What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 283 added, 248 removed, 947 unchanged (36% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Licensing, services and software

9 unchanged sentences

Total operating expenses

Operating income (loss)

Operating loss

Interest expense

2 unchanged sentences

Loss before taxes

Benefit from income taxes

Provision for (benefit from) income taxes

net loss attributable to noncontrolling interest

10 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Other comprehensive income, net of tax:

Change in foreign currency translation adjustment

Net unrealized gains on available-for-sale

Net unrealized gain (loss) on available-for-sale

debt securities

7 unchanged sentences

(in thousands, except for par value)

September 30,

Current assets:

Cash and cash equivalents

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)

Available-for-sale debt securities, at fair value (amortized cost and allowance for credit losses of $ 87,262 and $ 0 , respectively, at September 30, 2020)

Equity securities

46 unchanged sentences

(in thousands)

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

Cash flows from operating activities:

26 unchanged sentences

Repayment of assumed debt from merger transaction

Contingent consideration payments after acquisition

Proceeds from exercise of stock options

14 unchanged sentences

(in thousands)

Total Xperi Stockholders' Equity

Three Months Ended June 30, 2020

Total Company Stockholders' Equity

Three Months Ended September 30, 2020

Treasury Stock

1 unchanged sentence

Noncontrolling

Income (Loss)

Balance at April 1, 2020

Balance at July 1, 2020

Issuance of subsidiary shares to noncontrolling interest

1 unchanged sentence

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

Issuance of common stock in connection with employee stock purchase plan

Issuance of restricted stock, net of shares canceled

1 unchanged sentence

Repurchases of common stock

Common stock issued in merger transaction

Retirement of treasury stock

Stock-based compensation expense

Balance at June 30, 2020

Total Xperi Stockholders' Equity

Six Months Ended June 30, 2020

Balance at September 30, 2020

Total Company Stockholders' Equity

Nine Months Ended September 30, 2020

Treasury Stock

13 unchanged sentences

Stock-based compensation expense

Balance at June 30, 2020

Balance at September 30, 2020

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

XPERI HOLDING CORPORATION

1 unchanged sentence

(in thousands)

Total Xperi Stockholders' Equity

Three Months Ended June 30, 2019

Total Company Stockholders' Equity

Three Months Ended September 30, 2019

Treasury Stock

2 unchanged sentences

Income (Loss)

Balance at April 1, 2019

Balance at July 1, 2019

Issuance of subsidiary shares to noncontrolling interest

2 unchanged sentences

Issuance of common stock in connection with exercise of stock options

Issuance of common stock in connection with employee stock purchase plan

Issuance of restricted stock, net of shares canceled

1 unchanged sentence

Stock-based compensation expense

Balance at June 30, 2019

Total Xperi Stockholders' Equity

Six Months Ended June 30, 2019

Balance at September 30, 2019

Total Company Stockholders' Equity

Nine Months Ended September 30, 2019

Treasury Stock

11 unchanged sentences

Stock-based compensation expense

Balance at June 30, 2019

Balance at September 30, 2019

Refer to “Note 1 – The Company and Basis of Presentation.”

25 unchanged sentences

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 accompanying interim unaudited condensed consolidated financial statements as of September 30, 2020 and 2019, and for the three and nine 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.

4 unchanged sentences

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.

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

As a result of issuing new shares in Perceive to noncontrolling interests, the Company’s ownership interest in Perceive was approximately 81 % as of September 30, 2020.

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

1 unchanged sentence

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.

The Company determined that the error was not material to any of its prior annual and interim period financial statements, and the impact of such correction was not considered to be material to the financial statements for the three and nine months ended September 30, 2019.

Reclassification

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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.

The COVID-19 pandemic 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’s business operations have been negatively impacted by the COVID-19 pandemic and related events and the Company expects this disruption to continue 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 to date has included a decline in demand in various markets and industries, particularly the automotive market.

For example, the Company anticipates approximately 20 % decline in its royalty revenue in 2020 from the products sold to the automotive market, such as HD Radio, as compared to the prior year.

Although the Company is unable to predict the full impact and duration of COVID-19 on its business, the Company is actively managing its financial expenditures in response to the current uncertainty.

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

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

the carrying value of its assets or liabilities.

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

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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):

In August 2018, the 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.

3 unchanged sentences

Recent Accounting Pronouncements

On December 18, 2019, FASB released ASU 2019-12, “ Simplifying the Accounting for Income Taxes ” (“ASU 2019-12”).

In December 2019, the 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.

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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.

The Company is in the process of evaluating the impact of the adoption of this new standard on its consolidated financial statements and does not currently anticipate a material impact.

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

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

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

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

ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively through December 31, 2022.

The Company is currently assessing the potential impact of the standard on its consolidated financial statements.

NOTE 3 – REVENUE

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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 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

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.

4 unchanged sentences

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

expensed as incurred.

Costs related to general infrastructure or uncommitted platform development are not included in the project cost estimates and are expensed as incurred.

Estimating project costs requires forecasting costs, tracking progress toward completion and projecting the remaining effort to complete the project.

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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

royalties owed by a licensee and the Company’s estimate are recognized when the licensee’s royalty report is received.

Any differences between actual 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.

20 unchanged sentences

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

June 30, 2020

September 30, 2020

December 31, 2019

16 unchanged sentences

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

The following table presents the activity in the allowance for credit losses for the three and nine months ended September 30, 2020 (in thousands):

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Accounts Receivable

3 unchanged sentences

Beginning balance

Provision for credit loss expense

Provision for credit losses

Recoveries/charged-off

Balance at end of period

(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

(1) The increase in provision for credit losses was due to late payments and collection issues with certain of the Company’s customers in the third quarter of 2020.

(2)The increase in provision for credit losses 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 the declining financial health and liquidity positions of certain of the Company’s customers during the first quarter, as well as late payments and collection issues in the third quarter of 2020.

Additional Disclosure s Under Topic 606

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Revenue recognized in the period from:

5 unchanged sentences

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

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

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

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

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

June 30, 2020

September 30, 2020

December 31, 2019

2 unchanged sentences

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

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

accumulated depreciation and amortization

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

September 30, 2020

December 31, 2019

Non-current income tax receivable

Long-term deferred tax assets

Accrued liabilities consisted of the following (in thousands):

June 30, 2020

September 30, 2020

December 31, 2019

5 unchanged sentences

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

June 30, 2020

September 30, 2020

December 31, 2019

1 unchanged sentence

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

June 30, 2020

September 30, 2020

December 31, 2019

Foreign currency translation adjustment, net of tax

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

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

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

Nine Months Ended,

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Interest income from significant financing components under

6 unchanged sentences

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

The following is a summary of marketable securities at September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020

Allowance for Credit Losses

1 unchanged sentence

Corporate bonds and notes

Treasury and agency notes and bills

Commercial paper

Total debt securities

18 unchanged sentences

Total marketable securities

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.

At September 30, 2020 and December 31, 2019, the Company had $ 203.0 million and $ 121.5 million, respectively, in cash, cash equivalents and short-term investments.

These balances include $ 111.0 million and $ 72.0 million in cash held in operating accounts not included in the tables above at September 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 gross realized gains and losses on sales of marketable debt securities were no t significant during the three and nine months ended September 30, 2020 and 2019, respectively.

Unrealized losses on AFS debt securities were $ 0.1 million and $ 0.1 million, net of tax, as of September 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.

1 unchanged sentence

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

The Company did no t recognize a provision for credit 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):

The Company did no t recognize a provision for credit loss expense related to its AFS debt securities for the three and nine months ended September 30, 2020, respectively.

No impairment charges were recorded on the AFS debt securities for the three and nine months ended September 30, 2019, respectively.

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

June 30, 2020

September 30, 2020

Corporate bonds and notes

Treasury and agency notes and bills

Commercial paper

Less Than 12 Months

2 unchanged sentences

Corporate bonds and notes

The estimated fair value of marketable debt securities by contractual maturity at June 30, 2020 is shown below (in thousands).

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

2 unchanged sentences

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.

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 entered into between the two parties on September 3, 2018.

Upon making the investment, the Company held a 6.3 % ownership interest in Onkyo.

1 unchanged sentence

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.

In June 2020, the Company sold the remaining 4.2 million shares of Onkyo stock.

For the nine months ended September 30, 2020, total realized loss on the Onkyo investment was approximately $ 0.7 million.

Non-marketable Equity Securities

6 unchanged sentences

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.

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,

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 .

As of September 30, 2020, other long-term assets included equity securities accounted for under the equity method with a carrying amount of $ 4.1 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 and nine months ended September 30, 2020, respectively.

The Company had no investments in non-marketable equity securities prior to June 1, 2020.

NOTE 6 – FAIR VALUE

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

There were no significant transfers into or out of Level 1 or Level 2 that occurred between December 31, 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):

There were no significant transfers into or out of Level 1 or Level 2 that occurred between December 31, 2019 and September 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 September 30, 2020 (in thousands):

Active Markets

2 unchanged sentences

Money market funds - equity securities (1)

Treasury and agency notes and bills (2)

Commercial paper (2)

Corporate bonds and notes - debt securities (2)

12 unchanged sentences

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

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

Financial Instruments Not Recorded at Fair Value

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

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

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

Total long-term debt, net

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.

Carrying amounts of long-term debt are net of unamortized debt issuance costs of $ 36.7 million and $ 9.3 million as of September 30, 2020 and December 31, 2019, respectively.

See “Note 9 – Debt ” for additional information.

1 unchanged sentence

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

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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.

The Company is currently contemplating 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 Company is currently evaluating the optimal timing of the contemplated business separation.

Merger Consideration

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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.

For the three and nine months ended September 30, 2020, TiVo contributed $ 159.0 million and $ 211.8 million in revenue, respectively, and $ 28.9 million and $ 20.9 million in operating income, respectively, to the operating 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.

In connection with the Mergers, the Company incurred significant one-time expenses in the first three quarters of 2020 such as transaction related costs (e.g.

bankers fees, legal fees, consultant fees, etc.), lease impairment charges due to facilities consolidation, severance and retention costs (including stock-based compensation expense resulting from the contractually-required acceleration of equity instruments for departing executives).

Total transaction related costs amounted to $ 1.2 million and $ 29.1 million for the three and nine months ended September 30, 2020, respectively.

Lease impairment charges were $ 0.7 million and $ 0.7 million for the three and nine months ended September 30, 2020, respectively.

In addition, post-merger severance and retention costs (including related stock-based compensation expense) were $ 3.6 million and $ 12.1 million for the three and nine months ended September 30, 2020, respectively.

The Company may incur additional expenses for integration, severance and retention, and the impairment of right-of-use assets due to facilities consolidation in future quarters.

Supplemental Pro Forma Information

5 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Net income (loss) attributable to Xperi Holding Corporation

2 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Estimated increase (decrease) to earnings due to revenue adjustments resulting from purchase accounting

Estimated increase (decrease) to earnings to adjust for transaction costs incurred in connection with the Mergers

Estimated increase (decrease) to earnings to adjust for stock-based compensation expense relating to certain TiVo equity awards

Estimated increase (decrease) to earnings to adjust for severance costs incurred in connection with the Mergers

Estimated increase (decrease) to earnings to reflect payoff of historical debt and issuance of new debt financing in connection with the Mergers

Estimated increase (decrease) to earnings to adjust for transaction related costs incurred in connection with the Mergers

Estimated increase (decrease) to earnings to adjust for stock-based compensation expense for TiVo equity awards

Estimated increase (decrease) to earnings to adjust for severance and retention costs incurred in connection with the Mergers

Estimated increase (decrease) to earnings to reflect payoff of historical debt and new debt financing in connection with the Mergers

Estimated increase (decrease) to earnings due to pro forma adjustments for income taxes (1)(2)

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.

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.

For the three and nine months ended September 30, 2020, 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 recognition by TiVo of a refund request of South Korean withholding taxes prior to the Mergers in the quarter ended June 30, 2020.

For the three and nine months ended September 30, 2019, the adjustment relates 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 DTAs 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):

Goodwill allocated to the reportable segments and changes in the carrying amount of goodwill by reportable segment were as follows (in thousands):

December 31, 2019

Goodwill acquired through the Mergers (1)

June 30, 2020

Final determination of the goodwill value assignment may result in adjustments to the preliminary value recorded.

September 30, 2020

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.

See “Note 7 – Business Combination” for additional details .

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.

During the third quarter of 2020, the COVID-19 pandemic continued to have a significant and negative impact on business and economic activities in the U.S and around the world.

The resulting global economic downturn has negatively impacted, and is expected to continue to negatively impact, the Company’s consolidated financial results for the remainder of 2020 and into 2021.

Due to continued reduction in demand in certain markets and industries, including the automotive market, as well as declines in the Company’s share price, the Company’s management concluded there were indicators of potential goodwill impairment.

The Company proceeded with a quantitative interim goodwill impairment test as of September 30, 2020.

Based on the quantitative assessment, the Company concluded that the fair value of the reporting units exceeded the carrying amount for both the Product and IP Licensing reporting units.

As a result, no goodwill impairment charges were recognized in the three months ended September 30, 2020.

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

June 30, 2020

September 30, 2020

December 31, 2019

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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):

As of September 30, 2020, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):

2020 (remaining 3 months)

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

June 30, 2020

September 30, 2020

December 31, 2019

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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.

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”).

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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.

The Company was in compliance with all requirements as of September 30, 2020.

2018 Amended Term B Loan

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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.

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 in connection with the Mergers.

2019 Term Loan Facility

In connection with the M ergers, the Company paid off all outstanding balance under the TiVo ’s 2019 Term Loan .

In connection with the Mergers, the Company paid off the 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, TiVo borrowed $ 715.0 million, which was scheduled to mature 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.

Further , u nder the same Loan Facility Agreement, the Mergers triggered certain change of control conditions that constitute d an event of default, thus requiring the debt to be re paid 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.

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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 %.

At September 30, 2020, $ 1,036.9 million in total debt was outstanding with an interest rate, including the amortization of debt issuance costs, of 5.1 %.

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):

Interest expense was $ 13.4 million and $ 24.6 million for the three and nine months ended September 30, 2020, respectively.

Interest expense was $ 5.5 million and $ 18.4 million for the three and nine months ended September 30, 2019, respectively.

Amortized debt issuance costs, which were included in interest expense, amounted to $ 2.3 million and $ 4.0 million for the three and nine months ended September 30, 2020, respectively, and $ 0.6 million and $ 1.9 million for the three and nine months ended September 30, 2019, respectively.

As of September 30, 2020, future minimum principal payments for long-term debt are summarized as follows (in thousands):

2020 (remaining 3 months)

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Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Weighted average common shares outstanding

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Weighted average shares of common stock outstanding

shares of restricted stock subject to repurchase

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Total common shares-diluted

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.

Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period, excluding any unvested restricted stock 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 shares of common stock and, if dilutive, potential common shares outstanding during the period.

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

repurchased from assumed proceeds.

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.

For the three and nine months ended September 30, 2020, there was no difference in the weighted average number of shares of common stock 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 5.6 million and 4.0 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 nine months ended September 30, 2020, respectively, because including them would have been anti-dilutive.

For the three and nine months ended September 30, 2019, there was no difference in the weighted average number of shares of common stock 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 2.5 million and 1.5 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 nine months ended September 30, 2019, respectively, because including them would have been anti-dilutive.

NOTE 11 – STOCKHOLDERS’ EQUITY

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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 .

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 September 30 , 2020 , there were 3.2 million shares reserved for future grant under the 20 20 EIP .

Assumed Plans

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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.

As of September 30, 2020, there were 7.4 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):

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Options canceled / forfeited / expired

Balance at June 30, 2020

Balance at September 30, 2020

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):

Information with respect to outstanding restricted stock awards and units as of September 30, 2020 is as follows (in thousands, except per share amounts):

Restricted Stock and Restricted Stock Units

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Awards and units canceled / forfeited

Balance at June 30, 2020

Balance at September 30, 2020

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.

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

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

Employee Stock Purchase Plans

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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.

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

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

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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.

As of September 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.

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

As of September 30, 2020, the Company has repurchased a total of approximately 3.9 million shares of common stock, since inception of the plan, at an average price of $ 12.81 per share for a total cost of $ 50.1 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.

As of September 30, 2020, the total remaining amount available for repurchase was $ 99.9 million.

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

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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.

During the three months ended September 30, 2020 and 2019, the Company withheld 0.2 million and 0.1 million shares of common stock to satisfy $ 3.3 million and $ 0.1 million of required withholding taxes, respectively.

During the nine months ended September 30, 2020 and 2019, the Company withheld 0.6 million and 0.2 million shares of common stock to satisfy $ 9.2 million and $ 4.3 million of required withholding taxes, respectively.

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):

The effect of recording stock-based compensation (“SBC”) expense for the three and nine months ended September 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

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Cost of licensing, services and software revenue

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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.

For the three and nine months ended September 30, 2020, the Company recognized $ 1.9 million and $ 4.1 million of SBC expense, 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):

Stock-based compensation expense categorized by various equity components for the three and nine months ended September 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

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Restricted stock awards and units

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Total stock-based compensation expense

There were no options granted in the three and six months ended June 30, 2020 and 2019.

There were no options granted in the three and nine months ended September 30, 2020 and 2019.

The following assumptions were used to value the restricted stock units subject to market conditions granted in the three months ended September 30, 2020:

Expected life (years)

Risk-free interest rate

Dividend yield

Expected volatility

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.

As stated in Note 11, the first offering period of the 2020 ESPP commenced on September 1, 2020.

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

September 2020

February 2020

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NOTE 1 3 – 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.

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.

For the three months ended September 30, 2020, the Company recorded an income tax expense of $ 0.5 million on a pretax loss of $ 30.1 million and for the nine months ended September 30, 2020, the Company recorded an income tax benefit of $6.8 million on a pretax loss of $ 41.6 million, which resulted in an effective tax rate of 16.3 % for the nine months ended September 30, 2020.

The tax benefit of $ 6.8 million is comprised of a $12.2 million tax benefit related to the five month pre-merger period and a tax expense of $ 5.4 million related to the four month post-merger period.

The five month pre-merger income tax benefit of $ 12.2 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, and deduction from transaction expenses, 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 four month post-merger income tax expense of $5.4 million was primarily related to income tax expense from foreign operations, foreign withholding taxes and U.S.

federal minimum tax offset by unrealized foreign exchange gains from the current period South Korea refund claim.

For the three months ended September 30, 2019, the Company recorded an income tax benefit of $ 14.6 million on a pretax loss of $ 30.6 million and for the nine months ended September 30, 2019, the Company recorded an income tax benefit of $ 27.1 million on a pretax loss of $ 74.7 million, which resulted in an effective tax rate of 36.3 %.

The income tax benefit for the three and nine months ended September 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.

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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.

The decrease in income tax benefit for the nine months ended September 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, and U.S.

federal minimum taxes, 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.

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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.

During the first nine months of 2020, an additional non-current income tax receivable of $ 13.7 million, an unrecognized tax benefit of $ 8.4 million in other long-term liabilities, and a reduction in deferred tax assets of $ 5.0 million with an offset to valuation allowance were recorded in connection with the South Korea refund claim matter.

As part of the Company’s acquisition of TiVo, the Company recorded a year-to-date non-current income tax receivable of $ 31.9 million and a reduction in deferred tax assets of $ 15.5 million with a corresponding offset to valuation allowance, with the residual recorded to goodwill.

At September 30, 2020, the Company had recorded a cumulative unrealized foreign exchange loss of approximately $ 1.2 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.

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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.

As a result, the Company recorded an income tax benefit of $ 19.8 million for the pre-merger period.

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 tax 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.

As of September 30, 2020, gross unrecognized tax benefits were $ 181.7 million, of which $ 97.3 million would affect the effective tax rate if recognized.

As of September 30, 2019, unrecognized tax benefits were $ 34.1 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.

T he 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.

For the three and nine months ended September 30, 2020 and 2019, the Company recognized an insignificant amount of interest and penalties related to unrecognized tax benefits.

Accrued interest and penalties were $ 2.2 million and $ 1.2 million as of September 30, 2020 and December 31, 2019, respectively.

It is the Company’s policy not to consider nonrecognized subsequent events in the calculation of its worldwide estimated annualized effective tax rate nor in its assessment of the recoverability of deferred tax assets.

The Company has therefore not considered the event discussed in “Note 17 – Subsequent Events” when determining its worldwide estimated annualized effective tax rate nor in its assessment of the recoverability of deferred tax assets as of September 30, 2020.

At September 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.

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Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Fixed lease cost (1)

5 unchanged sentences

Three Months Ended,

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

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

2 unchanged sentences

Operating leases

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

Operating leases

Future minimum lease payments and related lease liabilities as of June 30, 2020 were as follows (in thousands):

Future minimum lease payments and related lease liabilities as of September 30, 2020 were as follows (in thousands):

Operating Lease Payments (1)

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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.

As of September 30, 2020, the Company had total purchase commitments for inventory of $ 6.8 million, of which $ 1.4 million was accrued in the Condensed Consolidated Balance Sheet.

Other Purchase Obligations

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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

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.

As of September 30, 2020, $ 0.1 million was accrued in the Condensed Consolidated Balance Sheets related to this contract.

Under certain other contractual arrangements, the Company may be obligated to pay up to approximately $ 49.6 million, which is mostly related to unconditional purchase obligations to service providers and certain contingent payments to partners.

The majority of these commitments and contingent payments are due within four years .

Indemnifications

19 unchanged sentences

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 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.

23 unchanged sentences

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

The following table sets forth the Company’s segment revenue, operating expenses and operating income (loss) for the three and six months ended June 30, 2020 and 2019 (in thousands):

The following table sets forth the Company’s segment revenue, operating expenses and operating income (loss) for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Product segment

10 unchanged sentences

Unallocated operating expenses (1)

Total operating income (loss)

Total operating loss

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.

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.

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.

Includes approximately $ 1.2 million in one-time transaction costs related to the Mergers and $ 3.6 million in post-merger severance and retention costs.

Includes approximately $ 29.1 million in one-time transaction costs related to the Mergers and $ 12.1 million in post-merger severance and retention costs.

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.

1 unchanged sentence

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Europe and Middle East

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.

For the three months ended September 30, 2020 and 2019, there were no customers and one customer, respectively, that accounted for 10 % or more of total revenue.

For the nine months ended September 30, 2020 and 2019, there were one customer and two customers, respectively, that accounted for 10 % or more of total revenue.

As of September 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 .

On October 28, 2020 , the Board declared a cash dividend of $ 0.05 per share of common stock, payable on December 21, 2020 to the stockholders of record at the close of business on November 30, 2020 .

On November 9, 2020, the Company and certain of its affiliates, entered into a patent license agreement (the “Agreement”) with Comcast Corporation and certain of its affiliates (“Comcast”).

In connection with the Agreement, the parties resolved all

of the outstanding litigation between the companies.

The Agreement is effective as of the expiration of Comcast’s prior agreement in 2016 and its term continues into 2031 .

The Agreement also provides for an initial payment by Comcast upon execution and ongoing payments through the remainder of the Agreement.

As the Agreement was entered into after September 30, 2020, the Company expects to record revenue from the out-of-license settlement in the fourth quarter of 2020 and revenue from the prospective license into 2031.

In addition, the Company expects to make a substantial principal payment towards the 2020 Term B Loan Facility based on the leverage ratios and excess cash flow metrics as defined in the 2020 Credit Agreement.

Refer to “Note 9 – Debt” for additional information.

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

What changed 10-Q

Item 1. Financial Statements