What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-09 · 261 added, 542 removed, 688 unchanged (54% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Licensing, services and software

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Total operating expenses

Operating loss

Operating income

Interest expense

Other income and expense, net

Loss on debt extinguishment

Loss before taxes

Income before taxes

Provision for (benefit from) income taxes

net loss attributable to noncontrolling interest

Net loss attributable to the Company

Loss per share attributable to the Company:

Net income attributable to the Company

Income per share attributable to the Company:

Weighted average number of shares used in per share

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XPERI HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

Other comprehensive income, net of tax:

Other comprehensive loss, net of tax:

Change in foreign currency translation adjustment

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

Net unrealized loss on available-for-sale

debt securities

Other comprehensive income, net of tax

Comprehensive loss

Other comprehensive loss, net of tax

Comprehensive income

comprehensive loss attributable to noncontrolling interest

Comprehensive loss attributable to the Company

Comprehensive income attributable to the Company

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

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(in thousands, except for par value)

September 30,

Current assets:

Cash and cash equivalents

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

Equity securities

Available-for-sale debt securities

Accounts receivable, net of allowance for credit losses of $ 4,038 and $ 7,336 , respectively

Unbilled contracts receivable

Unbilled contracts receivable, net of allowance for credit losses of $ 2,884 and $ 2,231 , respectively

Other current assets

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Accrued liabilities

Deferred revenue

Current portion of long-term debt, net

Deferred revenue

Total current liabilities

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$ 0.001 par value;

authorized (2020:

15,000 shares;

10,000 shares) and no shares issued and outstanding

authorized 15,000 shares;

and no shares issued and outstanding)

Common stock:

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5,407 shares)

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Retained earnings

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(in thousands)

Nine Months Ended

September 30, 2020

September 30, 2019

Three Months Ended

March 31, 2021

March 31, 2020

Cash flows from operating activities:

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

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

Depreciation of property and equipment

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Deferred income taxes

Loss on debt extinguishment

Changes in operating assets and liabilities:

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Proceeds from sale of property and equipment

Cash acquired in merger transaction

Purchases of intangible assets

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Dividend paid

Proceeds from debt, net

Repayment of debt

Repayment of assumed debt from merger transaction

Contingent consideration payments after acquisition

Proceeds from exercise of stock options

Proceeds from employee stock purchase program

Repurchase of common stock

Proceeds from employee stock purchase program and exercise of stock options

Repurchases of common stock

Net cash from financing activities

6 unchanged sentences

Income taxes paid, net of refunds

Stock issued in merger transaction

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

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Total Company Stockholders' Equity

Three Months Ended September 30, 2020

Treasury Stock

Comprehensive

Noncontrolling

Balance at July 1, 2020

Issuance of subsidiary shares to noncontrolling interest

Other comprehensive income

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

Issuance of restricted stock, net of shares canceled

Repurchases of common stock, shares exchanged

Repurchases of common stock

Stock-based compensation expense

Balance at September 30, 2020

Total Company Stockholders' Equity

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Treasury Stock

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Issuance of subsidiary shares to noncontrolling interest

Other comprehensive income

Cash dividends paid on common stock ($ 0.45 per share)

Issuance of common stock in connection with employee stock purchase plan

Issuance of restricted stock, net of shares canceled

Repurchases of common stock, shares exchanged

Repurchases of common stock

Common stock issued in merger transaction

Retirement of treasury stock

Stock-based compensation expense

Balance at September 30, 2020

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

XPERI HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)

(in thousands)

Total Company Stockholders' Equity

Three Months Ended September 30, 2019

Treasury Stock

Comprehensive

Noncontrolling

Income (Loss)

Balance at July 1, 2019

Issuance of subsidiary shares to noncontrolling interest

Other comprehensive income

Net income (loss)

Other comprehensive loss

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

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Repurchases of common stock, shares exchanged

Repurchases of common stock

Stock-based compensation expense

Balance at September 30, 2019

Balance at March 31, 2021

Total Company Stockholders' Equity

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Treasury Stock

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Noncontrolling

Income (Loss)

Balance at January 1, 2020

Issuance of subsidiary shares to noncontrolling interest

Other comprehensive income

Net income (loss)

Other comprehensive loss

Cash dividends paid on common stock ($ 0.20 per share)

Issuance of common stock in connection with exercise of stock options

Issuance of common stock in connection with employee stock purchase plan

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Stock-based compensation expense

Balance at September 30, 2019

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

Balance at March 31, 2020

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

XPER I HOLDING CORPORATION

XPERI HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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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.

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.”

Xperi was determined to be the accounting acquirer in the Mergers.

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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.

Xperi Holding Corporation is a leading consumer and entertainment product/solutions 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 patent applications worldwide.

The Company invents, develops, and delivers technologies that enable extraordinary experiences.

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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 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.

The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) for interim financial information.

The amounts as of December 31, 2020 have been derived from the Company’s annual audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020, filed on February 26, 2021 (the “Form 10-K”).

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

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

These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the year ended December 31, 2019, included in Xperi’s Annual Report on Form 10-K for the year ended December 31, 2019

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 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.

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, 2020, included in the Form 10-K.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021 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 was approximately 81 % as of September 30, 2020.

As of March 31, 2021, the Company’s ownership interest in Perceive was approximately 81 %.

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 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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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.”

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2021, as compared to the significant accounting policies described in the Form 10-K.

Use of Estimates

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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.

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

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, 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.

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

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

In December 2019, the Financial Accounting Standards Board (“FASB”) issued 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 and does not currently anticipate a material impact.

The Company adopted the new standard prospectively on January 1, 2021 .

The adoption did not have an impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

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

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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.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides further clarification on the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.

ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modifications made on or before December 31, 2022.

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

The Company currently has debt agreements that reference LIBOR and will apply the amendments prospectively through December 31, 2022 as these contracts are modified to reference other rates.

NOTE 3 – REVENUE

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The following is a discussion of the principal activities from which the Company generates its revenue.

License Agreements

Licens e 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.

In its Product segment, the Company licenses its audio, digital radio, imaging, edge-based machine learning and multi-channel video user experience (“UX”) solutions.

Within this segment, the Company groups its business into three categories based on the products delivered and customers served:

Consumer Experience, Connected Car, and Pay-TV.

In its IP Licensing segment, the Company licenses (i) its media patent portfolios (“Media IP licensing”) to multichannel video programming distributors, over-the-top video service providers, consumer electronics manufacturers, social media, and other new media companies and (ii) its semiconductor technologies and associated patent portfolios (“Semiconductor IP licensing”) to memory, sensors, radio frequency (“RF”) component, and foundry 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.

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

Fixed-fee Media IP licensing

The Company's long-term fixed-fee Media IP licensing agreements, which are related to the TiVo businesses following the Mergers, provide its customers with rights to future patented technologies over the term of the agreement that are highly interdependent or highly interrelated to the patented technologies provided at the inception of the agreement.

The Company treats these rights as a single performance obligation with revenue recognized on a straight-line basis over the term of the fixed-fee license agreement.

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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

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.

Fixed-fee or minimum guarantee Semiconductor IP or Product licensing

The Company enters into Semiconductor IP 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.

For both fixed fee and minimum guarantee agreements for Semiconductor IP 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.

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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.

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 and memory, sensors, RF component, and foundry companies.

Compliance Audits

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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

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.

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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.

TiVo-enabled DVRs and non-DVRs, including TiVo Stream 4K, and related TiVo Service

The Company sells TiVo-enabled DVRs and non-DVRs and the related service directly to customers through sales programs via the TiVo.com website and licenses the sale of TiVo-enabled DVRs and non-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.

After the initial subscription period for a DVR, all customers have various pricing options when they renew their subscription .

The transaction price allocated to the DVR and non-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 or non-DVR associated with the subscription.

The estimated useful life for a DVR and non-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 DVRs and non-DVRs.

When the actual useful life of a DVR or a non-DVR materially differs from the Company's estimate, the estimated useful life of the DVR or non-DVR is adjusted, which could result in the recognition of revenue over a longer or shorter period of time.

Significant Judgments

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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 .”

Revenue Details

The following information depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors by disaggregating revenue by product category/end market and geographic location (presented in “Note 16 - Segment and Geographic Information ”).

This information includes revenue recognized from contracts with customers and revenue from other sources, including past royalty revenues.

Revenue disaggregated by product category/end market was as follows (in thousands):

Three Months Ended March 31,

Consumer Experience

Connected Car

Product revenue

IP Licensing revenue

Total revenue

Contract Balances

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

September 30, 2020

March 31, 2021

December 31, 2020

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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 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 .

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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 nine months ended September 30, 2020 (in thousands):

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

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

The following table presents the activity in the allowance for credit losses for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

Accounts Receivable

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Provision for credit losses

Recoveries/charged-off

Recoveries/charged-off/other adjustments

Balance at end of period

(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

(1) The charge off of accounts receivable in the first quarter of 2021 was primarily related to a customer whose account had been substantially reserved for credit losses in 2020 due to deteriorating financial condition and delinquent payment history.

Additional Disclosures

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Revenue recognized in the period from:

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

September 30, 2020

March 31, 2021

December 31, 2020

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

September 30, 2020

March 31, 2021

December 31, 2020

Prepaid income taxes

Income tax receivable

Prepaid expenses

*All inventory is finished goods.

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

September 30, 2020

March 31, 2021

December 31, 2020

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

September 30, 2020

March 31, 2021

December 31, 2020

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Accrued liabilities consisted of the following (in thousands):

September 30, 2020

March 31, 2021

December 31, 2020

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

September 30, 2020

March 31, 2021

December 31, 2020

Long-term income tax payable

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

September 30, 2020

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

March 31, 2021

December 31, 2020

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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,

Nine Months Ended,

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Interest income from significant financing components under

Interest income from investments

Unrealized/realized gain (loss) on marketable equity securities

Other income/(expense), net

NOTE 5 – FINANCIAL INSTRUMENTS

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Under ASU 2016-01 (Topic 321), equity securities are measured at fair value with unrealized gains and losses recognized in other income and expense, net, on the Condensed Consolidated Statements of Operations.

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

September 30, 2020

The following is a summary of marketable securities at March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

Allowance for Credit Losses

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Corporate bonds and notes

Treasury and agency notes and bills

Commercial paper

7 unchanged sentences

December 31, 2020

Allowance for Credit losses

Marketable securities

1 unchanged sentence

Commercial paper

Treasury and agency notes and bills

Total debt securities

Money market funds

Marketable equity securities

Total equity securities

2 unchanged sentences

Available-for-sale debt securities

Equity securities

Total marketable securities

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.

At March 31, 2021 and December 31, 2020, the Company had $ 236.9 million and $ 257.1 million, respectively, in cash, cash equivalents and short-term investments.

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

The remaining balance of $ 129.7 million and $ 135.0 million at March 31, 2021 and December 31, 2020, respectively, was cash held in operating accounts not included in the tables above.

Debt Securities

The gross realized gains and losses on sales of marketable debt securities were 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 gross realized gains and losses on sales of marketable debt securities were not material during the three months ended March 31, 2021 and 2020, respectively.

Unrealized losses on AFS debt securities were $ 0.1 million and $ 0.1 million, net of tax, as of March 31, 2021 and December 31, 2020, 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 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):

The Company did no t recognize a provision for credit losses related to its AFS debt securities for the three months ended March 31, 2021 and 2020, respectively.

The following table summarizes the fair value and gross unrealized losses related to individual AFS debt securities at March 31, 2021 and December 31, 2020, which have been in a continuous unrealized loss position, aggregated by investment category and length of time (in thousands):

Less Than 12 Months

12 Months or More

September 30, 2020

March 31, 2021

Corporate bonds and notes

Treasury and agency notes and bills

Commercial paper

3 unchanged sentences

Corporate bonds and notes

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

Commercial paper

The estimated fair value of marketable debt securities by contractual maturity at March 31, 2021 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.

1 unchanged sentence

Due in one to two years

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 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.

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

5 unchanged sentences

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 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.

Upon merging with TiVo on June 1, 2020, the Company assumed certain investments in non-marketable equity securities.

As of March 31, 2021, other long-term assets included equity securities accounted for under the equity method with a carrying amount of $ 4.3 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 March 31, 2021.

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

10 unchanged sentences

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

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

There were no significant transfers into or out of Level 1 or Level 2 that occurred between December 31, 2020 and March 31, 2021.

The following sets forth the fair value, and classification within the hierarchy, of the Company’s assets required to be measured at fair value on a recurring basis as of March 31, 2021 (in thousands):

Active Markets

2 unchanged sentences

Money market funds - equity securities (1)

Treasury and agency notes and bills (2)

Commercial paper (2)

Commercial paper - debt securities (2)

Corporate bonds and notes - debt securities (2)

6 unchanged sentences

Money market funds - equity securities (1)

Marketable equity securities (2)

Commercial paper - debt securities (3)

Corporate bonds and notes - debt securities (2)

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

Commercial paper - debt securities (3)

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

Reported as equity securities in the Condensed Consolidated Balance Sheet.

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

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

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

Financial Instruments Not Recorded at Fair Value

1 unchanged sentence

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

September 30, 2020

March 31, 2021

December 31, 2020

1 unchanged sentence

2021 Convertible Notes

2018 Amended Term B Loan (1)

Total long-term debt, net

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.

Carrying amounts of long-term debt are net of unamortized debt discount and issuance costs of $ 32.2 million and $ 34.4 million as of March 31, 2021 and December 31, 2020, respectively.

See “Note 9 – Debt ” for additional information.

6 unchanged sentences

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.

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 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

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

TiVo exchange ratio

Xperi Holding Corporation common stock issued in exchange

Xperi Common Stock closing share price on June 1, 2020

Fair value of replaced TiVo equity awards relating to pre-acquisition vesting of the equity award holders’ requisite service periods

Total merger consideration

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):

Estimated Useful

Cash and cash equivalents

Accounts receivable

Unbilled contracts receivable

Other current assets

Long-term unbilled contracts receivable

Property and equipment

Operating lease right-of-use assets

Identifiable intangible assets:

Customer contracts and related relationships

Developed technology

Content database

Trademarks and tradenames

Total identifiable intangible assets

Other long-term assets

Accounts payable

Accrued legal fees

Accrued liabilities

Current portion of deferred revenue

Current portion of long-term debt

Deferred revenue, less current portion

Long-term deferred tax liabilities

Long-term debt

Noncurrent operating lease liabilities

Other long-term liabilities

Total purchase price

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.

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 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.

During the three months ended March 31, 2021, no measurement period adjustments were made.

The Company expects to complete the final allocation of the purchase price as soon as practicable, but no later than one year from the date of the Mergers.

The Company is currently contemplating and may pursue, subject to 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.

Transaction and Severance Costs

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.

In connection with the Mergers, the Company has incurred to date significant one-time expenses such as transaction and integration 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

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

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Net income (loss) attributable to Xperi Holding Corporation

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):

Three Months Ended

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 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 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.

Total transaction and integration related costs were $ 0.3 million and $ 3.1 million for the three months ended March 31, 2021 and 2020, respectively.

Post-merger severance and retention costs amounted to $ 4.5 million for the three months ended March 31, 2021.

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

NOTE 8 – GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

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)

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 .

The Company's reporting units include the Product segment and the IP Licensing segment.

Of the carrying value of goodwill, approximately $ 523.8 million was allocated to the Product segment and approximately $ 323.2 million was allocated to the IP Licensing segment as of each of March 31, 2021 and December 31, 2020.

Goodwill at each reporting unit is evaluated for potential impairment annually, as of the beginning of the fourth quarter, and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable.

During the 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

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

September 30, 2020

March 31, 2021

December 31, 2020

9 unchanged sentences

Total intangible assets

In June 2020, $ 457.4 million of patents was acquired through the Mergers.