Management’s Discussion and Analysis of Financial Condition and Results of Operations
−Removed: The following discussion should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited financial statements and notes thereto for the year ended December 31, 2020 found in the Form 10-K filed by Xperi Holding Corporation on February 26, 2021 (the “Form 10-K”).
+Added: The following discussion is intended to promote understanding of the results of operations and financial condition and should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited financial statements and notes thereto for the year ended December 31, 2021 found in the Form 10-K filed by Xperi Holding Corporation on February 24, 2022 (the “Form 10-K”).
This Quarterly Report contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995.
9 unchanged sentences
Business Overview
−Removed: Following consummation of the mergers between Xperi Corporation (“Xperi”) and TiVo Corporation (“TiVo”) on June 1, 2020 (the “Mergers”), Xperi Holding Corporation became the parent company of both Xperi and TiVo.
−Removed: On June 2, 2020, Xperi Holding Corporation’s common stock, par value $0.001 per share, commenced trading on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “XPER.” Xperi was determined to be the accounting acquirer in the Mergers.
−Removed: As a result, the historical financial statements of Xperi for periods prior to the Mergers are considered to be the historical financial statements of Xperi Holding Corporation.
−Removed: Our results of operations include the operations of TiVo after June 1, 2020.
−Removed: As used herein, the “Company,” “we,” “us” and “our” refer to Xperi when referring to periods prior to June 1, 2020 and Xperi Holding Corporation when referring to periods subsequent to June 1, 2020.
−Removed: Unless specified otherwise, the financial results in this Quarterly Report are those of the Company and its subsidiaries on a consolidated basis.
−Removed: 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.
−Removed: We invent, develop, and deliver technologies that enable extraordinary experiences.
−Removed: 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.
+Added: On December 18, 2019, Xperi Corporation (“Xperi”) entered into a definitive agreement with TiVo Corporation (“TiVo”), to combine in an all-stock merger of equals transaction (the “Mergers”).
+Added: Following consummation of the Mergers on June 1, 2020, Xperi Holding Corporation (“we”) became the parent company of both Xperi and TiVo.
+Added: 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.
+Added: 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.
+Added: Powering smart devices, connected cars, entertainment experiences and more, we have 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.
−Removed: 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.
−Removed: Headquartered in Silicon Valley with operations around the world, we have approximately 1,850 employees and over 35 years of operating experience.
−Removed: 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.
−Removed: We continue to evaluat e the optimal timing of the contemplated business separation and currently anticipate that such separation will not be completed earlier than the first half of 2022 .
+Added: Headquartered in Silicon Valley with operations around the world, we have approximately 1,950 employees and more than 35 years of operating experience.
+Added: 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.
+Added: 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
5 unchanged sentences
restrictions on trade with certain Chinese customers, have impacted and may continue to impact the financial conditions of our customers.
−Removed: 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.
+Added: 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.
−Removed: 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.
−Removed: The COVID-19 pandemic could also cause delays in acquiring new customers and executing renewals and could also impact our business as consumer behavior changes in response to the pandemic.
−Removed: Since the start of the summer of 2021, there has been rapid spread of the highly contagious Delta variant of COVID-19, particularly in the regions and among the age groups with low vaccination rates, leading to a resurgence in cases, hospitalizations and deaths.
−Removed: Businesses and consumers have been adjusting their plans to comply with renewed mask and vaccine mandates, travel restrictions, event cancellations and delayed office reopenings.
−Removed: Our operations and those of our customers have also been negatively impacted by certain trends arising from the COVID-19 pandemic, including labor market constraints, shortage of semiconductor components and manufacturing capacities, delays in shipments, product development and product launches and rising inflation.
−Removed: 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.
+Added: 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 (“CDC”).
+Added: The COVID-19 pandemic could also cause delays in acquiring new customers and executing license renewals, and changes in consumer behaviors in response to the pandemic and related impacts may also affect our business operations and financial performance.
+Added: After surges in daily cases and hospitalization associated with the Omicron variant from late 2021 to early 2022, reported COVID-19 cases and hospitalizations declined sharply in the U.S.
+Added: in spring 2022.
+Added: In response, the CDC and state/local governments have eased restrictive measures aimed at slowing transmission.
+Added: At the same time, the recent, rapid spread of the highly transmissible BA.2 Omicron subvariant is causing a significant rise in COVID-19 cases in parts of Europe and in Asia, raising concerns that the U.S.
+Added: could experience another COVID-19 surge in the foreseeable future.
+Added: 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.
+Added: In addition, the widespread supply chain disruption has impeded global and regional economic activities, such as consumer spending and product availabilities, which has adversely affected our business operations and financial results, and such disruption may continue to negatively impact our operations.
+Added: 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.
We have been closely monitoring the COVID-19 pandemic and its impact on our business, including legislation to mitigate the impact of COVID-19 such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act which was enacted in March 2020, and the American Rescue Plan Act of 2021 which was enacted in March 2021.
−Removed: Although a significant portion of our anticipated revenue for 2021 is derived from fixed-fee and minimum-guarantee arrangements, primarily from large, well-capitalized customers which we believe somewhat mitigates the risks to our business, our per-unit and variable-fee based revenue will continue to be susceptible to the volatility, labor shortages, supply chain disruptions, microchip shortages, and potential market downturns induced by the COVID-19 pandemic.
−Removed: The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic;
+Added: 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.
+Added: 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;
2 unchanged sentences
the continuing global disruption in supply chains in our industries;
+Added: rising inflation rates and costs of goods;
and the impact of the pandemic on the global economy and demand for consumer products.
2 unchanged sentences
Results of Operations
−Removed: We operate in two business segments.
−Removed: 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.
−Removed: For Technology License arrangements, the customer obtains rights to the technology delivered at the commencement of the agreement.
−Removed: 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.
−Removed: In our IP Licensing segment,
−Removed: we license our innovations to leading companies in the media and semiconductor industries.
−Removed: IP Licensing arrangements include access to one or more of our foundational patent portfolios and may also include access to some of our industry-leading technologies and proven know-how.
−Removed: Technology License Arrangements
−Removed: We license our audio, digital radio and imaging technology to consumer electronics (“CE”) manufacturers, automotive manufacturers or their supply chain partners.
−Removed: We generally recognize royalty revenue from licenses based on units shipped or manufactured.
−Removed: Revenue is recognized in the period in which the customer’s sales or production are estimated to have occurred.
−Removed: 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.
−Removed: 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.
−Removed: Certain customers enter into fixed fee or minimum guarantee agreements, whereby customers pay a fixed fee for the right to incorporate our technology in the customer’s products over the license term.
−Removed: 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.
−Removed: We generally recognize the full fixed fee as revenue at the beginning of the license term when the customer has the right to use the technology and begins to benefit from the license, net of the effect of any significant financing components calculated using customer-specific, risk-adjusted lending rates, with the related interest income being recognized over time on an effective rate basis.
−Removed: For minimum guarantee agreements where the customer exceeds the minimum, we recognize revenue relating to any additional per-unit fees in the periods we believe the customer will exceed the minimum and adjusts the revenue based on actual usage once that is reported by the customer.
−Removed: Technology Solutions Arrangements
−Removed: Technology Solutions customers are primarily multi-channel video service providers, CE manufacturers, and end consumers.
−Removed: Technology Solutions revenue is primarily derived from licensing our pay-TV solutions, Personalized Content Discovery, enriched Metadata, and viewership data;
−Removed: selling TiVo-enabled devices like the Stream 4K;
−Removed: and advertising.
−Removed: For Technology Solutions, we provide on-going media or data delivery, hosting and access to our platform, and software updates.
−Removed: For these solutions, we generally receive fees on a per-subscriber per-month basis or as a fixed fee, and revenue is recognized during the month in which the solutions are provided to the customer.
−Removed: For most of the Technology Solutions offerings, substantially all functionality is obtained through our continuous hosting and/or updating of the data and content.
−Removed: In these instances, we typically have a single performance obligation related to these ongoing activities in the underlying arrangement.
−Removed: For those arrangements that include multiple performance obligations, we allocate the consideration and recognize revenue for each distinct performance obligation when control of the promised goods or services is transferred to the customer.
−Removed: IP License Arrangements
−Removed: In our IP Licensing segment, we license (i) our media patent portfolios (“Media IP licensing”) to multichannel video programming distributors, over-the-top video service providers, consumer electronics manufacturers, social media, and other new media companies and (ii) our semiconductor technologies and associated patent portfolios (“Semiconductor IP licensing”) to memory, sensors, radio frequency (“RF”) component, and foundry companies.
−Removed: We license our IP portfolios under three revenue models:
−Removed: (i) fixed-fee Media IP licensing, (ii) fixed-fee or minimum guarantee Semiconductor IP licensing, and (iii) per-unit or per-subscriber IP licenses.
−Removed: Fixed-fee Media IP licensing
−Removed: Our long-term fixed-fee Media IP licensing agreements, which are related to the TiVo businesses following the Mergers, provide our customers with rights to future patented technologies over the term of the agreement that are highly interdependent or highly interrelated to the patented technologies provided at the inception of the agreement.
−Removed: 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.
−Removed: 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.
−Removed: In these arrangements, we allocate the transaction price between the release for past patent infringement claims and the future
−Removed: 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.
−Removed: 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.
−Removed: Fixed-fee or minimum guarantee Semiconductor IP licensing
−Removed: We enter into Semiconductor IP licenses that have fixed fee or minimum guarantee arrangements, whereby licensees pay a fixed fee for the right to incorporate our IP technologies in the licensee’s products over the license term.
−Removed: 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.
−Removed: We generally recognize the full fixed fee as revenue at the beginning of the license term when the customer has the right to use the IP and begins to benefit from the license, net of the effect of any significant financing components calculated using customer-specific, risk-adjusted lending rates, with the related interest income being recognized over time on an effective rate basis.
−Removed: For minimum guarantee agreements where the customer exceeds the minimum, we recognize revenue relating to any additional per-unit fees in the periods we believe the customer will exceed the minimum and adjusts the revenue based on actual usage once that is reported by the customer.
−Removed: Per-unit or per-subscriber IP royalty licenses
−Removed: We recognize revenue from per-unit or per-subscriber IP royalty licenses in the period in which the licensee’s sales or production are estimated to have occurred, which results in an adjustment to revenue when actual sales or production are subsequently reported by the licensee, which is generally in the month or quarter following usage or shipment.
−Removed: Estimating customers’ monthly or quarterly royalties prior to receiving the royalty reports requires us to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers, which could have a material impact on the amount of revenue we report on a quarterly basis.
−Removed: We also generate revenue from non-recurring engineering (“NRE”) services, advertising, and hardware products, each of which was less than 5% of total revenue for all periods presented.
+Added: We derive the majority of our revenue from the licensing of our technologies and intellectual property (“IP”) rights to customers.
+Added: For our revenue recognition policy including descriptions of revenue-generating activities, refer to “Note 3 – Revenue ” of the Notes to Condensed Consolidated Financial Statements.
The following table presents our historical operating results for the periods indicated as a percentage of revenue:
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: Licensing, services and software
−Removed: Total revenue
+Added: March 31, 2022
+Added: March 31, 2021
Operating expenses:
−Removed: Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets
−Removed: Cost of hardware revenue, excluding depreciation and amortization of intangible assets
+Added: Cost of revenue, excluding depreciation and amortization of intangible assets
Research, development and other related costs
4 unchanged sentences
Total operating expenses
−Removed: Operating income (loss)
+Added: Operating income
Interest expense
−Removed: Other income and expense, net
−Removed: Loss on debt extinguishment
−Removed: Loss before taxes
+Added: Other income (expense), net
+Added: Income before taxes
Provision for (benefit from) income taxes
−Removed: Total Revenue (in thousands, except for percentages):
+Added: Revenue (in thousands, except for percentages):
Three Months Ended
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: Increase/ (Decrease)
−Removed: Total revenue
−Removed: The $16.6 million, or 8% increase in total revenue for the three months ended September 30, 2021, compared to the same period in the prior year, was primarily attributable to an increase of $21.4 million in IP Licensing revenue, driven by revenue from the Comcast license executed in the fourth quarter of 2020, and the timing and conclusion of renewals and new executed licenses prior to and in the third quarter of 2021, and certain catch-up payments for past royalties due, partially offset by a decrease in Product revenue.
−Removed: Nine Months Ended
−Removed: September 30, 2021
−Removed: September 30, 2020
+Added: March 31, 2022
+Added: March 31, 2021
Increase/ (Decrease)
−Removed: Total revenue
−Removed: The $205.2 million, or 45% increase in total revenue for the nine months ended September 30, 2021, compared to the same period in the prior year, was primarily due to the inclusion of a full nine months of post-merger revenue from TiVo in the nine months ended September 30, 2021 and revenue from the Comcast license executed in the fourth quarter of 2020.
−Removed: These increases were partially offset by a decline in revenue from the Semiconductor IP licensing business.
−Removed: Cost of Licensing, Services and Software Revenue, E xcluding Depreciation and Amortization of Intangible Assets
−Removed: 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
−Removed: well as service center and other expenses related to providing the P ay-TV and platform solutions , NRE services and our metadata offering .
−Removed: Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets, for the three months ended September 30, 2021 was $26.0 million, as compared to $21.9 million for the three months ended September 30, 2020, an increase of $4.1 million.
−Removed: The increase was primarily due to higher third-party royalties paid as well as increases in other delivery costs related to higher revenue in the third quarter of 2021.
−Removed: Cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets, for the nine months ended September 30, 2021 was $69.9 million, as compared to $31.6 million for the nine months ended September 30, 2020, an increase of $38.3 million.
−Removed: The increase was primarily due to the inclusion of a full nine months of post-merger TiVo expenses in the nine months ended September 30, 2021.
−Removed: We anticipate cost of licensing, services and software revenue, excluding depreciation and amortization of intangible assets, will increase in 2021 on an annual basis when compared to 2020 primarily due to the inclusion of a full year of TiVo operations in our consolidated results.
−Removed: Cost of Hardware Revenue, E xcluding Depreciation and Amortization of Intangible Assets
−Removed: Cost of hardware revenue, excluding depreciation and amortization of intangible assets, includes all product-related costs associated primarily with TiVo-enabled devices, including employee-related costs, warranty costs, order fulfillment costs, certain licensing costs, and an allocation of facilities costs.
−Removed: Cost of hardware revenue, excluding depreciation and amortization of intangible assets, for the three months ended September 30, 2021 was $6.5 million, as compared to $12.2 million for the three months ended September 30, 2020, a decrease of $5.7 million.
−Removed: The decrease was primarily related to decreased hardware product sales in the third quarter of 2021 as well as certain hardware product costs incurred in the third quarter of 2020 from new product launches.
−Removed: Cost of hardware revenue, excluding depreciation and amortization of intangible assets, for the nine months ended September 30, 2021 was $17.7 million, as compared to $13.7 million for the nine months ended September 30, 2020, an increase of $4.0 million.
−Removed: The increase was primarily due to the inclusion of a full nine months of post-merger TiVo expenses in the nine months ended September 30, 2021, partially offset by certain hardware product costs incurred when the product was launched in the third quarter of 2020.
−Removed: We anticipate cost of hardware revenue, excluding depreciation and amortization of intangible assets, will increase in 2021 on an annual basis when compared to 2020 primarily due to the inclusion of a full year of TiVo operations in our consolidated results as well as expected growth in sales of hardware products.
+Added: The $35.8 million, or 16% increase in revenue for the three months ended March 31, 2022, compared to the same period in the prior year, was primarily due to the execution of a new, multi-year license agreement with Micron Technology for which a meaningful portion of the total revenue was recognized in the quarter, partially offset by a decline in Product revenue driven largely by a significant settlement of past royalties from a customer in the first quarter of 2021 and by continued supply chain disruptions from the COVID-19 pandemic.
+Added: Cost of Revenue, E xcluding Depreciation and Amortization of Intangible Assets
+Added: 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.
+Added: Cost of revenue, excluding depreciation and amortization of intangible assets, for the three months ended March 31, 2022 was $27.7 million, as compared to $28.1 million for the three months ended March 31, 2021, a decrease of $0.4 million.
+Added: The decrease was primarily attributable to lower hardware product-related costs due to a decline in hardware product sales in the first quarter of 2022.
Research, Development and Other Related Costs
1 unchanged sentence
All research, development and other related costs are expensed as incurred.
−Removed: R&D expense for the three months ended September 30, 2021 was $58.8 million, as compared to $57.7 million for the three months ended September 30, 2020, an increase of $1.1 million.
−Removed: The increase was primarily due to employees hired in connection with the acquisition of certain assets of MobiTV in May 2021, partially offset by a decrease in personnel related costs resulting from cost synergies implemented subsequent to the Mergers.
−Removed: R&D expense for the nine months ended September 30, 2021 was $168.4 million, as compared to $124.6 million for the nine months ended September 30, 2020, an increase of $43.8 million.
−Removed: The increase was due to the inclusion of a full nine months of post-merger TiVo R&D expenses in the nine months ended September 30, 2021, as well as employees hired in connection with the acquisition of certain assets of MobiTV in May 2021, partially offset by a decrease in personnel related costs resulting from cost synergies implemented subsequent to the Mergers.
+Added: R&D expense for the three months ended March 31, 2022 was $59.4 million, as compared to $55.2 million for the three months ended March 31, 2021, an increase of $4.2 million.
+Added: The increase was primarily due to employees hired in connection with the
+Added: acquisition of certain assets of MobiTV ( the “ MobiTV Acquisition”) in May 202 1, as well as hiring of employees that were previously outsourced , partially offset by reductions in outside services and contractor expenditure in the first quarter of 202 2 .
We believe that a significant level of R&D expense will be required for us to remain competitive in the future.
−Removed: We also anticipate that R&D expense will increase in 2021 on annual basis when compared to 2020 primarily due to the inclusion of a full year of TiVo operations in our consolidated results.
+Added: We also anticipate that R&D expense will increase in 2022 when compared to 2021 primarily due to the inclusion of a full year of expense in 2022 related to the employees added in connection with the MobiTV Acquisition during 2021.
Selling, General and Administrative
2 unchanged sentences
Our general and administrative expenses, other than facilities-related expenses, are not allocated to other expense line items.
−Removed: Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2021 were $62.6 million, as compared to $63.8 million for the three months ended September 30, 2020, a decrease of $1.2 million.
−Removed: The decrease was due principally to decreases in merger related severance and retention expenses, and a reduction in the provision for credit losses in the three months ended September 30, 2021, partially offset by an increase in stock-based compensation expense.
−Removed: SG&A expenses for the nine months ended September 30, 2021 were $197.8 million, as compared to $168.6 million for the nine months ended September 30, 2020, an increase of $29.2 million.
−Removed: The increase was due principally to the inclusion of a full nine months of post-merger TiVo SG&A expenses, partially offset by decreases in merger related transaction costs, severance and retention, and provision for credit losses in the nine months ended September 30, 2021.
−Removed: We anticipate SG&A expenses will increase in 2021 when compared to 2020 primarily due to the inclusion of a full year of TiVo operations in our consolidated results.
+Added: Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2022 were $70.4 million, as compared to $67.4 million for the three months ended March 31, 2021, an increase of $3.0 million.
+Added: The increase was due principally to incremental stock-based compensation recognized in connection with the accelerated vesting of outstanding restricted stock units upon the separation of a former executive, and an increase in costs related to planned business separation, partially offset by a reduction in the provision for credit losses, and decreases in severance and retention expenses in the first quarter of 2022.
Depreciation Expense
−Removed: Depreciation expense for the three months ended September 30, 2021 was $6.8 million and remains flat as compared to the same period in the prior year.
−Removed: Depreciation expense for the nine months ended September 30, 2021 was $18.0 million, as compared to $11.8 million for the nine months ended September 30, 2020, an increase of $6.2 million.
−Removed: The increase was primarily attributable to depreciation expense on TiVo fixed assets added through the Mergers in June 2020.
−Removed: We anticipate depreciation expense will continue to increase in 2021 as compared to 2020 as a result of the inclusion of the full year effect of TiVo’s assets after the Mergers.
+Added: Depreciation expense for the three months ended March 31, 2022 was $5.9 million, as compared to $5.7 million for the three months ended March 31, 2021, an increase of $0.2 million.
Amortization Expense
−Removed: Amortization expense for the three months ended September 30, 2021 was $52.4 million, as compared to $50.9 million for the three months ended September 30, 2020, an increase of $1.5 million.
−Removed: The increase was primarily attributable to a significant amount of intangible assets acquired in the fourth quarter of 2020.
−Removed: Amortization expense for the nine months ended September 30, 2021 was $156.8 million, as compared to $105.4 million for the nine months ended September 30, 2020, an increase of $51.4 million.
−Removed: 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.
−Removed: With the Mergers, we anticipate that amortization expense will continue to be a significant expense since we acquired approximately $878 million in intangible assets in the Mergers which will be amortized over the next several years.
+Added: Amortization expense for the three months ended March 31, 2022 was $39.3 million, as compared to $52.2 million for the three months ended March 31, 2021, a decrease of $12.9 million.
+Added: The decrease was due to certain acquired intangible assets becoming fully amortized over the past six months.
+Added: With the Mergers, we anticipate that amortization expense will continue to be a significant expense since we acquired approximately $878 million in intangible assets which will be amortized over the next several years.
See “Note 8 – Goodwill and Identified Intangible Assets” in the Notes to Condensed Consolidated Financial Statements for additional information.
Litigation Expense
−Removed: Litigation expense for the three months ended September 30, 2021 was $2.3 million, as compared to $8.5 million for the three months ended September 30, 2020, a decrease of $6.2 million.
−Removed: The decrease was due to the resolution of prior litigation and reduced case activity.
−Removed: Litigation expense for the nine months ended September 30, 2021 was $7.2 million, as compared to $14.5 million for the nine months ended September 30, 2020, a decrease of $7.3 million.
−Removed: The decrease was primarily due to the resolution of prior litigation and reduced case activity, partially offset by inclusion of post-merger TiVo litigation expenses.
+Added: Litigation expense for the three months ended March 31, 2022 was $1.8 million, as compared to $2.5 million for the three months ended March 31, 2021, a decrease of $0.7 million.
+Added: The decrease was primarily due to 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
−Removed: The following table sets forth our stock-based compensation (“SBC”) expense for the three and nine months ended September 30, 2021 and 2020 (in thousands):
+Added: The following table sets forth our stock-based compensation (“SBC”) expense for the three and nine months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: Cost of licensing, services and software revenue
+Added: March 31, 2022
+Added: March 31, 2021
+Added: Cost of revenue, excluding depreciation and amortization of intangible assets
Research, development and other related costs
1 unchanged sentence
Total stock-based compensation expense
−Removed: Stock-based compensation awards include restricted stock awards and units, employee stock plan purchases, and employee stock options.
−Removed: The increases in SBC expense for the three and nine months ended September 30, 2021, compared to the corresponding periods in 2020, were primarily a result of including incremental expense from assumed TiVo stock awards from the Mergers and increases in stock award grants as a result of the Mergers.
+Added: Stock-based compensation awards include employee stock options, restricted stock awards and units, and employee stock plan purchases.
+Added: The increase in SBC expense for the three months ended March 31, 2022, compared to the corresponding period in 2021, was primarily a result of incremental SBC recognized, in the first quarter of 2022, in connection with the accelerated vesting of outstanding restricted stock units upon the separation of a former executive, and secondarily from the vesting of stock award grants made in 2021 to increased employees resulting from the Mergers and the MobiTV Acquisition.
Interest Expense
−Removed: Interest expense for the three months ended September 30, 2021 was $8.5 million, as compared to $13.4 million for the three months ended September 30, 2020.
−Removed: The decrease in interest expense was primarily due to a lower average debt balance as compared to the same period in 2020 as we paid down $250.1 million of principal balance during the intervening period, and secondly a reduction in interest rate as a result of the debt refinancing in June 2021 described below.
−Removed: Interest expense for the nine months ended September 30, 2021 was $30.4 million, as compared to $24.6 million for the nine months ended September 30, 2020.
−Removed: The increase in interest expense was primarily a result of a higher average debt balance as compared to the same period in 2020 as we entered into a new term loan of $1,050 million on June 1, 2020 to refinance the indebtedness of the combined companies in connection with the Mergers.
−Removed: We anticipate interest expense will increase in 2021 when compared to 2020 as a result of a full year of the higher debt balance and amortization of debt discount and issuance costs following the Mergers, partially offset by the impact of the debt refinancing in June 2021 described below.
+Added: Interest expense for the three months ended March 31, 2022 was $8.4 million, as compared to $11.3 million for the three months ended March 31, 2021.
+Added: The decrease in interest expense was primarily due to a reduction in interest rate as a result of the debt refinancing in June 2021 described below, and secondly to a lower average debt balance as compared to the same period in 2021 as we continued to pay down principal balance during the intervening period.
+Added: 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.
+Added: However, those reductions could potentially be offset by increasing interest rates since our interest rate is variable.
Other Income and Expense, Net
−Removed: Other income and expense, net, was $0.9 million for the three months ended September 30, 2021, as compared to $2.3 million for the three months ended September 30, 2020.
−Removed: Other income and expense, net, for the nine months ended September 30, 2021 was $2.9 million, as compared to $3.4 million for the nine months ended September 30, 2020.
−Removed: Other income and expense, net, was lower in the three and nine months ended September 30, 2021, as compared to the corresponding periods in the prior year, principally due to a decrease in interest income from significant financing components from revenue contracts, and secondarily from a decline in interest income from our short-term investments.
−Removed: Loss on Debt Extinguishment
−Removed: In June 2021, we refinanced the 2020 Term B Loan Facility by, among other things, lowering the interest rate on the debt.
−Removed: Certain lenders of the original loan syndication did not participate in the refinancing.
−Removed: Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment and recorded, in the second quarter of 2021, a loss on debt extinguishment of $8.0 million related to the write-off of unamortized debt discount and issuance costs for the portions of the 2020 Term B Loan Facility considered to be extinguished.
−Removed: In connection with the Mergers and in June 2020 , we refinanced the indebtedness of the combined companies by entering into the 2020 Term B Loan Facility , and consequently recognized a loss on early debt extinguishment on the legacy debt of $8.3 million in th e second quarter of 2020.
+Added: Other income and expense, net, for the three months ended March 31, 2022 was $1.0 million, as compared to $1.4 million for the three months ended March 31, 2021.
+Added: Other income and expense, net, was slightly higher in the first quarter of 2021 due principally to miscellaneous other income .
Provision for Income Taxes
2 unchanged sentences
In certain circumstances we also record the income tax effects of discrete transactions in the quarter in which the transaction has occurred.
−Removed: Due to our significant net operating loss carryforwards and a valuation allowance applied against a significant portion of our deferred tax assets, foreign withholding taxes, base erosion and anti-abuse tax (“BEAT”), and unrealized foreign exchange loss from the prior year South Korea refund claims are the primary drivers of income tax expense and the primary reasons for cash tax payments of income taxes.
−Removed: For the three months ended September 30, 2021, our effective tax rate was based on a projected 2021 U.S.
−Removed: GAAP pretax loss and varies significantly from the 21% U.S.
−Removed: federal tax rate.
−Removed: For the three months ended September 30, 2021, we recorded an income tax expense of $42.7 million on pretax loss of $3.7 million.
−Removed: For the nine months ended September 30, 2021, we recorded an income tax expense of $35.8 million on a pretax loss of $7.9 million, which resulted in a year-to-date effective tax rate of (452.3)%.
−Removed: The income tax expense for the three and nine months ended September 30, 2021 was primarily related to foreign withholding taxes, BEAT and unrealized foreign exchange loss from the prior year South Korea refund claims, which have remained relatively fixed on a forecast basis quarter over quarter.
−Removed: The negative tax rate is the result of the relatively fixed tax expense recorded against a small pre-tax loss.
−Removed: For the three months ended September 30, 2020, we recorded an income tax expense of $0.5 million on a pretax loss of $30.1 million.
−Removed: For the nine months ended September 30, 2020, we recorded an income tax benefit of $6.8 million on a pretax loss of $41.6 million, which resulted in an effective tax rate of 16.3% for the nine months ended September 30, 2020.
−Removed: The tax benefit of $6.8 million is comprised of a $12.2 million tax benefit related to the five month pre-merger period and a tax expense of $5.4 million related to the four month post-merger period.
−Removed: The five month pre-merger income tax benefit of $12.2 million was primarily related to a net decrease in valuation allowance as a result of the Mergers, deduction from foreign-derived intangible income, and the release of unrecognized tax benefits due to the lapse of applicable statutes of limitation offset by tax expense from operating income, shortfalls from stock-based compensation, certain non-deductible expenses, and unrealized foreign exchange losses from the prior period South Korea refund claim.
−Removed: The four month post-merger income tax expense of $5.4 million was primarily related to income tax expense from foreign operations, foreign withholding taxes and U.S.
−Removed: federal minimum tax offset by unrealized foreign exchange gains from the current period South Korean refund claim.
−Removed: As a result of the Mergers, a valuation allowance was recorded on the net deferred tax assets of the U.S.
−Removed: federal consolidated group.
−Removed: The year-over-year increase in income tax expense is largely attributable to the inclusion of nine months of TiVo activity in the current year.
+Added: Foreign withholding taxes, U.S.
+Added: federal and state income taxes, and unrealized foreign exchange loss from the prior year South Korea refund claims are the primary drivers of income tax expense and the primary reasons for cash tax payments of income taxes.
+Added: For the three months ended March 31, 2022, our effective tax rate varies significantly from the 21% U.S.
+Added: federal tax rate due to foreign withholding taxes, BEAT, state income taxes, and unrealized foreign exchange loss from prior year South Korea refund claims.
+Added: For the three months ended March 31, 2022, we recorded an income tax expense of $21.5 million on pretax income of $45.5 million, which resulted in an effective tax rate of 47.3%.
+Added: The income tax provision for the three months ended March 31, 2022 was primarily related to foreign withholding taxes, U.S.
+Added: federal and state income taxes, and unrealized foreign exchange loss from prior year South Korea refund claims.
+Added: For the three months ended March 31, 2021, we recorded an income tax benefit of $4.0 million on pretax income of $0.5 million, which resulted in an effective tax rate of (786.4)%.
+Added: The income tax benefit for the three months ended March 31, 2021 was primarily related to foreign withholding taxes, BEAT, and unrealized foreign exchange loss from prior year South Korea refund claims.
+Added: The year-over-year increase in income tax expense for the quarter ended March 31, 2022 is largely attributable to the application of a negative effective tax rate to the March 31, 2021 year-to-date U.S.
+Added: pre-tax income.
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.
1 unchanged sentence
In making such assessment, significant weight is given to evidence that can be objectively verified.
−Removed: After considering both positive and negative evidence to assess the recoverability of our net deferred tax assets, we determined that it was not more-likely-than-not that we would realize our federal, certain state and certain foreign deferred tax assets given the substantial amount of tax attributes that will remain unutilized to offset forecasted future tax liabilities.
−Removed: In the future, we may release our deferred tax asset valuation allowance associated with our federal, state or foreign deferred tax assets depending on achievement of future profitability in relevant jurisdictions, or implementing tax planning strategies that enable us to utilize deferred tax assets.
+Added: After considering both positive and negative evidence to assess the recoverability of our net deferred tax assets, we determined that it was not
+Added: more-likely-than-not that we would realize our federal, certain state and certain foreign deferred tax assets given the substantial amount of tax attributes that will remain unutilized to offset forecasted future tax liabilities.
+Added: In the future, we may release our deferred tax asset valuation allowance associated with our federal, state or foreign deferred tax assets depending on achievement of future profitability in relevant jurisdictions or the implementation of tax planning strategies that enable us to utilize deferred tax assets.
There can be no assurance that we will generate profits or implement tax strategies in future periods enabling us to fully realize our deferred tax assets.
5 unchanged sentences
We operate in two reportable segments:
−Removed: (1) Product and (2) IP Licensing.
+Added: (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 consideration with the authoritative guidance on segment reporting.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The IP Licensing segment consists primarily of licensing our innovations to leading companies in the media and semiconductor industries.
+Added: In our IP Licensing segment, we primarily license our innovations to leading companies in the broader entertainment and semiconductor industries, and those developing new technologies that will help drive the industries 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.
−Removed: In media, our licensees include multichannel video programming distributors, OTT video service providers, consumer electronics manufacturers, social media and other new media companies.
−Removed: In semiconductor, our licensees include memory, sensors, RF component, and foundry companies.
+Added: 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.
+Added: For Technology License arrangements, the customer obtains rights to the technology delivered at the commencement of the agreement.
+Added: 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.
1 unchanged sentence
Although the CODM uses operating income to evaluate reportable segments, operating costs included in one segment may benefit other segments.
−Removed: The following table sets forth our segments’ revenue, operating expenses and operating income (loss) (in thousands):
+Added: The following table sets forth our segments’ revenue, operating expenses and operating income (in thousands):
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: Product segment
+Added: March 31, 2022
+Added: March 31, 2021
IP Licensing segment
+Added: Product segment
Total revenue
Operating expenses:
−Removed: Product segment
IP Licensing segment
+Added: Product segment
Unallocated operating expenses (1)
Total operating expenses
−Removed: Operating income (loss):
−Removed: Product segment
+Added: Operating income:
IP Licensing segment
+Added: Product segment
Unallocated operating expenses (1)
−Removed: Total operating income (loss)
+Added: Total operating income
Unallocated operating expenses consist primarily of selling, marketing, general and administrative expenses, including administration, human resources, finance, information technology, corporate development and procurement.
−Removed: These expenses are not allocated because these amounts are not considered in evaluating the operating performance of the Company’s business segments.
−Removed: For the three months ended September 30, 2021, the unallocated operating expenses were $64.0 million, compared to $65.6 million for the three months ended September 30, 2020.
−Removed: The decrease of $1.6 million was due principally to a decrease in merger related severance and retention expenses, and a reduction in the provision for credit losses, partially offset by an increase in stock-based compensation expense in the three months ended September 30, 2021.
−Removed: For the nine months ended September 30, 2021, the unallocated operating expenses were $202.2 million compared to $170.5 million for the nine months ended September 30, 2020.
−Removed: The increase of $31.7 million was due principally to the inclusion of a full nine months of post-merger TiVo expenses, partially offset by decreases in merger related transaction costs, severance and retention, and provision for credit losses in the nine months ended September 30, 2021.
−Removed: The revenue and operating income (loss) amounts in this section have been presented on a basis consistent with GAAP applied at the segment level.
−Removed: Of our $851.1 million in goodwill at September 30, 2021, approximately $527.8 million was allocated to our Product segment and approximately $323.3 million was allocated to our IP Licensing segment.
−Removed: Product Segment
+Added: These expenses are not allocated because these amounts are not considered in evaluating the operating performance of our business segments.
+Added: For the three months ended March 31, 202 2 , the unallocated operating expenses were $ 7 1 .
+Added: 6 million , compared to $ 69.1 million for the three months ended March 31, 202 1 .
+Added: The increase of $ 2.5 million was due principally to incremental stock-based compensation recognized in connection with the accelerated vesting of outstanding restricted stock units upon the separation of a former executive, and an increase in costs related to planned business separation, partially offset by a reduction in the provision for credit losses , and de creases in severance and retention expenses in the first quarter of 2022 .
+Added: The revenue and operating income amounts in this section have been presented on a basis consistent with GAAP applied at the segment level.
+Added: As of March 31, 2022, we had a total of $850.1 million in goodwill, and approximately $322.3 million of which was allocated to our IP Licensing segment and approximately $527.8 million of which was allocated to our Product segment.
+Added: IP Licensing Segment
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: Total revenue
+Added: March 31, 2022
+Added: March 31, 2021
Operating expenses:
−Removed: Total cost of revenue
+Added: Cost of revenue, excluding depreciation and amortization of intangible assets
Research, development and other related costs
Total operating expenses
−Removed: Total operating income (loss)
−Removed: Product revenue for the three months ended September 30, 2021 was $117.7 million as compared to $122.5 million for the three months ended September 30, 2020, a decrease of $4.8 million.
−Removed: The decrease was primarily due to supply chain constraints that impacted our customers’ shipment volumes in Consumer Experience and Connected Car in the three months ended September 30, 2021.
−Removed: Product revenue for the nine months ended September 30, 2021 was $361.7 million as compared to $242.6 million for the nine months ended September 30, 2020, an increase of $119.1 million.
−Removed: The increase was primarily attributable to the inclusion of a full nine months of post-merger Product revenue from TiVo.
−Removed: Operating expenses for the three months ended September 30, 2021 were $116.8 million, as compared to $116.1 million for the three months ended September 30, 2020, an increase of $0.7 million.
−Removed: The increase was primarily due to costs of headcount added in connection with the acquisition of certain MobiTV assets in May 2021, partially offset by decreases in hardware product costs and personnel related costs resulting from cost synergies implemented subsequent to the Mergers.
−Removed: Operating expenses for the nine months ended September 30, 2021 were $330.4 million, as compared to $228.9 million for the nine months ended September 30, 2020, an increase of $101.5 million.
−Removed: The increase was primarily due to the inclusion of a full nine months of post-merger TiVo Product expenses, and costs of headcount added in connection with the acquisition of certain MobiTV assets in May 2021, partially offset by a decrease in personnel related costs resulting from cost synergies implemented subsequent to the Mergers.
−Removed: Operating income in the three months ended September 30, 2021 was $0.9 million compared to operating income of $6.4 million in the three months ended September 30, 2020, with the variance due to the reasons stated above.
−Removed: Operating income in the nine months ended September 30, 2021 was $31.3 million compared to operating income of $13.7 million in the nine months ended September 30, 2020, with the variance due to the reasons stated above.
−Removed: IP Licensing Segment
+Added: Total operating income
+Added: IP Licensing revenue for the three months ended March 31, 2022 was $138.5 million as compared to $98.0 million for the three months ended March 31, 2021, an increase of $40.5 million.
+Added: The increase was primarily attributable to the execution of a new, multi-year license agreement with Micron Technology for which a meaningful portion of the total revenue was recognized in the quarter, partially offset by a decline in revenue from the Media IP licensing business due to past royalty revenue recorded in the first quarter of 2021.
+Added: Operating expenses for the three months ended March 31, 2022 were $35.3 million, as compared to $33.6 million for the three months ended March 31, 2021, an increase of $1.7 million.
+Added: The increase was primarily due to an increase in R&D cost due to increased headcount and personnel cost as well as investments in both Media and Semiconductor technology, partially offset by a decrease in litigation expense.
+Added: We expect that litigation expense will continue to be a material portion of our operating expenses and may fluctuate between periods because of planned or ongoing litigation, as described in Part II, Item 1 – Legal Proceedings, in this report, and because of litigation planned for or initiated from time to time in the future in order to enforce and protect our intellectual property and contract rights.
+Added: Operating income for the three months ended March 31, 2022 was $103.2 million compared to operating income of $64.4 million for the three months ended March 31, 2021, and the increase was due to reasons stated above, including the execution of a new, multi-year Semiconductor IP license agreement.
+Added: Product Segment
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: September 30, 2021
−Removed: September 30, 2020
−Removed: Total revenue
+Added: March 31, 2022
+Added: March 31, 2021
Operating expenses:
−Removed: Total cost of revenue
+Added: Cost of revenue, excluding depreciation and amortization of intangible assets
Research, development and other related costs
1 unchanged sentence
Total operating income
−Removed: IP Licensing revenue for the three months ended September 30, 2021 was $101.6 million as compared to $80.2 million for the three months ended September 30, 2020, an increase of $21.4 million.
−Removed: The increase was primarily due to revenue from the Comcast license executed in the fourth quarter of 2020, and the timing and conclusion of renewals and new executed licenses prior to and in the third quarter of 2021, and certain catch-up payments for past royalties due in the three months ended September 30, 2021.
−Removed: IP Licensing revenue for the nine months ended September 30, 2021 was $301.5 million as compared to $215.5 million for the nine months ended September 30, 2020, an increase of $86.0 million.
−Removed: The increase was primarily attributable to the inclusion of a full nine months of post-merger IP Licensing revenue from TiVo and revenue from the Comcast license executed in the fourth quarter of 2020, partially offset by a decline in revenue from the Semiconductor IP licensing business in the nine months ended September 30, 2021.
−Removed: Operating expenses for the three months ended September 30, 2021 were $34.7 million, as compared to $40.0 million for the three months ended September 30, 2020, a decrease of $5.3 million.
−Removed: The decrease was primarily due to a decrease in litigation expenses as we successfully concluded the Comcast litigation activity during the fourth quarter of 2020, partially offset by an increase in amortization expense which was primarily attributable to a significant amount of intangible assets acquired in the fourth quarter of 2020.
−Removed: Operating expenses for the nine months ended September 30, 2021 were $103.1 million, as compared to $70.8 million for the nine months ended September 30, 2020, an increase of $32.3 million.
−Removed: The increase was primarily due to the inclusion of a full nine months of post-merger TiVo IP Licensing expenses, partially offset by a decrease in litigation expenses, and lower personnel related costs resulting from cost synergies implemented subsequent to the Mergers.
−Removed: We expect that litigation expense will continue to be a material portion of our operating expenses and may fluctuate between periods because of planned or ongoing litigation, as described in Part II, Item 1 – Legal Proceedings , in this report, and because of litigation planned for or initiated from time to time in the future in order to enforce and protect our intellectual property and contract rights.
−Removed: Operating income for the three months ended September 30, 2021 was $67.0 million compared to operating income of $40.2 million for the three months ended September 30, 2020, with the variance due to the reasons stated above.
−Removed: Operating income for the nine months ended September 30, 2021 was $198.4 million compared to operating income of $144.7 million for the nine months ended September 30, 2020, with the variance due to the reasons stated above.
+Added: Product revenue for the three months ended March 31, 2022 was $118.9 million as compared to $123.6 million for the three months ended March 31, 2021, a decrease of $4.7 million.
+Added: The decrease was primarily due to a significant settlement of past royalties from a customer in the first quarter of 2021, and to continued supply chain constraints that impacted our customers’ shipment volumes in Connected Car and Consumer Electronics.
+Added: Operating expenses for the three months ended March 31, 2022 were $97.5 million, as compared to $108.6 million for the three months ended March 31, 2021, a decrease of $11.1 million.
+Added: The decrease was primarily driven by lower amortization expense, partially offset by an increase in R&D cost primarily due to employees hired in connection with the MobiTV Acquisition in May 2021.
+Added: The lower amortization was attributable to certain intangible assets becoming fully amortized over the past six months.
+Added: Operating income in the three months ended March 31, 2022 was $21.4 million compared to operating income of $15.0 million in the three months ended March 31, 2021, and the increase was due to the reasons stated above.
Liquidity and Capital Resources
+Added: 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 periods presented.
(in thousands, except for percentages)
−Removed: September 30, 2021
+Added: March 31, 2022
December 31, 2021
3 unchanged sentences
Percentage of total assets
−Removed: Nine Months Ended
−Removed: September 30, 2021
−Removed: September 30, 2020
+Added: Three Months Ended
+Added: March 31, 2022
+Added: March 31, 2021
Net cash from operating activities
1 unchanged sentence
Net cash from financing activities
−Removed: Our primary sources of liquidity and capital resources are our operating cash flows and our cash and short-term investments.
−Removed: Cash, cash equivalents and short-term investments were $237.3 million as of September 30, 2021, a decrease of $19.8 million from $257.1 million at December 31, 2020.
−Removed: This decrease resulted primarily from $15.8 million in dividends paid, $75.2 million in repurchases of common stock, $73.9 million in repayment of long-term debt, $17.4 million in cash used to acquire certain assets and liabilities of MobiTV, Inc.
−Removed: (the “MobiTV Acquisition”), $8.3 million of capital expenditures and $6.8 million in debt refinancing costs, which was partially offset by $165.9 million in cash generated from operations and $13.8 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.
−Removed: Cash and cash equivalents totaled $165.4 million as of September 30, 2021, a decrease of $4.8 million from $170.2 million at December 31, 2020.
−Removed: Cash flows provided by operations were $ 165.9 million for the nine months ended September 30 , 2021 , primarily due to our net loss of $ 43.7 million being adjusted for non-c ash items of depreciation of $ 18.0 million, amortization of intangible assets of $ 156.8 million , stock-based compensation expense of $ 42.5 million and a loss on debt extinguishment of $8.0 million .
−Removed: These increases were partially offset by a reduction of $ 7.
−Removed: 1 million in deferred income taxes and $ 8 .
−Removed: 3 million in changes in operating assets and liabilities .
−Removed: Cash flows provided by operations were $129.4 million for the nine months ended September 30, 2020, primarily due to our net loss of $34.8 million being adjusted for non-cash items of depreciation of $11.8 million, amortization of intangible assets of $105.4 million, stock-based compensation expense of $26.6 million, loss on debt extinguishment of $8.3 million and $31.6 million in changes in operating assets and liabilities.
−Removed: These increases were partially offset by a reduction of $28.2 million in deferred income taxes.
−Removed: Net cash used in investing activities was $11.6 million for the nine months ended September 30, 2021, primarily related to purchases of short-term investments of $65.4 million, cash used in the MobiTV Acquisition of $17.4 million and capital expenditures of $8.3 million, partially offset by maturities and sales of securities of $79.7 million.
−Removed: Net cash provided by investing activities was $72.5 million for the nine months ended September 30, 2020, primarily related to maturities and sales of securities of $26.9 million and net cash acquired in the Mergers of $117.4 million, partially offset by purchase of short-term investment of $68.1 million and capital expenditures of $3.0 million.
−Removed: Net cash used in financing activities was $157.9 million for the nine months ended September 30, 2021 principally due to $73.9 million in repayment of indebtedness, $6.8 million in debt refinancing costs, $15.8 million in dividends paid, and $75.2 million in repurchases of common stock, partially offset by $13.8 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.
−Removed: Net cash used in financing activities was $161.6 million for the nine months ended September 30, 2020 principally due to $1,091.7 million in repayment of indebtedness, $25.6 million in dividends paid, and $59.3 million in repurchases of common stock, partially offset by $1,010.3 million in net long-term debt proceeds and $4.8 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.
+Added: Our primary sources of liquidity and capital resources are our operating cash flows and our short-term investments.
+Added: Cash, cash equivalents and short-term investments were $266.8 million at March 31, 2022, an increase of $5.1 million from $261.7 million at December 31, 2021.
+Added: This increase resulted primarily from $46.3 million in cash generated from operations and $8.0 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 $5.2 million in dividends paid, $28.3 million in repurchases of common stock, $10.1 million in repayment of long-term debt, and $4.3 million of capital expenditures.
+Added: Cash and cash equivalents totaled $214.1 million at March 31, 2022, an increase of $13.0 million from $201.1 million at December 31, 2021.
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.
−Removed: The fair values for our securities are determined based on quoted market prices as of the valuation date or observable prices for similar assets.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the credit rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors.
−Removed: 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.
−Removed: 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.
−Removed: Any impairment that has not been recorded through an allowance for credit losses is recognized in accumulated other comprehensive income or loss.
−Removed: We did not recognize a provision for credit losses related to our AFS debt securities in the three and nine months ended September 30, 2021 and 2020, respectively.
−Removed: 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.
−Removed: The Term B Loan Facility was scheduled to mature on November 30, 2023.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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”).
−Removed: 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.
−Removed: 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).
−Removed: The 2020 Term B Loan Facility was scheduled to mature on June 1, 2025.
−Removed: Upon the closing of the 2020 Credit Agreement, we borrowed $1,050 million under the 2020 Term B Loan Facility.
−Removed: Net proceeds were used on June 1, 2020, together with cash and cash equivalents, to repay existing indebtedness of the combined Company, including the aforementioned Term B Loan Facility with RBC.
−Removed: We commenced repaying quarterly installments under the 2020 Term B Loan Facility in the third quarter of 2020.
−Removed: 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.
−Removed: 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.
−Removed: We commenced repaying quarterly installments under the Refinanced Term B Loans in the third quarter of 202 1 .
−Removed: At September 30, 2021, $799.9 million was outstanding under the Refinanced Term B Loans with an interest rate, including amortization of debt discount and issuance costs, of 4.2%.
−Removed: Interest is payable monthly.
−Removed: Under the existing loan agreements, we have future minimum principal payments for our debt of $10.1 million for the remainder of 2021, $40.5 million in each year from 2022 through 2027, with the remaining principal balance of $546.8 million due in 2028.
−Removed: 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.
−Removed: The Refinanced Term B Loans contain customary covenants, and as of September 30, 2021, we were in full compliance with such covenants.
−Removed: 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.
+Added: For information about our material cash requirements, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.
+Added: Other than the principal payment of $10.1 million made by us under the Refinanced Term B Loans in March 2022, our cash requirements have not changed materially since December 31, 2021.
+Added: In addition to our cash requirements, we have returned cash to stockholders through both quarterly dividend payments and repurchases of our common stock under our stock repurchase plan.
+Added: Quarterly Dividends
+Added: In April 2022, our Board of Directors authorized payment of a quarterly dividend of $0.05 per share, to be paid in June 2022.
+Added: We anticipate that all quarterly dividends will be paid out of cash, cash equivalents and short-term investments.
+Added: Stock Repurchase Plan
+Added: 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.
1 unchanged sentence
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.
−Removed: Since the inception of the Plan, and through September 30, 2021, we have repurchased an aggregate of approximately 7.7 million shares of common stock at a total cost of $129.9 million at an average price of $16.93.
−Removed: During the nine months ended September 30, 2021, we repurchased an aggregate of approximately 2.8 million shares of common stock at a total cost of $59.8 million at an average price of $21.72.
−Removed: As of September 30, 2021, the total remaining amount available for repurchase under the Plan was $120.1 million.
+Added: Since the inception of the Plan, and through March 31, 2022, we have repurchased an aggregate of approximately 10.0 million shares of common stock at a total cost of $172.2 million at an average price of $17.24.
+Added: During the three months ended March 31, 2022, we repurchased an aggregate of approximately 1.0 million shares of common stock at a total cost of $17.3 million at an average price of $16.78.
+Added: As of March 31, 2022, the total remaining amount available for repurchase under the Plan was $77.8 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.
+Added: 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.
−Removed: On October 29, 2021, the Board declared a cash dividend of $0.05 per share of common stock, payable on December 20, 2021 to the stockholders of record at the close of business on November 29, 2021.
−Removed: We anticipate that all quarterly dividends will be paid out of cash, cash equivalents and short-term investments.
−Removed: From 2018 through the third quarter of 2021, we generated approximately $898 million of cash flows from operating activities.
−Removed: While we expect to continue to generate cash flows from operating activities for the remainder of 2021, the COVID-19 pandemic continues to present uncertainties to the level of such cash flows as compared to prior years.
−Removed: Additionally, integration of the two legacy business operations of Xperi and TiVo post-merger and transaction costs relating to the contemplated separation of our two business segments are expected to impact operating cash flow for the next 12 months.
−Removed: 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.
−Removed: 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.
+Added: From 2020 through the first quarter of 2022, we generated approximately $709 million of cash flows from operating activities.
+Added: 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.
+Added: 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 6 months.
+Added: We have taken actions to manage cash flows by reducing discretionary spending and other variable costs, and closely monitoring receivables and payables.
+Added: 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.
−Removed: The sale of additional equity securities could
−Removed: result in dilution to our stockholders.
+Added: 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.
−Removed: Contractual Obligations
−Removed: For information about our contractual obligations, see “Contractual Obligations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.
−Removed: Other than the principal payment of $73.9 million made by us under our long-term debt in the first nine months of 2021, our contractual obligations have not changed materially since December 31, 2020.
−Removed: As of September 30, 2021, we had accrued $96.3 million of unrecognized tax benefits in long-term income taxes payable related to uncertain tax positions, which includes $3.6 million of accrued interest and penalties.
−Removed: 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.
−Removed: If we are successful in receiving our South Korean withholding tax refunds of $119.2 million, including interest and foreign exchange gain, then $63.0 million of unrecognized tax benefit would be payable to the U.S.
−Removed: tax authorities.
−Removed: Refer to “Note 15 – Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements for additional information.
+Added: Cash Flows from Operating Activities
+Added: Cash flows provided by operations were $46.3 million for the three months ended March 31, 2022, primarily due to our net income of $24.0 million being further adjusted for non-cash items of depreciation of $5.9 million, amortization of intangible assets of $39.3 million and stock-based compensation expense of $16.8 million.
+Added: These increases were partially offset by $40.8 million in changes in operating assets and liabilities including payment during the quarter of employee bonuses earned in 2021.
+Added: Cash flows provided by operations were $26.7 million for the three months ended March 31, 2021, primarily due to our net income of $4.5 million being further adjusted for non-cash items of depreciation of $5.7 million, amortization of intangible assets of $52.5 million and stock-based compensation expense of $13.2 million.
+Added: These increases were partially offset by $52.8 million in changes in operating assets and liabilities including payment during the quarter of employee bonuses earned in 2020.
+Added: Cash Flows from Investing Activities
+Added: Net cash provided by investing activities was $3.1 million for the three months ended March 31, 2022, primarily related to maturities and sales of securities of $12.0 million, partially offset by purchases of short-term investments of $4.5 million and capital expenditures of $4.3 million.
+Added: Net cash used in investing activities was $17.4 million for the three months ended March 31, 2021, primarily related to purchases of short-term investments of $42.5 million and capital expenditures of $1.8 million, partially offset by maturities and sales of securities of $26.9 million.
+Added: Capital Expenditures
+Added: Our capital expenditures for property, plant, and equipment consist primarily of purchases of computer hardware and software, information systems, production and test equipment.
+Added: During the three months ended March 31, 2022 and 2021, we spent $4.3 million and $1.8 million on capital expenditures, respectively, and we expect capital expenditures in 2022 to be between $20.0 million to $25.0 million.
+Added: These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents, and short-term investments.
+Added: 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.
+Added: Cash Flows from Financing Activities
+Added: Net cash used in financing activities was $35.7 million for the three months ended March 31, 2022 principally due to $10.1 million in repayment of indebtedness, $5.2 million in dividends paid, and $28.3 million in repurchases of common stock, partially offset by $8.0 million in proceeds due to the issuance of common stock under our employee stock grant programs and employee stock purchase plans.
+Added: Net cash used in financing activities was $44.0 million for the three months ended March 31, 2021 principally due to $13.1 million in repayment of indebtedness, $5.3 million in dividends paid, and $32.4 million in repurchases of common stock, partially offset by $6.7 million in proceeds due to the issuance of common stock under our employee stock grant programs and employee stock purchase plans.
+Added: Long-term Debt
+Added: On June 8, 2021, we amended that certain Credit Agreement dated June 1, 2020 by and among us, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “2020 Credit Agreement”).
+Added: The 2020 Credit Agreement initially 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”).
+Added: In connection with the amendment (the “Amendment”), we made a voluntary prepayment of $50.6 million of the term loan outstanding under the 2020 Credit Agreement using cash on hand.
+Added: The Amendment provided for, among other things, (i) a new tranche of term loans (the “Refinanced Term B Loans”) in an aggregate principal amount of $810.0 million, (ii) a reduction of the interest rate margin applicable to such loans to (x) in the case of base rate loans, 2.50% per annum and (y) in the case of Eurodollar loans, LIBOR plus a margin of 3.50% per annum, (iii) a prepayment premium of 1.00% in connection with any repricing transaction with respect to the Refinanced Term B Loans within six months of the closing date of the Amendment, (iv) an extension of the maturity to June 8, 2028, and (v) certain additional amendments, including amendments to provide us with additional flexibility under the covenant governing restricted payments.
+Added: We commenced repaying quarterly installments under the Refinanced Term B Loans in the third quarter of 2021.
+Added: At March 31, 2022, $779.6 million was outstanding under the Refinanced Term B Loans with an interest rate, including amortization of debt discount and issuance costs, of 4.2%.
+Added: Interest is payable monthly.
+Added: Under the existing loan agreements, we have future minimum principal payments for our debt of $30.4 million for the remainder of 2022, $40.5 million in each year from 2023 through 2027, with the remaining principal balance of $546.8 million due in 2028.
+Added: 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.
+Added: The Refinanced Term B Loans contain customary covenants, and as of March 31, 2022, we were in full compliance with such covenants.
Critical Accounting Policies and Estimates
−Removed: During the nine months ended September 30, 2021, there were no significant changes in our critical accounting policies.
−Removed: See “Note 2 – Summary of Significant Accounting Policies” of the Notes to the Condensed Consolidated Financial Statements for additional detail.
+Added: During the three months ended March 31, 2022, there were no significant changes in our critical accounting policies and estimates.
+Added: See “Note 2 – Summary of Significant Accounting Policies” of Notes to the Condensed Consolidated Financial Statements for additional detail.
For a discussion of our critical accounting policies and estimates, see Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.
2 unchanged sentences
Quantitative and Qualitative Disclosures About Market Risk
−Removed: For a discussion of the Company’s market risk, see Part II, Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the Form 10-K.
+Added: For a discussion of our market risk, see Part II, Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the Form 10-K.
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.