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Item 1. Financial Statements

2024-05-08 compared with 2023-11-06 · 254 added, 879 removed, 449 unchanged (72% of the section changed)

Financial Statements

CONDENSED CONSOLIDATED S TATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED S TATEMENTS OF INCOME

(in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 30,

Operating expenses:

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Total operating expenses

Operating income from continuing operations

Operating income

Interest expense

Other income and expense, net

Income from continuing operations before income taxes

Income before income taxes

Provision for income taxes

Net income (loss) from continuing operations

Net loss from discontinued operations, net of tax

Net income (loss)

Net loss attributable to non-controlling interest in discontinued operations

Net income (loss) attributable to the Company

Income (loss) per share:

Continuing operations

Discontinued operations

Net income (loss)

Continuing operations

Discontinued operations

Net income (loss)

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

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

Net income per share:

Weighted average number of shares used in per share calculations

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPR EHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPR EHENSIVE INCOME

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Other comprehensive income (loss), net of tax:

Change in foreign currency translation adjustment

Net unrealized gain (losses) on available-for-sale debt securities

Net unrealized losses on available-for-sale debt securities

Other comprehensive income (loss), net of tax

Comprehensive income (loss)

Comprehensive loss attributable to noncontrolling interest

Comprehensive income (loss) attributable to the Company

Total comprehensive income

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

CONDENSED CONSOLIDA TED BALANCE SHEETS

C ONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for par value)

September 30,

Current assets:

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Accounts payable

Accrued legal fees

Accrued liabilities

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Commitments and contingencies (Note 14 )

Stockholders’

Stockholders’ equity:

Preferred stock:

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Accumulated deficit

Total stockholders’

Total stockholders’ equity

Total liabilities and equity

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(in thousands)

Nine Months Ended

September 30, 2023

September 30, 2022

Three Months Ended

March 31, 2024

March 31, 2023

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (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

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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

Purchases of short-term investments

Proceeds from sales of investments

Proceeds from maturities of investments

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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

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

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

Unpaid purchases of intangible assets at the end of the period

Intangible assets acquired during the period

Debt acquired in a business acquisition

Cash flows above are presented on a consolidated basis and therefore also include $ 182.9 million of cash and cash equivalents included in current assets of discontinued operations in the condensed consolidated balance sheet as of September 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.

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(in thousands, except per share amount)

Three Months Ended September 30, 2023

Paid-In Capital

Treasury Stock

Other Comprehensive Income (Loss)

Stockholders' Equity

Balance at July 1, 2023

Other comprehensive income

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

Issuance of common stock in connection with exercise of stock options

Issuance of restricted stock, net of shares canceled

Withholding taxes related to net share settlement of restricted awards

Stock-based compensation expense

Balance at September 30, 2023

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Paid-In Capital

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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

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Stock-based compensation expense

Balance at September 30, 2023

Balance at March 31, 2024

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

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Total Company Stockholders' Equity

Three Months Ended September 30, 2022

Treasury Stock

Comprehensive Loss

Noncontrolling Interest

Stockholders' Equity

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

Stock-based compensation expense

Balance at September 30, 2022

Total Company Stockholders' Equity

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Paid-In Capital

Treasury Stock

Comprehensive Loss

Noncontrolling Interest

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

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.

NOTES TO COND ENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –

THE COMPANY AND BASIS OF PRESENTATION

(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 possessing more than 10,500 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”).

NOTES TO C ONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION

(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 consisting of over 11,000 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.”).

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”.

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.

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, 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”).

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.

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.

The amounts as of December 31, 2023 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, 2023, filed on February 23, 2024 (the “Form 10-K”).

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, 2023.

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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.

The results of operations for the three months and nine months ended September 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

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

NOTE 2 –

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024 or any future period and the Company makes no representations related thereto.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2024, 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 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.

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 licensee, determining standalone selling price, and 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.

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

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

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

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.

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 –

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

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

The adoption did no t have a material impact to the Company’s Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of adopting ASU 2023-07.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of adopting ASU 2023-09.

NOTE 3 – REVENUE

Revenue Recognition

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.

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

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

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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.

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

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.

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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.

When the uncertainty associated with variable consideration relates to potential price adjustments as a result of a legal contract dispute, the Company estimates variable consideration using the expected value method or the most likely amount method, whichever is more appropriate in the circumstances, and considers all available information, including historical data and experience.

Estimating variable consideration related to potential future price adjustments requires significant judgment in evaluating the possible outcomes.

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.

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IP License Arrangements

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

The Company generally licenses its IP portfolios under three models:

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Fixed-fee Media IP licensing

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’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.

The transaction price is adjusted for the effect of any significant financing components calculated using borrower-specific, risk-adjusted interest rates, with the related interest income or expense being recognized over time on an effective rate basis.

Fixed-fee or minimum guarantee Semiconductor IP licensing

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.

The Company enters 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 component 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, adjusted for the effect of any significant financing components calculated using borrower-specific, risk-adjusted interest rates, with the related interest income or expense 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.

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.

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.

IP license contracts with multiple performance obligations

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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 IP 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 intellectual property 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.

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Revenue disaggregation

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 category, market vertical and geographic location (presented in “Note 16 –

Segment and Geographic Information ”).

This information includes revenue recognized from contracts with customers and revenue from other sources, including sales-based or usage-based royalty revenues and fees associated with releases for past infringement.

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Recurring revenue

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Semiconductor

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

September 30, 2023

March 31, 2024

December 31, 2023

Unbilled contracts receivable

Sales commissions recorded in other current assets

Other current assets

Long-term unbilled contracts receivable

Sales commissions recorded in other long-term assets

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 executed in the first quarter of 2023.

Contract Liabilities

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Allowance for Credit Losses

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.

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

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 September 30, 2023 and December 31, 2022 wa s $ 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 March 31, 2024 and December 31, 2023 wa s $ 1.5 million 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:

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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.

(2) Includes fees associated with a release for past patent infringement and revenue from periods prior to the execution of a long-term renewal contract with a global leader in the electronics industry, covering our media portfolio as it pertains to its mobile devices;

the settlement of existing litigation with a leading semiconductor company for which revenue was recognized during the three months ended September 2023;

and revenue from updated royalty reporting received from an existing customer relating to prior periods.

The long-term renewal contract was effective as of the expiration of the prior agreement and the Company recorded revenue from this agreement in the third quarter of 2023 and expects to record revenue from the prospective license in future periods.

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).

September 30, 2023

(1) Performance obligations satisfied in previous periods consist mainly of fees associated with releases for past patent infringement, settlements of litigation during the period, and revenue from past royalties owed pursuant to expired or terminated IP license agreements.

For long-term and multi-year revenue contracts, the Company recorded revenue from the releases for past infringement and the prospective license during the three months ended March 31, 2024 and 2023 and expects to record revenue from the prospective license in future periods.

March 31, 2024

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

2024 (remaining 9 months)

NOTE 4 –

COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

NOTE 4 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

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

September 30, 2023

March 31, 2024

December 31, 2023

Prepaid income taxes

Prepaid insurance

Prepaid expenses

Prepaid insurance

Total other current assets

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

September 30, 2023

March 31, 2024

December 31, 2023

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accumulated depreciation and amortization

Total property and equipment, net

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

September 30, 2023

March 31, 2024

December 31, 2023

Long-term deferred tax assets

Total other long-term assets

Accrued liabilities consisted of the following (in thousands):

September 30, 2023

March 31, 2024

December 31, 2023

Employee compensation and benefits

Accrued expenses

Current portion of guarantee (1)

Current portion of operating lease liabilities

Accrued legal fees

Accrued expenses

Accrued income taxes

(1) Refer to “Note 15 –

Commitments and Contingencies”

for further detail on the nature of the guarantee.

Total accrued liabilities

(1) Refer to “Note 14 – Commitments and Contingencies” for further detail on the nature of the guarantee.

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

September 30, 2023

March 31, 2024

December 31, 2023

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 –

FINANCIAL INSTRUMENTS

Total other long-term liabilities

(1) Refer to “Note 14 – Commitments and Contingencies” for further detail on the nature of the guarantee.

NOTE 5 – FINANCIAL INSTRUMENTS

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

The Company classifies its debt securities as available-for-sale (“AFS”), which are accounted for at fair value with credit related losses recognized as a provision for credit 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 in its 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 September 30, 2023 and December 31, 2022 (in thousands):

September 30, 2023

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 Consolidated Statements of Income and all non-credit related unrealized gains and losses recognized in accumulated other comprehensive income or loss on the 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 Consolidated Statements of Income.

The following is a summary of marketable securities at March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024

Allowance for Credit Losses

Marketable securities

Commercial paper

Corporate bonds and notes

Treasury and agency notes and bills

Commercial paper

Total debt securities

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Commercial paper

Treasury and agency notes and bills

Corporate bonds and notes

Total debt securities

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Cash and cash equivalents

At September 30, 2023 and December 31, 2022, the Company had $ 82.1 mil lion and $ 114.6 million, respectively, in cash and cash equivalents and short-term investments.

Available-for-sale debt securities

Total marketable securities

At March 31, 2024 and December 31, 2023, the Company ha d $ 89.0 mil lion and $ 83.6 million, respectively, in cash and cash equivalents and short-term investments.

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

The remaining balances o f $ 47.8 million and $ 81.5 million at September 30, 2023 and December 31, 2022, respectively, consisted of cash held in operating accounts not included in the tables above.

The remaining balances o f $ 53.9 mi llion and $ 48.8 million at March 31, 2024 and December 31, 2023, 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 and nine months ended September 30, 2023 and 2022, respectively.

Unrealized losses on AFS debt securities were immaterial as of September 30, 2023 and December 31, 2022.

The gross realized gains and losses on sales of marketable debt securities were immaterial during the three months ended March 31, 2024 and 2023.

Unrealized losses on AFS debt securities were immaterial as of March 31, 2024 and December 31, 2023.

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.

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 nine months ended September 30, 2023 and 2022, respect ively.

No i mpairment charges were recorded on the AFS debt securities for the three and nine months ended September 30, 2023 and 2022.

The following table summarizes the fair value and gross u nrealized losses related to individual AFS debt securities at September 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

September 30, 2023

Cash and Cash Equivalents

AFS Debt Securities

Corporate bonds and notes

Treasury and agency notes and bills

Commercial paper

Less Than 12 Months

12 Months or More

December 31, 2022

Cash and Cash Equivalents

AFS Debt Securities

Commercial paper

The estimated fair value of marketable debt securities by contractual maturity at September 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.

The Compan y did no t rec ognize a provision for credit losses related to its AFS debt securities during the three months ended March 31, 2024 and 2023, respectively.

The estimated fair value of marketable debt securities by contractual maturity at March 31, 2024 is shown below (in thousands).

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

Due in one year or less

NOTE 6 –

Due in one to two years

Due in two to three years

NOTE 6 – FAIR VALUE

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

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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 September 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 September 30, 2023 (in thousands):

There were no significant transfers into or out of Level 1 or Level 2 that occurred between December 31, 2023 and March 31, 2024.

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, 2024 (in thousands):

Active Markets

1 unchanged sentence

Marketable securities

Money market funds - equity securities (1)

Commercial paper - debt securities (1)

Corporate bonds and notes - debt securities (2)

Treasury and agency notes and bills - debt securities (1)

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

Money market funds - equity securities (3)

(1) Reported as AFS debt securities in the Condensed Consolidated Balance Sheet as these were purchased with original maturities of more than three months at date of purchase;

otherwise reported as cash and cash equivalents.

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):

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

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

Active Markets

1 unchanged sentence

Marketable securities

Money market funds - equity securities (1)

Commercial paper - debt securities (1)

Treasury and agency notes and bills - debt securities (1)

Corporate bonds and notes - debt securities (2)

Money market funds - equity securities (3)

(1) Reported as AFS debt securities in the Condensed Consolidated Balance Sheet as these were purchased with original maturities of more than three months at date of purchase;

otherwise reported as cash and cash equivalents.

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

(3) Reported as cash and cash equivalents 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

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

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

September 30, 2023

March 31, 2024

December 31, 2023

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 $ 16.6 m illion and $ 19.9 million as of September 30, 2023 and December 31, 2022, respectively.

See “Note 9 –

Debt ”

for additional information.

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

(1) Carrying amounts of long-term debt are net of unamortized debt discount and issuance costs of $ 14.8 m illion and $ 15.6 million as of March 31, 2024 and December 31, 2023, respectively.

See “Note 8 – Debt ” for additional information.

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

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

Non-recurring Fair Value Measurements

During the third quarter of 2023, the Company renewed a long-term license agreement with a global leader in the electronics industry, covering our media portfolio as it pertains to its mobile devices.

A portion of the consideration for the license agreement was in the form of patents, which the Company received in September of 2023.

The Company estimated the fair value of the patents to be $ 4.4 million and included it as part of the transaction price for revenue recognition purposes.

The fair value of these assets was measured using both the market approach –

estimating the value of the acquired assets by way of comparison with other comparable transactions, and the cost approach –

estimating the value of the acquired assets based on the cost it would take for the Company to create a comparable set of assets through its own research and development (“R&D”) and patent prosecution efforts.

The estimated fair value of the patents represents a Level 3 fair value measurement and the value of the patents is amortized as a non-cash expense over the patents’

estimated useful lives.

NOTE 7 –

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 $ 44.6 million from January 1, 2020 to September 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 $ 16.0 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 nine months ended September 30, 2022, the Company incurred $ 11.1 and $ 17.0 million in separation costs, respectively, which are included in net loss from discontinued operations, net of tax.

During the three and nine months ended September 30, 2023, separation costs were not material.

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 and nine months ended September 30, 2023 was not material.

Net Loss from Discontinued Operations, Net of Tax

The financial results of Xperi Inc.

for the three and nine months ended September 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.

(in thousands):

Three Months Ended

September 30, 2022

Nine Months Ended

September 30, 2022

Operating expenses:

Cost of revenue

Research and development

Selling, general and administrative

Depreciation expense

Amortization expense

Litigation expense

Goodwill impairment

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

Transactions of Discontinued Operations

The following transactions have been included as part of discontinued operations for all the periods presented.

Business Combinations

The Company completed certain acquisitions that were accounted for as business combinations, using the acquisition method.

The assets and liabilities and results of operations following the business combinations were attributed to the Company’s former product business.

The results of operations are presented in the Condensed Consolidated Statements of Operations for all periods as net loss from discontinued operations, net of tax.

Vewd Software Holdings Limited

On July 1, 2022, 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 total consideration was approximately $ 102.9 million, consisting of approximately $ 52.9 million of cash and $ 50.0 million of debt.

Purchase Price Allocation

The Vewd Acquisition was 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 their 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 −

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 purchase price allocation, including the purchase consideration, was based on valuations and assumptions, including potential changes to prepaid income taxes, current and non-current income taxes payable, deferred taxes, and other working capital adjustments.

Vewd Results of Operations

The results of operations and cash flows related to the Vewd Acquisition were 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.

Transaction Costs

In connection with the Vewd Acquisition, the Company incurred 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 Consolidated Statements of Operations as of January 1, 2021 (unaudited, in thousands):

Three Months Ended

September 30, 2022

Nine Months Ended September 30, 2022

Net loss attributable to discontinued operations

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.

Goodwill and Identified Intangible Assets

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

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

The Company proceeded to perform a fair value analysis of the Company’s former product reporting unit using the market capitalization approach.

Under this approach, management estimated the fair value of the Company’s former 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 in the third quarter of 2022, which was allocated to the Company’s former product segment and included as part of net loss from discontinued operations, net of tax in the Condensed Consolidated Statement of Operations.

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

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

Net Cash Flows of Discontinued Operations

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

Nine Months Ended

September 30, 2022

Net cash from operating activities

Net cash from investing activities

NOTE 8 –

GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

The carrying value of goodwill at September 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 September 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.

NOTE 7 – GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

The carrying value of goodwill at March 31, 2024 and December 31, 2023 wa s $ 313.7 million.

There were no changes t o the carrying value of goodwill from January 1, through March 31, 2024.

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.

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 and nine months ended September 30, 2023.

No impairment charges were recognized for the three months ended March 31, 2024 and 2023.

Identified Intangible Assets

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

September 30, 2023

March 31, 2024

December 31, 2023

1 unchanged sentence

Acquired patents / core technology

Existing technology / content database

Customer contracts and related relationships

Existing technology / content database

Trademarks/trade name

Total intangible assets

(1) During the three months ended September 30, 2023, the Company acquired two portfolios of patents for an aggregate cost of $ 5.3 million, of which $ 4.4 million was obtained as consideration in a licensing agreement (see “Note 6 –

Fair Value ”

) and $ 0.9 million is to be paid in cash.

The Company is amortizing the asset value over a weighted average period of 8 and 10 years, respectively.

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

As of March 31, 2024, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):

2024 (remaining 9 months)

NOTE 9 –

NOTE 8 – DEBT

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

September 30, 2023

March 31, 2024

December 31, 2023

4 unchanged sentences

Refinanced Term B Loans

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

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

In connection with the June 2021 amendment (the “Amendment”), the Company made a voluntary prepayment of $ 50.6 million of the term loan outstanding under the 2020 Credit Agreement using cash on hand.

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

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

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

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

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.

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 was 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.

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

2 unchanged sentences

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

The Company was in compliance with all requirements as of September 30, 2023.

The Company was in compliance with all requirements as of March 31, 2024.

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 nine months ended September 30, 2023 under the excess cash flow provisions.

The payments under the excess cash flow provisions were made earlier than required under the 2020 Credit Agreement.

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

Accordingly, during the three months ended March 31, 2024, the Company paid $ 29.1 million under the excess cash flow provisions.

Interest Expense and Expected Principal Payments

At September 30, 2023, the Company had $ 630.4 million in total debt outstanding.

At March 31, 2024, the Company had $ 561.1 million in total debt outstanding.

There were also $ 14.8 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 September 30, 2023, including the amortization of debt discount and issuance costs, was 9.98 % and interest is payable monthly.

Interest expense wa s $ 15.5 million and $ 46.8 million for the three and nine months ended September 30, 2023, respectively.

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

Amortized debt discount and issuance costs, which were included in interest expense, amounted to $ 1.0 million and $ 3.3 m illion for the three and nine months ended September 30, 2023, respectively, and $ 1.1 million and $ 3.3 million for the three and nine months ended September 30, 2022, respectively.

As of September 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):

The interest rate on the Refinanced Term B Loans as of March 31, 2024, including the amortization of debt discount and issuance costs, was 10.0 % and interest is payable monthly.

Interest expens e was $ 14.0 million and $ 15.9 million for the three months ended March 31, 2024 and 2023, respectively .

Amortized debt discount and issuance costs, which were included in interest expense, amounted to $ 0.8 million and $ 1.2 m illion for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, 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):

2024 (remaining 9 months)

NOTE 10 –

NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of net income (loss) per share (in thousands, except per share amounts):

NOTE 9 – NET INCOME PER SHARE

The following table sets forth the computation of net income per share (in thousands, except per share amounts):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net income (loss) from continuing operations

Net loss attributable to discontinued operations

Net income (loss) attributable to the Company

Weighted average shares of common stock outstanding

3 unchanged sentences

Weighted average common shares - dilutive

Basic net income (loss) per share

Net income (loss) from continuing operations

Net loss attributable to discontinued operations

Net income (loss) attributable to the Company

Diluted net income (loss) per share

Net income (loss) from continuing operations

Net loss attributable to discontinued operations

Net income (loss) attributable to the Company

Basic net income per share

Diluted net income per share

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.

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 units 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 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.

NOTE 11 –

STOCKHOLDERS’

NOTE 10 – STOCKHOLDERS’ EQUITY

Equity Incentive Plans

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 16.8 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 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.

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.

As of March 31, 2024, there wer e 0.9 mi llion shares reserved for future grants under the 2020 EIP.

The 2020 EIP provides for option grants designed as either incentive stock options or non-statutory options.

2 unchanged sentences

Assumed Plans

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

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

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

The Company has not issued any awards under these plans since the 2020 Plan was amended in 2022.

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, 2023, there wer e 3.8 mi llion 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, 2023

Vested and Exercisable at September 30, 2023

Restricted Stock Units

Information with respect to outstanding restricted stock units (including both time-based vesting and performance-based vesting) as of September 30, 2023 is as follows (in thousands, except per share amounts) :

Restricted Stock and Restricted Stock Units

Balance at March 31, 2024

Vested and exercisable at March 31, 2024

Restricted Stock Awards

Information with respect to outstanding restricted stock units (including both time-based vesting and performance-based vesting) as of March 31, 2024 is as follows (in thousands, except per share amounts):

Restricted Stock Awards

based Vesting

1 unchanged sentence

Balance at December 31, 2023

Awards and units granted

Awards and units vested / earned

Awards and units canceled / forfeited

Balance at September 30, 2023

Performance Awards and Units

Awards granted

Awards vested / earned

Awards canceled / forfeited

Balance at March 31, 2024

Performance Awards

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

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.

4 unchanged sentences

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

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

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

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

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

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 September 30, 2023, there we re 5.4 million shares re served for grant under the Company’s 2020 ESPP.

Due to the fair market value per share of Company’s common stock on November 30, 2023 as compared to the fair market value per share on June 1, 2023, the offering period was automatically terminated and a new 24-month offering period began on December 1, 2023 and will end on November 30, 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, 2024, the re were 5.3 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 September 30, 2023 and 2022, quarterly dividends declared were $ 0.05 per common share, respectively.

During the nine months ended September 30, 2023 and 2022, dividends declared were $ 0.15 per common share in the aggregate in each period.

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.

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, 2024 and 2023, quarterly dividends declared were $ 0.05 per common share, respectively.

Stock Repurchase Programs

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 June 12, 2020 the Board authorized a new stock repurchase program providing for the repurchase of up to $ 150.0 million of the Company’s Common Stock dependent on market conditions, share prices and other factors.

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

As of September 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.

There were no shares repurchased during the three months ended March 31, 2024.

As of March 31, 2024, 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 September 30, 2023, the total remaining amount available for repurchase under this plan w as $ 77.8 million.

As of March 31, 2024, 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.

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.

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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, 2023 and 2022, the Company with held 0.3 million and 0.3 million shares of common stock to satisfy $ 3.0 million a nd $ 3.9 million of required withholding taxes, respectively.

During the nine months ended September 30, 2023 and 2022, the Company withheld 1.0 million and 0.9 million shares of common stock to satisfy $ 10.5 m illion and $ 15.3 million of required withholding taxes, respectively.

NOTE 12 –

STOCK-BASED COMPENSATION EXPENSE

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

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, 2024 and 2023, the Company with held 0.7 million and 0.7 million shares of common stock to satisfy $ 7.7 million a nd $ 6.6 million of required withholding taxes, respectively.

NOTE 11 – STOCK-BASED COMPENSATION EXPENSE

The effect of recording stock-based compensation (“SBC”) expense for the three months ended March 31, 2024 and 2023 is as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Research and development

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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 nine months ended September 30, 2022.

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

There were no restricted stock units subject to market conditions granted during the three months ended September 30, 2023 and 2022.

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

Nine Months Ended

September 30,

Expected life (years)

Risk-free interest rate

3.6 % −

Dividend yield

1.9 % −

Expected volatility

63.3 % −

37.5 % −

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, 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:

Nine Months Ended

September 30,

There were no options granted during the three months ended March 31, 2024 and 2023.

The Company uses a Monte Carlo simulation to determine the grant date fair value of performance stock awards subject to market conditions, or market-based PSUs.

There were no performance stock awards subject to market conditions granted during the three months ended March 31, 2024.

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)

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Expected volatility

NOTE 13 –

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 nine months ended September 30, 2023, the Company recorded income tax expense of $ 1.7 million and $ 15.9 million, respectively.

For the three and nine months ended September 30, 2022, the Company recorded income tax expense of $ 10.4 million and $ 26.5 million, respectively.

There were no ESPP grants during the three months ended March 31, 2024 and 2023.

NOTE 12 – INCOME TAXES

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 months ended March 31, 2024 and 2023, the Company recorded income tax expense of $ 5.7 million and $ 11.8 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 offset by favorable state audit settlements.

The decrease in income tax expense for the three and nine months ended September 30, 2023, as compared to the same period in the prior year was primarily due to a decrease in pretax income and favorable state audit settlements.

NOTE 14 –

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 months ended March 31, 2024, as compared to the same period in the prior year was primarily due to a decrease in pretax income.

NOTE 13 – LEASES

The Company leases office and research facilities and office equipment under operating leases which expire through 2032 .

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;

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

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

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

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Fixed lease cost

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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, 2023

March 31, 2024

December 31, 2023

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Operating leases

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

Future minimum lease payments and related lease liabilities as of March 31, 2024 were as follows (in thousands):

Operating Lease Payments (1)

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

NOTE 15 –

COMMITMENTS AND CONTINGENCIES

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Purchase and Other Contractual Obligations

In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-cancelable payment obligations, for which it is liable in future periods.

These arrangements primarily incl ude unconditional purchase obligations to service providers.

As of September 30, 2023, the Company’s total future unconditional purchase obligations were approximately $ 3.1 million, including $0 .6 million due in the remainder of 2023, $ 1.4 million d ue in 2024 and the remaining $ 1.1 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.

These arrangements primarily include unconditional purchase obligations to service providers.

As of March 31, 2024, the Company’s total future unconditional purchase obligations were approximately $ 3.3 million, including $ 1.5 million due in the remainder of 2024, $ 1.6 million due in 2025 and $ 0.2 million due thereafter.

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

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 2024 and 2031 .

As of September 30, 2023 and December 31, 2022, the balance of the guarantee liability was $ 18.5 million and $ 20.5 million, respectively.

During the three months and nine months ended September 30, 2023, the Company made guarantee payments o f $ 0.6 million and $ 1.7 million, re spectively.

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

As of March 31, 2024 and December 31, 2023, the balance of the guarantee liability wa s $ 18.5 m illion.

The Company made no guarantee payment during the three months ended March 31, 2024.

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

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

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

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

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

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

In addition, the Company has directors’

and officers’

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

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

Contingencies

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(formerly known as Rovi Guides, Inc.) and Adeia Media Solutions Inc.

(formerly known as TiVo Solutions Inc.) (together, “Adeia Media”) filed a patent infringement complaint against Videotron Ltd.

and Videotron G.P.

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

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.

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

Accordingly, the Company paid $ 2.5 million for expense reimbursement in the fourth quarter of 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.

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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”).

On November 28, 2023, the Federal Court of Appeal of Canada held a hearing on the appeal and took the matter under reserve.

There is no set date for the Federal Court of Appeal of Canada to issue its decision.

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

6 unchanged sentences

Bell and Telus filed a combined memorandum of fact and law on August 18, 2023.

The Federal Court of Appeal of Canada has scheduled a hearing on the appeal for November 29, 2023.

On October 2, 2023, Adeia Guides Inc., Adeia Media Solutions Inc., and Adeia Media Holdings LLC (collectively, “Adeia Media”) filed a complaint against Shaw Cablesystems G.P.

and Shaw Satellite G.P.

(together “Shaw”) in the United States District Court for the Southern District of New York, alleging breach of contract by Shaw for failure to pay royalties owed to Adeia Media under the license agreement between the parties.

On November 29, 2023, the Federal Court of Appeal of Canada held a hearing on the appeal and took the matter under reserve.

There is no set date for the Federal Court of Appeal of Canada to issue its decision.

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.

1 unchanged sentence

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, 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.

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.

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.

NOTE 16 –

SEGMENT AND GEOGRAPHIC INFORMATION

Upon completion of the Separation, in the fourth quarter of 2022, the Company changed its organizational structure to operate and report in one 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.

NOTE 15 – SEGMENT AND GEOGRAPHIC INFORMATION

The Company has one reportable segment:

Intellectual Property (“IP”) Licensing.

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

September 30,

Nine Months Ended

September 30,

Europe and Middle East

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

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

For the three months ended March 31, 2024 and 2023, there wer e three and two 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

September 30,

Nine Months Ended

September 30,

* denotes less than 10% of total revenue.

As of September 30, 2023, the Company had two customers repre senting 38 % and 33 % of aggr egate accounts receivable, respectively.

As of March 31, 2024, the Company had one customer repre senting 60 % of aggr egate accounts receivable.

At December 31, 2023, the Company had two customers representing 42 % and 28 % of aggregate accounts receivable, respectively.

NOTE 17 –

SUBSEQUENT EVENTS

As of March 31, 2024 and December 31, 2023, property and equipment, net, was all located in the U.S.

NOTE 16 – SUBSEQUENT EVENTS

Declaration of Cash Dividends

On October 25, 2023 , the Board declared a cash dividend of $ 0.05 per share of common stock, payable on December 18, 2023 to the stockholders of record at the close of business on November 27, 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 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 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.

Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements and, therefore, you should not place undue reliance on any such statements and caution must be exercised in relying on forward-looking statements.

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

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;

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 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 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.

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

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

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

Business Overview

On 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”).

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 IP licensing platform in the consumer and entertainment space, with a diverse portfolio of media and semiconductor intellectual property and more than 10,500 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.

Through our IP licensing business, we help enable extraordinary experiences at home and on the go for millions of consumers around the world, with IP that helps elevate content and improves how audiences connect with it in a way that is more intelligent, immersive and personal.

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 more than 35 years of operating experience, we have approximately 130 employees, with substantially all of our employees located in the U.S.

Macroeconomic Conditions

The current macroeconomic environment, which has arisen in part from the effects of 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 broad consumer electronics market.

The current macroeconomic environment 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 conditions including labor market constraints, shortages of semiconductor components, decreased manufacturing capacities and delays in shipments, product development and product launches.

Moreover, United States federal, state and foreign government policies have contributed to a 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 market volatility, labor shortages, supply chain disruptions, microchip shortages and market downturns.

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 and nine months ended September 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.

prior to the Separation.

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

that were eliminated in consolidation.

In connection with the Separation, we incurred separation costs of $44.6 million from January 1, 2020 to September 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.

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 $16.0 million were incurred after the Separation and are reflected in continuing operations within operating expenses in our Condensed Consolidated Statement of Operations.

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 September 30, 2023:

Revenue was $101.4 million, an increase of 14% from $89.3 million in the same period in 2022

Diluted earnings per share (EPS) from continuing operations was $0.21, an increase of 450% from diluted loss per share of $0.06 in the same period in 2022

Net income from continuing operations was $24.2 million, an increase of 484% from net loss from continuing operations of $6.3 million in the same period in 2022

We made $15.1 million in principal payments towards our term loan, bringing the outstanding balance to $630.4 million as of September 30, 2023

For the nine months ended September 30, 2023:

Revenue was $301.9 million, a decrease of 10% from $335.6 million in the same period in 2022

Diluted earnings per share (EPS) from continuing operations was $0.48, a decrease of 22% from $0.61 in the same period in 2022

Net income from continuing operations was $54.7 million, a decrease of 15% from $64.7 million in the same period in 2022

Cash flows from operations were $113.3 million, a decrease of 20% from $142.0 million in the same period in 2022

We made $118.9 million in principal payments towards our term loan, bringing the outstanding balance to $630.4 million as of September 30, 2023

Results of Operations

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 –

Revenue ”

of the Notes to condensed consolidated financial statements.

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:

Research and development

Selling, general and administrative

Amortization expense

Litigation expense

Total operating expenses

Operating income from continuing operations

Interest expense

Other income and expense, net

Income from continuing operations before income taxes

Provision for income taxes

Net income (loss) from continuing operations

Revenue (in thousands, except for percentages):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Increase/ (Decrease)

The increase in revenue during the three months ended September 30, 2023, as compared to the same period in 2022, was primarily attributable to the execution of a long-term renewal contract with Samsung in the third quarter of 2023, covering our media portfolio as it pertains to its mobile devices.

The decrease in revenue during the nine months ended September 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 and the execution of a long-term renewal contract with Samsung in the third quarter of 2023, covering our media portfolio as it pertains to its mobile devices.

Recurring revenues for the three months ended September 30, 2023 and 2022 were $83.6 million and $86.5 million, respectively.

The decrease of $2.9 million in recurring revenues during the three months ended September 30, 2023, as compared to the same period in 2022, was primarily attributable a decline in royalty revenue from certain Pay-TV customers.

Non-recurring revenues for the three months ended September 30, 2023 and 2022 were $17.8 million and $2.8 million, respectively.

The increase of $15.0 million in non-recurring revenues during the three months ended September 30, 2023, as compared to the same period in 2022, was primarily attributable to fees associated with a release for past infringement and revenue from periods prior to the execution of the long-term renewal of a license agreement with Samsung in the third quarter of 2023, revenue from the settlement of litigation and revenue from updated royalty reporting received from an existing customer relating to prior periods.

Recurring revenues for the nine months ended September 30, 2023 and 2022 were $255.1 million and $267.4 million, respectively.

The decrease of $12.3 million in recurring revenues during the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily attributable to a decline in royalty revenue from certain Pay-TV customers.

Non-recurring revenues for the nine months ended September 30, 2023 and 2022 were $46.8 million and $68.2 million, respectively.

The decrease of $21.4 million in non-recurring revenues during the nine months ended September 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, partially offset by the execution of long-term license agreements with Kioxia and Western Digital, respectively, in the first quarter of 2023, the execution of the long-term renewal of a license agreement with Samsung in the third quarter of 2023, revenue from the settlement of litigation and revenue from updated royalty reporting received from an existing customer relating to prior period.

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,

Nine Months Ended

September 30,

Increase/ (Decrease)

Research and development

The increase in R&D expense during the three and nine months ended September 30, 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 (“SG&A”) 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.

Three Months Ended

September 30,

Nine Months Ended

September 30,

Increase/ (Decrease)

Selling, general and administrative

The decrease in SG&A expense during the three and nine months ended September 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 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,

Nine Months Ended

September 30,

Increase/ (Decrease)

Amortization expense

The decrease in amortization expense during the three and nine months ended September 30, 2023, as compared to the same period 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

September 30,

Nine Months Ended

September 30,

Increase/ (Decrease)

Litigation expense

The decrease in litigation expense during the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to 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, partially offset by increased legal fees during 2023 as a result of increased case activity.

Litigation expense was relatively consistent for the nine months ended September 30, 2023 and September 30, 2022, respectively.

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 .

Interest Expense (in thousands, except for percentages):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Increase/ (Decrease)

Interest expense

The increase in interest expense during the three and nine months ended September 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 fourth quarter of 2023, when compared to the same period in 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,

Nine Months Ended

September 30,

Increase/ (Decrease)

Other income and expense, net

The increase in other income and expense, net during the three and nine months ended September 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.

Provision for Income Taxes

Three Months Ended

September 30,

Nine Months Ended

September 30,

Increase/ (Decrease)

Provision for income taxes

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 September 30, 2023, we recorded an income tax expense of $1.7 million on pretax income of $25.9 million, and for the nine months ended September 30, 2023, we recorded an income tax expense of $15.9 million on pretax income of $70.5 million, which resulted in effective tax rates of 6.6% and 22.5%, respectively, for the three and nine months ended September 30, 2023.

For the three months ended September 30, 2022, we recorded an income tax expense of $10.4 million on pretax income of $4.1 million, and for the nine months ended September 30, 2022, we recorded an income tax expense of $26.5 million on pretax income of $91.1 million, which resulted in effective tax rates of 256.3% and 29.0%, respectively, for the three and nine months ended September 30, 2022.

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

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

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 and nine months ended September 30, 2022 include three and nine 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 nine months ended September 30, 2022 were as follows (in thousands):

Three Months Ended

September 30, 2022

Nine Months Ended

September 30, 2022

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

Liquidity and Capital Resources

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 nine months ended September 30, 2023 and 2022.

(in thousands)

September 30, 2023

December 31, 2022

Cash and cash equivalents

Marketable securities

Total cash, cash equivalents and short-term investments

Nine Months Ended September 30,

Net cash from operating activities

Net cash from investing activities

Net cash from financing activities

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

Cash, cash equivalents and short-term investments were $82.1 million at September 30, 2023, a decrease of $32.5 million from $114.6 million at December 31, 2022.

This decrease resulted primarily from $118.9 million in repayment of our indebtedness, $16.0 million in dividends paid, $33.6 million in purchases of short-term investments, $10.5 million in repurchases of common stock for tax withholdings on equity awards, and $1.9 million of capital expenditures, partially offset by $113.3 million of cash generated from operations, $3.8 million in proceeds from maturities of investments, and $1.2 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 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.

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

Unrealized losses on AFS debt securities were immaterial as of September 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 $118.9 million made by us under the Refinanced Term B Loans during the nine months ended September 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.

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

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

Stock Repurchase Plan

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 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, 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 September 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.

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

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

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.

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

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

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

Cash Flows from Operating Activities

Our cash flows are presented on a consolidated basis and therefore, also include $182.9 million of cash and cash equivalents included as current assets of discontinued operations in the condensed consolidated balance sheet as of September 30, 2022.

Cash flows provided by operations were $113.3 million for the nine months ended September 30, 2023, primarily due to our net income of $54.7 million being adjusted for non-cash items of amortization of intangible assets of $70.7 million, amortization of debt issuance costs of $3.3 million and stock-based compensation expense of $13.1 million.

These increases were partially offset by $29.6 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 $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 from Investing Activities

Net cash used in investing activities was $31.8 million for the nine months ended September 30, 2023, primarily related to purchases of short-term investments of $33.6 million, capital expenditures of $1.9 million and proceeds from maturities of investments of $3.8 million.

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.

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 nine months ended September 30, 2023 and 2022, we spent $1.9 million and $12.6 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.

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

Cash Flows from Financing Activities

Net cash used in financing activities was $144.2 million for the nine months ended September 30, 2023 due to $118.9 million in repayment of indebtedness, $16.0 million in dividends paid, $10.5 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 $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, $17.3 million in repurchases of common stock, and $15.3 million in repurchases of common stock for tax withholdings on equity awards, 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.

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”).

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

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

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

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

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 September 30, 2023, $630.4 million was outstanding under the Refinanced Term B Loans with an interest rate, including amortization of debt discount and issuance costs of $16.6 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 2023 and $40.5 million in each year from 2024 through 2027, with the remaining principal balance of $458.3 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 nine months ended September 30, 2023, based on certain leverage ratios and our excess cash flow generated during the year ended December 31, 2022.

The payments under the excess cash flow provisions 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 September 30, 2023, we were in full compliance with such covenants.

Critical Accounting Policies and Estimates

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

See “Note 2 –

Summary of Significant Accounting Policies ”

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

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

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

Recent Accounting Pronouncements

See “Note 2 –

Summary of Significant Accounting Policies ”

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

Quantitative and Qualitati ve Disclosures About Market Risk

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

Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K.

On April 25, 2024 , the Board declared a cash dividend of $ 0.05 per share of common stock, payable on June 18, 2024 to the stockholders of record at the close of business on May 28, 2024 .

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