Adeia Inc. 10-Q

Item 1. Financial Statements XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Revenue: Licensing, services and software $ 135,996 $ 75,031 $ 253,483 $ 131,343 Hardware 1,635 84 1,813 339 Total revenue 137,631 75,115 255,296 131,682 Operating expenses: Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets 8,252 2,460 9,792 4,509 Cost of hardware revenue, excluding depreciation and amortization of intangible assets 1,428 69 1,472 227 Research, development and other related costs 38,227 25,346 66,833 52,005 Selling, general and administrative 68,195 27,252 104,802 56,533 Depreciation expense 3,333 1,759 5,062 3,427 Amortization expense 32,044 25,314 54,553 50,773 Litigation expense 3,871 1,231 5,974 2,521 Total operating expenses 155,350 83,431 248,488 169,995 Operating income (loss) ( 17,719 ) ( 8,316 ) 6,808 ( 38,313 ) Interest expense ( 6,958 ) ( 6,199 ) ( 11,209 ) ( 12,884 ) Other income and expense, net 578 4,806 1,143 7,108 Loss on debt extinguishment ( 8,300 ) — ( 8,300 ) — Loss before taxes ( 32,399 ) ( 9,709 ) ( 11,558 ) ( 44,089 ) Benefit from income taxes ( 9,299 ) ( 3,547 ) ( 7,243 ) ( 12,497 ) Net loss $ ( 23,100 ) $ ( 6,162 ) $ ( 4,315 ) $ ( 31,592 ) Less: net loss attributable to noncontrolling interest ( 487 ) ( 341 ) ( 1,038 ) ( 688 ) Net loss attributable to the Company $ ( 22,613 ) $ ( 5,821 ) $ ( 3,277 ) $ ( 30,904 ) Loss per share attributable to the Company: Basic $ ( 0.33 ) $ ( 0.12 ) $ ( 0.06 ) $ ( 0.63 ) Diluted $ ( 0.33 ) $ ( 0.12 ) $ ( 0.06 ) $ ( 0.63 ) Weighted average number of shares used in per share calculations-basic 69,160 49,259 59,462 48,918 Weighted average number of shares used in per share calculations-diluted 69,160 49,259 59,462 48,918 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) (unaudited) Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Net loss $ ( 23,100 ) $ ( 6,162 ) $ ( 4,315 ) $ ( 31,592 ) Other comprehensive income, net of tax: Change in foreign currency translation adjustment 155 — 155 — Net unrealized gains on available-for-sale debt securities 342 90 68 268 Other comprehensive income, net of tax 497 90 223 268 Comprehensive loss ( 22,603 ) ( 6,072 ) ( 4,092 ) ( 31,324 ) Less: comprehensive loss attributable to noncontrolling interest ( 487 ) ( 341 ) ( 1,038 ) ( 688 ) Comprehensive loss attributable to the Company $ ( 22,116 ) $ ( 5,731 ) $ ( 3,054 ) $ ( 30,636 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except for par value) (unaudited) June 30, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 174,013 $ 74,551 Available-for-sale debt securities, at fair value (amortized cost and allowance for credit losses of $ 25,476 and $ 0 , respectively, at June 30, 2020) 25,564 45,802 Equity securities — 1,124 Accounts receivable, net of allowance for credit losses of $ 2,469 and $ 566 respectively 124,746 24,177 Unbilled contracts receivable 184,101 121,826 Other current assets 36,362 13,735 Total current assets 544,786 281,215 Long-term unbilled contracts receivable 20,582 26,672 Property and equipment, net 71,025 32,877 Operating lease right-of-use assets 89,136 17,786 Intangible assets, net 1,056,266 232,275 Goodwill 846,913 385,784 Other long-term assets 123,899 71,336 Total assets $ 2,752,607 $ 1,047,945 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 21,242 $ 4,650 Accrued legal fees 5,594 1,316 Accrued liabilities 105,368 41,433 Deferred revenue 38,639 720 Current portion of long-term debt, net 43,612 — Total current liabilities 214,455 48,119 Deferred revenue, less current portion 22,624 — Long-term deferred tax liabilities 28,876 29,735 Long-term debt, net 967,471 334,679 Noncurrent operating lease liabilities 73,474 13,414 Other long-term liabilities 96,240 76,898 Total liabilities 1,403,140 502,845 Commitments and contingencies (Note 15) Company stockholders’ equity: Preferred stock: $ 0.001 par value; authorized (2020: 15,000 shares; 2019: 10,000 shares) and no shares issued and outstanding — — Common stock: $ 0.001 par value; (2020: authorized 350,000 shares, issued 109,257 shares , outstanding 108,148 shares; 2019: authorized 150,000 shares, issued 63,622 , outstanding 49,620 shares) 109 64 Additional paid-in capital 1,245,717 768,284 Treasury stock at cost (2020: 1,109 shares; 2019: 14,002 shares) ( 17,572 ) ( 368,701 ) Accumulated other comprehensive income (loss) 170 ( 53 ) Retained earnings 124,887 148,317 Total Company stockholders’ equity 1,353,311 547,911 Noncontrolling interest ( 3,844 ) ( 2,811 ) Total equity 1,349,467 545,100 Total liabilities and equity $ 2,752,607 $ 1,047,945 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six Months Ended June 30, 2020 June 30, 2019 Cash flows from operating activities: Net loss $ ( 4,315 ) $ ( 31,592 ) Adjustments to reconcile net loss to net cash from operating activities: Depreciation of property and equipment 5,062 3,427 Amortization of intangible assets 54,553 50,773 Stock-based compensation expense 16,456 14,844 Deferred income taxes ( 28,933 ) ( 24,233 ) Loss on debt extinguishment 8,300 — Other 4,775 ( 248 ) Changes in operating assets and liabilities: Accounts receivable 3,306 3,681 Unbilled contracts receivable 12,645 65,347 Other assets ( 9,675 ) 4,504 Accounts payable 3,334 1,721 Accrued and other liabilities ( 5,199 ) ( 17,036 ) Deferred revenue 6,933 ( 2,295 ) Net cash from operating activities 67,242 68,893 Cash flows from investing activities: Purchases of property and equipment ( 1,892 ) ( 6,543 ) Proceeds from sale of property and equipment 19 55 Cash acquired in merger transaction 117,424 — Purchases of intangible assets ( 519 ) — Purchases of short-term investments — ( 22,693 ) Proceeds from sales of investments 7,189 4,500 Proceeds from maturities of investments 13,502 12,990 Net cash from investing activities 135,723 ( 11,691 ) Cash flows from financing activities: Dividend paid ( 20,153 ) ( 19,686 ) Proceeds from debt, net 1,011,343 Repayment of debt ( 344,000 ) ( 100,000 ) Repayment of assumed debt from merger transaction ( 734,609 ) — Proceeds from exercise of stock options 1 520 Proceeds from employee stock purchase program 4,764 3,111 Repurchase of common stock ( 20,943 ) ( 4,264 ) Net cash from financing activities ( 103,597 ) ( 120,319 ) Effect of exchange rate changes on cash and cash equivalents 94 — Net increase (decrease) in cash and cash equivalents 99,462 ( 63,117 ) Cash and cash equivalents at beginning of period 74,551 113,625 Cash and cash equivalents at end of period $ 174,013 $ 50,508 Supplemental disclosure of cash flow information: Interest paid $ 5,807 $ 11,628 Income taxes paid, net of refunds $ 13,723 $ 6,457 Stock issued in merger transaction $ 828,334 $ — The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands) (unaudited) Total Xperi Stockholders' Equity Three Months Ended June 30, 2020 Common Stock Additional Paid-In Treasury Stock Accumulated Other Comprehensive Retained Noncontrolling Shares Amount Capital Shares Amount Income (Loss) Earnings Interest Total Equity Balance at April 1, 2020 50,530 $ 65 $ 779,500 14,186 $ ( 371,845 ) $ ( 327 ) $ 157,617 $ ( 3,359 ) $ 561,651 Issuance of subsidiary shares to noncontrolling interest — — ( 2 ) — — — — 2 — Net loss — — — — — — ( 22,613 ) ( 487 ) ( 23,100 ) Other comprehensive income — — — — — 497 — — 497 Cash dividends paid on common stock ($ 0.20 per share) — — — — — — ( 10,117 ) — ( 10,117 ) Issuance of common stock in connection with employee stock purchase plan 119 — 1,532 — — — — — 1,532 Issuance of restricted stock, net of shares canceled 476 — — — — — — — — Repurchases of common stock, shares exchanged ( 199 ) — — 199 ( 2,799 ) — — — ( 2,799 ) Repurchases of common stock ( 1,078 ) — — 1,078 ( 15,000 ) — — — ( 15,000 ) Common stock issued in merger transaction 58,300 58 828,276 — — — — — 828,334 Retirement of treasury stock — ( 14 ) ( 372,058 ) ( 14,354 ) 372,072 — — — — Stock-based compensation expense — — 8,469 — — — — — 8,469 Balance at June 30, 2020 108,148 $ 109 $ 1,245,717 1,109 $ ( 17,572 ) $ 170 $ 124,887 $ ( 3,844 ) $ 1,349,467 Total Xperi Stockholders' Equity Six Months Ended June 30, 2020 Common Stock Additional Paid-In Treasury Stock Accumulated Other Comprehensive Retained Noncontrolling Shares Amount Capital Shares Amount Income (Loss) Earnings Interest Total Equity Balance at January 1, 2020 49,620 $ 64 $ 768,284 14,002 $ ( 368,701 ) $ ( 53 ) $ 148,317 $ ( 2,811 ) $ 545,100 Issuance of subsidiary shares to noncontrolling interest — — ( 5 ) — — — — 5 — Net loss — — — — — — ( 3,277 ) ( 1,038 ) ( 4,315 ) Other comprehensive income — — — — — 223 — — 223 Cash dividends paid on common stock ($ 0.40 per share) — — — — — — ( 20,153 ) — ( 20,153 ) Issuance of common stock in connection with employee stock purchase plan 355 — 4,764 — — — — — 4,764 Issuance of restricted stock, net of shares canceled 1,334 1 — — — — — — 1 Repurchases of common stock, shares exchanged ( 383 ) — — 383 ( 5,943 ) — — — ( 5,943 ) Repurchases of common stock ( 1,078 ) — — 1,078 ( 15,000 ) — — — ( 15,000 ) Common stock issued in merger transaction 58,300 58 828,276 — — — — — 828,334 Retirement of treasury stock — ( 14 ) ( 372,058 ) ( 14,354 ) 372,072 — — — — Stock-based compensation expense — — 16,456 — — — — — 16,456 Balance at June 30, 2020 108,148 $ 109 $ 1,245,717 1,109 $ ( 17,572 ) $ 170 $ 124,887 $ ( 3,844 ) $ 1,349,467 7 XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued) (in thousands) (unaudited) Total Xperi Stockholders' Equity Three Months Ended June 30, 2019 Common Stock Additional Paid-In Treasury Stock Accumulated Other Comprehensive Retained Noncontrolling Shares Amount Capital Shares Amount Income (Loss) Earnings Interest Total Equity Balance at April 1, 2019 49,209 $ 63 $ 741,703 13,942 $ ( 367,326 ) $ ( 150 ) $ 215,444 $ ( 1,664 ) $ 588,070 Issuance of subsidiary shares to noncontrolling interest — — ( 4 ) — — — — 4 — Net loss — — — — — — ( 5,821 ) ( 341 ) ( 6,162 ) Other comprehensive income — — — — — 90 — — 90 Cash dividends paid on common stock ($ 0.20 per share) — — — — — — ( 9,864 ) — ( 9,864 ) Issuance of common stock in connection with exercise of stock options 18 — 267 — — — — — 267 Issuance of restricted stock, net of shares canceled 159 — — — — — — — — Repurchases of common stock, shares exchanged ( 48 ) — — 48 ( 1,133 ) — — — ( 1,133 ) Stock-based compensation expense — — 7,221 — — — — — 7,221 Balance at June 30, 2019 49,338 $ 63 $ 749,187 13,990 $ ( 368,459 ) $ ( 60 ) $ 199,759 $ ( 2,001 ) $ 578,489 Total Xperi Stockholders' Equity Six Months Ended June 30, 2019 Common Stock Additional Paid-In Treasury Stock Accumulated Other Comprehensive Retained Noncontrolling Shares Amount Capital Shares Amount Income (Loss) Earnings Interest Total Equity Balance at January 1, 2019 48,408 $ 62 $ 730,695 13,804 $ ( 364,195 ) $ ( 328 ) $ 253,208 $ ( 1,295 ) $ 618,147 Issuance of subsidiary shares to noncontrolling interest — — 18 — — — — ( 18 ) — Net loss — — — — — — ( 30,904 ) ( 688 ) ( 31,592 ) Other comprehensive income — — — — — 268 — — 268 Other (1) — — — — — — ( 2,859 ) — ( 2,859 ) Cash dividends paid on common stock ($ 0.40 per share) — — — — — — ( 19,686 ) — ( 19,686 ) Issuance of common stock in connection with exercise of stock options 32 — 519 — — — — — 519 Issuance of common stock in connection with employee stock purchase plan 227 — 3,111 — — — — — 3,111 Issuance of restricted stock, net of shares canceled 857 1 — — — — — — 1 Repurchases of common stock, shares exchanged ( 186 ) — — 186 ( 4,264 ) — — — ( 4,264 ) Stock-based compensation expense — — 14,844 — — — — — 14,844 Balance at June 30, 2019 49,338 $ 63 $ 749,187 13,990 $ ( 368,459 ) $ ( 60 ) $ 199,759 $ ( 2,001 ) $ 578,489 (1) Refer to “Note 1 – The Company and Basis of Presentation.” The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 XPER I HOLDING CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION On December 18, 2019, Xperi Corporation (“Xperi”) entered into an Agreement and Plan of Merger and Reorganization with TiVo Corporation (“TiVo”) to combine in an all-stock merger of equals transaction (the “Mergers”). Immediately following the consummation of the Mergers on June 1, 2020 , (the “Merger Date”), Xperi Holding Corporation (the “Company”), a Delaware corporation founded in December 2019 under the name “XRAY-TWOLF HoldCo Corporation,” became the parent company of both Xperi and TiVo. The common stock of Xperi and TiVo were de-registered after completion of the Mergers. On June 2, 2020, Xperi Holding Corporation’s common stock, par value $ 0.001 per share, commenced trading on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “XPER.” See “Note 7 – Business Combination” for a more detailed description of the Mergers. Xperi was determined to be the accounting acquirer in the Mergers. As a result, the historical financial statements of Xperi for periods prior to the Mergers are considered to be the historical financial statements of Xperi Holding Corporation. As used herein, the “Company” refers to Xperi when referring to periods prior to June 1, 2020 and to Xperi Holding Corporation when referring to periods subsequent to June 1, 2020. The Company’s results of operations include the operations of TiVo after June 1, 2020, and TiVo’s assets and liabilities were recorded at their estimated fair values in the Company’s Condensed Consolidated Balance Sheets as of June 1, 2020 . See “ Note 7 – Business Combination” for additional information on the Mergers. Xperi Holding Corporation is a leading consumer and entertainment technology licensing company and one of the industry’s largest intellectual property (IP) licensing platforms, with a diverse portfolio of media and semiconductor intellectual property and more than 11,000 patents and applications. The Company invents, develops, and delivers technologies that enable extraordinary experiences. The Company’s technologies, delivered via its brands (DTS, HD Radio, IMAX Enhanced, Invensas, and TiVo), and by its subsidiary, Perceive Corporation, make entertainment more entertaining, and smart devices smarter. The Company’s technologies are integrated into billions of consumer devices, media platforms, and semiconductors worldwide, driving increased value for customers, partners and consumers. The Company shapes how millions of consumers access and experience entertainment content, and the Company’s innovations are found in billions of devices and hundreds of millions of interfaces around the globe. The Company has two principal businesses, a product business and an IP licensing business. The product business consists primarily of licensing Company-developed audio, digital radio, imaging, edge-based machine learning and multi-channel video user experience (“UX”) solutions. Edge based machine learning, audio, digital radio, and imaging solutions include the delivery of software and/or hardware-based solutions to the Company’s consumer electronics (“CE”) customers, automotive manufacturers or their supply chain partners. UX products and services revenue is primarily derived from multi-channel video service providers and CE manufacturers, licensing the TiVo service and selling TiVo-enabled devices, Personalized Content Discovery, enriched Metadata, viewership data and advertising. The IP licensing business consists primarily of licensing of the Company’s innovations to leading companies in the media and semiconductor industries. Licensing arrangements include access to one or more of the Company’s foundational patent portfolios and may also include access to industry-leading technologies and proven know-how. In the media industry, the Company’s licensees include pay television (“Pay-TV”) providers, both in the United States and internationally, consumer electronics manufacturers, and other providers of video experiences across various platforms, including over-the-top (OTT) video. In the semiconductor industry, the Company’s licensees include semiconductor manufacturers, fabless companies, foundries, and packaging companies. The accompanying interim unaudited condensed consolidated financial statements as of June 30, 2020 and 2019, and for the three and six months then ended, have been prepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) for interim financial information. The amounts as of December 31, 2019 have been derived from the Company’s annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the year ended December 31, 2019, included in Xperi’s Annual Report on Form 10-K for the year ended December 31, 2019 9 and TiVo’s Annual Report on Form 10-K for the year ended December 31, 2019, both of which were filed on February 18 , 20 20 . The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020 or any future period and the Company makes no representations related thereto. In the fourth quarter of 2018, the Company funded a new subsidiary, Perceive Corporation (“Perceive”), which was created to focus on delivering edge inference solutions. As a result of issuing new shares in Perceive to noncontrolling interests, the Company’s ownership interest in Perceive decreased to approximately 83 % as of June 30, 2020. The operating results of Perceive have been consolidated in the Company’s condensed consolidated financial statements for all periods presented. In the first quarter of 2019, the Company recorded an out-of-period adjustment to decrease current unbilled receivables and decrease retained earnings by $ 2.9 million to correct an error that originated in the first quarter of 2018 in connection with its adoption of Accounting Standards Update (“ASU”) No . 2014-09 (Topic 606) “ Revenue from Contracts with Customers .” The adjustment relates to an error in the Company’s interpretation of the payment terms of a contract entered into in a prior year. The Company determined that the error was not material to any of its prior annual and interim period financial statements, and the impact of correcting it is not considered to be material to the financial statements for the three and six months ended June 30, 2019. Reclassification As a result of the Mergers, certain reclassifications of prior period amounts have been made to improve comparability and conform to the current period presentation. Presentation changes were made to the Condensed Consolidated Statements of Operations. In addition, certain reclassifications of prior period data have been made in the Notes to Condensed Consolidated Financial Statements to conform to the current period presentation. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are detailed in "Note 2 - Summary of Significant Accounting Policies" in its Form 10-K for the year ended December 31, 2019. Certain updates to its revenue recognition policy as a result of the Mergers are provided in “Note 3 - Revenue.” Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates and assumptions that require management’s most significant, challenging, and subjective judgment include the estimation of licensees’ quarterly royalties prior to receiving the royalty reports, the determination of stand-alone selling price and the transaction price in an arrangement with multiple performance obligations, the estimation of variable consideration, judgment used to estimate the progress toward completion in the Company’s engineering services, the collectability of accounts receivable, other intangible assets and investments, 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 worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity which is likely to reduce the future demand for a broad variety of goods and services, while also disrupting sales channels, marketing activities and supply chains for an unknown period of time until the virus is fully contained. The Company expects this disruption to have a negative impact on its revenue and results of operations, the size and duration of which is currently difficult to predict. The impact of the COVID-19 pandemic and related events, including actions taken by the government in response, have increased market volatility and make the estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes more difficult. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Recently Adopted Accounting Pronouncements 10 In September 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “ Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ” (“ASU 2016-13”), which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The current expected credit loss model is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability. Current expected credit losses, and subsequent adjustments, represent an estimate of lifetime expected credit losses that are recorded as an allowance deducted from the amortized cost of the financial instrument. The updated guidance also amends the other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments for credit-related losses through an allowance and eliminating the length of time a security has been in an unrealized loss position as a consideration in the determination of whether a credit loss exists. On January 1, 2020 , the Company adopted the new standard using a modified retrospective transition approach for the provisions related to application of the current expected credit loss model to financial instruments and using a prospective transition approach for the provisions related to credit losses on available-for-sale debt securities. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. For additional detail, refer to “Note 3 – Revenue .” In August 2018, FASB issued ASU 2018-15, “ Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ” (“ASU 2018-15”) modifying the requirements for capitalizing costs incurred to implement a hosting arrangement that is a service contract. The modified requirements were intended to align the cost capitalization requirements for hosting arrangements with the cost capitalization requirements for internal-use software . The Company adopted the standard on January 1, 2020 and applied the modified requirements prospectively to all implementation costs incurred after the date of adoption. The adoption did not have a material impact on the Company’s consolidated financial statements. Recent Accounting Pronouncements On December 18, 2019, FASB released ASU 2019-12, “ Simplifying the Accounting for Income Taxes ” (“ASU 2019-12”). The purpose of the update is to reduce the complexity pertaining to certain areas in accounting for income taxes. Key amendments from ASU 2019-12 include, but are not limited to, the accounting for hybrid tax regimes, step-up in tax basis for goodwill in non-business combination transactions, intraperiod tax allocation exception to the incremental approach, and interim period accounting for enacted changes in tax law. ASU 2019-12 is effective for the Company in the first quarter of the year ending December 31, 2021. The Company is in the process of evaluating the impact of the adoption of this new standard on its consolidated financial statements. NOTE 3 – REVENUE Revenue Recognition General Revenue is recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services, which may include various combinations of goods and services which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of sales taxes collected from customers which are subsequently remitted to governmental authorities. 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. Arrangements with Multiple Performance Obligations Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the individual performance obligations are separately accounted for if they are distinct. In an arrangement with multiple performance obligations, the transaction price is allocated among the separate performance obligations on a relative stand-alone selling price basis. The determination of stand-alone selling price considers market conditions, the size and scope of the contract, customer and geographic information, and other factors. When observable prices are not available, stand-alone selling price for separate performance obligations is based on the cost-plus-margin approach, considering overall pricing objectives. 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 Operations during a given period. Contract Modifications 11 Contracts may be modified due to changes in contract specifications or customer requirements. Contract modifications occur when the change in terms either creates new enforceable rights and obligations or changes existing enforceable rights and obligations. The effect of a contract modification for goods and services that are not distinct in the context of the contract on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis. Contract modifications that result in goods or services that are distinct from the existing goods or services are accounted for as separate contracts if they are sold at their stand-alone selling price, or otherwise prospectively. Variable Consideration When a contract with a customer includes a variable transaction price, an estimate of the consideration which the Company expects to be entitled to for transferring the promised goods or services is made at contract inception. Depending on the terms of the contract, variable consideration is estimated using either the expected value approach or the most likely value approach. Under either approach to estimating variable consideration, the estimate considers all information (historical, current and forecast) that is reasonably available at contract inception. The amount of variable consideration is estimated at contract inception and updated as additional information becomes available. The estimate of variable consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Subsequent changes in the transaction price resulting from changes in the estimate of variable consideration are allocated to the performance obligations in the contract on the same basis as at contract inception. Certain payments to licensees, retailers and distributors, such as market development funds and revenue shares, are treated as a reduction of the transaction price, and therefore a reduction to revenue, unless the payment is in exchange for a distinct good or service that the licensee, retailer or distributor transfers to the Company. When variable consideration is in the form of a sales-based or usage-based royalty in exchange for a license of IP, or when a license of IP is the predominant item to which the variable consideration relates, revenue is recognized at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied. Nature of Goods and Services The following is a discussion of the principal activities from which the Company generates its revenue. License Agreements The Company operates in two business segments. In its Product segment, the Company licenses its audio, imaging, edge-based machine learning and multi-channel video user experience (“UX”) solutions. In its IP Licensing segment, the Company licenses its media patent portfolios (“IP Media licensing”) to Pay-TV, CE manufacturers and other providers of video experiences across various platforms. In addition, the Company licenses its semiconductor technologies and associated patent portfolios (“IP Semiconductor licensing”) to semiconductor manufacturers, fabless companies, foundries and packaging companies. The Company licenses its technologies and portfolios under three revenue models: (i) fixed-fee IP Media licensing, (ii) fixed-fee or minimum guarantee Product or IP Semiconductor licensing, and (iii) per-unit or per-subscriber royalty licenses. Fixed-fee IP Media licensing The Company's long-term fixed-fee IP Media licensing agreements provide its customers with rights to future patented technologies over the term of the agreement that are highly interdependent or highly interrelated to the patented technologies provided at the inception of the agreement. The Company treats these rights as a single performance obligation with revenue recognized on a straight-line basis over the term of the fixed-fee license agreement. At times, the Company enters into license agreements in which a licensee is released from past patent infringement claims or is granted a license to ship an unlimited number of units or for an unlimited number of subscribers over a future period for a fixed fee. In these arrangements, the Company allocates the transaction price between the release for past patent infringement claims and the future license. In determining the stand-alone selling price of the release for past patent infringement claims and the future license, the Company considers such factors as the number of units shipped in the past or the number of past subscribers and the relevant geographies of the shipped units or subscribers, the future number of subscribers or units, as well as the licensing rate the Company generally receives for per subscriber or units shipped in the same geographies. As the release from past patent infringement claims is generally satisfied at execution of the agreement, the transaction price allocated to the release from past patent infringement claims is generally recognized in the period the agreement is executed and the amount of transaction price allocated to the future license is recognized ratably over the future license term. Fixed-fee or minimum guarantee IP Semiconductor or Product licensing 12 The Company enters into IP Semiconductor or Product licenses that have fixed fee or minimum guarantee arrangements, whereby licensees pay a fixed fee for the right to incorporate the Company’s technology in the licensee's products over the license term. In arrangements with a minimum guarantee, the fixed fee component corresponds to a minimum number of units or dollars that the customer must produce or pay, with additional per-unit fees for any units or dollars exceeding the minimum. In most cases, the customer pays the fixed license fee in specified installments over the license term. For both fixed fee and minimum guarantee agreements for IP Semiconductor or Product licensing, the Company recognizes the full fixed fee as revenue at the beginning of the license term, when the licensee has the right to use the IP and begins to benefit from the license. If the contract term of a fixed fee or minimum guarantee arrangement is longer than one year, the Company also considers the scheduled payment arrangements to determine whether a significant financing component exists. In general, if the payment arrangements extend beyond the initial twelve months of the contract, the Company treats a portion of the payments as a significant financing component. The discount rate used for each arrangement reflects the rate that would be used in a separate financing transaction between the Company and the licensee at contract inception and takes into account the credit characteristics of the licensee and market interest rates as of the date of the agreement. As such, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated financing component. As payments are received from the licensee, the Company recognizes a portion of the financing component as interest income, reported as other income and expense in the Consolidated Statements of Operations. Per-unit or per-subscriber royalty licenses The Company recognizes revenue from per-unit or per-subscriber 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. The Company generally recognizes revenue from royalty licenses on a per-subscriber per-month model for licenses with service providers and a per-unit shipped or manufactured model for licenses with CE manufacturers. Compliance Audits The Company actively monitors and enforces its IP, including seeking appropriate compensation from customers that have under-reported royalties owed under a license agreement and from third parties that utilize the Company’s intellectual property without a license. As a result of these activities, the Company may, from time to time, recognize revenue from payments resulting from periodic compliance audits of licensees for underreporting royalties incurred in prior periods, as part of a settlement of a patent infringement dispute, or from legal judgments in a license dispute. These recoveries and settlements may cause revenue to be higher than expected during a particular reporting period and such recoveries may not occur in subsequent periods. The Company recognizes revenue from recoveries when a binding agreement has been executed and the Company concludes collection under that agreement is likely. Arrangements with Multiple System Operators for the TiVo Service The Company's arrangements with multiple system operators ("MSOs") typically include software customization and set-up services, associated maintenance and support, limited training, post-contract support, TiVo-enabled DVRs, non-DVR Set-Top Boxes (“STBs”), and the TiVo service. The Company has two types of arrangements with MSOs that include technology deployment and engineering services. In instances where the Company hosts the TiVo service, non-refundable payments received for customization and set-up services are deferred and recognized as revenue ratably over the hosting term. The related cost of such services is capitalized to the extent it is deemed recoverable and amortized to cost of revenue over the same period as the related TiVo service revenue is recognized. The Company estimates the stand-alone selling prices for training, DVRs, non-DVR STBs and maintenance and support based on the price charged in stand-alone sales of the promised good or service. The stand-alone selling price for the TiVo service is determined by considering the size of the MSO and expected volume of deployment, market conditions, competitive landscape, internal costs and total gross margin objectives. For a term license to the TiVo service, the Company receives license fees for the hosted TiVo service on either a per-subscriber per-month basis or a fixed fee. The Company recognizes revenue from per-subscriber per-month licenses during the month the TiVo service is provided to the customer and recognizes revenue from fixed fee licenses ratably over the license period. In arrangements where the Company does not host the TiVo service, which includes engineering services that are essential to the functionality of the licensed technology or involve significant customization or modification of the software, the Company recognizes revenue as progress toward completion is made using an input method based on the ratio of costs incurred to date to total estimated costs of the project. Project costs are primarily labor related to specific activities required for the project. Costs related to general infrastructure or uncommitted platform development are not included in the project cost estimates and are 13 expensed as incurred. Estimating project costs requires forecasting costs, tracking progress toward completion and projecting the remaining effort to complete the project. These estimates are reassessed throughout the term of the arrangement, and revisions to estimates are recognized on a cumulative catch-up basis when the changed conditions become known. Provisions for losses are recorded when estimates indicate it is probable that a loss will be incurred for the contract. The Company generally recognizes revenue from license fees for the TiVo service that the Company does not host on a per-subscriber per-month basis due to the recognition constraint on intellectual property usage-based royalties. Subscription Services Subscription services revenue primarily consists of fees to provide customers with access to one or more of the Company's hosted products such as its iGuide interactive program guide (“IPG”), advanced search and recommendations, metadata and analytics products, including routine customer support. The Company generally receives per-subscriber per-month fees for its iGuide IPG and search and recommendations service and revenue is recorded in the month the customer uses the service. The Company generally receives a monthly or quarterly fee from its metadata or analytics licenses for the right to use the metadata or access its analytics platform and to receive regular updates. Revenue from the Company's metadata and analytics service is recognized ratably over the subscription period. TiVo-enabled DVRs and TiVo Service The Company sells TiVo-enabled DVRs and the related service directly to customers through sales programs via the TiVo.com website and licenses the sale of TiVo-enabled DVRs through a limited number of retailers. All customers have the right to cancel their subscription to the TiVo service within 30 days of subscription activation for a full refund. After the initial subscription period, all customers have various pricing options when they renew their subscription. The transaction price allocated to the DVR is recognized as revenue upon shipment to the customer and the transaction price allocated to the TiVo service is recognized as revenue ratably over the service period. Subscription revenue from lifetime subscriptions are recognized ratably over the estimated useful life of the DVR associated with the subscription. The estimated useful life for a DVR depends on a number of assumptions, including, but not limited to, customer retention rates, the timing of new product introductions and historical experience. The Company periodically reassesses the estimated useful life of a DVR. When the actual useful life of the DVR materially differs from the Company's estimate, the estimated useful life of the DVR is adjusted, which could result in the recognition of revenue over a longer or shorter period of time. Significant Judgments Determining whether promises to transfer multiple goods and services in contracts with customers are considered distinct performance obligations that should be accounted for separately requires significant judgment, including related to the level of integration and interdependency between the performance obligations. In addition, judgment is necessary to allocate the transaction price to the distinct performance obligations, including whether there is a discount or significant financing component to be allocated based on the relative stand-alone selling price of the various performance obligations. Significant judgment is required to determine the stand-alone selling price for each distinct performance obligation when an observable price is not available. In instances where stand-alone selling price is not directly observable, such as when the Company does not sell the good or service separately, the stand-alone selling price is determined using a range of inputs that includes market conditions and other observable inputs. More than one stand-alone selling price may exist for individual goods and services due to the stratification of those goods and services, considering attributes such as the size of the customer and geographic region. Due to the nature of the work required to be performed on some performance obligations, significant judgment may be required to determine the transaction price. It is common for the Company's license agreements to contain provisions that can either increase or decrease the transaction price. These variable amounts are generally estimated based on usage. In addition to estimating variable consideration, significant judgment is necessary to identify forms of variable consideration, determine whether the variable consideration relates to a sales-based or usage-based royalty of intellectual property and determine whether, and when to include estimates of variable consideration in the transaction price. For certain licensees, royalty revenue is generated based on a licensee’s production or shipment of licensed products incorporating the Company’s intellectual property, technologies or software. Licensees with a per-unit or per-subscriber arrangement pay a per-unit royalty for each product manufactured or sold, or for each subscriber, as set forth in its license agreement. Licensees generally report manufacturing, sales or subscriber information in the month or quarter subsequent to when the production, shipment or subscription activity takes place. The Company estimates the royalties earned each quarter based on its forecast of manufacturing and sales activity by its licensees in that quarter. Any differences between actual 14 royalties owed by a licensee and the Company’s estimate are recognized when the licensee’s royalty report is received. Estimating licensees’ 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 manufactured, shipped or subscribed by licensees, which could have a material impact on the amount of revenue recognized . Some hardware products are sold with a right of return and, in certain circumstances, credits or incentives may be provided to customers or resellers at the time of sale. Such credits and incentives are accounted for as variable consideration and recognized as a reduction to revenue. Estimates of returns, credits and incentives are made at contract inception and updated each reporting period. In contracts where the Company does not host the TiVo service and that include engineering services that are essential to the functionality of the licensed technology or involve significant customization or modification of software, or where the Company provides non-recurring engineering (“NRE”) services, the Company recognizes revenue as progress toward completion occurs using an input method based on the ratio of costs incurred to date to total estimated costs of the project. Significant judgment is required to estimate the remaining effort to complete the project. These estimates are reassessed throughout the term of the arrangement. Management evaluates its estimates, inputs and assumptions related to revenue recognition on an ongoing basis. The use of different estimates, inputs or assumptions may materially affect the reported amounts of assets and liabilities as of the date of the financial statements and the results of operations for the reporting period. Practical Expedients and Exemptions The Company applies a practical expedient to not perform an evaluation of whether a contract includes a significant financing component when the timing of revenue recognition differs from the timing of cash collection by one year or less. The Company applies a practical expedient to expense costs to obtain a contract with a customer as incurred as a component of selling, general and administrative expenses when the amortization period would have been one year or less. 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 ; contracts for which revenue is recognized based on the amount which the Company has the right to invoice for services performed and 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. For additional detail on the Company's revenue disaggregated by geographic location, refer to Note 16 – “ Segment and Geographic Information .” Contract Balances Contracts Assets Contract assets primarily consist of unbilled contracts receivable that are expected to be received from customers in future periods, where the revenue recognized to date (or cumulative adjustments to retained earnings in the initial period of adopting Topic 606) exceeds the amount billed. The amount of unbilled contracts receivable may not exceed their net realizable value and are classified as long-term assets if the payments are expected to be received more than one year from the reporting date. Contract assets also include the incremental costs of obtaining a contract with a customer, principally sales commissions when the renewal commission is not commensurate with the initial commission, and deferred engineering costs for significant software customization or modification and set-up services to the extent deemed recoverable. Contract assets were recorded in the Condensed Consolidated Balance Sheets as follows (in thousands): June 30, 2020 December 31, 2019 Unbilled contracts receivable $ 184,101 $ 121,826 Other current assets 331 — Long-term unbilled contracts receivable 20,582 26,672 Other long-term assets 671 — Total contract assets $ 205,685 $ 148,498 15 Contract Liabilities Contract liabilities are mainly comprised of deferred revenue related to consumer lifetime subscriptions for the TiVo service, multi-period licensing or cloud-based services, and other offerings for which the Company is paid in advance while the promised good or service is transferred to the customer at a future date or over time. Deferred revenue also includes amounts received related to professional services to be performed in the future. Deferred revenue arises when cash payments are received, including amounts which are refundable, in advance of performance obligations being completed. Allowance for Credit Losses The allowance for credit losses, which includes the allowance for accounts receivable and unbilled contracts receivable, represents the Company’s best estimate of lifetime expected credit losses inherent in those financial assets. The Company’s lifetime expected credit losses are determined using relevant information about past events (including historical experience), current conditions, and reasonable and supportable forecasts that affect collectability. The Company monitors its credit exposure through ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. In addition, the Company performs routine credit management activities such as timely account reconciliations, dispute resolution, and payment confirmations. The Company may employ collection agencies and legal counsel to pursue recovery of defaulted receivables. The Company’s long-term unbilled contracts receivable is derived from fixed-fee or minimum-guarantee arrangements, primarily with large well-capitalized companies. It is considered to be of high credit quality due to past collection history and the nature of the customers. The following table presents the activity in the allowance for credit losses for the three and six months ended June 30, 2020 (in thousands): Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 Accounts Receivable Unbilled Contracts Receivable Accounts Receivable Unbilled Contracts Receivable Beginning balance $ 2,226 $ 283 $ 566 $ — Provision for credit loss expense 299 74 2,228 (1) 357 Recoveries/charged-off ( 56 ) — ( 325 ) — Balance at end of period $ 2,469 $ 357 $ 2,469 $ 357 (1) The increase in provision for credit loss expense was based on assessment of current conditions including the COVID-19 pandemic and anticipation of delayed or delinquent payments on existing accounts receivable as a result of declining financial health and liquidity positions of certain of the Company’s customers. Additional Disclosures Under Topic 606 The following table presents additional revenue and contract disclosures (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenue recognized in the period from: Amounts included in deferred revenue at the beginning of the period $ 796 $ 2,124 $ 620 $ 3,167 Performance obligations satisfied in previous periods (true ups, licensee reporting adjustments and settlements)* $ 7,078 $ 2,472 $ 54,222 $ 3,637 *True ups represent the differences between the Company’s quarterly estimates of per unit royalty revenue and actual production/sales-based royalties reported by licensees in the following period. Licensee reporting adjustments represent corrections or revisions to previously reported per unit royalties by licensees, generally resulting from the Company’s inquiries or compliance audits. Settlements represent resolutions of litigation during the period for past royalties owed pursuant to expired or terminated IP license agreements. 16 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 the Company’s engineering services contracts. The Company's remaining revenue under contracts with performance obligations was as follows (in thousands) : As of June 30, 2020 December 31, 2019 Revenue from contracts with performance obligations expected to be satisfied in: 2020 (remaining 6 months) $ 92,742 $ 5,337 2021 130,154 990 2022 93,047 345 2023 84,773 — 2024 72,738 — Thereafter 70,977 — Total $ 544,431 $ 6,672 NOTE 4 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS Other current assets consisted of the following (in thousands): June 30, 2020 December 31, 2019 Prepaid income taxes $ 4,161 $ 2,364 Prepaid expenses 22,426 8,802 Inventory 3,097 100 Other 6,678 2,469 $ 36,362 $ 13,735 Property and equipment, net, consisted of the following (in thousands): June 30, 2020 December 31, 2019 Equipment, furniture and other $ 57,308 $ 32,504 Building and improvements 18,309 18,258 Land 5,300 5,300 Leasehold improvements 26,053 8,103 106,970 64,165 Less: accumulated depreciation and amortization ( 35,945 ) ( 31,288 ) $ 71,025 $ 32,877 Accrued liabilities consisted of the following (in thousands): June 30, 2020 December 31, 2019 Employee compensation and benefits $ 29,192 $ 18,404 Accrued expenses 25,748 7,930 Current portion of operating lease liabilities 18,017 5,845 Accrued severance 8,784 — Third-party royalties 3,806 6,165 Other 19,821 3,089 $ 105,368 $ 41,433 Other long-term liabilities consisted of the following (in thousands): June 30, 2020 December 31, 2019 Long-term income tax payable $ 92,941 $ 76,767 Other 3,299 131 $ 96,240 $ 76,898 17 Accumulated other comprehensive income (loss) consisted of the following (in thousands): June 30, 2020 December 31, 2019 Foreign currency translation adjustment, net of tax $ 155 $ — Unrealized gain (loss) on available-for-sale debt securities, net of tax 15 ( 53 ) $ 170 $ ( 53 ) Other income and expense, net, consisted of the following (in thousands): Three Months Ended, Six Months Ended, June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Interest income from significant financing components under Topic 606 $ 721 $ 1,854 $ 1,696 $ 3,720 Interest income from investments 307 682 792 1,282 Unrealized/realized gain (loss) on marketable equity securities 26 2,032 ( 707 ) 1,622 Other income/(expense), net ( 476 ) 238 ( 638 ) 484 $ 578 $ 4,806 $ 1,143 $ 7,108 NOTE 5 – FINANCIAL INSTRUMENTS The Company has investments in debt securities which include corporate bonds and notes, treasury and agency notes and bills, commercial paper, certificates of deposit, and in equity securities consisting of money market funds. The Company classifies its debt securities as available-for-sale (“AFS”), which are accounted for at fair value with credit related losses recognized as a provision for credit loss expense in its Condensed Consolidated Statements of Operations and all non-credit related unrealized gains and losses recognized in accumulated other comprehensive income or loss on the Condensed Consolidated Balance Sheets. Under ASU 2016-01 (Topic 321), equity securities are measured at fair value with unrealized gains and losses recognized in other income and expense, net, on the Condensed Consolidated Statements of Operations. The following is a summary of marketable securities at June 30, 2020 and December 31, 2019 (in thousands): June 30, 2020 Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Values Marketable securities Corporate bonds and notes $ 25,476 $ 89 $ ( 1 ) $ — $ 25,564 Total debt securities 25,476 89 ( 1 ) — 25,564 Money market funds 91,551 — — — 91,551 Total equity securities 91,551 — — — 91,551 Total marketable securities $ 117,027 $ 89 $ ( 1 ) $ — $ 117,115 Reported in: Cash and cash equivalents $ 91,551 Available-for-sale debt securities 25,564 Total marketable securities $ 117,115 18 December 31, 2019 Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Values Marketable securities Corporate bonds and notes $ 41,730 $ 29 $ ( 13 ) $ 41,746 Commercial paper 4,052 4 — 4,056 Total debt securities 45,782 33 ( 13 ) 45,802 Money market funds 2,601 — — 2,601 Marketable equity securities 3,405 — ( 2,281 ) 1,124 Total equity securities 6,006 — ( 2,281 ) 3,725 Total marketable securities $ 51,788 $ 33 $ ( 2,294 ) $ 49,527 Reported in: Cash and cash equivalents $ 2,601 Available-for-sale debt securities 45,802 Equity securities 1,124 Total marketable securities $ 49,527 At June 30, 2020 and December 31, 2019, the Company had $ 199.6 million and $ 121.5 million, respectively, in cash, cash equivalents and short-term investments. These balances include $ 82.5 million and $ 72.0 million in cash held in operating accounts not included in the tables above at June 30, 2020 and December 31, 2019, respectively. Debt Securities The gross realized gains and losses on sales of marketable debt securities were no t significant during the three and six months ended June 30, 2020 and 2019, respectively. Unrealized gain and loss on marketable debt securities were $ 0.1 million and $ 0.1 million, net of tax, as of June 30, 2020 and December 31, 2019, respectively. The Company evaluated whether the decline in fair value has resulted from credit losses or other factors and concluded these amounts were related to temporary fluctuations in value of AFS securities and were due primarily to changes in interest rates and market conditions of the underlying securities. In addition, the contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. The Company does not intend to sell the debt securities and it is more-likely-than-not that it will not be required to sell the investments before recovery of their amortized cost bases. The Company did no t recognize a provision for credit loss expense related to its AFS debt securities for the three and six months ended June 30, 2020, respectively. No impairment charges were recorded on the AFS debt securities for the three and six months ended June 30, 2019, respectively. The following table summarizes the fair value and gross unrealized losses related to individual AFS debt securities at June 30, 2020 and December 31, 2019, 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 Total June 30, 2020 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Corporate bonds and notes $ 2,015 $ — $ 6,194 $ ( 1 ) $ 8,209 $ ( 1 ) Total $ 2,015 $ — $ 6,194 $ ( 1 ) $ 8,209 $ ( 1 ) Less Than 12 Months 12 Months or More Total December 31, 2019 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Corporate bonds and notes $ 20,031 $ ( 10 ) $ 8,753 $ ( 3 ) $ 28,784 $ ( 13 ) Total $ 20,031 $ ( 10 ) $ 8,753 $ ( 3 ) $ 28,784 $ ( 13 ) 19 The estimated fair value of marketable debt securities by contractual maturity at June 30, 2020 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. Estimated Fair Value Due in one year or less $ 22,533 Due in one to two years 3,031 Total $ 25,564 Equity Securities On September 19, 2018, the Company purchased 7.0 million common shares of Onkyo Corporation (“Onkyo”), a publicly traded Japanese company and a long-standing customer of the Company, pursuant to the Capital Alliance Agreement (“Agreement”) entered into between the two parties on September 3, 2018. Upon making the investment, the Company held a 6.3 % ownership interest in Onkyo. Due to changes in business expectations, the Company determined not to continue discussions on the business alliance. In July 2019, the Company sold approximately 2.8 million shares of Onkyo stock and realized a gain of $ 0.9 million. Under Topic 321, the Company had recognized cumulative unrealized losses of $ 2.3 million on the Onkyo investment through December 31, 2019. In June 2020, the Company liquidated the remaining 4.2 million shares of Onkyo stock and realized an insignificant amount of gain in the three months ended June 30, 2020. Realized loss was $ 0.7 million for the six months ended June 30, 2020. There were no sales of the Onkyo investment during the three and six months ended June 30, 2019, respectively. Non-marketable Equity Securities Investments in non-marketable equity securities are accounted for using either the equity method or the cost method. Investments in entities over which the Company has the ability to exercise significant influence, but does not hold a controlling interest, are accounted for using the equity method. Under the equity method, the Company records its proportionate share of income or loss in other income and expense, net, in the Condensed Consolidated Statements of Operations. Investments in entities over which the Company does not have the ability to exercise significant influence are accounted for using the cost method. The Company monitors its non-marketable securities portfolio for potential impairment. When the carrying amount of an investment in a non-marketable security exceeds its fair value and the decline in fair value is determined to be other-than-temporary, the loss is recorded in other income and expense, net, in the Condensed Consolidated Statements of Operations. Upon merging with TiVo on June 1, 2020, the Company assumed certain investments in non-marketable equity. As of June 30, 2020, other long-term assets included equity securities accounted for under the equity method with a carrying amount of $ 3.8 million and equity securities without a readily determinable fair value with a carrying amount of $ 0.1 million, respectively. No impairments or adjustments to the carrying amount of the Company's equity securities without a readily determinable fair value were recognized in the three months ended June 30, 2020. The Company had no investments in non-marketable equity prior to June 1, 2020. Derivatives From time to time, the Company may use derivative financial instruments to manage foreign currency exchange rate risk. The Company does not enter into derivative transactions for trading purposes. Cash flows from the derivative programs are classified as cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows. The Company’s derivative financial instruments consist of deliverable and non-deliverable foreign currency forward contracts, which are used primarily to hedge balance sheet and certain expenditure exposures. These instruments are generally short-term in nature, with typical maturities of less than one year, and are subject to fluctuations in foreign exchange rates. Fair values for derivative financial instruments are based on prices computed using third-party valuation models and are classified as Level 2 in accordance with the three-level hierarchy of fair value measurements. All significant inputs to the third-party valuation models are observable in active markets. Inputs include current market-based parameters such as forward rates, yield curves and credit default swap pricing. For additional information related to the three-level hierarchy of fair value measurements, see “Note 6 – Fair Value.” Under the Company’s policy election, derivative contracts are not designated as hedge instruments, and are measured and reported at fair value. Changes in the fair value of these undesignated derivatives are reported in other income and expense, net, 20 on the Condensed Consolidated Statements of Operations. Realized or unrealized gain or losses were not significant in the three and six months ended June 30, 2020 and 2019. There were no derivative instruments outstanding as of June 30, 2020 . 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. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets. Level 2 Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. When applying fair value principles in the valuation of assets, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. 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, 2019 and June 30, 2020. The following sets forth the fair value, and classification within the hierarchy, of the Company’s assets required to be measured at fair value on a recurring basis as of June 30, 2020 (in thousands): Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Marketable securities Money market funds - equity securities (1) $ 91,551 $ 91,551 $ — $ — Corporate bonds and notes - debt securities (2) 25,564 — 25,564 — Total Assets $ 117,115 $ 91,551 $ 25,564 $ — (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. 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, 2019 (in thousands): Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Marketable securities Money market funds - equity securities (1) $ 2,601 $ 2,601 $ — $ — Marketable equity securities (2) 1,124 1,124 — — Commercial paper - debt securities (3) 4,056 — 4,056 — Corporate bonds and notes - debt securities (3) 41,746 — 41,746 — Total Assets $ 49,527 $ 3,725 $ 45,802 $ — (1) Reported as cash and cash equivalents in the Condensed Consolidated Balance Sheet. 21 (2) Reported as equity securities in the Condensed Consolidated Balance Sheet. (3) Reported as AFS debt securities in the Condensed Consolidated Balance Sheet. Financial Instruments Not Recorded at Fair Value on a Recurring Basis 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): June 30, 2020 December 31, 2019 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value 2020 Term B Loan Facility (1) $ 1,011,035 $ 958,535 $ — $ — 2021 Convertible Notes 48 48 — — 2018 Amended Term B Loan (1) — — 334,679 335,642 Total long-term debt, net $ 1,011,083 $ 958,583 $ 334,679 $ 335,642 (1) Carrying amounts of long-term debt are net of unamortized debt issuance costs of $ 39.0 million and $ 9.3 million as of June 30, 2020 and December 31, 2019, respectively. See “Note 9 – Debt ” for additional information. If reported at fair value in the Condensed Consolidated Balance Sheets, the Company’s debt would be classified within Level 2 of the fair value hierarchy. The fair value of the debt was estimated based on the quoted market prices for the same or similar issues . Non-recurring Fair Value Measurements For purchase accounting related fair value measurements, see “Note 7 – Business Combination.” NOTE 7 – BUSINESS COMBINATION Effective June 1, 2020 , Xperi and TiVo completed the previously announced merger of equals transaction (the “Merger”) contemplated by the Agreement and Plan of Merger and Reorganization, dated as of December 18, 2019 , as amended on January 31, 2020 , (the “Merger Agreement”), by and among Xperi, TiVo, XRAY-TWOLF HoldCo Corporation (“Xperi Holding”), XRAY Merger Sub Corporation (“Xperi Merger Sub”) and TWOLF Merger Sub Corporation (“TiVo Merger Sub”). Immediately prior to the consummation of the Merger, Xperi Holding changed its name to “Xperi Holding Corporation” (the “Company”). Pursuant to the Merger Agreement, (i) Xperi Merger Sub was merged with and into Xperi, with Xperi surviving the merger as a subsidiary of Xperi Holding Corporation (the “Xperi Merger”) and (ii) TiVo Merger Sub was merged with and into TiVo, with TiVo surviving the merger as a subsidiary of Xperi Holding Corporation (the “TiVo Merger” and together with the Xperi Merger, the “Mergers”). Immediately following the consummation of the Mergers, each of Xperi and TiVo became wholly-owned subsidiaries of the Company. Upon completion of the Xperi Merger, each share of common stock, par value $ 0.001 per share, of Xperi (the “Xperi Common Stock”) (excluding any shares of Xperi Common Stock that were held in treasury immediately prior to the effective time of the Xperi Merger, which were automatically canceled and retired for no consideration) was converted into the right to receive one fully paid and non-assessable share of common stock, par value $ 0.001 per share, of the Company (“Company Common Stock”). Upon completion of the TiVo Merger, (i) each share of common stock, par value $ 0.001 per share, of TiVo (the “TiVo Common Stock”) (excluding any shares of TiVo Common Stock that were held in treasury immediately prior to the effective time of the TiVo Merger, which were automatically canceled and retired for no consideration) was converted into the right to receive 0.455 fully paid and non-assessable shares of common stock of the Company (the “Exchange Ratio”), in addition to cash in lieu of any fractional shares of the Company Common Stock. As provided in the Merger Agreement, at the effective time of the Mergers, (i) all options, restricted shares, restricted stock unit awards and other equity awards relating to shares of Xperi Common Stock outstanding immediately prior to the effective time of the Mergers were generally automatically converted into options, restricted shares, restricted stock unit awards and other equity awards, respectively, relating to shares of Company Common Stock after giving effect to appropriate adjustments to reflect the Mergers and otherwise generally on the same terms and conditions as applied under the applicable plans and award agreements immediately prior to the effective time of the Mergers, and (ii) all options, restricted shares, restricted stock unit awards and other equity awards relating to shares of TiVo Common Stock that were outstanding immediately prior to the effective time of the Mergers (including Exchange Ratio) were generally automatically converted into options, restricted stock unit awards, restricted shares and other equity awards, respectively, relating to shares of Company Common Stock after giving effect to appropriate adjustments to reflect the Mergers and otherwise generally on the same terms and conditions as applied under the applicable plans and award agreements immediately prior to the effective time of the Mergers. 22 Following the Mergers, Xperi Common Stock and TiVo Common Stock were delisted from the Nasdaq Global Select Market (“Nasdaq”) and deregistered under the Securities Exchange Act of 1934, as amended. Since June 2, 2020, the shares of the Company’s common stock have been listed for trading on Nasdaq under the ticker symbol “XPER.” The Mergers created a leading consumer and entertainment technology and IP licensing company. The Company’s IP business includes one of the industry’s largest and most successful IP portfolios licensed to a diverse base of customers. On the product side, the Company offers a seamless end-to-end entertainment experience from creation to consumption; with greater scale, technology depth and breadth, and a platform relevant to one of the biggest challenges consumers of entertainment face today – how to quickly and easily find, watch and enjoy entertainment. The Company currently contemplates and may pursue, subject to the receipt of approval by the Company’s board and any required regulatory approvals, a separation of the Company’s product business and IP licensing business through a tax-efficient transaction, resulting in two independent, publicly traded companies. The contemplated business separation is not expected to take place earlier than the first quarter of 2021. Merger Consideration The merger consideration of $ 828.3 million was calculated as follows (amounts in thousands except exchange ratio and share price): TiVo common shares outstanding as of June 1, 2020 128,132 TiVo exchange ratio 0.455 Xperi Holding Corporation common stock issued in exchange 58,300 Xperi Common Stock closing share price on June 1, 2020 $ 14.00 $ 816,201 Fair value of replaced TiVo equity awards relating to pre-acquisition vesting of the equity award holders’ requisite service periods 12,133 Total merger consideration $ 828,334 Assumed TiVo Equity Awards In connection with the Mergers, the Company assumed unvested TiVo equity incentive awards with a fair value of $ 34.1 million, of which $ 12.1 million related to pre-acquisition services and was included in the purchase price, and $ 22.0 million related to post-acquisition services. The Company valued the restricted stock units at the Company’s closing stock price and stock options using a Black-Scholes pricing model as of the date of acquisition. The fair value relating to post-acquisition services will be amortized as stock-based compensation expense over an estimated weighted average remaining service period of 2.5 years. Preliminary Purchase Price Allocation Based on an evaluation of the provisions of ASC 805, “Business Combinations,” Xperi was determined to be the accounting acquirer in the Mergers. The Company has applied the acquisition method of accounting that requires, among other things, that identifiable assets acquired and liabilities assumed generally be recognized on the balance sheet at fair value as of the acquisition date. In determining the fair value, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being fair valued. The estimation of fair value required significant judgment related to future net cash flows (including revenue, operating expenses, and working capital), discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors. Inputs were generally determined by taking into account historical data (supplemented by current and anticipated market conditions) and growth rates. The table below presents the preliminary fair value that was allocated to TiVo's assets and liabilities based upon fair values as determined by the Company. The initial allocation of the purchase price was based on preliminary valuations and assumptions and is subject to change within the measurement period, including current indirect taxes payable, current and non-current income taxes payable and deferred taxes as additional information is received and tax returns are finalized. The Company expects to finalize the allocation of the purchase price within the measurement period. Final determination of the fair values may result in further adjustments to the values presented in the following table ($ in thousands): 23 Estimated Useful Life (years) Estimated Fair Value Cash and cash equivalents $ 117,424 Accounts receivable 105,778 Unbilled contracts receivable 69,058 Other current assets 21,690 Long-term unbilled contracts receivable 129 Property and equipment 41,307 Operating lease right-of-use assets 71,444 Identifiable intangible assets: Patents 10 457,400 Customer contracts and related relationships 4-9 358,200 Developed technology 5 34,800 Content database 9 6,200 Trademarks and tradenames N/A 21,400 Total identifiable intangible assets 878,000 Goodwill 461,129 Other long-term assets 43,700 Accounts payable ( 13,258 ) Accrued legal fees ( 5,619 ) Accrued liabilities ( 79,071 ) Current portion of deferred revenue ( 29,291 ) Current portion of long-term debt ( 734,609 ) Deferred revenue, less current portion ( 24,319 ) Long-term deferred tax liabilities ( 27,949 ) Long-term debt ( 48 ) Noncurrent operating lease liabilities ( 59,291 ) Other long-term liabilities ( 7,870 ) Total purchase price $ 828,334 The following is a description of the methods used to determine the fair values of significant assets and liabilities. Identifiable Intangible Assets Identifiable intangible assets primarily consist of patents, developed technology, customer relationships, trademarks and tradenames, and content database. The fair value of intangibles was based on valuations using assumptions developed by management and other information compiled by management including, but not limited to, discounted future expected cash flows. The fair value of certain customer relationships was calculated by comparing the estimated value with customer relationships in place against the value without those customer relationships in place. The fair value of intangibles relies heavily on projected future net cash flows including, but not limited to, key assumptions for revenue, operating expenses and working capital. The discount rates used for intangible assets are based on current market rates and reflect the risk inherent in each cash flow stream. The estimated useful life reflects the time period in which the Company expects to receive the benefits of the related cash flows. Discounted future expected cash flows and other management estimates are based on significant unobservable inputs and, as a result, the intangible assets acquired would be presented in Level 3 of the fair value hierarchy. Long-term Debt On the Merger date, TiVo had outstanding debt under the 2019 Term Loan Facility Agreement (“TiVo 2019 Term Loan”), pursuant to which TiVo was required to pay a 3.0 % prepayment premium if the loan was prepaid on or prior to November 22, 2020. Under the 2019 Term Loan Facility Agreement, the Mergers triggered certain change of control conditions that constitute an event of default, thus requiring the debt to be paid immediately following the consummation of the Mergers. In connection with the consummation of the Mergers, the Company, on June 1, 2020, paid the full amount of the outstanding loan balance, including the 3.0 % prepayment penalty. See “Note 9 – Debt” for additional information. Fair value of the TiVo 2019 Term Loan was measured based on the par value of principal outstanding plus prepayment premium, which is equal to the amount that was paid by Xperi immediately following the consummation of the Mergers. The fair value of the TiVo 2019 Term Loan would be classified in Level 2 of the fair value hierarchy. Goodwill 24 The excess of the consideration transferred over the fair value of assets acquired and liabilities assumed was recognized as goodwill. The goodwill is generated from operational synergies and cost savings the Company expects to achieve from the combined operations, as well as the expected benefits from future technologies that do not meet the definition of an identifiable intangible asset and TiVo’s knowledgeable and experienced workforce. See Note 8 for the allocation of goodwill to the reportable segments. Of the total goodwill acquired, $ 16.4 million is expected to be deductible for tax purposes; the remainder of the goodwill is not expected to be deductible for tax purposes. TiVo Results of Operations TiVo’s results of operations and cash flows have been included in the Company’s condensed consolidated financial statements for periods subsequent to June 1, 2020, and TiVo’s assets and liabilities were recorded at their estimated fair values in the Company’s Condensed Consolidated Balance Sheets as of June 1, 2020. For the three and six months ended June 30, 2020, TiVo contributed $ 52.8 million of revenue and $ 9.5 million of net loss, respectively, to the financial results of the Company. Transaction and Severance Costs In connection with the Mergers, the Company incurred significant one-time expenses in the first two quarters of 2020 such as transaction costs (e.g. bankers fees, legal fees, consultant fees, etc.), severance costs as a result of synergistic headcount reductions as a result of the Mergers and stock-based compensation expense resulting from the contractually-required acceleration of equity instruments for departing executives. Total transaction costs amounted to $ 24.4 million and $ 27.5 million for the three and six months ended June 30, 2020, respectively. Post-merger severance and stock-based compensation expense resulting from the acceleration of equity instruments was $ 6.7 million and $ 1.5 million, respectively, for the three months ended June 30, 2020. The Company may incur additional expenses for severance and retention, and the impairment of right-of-use assets due to facilities consolidation in future quarters, although no further actions have been determined as of June 30, 2020. Supplemental Pro Forma Information The following unaudited pro forma financial information assumes the companies were combined as of January 1, 2019. The unaudited pro forma financial information as presented below is for informational purposes only and is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information. This is not necessarily indicative of the results of operations that would have been achieved if the Mergers had taken place on January 1, 2019, 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 TiVo had been included in the Company's Condensed Consolidated Statements of Operations as of January 1, 2019 (unaudited, in thousands): Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Revenue $ 230,983 $ 249,485 $ 505,878 $ 462,278 Net income (loss) attributable to Xperi Holding Corporation $ 32,445 $ ( 18,610 ) $ ( 123,009 ) $ ( 137,533 ) The unaudited supplemental pro forma information above includes the estimated impact of purchase accounting and other material, nonrecurring adjustments directly attributable to the Mergers. These pro forma adjustments primarily include the following (in thousands): 25 Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Estimated increase (decrease) to earnings due to revenue adjustments resulting from purchase accounting $ ( 2,192 ) $ ( 1,802 ) $ ( 4,823 ) $ ( 3,811 ) Estimated increase (decrease) to earnings to adjust for transaction costs incurred in connection with the Mergers $ 25,677 $ — $ 30,202 $ ( 20,284 ) Estimated increase (decrease) to earnings to adjust for stock-based compensation expense relating to certain TiVo equity awards $ 2,901 $ 385 $ 3,436 $ ( 1,784 ) Estimated increase (decrease) to earnings to adjust for severance costs incurred in connection with the Mergers $ 6,663 $ ( 12 ) $ 6,663 $ ( 7,802 ) Estimated increase (decrease) to earnings to reflect payoff of historical debt and issuance of new debt financing in connection with the Mergers $ 12,023 $ ( 2,643 ) $ 20,752 $ ( 16,708 ) Estimated increase (decrease) to earnings due to pro forma adjustments for income taxes (1)(2) $ 22,931 $ 1,210 $ 16,257 $ ( 19,277 ) (1) For the three and six months ended June 30, 2020, the pro forma tax adjustments primarily reflect the recognition by TiVo of a refund request of South Korean withholding taxes prior to the Mergers in the quarter ended June 30, 2020. (2) For the three and six months ended June 30, 2019, the pro forma tax adjustments relate primarily to the alignment of TiVo’s methodology for interim period accounting for income taxes to Xperi's methodology, as well as the assumption that the combined company placed a valuation allowance on its federal and state deferred tax assets prior to 2019. The unaudited supplemental pro forma information above does not include any cost saving synergies from operating efficiencies. NOTE 8 – GOODWILL AND IDENTIFIED INTANGIBLE ASSETS In connection with the TiVo Merger, the Company recorded $ 461.1 million of goodwill, representing the preliminary fair value as of the effective date of the Mergers. Goodwill resulting from the Mergers was assigned to reporting units based on the acquisition method of accounting and is considered provisional. The following table reflects the carrying amounts of goodwill by reportable segment (in thousands): Product IP Licensing Total December 31, 2019 $ 378,084 $ 7,700 $ 385,784 Goodwill acquired through the Mergers (1) 146,061 315,068 461,129 June 30, 2020 $ 524,145 $ 322,768 $ 846,913 (1) Final determination of the goodwill value assignment may result in adjustments to the preliminary value recorded. See “Note 7 – Business Combination” for additional details . 26 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. Immediately before and after the goodwill assignments, the Company completed an assessment of any potential goodwill impairment and determined that no impairment existed. Identified intangible assets consisted of the following (in thousands): Average June 30, 2020 December 31, 2019 Life (Years) Gross Assets Accumulated Amortization Net Gross Assets Accumulated Amortization Net Finite-lived intangible assets Acquired patents / core technology (1) 3-15 $ 609,084 $ ( 141,993 ) $ 467,091 $ 151,184 $ ( 135,952 ) $ 15,232 Existing technology / content database (2) (3) 5-10 247,905 ( 148,928 ) 98,977 206,878 ( 130,890 ) 75,988 Customer contracts and related relationships (4) 3-9 649,986 ( 202,729 ) 447,257 291,769 ( 174,741 ) 117,028 Trademarks/trade name 4-10 40,083 ( 18,542 ) 21,541 40,083 ( 16,056 ) 24,027 Non-competition agreements 1 2,231 ( 2,231 ) — 2,231 ( 2,231 ) — Total finite-lived intangible assets 1,549,289 ( 514,423 ) 1,034,866 692,145 ( 459,870 ) 232,275 Indefinite-lived intangible assets TiVo Tradename/trademarks (5) N/A 21,400 — 21,400 — — — Total intangible assets $ 1,570,689 $ ( 514,423 ) $ 1,056,266 $ 692,145 $ ( 459,870 ) $ 232,275 (1) In June 2020, $ 457.4 million of patents was acquired through the Mergers. See “Note 7 – Business Combination.” (2) In June 2020, $ 34.8 million of existing (developed) technology was acquired through the Mergers. See “Note 7 – Business Combination.” (3) In June 2020, $ 6.2 million of content database was acquired through the Mergers. See “Note 7 – Business Combination.” (4) In June 2020, $ 358.2 million of customer contracts and related relationships was acquired through the Mergers. See “Note 7 – Business Combination.” (5) In June 2020, $ 21.4 million of TiVo Tradename/trademarks was acquired through the Mergers. See “Note 7 – Business Combination.” As of June 30, 2020, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands): 2020 (remaining 6 months) $ 101,141 2021 195,771 2022 147,333 2023 136,453 2024 97,648 Thereafter 356,520 $ 1,034,866 NOTE 9 - DEBT The outstanding amounts of debt were as follows (in thousands): June 30, 2020 December 31, 2019 2020 Term B Loan Facility $ 1,050,000 $ — 2021 Convertible Notes 48 — 2018 Amended Term B Loan — 344,000 Unamortized debt issuance costs ( 38,965 ) ( 9,321 ) 1,011,083 334,679 Less: current portion, net of debt issuance costs ( 43,612 ) — Total long-term debt, net of current portion $ 967,471 $ 334,679 27 2020 Term B Loan Facility On June 1, 2020, in connection with the consummation of the Mergers with TiVo , the Company entered into a Credit Agreement (the “2020 Credit Agreement”) 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 provides for a five-year senior secured term loan B facility in an aggregate principal amount of $ 1,050 million (the “2020 Term B Loan Facility”). The interest rate applicable to loans outstanding under the 2020 Term B Loan Facility is equal to, at the Company’s option, either (i) a base rate plus a margin of 3.00 % per annum or (ii) LIBOR plus a margin of 4.00 % per annum. Commencing on September 30, 2020, the 2020 Term B Loan Facility will amortize in equal quarterly installments in aggregate quarterly amounts equal to (i) with respect to repayments occurring on or prior to June 1, 2023, 1.25 % of the original principal amount of the 2020 Term B Loan Facility and (ii) with respect to repayments occurring after June 1, 2023 and prior to June 1, 2025, 1.875 % of the original principal amount of the 2020 Term B Loan Facility, with the balance payable on the maturity date of the 2020 Term B Loan Facility (in each case subject to adjustment for prepayments). The 2020 Term B Loan Facility will mature on June 1, 2025 . Upon the closing of the 2020 Credit Agreement, the Company borrowed $ 1,050 million under the 2020 Term B Loan Facility . Net proceeds were used on June 1, 2020, together with cash and cash equivalents, to refinance the existing indebtedness of the combined Company ( the “Debt Financing ”), including paydown of the TiVo 2019 Term Loan of $ 734.6 million. See “Note 7 – Business Combination” for additional information relating to the Mergers. Additionally, debt issuance costs of approximately $ 39.7 million were incurred and capitalized in connection with the 2020 Term B Loan Facility in June 2020. The obligations under the 2020 Credit Agreement are guaranteed by Xperi, TiVo and certain other of the Company’s wholly-owned material domestic subsidiaries (collectively, the “Guarantors”) pursuant to the Guaranty, dated as of June 1, 2020 (the “Guaranty”), among Xperi, TiVo, the other Guarantors party thereto and Bank of America, N.A., as administrative agent. The obligations under the 2020 Credit Agreement are secured by a lien on substantially all of the assets of the Company and the Guarantors pursuant to the Security Agreement, dated as of June 1, 2020 (the “Security Agreement”), among the Company, Xperi, TiVo, the other pledgors party thereto and Bank of America, N.A., as collateral agent. The 2020 Credit Agreement contains customary events of default, upon the occurrence of which, after any applicable grace period, the lenders will have the ability to accelerate all outstanding loans thereunder. The 2020 Credit Agreement also contains customary representations and warranties and affirmative and negative covenants that, among other things, restrict the ability of the Company and its subsidiaries to create or incur certain liens, incur or guarantee additional indebtedness, merge or consolidate with other companies, transfer or sell assets and make restricted payments. These covenants are subject to a number of limitations and exceptions set forth in the Credit Agreement. The Company was in compliance with all requirements as of June 30, 2020. 2018 Amended Term B Loan On December 1, 2016, in connection with the consummation of the acquisition of DTS, the Company entered into a Credit Agreement (the “Credit Agreement”) by and among the Company, Royal Bank of Canada, as administrative agent and collateral agent, and the lenders party thereto. The Credit Agreement provided for a $ 600.0 million seven-year term B loan facility (the “Term B Loan Facility”) which matures on November 30, 2023 . Upon the closing of the Credit Agreement, the Company borrowed $ 600.0 million under the Term B Loan facility. Net proceeds were used on December 1, 2016, together with cash and cash equivalents, to finance the acquisition of DTS. On January 23, 2018, the Company and the loan parties entered into an amendment to the Credit Agreement (the “Amendment”). In connection with the Amendment, the Company made a voluntary prepayment of $ 100.0 million of the term loan outstanding under the Credit Agreement using cash on hand. The Amendment provided for, among other things, (i) a replacement of the outstanding initial term loan with the new tranche term B-1 loan (the “2018 Amended Term B Loan”) in a principal amount of $ 494.0 million, (ii) a reduction of the interest rate margin applicable to such loan to (x) in the case of Eurodollar loans, 2.50 % per annum and (y) in the case of base rate loans, 1.50 % per annum, (iii) a prepayment premium of 1.00 % in connection with any repricing transaction with respect to the 2018 Amended Term B Loan within six months of the closing date of the Amendment, and (iv) certain amendments to provide the Company with additional flexibility under the covenant governing restricted payments. Using cash on hand, the Company made three voluntary prepayments totaling $ 150.0 million during 2019. On June 1, 2020, the entire remaining balance of $ 344.0 million was paid off by using the proceeds from the 2020 Term B Loan Facility as part of the TiVo Merger transaction. As a result of the refinancing transaction, the Company recorded a loss on early extinguishment of debt of $ 8.3 million, which consisted of unamortized debt issuance costs, in its Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020, respectively. 2019 Term Loan Facility 28 In connection with the M ergers, the Company paid off all outstanding balance under the TiVo ’s 2019 Term Loan . The 2019 Term Loan Facility Agreement was entered into on November 22, 2019 between TiVo , as borrower, and the lenders party thereto and HPS Investment Partners, LLC as administrative agent and collateral agent. Under the 2019 Term Loan, TiVo borrowed $ 715.0 million, which matures on November 22, 2024 . Under the 2019 Term Loan Facility Agreement, TiVo was required to pay a 3.0 % prepayment premium if the loan was prepaid on or prior to November 22, 2020. Further under the same Loan Facility Agreement, the Mergers triggered certain change of control conditions that constitute an event of default, thus requiring the debt to be repaid immediately following the consummation of the Mergers. Using the proceeds from the aforementioned 2020 Term B Loan Facility, the Company, on June 1, 2020, made a full repayment of the 2019 Term Loan along with the prepayment penalty for a total payoff amount of $ 734.6 million. 2021 Convertible Notes Upon consummation of the TiVo Merger on June 1, 2020, the Company assumed $ 48.0 thousand of Convertible Senior Notes that were issued by TiVo Solutions Inc. (“TiVo Solutions”) in September 2014 and mature October 1, 2021 (the “2021 Convertible Notes”). The 2021 Convertible Notes bear interest at an annual rate of 2.0 %, payable semi-annually in arrears on April 1 and October 1 of each year. Interest Expense and Expected Principal Payments At June 30, 2020, $ 1,050.0 million in total debt was outstanding with an interest rate, including the amortization of debt issuance costs, of 4.8 %. Interest is payable monthly. Interest expense was $ 7.0 million and $ 11.2 million for the three and six months ended June 30, 2020, respectively. Interest expense was $ 6.2 million and $ 12.9 million for the three and six months ended June 30, 2019, respectively. Amortized debt issuance costs, which were included in interest expense, amounted to $ 1.2 million and $ 1.8 million for the three and six months ended June 30, 2020, respectively, and $ 0.6 million and $ 1.3 million for the three and six months ended June 30, 2019, respectively. As of June 30, 2020, future minimum principal payments for long-term debt are summarized as follows (in thousands): 2020 (remaining 6 months) $ 26,250 2021 52,548 2022 52,500 2023 72,188 2024 78,750 Thereafter 767,812 Total $ 1,050,048 Additional cash payments, as outlined in the 2020 Credit Agreement, must be made on an annual basis beginning March 31, 2022 based on certain leverage ratios and excess cash flow generated for the immediately preceding fiscal year. NOTE 10 – NET LOSS PER SHARE The following table sets forth the computation of basic and diluted shares (in thousands): Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Denominator: Weighted average common shares outstanding 69,160 49,259 59,462 48,918 Less: shares of restricted stock subject to repurchase — — — — Total common shares-basic 69,160 49,259 59,462 48,918 Effect of dilutive securities: Options — — — — Restricted stock awards and units — — — — Total common shares-diluted 69,160 49,259 59,462 48,918 29 Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period, excluding any unvested restricted stock awards 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 common shares and, if dilutive, potential common shares outstanding during the period. Potential dilutive common shares include unvested restricted stock awards and units and incremental common shares issuable upon the exercise of stock options, less shares repurchased from assumed proceeds. The assumed proceeds calculation includes actual proceeds to be received from the employee upon exercise and the average unrecognized stock compensation cost during the period. For the three and six months ended June 30, 2020, there was no difference in the weighted average number of common shares used for the calculation of basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive. A total of 4.7 million and 3.8 million shares, subject to stock options and restricted stock awards and units, were excluded from the computation of diluted net loss per share for the three and six months ended June 30, 2020, respectively, because including them would have been anti-dilutive. For the three and six months ended June 30, 2019, there was no difference in the weighted average number of common shares used for the calculation of basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive. A total of 1.7 million and 1.7 million shares, subject to stock options and restricted stock awards and units, were excluded from the computation of diluted net loss per share for the three and six months ended June 30, 2019, respectively, because including them would have been anti-dilutive. NOTE 11 – STOCKHOLDERS’ EQUITY As more fully described in Note 7, Xperi and TiVo completed the Mergers on June 1, 2020 to form Xperi Holding Corporation. Upon completion of the Mergers, each share of common stock of Xperi was converted into the right to receive one fully paid and non-assessable share of Company Common Stock. Further upon completion of the Mergers, each share of TiVo Common Stock was converted into the right to receive 0.455 fully paid and non-assessable shares of the Company Common Stock (the “Exchange Ratio”), in addition to cash in lieu of any fractional shares of the Company Common Stock. Following the Mergers, Xperi Common Stock and TiVo Common Stock were delisted from Nasdaq. Since June 2, 2020, the shares of Company Common Stock have been listed for trading on Nasdaq under ticker symbol “XPER.” As provided in the Merger Agreement, at the effective time of the Mergers, (i) all options and restricted stock unit awards relating to shares of Xperi Common Stock outstanding immediately prior to the effective time of the Mergers were generally automatically converted into options and restricted stock unit awards respectively, relating to shares of the Company Common Stock on a one-for-one basis and otherwise generally on the same terms and conditions (including vesting exercisability and/or settlement requirements) as applied to such options and awards under the applicable plans and award agreements immediately prior to the effective time of the Mergers, and (ii) all options and restricted stock unit awards relating to shares of TiVo Common Stock that were outstanding immediately prior to the effective time of the Mergers were generally automatically converted into options and restricted stock unit awards, respectively, relating to shares of the Company Common Stock after giving effect to appropriate adjustments to reflect the Mergers (including the Exchange Ratio) and otherwise generally on the same terms and conditions (including vesting exercisability and/or settlement requirements) as applied to such options and awards under the applicable plans and award agreements immediately prior to the effective time of the Mergers. Equity Incentive Plans Prior to the Merger Date, the Company had implemented and granted equity awards under the Xperi Corporation Seventh Amended and Restated 2003 Equity Incentive Plan. As of the effective date of the Mergers, no future grants will be made under the plan. The 2020 EIP In connection with the Mergers and immediately prior to June 1, 2020, the Company adopted the Xperi Holding Corporation 2020 Equity Incentive Plan (the “2020 EIP”). Under the 2020 EIP, the Company may grant equity-based awards to employees, non-employee directors, and consultants for services rendered to the Company (or any parent or subsidiary) in the form of stock options, stock awards, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and performance awards (or any combination thereof). A total of 8,000,000 shares have been reserved for issuance under the 2020 EIP provided that each share issued pursuant to “full value” awards (i.e., stock awards, restricted stock awards, restricted stock units, performance awards and dividend equivalents) are counted against shares available for issuance under the 2020 EIP on a 1.5 to 1 ratio. 30 The 2020 EIP provides for option grants designed as either incentive stock options or nonstatutory options. Options generally are granted with an exercise price not less than the value of the common stock on the grant date and have a term of ten years from the date of grant and vest over a four-year period. The vesting criteria for restricted stock awards and restricted stock units is generally the passage of time or meeting certain performance-based objectives, and continued employment through the vesting period generally over four years for time-based awards. As of June 30 , 2020 , there were 8.0 million shares reserved for future grant under the 20 20 EIP . 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 number of shares subject to stock options and restricted stock unit awards outstanding under these plans are included in the tables below. Shares reserved under the Assumed Plans will be available for future grants. As of June 1, 2020, there were 6.2 million shares reserved for future grants under the Assumed Plans. A summary of the stock option activity is presented below (in thousands, except per share amounts): Options Outstanding Number of Shares Subject to Options Weighted Average Exercise Price Per Share Balance at December 31, 2019 605 $ 26.68 Options granted — — Options assumed 175 $ 50.93 Options exercised — — Options canceled / forfeited / expired ( 41 ) $ 37.70 Balance at June 30, 2020 739 $ 31.75 Restricted Stock Awards and Units Information with respect to outstanding restricted stock awards and units as of June 30, 2020 is as follows (in thousands, except per share amounts): Restricted Stock and Restricted Stock Units Number of Shares Subject to Time- based Vesting Number of Shares Subject to Performance- based Vesting Total Number of Shares Weighted Average Grant Date Fair Value Per Share Balance at December 31, 2019 2,371 554 2,925 $ 25.99 Awards and units granted 1,015 — 1,015 $ 10.78 Awards and units assumed 2,185 253 2,438 $ 13.99 Awards converted 107 ( 107 ) — $ 29.79 Awards and units vested / earned ( 997 ) ( 386 ) ( 1,383 ) $ 23.43 Awards and units canceled / forfeited ( 52 ) ( 243 ) ( 295 ) $ 28.04 Balance at June 30, 2020 4,629 71 4,700 $ 17.11 31 Performance Awards and Units Performance awards and units may be granted to employees or consultants based upon, among other things, the contributions, responsibilities and other compensation of the particular employee or consultant. The value and the vesting of such performance awards and units are generally linked to one or more performance goals or other specific performance goals 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. Employee Stock Purchase Plans Prior to the Mergers, the Company had implemented the Xperi Corporation 2003 Employee Stock Purchase Plan and the International Employee Stock Purchase Plan, both of which were terminated immediately prior to the effective time of the Mergers. In connection with the Mergers and immediately prior to June 1, 2020, the Company adopted the Xperi Holding Corporation 2020 Employee Stock Purchase Plan (the “2020 ESPP”). The 2020 ESPP is implemented through consecutive overlapping 24 -month offering periods, each of which is comprised of four six-month purchase periods. The first offering period will commence on September 1, 2020 and will end on August 31, 2022. Each subsequent offering period under the 2020 ESPP will be twenty-four (24) months long and will commence on each September 1 and March 1 during the term of the plan. Participants may contribute up to 100 % of their base earnings and commissions through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date. The purchase price per share will equal 85 % of the fair market value per share on the start date of the offering period or, if lower, 85 % of the fair market value per share on the semi-annual purchase date. An eligible employee’s right to buy the Company’s common stock under the 2020 ESPP may not accrue at a rate in excess of $ 25,000 of the fair market value of such shares per calendar year for each calendar year of an offering period. If the fair market value per share of the Company’s common stock on any purchase date during an offering period is less than the fair market value per share on the start date of the 24 -month offering period, then that offering period will automatically terminate and a new 24 -month offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering period. As of June 30, 2020 , there were 2.0 million shares reserved for grant under the Company’s 2020 ESPP. Stock Repurchase Programs In August 2007, Xperi’s Board of Directors (the “Board”) authorized a plan to repurchase Xperi’s outstanding shares of common stock. This authorization does not apply to Xperi Holding Corporation and is no longer in effect. On June 12, 2020, the Board of the Company authorized a new stock repurchase program providing for the repurchase of up to $ 150.0 million of the Company's Common Stock dependent on market conditions, share prices and other factors. During the month of June 2020, the Company repurchased a total of approximately 1,078,000 shares of common stock, at an average price of $ 13.92 per share for a total cost of $ 15.0 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 June 30, 2020, the total remaining amount available for repurchase was $ 135.0 million. The Company plans to continue to execute authorized repurchases from time to time under the plan. In connection with the Mergers, all shares repurchased by the Company as of June 1, 2020 and recorded as treasury stock were canceled and retired. The Company accounts for stock repurchases using the cost method and records retirement of treasury stock as a reduction of the cumulative treasury stock paid-in capital balance. Once the cumulative balance is reduced to zero, any remaining difference resulting from the retirement of treasury stock is recorded as a reduction of retained earnings. The Company issues restricted stock units as part of the equity incentive plans described above. For the majority of restricted awards, shares are withheld to satisfy required withholding taxes at the vesting date. Shares withheld to satisfy required withholding taxes in connection with the vesting of restricted awards are treated as common stock repurchases in the condensed consolidated financial statements because they reduce the number of shares that would have been issued on vesting. However, these withheld shares are not included in common stock repurchases under the Company's authorized share repurchase plan. During the three months ended June 30, 2020 and 2019, the Company withheld 0.2 million and 0.1 million shares of common stock to satisfy $ 2.8 million and $ 1.1 million of required withholding taxes, respectively. During the six months ended June 30, 2020 and 2019, the Company withheld 0.4 million and 0.2 million shares of common stock to satisfy $ 5.9 million and $ 4.3 million of required withholding taxes, respectively. 32 NOTE 12 – STOCK-BASED COMPENSATION EXPENSE The effect of recording stock-based compensation expense for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands): Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Cost of licensing, services and software revenue $ 73 $ — $ 73 $ — Research, development and other related costs 2,838 3,146 5,874 6,749 Selling, general and administrative 5,558 4,075 10,509 8,095 Total stock-based compensation expense 8,469 7,221 16,456 14,844 Tax effect on stock-based compensation expense ( 353 ) ( 1,163 ) ( 1,495 ) ( 2,385 ) Net effect on net loss $ 8,116 $ 6,058 $ 14,961 $ 12,459 In connection with the Mergers, the Company assumed unvested TiVo equity awards with a fair value of $ 34.1 million, of which $ 22.0 million related to post-acquisition services. For the three and six months ended June 30, 2020, the Company recognized $ 2.2 million and $ 2.2 million, respectively, associated with the unvested TiVo equity awards assumed. See “Note 7 – Business Combination” for additional detail. Stock-based compensation expense categorized by various equity components for the three and six months ended June 30, 2020 and 2019 is summarized in the table below (in thousands): Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Restricted stock awards and units $ 8,147 $ 6,717 $ 15,440 $ 13,651 Employee stock purchase plan 296 440 986 1,061 Employee stock options 26 64 30 132 Total stock-based compensation expense $ 8,469 $ 7,221 $ 16,456 $ 14,844 There were no options granted in the three and six months ended June 30, 2020 and 2019. Previous ESPP grants occurred in February 2020 and August 2019. Pursuant to the Merger Agreement, on May 22, 2020, the Company granted its final ESPP purchases to the eligible employees under the legacy ESPP program before terminating the plan prior to the consummation of the Mergers. The following assumptions were used to value the ESPP shares for these grants: February 2020 February 2019 Expected life (years) 2.0 2.0 Risk-free interest rate 1.4 % 2.5 % Dividend yield 4.0 % 5.4 % Expected volatility 45.8 % 53.4 % NOTE 13 – INCOME TAXES For the three months ended June 30, 2020, the Company recorded an income tax benefit of $ 9.3 million on a pretax loss of $ 32.4 million and for the six months ended June 30, 2020, the Company recorded an income tax benefit of $ 7.2 million on a pretax loss of $ 11.6 million, which resulted in an effective tax rate of 62.7 % for the six months ended June 30, 2020. The tax benefit of $7.2 million is comprised of a $ 10.5 million tax benefit related to the five month pre-merger period and a tax expense of $ 3.3 million related to the one month post-merger period. The five month pre-merger income tax benefit of $10.5 million was primarily related to a net decrease in valuation allowance as a result of the Mergers, deduction from foreign-derived intangible income, releases of unrecognized tax benefits due to the lapse of applicable statutes of limitation offset by tax expense from operating income, shortfalls from stock-based compensation, certain non-deductible expenses, and unrealized foreign exchange losses from the prior period South Korea refund claim. The one month post-merger income tax expense of $3.3 million was primarily related to income tax expense from foreign operations, foreign withholding taxes and U.S. federal minimum tax. 33 For the three months ended June 30, 2019, the Company recorded an income tax benefit of $ 3.5 million on a pretax loss of $ 9.7 million and for the six months ended June 30, 2019, the Company recorded an income tax benefit of $ 12.5 million on a pretax loss of $ 44.1 million, which resulted in an effective tax rate of 28.3 %. The income tax benefit for the three and six months ended June 30, 2019 was primarily related to tax benefit from operating losses and the realization of certain tax credits, offset by foreign withholding taxes, certain non-deductible expenses, and shortfalls from stock-based compensation. The Company's provision for income taxes is based on its worldwide estimated annualized effective tax rate, except for jurisdictions for which a loss is expected for the year and no benefit can be realized for those losses, and the tax effect of discrete items occurring during the period. The Company has applied separate effective tax rates to its pre- and post-merger activities; the Company’s post-merger effective tax rate is based on its worldwide estimated tax rate for the seven-month period ended December 31, 2020. The tax for jurisdictions for which a loss is expected and no benefit can be realized for the year is computed using a separate effective tax rate. The decrease in income tax benefit for the six months ended June 30, 2020 as compared to the prior year is largely attributable to a decrease in operating losses, increase in valuation allowance in the post-merger period, foreign withholding taxes, U.S. federal minimum taxes, and unrealized foreign exchange loss from the South Korea refund claim partially offset by tax benefits from the release of unrecognized tax benefits due to the lapse of applicable statute of limitation and a decrease in valuation allowance as a result of the Mergers. During the fourth quarter of 2019, the Company filed a refund claim for foreign taxes previously withheld from licensees in South Korea based on recent court rulings in South Korea and other business factors. These previously withheld foreign taxes were claimed as a foreign tax credit in the U.S. As a result of the Company’s refund claim, the Company recorded a non-current income tax receivable of $ 65.2 million in income tax receivable, an unrecognized tax benefit of $ 48.2 million in other long-term liabilities, and a reduction in deferred tax assets of $ 17.0 million. The Company anticipates filing a refund claim for the 2020 year-to-date South Korean withholding taxes. During the first six months of 2020, an additional non-current income tax receivable of $ 8.4 million, an unrecognized tax benefit of $ 6.2 million in other long-term liabilities, and a reduction in deferred tax assets of $ 2.2 million were recorded. As part of the Company’s accounting for the acquisition of TiVo, the Company recorded a non-current income tax receivable of $ 28.8 million and a reduction in deferred tax assets of $ 12.5 million with a corresponding offset to valuation allowance, with the residual recorded to goodwill. At June 30, 2020, the Company had recorded a cumulative unrealized foreign exchange loss of approximately $ 4.0 million as a reduction in non-current income tax receivable. The impact on the Company’s pre-merger deferred tax assets and liabilities caused by the Mergers is recorded in the Company’s financial statements outside of acquisition accounting. Such impact is not a part of the fair value of the assets acquired and liabilities assumed. The Company released its valuation allowance which was previously applied to certain deferred tax assets. As a result, the Company recorded an income tax benefit of $ 19.4 million for the three months ended June 30, 2020. Due to the composition of TiVo’s Federal deferred tax assets net of valuation allowance and deferred tax liabilities, the combined Company’s Federal deferred tax assets net of deferred liabilities are fully offset by a valuation allowance. The Company has adopted the policy of using a tax-law ordering approach when determining the extent to which the Company’s, or the acquired company’s deferred tax liabilities are able to be used as sources of income used to recognize the Company’s, or the acquired company’s deferred tax assets. As of June 30, 2020, gross unrecognized tax benefits were $ 184.0 million, of which $ 99.6 million would affect the effective tax rate if recognized. As of June 30, 2019, unrecognized tax benefits were $ 33.9 million (which was included in long-term deferred tax and other long-term liabilities on the Condensed Consolidated Balance Sheets), of which $ 21.3 million would affect the effective tax rate if recognized. The Company is unable to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease. It is the Company's policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. For the six months ended June 30, 2020 and 2019, the Company recognized an insignificant amount of interest and penalties related to unrecognized tax benefits. Accrued interest and penalties were $ 1.9 million and $ 1.2 million as of June 30, 2020 and December 31, 2019, respectively. At June 30, 2020, the Company’s 2015 through 2018 tax years were generally open and subject to potential examination in various jurisdictions. Earlier tax years for the Company and its subsidiaries are also open in certain jurisdictions which are currently subject to examination. In addition, in the U.S., any net operating losses or credits that were generated in prior years but not yet fully utilized in a year that is closed under the statute of limitations may also be subject to examination. The Company has submitted a withholding tax refund claim with the South Korean authorities and the final outcome is not anticipated to be settled within the next twelve months. 34 NOTE 1 4 – LEASES The Company leases office and research facilities, data centers and office equipment under operating leases which expire through 2029. The Company’s leases have remaining lease terms of one year to nine years , some of which may include options to extend the leases for five years or longer, and some of which may include options to terminate the leases within the next 6 years or less. Leases with an initial term of 12 months or less are not recorded on the balance sheets ; expense for these leases is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred and are not included within the lease liability and right-of-use assets calculation. As a practical expedient, the Company elected, for all office and facility leases, not to separate nonlease components (e.g., common-area maintenance costs) from lease components (e.g., fixed payments including rent) and instead to account for each separate lease component and its associated non-lease components as a single lease component. As most of the leases do not provide an implicit rate, the Company generally, for purposes of discounting lease payments, uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The Company subleases certain real estate to third parties. The sublease portfolio consists of operating leases for previously exited office space. Certain subleases include variable payments for operating costs. The subleases are generally co-terminus with the head lease, or shorter. Subleases do not include any residual value guarantees or restrictions or covenants imposed by the leases. Income from subleases is recognized as a reduction to selling, general and administrative expenses. The components of operating lease costs were as follows (in thousands): Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Fixed lease cost (1) $ 3,323 $ 1,787 $ 5,156 $ 3,424 Variable lease cost 594 267 941 581 Less: sublease income ( 843 ) — ( 843 ) — Total operating lease cost $ 3,074 $ 2,054 $ 5,254 $ 4,005 (1) Includes short-term leases, which were immaterial. Other information related to leases was as follows (in thousands, except lease term and discount rate): Three Months Ended, Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 3,088 $ 1,463 $ 4,726 $ 3,017 ROU assets obtained in exchange for new lease liabilities: Operating leases $ 3,673 $ 3,730 $ 3,673 $ 4,775 June 30, 2020 December 31, 2019 Weighted-average remaining lease term (years): Operating leases 5.5 4.6 Weighted-average discount rate: Operating leases 5.3 % 5.7 % 35 Future minimum lease payments and related lease liabilities as of June 30, 2020 were as follows (in thousands): Operating Lease Payments (1) Sublease Income Net Operating Lease Payments 2020 (remaining 6 months) $ 10,976 $ ( 3,292 ) $ 7,684 2021 22,573 ( 6,257 ) 16,316 2022 18,118 ( 6,117 ) 12,001 2023 15,852 ( 6,231 ) 9,621 2024 15,244 ( 6,293 ) 8,951 Thereafter 22,903 ( 7,214 ) 15,689 Total lease payments 105,666 ( 35,404 ) 70,262 Less: imputed interest ( 14,175 ) — ( 14,175 ) Present value of lease liabilities: $ 91,491 $ ( 35,404 ) $ 56,087 Less: current obligations under leases (accrued liabilities) 18,017 Noncurrent operating lease liabilities $ 73,474 (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. As of December 31, 2019, future minimum lease payments were as follows (in thousands): Operating Leases 2020 $ 6,387 2021 4,558 2022 3,259 2023 3,235 2024 2,619 Thereafter 1,977 Total lease payments 22,035 Less: imputed interest ( 2,776 ) Present value of lease liabilities: $ 19,259 Less: current obligations under leases (accrued liabilities) 5,845 Noncurrent operating lease liabilities $ 13,414 NOTE 15 – COMMITMENTS AND CONTINGENCIES Inventory Purchase Commitment The Company uses contract manufacturers to provide manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate supply, the Company enters into agreements with its contract manufacturer that either allow them to procure inventory based on criteria as defined by the Company or that establish the parameters defining the Company’s requirements. A significant portion of the Company’s purchase commitments arising from these agreements consist of firm, non-cancelable and unconditional purchase commitments. In certain instances, these agreements allow the Company the option to cancel, reschedule or adjust the Company’s requirements based on its business needs prior to firm orders being placed. As of June 30, 2020, the Company had total purchase commitments for inventory of $ 7.4 million, of which $ 0.9 million was accrued in the Condensed Consolidated Balance Sheet. Other Purchase Obligations On December 31, 2019, TiVo entered into a contract requiring the Company to generate a minimum number of Qualified Referred Subscribers (as defined in the contract) over a 30 month period. In the event that the aggregate number of Qualified Referred Subscribers generated by the Company within the specified time period is less than the minimum guaranteed subscribers, the Company is required to pay an amount equal to the shortfall between the number of Qualified Referred Subscribers generated by the Company and the required minimum multiplied by a per Qualified Referred Subscribers fee, up to a maximum of $ 5.0 million. As of June 30, 2020, no amounts were accrued in the Condensed Consolidated Balance Sheet 36 related to this contract as the Company believes it will be able to generate the minimum number of Qualified Referred Subscribers within the 30 month commitment p eriod . Under certain other contractual arrangements, the Company may be obligated to pay up to approximately $ 10.9 million over an estimated period of approximately four years if certain milestones are achieved. Indemnifications In the normal course of business, the Company provides indemnifications of varying scopes and amounts to certain of its licensees, customers, and business partners against claims made by third parties arising from the use of the Company's products, intellectual property, services or technologies. The Company cannot reasonably estimate the possible range of losses that may be incurred pursuant to its indemnification obligations, if any. Variables affecting any such assessment include, but are not limited to: the nature of the claim asserted; the relative merits of the claim; the financial ability of the party suing the indemnified party to engage in protracted litigation; the number of parties seeking indemnification; the nature and amount of damages claimed by the party suing the indemnified party; 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. 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, should they occur. Contingencies At each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of losses is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company is currently unable to predict the final outcome of lawsuits to which it is a party and therefore cannot determine the likelihood of loss nor estimate a range of possible losses. An adverse decision in any of these proceedings could significantly harm the Company’s business and consolidated financial position, results of operations or cash flows. The Company and its subsidiaries are involved in litigation matters and claims in the normal course of business. In the past, the Company and its subsidiaries have litigated to enforce their respective patents and other intellectual property rights, to enforce the terms of license agreements, to protect trade secrets, to determine the validity and scope of the proprietary rights of others and to defend itself or its customers against claims of infringement or invalidity. The Company expects it or its subsidiaries will be involved in similar legal proceedings in the future, including proceedings regarding infringement of its patents, and proceedings to ensure proper and full payment of royalties by licensees under the terms of its license agreements. The existing and any future legal actions may harm the Company’s business. For example, legal actions could cause an existing licensee or strategic partner to cease making royalty or other payments to the Company, or to challenge the validity and enforceability of patents owned by the Company’s subsidiaries or the scope of license agreements with the Company’s subsidiaries, or could significantly damage the Company’s relationship with such licensee or strategic partner and, as a result, prevent the adoption of the Company’s other technologies by such licensee or strategic partner. Litigation could also severely disrupt or shut down the business operations of licensees or strategic partners of the Company’s subsidiaries, which in turn would significantly harm ongoing relations with them and cause the Company to lose royalty revenue. 37 The costs associated with legal proceedings are typically high, relatively unpredictable, and not completely within the Company’s control. These costs may be materially higher than expected, which could adversely affect the Company’s operating results and lead to volatility in the price of its common stock. Whether or not determined in the Company’s favor or ultimately settled, litigation diverts managerial, technical, legal, and financial resources from the Company’s business operations. Furthermore, an adverse decision in any of these legal actions could result in a loss of the Company’s proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from others, limit the value of the Company’s licensed technology or otherwise negatively impact the Company’s stock price or its business and consolidated financial results . NOTE 16 – SEGMENT AND GEOGRAPHIC INFORMATION In connection with the Mergers, the Company re-evaluated its reportable segments. The Company concluded that it has two reportable segments for financial reporting purposes: (1) Product and (2) Intellectual Property (“IP”) Licensing. There are certain corporate overhead costs that are not allocated to these reportable segments because these operating amounts are not considered in evaluating the operating performance of the Company’s business segments. Reportable segments are identified based on the Company's organizational structure and information reviewed by the Company’s chief operating decision maker ("CODM") to evaluate performance and allocate resources. The Company’s Chief Executive Officer is also the CODM as defined by the authoritative guidance on segment reporting. The Product segment consists primarily of licensing Company-developed audio, digital radio, imaging, edge-based machine learning and multi-channel video user experience (“UX”) solutions. Edge based machine learning, audio, digital radio, and imaging solutions include the delivery of software and/or hardware-based solutions to the Company’s consumer electronics (“CE”) customers, automotive manufacturers or their supply chain partners. UX products and services revenue is primarily derived from multi-channel video service providers and CE manufacturers, licensing the TiVo service and selling TiVo-enabled devices, Personalized Content Discovery, enriched Metadata, viewership data and advertising. The IP Licensing segment consists primarily of licensing the Company’s innovations to leading companies in the media and semiconductor industries. Licensing arrangements include access to one more of the Company’s foundational patent portfolios and may also include access to some of the Company’s industry-leading technologies and proven know-how. In the media industry, the Company’s licensees include pay television (“Pay-TV”) providers, both in the United States and internationally, consumer electronics manufacturers and other providers of video experiences across various platforms, including over-the-top (OTT) video. In the semiconductor industry, the Company’s licensees include semiconductor manufacturers, fabless companies, foundries and packaging companies. The Company does not identify or allocate assets by reportable segment, nor does the CODM evaluate reportable segments using discrete asset information. Reportable segments do not record inter-segment revenue and accordingly there are none to report. The Company does not allocate other income and expense to reportable segments. Although the CODM uses operating income to evaluate reportable segments, operating costs included in one segment may benefit other segments. The following table sets forth the Company’s segment revenue, operating expenses and operating income (loss) for the three and six months ended June 30, 2020 and 2019 (in thousands): Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Revenue: Product segment $ 64,124 $ 61,431 $ 120,066 $ 105,999 IP Licensing segment 73,507 13,684 135,230 25,683 Total revenue 137,631 75,115 255,296 131,682 Operating expenses: Product segment 66,557 46,817 112,794 93,717 IP Licensing segment 20,449 9,362 30,744 19,745 Unallocated operating expenses (1) 68,344 (2) 27,252 104,950 (3) 56,533 Total operating expenses 155,350 83,431 248,488 169,995 Operating income (loss): Product segment ( 2,433 ) 14,614 7,272 12,282 IP Licensing segment 53,058 4,322 104,486 5,938 Unallocated operating expenses (1) ( 68,344 ) ( 27,252 ) ( 104,950 ) ( 56,533 ) Total operating income (loss) $ ( 17,719 ) $ ( 8,316 ) $ 6,808 $ ( 38,313 ) 38 (1) Unallocated operating expenses consist primarily of selling, marketing, general and administrative expenses, such as administration, human resources, finance, information technology, corporate development and procurement. These expenses are not allocated because these amounts are not considered in evaluating the operating performance of the Company’s business segments. (2) Includes approximately $ 24.4 million in one-time transaction costs related to the Mergers and $ 8.2 million in employee severance and acceleration of contractually-obligated equity awards for departing executives. (3) Includes approximately $ 27.5 million in one-time transaction costs related to the Mergers and $ 8.2 million in employee severance and acceleration of contractually-obligated equity awards for departing executives. A significant portion of the Company’s revenue is derived from licensees headquartered outside of the U.S., principally in Asia, and it is expected that this revenue will continue to account for a significant portion of total revenue in future periods. The table below lists the geographic revenue for the periods indicated (in thousands): Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 South Korea $ 60,974 45 % $ 16,412 22 % $ 88,557 35 % $ 33,915 26 % U.S. 43,049 31 12,574 17 66,094 26 24,006 18 Japan 14,032 10 33,827 45 65,354 26 51,059 39 Europe and Middle East 6,982 5 6,463 9 11,430 4 10,463 8 Other 12,594 9 5,839 7 23,861 9 12,239 9 $ 137,631 100 % $ 75,115 100 % $ 255,296 100 % $ 131,682 100 % For the three months ended June 30, 2020 and 2019, there were one customer and two customers, respectively, that accounted for 10 % or more of total revenue. For the six months ended June 30, 2020 and 2019, there were two customers and two customers, respectively, that accounted for 10 % or more of total revenue. As of June 30, 2020 and December 31, 2019, there were three customers and three customers, respectively, that each accounted for 10 % or more of total accounts receivable. NOTE 17 - SUBSEQUENT EVENTS On July 29, 2020 , the Board declared a cash dividend of $ 0.05 per share of common stock, payable on September 21, 2020 to the stockholders of record at the close of business on August 31, 2020 . 39