immaterial during the three and six months ended June 30, 2023 and 2022.

Unrealized losses on AFS debt securities were immaterial as of June 30, 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.

Other than the principal payment of $103.8 million made by us under the Refinanced Term B Loans during the six months ended June 30, 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.

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Quarterly Dividends

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.

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

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

Stock Repurchase Plan

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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 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.

Since the inception of the Plan, and through June 30, 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 June 30, 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 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 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.

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Cash Flows from Operating Activities

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.

Our cash flows are presented on a consolidated basis and therefore, also include $144.8 million of cash and cash equivalents included as current assets of discontinued operations in the condensed consolidated balance sheet as of June 30, 2022.

Cash flows provided by operations were $92.1 million for the six months ended June 30, 2023, primarily due to our net income of $30.4 million being adjusted for non-cash items of amortization of intangible assets of $47.3 million, deferred income taxes of $1.5 million, amortization of debt issuance costs of $2.2 million and stock-based compensation expense of $8.2 million.

These increases were partially offset by $1.7 million in

changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2022.

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

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

Cash Flows from Investing Activities

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.

Net cash used in investing activities was $25.4 million for the six months ended June 30, 2023, primarily related to purchases of short-term investments of $23.8 million and capital expenditures of $1.5 million.

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

Capital Expenditures

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.

During the six months ended June 30, 2023 and 2022, we spent $1.5 million and $8.9 million on capital expenditures, respectively.

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 $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.

Net cash used in financing activities was $120.7 million for the six months ended June 30, 2023 due to $103.8 million in repayment of indebtedness, $10.6 million in dividends paid, $7.5 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.1 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 $51.3 million for the six months ended June 30, 2022 principally due to $20.3 million in repayment of indebtedness, $10.4 million in dividends paid, and $28.7 million in repurchases of common stock, partially offset by $8.1 million in proceeds due to the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Long-term Debt

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

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.

On May 30, 2023, we amended the 2020 Credit Agreement to replace the reference to LIBOR as the base rate with the reference to the Secured Overnight Financing Rate “SOFR”

as administered by the Federal Reserve Bank of New York.

At June 30, 2023, $645.5 million was outstanding under the Refinanced Term B Loans with an interest rate, including amortization of debt discount and issuance costs of $17.6 million.

Interest is payable monthly.

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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.

Additionally, we paid $73.5 million during the six months ended June 30, 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.

The Refinanced Term B Loans contain customary covenants, and as of June 30, 2023, we were in full compliance with such covenants.

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.

During the six months ended June 30, 2023, there were no significant changes in our critical accounting policies and estimates.

See “Note 2 –

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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