What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-06 · 208 added, 218 removed, 234 unchanged (65% of the section changed)

11 unchanged sentences

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

As used herein, the “Company,” “we,” “us” and “our” refer to Xperi when referring to periods prior to June 1, 2020 and Xperi Holding Corporation when referring to periods subsequent to June 1, 2020.

Unless specified otherwise, the financial results in this Quarterly Report are those of the Company and its subsidiaries on a consolidated basis.

Business Overview

3 unchanged sentences

Our results of operations include the operations of TiVo after June 1, 2020.

Unless specified otherwise, the financial results in this Quarterly Report are those of the Company and its subsidiaries on a consolidated basis.

We are 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.

5 unchanged sentences

We are currently contemplating and may pursue, subject to any required regulatory approvals, a separation of our Product business and IP Licensing business through a tax-efficient transaction, resulting in two independent, publicly traded companies.

We are evaluating the optimal timing of the contemplated business separation and currently anticipate that such separation will not be completed earlier than the first half of 2022 .

We continue to evaluat e the optimal timing of the contemplated business separation and currently anticipate that such separation will not be completed earlier than the first half of 2022 .

COVID-19 Impact

9 unchanged sentences

The COVID-19 pandemic could also cause delays in acquiring new customers and executing renewals and could also impact our business as consumer behavior changes in response to the pandemic.

Since the start of the second quarter of 2021, there has been increased availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government activities and functions, and we have experienced a gradual resumption of economic activities in our industries.

On the other hand, infection rates continue to fluctuate in various regions and new strains of the virus remain a risk.

In addition, there are ongoing global impacts resulting from the pandemic, including disruption of the product supply chains, shortages of semiconductor components, and delays in shipments, product development, and product launches.

Since the start of the summer of 2021, there has been rapid spread of the highly contagious Delta variant of COVID-19, particularly in the regions and among the age groups with low vaccination rates, leading to a resurgence in cases, hospitalizations and deaths.

Businesses and consumers have been adjusting their plans to comply with renewed mask and vaccine mandates, travel restrictions, event cancellations and delayed office reopenings.

Our operations and those of our customers have also been negatively impacted by certain trends arising from the COVID-19 pandemic, including labor market constraints, shortage of semiconductor components and manufacturing capacities, delays in shipments, product development and product launches and rising inflation.

In addition, the widespread supply chain disruption is expected to impede global and regional economic activities, such as consumer spending and product availabilities, which may adversely affect our business operations and financial results.

We have been closely monitoring the COVID-19 pandemic and its impact on our business, including legislation to mitigate the impact of COVID-19 such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act which was enacted in March 2020, and the American Rescue Plan Act of 2021 which was enacted in March 2021.

Although a significant portion of our anticipated revenue for 2021 is derived from fixed-fee and minimum-guarantee arrangements, primarily from large, well-capitalized customers which we believe somewhat mitigates the risks to our business, our per-unit and variable-fee based revenue will continue to be susceptible to the volatility, supply chain disruptions, microchip shortages and potential market downturns induced by the COVID-19 pandemic.

Although a significant portion of our anticipated revenue for 2021 is derived from fixed-fee and minimum-guarantee arrangements, primarily from large, well-capitalized customers which we believe somewhat mitigates the risks to our business, our per-unit and variable-fee based revenue will continue to be susceptible to the volatility, labor shortages, supply chain disruptions, microchip shortages, and potential market downturns induced by the COVID-19 pandemic.

The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic;

2 unchanged sentences

the continued and renewed imposition of protective public safety measures;

the continuing global disruption in supply chains in our industries;

and the impact of the pandemic on the global economy and demand for consumer products.

2 unchanged sentences

Results of Operations

We generate revenue from the following principal activities.

License Agreements

We operate in two business segments.

In our Product segment, we license our audio, digital radio, imaging, edge-based machine learning and multi-channel video user experience (“UX”) solutions.

In our IP Licensing segment, we license (i) our media patent portfolios (“Media IP licensing”) to multichannel video programming distributors (MVPDs), OTT video service

providers, consumer electronics manufacturers, social media, and other new media companies and (ii) our semiconductor technologies and associated patent portfolios (“Semiconductor IP licensing”) to memory, sensors, RF component, and foundry companies.

We license our technologies and portfolios under three revenue models:

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

In our Product segment, we derive the majority of the revenue from licensing our technology to customers primarily through Technology License arrangements and Technology Solutions arrangements.

For Technology License arrangements, the customer obtains rights to the technology delivered at the commencement of the agreement.

For Technology Solutions arrangements, the customer receives access to a platform, media or data that includes frequent updates, where access to such updates is critical to the functionality of the technology.

In our IP Licensing segment,

we license our innovations to leading companies in the media and semiconductor industries.

IP Licensing arrangements include access to one or more of our foundational patent portfolios and may also include access to some of our industry-leading technologies and proven know-how.

Technology License Arrangements

We license our audio, digital radio and imaging technology to consumer electronics (“CE”) manufacturers, automotive manufacturers or their supply chain partners.

We generally recognize royalty revenue from licenses based on units shipped or manufactured.

Revenue is recognized in the period in which the customer’s sales or production are estimated to have occurred.

This may result in an adjustment to revenue when actual sales or production are subsequently reported by the customer, generally in the month or quarter following sales or production.

Estimating customers’ quarterly royalties prior to receiving the royalty reports requires us to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers, which could have a material impact on the amount of revenue we report on a quarterly basis.

Certain customers enter into fixed fee or minimum guarantee agreements, whereby customers pay a fixed fee for the right to incorporate our technology in the customer’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.

We generally recognize the full fixed fee as revenue at the beginning of the license term when the customer has the right to use the technology and begins to benefit from the license, net of the effect of any significant financing components calculated using customer-specific, risk-adjusted lending rates, with the related interest income being recognized over time on an effective rate basis.

For minimum guarantee agreements where the customer exceeds the minimum, we recognize revenue relating to any additional per-unit fees in the periods we believe the customer will exceed the minimum and adjusts the revenue based on actual usage once that is reported by the customer.

Technology Solutions Arrangements

Technology Solutions customers are primarily multi-channel video service providers, CE manufacturers, and end consumers.

Technology Solutions revenue is primarily derived from licensing our pay-TV solutions, Personalized Content Discovery, enriched Metadata, and viewership data;

selling TiVo-enabled devices like the Stream 4K;

and advertising.

For Technology Solutions, we provide on-going media or data delivery, hosting and access to our platform, and software updates.

For these solutions, we generally receive fees on a per-subscriber per-month basis or as a fixed fee, and revenue is recognized during the month in which the solutions are provided to the customer.

For most of the Technology Solutions offerings, substantially all functionality is obtained through our continuous hosting and/or updating of the data and content.

In these instances, we typically have a single performance obligation related to these ongoing activities in the underlying arrangement.

For those arrangements that include multiple performance obligations, we allocate the consideration and recognize revenue for each distinct performance obligation when control of the promised goods or services is transferred to the customer.

IP License Arrangements

In our IP Licensing segment, we license (i) our 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) our semiconductor technologies and associated patent portfolios (“Semiconductor IP licensing”) to memory, sensors, radio frequency (“RF”) component, and foundry companies.

We license our IP portfolios under three revenue models:

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

Fixed-fee Media IP licensing

Our long-term fixed-fee Media IP licensing agreements provide our customers with the 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.

Our long-term fixed-fee Media IP licensing agreements, which are related to the TiVo businesses following the Mergers, provide our 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.

We treat 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, we enter into license agreements in which a licensee is released from past patent infringement claims and 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, we allocate the transaction price between the release for past patent infringement claims and the future license.

At times, we enter 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, we allocate the transaction price between the release for past patent infringement claims and the future

In determining the stand-alone selling price of the release for past patent infringement claims and the future license, we consider 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 we generally receive 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

We enter into Product or Semiconductor IP licenses that have fixed fee or minimum guarantee arrangements, whereby licensees pay a fixed fee for the right to incorporate our technology in the licensee's products over the license term.

Fixed-fee or minimum guarantee Semiconductor IP licensing

We enter into Semiconductor IP licenses that have fixed fee or minimum guarantee arrangements, whereby licensees pay a fixed fee for the right to incorporate our IP technologies in the licensee’s products over the license term.

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, we recognize 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, we also consider 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, we treat 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 us 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.

We actively monitor and enforce our IP, including seeking appropriate compensation from customers that have under-reported royalties owed under a license agreement and from third parties that utilize our intellectual property without a license.

As a result of these activities, we 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.

We recognize revenue from recoveries when a binding agreement has been executed and we conclude collection under that agreement is likely.

Per-unit or per-subscriber royalty licenses

We recognize 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.

We generally recognize revenue from royalty licenses on a per-subscriber per-month model for licenses with service providers and a per-unit shipped or manufactured model for licenses with CE manufacturers and memory, sensors, RF component, and foundry companies.

Estimating licensees’ quarterly royalties prior to receiving the royalty reports requires us to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped by customers, which could have a material impact on the amount of revenue we report on a quarterly basis.

Arrangements with Multiple System Operators for the TiVo Service

Our 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 STBs and the TiVo service.

We have two types of arrangements with MSOs that include technology deployment and engineering services.

In instances where we host 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.

We estimate 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 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, we receive license fees for the hosted TiVo service on either a per-subscriber per-month basis or a fixed fee.

We recognize revenue from per-subscriber per-month licenses during the month the TiVo service is provided to the customer and recognize revenue from fixed fee licenses ratably over the license period.

In arrangements where we do 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 the software, we recognize 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.

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.

We generally recognize 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 our hosted products such as the iGuide IPG, advanced search and recommendations, metadata and analytics products, including routine customer support.

We generally receive per-subscriber per-month fees for the iGuide IPG and search and recommendations service and revenue is recorded in the month the customer uses the service.

We generally receive a monthly or quarterly fee from our metadata or analytics licenses for the right to use the metadata or access our analytics platform and to receive regular updates.

Revenue from our metadata and analytics service is recognized ratably over the subscription period.

TiVo-enabled DVRs and non-DVRs and related TiVo Service

We sell TiVo-enabled DVRs and non-DVRs and the related service directly to customers through sales programs via the TiVo.com website and license the sale of TiVo-enabled DVRs and non-DVRs through a limited number of retailers.

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

The transaction price allocated to the DVR is recognized as revenue upon shipment to the customer and the transaction price allocated to the TiVo service is recognized as revenue ratably over the service period.

Subscription revenue from lifetime subscriptions is recognized ratably over the estimated useful life of the DVR associated with the subscription.

The estimated useful life for a DVR depends on a number of assumptions, including but not limited to, customer retention rates, the timing of new product introductions and historical experience.

We periodically reassess the estimated useful life of a DVR.

When the actual useful life of the DVR materially differs from our estimates, the estimated useful life of the DVR is adjusted, which could result in the recognition of revenue over a longer or shorter period of time.

We generally recognize the full fixed fee as revenue at the beginning of the license term when the customer has the right to use the IP and begins to benefit from the license, net of the effect of any significant financing components calculated using customer-specific, risk-adjusted lending rates, with the related interest income being recognized over time on an effective rate basis.

Per-unit or per-subscriber IP royalty licenses

We recognize revenue from per-unit or per-subscriber IP royalty licenses in the period in which the licensee’s sales or production are estimated to have occurred, which results in an adjustment to revenue when actual sales or production are subsequently reported by the licensee, which is generally in the month or quarter following usage or shipment.

Estimating customers’ monthly or quarterly royalties prior to receiving the royalty reports requires us to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers, which could have a material impact on the amount of revenue we report on a quarterly basis.

We also generate revenue from non-recurring engineering (“NRE”) services, advertising, and hardware products, each of which was less than 5% of total revenue for all periods presented.

The following table presents our historical operating results for the periods indicated as a percentage of revenue:

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Licensing, services and software

14 unchanged sentences

Loss before taxes

Benefit from income taxes

Net income (loss)

Provision for (benefit from) income taxes

Total Revenue (in thousands, except for percentages):

Three Months Ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

Increase/ (Decrease)

Total revenue

The $84.6 million, or 61% increase in total revenue for the three months ended June 30, 2021, compared to the same period in the prior year, was primarily due to the inclusion of a full quarter of post-merger revenue from TiVo in the three months ended June 30, 2021.

Excluding TiVo revenue, legacy Xperi revenue would have decreased primarily due to a decline in revenue from the Semiconductor IP licensing business, partially offset by an increase in revenue from the Product business.

Six Months Ended

June 30, 2021

June 30, 2020

The $16.6 million, or 8% increase in total revenue for the three months ended September 30, 2021, compared to the same period in the prior year, was primarily attributable to an increase of $21.4 million in IP Licensing revenue, driven by revenue from the Comcast license executed in the fourth quarter of 2020, and the timing and conclusion of renewals and new executed licenses prior to and in the third quarter of 2021, and certain catch-up payments for past royalties due, partially offset by a decrease in Product revenue.

Nine Months Ended

September 30, 2021

September 30, 2020

Increase/ (Decrease)

Total revenue

The $188.6 million, or 74% increase in total revenue for the six months ended June 30, 2021, compared to the same period in the prior year, was primarily due to the inclusion of a full six months of post-merger revenue from TiVo in the six months ended June 30, 2021.

Excluding TiVo revenue, legacy Xperi revenue would have decreased primarily due to a decline in revenue from the Semiconductor IP licensing business.

The $205.2 million, or 45% increase in total revenue for the nine months ended September 30, 2021, compared to the same period in the prior year, was primarily due to the inclusion of a full nine months of post-merger revenue from TiVo in the nine months ended September 30, 2021 and revenue from the Comcast license executed in the fourth quarter of 2020.

These increases were partially offset by a decline in revenue from the Semiconductor IP licensing business.

Cost of Licensing, Services and Software Revenue, E xcluding Depreciation and Amortization of Intangible Assets

Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets, consists primarily of employee-related costs, royalties paid to third parties, maintenance costs and an allocation of facilities costs, as well as service center and other expenses related to providing the TiVo Service, non-recurring engineering (“NRE”) services and our metadata offering.

Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets, for the three months ended June 30 , 2021 was $ 22 .4 million, as compared to $ 8.3 million for the three months ended June 30 , 2020, an increase of $ 14.1 million.

The increase was primarily due to the inclusion of a full quarter of post-merger TiVo expenses in the three months ended June 30, 2021.

Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets, for the six months ended June 30, 2021 was $43.8 million, as compared to $9.8 million for the six months ended June 30, 2020, an increase of $34.0 million.

The increase was primarily due to the inclusion of a full six months of post-merger TiVo expenses in the six months ended June 30, 2021.

We anticipate cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets, will continue to increase in 2021 when compared to 2020 due to the inclusion of a full year of TiVo operations in our consolidated results.

well as service center and other expenses related to providing the P ay-TV and platform solutions , NRE services and our metadata offering .

Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets, for the three months ended September 30, 2021 was $26.0 million, as compared to $21.9 million for the three months ended September 30, 2020, an increase of $4.1 million.

The increase was primarily due to higher third-party royalties paid as well as increases in other delivery costs related to higher revenue in the third quarter of 2021.

Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets, for the nine months ended September 30, 2021 was $69.9 million, as compared to $31.6 million for the nine months ended September 30, 2020, an increase of $38.3 million.

The increase was primarily due to the inclusion of a full nine months of post-merger TiVo expenses in the nine months ended September 30, 2021.

We anticipate cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets, will increase in 2021 on an annual basis when compared to 2020 primarily due to the inclusion of a full year of TiVo operations in our consolidated results.

Cost of Hardware Revenue, E xcluding Depreciation and Amortization of Intangible Assets

Cost of hardware revenue, excluding depreciation and amortization of intangible assets, includes all product-related costs associated primarily with TiVo-enabled devices, including employee-related costs, warranty costs, order fulfillment costs, certain licensing costs, and an allocation of facilities costs.

Cost of hardware revenue, excluding depreciation and amortization of intangible assets, for the three months ended June 30, 2021 was $4.5 million, as compared to $1.4 million for the three months ended June 30, 2020, an increase of $3.1 million.

The increase was primarily due to the inclusion of a full quarter of post-merger TiVo expenses in the three months ended June 30, 2021.

Cost of hardware revenue, excluding depreciation and amortization of intangible assets, for the six months ended June 30, 2021 was $11.2 million, as compared to $1.5 million for the six months ended June 30, 2020, an increase of $9.7 million.

The increase was primarily due to the inclusion of a full six months of post-merger TiVo expenses in the six months ended June 30, 2021.

We anticipate cost of hardware revenue, excluding depreciation and amortization of intangible assets, will continue to increase in 2021 when compared to 2020 primarily due to the inclusion of a full year of TiVo operations in our consolidated results as well as expected growth in sales of hardware products.

Cost of hardware revenue, excluding depreciation and amortization of intangible assets, for the three months ended September 30, 2021 was $6.5 million, as compared to $12.2 million for the three months ended September 30, 2020, a decrease of $5.7 million.

The decrease was primarily related to decreased hardware product sales in the third quarter of 2021 as well as certain hardware product costs incurred in the third quarter of 2020 from new product launches.

Cost of hardware revenue, excluding depreciation and amortization of intangible assets, for the nine months ended September 30, 2021 was $17.7 million, as compared to $13.7 million for the nine months ended September 30, 2020, an increase of $4.0 million.

The increase was primarily due to the inclusion of a full nine months of post-merger TiVo expenses in the nine months ended September 30, 2021, partially offset by certain hardware product costs incurred when the product was launched in the third quarter of 2020.

We anticipate cost of hardware revenue, excluding depreciation and amortization of intangible assets, will increase in 2021 on an annual basis when compared to 2020 primarily due to the inclusion of a full year of TiVo operations in our consolidated results as well as expected growth in sales of hardware products.

Research, Development and Other Related Costs

Research, development and other related costs (“R&D expense”) are comprised primarily of employee-related costs, stock-based compensation expense, engineering consulting expenses associated with new product and technology development, product commercialization, quality assurance and testing costs, as well as costs related to patent applications and examinations, reverse engineering, materials, supplies, equipment depreciation and an allocation of facilities costs.

All research, development and other related costs are expensed as incurred.

R&D expense for the three months ended June 30, 2021 was $54.4 million, as compared to $38.2 million for the three months ended June 30, 2020, an increase of $16.2 million.

The increase was primarily due to the inclusion of a full quarter of post-merger TiVo R&D expenses in the three months ended June 30, 2021, partially offset by a decrease in severance and retention as well as personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

R&D expense for the six months ended June 30, 2021 was $109.6 million, as compared to $66.8 million for the six months ended June 30, 2020, an increase of $42.8 million.

The increase was due to the inclusion of a full six months of post-merger TiVo R&D expenses in the six months ended June 30, 2021, partially offset by a decrease in severance and retention as well as personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

R&D expense for the three months ended September 30, 2021 was $58.8 million, as compared to $57.7 million for the three months ended September 30, 2020, an increase of $1.1 million.

The increase was primarily due to employees hired in connection with the acquisition of certain assets of MobiTV in May 2021, partially offset by a decrease in personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

R&D expense for the nine months ended September 30, 2021 was $168.4 million, as compared to $124.6 million for the nine months ended September 30, 2020, an increase of $43.8 million.

The increase was due to the inclusion of a full nine months of post-merger TiVo R&D expenses in the nine months ended September 30, 2021, as well as employees hired in connection with the acquisition of certain assets of MobiTV in May 2021, partially offset by a decrease in personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

We believe that a significant level of R&D expense will be required for us to remain competitive in the future.

We also anticipate that R&D expense will increase in 2021 when compared to 2020 primarily due to the inclusion of a full year of TiVo operations in our consolidated results.

We also anticipate that R&D expense will increase in 2021 on annual basis when compared to 2020 primarily due to the inclusion of a full year of TiVo operations in our consolidated results.

Selling, General and Administrative

Selling expenses consist primarily of compensation and related costs for sales and marketing personnel engaged in sales and licensee support, reverse engineering personnel and services, marketing programs, public relations, promotional materials,

travel, trade show expenses, and stock-based compensation expense.

General and administrative expenses consist primarily of compensation and related costs for general management, information technology, finance personnel, legal fees and expenses, facilities costs, stock-based compensation expense, and professional services.

Our general and administrative expenses, other than facilities-related expenses, are not allocated to other expense line items.

Selling, general and administrative (“SG&A”) expenses for the three months ended June 30, 2021 were $67.7 million, as compared to $68.2 million for the three months ended June 30, 2020, a decrease of $0.5 million.

The decrease was due principally to decreases in merger related transaction costs, severance and retention, and sales/marketing promotion expenses, partially offset by incremental SG&A expenses as a result of including a full quarter of post-merger TiVo operations and certain expensed debt refinancing costs in the three months ended June 30, 2021.

SG&A expenses for the six months ended June 30, 2021 were $135.1 million, as compared to $104.8 million for the six months ended June 30, 2020, an increase of $30.3 million.

The increase was due principally to the inclusion of a full six months of post-merger TiVo SG&A expenses and certain expensed debt refinancing costs, partially offset by decreases in merger related transaction costs, severance and retention, sales/marketing promotion expenses, and provision for credit losses in the six months ended June 30, 2021.

Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2021 were $62.6 million, as compared to $63.8 million for the three months ended September 30, 2020, a decrease of $1.2 million.

The decrease was due principally to decreases in merger related severance and retention expenses, and a reduction in the provision for credit losses in the three months ended September 30, 2021, partially offset by an increase in stock-based compensation expense.

SG&A expenses for the nine months ended September 30, 2021 were $197.8 million, as compared to $168.6 million for the nine months ended September 30, 2020, an increase of $29.2 million.

The increase was due principally to the inclusion of a full nine months of post-merger TiVo SG&A expenses, partially offset by decreases in merger related transaction costs, severance and retention, and provision for credit losses in the nine months ended September 30, 2021.

We anticipate SG&A expenses will increase in 2021 when compared to 2020 primarily due to the inclusion of a full year of TiVo operations in our consolidated results.

Depreciation Expense

Depreciation expense for the three months ended June 30, 2021 was $5.5 million, as compared to $3.3 million for the three months ended June 30, 2020, an increase of $2.2 million.

Depreciation expense for the six months ended June 30, 2021 was $11.2 million, as compared to $5.1 million for the six months ended June 30, 2020, an increase of $6.1 million.

The increases were primarily attributable to depreciation expense on TiVo fixed assets added through the Mergers in June 2020.

Depreciation expense for the three months ended September 30, 2021 was $6.8 million and remains flat as compared to the same period in the prior year.

Depreciation expense for the nine months ended September 30, 2021 was $18.0 million, as compared to $11.8 million for the nine months ended September 30, 2020, an increase of $6.2 million.

The increase was primarily attributable to depreciation expense on TiVo fixed assets added through the Mergers in June 2020.

We anticipate depreciation expense will continue to increase in 2021 as compared to 2020 as a result of the inclusion of the full year effect of TiVo’s assets after the Mergers.

Amortization Expense

Amortization expense for the three months ended June 30, 2021 was $52.2 million, as compared to $32.0 million for the three months ended June 30, 2020, an increase of $20.2 million.

Amortization expense for the six months ended June 30, 2021 was $104.4 million, as compared to $54.6 million for the six months ended June 30, 2020, an increase of $49.8 million.

The increases were primarily attributable to amortization of intangible assets recorded in connection with the Mergers in June 2020, and secondarily due to a significant amount of intangible assets acquired in the fourth quarter of 2020.

Amortization expense for the three months ended September 30, 2021 was $52.4 million, as compared to $50.9 million for the three months ended September 30, 2020, an increase of $1.5 million.

The increase was primarily attributable to a significant amount of intangible assets acquired in the fourth quarter of 2020.

Amortization expense for the nine months ended September 30, 2021 was $156.8 million, as compared to $105.4 million for the nine months ended September 30, 2020, an increase of $51.4 million.

The increase was primarily attributable to amortization of intangible assets recorded in connection with the Mergers in June 2020, and secondarily due to a significant amount of intangible assets acquired in the fourth quarter of 2020.

With the Mergers, we anticipate that amortization expense will continue to be a significant expense since we acquired approximately $878 million in intangible assets in the Mergers which will be amortized over the next several years.

1 unchanged sentence

Litigation Expense

Litigation expense for the three months ended June 30, 2021 was $2.3 million, as compared to $3.9 million for the three months ended June 30, 2020, a decrease of $1.6 million.

Litigation expense for the six months ended June 30, 2021 was $4.8 million, as compared to $6.0 million for the six months ended June 30, 2020, a decrease of $1.2 million.

The decreases were primarily due to reduced case activity, partially offset by inclusion of post-merger TiVo litigation expenses.

Litigation expense for the three months ended September 30, 2021 was $2.3 million, as compared to $8.5 million for the three months ended September 30, 2020, a decrease of $6.2 million.

The decrease was due to the resolution of prior litigation and reduced case activity.

Litigation expense for the nine months ended September 30, 2021 was $7.2 million, as compared to $14.5 million for the nine months ended September 30, 2020, a decrease of $7.3 million.

The decrease was primarily due to the resolution of prior litigation and reduced case activity, partially offset by inclusion of post-merger TiVo litigation expenses.

We expect that litigation expense will continue to be a material portion of our operating expenses.

3 unchanged sentences

Stock-based Compensation Expense

The following table sets forth our stock-based compensation (“SBC”) expense for the three and six months ended June 30, 2021 and 2020 (in thousands):

The following table sets forth our stock-based compensation (“SBC”) expense for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Cost of licensing, services and software revenue

2 unchanged sentences

Total stock-based compensation expense

Stock-based compensation awards include employee stock options, restricted stock awards and units, and employee stock plan purchases.

The increases in SBC expense for the three and six months ended June 30, 2021, compared to the corresponding periods in 2020, were primarily a result of including incremental expense from assumed TiVo stock awards from the Mergers and increases in stock award grants as a result of the Mergers.

Stock-based compensation awards include restricted stock awards and units, employee stock plan purchases, and employee stock options.

The increases in SBC expense for the three and nine months ended September 30, 2021, compared to the corresponding periods in 2020, were primarily a result of including incremental expense from assumed TiVo stock awards from the Mergers and increases in stock award grants as a result of the Mergers.

Interest Expense

Interest expense for the three months ended June 30, 2021 was $10.6 million, as compared to $7.0 million for the three months ended June 30, 2020.

Interest expense for the six months ended June 30, 2021 was $21.9 million, as compared to $11.2 million for the six months ended June 30, 2020.

The increases in interest expense were primarily a result of a higher average debt balance as compared to the corresponding periods in 2020 as we entered into a new term loan of $1,050 million on June 1, 2020 to refinance the indebtedness of the combined companies in connection with the Mergers.

Interest expense for the three months ended September 30, 2021 was $8.5 million, as compared to $13.4 million for the three months ended September 30, 2020.

The decrease in interest expense was primarily due to a lower average debt balance as compared to the same period in 2020 as we paid down $250.1 million of principal balance during the intervening period, and secondly a reduction in interest rate as a result of the debt refinancing in June 2021 described below.

Interest expense for the nine months ended September 30, 2021 was $30.4 million, as compared to $24.6 million for the nine months ended September 30, 2020.

The increase in interest expense was primarily a result of a higher average debt balance as compared to the same period in 2020 as we entered into a new term loan of $1,050 million on June 1, 2020 to refinance the indebtedness of the combined companies in connection with the Mergers.

We anticipate interest expense will increase in 2021 when compared to 2020 as a result of a full year of the higher debt balance and amortization of debt discount and issuance costs following the Mergers, partially offset by the impact of the debt refinancing in June 2021 described below.

Other Income and expense, Net

Other income and expense, net, was $0.6 million for both the three months ended June 30, 2021 and June 30, 2020.

Other income and expense, net, for the six months ended June 30, 2021 was $2.0 million, as compared to $1.1 million for the six months ended June 30, 2020.

Other income and expense, net, in the first six months of 2021 was higher than the corresponding period in 2020 due principally to recognition of a loss of $0.7 million on our equity investment in Onkyo Corporation common stock during the six months ended June 30, 2020.

Other income and expense, net, was $0.9 million for the three months ended September 30, 2021, as compared to $2.3 million for the three months ended September 30, 2020.

Other income and expense, net, for the nine months ended September 30, 2021 was $2.9 million, as compared to $3.4 million for the nine months ended September 30, 2020.

Other income and expense, net, was lower in the three and nine months ended September 30, 2021, as compared to the corresponding periods in the prior year, principally due to a decrease in interest income from significant financing components from revenue contracts, and secondarily from a decline in interest income from our short-term investments.

Loss on Debt Extinguishment

2 unchanged sentences

Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment and recorded, in the second quarter of 2021, a loss on debt extinguishment of $8.0 million related to the write-off of unamortized debt discount and issuance costs for the portions of the 2020 Term B Loan Facility considered to be extinguished.

In connection with the Mergers and in June 2020, we refinanced the indebtedness of the combined companies by entering into the 2020 Term B Loan Facility, and consequently recognized a loss on early debt extinguishment on the legacy debt of $8.3 million in the three and six months ended June 30, 2020, respectively.

In connection with the Mergers and in June 2020 , we refinanced the indebtedness of the combined companies by entering into the 2020 Term B Loan Facility , and consequently recognized a loss on early debt extinguishment on the legacy debt of $8.3 million in th e second quarter of 2020.

Provision for Income Taxes

2 unchanged sentences

In certain circumstances we also record the income tax effects of discrete transactions in the quarter in which the transaction has occurred.

Due to our significant net operating loss carryforwards and a valuation allowance applied against a significant portion of our deferred tax assets, foreign withholding taxes are generally the primary driver of income tax expense and the primary reason for cash tax payments of income taxes.

For the three months ended June 30, 2021, our effective tax rate was based on the projected 2021 GAAP U.S.

pretax loss and is significantly higher than the 21% U.S.

Due to our significant net operating loss carryforwards and a valuation allowance applied against a significant portion of our deferred tax assets, foreign withholding taxes, base erosion and anti-abuse tax (“BEAT”), and unrealized foreign exchange loss from the prior year South Korea refund claims are the primary drivers of income tax expense and the primary reasons for cash tax payments of income taxes.

For the three months ended September 30, 2021, our effective tax rate was based on a projected 2021 U.S.

GAAP pretax loss and varies significantly from the 21% U.S.

federal tax rate.

The effective tax rate is the result of the most

significant components of income tax expense, primarily driven by foreign withholding taxes and BEAT .

The annualized effective tax rate is subject to change and such change could be significant .

For the three months ended June 30, 2021, we recorded an income tax benefit of $2.9 million on pretax loss of $4.7 million, and for the six months ended June 30, 2021, we recorded an income tax benefit of $6.9 million on a pretax loss of $4.2 million, which resulted in an effective tax rate of 162.6% for the six months ended June 30, 2021.

The income tax benefit for the three and six months ended June 30, 2021 was primarily related to a projected negative U.S.

effective tax rate applied to a year-to-date U.S.

profit before tax.

For the three months ended June 30, 2020, we recorded an income tax benefit of $9.3 million on a pretax loss of $32.4 million, and for the six months ended June 30, 2020, we recorded an income tax benefit of $7.2 million on a pretax loss of $11.6 million, which resulted in an effective tax rate of 62.7% for the six months ended June 30, 2020.

The tax benefit of $7.2 million is comprised of a $10.5 million tax benefit related to the five month pre-merger period and a tax expense of $3.3 million related to the one month post-merger period.

The five month pre-merger income tax benefit of $10.5 million was primarily related to a net decrease in valuation allowance as a result of the Mergers, deduction from foreign-derived intangible income, and the release of unrecognized tax benefits due to the lapse of applicable statute of limitation offset by tax expense from operating income, shortfalls from stock-based compensation, certain non-deductible expenses, and unrealized foreign exchange losses from the prior period South Korea refund claim.

The one month post-merger income tax expense of $3.3 million was primarily related to income tax expense from foreign operations, foreign withholding taxes and U.S.

federal minimum tax.

For the three months ended September 30, 2021, we recorded an income tax expense of $42.7 million on pretax loss of $3.7 million.

For the nine months ended September 30, 2021, we recorded an income tax expense of $35.8 million on a pretax loss of $7.9 million, which resulted in a year-to-date effective tax rate of (452.3)%.

The income tax expense for the three and nine months ended September 30, 2021 was primarily related to foreign withholding taxes, BEAT and unrealized foreign exchange loss from the prior year South Korea refund claims, which have remained relatively fixed on a forecast basis quarter over quarter.

The negative tax rate is the result of the relatively fixed tax expense recorded against a small pre-tax loss.

For the three months ended September 30, 2020, we recorded an income tax expense of $0.5 million on a pretax loss of $30.1 million.

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

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

The five month pre-merger income tax benefit of $12.2 million was primarily related to a net decrease in valuation allowance as a result of the Mergers, deduction from foreign-derived intangible income, and the release of unrecognized tax benefits due to the lapse of applicable statutes of limitation offset by tax expense from operating income, shortfalls from stock-based compensation, certain non-deductible expenses, and unrealized foreign exchange losses from the prior period South Korea refund claim.

The four month post-merger income tax expense of $5.4 million was primarily related to income tax expense from foreign operations, foreign withholding taxes and U.S.

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

As a result of the Mergers, a valuation allowance was recorded on the net deferred tax assets of the U.S.

federal consolidated group.

The year-over-year decrease in income tax expense for the quarter ended June 30, 2021 is largely attributable to the application of a negative effective tax rate to year-to-date U.S.

pre-tax income.

The year-over-year increase in income tax expense is largely attributable to the inclusion of nine months of TiVo activity in the current year.

The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets are recoverable.

5 unchanged sentences

The timing of recording a deferred tax asset valuation allowance or the reversal of such valuation allowance is subject to objective and subjective factors that cannot be known in advance.

We intend to continue maintaining a full valuation allowance on our federal deferred tax assets until there is sufficient evidence to support the reversal of all or some of a portion of these allowances.

We intend to continue maintaining a full valuation allowance on our federal deferred tax assets until there is sufficient evidence to support the reversal of all or a portion of these allowances.

However, given our current earning and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of our federal valuation allowance will no longer be needed.

10 unchanged sentences

Licensing arrangements include access to one or more of our foundational patent portfolios and may also include access to some of our industry-leading technologies and proven know-how.

In media, our licensees include multichannel video

programming distributors, OTT video service providers, consumer electronics manufacturers, social media and other new media companies.

In media, our licensees include multichannel video programming distributors, OTT video service providers, consumer electronics manufacturers, social media and other new media companies.

In semiconductor, our licensees include memory, sensors, RF component, and foundry companies.

4 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Product segment

13 unchanged sentences

These expenses are not allocated because these amounts are not considered in evaluating the operating performance of the Company’s business segments.

For the three months ended June 30, 2021, the unallocated operating expenses were $69.1 million, compared to $68.3 million for the three months ended June 30, 2020.

The increase of $0.8 million was due principally to the inclusion of a full quarter of post-merger TiVo expenses and certain expensed debt refinancing costs, partially offset by decreases in merger related transaction costs, severance and retention, and sales/marketing promotion expenses in the three months ended June 30, 2021.

For the six months ended June 30, 2021, the unallocated operating expenses were $138.2 million compared to $105.0 million for the six months ended June 30, 2020.

The increase of $33.2 million was due principally to the inclusion of a full six months of post-merger TiVo expenses and certain expensed debt refinancing costs, partially offset by decreases in merger related transaction costs, severance and retention, sales/marketing promotion expenses, and provision for credit losses in the six months ended June 30, 2021.

For the three months ended September 30, 2021, the unallocated operating expenses were $64.0 million, compared to $65.6 million for the three months ended September 30, 2020.

The decrease of $1.6 million was due principally to a decrease in merger related severance and retention expenses, and a reduction in the provision for credit losses, partially offset by an increase in stock-based compensation expense in the three months ended September 30, 2021.

For the nine months ended September 30, 2021, the unallocated operating expenses were $202.2 million compared to $170.5 million for the nine months ended September 30, 2020.

The increase of $31.7 million was due principally to the inclusion of a full nine months of post-merger TiVo expenses, partially offset by decreases in merger related transaction costs, severance and retention, and provision for credit losses in the nine months ended September 30, 2021.

The revenue and operating income (loss) amounts in this section have been presented on a basis consistent with GAAP applied at the segment level.

Of our $851.1 million in goodwill at June 30, 2021, approximately $527.8 million was allocated to our Product segment and approximately $323.3 million was allocated to our IP Licensing segment.

Of our $851.1 million in goodwill at September 30, 2021, approximately $527.8 million was allocated to our Product segment and approximately $323.3 million was allocated to our IP Licensing segment.

Product Segment

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Total revenue

4 unchanged sentences

Total operating income (loss)

Product revenue for the three months ended June 30, 2021 was $120.4 million as compared to $64.1 million for the three months ended June 30, 2020, an increase of $56.3 million.

The increase was primarily attributable to the inclusion of a full quarter of post-merger Product revenue from TiVo and an increase in revenue from the legacy Xperi Product business in the three months ended June 30, 2021.

Product revenue for the six months ended June 30, 2021 was $244.0 million as compared to $120.1 million for the six months ended June 30, 2020, an increase of $123.9 million.

The increase was primarily attributable to the inclusion of a full six months of post-merger Product revenue from TiVo.

Operating expenses for the three months ended June 30, 2021 were $105.0 million, as compared to $66.6 million for the three months ended June 30, 2020, an increase of $38.4 million.

The increase was primarily due to the inclusion of a full quarter of post-merger TiVo Product expenses, partially offset by a decrease in severance and retention costs, as well as lower personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

Operating expenses for the six months ended June 30, 2021 were $213.6 million, as compared to $112.8 million for the six months ended June 30, 2020, an increase of $100.8 million.

The increase was primarily due to the inclusion of a full six months of post-merger TiVo Product expenses, partially offset by a decrease in severance and retention costs, as well as lower personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

Operating income in the three months ended June 30, 2021 was $15.4 million compared to operating loss of $2.4 million in the three months ended June 30, 2020, with the variance due to the reasons stated above.

Operating income in the six months ended June 30, 2021 was $30.4 million compared to operating income of $7.3 million in the six months ended June 30, 2020, with the variance due to the reasons stated above.

Product revenue for the three months ended September 30, 2021 was $117.7 million as compared to $122.5 million for the three months ended September 30, 2020, a decrease of $4.8 million.

The decrease was primarily due to supply chain constraints that impacted our customers’ shipment volumes in Consumer Experience and Connected Car in the three months ended September 30, 2021.

Product revenue for the nine months ended September 30, 2021 was $361.7 million as compared to $242.6 million for the nine months ended September 30, 2020, an increase of $119.1 million.

The increase was primarily attributable to the inclusion of a full nine months of post-merger Product revenue from TiVo.

Operating expenses for the three months ended September 30, 2021 were $116.8 million, as compared to $116.1 million for the three months ended September 30, 2020, an increase of $0.7 million.

The increase was primarily due to costs of headcount added in connection with the acquisition of certain MobiTV assets in May 2021, partially offset by decreases in hardware product costs and personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

Operating expenses for the nine months ended September 30, 2021 were $330.4 million, as compared to $228.9 million for the nine months ended September 30, 2020, an increase of $101.5 million.

The increase was primarily due to the inclusion of a full nine months of post-merger TiVo Product expenses, and costs of headcount added in connection with the acquisition of certain MobiTV assets in May 2021, partially offset by a decrease in personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

Operating income in the three months ended September 30, 2021 was $0.9 million compared to operating income of $6.4 million in the three months ended September 30, 2020, with the variance due to the reasons stated above.

Operating income in the nine months ended September 30, 2021 was $31.3 million compared to operating income of $13.7 million in the nine months ended September 30, 2020, with the variance due to the reasons stated above.

IP Licensing Segment

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Total revenue

4 unchanged sentences

Total operating income

IP Licensing revenue for the three months ended June 30, 2021 was $101.8 million as compared to $73.5 million for the three months ended June 30, 2020, an increase of $28.3 million.

The increase was primarily attributable to the inclusion of a full quarter of post-merger IP Licensing revenue from TiVo and revenue from the Comcast license executed in the fourth quarter of 2020, partially offset by a decline in revenue from the Semiconductor IP licensing business.

IP Licensing revenue for the six months ended June 30, 2021 was $199.9 million as compared to $135.2 million for the six months ended June 30, 2020, an increase of $64.7 million.

The increase was primarily attributable to the inclusion of a full six months of post-merger IP Licensing revenue from TiVo and revenue from the Comcast license executed in the fourth quarter of 2020, partially offset by a decline in revenue from the Semiconductor IP licensing business.

Operating expenses for the three months ended June 30, 2021 were $34.9 million, as compared to $20.4 million for the three months ended June 30, 2020, an increase of $14.5 million.

The increase was primarily due to the inclusion of a full quarter of post-merger TiVo IP Licensing expenses, partially offset by a decrease in litigation expenses, lower severance and retention costs, and lower personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

Operating expenses for the six months ended June 30, 2021 were $68.4 million, as compared to $30.7 million for the six months ended June 30, 2020, an increase of $37.7 million.

The increase was primarily due to the inclusion of a full six months of post-merger TiVo IP Licensing expenses, partially offset by a decrease in litigation expenses, lower severance and retention costs, and lower personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

IP Licensing revenue for the three months ended September 30, 2021 was $101.6 million as compared to $80.2 million for the three months ended September 30, 2020, an increase of $21.4 million.

The increase was primarily due to revenue from the Comcast license executed in the fourth quarter of 2020, and the timing and conclusion of renewals and new executed licenses prior to and in the third quarter of 2021, and certain catch-up payments for past royalties due in the three months ended September 30, 2021.

IP Licensing revenue for the nine months ended September 30, 2021 was $301.5 million as compared to $215.5 million for the nine months ended September 30, 2020, an increase of $86.0 million.

The increase was primarily attributable to the inclusion of a full nine months of post-merger IP Licensing revenue from TiVo and revenue from the Comcast license executed in the fourth quarter of 2020, partially offset by a decline in revenue from the Semiconductor IP licensing business in the nine months ended September 30, 2021.

Operating expenses for the three months ended September 30, 2021 were $34.7 million, as compared to $40.0 million for the three months ended September 30, 2020, a decrease of $5.3 million.

The decrease was primarily due to a decrease in litigation expenses as we successfully concluded the Comcast litigation activity during the fourth quarter of 2020, partially offset by an increase in amortization expense which was primarily attributable to a significant amount of intangible assets acquired in the fourth quarter of 2020.

Operating expenses for the nine months ended September 30, 2021 were $103.1 million, as compared to $70.8 million for the nine months ended September 30, 2020, an increase of $32.3 million.

The increase was primarily due to the inclusion of a full nine months of post-merger TiVo IP Licensing expenses, partially offset by a decrease in litigation expenses, and lower personnel related costs resulting from cost synergies implemented subsequent to the Mergers.

We expect that litigation expense will continue to be a material portion of our operating expenses and may fluctuate between periods because of planned or ongoing litigation, as described in Part II, Item 1 – Legal Proceedings , in this report, and because of litigation planned for or initiated from time to time in the future in order to enforce and protect our intellectual property and contract rights.

Operating income for the three months ended June 30, 2021 was $67.0 million compared to operating income of $53.1 million for the three months ended June 30, 2020, with the variance due to the reasons stated above.

Operating income for the six months ended June 30, 2021 was $131.4 million compared to operating income of $104.5 million for the six months ended June 30, 2020, with the variance due to the reasons stated above.

Operating income for the three months ended September 30, 2021 was $67.0 million compared to operating income of $40.2 million for the three months ended September 30, 2020, with the variance due to the reasons stated above.

Operating income for the nine months ended September 30, 2021 was $198.4 million compared to operating income of $144.7 million for the nine months ended September 30, 2020, with the variance due to the reasons stated above.

Liquidity and Capital Resources

(in thousands, except for percentages)

June 30, 2021

September 30, 2021

December 31, 2020

3 unchanged sentences

Percentage of total assets

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

Net cash from operating activities

1 unchanged sentence

Net cash from financing activities

Our primary sources of liquidity and capital resources are our operating cash flows and our short-term investments.

Cash, cash equivalents and short-term investments were $199.2 million at June 30, 2021, a decrease of $57.9 million from $257.1 million at December 31, 2020.

This decrease resulted primarily from $10.5 million in dividends paid, $43.3 million in repurchases of common stock, $63.8 million in repayment of the 2020 Term B Loan Facility, $17.4 million in cash used to acquire certain assets and liabilities of MobiTV, Inc.

(the “MobiTV Acquisition”), and $6.8 million in debt refinancing costs, which was partially offset by $83.0 million in cash generated from operations and $7.2 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Cash and cash equivalents totaled $129.0 million at June 30, 2021, a decrease of $41.2 million from $170.2 million at December 31, 2020.

Cash flows provided by operations were $83.0 million for the six months ended June 30, 2021, primarily due to our net income of $2.7 million being further adjusted for non-cash items of depreciation of $11.2 million, amortization of intangible assets of $104.4 million, stock-based compensation expense of $28.1 million and a loss on debt extinguishment of $8.0 million.

These increases were partially offset by $77.9 million in changes in operating assets and liabilities including payments of employee annual bonuses earned in 2020.

Cash flows provided by operations were $67.2 million for the six months ended June 30, 2020, primarily due to our net loss of $4.3 million being adjusted for non-cash items of depreciation of $5.1 million, amortization of intangible assets of $54.6 million, stock-based compensation expense of $16.5 million, loss on debt extinguishment of $8.3 million and $11.3 million in

changes in operating assets and liabilities.

Our primary sources of liquidity and capital resources are our operating cash flows and our cash and short-term investments.

Cash, cash equivalents and short-term investments were $237.3 million as of September 30, 2021, a decrease of $19.8 million from $257.1 million at December 31, 2020.

This decrease resulted primarily from $15.8 million in dividends paid, $75.2 million in repurchases of common stock, $73.9 million in repayment of long-term debt, $17.4 million in cash used to acquire certain assets and liabilities of MobiTV, Inc.

(the “MobiTV Acquisition”), $8.3 million of capital expenditures and $6.8 million in debt refinancing costs, which was partially offset by $165.9 million in cash generated from operations and $13.8 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Cash and cash equivalents totaled $165.4 million as of September 30, 2021, a decrease of $4.8 million from $170.2 million at December 31, 2020.

Cash flows provided by operations were $ 165.9 million for the nine months ended September 30 , 2021 , primarily due to our net loss of $ 43.7 million being adjusted for non-c ash items of depreciation of $ 18.0 million, amortization of intangible assets of $ 156.8 million , stock-based compensation expense of $ 42.5 million and a loss on debt extinguishment of $8.0 million .

These increases were partially offset by a reduction of $ 7.

1 million in deferred income taxes and $ 8 .

3 million in changes in operating assets and liabilities .

Cash flows provided by operations were $129.4 million for the nine months ended September 30, 2020, primarily due to our net loss of $34.8 million being adjusted for non-cash items of depreciation of $11.8 million, amortization of intangible assets of $105.4 million, stock-based compensation expense of $26.6 million, loss on debt extinguishment of $8.3 million and $31.6 million in changes in operating assets and liabilities.

These increases were partially offset by a reduction of $28.2 million in deferred income taxes.

Net cash used in investing activities was $6.2 million for the six months ended June 30, 2021, primarily related to purchases of short-term investments of $45.8 million, cash used in the MobiTV Acquisition of $17.4 million and capital expenditures of $4.9 million, partially offset by maturities and sales of securities of $61.9 million.

Net cash provided by investing activities was $135.7 million for the six months ended June 30, 2020, primarily related to maturities and sales of securities of $20.7 million and net cash acquired in the Mergers of $117.4 million, partially offset by $1.9 million in capital expenditures.

Net cash used in financing activities was $117.2 million for the six months ended June 30, 2021 principally due to $63.8 million in repayment of indebtedness, $6.8 million in debt refinancing costs, $10.5 million in dividends paid, and $43.3 million in repurchases of common stock, partially offset by $7.2 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Net cash used in financing activities was $103.6 million for the six months ended June 30, 2020 principally due to $1,078.6 million in repayment of indebtedness, $20.2 million in dividends paid, and $20.9 million in repurchases of common stock, partially offset by $1,011.3 million in net long-term debt proceeds and $4.8 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Net cash used in investing activities was $11.6 million for the nine months ended September 30, 2021, primarily related to purchases of short-term investments of $65.4 million, cash used in the MobiTV Acquisition of $17.4 million and capital expenditures of $8.3 million, partially offset by maturities and sales of securities of $79.7 million.

Net cash provided by investing activities was $72.5 million for the nine months ended September 30, 2020, primarily related to maturities and sales of securities of $26.9 million and net cash acquired in the Mergers of $117.4 million, partially offset by purchase of short-term investment of $68.1 million and capital expenditures of $3.0 million.

Net cash used in financing activities was $157.9 million for the nine months ended September 30, 2021 principally due to $73.9 million in repayment of indebtedness, $6.8 million in debt refinancing costs, $15.8 million in dividends paid, and $75.2 million in repurchases of common stock, partially offset by $13.8 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Net cash used in financing activities was $161.6 million for the nine months ended September 30, 2020 principally due to $1,091.7 million in repayment of indebtedness, $25.6 million in dividends paid, and $59.3 million in repurchases of common stock, partially offset by $1,010.3 million in net long-term debt proceeds and $4.8 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

The primary objectives of our investment activities are to preserve principal and to maintain liquidity while at the same time capturing a market rate of return.

10 unchanged sentences

Any impairment that has not been recorded through an allowance for credit losses is recognized in accumulated other comprehensive income or loss.

We did not recognize a provision for credit losses related to our AFS debt securities in the three and six months ended June 30, 2021 and 2020, respectively.

We did not recognize a provision for credit losses related to our AFS debt securities in the three and nine months ended September 30, 2021 and 2020, respectively.

On December 1, 2016, we entered into a Credit Agreement with Royal Bank of Canada (“RBC”) which provided for a $600.0 million seven-year term B loan facility.

7 unchanged sentences

The 2020 Term B Loan Facility was scheduled to mature on June 1, 2025.

Upon the closing of the 2020 Credit Agreement, we borrowed $1,050 million under the

2020 Term B Loan Facility.

Upon the closing of the 2020 Credit Agreement, we borrowed $1,050 million under the 2020 Term B Loan Facility.

Net proceeds were used on June 1, 2020, together with cash and cash equivalents, to repay existing indebtedness of the combined Company, including the aforementioned Term B Loan Facility with RBC.

2 unchanged sentences

On June 8, 2021, we paid down $50.6 million in principal balance and completed a refinancing of the 2020 Term B Loan Facility by entering into an amendment to the 2020 Term B Loan Facility (the “ Refinanced Term B Loans”) to provide a new loan facility in the amount of $810 .0 million, reducing the borrowing rate by 50 basis points and extending the loan maturity date to June 2028.

At June 30, 2021, $810.0 million was outstanding under the Refinanced Term B Loans with an interest rate, including amortization of debt discount and issuance costs, of 5.0%.

We commenced repaying quarterly installments under the Refinanced Term B Loans in the third quarter of 202 1 .

At September 30, 2021, $799.9 million was outstanding under the Refinanced Term B Loans with an interest rate, including amortization of debt discount and issuance costs, of 4.2%.

Interest is payable monthly.

1 unchanged sentence

We are obligated to pay a portion of excess cash flow on an annual basis beginning in March 2023 based on certain leverage ratios and our excess cash flow generated for the immediately preceding calendar year.

The Refinanced Term B Loans contain customary covenants, and as of June 30, 2021 we were in full compliance with such covenants.

The Refinanced Term B Loans contain customary covenants, and as of September 30, 2021, we were in full compliance with such covenants.

Following the closing of the Mergers, on June 12, 2020, our Board of Directors terminated a prior stock repurchase program and approved a new stock repurchase plan (the “Plan”) providing for the repurchase of up to $150.0 million of our common stock dependent on market conditions, share price and other factors.

2 unchanged sentences

The stock repurchases may be made from time to time, through solicited or unsolicited transactions in the open market, in privately negotiated transactions, or pursuant to a Rule 10b5-1 plan.

Since the inception of the Plan, and through June 30, 2021, we have repurchased an aggregate of approximately 6.4 million shares of common stock at a total cost of $105.1 million at an average price of $16.30.

During the six months ended June 30, 2021, we repurchased an aggregate of approximately 1.5 million shares of common stock at a total cost of $35.0 million at an average price of $22.93.

As of June 30, 2021, the total remaining amount available for repurchase under the Plan was $144.9 million.

Since the inception of the Plan, and through September 30, 2021, we have repurchased an aggregate of approximately 7.7 million shares of common stock at a total cost of $129.9 million at an average price of $16.93.

During the nine months ended September 30, 2021, we repurchased an aggregate of approximately 2.8 million shares of common stock at a total cost of $59.8 million at an average price of $21.72.

As of September 30, 2021, the total remaining amount available for repurchase under the Plan was $120.1 million.

We may continue to execute authorized repurchases from time to time under the Plan.

1 unchanged sentence

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

On July 26, 2021, the Board declared a cash dividend of $0.05 per share of common stock, payable on September 14, 2021 to the stockholders of record at the close of business on August 24, 2021.

On October 29, 2021, the Board declared a cash dividend of $0.05 per share of common stock, payable on December 20, 2021 to the stockholders of record at the close of business on November 29, 2021.

We anticipate that all quarterly dividends will be paid out of cash, cash equivalents and short-term investments.

From 2018 through the second quarter of 2021, we generated approximately $815 million of cash flows from operating activities.

From 2018 through the third quarter of 2021, we generated approximately $898 million of cash flows from operating activities.

While we expect to continue to generate cash flows from operating activities for the remainder of 2021, the COVID-19 pandemic continues to present uncertainties to the level of such cash flows as compared to prior years.

Additionally, integration of the two legacy business operations of Xperi and TiVo post-merger and transaction costs relating to the contemplated separation of our two business segments will impact operating cash flow for 2021.

We have taken actions to manage cash flows by reducing discretionary spending and other variable costs, delaying employee hiring, and closely monitoring receivables and payables.

1 unchanged sentence

Poor financial results, unanticipated expenses, unanticipated acquisitions of technologies or businesses or unanticipated strategic investments could give rise to additional financing requirements sooner than we expect.

There can be no assurance that equity or debt financing will be available when needed or, if available, that such financing will be on terms satisfactory to us and not dilutive to our then-current stockholders, and any debt financing may require us to agree to restrictive covenant that may limit our ability to conduct our business operations.

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

The sale of additional equity securities could

result in dilution to our stockholders.

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

Contractual Obligations

For information about our contractual obligations, see “Contractual Obligations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

Other than the principal payment of $63.8 million made by us under the 2020 Term B Loan Facility in the first six months of 2021, our contractual obligations have not changed materially since December 31, 2020.

As of June 30, 2021, we had accrued $96.0 million of unrecognized tax benefits in long-term income taxes payable related to uncertain tax positions, which includes $3.4 million of accrued interest and penalties.

At this time, we are unable to reasonably

estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time.

Other than the principal payment of $73.9 million made by us under our long-term debt in the first nine months of 2021, our contractual obligations have not changed materially since December 31, 2020.

As of September 30, 2021, we had accrued $96.3 million of unrecognized tax benefits in long-term income taxes payable related to uncertain tax positions, which includes $3.6 million of accrued interest and penalties.

At this time, we are unable to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time.

If we are successful in receiving our South Korean withholding tax refunds of $119.2 million, including interest and foreign exchange gain, then $63.0 million of unrecognized tax benefit would be payable to the U.S.

1 unchanged sentence

Refer to “Note 15 – Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements for additional information.

Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

During the six months ended June 30, 2021, there were no significant changes in our critical accounting policies.

During the nine months ended September 30, 2021, there were no significant changes in our critical accounting policies.

See “Note 2 – Summary of Significant Accounting Policies” of the Notes to the Condensed Consolidated Financial Statements for additional detail.

5 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis