Adeia Inc. 10-Q

Item 1. Financial Statements XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) Three Months Ended March 31, 2021 March 31, 2020 Revenue: Licensing, services and software $ 218,405 $ 117,487 Hardware 3,191 178 Total revenue 221,596 117,665 Operating expenses: Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets 21,416 1,540 Cost of hardware revenue, excluding depreciation and amortization of intangible assets 6,716 44 Research, development and other related costs 55,223 28,607 Selling, general and administrative 67,430 36,606 Depreciation expense 5,684 1,729 Amortization expense 52,195 22,509 Litigation expense 2,533 2,103 Total operating expenses 211,197 93,138 Operating income 10,399 24,527 Interest expense ( 11,313 ) ( 4,251 ) Other income and expense, net 1,425 565 Income before taxes 511 20,841 Provision for (benefit from) income taxes ( 4,015 ) 2,056 Net income $ 4,526 $ 18,785 Less: net loss attributable to noncontrolling interest ( 761 ) ( 551 ) Net income attributable to the Company $ 5,287 $ 19,336 Income per share attributable to the Company: Basic $ 0.05 $ 0.39 Diluted $ 0.05 $ 0.39 Weighted average number of shares used in per share calculations-basic 104,940 49,945 Weighted average number of shares used in per share calculations-diluted 107,776 50,199 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) Three Months Ended March 31, 2021 March 31, 2020 Net income $ 4,526 $ 18,785 Other comprehensive loss, net of tax: Change in foreign currency translation adjustment ( 1,045 ) — Net unrealized loss on available-for-sale debt securities ( 34 ) ( 274 ) Other comprehensive loss, net of tax ( 1,079 ) ( 274 ) Comprehensive income 3,447 18,511 Less: comprehensive loss attributable to noncontrolling interest ( 761 ) ( 551 ) Comprehensive income attributable to the Company $ 4,208 $ 19,062 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except for par value) (unaudited) March 31, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 134,759 $ 170,188 Available-for-sale debt securities 102,145 86,947 Accounts receivable, net of allowance for credit losses of $ 4,038 and $ 7,336 , respectively 122,465 115,975 Unbilled contracts receivable, net of allowance for credit losses of $ 2,884 and $ 2,231 , respectively 128,758 132,431 Other current assets 57,526 40,763 Total current assets 545,653 546,304 Long-term unbilled contracts receivable 8,016 6,761 Property and equipment, net 59,211 63,207 Operating lease right-of-use assets 75,429 80,226 Intangible assets, net 951,996 1,004,379 Goodwill 847,029 847,029 Other long-term assets 147,578 153,270 Total assets $ 2,634,912 $ 2,701,176 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 24,474 $ 13,045 Accrued legal fees 3,618 5,783 Accrued liabilities 83,447 129,035 Current portion of long-term debt, net 43,825 43,689 Deferred revenue 32,528 33,119 Total current liabilities 187,892 224,671 Deferred revenue, less current portion 37,880 39,775 Long-term deferred tax liabilities 25,794 24,754 Long-term debt, net 784,666 795,661 Noncurrent operating lease liabilities 61,467 66,243 Other long-term liabilities 100,336 98,953 Total liabilities 1,198,035 1,250,057 Commitments and contingencies (Note 15) Company stockholders’ equity: Preferred stock: $ 0.001 par value; (2021: authorized 15,000 shares; 2020: authorized 15,000 shares; and no shares issued and outstanding) — — Common stock: $ 0.001 par value; (2021: authorized 350,000 shares, issued 111,700 shares, outstanding 104,875 shares; 2020: authorized 350,000 shares, issued 110,182 , outstanding 104,775 shares) 112 110 Additional paid-in capital 1,288,400 1,268,471 Treasury stock at cost (2021: 6,825 shares; 2020: 5,407 shares) ( 109,577 ) ( 77,218 ) Accumulated other comprehensive income 185 1,264 Retained earnings 264,273 264,250 Total Company stockholders’ equity 1,443,393 1,456,877 Noncontrolling interest ( 6,516 ) ( 5,758 ) Total equity 1,436,877 1,451,119 Total liabilities and equity $ 2,634,912 $ 2,701,176 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended March 31, 2021 March 31, 2020 Cash flows from operating activities: Net income $ 4,526 $ 18,785 Adjustments to reconcile net income to net cash from operating activities: Depreciation of property and equipment 5,684 1,729 Amortization of intangible assets 52,195 22,509 Stock-based compensation expense 13,219 7,987 Deferred income taxes 666 ( 2,064 ) Other 3,217 3,298 Changes in operating assets and liabilities: Accounts receivable ( 7,632 ) ( 8,318 ) Unbilled contracts receivable 2,295 ( 6,022 ) Other assets ( 10,697 ) ( 739 ) Accounts payable 11,429 ( 760 ) Accrued and other liabilities ( 45,687 ) ( 5,212 ) Deferred revenue ( 2,486 ) 1,451 Net cash from operating activities 26,729 32,644 Cash flows from investing activities: Purchases of property and equipment ( 1,772 ) ( 688 ) Proceeds from sale of property and equipment 5 — Purchases of intangible assets ( 36 ) — Purchases of short-term investments ( 42,505 ) — Proceeds from sales of investments 16,921 3,345 Proceeds from maturities of investments 10,000 8,500 Net cash from investing activities ( 17,387 ) 11,157 Cash flows from financing activities: Dividend paid ( 5,264 ) ( 10,036 ) Repayment of debt ( 13,125 ) — Proceeds from employee stock purchase program and exercise of stock options 6,715 3,233 Repurchases of common stock ( 32,359 ) ( 3,144 ) Net cash from financing activities ( 44,033 ) ( 9,947 ) Effect of exchange rate changes on cash and cash equivalents ( 738 ) — Net increase (decrease) in cash and cash equivalents ( 35,429 ) 33,854 Cash and cash equivalents at beginning of period 170,188 74,551 Cash and cash equivalents at end of period $ 134,759 $ 108,405 Supplemental disclosure of cash flow information: Interest paid $ 9,015 $ 3,637 Income taxes paid, net of refunds $ 5,921 $ 5,637 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 XPERI HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands) (unaudited) Total Company Stockholders' Equity Three Months Ended March 31, 2021 Common Stock Additional Paid-In Treasury Stock Accumulated Other Comprehensive Retained Noncontrolling Shares Amount Capital Shares Amount Income (Loss) Earnings Interest Total Equity Balance at January 1, 2021 104,775 $ 110 $ 1,268,471 5,407 $ ( 77,218 ) $ 1,264 $ 264,250 $ ( 5,758 ) $ 1,451,119 Issuance of subsidiary shares to noncontrolling interest — — ( 3 ) — — — — 3 — Net income (loss) — — — — — — 5,287 ( 761 ) 4,526 Other comprehensive loss — — — — — ( 1,079 ) — — ( 1,079 ) Cash dividends paid on common stock ($ 0.05 per share) — — — — — — ( 5,264 ) — ( 5,264 ) Issuance of common stock in connection with exercise of stock options 12 — 228 — — — — — 228 Issuance of common stock in connection with employee stock purchase plan 633 1 6,485 — — — — — 6,486 Issuance of restricted stock, net of shares canceled 873 1 — — — — — — 1 Repurchases of common stock, shares exchanged ( 347 ) — — 347 ( 7,352 ) — — — ( 7,352 ) Repurchases of common stock ( 1,071 ) — — 1,071 ( 25,007 ) — — — ( 25,007 ) Stock-based compensation expense — — 13,219 — — — — — 13,219 Balance at March 31, 2021 104,875 $ 112 $ 1,288,400 6,825 $ ( 109,577 ) $ 185 $ 264,273 $ ( 6,516 ) $ 1,436,877 Total Company Stockholders' Equity Three Months Ended March 31, 2020 Common Stock Additional Paid-In Treasury Stock Accumulated Other Comprehensive Retained Noncontrolling Shares Amount Capital Shares Amount Loss Earnings Interest Total Equity Balance at January 1, 2020 49,620 $ 64 $ 768,284 14,002 $ ( 368,701 ) $ ( 53 ) $ 148,317 $ ( 2,811 ) $ 545,100 Issuance of subsidiary shares to noncontrolling interest — — ( 3 ) — — — — 3 — Net income (loss) — — — — — — 19,336 ( 551 ) 18,785 Other comprehensive loss — — — — — ( 274 ) — — ( 274 ) Cash dividends paid on common stock ($ 0.20 per share) — — — — — — ( 10,036 ) — ( 10,036 ) Issuance of common stock in connection with employee stock purchase plan 236 — 3,232 — — — — — 3,232 Issuance of restricted stock, net of shares canceled 858 1 — — — — — — 1 Repurchases of common stock, shares exchanged ( 184 ) — — 184 ( 3,144 ) — — — ( 3,144 ) Stock-based compensation expense — — 7,987 — — — — — 7,987 Balance at March 31, 2020 50,530 $ 65 $ 779,500 14,186 $ ( 371,845 ) $ ( 327 ) $ 157,617 $ ( 3,359 ) $ 561,651 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 XPERI HOLDING CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION On December 18, 2019, Xperi Corporation (“Xperi”) entered into an Agreement and Plan of Merger and Reorganization with TiVo Corporation (“TiVo”) to combine in an all-stock merger of equals transaction (the “Mergers”). Immediately following the consummation of the Mergers on June 1, 2020 , (the “Merger Date”), Xperi Holding Corporation (the “Company”), a Delaware corporation founded in December 2019 under the name “XRAY-TWOLF HoldCo Corporation,” became the parent company of both Xperi and TiVo. The common stock of Xperi and TiVo were de-registered after completion of the Mergers. On June 2, 2020, Xperi Holding Corporation’s common stock, par value $ 0.001 per share, commenced trading on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “XPER.” Xperi was determined to be the accounting acquirer in the Mergers. As a result, the historical financial statements of Xperi for periods prior to the Mergers are considered to be the historical financial statements of Xperi Holding Corporation. As used herein, the “Company” refers to Xperi when referring to periods prior to June 1, 2020 and to Xperi Holding Corporation when referring to periods subsequent to June 1, 2020. The Company’s results of operations include the operations of TiVo after June 1, 2020, and TiVo’s assets and liabilities were recorded at their estimated fair values in the Company’s Condensed Consolidated Balance Sheets as of June 1, 2020 . 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. The Company’s technologies, delivered via its brands (DTS, HD Radio, IMAX Enhanced, Invensas, and TiVo), and by its subsidiary, Perceive Corporation, make entertainment more entertaining, and smart devices smarter. The Company’s technologies are integrated into billions of consumer devices, media platforms, and semiconductors worldwide, driving increased value for customers, partners and consumers. The Company shapes how millions of consumers access and experience entertainment content, and the Company’s innovations are found in billions of devices and hundreds of millions of interfaces around the globe. The 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. GAAP have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the year ended December 31, 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 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. Reclassification As a result of the Mergers, certain reclassifications of prior period amounts have been made to improve comparability and conform to the current period presentation. Presentation changes were made to the Condensed Consolidated Statements of Operations. In addition, certain reclassifications of prior period data have been made in the Notes to Condensed Consolidated Financial Statements to conform to the current period presentation. 8 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2021, as compared to the significant accounting policies described in the Form 10-K. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates and assumptions that require management’s most significant, challenging, and subjective judgment include the estimation of licensees’ quarterly royalties prior to receiving the royalty reports, the determination of stand-alone selling price and the transaction price in an arrangement with multiple performance obligations, the estimation of variable consideration, judgment used to estimate the progress toward completion in the Company’s engineering services, the collectability of accounts receivable, other intangible assets and investments, the assessment of the recoverability of goodwill, the assessment of useful lives and recoverability of other intangible assets and long-lived assets, recognition and measurement of current and deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and purchase accounting resulting from business combinations, among others. Actual results experienced by the Company may differ from management’s estimates. The 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. 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. Recently Adopted Accounting Pronouncements 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. 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): 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. 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. 9 NOTE 3 – REVENUE Revenue Recognition General Revenue is recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services, which may include various combinations of goods and services which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of sales taxes collected from customers which are subsequently remitted to governmental authorities. In situations where foreign withholding taxes are withheld by the Company’s licensee, revenue is recognized gross of withholding taxes that are remitted directly by the licensee to a local tax authority. Arrangements with Multiple Performance Obligations Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the individual performance obligations are separately accounted for if they are distinct. In an arrangement with multiple performance obligations, the transaction price is allocated among the separate performance obligations on a relative stand-alone selling price basis. The determination of stand-alone selling price considers market conditions, the size and scope of the contract, customer and geographic information, and other factors. When observable prices are not available, stand-alone selling price for separate performance obligations is based on the cost-plus-margin approach, considering overall pricing objectives. The allocation of transaction price among performance obligations in a contract may impact the amount and timing of revenue recognized in the Consolidated Statements of Operations during a given period. Contract Modifications Contracts may be modified due to changes in contract specifications or customer requirements. Contract modifications occur when the change in terms either creates new enforceable rights and obligations or changes existing enforceable rights and obligations. The effect of a contract modification for goods and services that are not distinct in the context of the contract on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis. Contract modifications that result in goods or services that are distinct from the existing goods or services are accounted for as separate contracts if they are sold at their stand-alone selling price, or otherwise prospectively. Variable Consideration When a contract with a customer includes a variable transaction price, an estimate of the consideration which the Company expects to be entitled to for transferring the promised goods or services is made at contract inception. Depending on the terms of the contract, variable consideration is estimated using either the expected value approach or the most likely value approach. Under either approach to estimating variable consideration, the estimate considers all information (historical, current and forecast) that is reasonably available at contract inception. The amount of variable consideration is estimated at contract inception and updated as additional information becomes available. The estimate of variable consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Subsequent changes in the transaction price resulting from changes in the estimate of variable consideration are allocated to the performance obligations in the contract on the same basis as at contract inception. Certain payments to licensees, retailers and distributors, such as market development funds and revenue shares, are treated as a reduction of the transaction price, and therefore a reduction to revenue, unless the payment is in exchange for a distinct good or service that the licensee, retailer or distributor transfers to the Company. When variable consideration is in the form of a sales-based or usage-based royalty in exchange for a license of IP, or when a license of IP is the predominant item to which the variable consideration relates, revenue is recognized at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied. Nature of Goods and Services The following is a discussion of the principal activities from which the Company generates its revenue. 10 Licens e Agreements The Company operates in two business segments. 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 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. At times, the Company enters into license agreements in which a licensee is released from past patent infringement claims or is granted a license to ship an unlimited number of units or for an unlimited number of subscribers over a future period for a fixed fee. In these arrangements, the Company allocates the transaction price between the release for past patent infringement claims and the future license. In determining the stand-alone selling price of the release for past patent infringement claims and the future license, the Company considers such factors as the number of units shipped in the past or the number of past subscribers and the relevant geographies of the shipped units or subscribers, the future number of subscribers or units, as well as the licensing rate the Company generally receives for per-subscriber or units shipped in the same geographies. As the release from past patent infringement claims is generally satisfied at execution of the agreement, the transaction price allocated to the release from past patent infringement claims is generally recognized in the period the agreement is executed and the amount of transaction price allocated to the future license is recognized ratably over the future license term. Fixed-fee or minimum guarantee 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 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. In general, if the payment arrangements extend beyond the initial twelve months of the contract, the Company treats a portion of the payments as a significant financing component. The discount rate used for each arrangement reflects the rate that would be used in a separate financing transaction between the Company and the licensee at contract inception and takes into account the credit characteristics of the licensee and market interest rates as of the date of the agreement. As such, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated financing component. As payments are received from the licensee, the Company recognizes a portion of the financing component as interest income, reported as other income and expense in the Consolidated Statements of Operations. Per-unit or per-subscriber royalty licenses The Company recognizes revenue from per-unit or per-subscriber royalty licenses in the period in which the licensee's sales or production are estimated to have occurred, which results in an adjustment to revenue when actual sales or production are subsequently reported by the licensee, which is generally in the month or quarter following usage or shipment. The Company generally recognizes revenue from royalty licenses on a per-subscriber per-month model for licenses with service providers and 11 a per-unit shipped or manufactured model for licenses with CE manufacturers and memory, sensors, RF component, and foundry companies. Compliance Audits The Company actively monitors and enforces its IP, including seeking appropriate compensation from customers that have under-reported royalties owed under a license agreement and from third parties that utilize the Company’s intellectual property without a license. As a result of these activities, the Company may, from time to time, recognize revenue from payments resulting from periodic compliance audits of licensees for underreporting royalties incurred in prior periods, as part of a settlement of a patent infringement dispute, or from legal judgments in a license dispute. These recoveries and settlements may cause revenue to be higher than expected during a particular reporting period and such recoveries may not occur in subsequent periods. The Company recognizes revenue from recoveries when a binding agreement has been executed and the Company concludes collection under that agreement is likely. Arrangements with Multiple System Operators for the TiVo Service The Company's arrangements with multiple system operators (“MSOs”) typically include software customization and set-up services, associated maintenance and support, limited training, post-contract support, TiVo-enabled DVRs, non-DVR Set-Top Boxes (“STBs”), and the TiVo service. The Company has two types of arrangements with MSOs that include technology deployment and engineering services. In instances where the Company hosts the TiVo service, non-refundable payments received for customization and set-up services are deferred and recognized as revenue ratably over the hosting term. The related cost of such services is capitalized to the extent it is deemed recoverable and amortized to cost of revenue over the same period as the related TiVo service revenue is recognized. The Company estimates the stand-alone selling prices for training, DVRs, non-DVR STBs and maintenance and support based on the price charged in stand-alone sales of the promised good or service. The stand-alone selling price for the TiVo service is determined by considering the size of the MSO and expected volume of deployment, market conditions, competitive landscape, internal costs and total gross margin objectives. For a term license to the TiVo service, the Company receives license fees for the hosted TiVo service on either a per-subscriber per-month basis or a fixed fee. The Company recognizes revenue from per-subscriber per-month licenses during the month the TiVo service is provided to the customer and recognizes revenue from fixed fee licenses ratably over the license period. In arrangements where the Company does not host the TiVo service, which includes engineering services that are essential to the functionality of the licensed technology or involve significant customization or modification of the software, the Company recognizes revenue as progress toward completion is made using an input method based on the ratio of costs incurred to date to total estimated costs of the project. Project costs are primarily labor related to specific activities required for the project. Costs related to general infrastructure or uncommitted platform development are not included in the project cost estimates and are expensed as incurred. Estimating project costs requires forecasting costs, tracking progress toward completion and projecting the remaining effort to complete the project. These estimates are reassessed throughout the term of the arrangement, and revisions to estimates are recognized on a cumulative catch-up basis when the changed conditions become known. Provisions for losses are recorded when estimates indicate it is probable that a loss will be incurred for the contract. The Company generally recognizes revenue from license fees for the TiVo service that the Company does not host on a per-subscriber per-month basis due to the recognition constraint on intellectual property usage-based royalties. Subscription Services Subscription services revenue primarily consists of fees to provide customers with access to one or more of the Company's hosted products such as its iGuide interactive program guide (“IPG”), advanced search and recommendations, metadata and analytics products, including routine customer support. The Company generally receives per-subscriber per-month fees for its iGuide IPG and search and recommendations service and revenue is recorded in the month the customer uses the service. The Company generally receives a monthly or quarterly fee from its metadata or analytics licenses for the right to use the metadata or access its analytics platform and to receive regular updates. Revenue from the Company's metadata and analytics service is recognized ratably over the subscription period. TiVo-enabled DVRs and non-DVRs, including TiVo Stream 4K, and related TiVo Service 12 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 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 Determining whether promises to transfer multiple goods and services in contracts with customers are considered distinct performance obligations that should be accounted for separately requires significant judgment, including related to the level of integration and interdependency between the performance obligations. In addition, judgment is necessary to allocate the transaction price to the distinct performance obligations, including whether there is a discount or significant financing component to be allocated based on the relative stand-alone selling price of the various performance obligations. Significant judgment is required to determine the stand-alone selling price for each distinct performance obligation when an observable price is not available. In instances where stand-alone selling price is not directly observable, such as when the Company does not sell the good or service separately, the stand-alone selling price is determined using a range of inputs that includes market conditions and other observable inputs. More than one stand-alone selling price may exist for individual goods and services due to the stratification of those goods and services, considering attributes such as the size of the customer and geographic region. Due to the nature of the work required to be performed on some performance obligations, significant judgment may be required to determine the transaction price. It is common for the Company's license agreements to contain provisions that can either increase or decrease the transaction price. These variable amounts are generally estimated based on usage. In addition to estimating variable consideration, significant judgment is necessary to identify forms of variable consideration, determine whether the variable consideration relates to a sales-based or usage-based royalty of intellectual property and determine whether, and when to include estimates of variable consideration in the transaction price. For certain licensees, royalty revenue is generated based on a licensee’s production or shipment of licensed products incorporating the Company’s intellectual property, technologies or software. Licensees with a per-unit or per-subscriber arrangement pay a per-unit royalty for each product manufactured or sold, or for each subscriber, as set forth in its license agreement. Licensees generally report manufacturing, sales or subscriber information in the month or quarter subsequent to when the production, shipment or subscription activity takes place. The Company estimates the royalties earned each quarter based on its forecast of manufacturing and sales activity by its licensees in that quarter. Any differences between actual royalties owed by a licensee and the Company’s estimate are recognized when the licensee’s royalty report is received. Estimating licensees’ quarterly royalties prior to receiving the royalty reports requires the Company to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities manufactured, shipped or subscribed by licensees, which could have a material impact on the amount of revenue recognized. Some hardware products are sold with a right of return and, in certain circumstances, credits or incentives may be provided to customers or resellers at the time of sale. Such credits and incentives are accounted for as variable consideration and recognized as a reduction to revenue. Estimates of returns, credits and incentives are made at contract inception and updated each reporting period. In contracts where the Company does not host the TiVo service and that include engineering services that are essential to the functionality of the licensed technology or involve significant customization or modification of software, or where the Company provides non-recurring engineering (“NRE”) services, the Company recognizes revenue as progress toward completion occurs using an input method based on the ratio of costs incurred to date to total estimated costs of the project. Significant judgment is required to estimate the remaining effort to complete the project. These estimates are reassessed throughout the term of the arrangement. Management evaluates its estimates, inputs and assumptions related to revenue recognition on an ongoing basis. The use of different estimates, inputs or assumptions may materially affect the reported amounts of assets and liabilities as of the date of the financial statements and the results of operations for the reporting period. 13 Practical Expedients and Exemptions The Company applies a practical expedient to not perform an evaluation of whether a contract includes a significant financing component when the timing of revenue recognition differs from the timing of cash collection by one year or less. The Company applies a practical expedient to expense costs to obtain a contract with a customer as incurred as a component of selling, general and administrative expenses when the amortization period would have been one year or less. The Company applies a practical expedient when disclosing revenue expected to be recognized from unsatisfied performance obligations to exclude contracts with customers with an original duration of less than one year ; contracts for which revenue is recognized based on the amount which the Company has the right to invoice for services performed and amounts attributable to variable consideration arising from (i) a sales-based or usage-based royalty of an intellectual property license or (ii) when variable consideration is allocated entirely to a wholly unsatisfied performance obligation; or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation. 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, 2021 2020 Consumer Experience $ 51,254 $ 38,751 Pay-TV 52,341 — Connected Car 19,987 17,191 Product revenue $ 123,582 $ 55,942 IP Licensing revenue 98,014 61,723 Total revenue $ 221,596 $ 117,665 Contract Balances Contracts Assets Contract assets primarily consist of unbilled contracts receivable that are expected to be received from customers in future periods, where the revenue recognized to date (or cumulative adjustments to retained earnings in the initial period of adopting Topic 606) exceeds the amount billed. The amount of unbilled contracts receivable may not exceed their net realizable value and are classified as long-term assets if the payments are expected to be received more than one year from the reporting date. Contract assets also include the incremental costs of obtaining a contract with a customer, principally sales commissions when the renewal commission is not commensurate with the initial commission, and deferred engineering costs for significant software customization or modification and set-up services to the extent deemed recoverable. Contract assets were recorded in the Condensed Consolidated Balance Sheets as follows (in thousands): March 31, 2021 December 31, 2020 Unbilled contracts receivable $ 128,758 $ 132,431 Other current assets 1,178 1,208 Long-term unbilled contracts receivable 8,016 6,761 Other long-term assets 2,785 2,591 Total contract assets $ 140,737 $ 142,991 Contract Liabilities Contract liabilities are mainly comprised of deferred revenue related to consumer lifetime subscriptions for the TiVo service, multi-period licensing or cloud-based services, and other offerings for which the Company is paid in advance while the promised good or service is transferred to the customer at a future date or over time. Deferred revenue also includes amounts 14 received related to professional services to be performed in the future. Deferred revenue arises when cash payments are received, including amounts which are refundable, in advance of performance obligations being completed . Allowance for Credit Losses The allowance for credit losses, which includes the allowance for accounts receivable and unbilled contracts receivable, represents the Company’s best estimate of lifetime expected credit losses inherent in those financial assets. The Company’s lifetime expected credit losses are determined using relevant information about past events (including historical experience), current conditions, and reasonable and supportable forecasts that affect collectability. The Company monitors its credit exposure through ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. In addition, the Company performs routine credit management activities such as timely account reconciliations, dispute resolution, and payment confirmations. The Company may employ collection agencies and legal counsel to pursue recovery of defaulted receivables. The Company’s long-term unbilled contracts receivable is derived from fixed-fee or minimum-guarantee arrangements, primarily with large well-capitalized companies. It is 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 Unbilled Contracts Receivable Accounts Receivable Unbilled Contracts Receivable Beginning balance $ 7,336 $ 2,231 $ 566 $ — Provision for credit losses 1,142 123 2,213 — Recoveries/charged-off/other adjustments ( 4,440 ) (1 ) 530 ( 269 ) — Balance at end of period $ 4,038 $ 2,884 $ 2,510 $ — (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 March 31, 2021 2020 Revenue recognized in the period from: Amounts included in deferred revenue at the beginning of the period $ 10,712 $ 50 Performance obligations satisfied in previous periods (true ups, licensee reporting adjustments and settlements)* $ 19,863 $ 47,511 *True ups represent the differences between the Company’s quarterly estimates of per-unit royalty revenue and actual production/sales-based royalties reported by licensees in the following period. Licensee reporting adjustments represent corrections or revisions to previously reported per-unit royalties by licensees, generally resulting from the Company’s inquiries or compliance audits. Settlements represent resolutions of litigation during the period for past royalties owed pursuant to expired or terminated IP license agreements. 15 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 fixed-fee IP, software-as-a-service agreements and engineering services contracts. The Company's remaining revenue under contracts with performance obligations was as follows (in thousands) : As of March 31, 2021 December 31, 2020 Revenue from contracts with performance obligations expected to be satisfied in: 2021 (remaining 9 months) $ 121,720 $ 152,008 2022 119,848 102,764 2023 107,677 91,636 2024 87,695 77,989 2025 84,232 76,028 Thereafter 12,668 429 Total $ 533,840 $ 500,854 NOTE 4 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS Other current assets consisted of the following (in thousands): March 31, 2021 December 31, 2020 Income tax receivable $ 19,865 $ 4,654 Prepaid expenses 22,376 20,393 Inventory* 8,603 9,819 Other 6,682 5,897 $ 57,526 $ 40,763 *All inventory is finished goods. Property and equipment, net, consisted of the following (in thousands): March 31, 2021 December 31, 2020 Equipment, furniture and other $ 62,492 $ 61,573 Building and improvements 18,309 18,309 Land 5,300 5,300 Leasehold improvements 25,751 25,776 111,852 110,958 Less: accumulated depreciation and amortization ( 52,641 ) ( 47,751 ) $ 59,211 $ 63,207 Other long-term assets consisted of the following (in thousands): March 31, 2021 December 31, 2020 Non-current income tax receivable $ 116,805 $ 122,993 Long-term deferred tax assets 7,416 7,042 Other assets 23,357 23,235 $ 147,578 $ 153,270 16 Accrued liabilities consisted of the following (in thousands): March 31, 2021 December 31, 2020 Employee compensation and benefits $ 24,062 $ 55,449 Accrued expenses 24,687 24,809 Current portion of operating lease liabilities 16,919 17,893 Accrued severance 4,560 5,332 Third-party royalties 4,708 5,906 Other 8,511 19,646 $ 83,447 $ 129,035 Other long-term liabilities consisted of the following (in thousands): March 31, 2021 December 31, 2020 Long-term income tax payable $ 95,954 $ 94,397 Other 4,382 4,556 $ 100,336 $ 98,953 Accumulated other comprehensive income consisted of the following (in thousands): March 31, 2021 December 31, 2020 Foreign currency translation adjustment, net of tax $ 300 $ 1,345 Unrealized loss on available-for-sale debt securities, net of tax ( 115 ) ( 81 ) $ 185 $ 1,264 NOTE 5 – FINANCIAL INSTRUMENTS The Company has investments in debt securities which include corporate bonds and notes, treasury and agency notes and bills, commercial paper, certificates of deposit, and in equity securities consisting of money market funds. The Company classifies its debt securities as available-for-sale (“AFS”), which are accounted for at fair value with credit related losses recognized as a provision for credit loss expense in its Condensed Consolidated Statements of Operations and all non-credit related unrealized gains and losses recognized in accumulated other comprehensive income or loss on the Condensed Consolidated Balance Sheets. Under ASU 2016-01 (Topic 321), equity securities are measured at fair value with unrealized gains and losses recognized in other income and expense, net, on the Condensed Consolidated Statements of Operations. The following is a summary of marketable securities at March 31, 2021 and December 31, 2020 (in thousands): March 31, 2021 Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Values Marketable securities Corporate bonds and notes $ 64,768 $ 2 $ ( 46 ) $ — $ 64,724 Commercial paper 37,428 — ( 7 ) — 37,421 Total debt securities 102,196 2 ( 53 ) — 102,145 Money market funds 5,049 — — — 5,049 Total equity securities 5,049 — — — 5,049 Total marketable securities $ 107,245 $ 2 $ ( 53 ) $ — $ 107,194 Reported in: Cash and cash equivalents $ 5,049 Available-for-sale debt securities 102,145 Total marketable securities $ 107,194 17 December 31, 2020 Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit losses Estimated Fair Values Marketable securities Corporate bonds and notes $ 69,973 $ 29 $ ( 42 ) $ — $ 69,960 Commercial paper 15,991 — ( 4 ) — 15,987 Treasury and agency notes and bills 32,299 — — — 32,299 Total debt securities 118,263 29 ( 46 ) — 118,246 Money market funds 3,849 — — — 3,849 Total equity securities 3,849 — — — 3,849 Total marketable securities $ 122,112 $ 29 $ ( 46 ) $ — $ 122,095 Reported in: Cash and cash equivalents $ 35,148 Available-for-sale debt securities 86,947 Total marketable securities $ 122,095 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 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. In addition, the contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. The Company does not intend to sell the debt securities and it is more-likely-than-not that it will not be required to sell the investments before recovery of their amortized cost bases. The Company did no t recognize a provision for credit 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 Total March 31, 2021 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Corporate bonds and notes $ 55,403 $ ( 46 ) $ — $ — $ 55,403 $ ( 46 ) Commercial paper 32,422 ( 7 ) — — 32,422 ( 7 ) Total $ 87,825 $ ( 53 ) $ — $ — $ 87,825 $ ( 53 ) Less Than 12 Months 12 Months or More Total December 31, 2020 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Corporate bonds and notes $ 53,137 $ ( 42 ) $ — $ — $ 53,137 $ ( 42 ) Commercial paper 12,988 ( 4 ) — — 12,988 ( 4 ) Total $ 66,125 $ ( 46 ) $ — $ — $ 66,125 $ ( 46 ) 18 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. Estimated Fair Value Due in one year or less $ 71,590 Due in one to two years 30,555 Total $ 102,145 Non-marketable Equity Securities Investments in non-marketable equity securities are accounted for using either the equity method or the cost method. Investments in entities over which the Company has the ability to exercise significant influence, but does not hold a controlling interest, are accounted for using the equity method. Under the equity method, the Company records its proportionate share of income or loss in other income and expense, net, in the Condensed Consolidated Statements of Operations. Investments in entities over which the Company does not have the ability to exercise significant influence are accounted for using the cost method. The Company monitors its non-marketable securities portfolio for potential impairment. When the carrying amount of an investment in a non-marketable security exceeds its fair value and the decline in fair value is determined to be other-than-temporary, the loss is recorded in other income and expense, net, in the Condensed Consolidated Statements of Operations. Upon merging with TiVo on June 1, 2020, the Company assumed certain investments in non-marketable equity 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. NOTE 6 – FAIR VALUE The Company follows the authoritative guidance for fair value measurement and the fair value option for financial assets and financial liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets. Level 2 Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. When applying fair value principles in the valuation of assets, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculates the fair value of its Level 1 and Level 2 instruments based on the exchange traded price of similar or identical instruments, where available, or based on other observable inputs. There were no significant transfers into or out of Level 1 or Level 2 that occurred between December 31, 2020 and March 31, 2021. 19 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): Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Marketable securities Money market funds - equity securities (1) $ 5,049 $ 5,049 $ — $ — Commercial paper - debt securities (2) 37,421 — 37,421 — Corporate bonds and notes - debt securities (2) 64,724 — 64,724 — Total Assets $ 107,194 $ 5,049 $ 102,145 $ — (1) Reported as cash and cash equivalents in the Condensed Consolidated Balance Sheet. (2) Reported as AFS debt securities in the Condensed Consolidated Balance Sheet. The following sets forth the fair value, and classification within the hierarchy, of the Company’s assets required to be measured at fair value on a recurring basis as of December 31, 2020 (in thousands): Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Marketable securities Money market funds - equity securities (1) $ 3,849 $ 3,849 $ — $ — Corporate bonds and notes - debt securities (2) 69,960 — 69,960 — Treasury and agency notes and bills - debt securities (3) 32,299 — 32,299 — Commercial paper - debt securities (3) 15,987 — 15,987 — Total Assets $ 122,095 $ 3,849 $ 118,246 $ — (1) Reported as cash and cash equivalents in the Condensed Consolidated Balance Sheet. (2) Reported as AFS debt securities in the Condensed Consolidated Balance Sheet. (3) Reported as cash and cash equivalents 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 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): March 31, 2021 December 31, 2020 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value 2020 Term B Loan Facility (1) $ 828,443 $ 828,443 $ 839,302 $ 842,579 2021 Convertible Notes 48 48 48 48 Total long-term debt, net $ 828,491 $ 828,491 $ 839,350 $ 842,627 (1) 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. If reported at fair value in the Condensed Consolidated Balance Sheets, the Company’s debt would be classified within Level 2 of the fair value hierarchy. The fair value of the debt was estimated based on the quoted market prices for the same or similar issues . 20 NOTE 7 – BUSINESS COMBINATION Effective June 1, 2020 , Xperi and TiVo completed the previously announced merger of equals transaction (the “Merger”) contemplated by the Agreement and Plan of Merger and Reorganization, dated as of December 18, 2019 , as amended on January 31, 2020 , (the “Merger Agreement”), by and among Xperi, TiVo, XRAY-TWOLF HoldCo Corporation (“Xperi Holding”), XRAY Merger Sub Corporation (“Xperi Merger Sub”) and TWOLF Merger Sub Corporation (“TiVo Merger Sub”). Immediately prior to the consummation of the Merger, Xperi Holding changed its name to “Xperi Holding Corporation” (the “Company”). Pursuant to the Merger Agreement, (i) Xperi Merger Sub was merged with and into Xperi, with Xperi surviving the merger as a subsidiary of Xperi Holding Corporation (the “Xperi Merger”) and (ii) TiVo Merger Sub was merged with and into TiVo, with TiVo surviving the merger as a subsidiary of Xperi Holding Corporation (the “TiVo Merger” and together with the Xperi Merger, the “Mergers”). Immediately following the consummation of the Mergers, each of Xperi and TiVo became wholly-owned subsidiaries of the Company. 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. 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 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 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 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. 21 Identified Intangible Assets Identified intangible assets consisted of the following (in thousands): Average March 31, 2021 December 31, 2020 Life (Years) Gross Assets Accumulated Amortization Net Gross Assets Accumulated Amortization Net Finite-lived intangible assets Acquired patents / core technology 3-15 $ 659,085 $ ( 181,967 ) $ 477,118 $ 659,085 $ ( 167,916 ) $ 491,169 Existing technology / content database 5-10 248,068 ( 179,019 ) 69,049 248,110 ( 169,326 ) 78,784 Customer contracts and related relationships 3-9 649,997 ( 283,368 ) 366,629 650,171 ( 256,199 ) 393,972 Trademarks/trade name 4-10 40,083 ( 22,283 ) 17,800 40,083 ( 21,029 ) 19,054 Non-competition agreements 1 2,231 ( 2,231 ) — 2,231 ( 2,231 ) — Total finite-lived intangible assets 1,599,464 ( 668,868 ) 930,596 1,599,680 ( 616,701 ) 982,979 Indefinite-lived intangible assets TiVo Tradename/trademarks N/A 21,400 — 21,400 21,400 — 21,400 Total intangible assets $ 1,620,864 $ ( 668,868 ) $ 951,996 $ 1,621,080 $ ( 616,701 ) $ 1,004,379 As of March 31, 2021, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands): 2021 (remaining 9 months) $ 150,356 2022 154,089 2023 143,117 2024 104,205 2025 79,797 Thereafter 299,032 $ 930,596 NOTE 9 – DEBT The outstanding amounts of debt were as follows (in thousands): March 31, 2021 December 31, 2020 2020 Term B Loan Facility $ 860,625 $ 873,750 2021 Convertible Notes 48 48 Unamortized debt discount and issuance costs ( 32,182 ) ( 34,448 ) 828,491 839,350 Less: current portion, net of debt discount and issuance costs ( 43,825 ) ( 43,689 ) Total long-term debt, net of current portion $ 784,666 $ 795,661 2020 Term B Loan Facility On June 1, 2020, in connection with the consummation of the Mergers with TiVo , the Company entered into a Credit Agreement (the “2020 Credit Agreement”) by and among the Company, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent. The 2020 Credit Agreement provides for a five-year senior secured term loan B facility in an aggregate principal amount of $ 1,050 million (the “2020 Term B Loan Facility”). The interest rate applicable to loans outstanding under the 2020 Term B Loan Facility is equal to, at the Company’s option, either (i) a base rate plus a margin of 3.00 % per annum or (ii) LIBOR plus a margin of 4.00 % per annum. Commencing on September 30, 2020, the 2020 Term B Loan Facility will amortize in equal quarterly installments in aggregate quarterly amounts equal to (i) with respect to repayments occurring on or prior to June 1, 2023, 1.25 % of the original principal amount of the 2020 Term B Loan Facility and (ii) with respect to repayments occurring after June 1, 2023 and prior to June 1, 2025, 1.875 % of the original principal amount of the 2020 Term B Loan Facility, with the balance payable on the maturity date of the 2020 Term B Loan Facility (in each case subject to adjustment for prepayments). The 2020 Term B Loan Facility will mature on June 1, 2025 . Upon the closing of the 2020 Credit Agreement, the Company borrowed $ 1,050 million under the 2020 Term B Loan Facility . Net proceeds were 22 used on June 1, 2020, together with cash and cash equivalents, to refinance the existing indebtedness of the combined Company ( the “Debt Financing ”) , including paydown of the TiVo 2019 Term Loan of $ 734.6 million. See “Note 7 – Business Combination” for additional information relating to the Mergers. Additionally, debt discount and issuance costs of approximately $ 39.7 million were incurred and capitalized in connection with the 2020 Term B Loan Facility in June 2020. The Company commenced repaying quarterly installments under the 2020 Term B Loan Facility in the third quarter of 2020, and also elected to make a voluntary principal payment of $ 150.0 million on December 31, 2020. As outlined in the 2020 Credit Agreement, additional cash payments must be made on an annual basis beginning March 31, 2022 based on certain leverage ratios and excess cash flow generated for the immediately preceding fiscal year. The voluntary principal payment made on December 31, 2020 may be applied against required additional paydowns, if any, beginning March 31, 2022. The obligations under the 2020 Credit Agreement are guaranteed by Xperi, TiVo and certain other of the Company’s wholly-owned material domestic subsidiaries (collectively, the “Guarantors”) pursuant to the Guaranty, dated as of June 1, 2020, among Xperi, TiVo, the other Guarantors party thereto and Bank of America, N.A., as administrative agent. The obligations under the 2020 Credit Agreement are secured by a lien on substantially all of the assets of the Company and the Guarantors pursuant to the Security Agreement, dated as of June 1, 2020, among the Company, Xperi, TiVo, the other pledgors party thereto and Bank of America, N.A., as collateral agent. The 2020 Credit Agreement contains customary events of default, upon the occurrence of which, after any applicable grace period, the lenders will have the ability to accelerate all outstanding loans thereunder. The 2020 Credit Agreement also contains customary representations and warranties and affirmative and negative covenants that, among other things, restrict the ability of the Company and its subsidiaries to create or incur certain liens, incur or guarantee additional indebtedness, merge or consolidate with other companies, transfer or sell assets and make restricted payments. These covenants are subject to a number of limitations and exceptions set forth in the Credit Agreement. The Company was in compliance with all requirements as of March 31, 2021. 2018 Amended Term B Loan On December 1, 2016, in connection with the consummation of the acquisition of DTS, the Company entered into a Credit Agreement (the “Credit Agreement”) by and among the Company, Royal Bank of Canada, as administrative agent and collateral agent, and the lenders party thereto. The Credit Agreement provided for a $ 600.0 million seven-year term B loan facility (the “Term B Loan Facility”) which would mature on November 30, 2023 . On January 23, 2018, the Company and the loan parties entered into an amendment to the Credit Agreement (the “Amendment”). In connection with the Amendment, the Company made a voluntary prepayment of $ 100.0 million of the term loan outstanding under the Credit Agreement using cash on hand. The Amendment provided for, among other things, a replacement of the outstanding initial term loan with the new tranche term B-1 loan in a principal amount of $ 494.0 million. 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. 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 discount and issuance costs, in its Condensed Consolidated Statements of Operations during the second quarter of 2020. 2019 Term Loan Facility 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 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 constituted an event of default, thus requiring the debt to be repaid immediately following the consummation of the Mergers. Using the proceeds from the aforementioned 2020 Term B Loan Facility, the Company, on June 1, 2020, made a full repayment of the 2019 Term Loan along with the prepayment penalty for a total payoff amount of $ 734.6 million. 2021 Convertible Notes Upon consummation of the TiVo Merger on June 1, 2020, the Company assumed $ 48.0 thousand of Convertible Senior Notes that were issued by TiVo Solutions Inc. in September 2014 and mature October 1, 2021 (the “2021 Convertible Notes”). The 23 2021 Convertible Notes bear interest at an annual rate of 2.0 %, payable semi-annually in arrears on April 1 and October 1 of each year . Interest Expense and Expected Principal Payments At March 31, 2021, $ 828.5 million in total debt was outstanding with an interest rate, including the amortization of debt discount and issuance costs, of 5.2 %. There were also $ 32.2 million of unamortized debt discount and issuance costs recorded as a reduction from the carrying amount of the debt. Interest is payable monthly on the 2020 Term B Loan Facility. Interest expense was $ 11.3 million and $ 4.3 million for the three months ended March 31, 2021 and 2020, respectively. Amortized debt discount and issuance costs, which were included in interest expense, amounted to $ 2.3 million and $ 0.6 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, future minimum principal payments for long-term debt are summarized as follows (in thousands): 2021 (remaining 9 months) $ 39,423 2022 52,500 2023 72,188 2024 78,750 2025 617,812 Total $ 860,673 NOTE 10 – NET INCOME PER SHARE The following table sets forth the computation of basic and diluted shares (in thousands): Three Months Ended March 31, 2021 March 31, 2020 Denominator: Weighted average shares of common stock outstanding 104,940 49,945 Less: shares of restricted stock subject to repurchase — — Total common shares-basic 104,940 49,945 Effect of dilutive securities: Options 32 3 Restricted stock awards and units 2,804 251 Total common shares-diluted 107,776 50,199 Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period, excluding any unvested restricted stock awards that are subject to repurchase. Diluted net income per share is computed using the treasury stock method to calculate the weighted average number of shares of common stock and, if dilutive, potential common shares outstanding during the period. Potentially dilutive common shares include unvested restricted stock 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 months ended March 31, 2021 and 2020, in the calculation of net income per share, 1.1 million and 2.1 million shares, respectively, subject to stock options and restricted stock awards and units were excluded from the computation of diluted net income per share as they were anti-dilutive. NOTE 11 – STOCKHOLDERS’ EQUITY As described in Note 7, Xperi and TiVo completed the Mergers on June 1, 2020 to form Xperi Holding Corporation. Upon completion of the Mergers, each share of common stock of Xperi was converted into the right to receive one fully paid and non-assessable share of Company Common Stock. Further upon completion of the Mergers, each share of TiVo Common Stock was converted into the right to receive 0.455 fully paid and non-assessable shares of the Company Common Stock (the “Exchange Ratio”), in addition to cash in lieu of any fractional shares of the Company Common Stock. Following the Mergers, 24 Xperi Common Stock and TiVo Common Stock were delisted from Nasdaq. Since June 2, 2020, the shares of Company Common Stock have been listed for trading on Nasdaq under ticker symbol “XPER.” Equity Incentive Plans Prior to the Merger Date, the Company had implemented and granted equity awards under the Xperi Corporation Seventh Amended and Restated 2003 Equity Incentive Plan. As of the effective date of the Mergers, no future grants will be made under the plan. The 2020 EIP In connection with the Mergers and immediately prior to June 1, 2020, the Company adopted the Xperi Holding Corporation 2020 Equity Incentive Plan (the “2020 EIP”). Under the 2020 EIP, the Company may grant equity-based awards to employees, non-employee directors, and consultants for services rendered to the Company (or any parent or subsidiary) in the form of stock options, stock awards, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and performance awards (or any combination thereof). A total of 8,000,000 shares have been reserved for issuance under the 2020 EIP provided that each share issued pursuant to “full value” awards (i.e., stock awards, restricted stock awards, restricted stock units, performance awards and dividend equivalents) are counted against shares available for issuance under the 2020 EIP on a 1.5 to 1 ratio. The 2020 EIP provides for option grants designed as either incentive stock options or nonstatutory options. Options generally are granted with an exercise price not less than the value of the common stock on the grant date and have a term of ten years from the date of grant and vest over a four-year period. The vesting criteria for restricted stock awards and restricted stock units is generally the passage of time or meeting certain performance-based objectives, and continued employment through the vesting period generally over four years for time-based awards. Assumed Plans On June 1, 2020, the Company assumed all then-outstanding stock options, awards, and shares available and reserved for issuance under all legacy Equity Incentive Plans of TiVo (collectively, the “Assumed Plans”). Stock options assumed from the Assumed Plans generally have vesting periods of four years and a contractual term of seven years . Awards of restricted stock and restricted stock units assumed from the Assumed Plans are generally subject to a four year vesting period. The number of shares subject to stock options and restricted stock unit awards outstanding under these plans are included in the tables below. Shares reserved under the Assumed Plans will be available for future grants. As of March 31, 2021, there were 5.3 million shares reserved for future grants under both the 2020 EIP and the Assumed Plans. A summary of the stock option activity is presented below (in thousands, except per share amounts): Options Outstanding Number of Shares Subject to Options Weighted Average Exercise Price Per Share Balance at December 31, 2020 637 $ 29.59 Options granted — — Options exercised ( 12 ) $ 19.58 Options canceled / forfeited / expired ( 134 ) $ 45.14 Balance at March 31, 2021 491 $ 25.55 25 Restricted Stock Awards and Units Information with respect to outstanding restricted stock awards and units as of March 31, 2021 is as follows (in thousands, except per share amounts): Restricted Stock and Restricted Stock Units Number of Shares Subject to Time- based Vesting Number of Shares Subject to Performance- based Vesting Total Number of Shares Weighted Average Grant Date Fair Value Per Share Balance at December 31, 2020 5,662 1,061 6,723 $ 16.63 Awards and units granted 2,743 645 3,388 $ 23.72 Awards and units vested / earned ( 873 ) — ( 873 ) $ 20.89 Awards and units canceled / forfeited ( 227 ) ( 42 ) ( 269 ) $ 15.95 Balance at March 31, 2021 7,305 1,664 8,969 $ 18.91 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 certain market conditions determined by the Company, in each case on a specified date or dates or over any period or periods determined by the Company, and may range from zero to 200 percent of the grant. For performance awards subject to a market vesting condition (“market-based PSUs”), the fair value per award is fixed at the grant date and the amount of compensation expense is not adjusted during the performance period regardless of changes in the level of achievement of the market condition. Employee Stock Purchase Plans Prior to the Mergers, the Company had implemented the Xperi Corporation 2003 Employee Stock Purchase Plan and the International Employee Stock Purchase Plan, both of which were terminated immediately prior to the effective time of the Mergers. In connection with the Mergers and immediately prior to June 1, 2020, the Company adopted the Xperi Holding Corporation 2020 Employee Stock Purchase Plan (the “2020 ESPP”). The 2020 ESPP is implemented through consecutive overlapping 24 -month offering periods, each of which is comprised of four six-month purchase periods. The first offering period 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. Participants may contribute up to 100 % of their base earnings and commissions through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date. The purchase price per share will equal 85 % of the fair market value per share on the start date of the offering period or, if lower, 85 % of the fair market value per share on the semi-annual purchase date. An eligible employee’s right to buy the Company’s common stock under the 2020 ESPP may not accrue at a rate in excess of $ 25,000 of the fair market value of such shares per calendar year for each calendar year of an offering period. If the fair market value per share of the Company’s common stock on any purchase date during an offering period is less than the fair market value per share on the start date of the 24 -month offering period, then that offering period will automatically terminate and a new 24 -month offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering period. As of March 31, 2021 , there were 1.4 million shares reserved for grant under the Company’s 2020 ESPP. Stock Repurchase Programs 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 March 31, 2021, the Company has repurchased a total of approximately 6.0 million shares of common stock, since inception of the plan, at an average price of $ 15.87 per share for a total cost of $ 95.1 million. As of December 31, 2020, the Company had repurchased a total of approximately 4.9 million shares of common stock, since inception of the plan, at an average price of $ 14.25 per share for a total cost of $ 70.1 million. The shares repurchased are recorded as treasury stock and are accounted for 26 under the cost method. No expiration date has been specified for this plan. As of March 3 1 , 202 1 , the total remaining amount available for repurchase was $ 54.9 million . The Company plans to continue to execute authorized repurchases from time to time under the plan. The Company issues restricted stock units as part of the equity incentive plans described above. For the majority of restricted awards, shares are withheld to satisfy required withholding taxes at the vesting date. Shares withheld to satisfy required withholding taxes in connection with the vesting of restricted awards are treated as common stock repurchases in the condensed consolidated financial statements because they reduce the number of shares that would have been issued on vesting. However, these withheld shares are not included in common stock repurchases under the Company's authorized share repurchase plan. During the three months ended March 31, 2021 and 2020, the Company withheld 0.3 million and 0.2 million shares of common stock to satisfy $ 7.4 million and $ 3.1 million of required withholding taxes, respectively. NOTE 12 – STOCK-BASED COMPENSATION EXPENSE The effect of recording stock-based compensation (“SBC”) expense for the three months ended March 31, 2021 and 2020 is as follows (in thousands): Three Months Ended March 31, 2021 March 31, 2020 Cost of licensing, services and software revenue $ 323 $ — Research, development and other related costs 4,347 3,036 Selling, general and administrative 8,549 4,951 Total stock-based compensation expense 13,219 7,987 Tax effect on stock-based compensation expense ( 154 ) ( 1,000 ) Net effect on net income $ 13,065 $ 6,987 SBC expense categorized by various equity components for the three months ended March 31, 2021 and 2020 is summarized in the table below (in thousands): Three Months Ended March 31, 2021 March 31, 2020 Restricted stock awards and units $ 11,929 $ 7,294 Employee stock purchase plan 1,271 690 Employee stock options 19 3 Total stock-based compensation expense $ 13,219 $ 7,987 There were no options granted in the three months ended March 31, 2021 and 2020. The following assumptions were used to value the restricted stock units subject to market conditions granted during the period: March 2021 July 2020* Expected life (years) 3.0 3.0 Risk-free interest rate 0.3 % 0.2 % Dividend yield 1.0 % 1.4 % Expected volatility 47.9 % 51.3 % *There were no market-based PSUs granted prior to July 2020. ESPP grants occur in March and September. Prior to the Mergers, the final ESPP grant under the legacy ESPP program was in February 2020. The following assumptions were used to value the ESPP shares for these grants: March 2021 September 2020 February 2020 Expected life (years) 2.0 2.0 2.0 Risk-free interest rate 0.1 % 0.1 % 1.4 % Dividend yield 1.2 % 1.4 % 4.0 % Expected volatility 52.0 % 57.5 % 45.8 % 27 NOTE 13 – INCOME TAXES For the three months ended March 31, 2021, the Company recorded an income tax benefit of $ 4.0 million on pretax income of $ 0.5 million, which resulted in an effective tax rate of ( 786.4 )%. The income tax benefit for the three months ended March 31, 2021 was primarily related to foreign withholding taxes, U.S. federal base erosion and anti-abuse tax (“BEAT”) and unrealized foreign exchange loss from the prior year South Korea refund claims. The Company’s negative effective tax rate is based on the projected 2021 GAAP U.S. pretax loss and is significantly less than the 21 % U.S. federal tax rate. The Company’s effective tax rate is the result of the most significant components of income tax expense, primarily driven by foreign withholding and BEAT. The computed negative effective tax rate is applied to the year-to-date U.S. profit resulting in an income tax benefit for the quarter ended March 31, 2021. For the three months ended March 31, 2020, the Company recorded an income tax expense of $ 2.1 million on pretax income of $ 20.8 million, which resulted in an effective tax rate of 9.9 %. The income tax expense for the three months ended March 31, 2020 was primarily related to tax expense from operating income, certain non-deductible expenses, shortfalls from stock-based compensation, an increase in valuation allowance against certain deferred tax assets, and unrealized foreign exchange losses from the prior year South Korea refund claim, offset by a deduction from foreign-derived intangible income and the release of unrecognized tax benefits due to a lapse in the statute of limitation. As of March 31, 2021, gross unrecognized tax benefits increased $1.5 million to $ 228.7 million compared to $227.2 million as of December 31, 2020. This was included in long-term deferred tax and other long-term liabilities on the Condensed Consolidated Balance Sheets. Of this amount, $ 96.0 million would affect the effective tax rate if recognized. As of March 31, 2020, unrecognized tax benefits of $ 85.5 million were included in long-term deferred tax and other long-term liabilities on the Condensed Consolidated Balance Sheets. Of this amount, $ 81.6 million would affect the effective tax rate if recognized. The Company is unable to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease. It is the Company's policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company recognized interest and penalties related to unrecognized tax benefits of $ 0.6 million and an insignificant amount for the three months ended March 31, 2021 and 2020, respectively. Accrued interest and penalties were $ 3.1 million and $ 2.5 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, the Company’s 2016 through 2020 tax years are generally open and subject to potential examination in one or more jurisdictions. Earlier tax years for the Company and its subsidiaries are also open in certain jurisdictions which are currently subject to examination. In addition, in the U.S., any net operating losses or credits that were generated in prior years but not yet fully utilized in a year that is closed under the statute of limitations may also be subject to examination. The Company has submitted withholding tax refund claims with the South Korean authorities, and the final outcome is not anticipated to be settled within the next twelve months. NOTE 14 – LEASES The Company leases office and research facilities, data centers and office equipment under operating leases which expire through 2029. The Company’s leases have remaining lease terms of one year to nine years , some of which may include options to extend the leases for five years or longer, and some of which may include options to terminate the leases within the next 6 years or less. Leases with an initial term of 12 months or less are not recorded on the balance sheets ; expense for these leases is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred and are not included within the lease liability and right-of-use assets calculation. As a practical expedient, the Company elected, for all office and facility leases, not to separate nonlease components (e.g., common-area maintenance costs) from lease components (e.g., fixed payments including rent) and instead to account for each separate lease component and its associated non-lease components as a single lease component. As most of the leases do not provide an implicit rate, the Company generally, for purposes of discounting lease payments, uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The Company subleases certain real estate to third parties. The sublease portfolio consists of operating leases for previously exited office space. Certain subleases include variable payments for operating costs. The subleases are generally co-terminus with the head lease, or shorter. Subleases do not include any residual value guarantees or restrictions or covenants imposed by the leases. Income from subleases is recognized as a reduction to selling, general and administrative expenses. 28 The components of operating lease costs were as follows (in thousands): Three Months Ended March 31, 2021 March 31, 2020 Fixed lease cost (1) $ 5,466 $ 1,834 Variable lease cost 1,365 347 Less: sublease income ( 2,188 ) — Total operating lease cost $ 4,643 $ 2,181 (1) Includes short-term leases, which were immaterial. Other information related to leases was as follows (in thousands, except lease term and discount rate): Three Months Ended, March 31, 2021 March 31, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 5,555 $ 1,638 ROU assets obtained in exchange for new lease liabilities: Operating leases $ — $ — March 31, 2021 December 31, 2020 Weighted-average remaining lease term (years): Operating leases 5.0 5.1 Weighted-average discount rate: Operating leases 5.2 % 5.2 % Future minimum lease payments and related lease liabilities as of March 31, 2021 were as follows (in thousands): Operating Lease Payments (1) Sublease Income Net Operating Lease Payments 2021 (remaining 9 months) $ 15,818 $ ( 4,598 ) $ 11,220 2022 17,985 ( 6,117 ) 11,868 2023 16,492 ( 6,231 ) 10,261 2024 15,718 ( 6,293 ) 9,425 2025 14,635 ( 6,279 ) 8,356 Thereafter 8,796 ( 935 ) 7,861 Total lease payments 89,444 ( 30,453 ) 58,991 Less: imputed interest ( 11,058 ) — ( 11,058 ) Present value of lease liabilities: $ 78,386 $ ( 30,453 ) $ 47,933 Less: current obligations under leases (accrued liabilities) 16,919 Noncurrent operating lease liabilities $ 61,467 (1) Future minimum lease payments exclude short-term leases as well as payments to landlords for variable common area maintenance, insurance and real estate taxes. 29 As of December 31, 2020, future minimum lease payments were as follows (in thousands): Operating Lease Payments Sublease Income Net Operating Lease Payments 2021 $ 21,825 $ ( 6,257 ) $ 15,568 2022 18,420 ( 6,117 ) 12,303 2023 16,776 ( 6,231 ) 10,545 2024 15,719 ( 6,293 ) 9,426 2025 14,635 ( 6,279 ) 8,356 Thereafter 8,966 ( 935 ) 8,031 Total lease payments 96,341 ( 32,112 ) 64,229 Less: imputed interest ( 12,205 ) — ( 12,205 ) Present value of lease liabilities: $ 84,136 $ ( 32,112 ) $ 52,024 Less: current obligations under leases (accrued liabilities) 17,893 Noncurrent operating lease liabilities $ 66,243 NOTE 15 – COMMITMENTS AND CONTINGENCIES Purchase and Other Contractual Obligations In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-cancelable payment obligations, for which it is liable in future periods. These arrangements primarily include unconditional purchase obligations to service providers. As of March 31, 2021, the Company’s total future unconditional purchase obligations were approximately $ 144.5 million. Additionally, under certain other contractual arrangements, the Company may be obligated to pay up to $ 2.2 million, a majority of which is expected to be paid by 2022, if certain milestones are achieved. On December 31, 2019, TiVo entered into a contract requiring the Company to generate a minimum number of Qualified Referred Subscribers (as defined in the contract) over a 30 month period. In the event that the aggregate number of Qualified Referred Subscribers generated by the Company within the specified time period is less than the minimum guaranteed subscribers, the Company is required to pay an amount equal to the shortfall between the number of Qualified Referred Subscribers generated by the Company and the required minimum multiplied by a per Qualified Referred Subscribers fee, up to a maximum of $ 5.0 million. As of March 31, 2021, $ 2.8 million was accrued in the Condensed Consolidated Balance Sheets related to this contract. Inventory Purchase Commitment The Company uses contract manufacturers to provide manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate supply, the Company enters into agreements with its contract manufacturer that either allow them to procure inventory based on criteria as defined by the Company or that establish the parameters defining the Company’s requirements. A significant portion of the Company’s purchase commitments arising from these agreements consist of firm, non-cancelable and unconditional purchase commitments. In certain instances, these agreements allow the Company the option to cancel, reschedule or adjust the Company’s requirements based on its business needs prior to firm orders being placed. As of March 31, 2021, the Company had total purchase commitments for inventory of $ 5.6 million, of which $ 0.6 million was accrued in the Condensed Consolidated Balance Sheet. Indemnifications In the normal course of business, the Company provides indemnifications of varying scopes and amounts to certain of its licensees, customers, and business partners against claims made by third parties arising from the use of the Company's products, intellectual property, services or technologies. The Company cannot reasonably estimate the possible range of losses that may be incurred pursuant to its indemnification obligations, if any. Variables affecting any such assessment include, but are not limited to: the nature of the claim asserted; the relative merits of the claim; the financial ability of the party suing the indemnified party to engage in protracted litigation; the number of parties seeking indemnification; the nature and amount of damages claimed by the party suing the indemnified party; and the willingness of such party to engage in settlement 30 negotiations. To date, no such claims have been filed against the Company and no liability has been recorded in the Company’s financial statements. As permitted under Delaware law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company believes, given the absence of any such payments in the Company’s history, and the estimated low probability of such payments in the future, that the estimated fair value of these indemnification agreements is immaterial. In addition, the Company has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable the Company to recover any payments, should they occur. Contingencies At each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of losses is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company is currently unable to predict the final outcome of lawsuits to which it is a party and therefore cannot determine the likelihood of loss nor estimate a range of possible losses. An adverse decision in any of these proceedings could significantly harm the Company’s business and consolidated financial position, results of operations or cash flows. The Company and its subsidiaries are involved in litigation matters and claims in the normal course of business. In the past, the Company and its subsidiaries have litigated to enforce their respective patents and other intellectual property rights, to enforce the terms of license agreements, to protect trade secrets, to determine the validity and scope of the proprietary rights of others and to defend itself or its customers against claims of infringement or invalidity. The Company expects it or its subsidiaries will be involved in similar legal proceedings in the future, including proceedings regarding infringement of its patents, and proceedings to ensure proper and full payment of royalties by licensees under the terms of its license agreements. The existing and any future legal actions may harm the Company’s business. For example, legal actions could cause an existing licensee or strategic partner to cease making royalty or other payments to the Company, or to challenge the validity and enforceability of patents owned by the Company’s subsidiaries or the scope of license agreements with the Company’s subsidiaries, or could significantly damage the Company’s relationship with such licensee or strategic partner and, as a result, prevent the adoption of the Company’s other technologies by such licensee or strategic partner. Litigation could also severely disrupt or shut down the business operations of licensees or strategic partners of the Company’s subsidiaries, which in turn would significantly harm ongoing relations with them and cause the Company to lose royalty revenue. The costs associated with legal proceedings are typically high, relatively unpredictable, and not completely within the Company’s control. These costs may be materially higher than expected, which could adversely affect the Company’s operating results and lead to volatility in the price of its common stock. Whether or not determined in the Company’s favor or ultimately settled, litigation diverts managerial, technical, legal, and financial resources from the Company’s business operations. Furthermore, an adverse decision in any of these legal actions could result in a loss of the Company’s proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from others, limit the value of the Company’s licensed technology or otherwise negatively impact the Company’s stock price or its business and consolidated financial results. NOTE 16 – SEGMENT AND GEOGRAPHIC INFORMATION The Company reports its financial results within two reportable segments: (1) Product and (2) Intellectual Property (“IP”) Licensing. There are certain corporate overhead costs that are not allocated to these reportable segments because these operating amounts are not considered in evaluating the operating performance of the Company’s business segments. Reportable segments are identified based on the Company's organizational structure and information reviewed by the Company’s chief operating decision maker (“CODM”) to evaluate performance and allocate resources. The Company’s Chief Executive Officer is also the CODM as defined by the authoritative guidance on segment reporting. The Product segment consists primarily of licensing Company-developed audio, digital radio, imaging, edge-based machine learning and multi-channel video user experience (“UX”) solutions. Audio, digital radio, imaging solutions and edge-based machine learning 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 like the Stream 4K, Personalized Content Discovery, enriched Metadata, viewership data and advertising. 31 The IP Licensing segment consists primarily of licensing the Company’s innovations to leading companies in the media and semiconductor industries. Licensing arrangements include access to one or more of the Company’s foundational patent portfolios and may also include access to some of its industry-leading technologies and proven know-how. In media, the Company’s licensees include multichannel video programming distributors, OTT video service providers, consumer electronics manufacturers, social media, and other new media companies. In semiconductor, the Company’s licensees include memory, sensors, RF component, and foundry companies . The Company does not identify or allocate assets by reportable segment, nor does the CODM evaluate reportable segments using discrete asset information. Reportable segments do not record inter-segment revenue and accordingly there are none to report. The Company does not allocate other income and expense to reportable segments. Although the CODM uses operating income to evaluate reportable segments, operating costs included in one segment may benefit other segments. The following table sets forth the Company’s segment revenue, operating expenses and operating income for the three months ended March 31, 2021 and 2020 (in thousands): Three Months Ended March 31, 2021 March 31, 2020 Revenue: Product segment $ 123,582 $ 55,942 IP Licensing segment 98,014 61,723 Total revenue 221,596 117,665 Operating expenses: Product segment 108,563 46,236 IP Licensing segment 33,567 10,295 Unallocated operating expenses (1) 69,067 36,607 Total operating expenses 211,197 93,138 Operating income: Product segment 15,019 9,706 IP Licensing segment 64,447 51,428 Unallocated operating expenses (1) ( 69,067 ) ( 36,607 ) Total operating income $ 10,399 $ 24,527 (1) Unallocated operating expenses consist primarily of selling, marketing, general and administrative expenses, such as administration, human resources, finance, information technology, corporate development and procurement. These expenses are not allocated because these amounts are not considered in evaluating the operating performance of the Company’s business segments. A significant portion of the Company’s revenue is derived from licensees headquartered outside of the U.S., principally in Asia, and it is expected that this revenue will continue to account for a significant portion of total revenue in future periods. The table below lists the geographic revenue for the periods indicated (in thousands): Three Months Ended March 31, 2021 March 31, 2020 U.S. $ 131,498 59 % $ 23,136 20 % Japan 26,444 12 51,322 44 South Korea 18,513 9 27,583 23 Europe and Middle East 16,422 7 4,448 4 Other 28,719 13 11,176 9 $ 221,596 100 % $ 117,665 100 % For the three months ended March 31, 2021 and 2020, there were no customers and two customers, respectively, that each accounted for 10 % or more of total revenue. As of March 31, 2021 and December 31, 2020, there were two customers and two customers, respectively, that each accounted for 10 % or more of total accounts receivable. 32 NOTE 17 - SUBSEQUENT EVENTS On April 22, 2021 , the Board declared a cash dividend of $ 0.05 per share of common stock, payable on June 15, 2021 to the stockholders of record at the close of business on May 25, 2021 . On April 22, 2021, the Board authorized an additional $ 100.0 million of purchases under the Company’s existing stock repurchase plan, increasing the total available balance to $ 154.9 million as of such date. 33