What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-26 · 219 added, 366 removed, 187 unchanged (76% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion (presented in thousands, except for percentages and share numbers) should be read in conjunction with our consolidated financial statements and notes thereto.

The following discussion is intended to promote understanding of the results of operations and financial condition and should be read in conjunction with our consolidated financial statements and notes thereto.

This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.

Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC by Xperi Corporation on February 18, 2020, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website at investor.xperi.com.

Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC by Xperi Holding Corporation on February 26, 2021, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website at investor.xperi.com.

Business Overview

7 unchanged sentences

For further discussion on the Mergers, refer to “Item 1A.

Risk Factors,” and “Note 9 – Business Combination” in the Notes to Consolidated Financial Statements.

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.

We invent, develop, and deliver technologies that enable extraordinary experiences.

Xperi technologies, delivered via our brands (DTS, HD Radio, IMAX Enhanced, Invensas, TiVo), and by our subsidiary, Perceive Corporation (“Perceive”), make entertainment more entertaining, and smart devices smarter.

Risk Factors,” and “Note 9 – Business Combinations” in the Notes to Consolidated Financial Statements.

We are a leading consumer and entertainment product/solutions licensing company and one of the industry’s largest intellectual property licensing platforms, with a diverse portfolio of media and semiconductor intellectual property and more than 11,000 patents and patent applications worldwide.

We create extraordinary experiences at home and on the go for millions of consumers around the world, elevating content and how audiences connect with it in a way that is more intelligent, immersive and personal.

Powering smart devices, connected cars, entertainment experiences and more, we’ve created a unified ecosystem that reaches highly engaged consumers, uncovering significant new business opportunities, now and in the future.

Our technologies are integrated into billions of consumer devices, media platforms, and semiconductors worldwide, driving increased value for partners, customers and consumers.

We shape how millions of consumers access and experience entertainment content, and our innovations are found in billions of devices and hundreds of millions of interfaces around the globe.

Headquartered in Silicon Valley with operations around the world, we have approximately 1,850 employees and over 30 years of operating experience .

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.

Headquartered in Silicon Valley with operations around the world, we have approximately 1,900 employees and more than 35 years of operating experience.

We are currently planning, 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 continue to evaluate the optimal timing of the contemplated business separation and currently anticipate that such separation will be completed in the second half of 2022.

COVID-19 Impact

Our business and results of operations have been adversely affected by the global COVID-19 pandemic and related events and we expect its impact to continue.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic on our businesses, and there is no guarantee that we will be able to address its adverse impacts fully or effectively.

The impact to date has included periods of significant volatility in various markets and industries.

The volatility has had, and we anticipate it will continue to have, an adverse effect on our customers and on our business, financial condition and results of operations, and may result in an impairment of our long-lived assets, including goodwill, increased credit losses and impairments of investments in other companies.

In particular, the automotive market, as well as the broad consumer electronics industries, have been and we anticipate will continue to be impacted by the pandemic and/or other events beyond our control, and further volatility could have an additional negative impact on these industries, customers, and our business.

For example, we experienced an approximately 15% decline in our royalty revenue in 2020 from our products sold to the automotive market, such as HD Radio, as compared to the prior year, and currently expect automotive royalties will remain below previous levels for at least the near-term.

In particular, the automotive market, as well as the broad consumer electronics industry, has been and may continue to be impacted by the pandemic and/or other events beyond our control, and further volatility could have an additional negative impact on these industries, customers, and our business.

In addition, the COVID-19 pandemic and, to a lesser extent, U.S.

restrictions on trade with certain Chinese customers have and may continue to impact the financial conditions of our customers, who may not be able to satisfy their obligations under our agreements timely or at all.

For example, we recorded provisions for credit losses of approximately $2.0 million and $4.3 million in the first and fourth quarters of 2020, respectively, due to the

heightened risk of nonpayment on existing accounts receivable as a result of the impaired financial condition and liquidity positions of certain of our customers.

In addition, actions by United States federal, state and foreign governments to address the COVID-19 pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, also had a significant adverse effect on the markets in which we conduct our businesses.

COVID-19 poses the risk that our workforce, suppliers, and other partners may be prevented from conducting normal business activities for an indefinite period of time, including due to shutdowns or stay-at-home orders that may be requested or mandated by governmental authorities.

We also implemented policies to allow our employees to work remotely as a result of the pandemic as we reviewed processes related to workplace safety, including social distancing and sanitation practices recommended by the Centers for Disease Control and Prevention.

The impacts of the COVID-19 pandemic could also cause delays in obtaining new customers and executing renewals and could also impact our business as consumer behavior changes in response to the slowed economic conditions.

Furthermore, our ongoing integration efforts following the Mergers may be delayed or interrupted due to the operational challenges and various restrictions and limitations imposed on us as a result of the COVID-19 pandemic, which may adversely affect the success of the integration and anticipated benefits of the Mergers.

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 on March 27, 2020.

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 fees based revenue will continue to be susceptible to the volatility and potential market downturns induced by the COVID-19 pandemic.

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

restrictions on trade with certain Chinese customers, have impacted and may continue to impact the financial conditions of our customers.

Actions by United States federal, state and local governments, as well as by foreign governments, to address the COVID-19 pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, also had a significant adverse effect on the markets in which we conduct our businesses.

COVID-19 poses the risk that our workforce, suppliers, and other partners may be prevented from conducting normal business activities for an extended period of time, including due to shutdowns or stay-at-home orders that may be requested or mandated by governmental authorities.

We have implemented policies to allow our employees to work remotely as a result of the pandemic as we reviewed processes related to

workplace safety, including social distancing and sanitation practices recommended by the Centers for Disease Control and Prevention.

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

Since the start of the summer of 2021, there has been rapid spread of the 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.

With the emergence of the highly transmissible Omicron variant in November 2021, COVID-19 daily cases in the U.S.

reached the highest level in January 2022.

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, and delays in shipments, product development and product launches.

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.

Moreover, the COVID-19 pandemic, its related impact, and United States federal, state and foreign government policies enacted to combat the pandemic have contributed to a recent rise of inflation that may increase the cost of our operations and reduce demand for our products and services and those of our customers, which may adversely affect our financial performance.

Although a significant portion of our anticipated revenue for 2022 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 precipitated by the COVID-19 pandemic.

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

the availability, distribution and effectiveness of vaccines;

the spread of new variants of COVID-19;

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.

Although we are unable to predict the full impact and duration of the COVID-19 pandemic on our business, we are actively managing our financial expenditures in response to continued uncertainty.

Further discussion of the potential impacts on our business from the COVID-19 pandemic is provided under Part I, Item 1A – Risk Factors .

In evaluating our financial condition and operating performance, we focus on revenue and cash flow from operations.

For the year ended December 31, 2021 as compared to the year ended December 31, 2020:

Revenue decreased by $14.3 million, or 2%, from $892.0 million to $877.7 million.

The decrease was primarily due to past royalty revenue from the Comcast Corporation (“Comcast”) license executed in the fourth quarter of 2020 and declines in revenue from the Semiconductor IP licensing business and the Product business driven largely by supply chain disruptions from the COVID-19 pandemic, partially offset by the inclusion of a full year of post-merger revenue from TiVo in 2021.

Cash provided by operating activities decreased by $192.8 million, or 45%, from $427.6 million to $234.8 million.

The decrease was primarily due to past royalties received from Comcast in the fourth quarter of 2020, partially offset by reductions in merger-related transaction costs and litigation expense in 2021 as compared to 2020.

Results of Operations

Significant events occurred over the past three years that affect the comparability of our financial statements.

Significant events occurred over the past two years that affect the comparability of our financial statements.

Key events and their financial impacts include the following:

1 unchanged sentence

In connection with the Agreement, we resolved all of the outstanding litigation with Comcast.

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

The Agreement had a significant positive impact on our financial results in 2020.

On June 1, 2020, we completed the Mergers with TiVo, we incurred significant one-time expenses in 2020 such as transaction related costs (e.g.

The Agreement is effective as of the expiration of Comcast’s prior agreement in 2016 and its

term continues into 2031.

Due to revenue recognized for the unlicensed period from 2016, t he Agreement had a significant positive impact on our financial results and cash flows in 2020.

On June 1, 2020, we completed the Mergers with TiVo.

As a result, we incurred significant one-time expenses in 2020 such as transaction related costs (e.g.

bankers fees, legal fees, consultant fees), 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).

Additionally, our amortization expense increased significantly due to the valuation of TiVo’s intangible assets recorded as a result of the Mergers.

On December 10, 2018, we entered into an agreement with Samsung Electronics, Co., Ltd.

(“Samsung”) to settle and dismiss all pending litigation matters.

In conjunction with the settlement, Samsung entered into a new patent license agreement with us.

The settlement had a material impact on our financial results in 2018.

We generate our 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.

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.

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.

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.

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, 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.

TiVo’s results of operations and cash flows have been included in our consolidated financial statements for periods subsequent to June 1, 2020.

We derive the majority of our revenue from the licensing of our technologies and intellectual property (“IP”) rights to customers.

For our revenue recognition policy including descriptions of revenue-generating activities, refer to “Note 4 – Revenue ” of the Notes to Consolidated Financial Statements.

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

Years ended December 31,

Licensing, services and software

Total revenue

Operating expenses:

Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets

Cost of hardware revenue, excluding depreciation and amortization of intangible assets

Cost of revenue, excluding depreciation and amortization of intangible assets

Research, development and other related costs

13 unchanged sentences

Years Ended December 31,

Total revenue

The $612.0 million or 219% increase in total revenue for the year ended December 31, 2020, compared to the prior year, was primarily due to the inclusion of revenue from TiVo operations following the Mergers, which included revenue from the patent license agreement with Comcast as discussed below, and Semiconductor IP agreements executed during the first two quarters of 2020.

These increases in revenue were partially offset by a decrease in per-unit royalty revenue from existing licensing agreements.

On November 9, 2020, we entered into a patent license agreement (the “Agreement”) with Comcast and we resolved all of the outstanding litigation with Comcast.

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

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

In connection with the Agreement, we recorded revenue for past royalties in the fourth quarter of 2020 and expect to recognize revenue from the prospective license into 2031.

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 year ended December 31, 2020 was $57.3 million, as compared to $8.1 million for the year ended December 31, 2019, an increase of $49.2 million.

The increase was primarily due to the inclusion of $49.0 million of TiVo expenses since the Mergers.

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 including 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 third-party manufacturing costs, 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 year ended December 31, 2020 was $21.1 million, as compared to $0.3 million for the year ended December 31, 2019, an increase of $20.8 million.

The increase was primarily due to the inclusion of $20.0 million of TiVo expenses since the Mergers.

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 including a full year of TiVo operations in our consolidated results as well as expected growth in sales of hardware products.

The $14.3 million or 2% decrease in revenue for the year ended December 31, 2021, compared to the prior year, was primarily due to past royalty revenue from Comcast recorded in the fourth quarter of 2020 and declines in revenue from the Semiconductor IP licensing business and the Product business driven largely by supply chain disruptions from the COVID-19 pandemic, partially offset by the inclusion of a full year of post-merger revenue from TiVo in 2021.

On November 9, 2020, we entered into a patent license agreement (the “Comcast Agreement”) with Comcast and, as a result, we resolved all outstanding litigation with Comcast.

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

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

In connection with the

Comcast Agreement, we recorded revenue for past royalties in the fourth quarter of 2020 and expect to recognize revenue from the prospective license into 2031 .

Cost of revenue, E xcluding Depreciation and Amortization of Intangible Assets

Cost of revenue, excluding depreciation and amortization of intangible assets, consists primarily of employee-related costs, royalties paid to third parties, hardware product-related costs, maintenance costs and an allocation of facilities costs, as well as service center and other expenses related to providing our technology solution offerings and NRE services.

Cost of revenue, excluding depreciation and amortization of intangible assets, for the year ended December 31, 2021 was $126.8 million, as compared to $78.4 million for the year ended December 31, 2020, an increase of $48.4 million.

The increase was primarily due to the inclusion of a full year of post-merger TiVo costs, and secondarily from the growth in our hardware product sales in 2021.

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, product "tear downs" and reverse engineering, materials, supplies, equipment depreciation and an allocation of facilities 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, and an allocation of facilities costs.

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

R&D expense for the year ended December 31, 2021 was $232.2 million as compared to $195.2 million for the year ended December 31, 2020, an increase of $37.0 million.

The increase was due to the inclusion of $76.2 million of post-merger TiVo R&D expenses in 2020, increased headcount and personnel costs in Perceive, an internal startup that focuses on delivering edge-based inference solutions, and severance charges incurred in connection with consolidating and optimizing post-merger operations.

The increase was primarily due to the inclusion of a full year of post-merger TiVo R&D expenses in 2021, as well as employees hired in connection with the acquisition of certain assets of MobiTV on May 31, 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 due primarily to including a full year of TiVo operations in our consolidated results.

Selling, General and Administrative

3 unchanged sentences

Selling, general and administrative expenses for the year ended December 31, 2021 were $266.1 million, as compared to $245.4 million for the year ended December 31, 2020, an increase of $20.7 million.

The increase was due principally to the inclusion of $92.8 million of TiVo expenses, an increase in merger related transaction costs of $24.8 million, post-merger severance and retention costs of $14.3 million, and $4.8 million in costs associated with the contemplated separation of our business, partially offset by a reduction in travel and entertainment expenses.

We anticipate selling, general and administrative expenses will increase in 2021 when compared to 2020 due to including a full year of TiVo operations in our consolidated results.

The increase was due principally to the inclusion of a full year of post-merger TiVo SG&A expenses, partially offset by decreases in merger-related transaction costs, severance and retention, and provision for credit losses as well as decreased personnel-related costs resulting from cost synergies implemented in 2021.

Depreciation Expense

Depreciation expense was $23.8 million for the year ended December 31, 2021, as compared to $17.9 million for the year ended December 31, 2020, an increase of $5.9 million.

The increase was primarily attributable to depreciation expense on TiVo fixed assets added since the Mergers.

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

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

Amortization Expense

Amortization expense for the year ended December 31, 2021 was $203.4 million, as compared to $156.8 million for the year ended December 31, 2020, an increase of $46.6 million.

The increase was primarily attributable to amortization of intangible assets recorded in connection with the Mergers in June 2020, partially offset by certain intangible assets becoming fully amortized over the past twelve months.

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 , which was partially offset by certain acquired intangible asset s becoming fully amortized in the fourth quarter of 202 1 .

As a result of the Mergers, we anticipate that amortization expenses will continue to be a significant expense since we acquired approximately $878.0 million in intangible assets which will be amortized over the next several years.

1 unchanged sentence

Litigation Expense

Litigation expense for the year ended December 31, 2020 was $20.8 million, as compared to $5.1 million for the year ended December 31, 2019, an increase of $15.7 million.

The increase was primarily due to inclusion of post-merger TiVo litigation expenses and increased case activity in 2020.

In 2019 and 2020, prior to the Mergers, TiVo’s litigation expense was significantly higher than Xperi’s litigation expense in the same periods.

Litigation expense for the year ended December 31, 2021 was $11.6 million, as compared to $20.8 million for the year ended December 31, 2020, a decrease of $9.2 million.

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

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 expense for the years ended December 31, 2020, 2019 and 2018 (in thousands):

The following table sets forth our stock-based compensation (“SBC”) expense for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Years Ended December 31,

Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets

Cost of revenue, excluding depreciation and amortization of intangible assets

Research, development and other related costs

2 unchanged sentences

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

The increase in stock-based compensation for the year ended December 31, 2020, compared to the prior year, was primarily a result of including incremental expense of $5.8 million from assumed TiVo stock awards and expenses from new, post-merger grants to legacy TiVo employees in 2020 as well as increases in restricted stock awards and units as a result of the Mergers.

The increase in stock-based compensation for the year ended December 31, 2021, compared to the prior year, was primarily a result of including a full year of SBC expense from assumed TiVo stock awards from the Mergers and increases in stock award grants for an expanded workforce as a result of the Mergers.

Interest Expense

Interest expense for the year ended December 31, 2021 was $39.0 million, as compared to $37.9 million for the year ended December 31, 2020.

The increase in interest expense was primarily a result of a higher average debt balance as compared to

2019 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.

The increase in interest expense was primarily a result of a higher average debt balance in 2021 as compared to 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, partially offset by a reduction in interest rate as a result of the debt refinancing in June 2021 described below.

We anticipate interest expense will decrease in 2022 when compared to 2021 as a result of a full year of the lower debt balance and amortization of debt discount and issuance costs.

However, those reductions could potentially be offset by increasing interest rates since our interest rate is variable.

Other Income and Expense, Net

Other income and expense, net, for the year ended December 31, 2021 was $2.6 million, as compared to $4.5 million for the year ended December 31, 2020.

Other income was lower in the current year principally due to a decrease in interest income from financing components from revenue contracts, and secondarily from a decline in interest income from our short-term investments.

Other income was lower in the current 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

In connection with the Mergers, we refinanced the indebtedness of the combined Company, and recognized a loss on early debt extinguishment of $8.3 million in 2020.

We did not incur a loss on early debt extinguishment in 2019 or 2018.

In June 2021, we refinanced the 2020 Term B Loan Facility by, among other things, lowering the interest rate on the debt.

Certain lenders of the original loan syndication did not participate in the refinancing.

Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment and recorded, in 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 June 2020, in connection with the Mergers we refinanced the indebtedness of the combined companies by entering into the 2020 Term B Loan Facility, and consequently recognized a loss of $8.3 million on early debt extinguishment on the legacy debt of TiVo in 2020.

Provision for (benefit from) Income Taxes

For the year ended December 31, 2021, we recorded an income tax provision of $28.4 million on a pretax loss of $30.5 million, which resulted in an effective tax rate of (92.9)%.

The income tax expense of $28.4 million was primarily related to foreign withholding taxes, unrealized foreign exchange loss from prior year South Korea refund claims, tax on profitable foreign subsidiary earnings, state income taxes and BEAT, partially offset by releases of unrecognized tax benefits.

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

For the year ended December 31, 2020, we recorded an income tax benefit of $7.9 million on a pretax income of $135.9 million, which resulted in an effective tax rate of (5.8)%.

The income tax benefit of $7.9 million was primarily related to a net decrease in valuation allowance as a result of the Mergers, eligible deductions from foreign-derived intangible income (“FDII”), releases of unrecognized tax benefits due to the lapse of applicable statutes of limitation, deductibility of certain transaction expenses, and unrealized foreign exchange gains from the prior period South Korea refund claim, partially offset by tax expense from operating income, withholding taxes, shortfalls from stock-based compensation, and certain non-deductible expenses.

For the year ended December 31, 2019, we recorded an income tax benefit of $19.0 million on a pretax loss of $83.1 million, which resulted in an effective tax rate of 22.9%.

The income tax benefit for the year ended December 31, 2019 was primarily related to tax benefit from operating losses, tax credits, the release of valuation allowance on certain deferred tax assets related to tax credits, and eligible deductions from FDII, offset by an increase in valuation allowance against deferred tax assets primarily related to capitalized research expenses, foreign withholding taxes, non-deductible stock-based compensation and certain non-deductible expenses.

The year-over-year increase in income tax expense is largely attributable to the inclusion of twelve months of TiVo activity in the current year and to further declines in the dollar value of the South Korea refund claim.

During the fourth quarter of 2019, we filed a refund claim for foreign taxes previously withheld from licensees in South Korea based on court rulings in South Korea and other business factors.

These previously-withheld foreign taxes were claimed as a foreign tax credit in the U.S.

As a result of the 2019 refund claim and a planned refund claim for 2020, we recorded $123.0 million and $65.2 million as a noncurrent income tax receivable at December 31, 2020 and 2019, respectively, $62.3 million and $48.2 million as a noncurrent income tax payable at December 31, 2020 and 2019, respectively, and $36.7 million and $17.0 million as a reduction in deferred tax assets at December 31, 2020 and 2019, respectively.

As a result of the 2019 refund claim and planned refund claims for 2020 and 2021, we recorded a total of $118.1 million and $123.0 million as a noncurrent income tax receivable at December 31, 2021 and 2020, respectively, $63.1 million and $62.3 million as a noncurrent income tax payable at December 31, 2021 and 2020, respectively, and $40.6 million and $36.7 million as a reduction in deferred tax assets at December 31, 2021 and 2020, respectively.

Although the refund claim is subject to judicial review, we anticipate we will receive refunds in the amount recorded in the receivable.

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.

4 unchanged sentences

However, given our current earnings 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 the federal valuation allowance will no longer be needed.

Release of the valuation allowance would result in the recognition of certain federal deferred tax assets and a decrease to income tax expense for the period the release is recorded.

However, the exact timing and amount of the valuation allowance release are subject to change based on the factors present when reevaluating both positive and negative evidence.

Release of the valuation allowance would result in the recognition of certain federal deferred tax assets and a

decrease to income tax expense for the period the release is recorded.

However, the exact timing and amount of the valuation allowance release are subject to change based on the factors present when reevaluating both positive and negative evidenc e .

Segment Operating Results

In connection with the Mergers, we re-evaluated our reportable segments.

We concluded that we have two reportable segments:

(1) Product and (2) IP Licensing.

We operate in two reportable segments:

(1) IP Licensing and (2) Product.

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 our business segments.

Our Chief Executive Officer has been determined to be the Chief Operating Decision Maker (“CODM”) in accordance with the authoritative guidance on segment reporting.

The Product segment consists primarily of licensing our internally-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 our 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.

The IP Licensing segment consists primarily of licensing our innovations to leading companies in the media and semiconductor industries.

In our IP Licensing segment, we primarily license our innovations to leading companies in the broader entertainment industry, and those developing new technologies that will help drive this industry forward.

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

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.

We do not identify or allocate assets by reportable segment, nor does the CODM evaluate reportable segments using discrete asset information.

3 unchanged sentences

Years Ended December 31,

Product segment

IP Licensing segment

Product segment

Total revenue

Operating expenses:

Product segment

IP Licensing segment

Product segment

Unallocated operating expenses (1)

1 unchanged sentence

Operating income (loss):

Product segment

IP Licensing segment

Product segment

Unallocated operating expenses (1)

2 unchanged sentences

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

(2) Includes seven months of financial results of TiVo following the Mergers.

For year ended December 31, 2021, the unallocated operating expenses were $271.7 million compared to $249.1 million for the year ended December 31, 2020.

The increase of $131.4 million was due primarily to the inclusion of TiVo expenses, one-time merger related transaction costs, post-merger severance and retention costs, and costs associated with the contemplated separation of our business.

The increase of $22.6 million was due primarily to the inclusion of a full year of post-merger TiVo expenses, partially offset by decreases in merger-related transaction costs, severance and retention, and provision for credit losses in 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 $ 847.0 million in goodwill at December 31, 20 20 , approximately $ 523.8 million is allocated to our Product segment and approximately $ 323.

2 million is allocated to our IP Licensing segment .

Product Segment

Of our $851.1 million in goodwill at December 31 , 2021, approximately $527.8 million was allocated to our Product segment and approximately $323.3 million was allocated to our IP Licensing segment .

IP Licensing Segment

Years Ended December 31,

(in thousands)

Total revenue

Operating expenses:

Total cost of revenue

Cost of revenue

Research, development and other related costs

Total operating expenses (1)

Total operating income (loss)

Total operating income

(1) Excludes operating expenses which are not allocated on a segment basis.

The increase in revenue in 2020, as compared to 2019, was primarily attributable to the inclusion of TiVo revenue since the Mergers and higher minimum guarantee (“MG”) revenue due to the timing and duration of MG contracts up for renewal and executed during 2020, partially offset by a decrease in per-unit royalty revenue from existing licensing arrangements driven primarily by the COVID-19 impact.

The increase in operating expenses in 2020, as compared to 2019, was primarily due to the inclusion of TiVo Product expenses, increased headcount and personnel costs in Perceive, partially offset by lower legacy Xperi amortization expense due to certain intangible assets becoming fully amortized over the past twelve months.

We expect R&D expense will continue to be significant in this segment as we develop new products and solutions, and as we include a full year of R&D expenses from TiVo operations in 2021.

Operating income for the years ended December 31, 2020 and 2019 was $24.2 million and $11.6 million, respectively, which represented an increase of $12.6 million, for the reasons stated above.

IP Licensing Segment

The decrease in revenue in 2021, as compared to 2020, was primarily attributable to past royalty revenue from Comcast recorded in the fourth quarter of 2020 as discussed in “Results of Operations,” and secondarily a decline in revenue from the Semiconductor IP licensing business, partially offset by the inclusion of a full year of post-merger IP Licensing revenue from TiVo in 2021.

The increase in operating expenses in 2021, as compared to 2020, was primarily due to the inclusion of a full year of post-merger TiVo IP Licensing expenses, partially offset by a decrease in litigation expenses in 2021.

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 I, Item 3 – Legal Proceedings , 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 years ended December 31, 2021 and 2020 was $248.4 million and $402.6 million, respectively, which represented a decrease of $154.2 million, for the reasons stated above.

Product Segment

Years Ended December 31,

(in thousands)

Total revenue

Operating expenses:

Total cost of revenue

Cost of revenue

Research, development and other related costs

2 unchanged sentences

(1) Excludes operating expenses which are not allocated on a segment basis.

The increase in revenue in 2020 , as compared to 2019, was primarily attributable to inclusion of post-merger TiVo IP Licensing revenue including past royalt ies revenue from Comcast as discussed in “Results of O perations , ” and secondarily Semiconductor IP agreements executed during 2020, partially offset by a decrease in revenue from other Semiconductor IP license agreements .

The increase in operating expenses in 2020, as compared to 2019, was primarily due to the inclusion of TiVo IP Licensing expenses, including significant amortization of intangible assets recorded as a result of the Mergers, partially offset by lower legacy Xperi amortization expense due to certain intangible assets becoming fully amortized over the past twelve months.

In 2019 and in 2020, prior to the Mergers, TiVo’s litigation expenses were significantly higher than Xperi’s litigation expenses in the same periods.

The increase in revenue in 2021, as compared to 2020, was primarily attributable to the inclusion of a full year of post-merger Product revenue from TiVo.

This increase was partially offset by a decrease in Consumer Electronics revenue driven largely by supply chain constraints that impacted our customers’ shipment volumes in 2021, and from entering into minimum guarantee customer contracts of shorter duration in 2021 as compared to 2020.

The increase in operating expenses in 2021, as compared to 2020, was primarily attributable to the inclusion of a full year 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 for the years ended December 31, 2021 and 2020 was $37.1 million and $24.2 million, respectively, which represented an increase of $12.9 million, for the reasons stated above.

Liquidity and Capital Resources

The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents as of and for the years ended December 31, 2021, 2020 and 2019:

(in thousands, except for percentages)

9 unchanged sentences

Cash, cash equivalents and short-term investments were $261.7 million at December 31, 2021, an increase of $4.6 million from $257.1 million at December 31, 2020.

This increase resulted primarily from $427.6 million in cash generated from operations, $1,010.3 million in net long-term debt proceeds received and $117.4 million in cash acquired from TiVo as a result of the Mergers, which was partially offset by $1,254.9 million in repayment of combined legacy indebtedness and the 2020 Term B Loan Facility, $80.6 million in repurchases of common stock, $50.9 million in purchases of intangible assets and $30.8 million in dividends paid.

This increase resulted primarily from $234.8 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, which was partially offset by $21.0 million in dividends paid, $100.8 million in repurchases of common stock, $84.0 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”), $14.0 million of capital expenditures and $4.3 million in net debt refinancing costs.

Cash and cash equivalents totaled $201.1 million at December 31, 2021, an increase of $30.9 million from $170.2 million at December 31, 2020.

Cash flows provided by operations were $427.6 million for the year ended December 31, 2020, primarily due to our net income of $143.8 million, non-cash items of depreciation of $17.9 million, amortization of intangible assets of $156.8 million, stock-based compensation expense of $39.1 million and loss on debt extinguishment of $8.3 million, plus $76.8 million in changes in operating assets and liabilities.

These increases were partially offset by a reduction of $34.7 million in deferred income taxes.

Cash flows provided by operations were $169.3 million for the year ended December 31, 2019, primarily due to our net loss of $64.0 million, non-cash items of depreciation of $6.7 million, amortization of intangible assets of $99.9 million and stock-based compensation expense of $31.6 million, plus $131.0 million in changes in operating assets and liabilities.

These increases were partially offset by a reduction of $38.6 million in deferred income taxes.

Net cash provided by investing activities was $17.8 million for the year ended December 31, 2020, primarily related to net cash acquired in the Mergers of $117.4 million and maturities and sales of securities of $35.9 million, partially offset by purchases of short-term investments of $77.2 million, purchases of intangible assets of $50.9 million and capital expenditures of $7.4 million.

Net cash used in investing activities was $19.1 million for the year ended December 31, 2019, primarily related to the purchases of short-term available-for-sales securities of $40.0 million, $8.8 million in capital expenditures and patent acquisition of $4.5 million, partially offset by maturities and sales of securities of $34.1 million.

Net cash used in financing activities was $351.1 million for the year ended December 31, 2020 principally due to $1,254.9 million in repayment of indebtedness, $80.6 million in repurchases of common stock and $30.8 million in dividends paid, partially offset by $1,010.3 million in net long-term debt proceeds and $4.9 million in proceeds due to the issuance of common stock under our employee stock option programs and employee stock purchase plans.

Net cash used in financing activities was $189.2 million for the year ended December 31, 2019 principally due to $150.0 million in partial pay-down of debt principal, $39.5 million in dividends paid and $4.5 million in repurchases of common stock, partially offset by $6.0 million in proceeds due to the issuance of common stock under our employee stock option 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.

2 unchanged sentences

Our marketable debt securities are classified as available-for-sale (“AFS”) with credit losses recognized as a credit loss expense and non-credit related unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income or loss.

The fair values for our securities are determined based on quoted market prices as of the valuation date and observable prices for similar assets.

For AFS debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income.

For AFS debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

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 loss expense related to our AFS debt securities in 2020.

For 2019 and 2018, we did not record any impairment charges related to our AFS debt securities.

In the third quarter of 2018, we initiated an equity position in Onkyo Corporation (“Onkyo”), a publicly traded company listed on the JASDAQ market of the Tokyo Stock Exchange.

Under Topic 321, we measure equity securities with readily determinable market value at fair value and recognize any changes in fair value in net income (loss).

In July 2019, we sold approximately 2.8 million shares of Onkyo stock, for which a realized gain of $0.9 million was recognized for the year ended December 31, 2019.

In June 2020, we sold the remaining 4.2 million shares of Onkyo stock, for which a realized loss of $0.7 million was recognized for the year ended December 31, 2020.

There were no sales of the Onkyo investment in 2018, during which period an unrealized loss of $2.2 million was recognized.

Our material cash requirements include the following contractual and other obligations.

As of December 31, 2021, we had outstanding long-term debt in an aggregate principal amount of $789.8 million, with $40.5 million payable within 12 months.

Future interest payments associated with the debt, based on current interest rates, total $153.6 million, with $27.8 million payable within 12 months.

The interest payments may vary with changes in interest rates.

Refer to “Note 11 – Debt” of the Notes to Consolidated Financial Statements for additional information on debt obligations and maturities.

We have lease arrangements for office and research facilities, data centers and office equipment .

As of December 31 , 2021, fixed lease payment obligations amounted to $ 79.7 million , with $ 19.7 million payable within 12 months .

Refer to “Note 8 – Leases” of the Notes to Consolidated Financial Statements for additional information on lease obligations and maturities.

Inventory Purchase Commitments

We use contract manufacturers to provide manufacturing services for our products.

As of December 31, 2021, we had total purchase commitments for inventory of $15.4 million, all of which is payable within 12 months.

Other Purchase Obligations

Our other purchase obligations primarily consist of noncancelable obligations related to advertising, engineering services and internet and telecommunications services.

As of December 31, 2021, we had purchase obligations of $122.7 million, with $33.4 million payable within 12 months.

These purchase obligations represent commitments under enforceable and legally binding agreements, and do not represent the entire anticipated purchases in the future.

Refer to “Note 16 – Commitments and Contingencies” of the Notes to Consolidated Financial Statements for additional detail.

Income Tax Payable

As of December 31, 2021, we had accrued $91.6 million of unrecognized tax benefits in long-term income taxes payable related to uncertain tax positions, which includes $2.8 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 $118.1 million, including interest and foreign exchange gain, then $63.1 million of unrecognized tax benefit would be payable to the U.S.

tax authorities.

In addition to the cash requirements outlined above, we have returned cash to stockholders through both quarterly dividend payments and repurchases of our common stock under our stock repurchase plan.

Quarterly Dividends

In 2021, we paid quarterly dividends of $0.05 per share in each of March, June, September and December.

In 2020, we paid quarterly dividends of $0.20 per share in each of March and May and quarterly dividends of $0.05 per share in each of September and December.

Our capacity to pay dividends in the future depends on many factors, including our financial condition, results of operations, capital requirements, capital structure, industry practice and other business conditions that the Board of Directors considers relevant.

Stock Repurchase Plan

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.

No expiration has been specified for this Plan.

On April 22, 2021, our Board of Directors authorized an additional $100.0 million of purchases under the Plan.

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 December 31, 2021, we have repurchased an aggregate of approximately 9.0 million shares of common stock at a total cost of $155.0 million at an average price of $17.29.

During the year ended December 31, 2021, our repurchases totaled $84.9 million.

As of December 31, 2021, the total remaining amount available for repurchase under the Plan was $95.0 million.

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

The amount and timing of any repurchases under the Plan depend on a number of factors, including but not limited to, the trading price, volume and availability of our common shares.

In addition, as we plan for the separation of our Product business and IP Licensing business we may reduce or suspend share repurchases as we plan for the capital needs of two independent businesses.

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

From 2019 through 2021, we generated approximately $831.6 million of cash flows from operating activities.

While we expect to continue to generate cash flows from operating activities in 2022, the COVID-19 pandemic continues to present uncertainties as to the level of such cash flows as compared to prior years.

Additionally, transaction costs relating to the planned separation of our two business segments are expected to impact operating cash flow for at least the next 9 months.

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

We believe that based on current levels of operations and anticipated growth, our cash from operations, together with cash, cash equivalents and investments currently available, will be sufficient to satisfy our currently anticipated cash requirements through at least the next twelve (12) months and thereafter for the foreseeable future.

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.

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.

Cash Flows from Operating Activities

Cash flows provided by operations were $234.8 million for the year ended December 31, 2021, primarily due to our net loss of $58.9 million being adjusted for non-cash items of depreciation of $23.8 million, amortization of intangible assets of $203.4 million, stock-based compensation expense of $58.2 million, and a loss on debt extinguishment of $8.0 million.

These increases were partially offset by a reduction of $34.7 million in deferred income taxes.

Cash Flows from Investing Activities

Net cash used in investing activities was $6.2 million for the year ended December 31, 2021, primarily related to purchases of short-term investments of $67.3 million, cash used in the MobiTV Acquisition of $17.4 million and capital expenditures of $14.0 million, partially offset by maturities and sales of securities of $92.7 million.

Capital Expenditures

Our capital expenditures for property, plant, and equipment consist primarily of purchases of computer hardware and software, information systems, production and test equipment.

During the years ended December 31, 2021 and 2020, we spent $14.0 million and $7.4 million on capital expenditures, respectively, and we expect capital expenditures in 2022 to be between $20.0 million to $25.0 million.

These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents, and short-term investments.

There can be no assurance that current expectations will be realized and plans are subject to change upon further review of our capital expenditure needs.

Cash Flows from Financing Activities

Net cash used in financing activities was $196.2 million for the year ended December 31, 2021 principally due to $84.0 million in repayment of indebtedness, $4.3 million in net debt refinancing costs, $21.0 million in dividends paid, and $100.8 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.

Long-term Debt

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.

The Term B Loan Facility was scheduled to mature on November 30, 2023 .

During 2019 we made three voluntary principal payments totaling $150.0 million, and upon consummation of the Mergers on June 1, 2020, we repaid the full remaining balance of $344.0 million under the Credit Agreement.

During 2019 we made three voluntary principal payments totaling $150.0 million, and u pon consummation of the Mergers on June 1, 2020, we repaid the full remaining balance of $344.0 million under the Credit Agreement.

In addition, upon consummation of the Mergers on June 1, 2020, we repaid $734.6 million of assumed TiVo debt with the proceeds from a new borrowing of $1,050 million discussed below.

On June 1, 2020, in connection with the consummation of the Mergers, we entered into a Credit Agreement (the “2020 Credit Agreement”) by and among us, 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 our 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 quarterly installments 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.

The 2020 Credit Agreement provided for a five-year senior secured term B loan 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 was equal to, at our 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 was amortized in quarterly installments 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 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.

1 unchanged sentence

We commenced repaying quarterly installments under the 2020 Term B Loan Facility in the third quarter of 2020.

The agreement permits prepayment of principal without penalty and on December 31, 2020 , w e elected to make a voluntary principal payment of $150.0 million.

At December 31, 2020, $873.8 million was outstanding under the 2020 Term B Loan Facility with an interest rate, including amortization of debt discount and issuance costs, of 5.1%.

The agreement permitted prepayment of principal without penalty and on December 31, 2020, we elected to make a voluntary principal payment of $150.0 million.

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.

We commenced repaying quarterly installments under the Refinanced Term B Loans in the third quarter of 2021.

At December 31, 2021, $789.8 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.

Under the existing loan agreements, we have future minimum principal payments for our debt of $52.5 million annually through 2022, then $72.2 million and $78.8 million in 2023 and 2024, respectively, with the remaining principal balance due in 2025.

We are obligated to pay a portion of excess cash flow on an annual basis beginning March 31, 2022 based on certain ratios and our excess cash flow generated for the immediately preceding fiscal year as well as for any litigation settlements subsequent to the Mergers.

The voluntary principal payment described above may be offset against any obligated payments due as of March 31, 2022.

The 2020 Term B Loan Facility contains customary covenants, and as of December 31, 2020 we were in full compliance with such covenants .

In August 2007, Xperi’s Board of Directors authorized a plan to repurchase Xperi’s outstanding shares of common stock dependent on market conditions, share price and other factors.

This authorization was terminated upon closing of the Mergers.

On June 12, 2020, our Board of Directors authorized a new stock repurchase program (the “new plan”) providing for the repurchase of up to $150.0 million of our common stock dependent on market conditions, stock price and other factors.

Since the inception of the new plan, and through December 31, 2020, we have repurchased approximately 4.9 million shares of common stock for a total cost of $70.1 million at an average price of $14.25 per share.

During the three months ended December 31, 2020, our repurchases totaled $20.0 million.

As of December 31, 2020, the total remaining amount available for repurchase was $79.9 million.

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

In 2020, we paid quarterly dividends of $0.20 per share in each of March and May and quarterly dividends of $0.05 per share in each of September and December.

In 2019 and 2018, we paid quarterly dividends of $0.20 per share in each of March, June, September and December.

From 2018 through 2020, we generated approximately $732 million of cash flows from operating activities.

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

Additionally, integration of the two legacy businesses post-merger and transaction costs relating to the contemplated separation of the two businesses 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.

We believe that based on current levels of operations and anticipated growth, our cash from operations, together with cash, cash equivalents and investments currently available, will be sufficient to fund our operations, debt service, dividends, stock repurchases and acquisition needs for at least the next twelve months.

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 equity financing will be on terms satisfactory to us and not dilutive to our then-current stockholders or that debt financing will not impose significant restrictions on the operation of our businesses.

Contractual Obligations

Our contractual obligations as of December 31, 2020 were as follows (in thousands):

Payments Due by Period

Long-term debt (1)

Interest on long-term debt (2)

Purchase obligations (3)

Operating lease obligations (4)

(1) Under the debt agreement, additional principal 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.

See “Note 11 – Debt” for additional detail.

(2) Under the debt agreement, our debt bears a variable interest rate.

Interest on the long-term debt is presented based on the interest rate in effect as of December 31, 2020.

See “Note 11 – Debt” for additional detail.

(3) Amounts primarily represent future fixed and non-cancellable cash payments associated with purchase obligations to service providers, including the payments due within the next 12 months.

Purchase orders for goods and services that are cancellable upon notice and without significant penalties are not included in the amounts above.

(4) Operating leases are presented on a gross basis.

We have agreements to receive payments of approximately $32.1 million under subleases through 2026.

Refer to “Note 8 – Leases” for additional detail.

Additionally, under certain contractual agreements, we may be obligated to make certain contingent or variable payments over an estimated period of approximately four years if certain conditions are met or milestones are achieved.

See “Note 16 – Commitments and Contingencies” of the Notes to Consolidated Financial Statements for additional detail.

As of December 31, 2020, we had accrued $94.4 million of unrecognized tax benefits in long-term income taxes payable related to uncertain tax positions, which includes $2.5 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 refund of $123.0 million, net of interest income and foreign exchange loss, then $62.3 million of unrecognized tax benefit would be payable to the U.S.

tax authorities.

These amounts, which are included in our financial statements, have not been included in the table above.

Off-Balance Sheet Arrangements

As of December 31, 2020, we did not have any off-balance sheet arrangements as defined in item 303(a)(4)(ii) of Regulation S-K.

Under the existing loan agreements, we have future minimum principal payments for our debt of $40.5 million in each year from 2022 through 2027, with the remaining principal balance of $546.8 million due in 2028.

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 December 31, 2021, we were in full compliance with such covenants.

Critical Accounting Policies and Estimates

3 unchanged sentences

We evaluate our estimates based on our historical experience and various other assumptions that are believed to be reasonable under the circumstances.

These estimates relate to revenue recognition, the assessment of recoverability of goodwill and intangible assets, the valuation and recognition of stock-based compensation expense, the valuation of investments, business combinations, recognition and measurement of deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and others.

These estimates relate to revenue recognition, the assessment of recoverability of goodwill and intangible assets, business combinations, recognition and measurement of deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and others.

Actual results could differ from those estimates, and material effects on our operating results and financial position may result.

We believe the following accounting policies and estimates are most critical to the understanding of our consolidated financial statements.

We believe the following accounting policies and estimates are most critical to understanding our consolidated financial statements.

See “Note 2 - Summary of Significant Accounting Policies ” and “Note 4 - Revenue ” of the Notes to Consolidated Financial Statements for a full description of our accounting policies.

Revenue recognition

Revenue is recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration we expect 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 our 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 our 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.

Variable Consideration

When a contract with a customer includes a variable transaction price, an estimate of the consideration which we expect 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 us.

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

We generate our revenue from the following principal activities.

License Agreements

We operate in two business segments.

In our Product segment, we license our audio, 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, OTT video service providers, social media, consumer electronics manufacturers, and other providers of video experiences across various platforms, 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.

Fixed-fee Media IP licensing

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.

We derive the majority of our revenue from the licensing of our technologies and intellectual property (“IP”) rights to customers.

Generally, revenue is recognized upon transfer of control of promised products, services or technologies and IP rights to customers in an amount that reflects the consideration that we expect to receive in exchange for those products, services or licensing of the technologies and IP rights.

The primary judgments include estimating licensees’ quarterly royalties prior to receiving the royalty reports, estimating variable consideration, identifying the performance obligations in the contract,

determining stand-alone selling price and the transaction price , and allocating consideration in an arrangement with multiple performance obligations .

We generally recognize royalty revenue from per-unit or per-subscriber 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.

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 license.

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.

Fixed-fee or minimum guarantee Semiconductor IP or Product licensing

In most cases, the customer pays the fixed license fee in specified installments over the license term.

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.

As such, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated financing component.

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

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 customer sales or production, 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.

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.

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.

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

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, including TiVo Stream 4K, and related TiVo Service

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 is 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.

We periodically reassess the estimated useful life of DVRs and non-DVRs.

When the actual useful life of a DVR or a non-DVR materially differs from our estimates, 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 we do 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 our 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 our 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.

We estimate the royalties earned each quarter based on our forecast of manufacturing and sales activity by our licensees in that quarter.

Any differences between actual royalties owed by a licensee and our estimates are recognized when the licensee’s royalty report is received.

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 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 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 software, or where we provide non-recurring engineering (“NRE”) services, we recognize 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.

We evaluate our 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.

Business combinations

5 unchanged sentences

and discount rates.

For additional information, refer to “Note 9 – Business Combination ” of the Notes to Consolidated Financial Statements.

For additional information, refer to “Note 9 – Business Combinations ” of the Notes to Consolidated Financial Statements.

Valuation of goodwill and intangible assets

We make judgments about the recoverability of intangible assets whenever events or changes in circumstances indicate that impairment may exist.

If such facts and circumstances exist, we assess recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts.

Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets.

If the useful life is shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life.

Such changes could result in impairment charges or higher amortization expense in future periods, which could have a significant impact on our operating results and financial condition.

We perform an annual review of the valuation of goodwill in the fourth quarter, or more often if indicators of impairment exist.

We perform an annual review of the valuation of goodwill as of the beginning of the fourth quarter, or more often if indicators of impairment exist.

Triggering events for impairment reviews may be indicators such as adverse industry or economic trends, restructuring actions, lower projections of profitability, or a sustained decline in our market capitalization.

2 unchanged sentences

Should conditions be different from management’s last assessment, significant impairments of goodwill may be required, which would adversely affect our operating results.

Stock-based compensation expense

Stock-based compensation is measured at the grant date based on the estimated fair value of the award and is recognized as expense on a straight-line basis, net of estimated forfeitures, over the requisite service or performance period.

We use the closing trading price of our common stock on the date of grant as the fair value of awards of restricted stock units (“RSUs”), and performance stock units (“PSUs”) that are based on company-designated performance targets.

A Monte Carlo simulation is used to estimate the fair value of restricted stock units subject to market conditions with expected volatility estimated using the historical volatility of our common stock.

We use the Black-Scholes-Merton option-pricing formula to estimate the fair value of stock options and employee stock purchase plan ("ESPP") shares.

The Black-Scholes-Merton option-pricing formula uses complex and subjective inputs, including the expected life of the options, stock price volatility, dividends and the pre-vesting option forfeiture rate.

We estimate the expected life of options granted based on historical exercise patterns, which we believe are representative of future behavior.

We estimate the volatility of our common stock on the date of grant based on our stock’s market-based historical

The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest.

We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and canceled.

If our actual forfeiture rate is materially different from our estimate, stock-based compensation expense could be significantly different from what we have recorded in the current period.

See “ Note 1 4 - Stock-Based Compensation Expense ” of the Notes to Consolidated Financial Statements for additional detail.

As part of the annual goodwill impairment test, we elected to proceed with a quantitative goodwill impairment test as of October 1, 2021.

Based on the quantitative assessment, we concluded that the fair value of the reporting units exceeded the carrying amount for both the Product and IP Licensing reporting units with the fair value calculated as approximately 25% and 200% in excess of the respective carrying value for each of the Product and IP Licensing reporting units.

In performing the quantitative impairment test for goodwill, the fair value of the reporting unit is compared to its carrying amount.

We determine the fair value of a reporting unit using weighted results derived from an income approach and market approaches.

Under the income approach, the fair value of a reporting unit is estimated based on the present value of future cash flows and considers projected revenue growth rates, future operating margins, income tax rates and economic and market conditions, as well as risk-adjusted discount rates.

Under the market approaches, the fair value of a reporting unit is estimated based on the market comparable method, which estimates the fair value based on revenue multiples from comparable companies in similar lines of business, and the market transaction method, which estimates the fair value of the reporting unit by utilizing comparable transactions and transaction multiples.

Identified finite-lived intangible assets consist of acquired patents, existing technology, customer relationships, trademarks and trade names, non-compete agreements resulting from business combinations, and acquired patents under asset purchase agreements.

Our identified intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging

from 1 to 1 0 years.

We make judgments about the recoverability of finite-lived intangible assets whenever facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable.

Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets.

If the useful life is shorter than originally estimated, we would accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life.

Identified indefinite-lived intangible assets include TiVo trademarks and tradenames resulting from business combinations.

We evaluate the carrying value of indefinite-lived intangible assets on an annual basis, and an impairment charge would be recognized to the extent that the carrying amount of such assets exceeds their estimated fair value.

Accounting for income taxes

14 unchanged sentences

Our policy is to classify accrued interest and penalties related to the accrued liability for unrecognized tax benefits in the provision for income taxes.

For the years ended December 31, 2020, 2019 and 2018, we did not recognize any significant penalties or interest related to unrecognized tax benefits.

For the year ended December 31, 2021, we recognized $0.3 million of interest and penalties, and for the years ended December 31, 2020, and 2019, we did not recognize any significant penalties or interest related to unrecognized tax benefits.

See “Note 15 - Income Taxes ” of the Notes to Consolidated Financial Statements for additional detail.

2 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-K

Item 7. Management’s Discussion and Analysis