What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-02-26 · 143 added, 159 removed, 333 unchanged (48% of the section changed)

3 unchanged sentences

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes that are included elsewhere in this report.

Executive Summary

Highlights from our annual results were as follows:

• Revenue of $242.7 million;

• Operating expenses of $228.8 million;

• GAAP diluted net loss per share of $0.39;

• Net cash provided by operating activities of $185.5 million

We had record annual product revenue of $114.0 million in 2020, which was primarily driven by our memory interface chips, and was up 56% as compared to 2019.

In addition, our cash provided by operating activities for 2020 was up 44% as compared to 2019.

Tab le of Contents

Business Overview

Rambus produces products and innovations that address the fundamental challenges of accelerating data.

We make industry-leading chips and IP that enable critical performance improvements for data center and other growing markets.

We make industry-leading chips and Silicon IP that enable critical performance improvements for data center and other growing markets.

The ongoing shift to the cloud, along with the widespread advancement of AI across the data center, 5G, automotive and IoT, has led to exponential growth in data usage and tremendous demands on data infrastructure.

Creating fast and safe connections, both in and across systems, remains one of the most mission-critical design challenges limiting performance in advanced hardware for these markets.

As an industry pioneer with over 30 years of advanced semiconductor design experience, Rambus is ideally positioned to address the challenges of moving and protecting data.

We are a leader in high-performance memory subsystems, providing chips, IP and innovations that maximize the performance and security in data-intensive systems.

As an industry pioneer with over 30 years of advanced semiconductor experience in interconnect technologies, Rambus is ideally positioned to address the challenges of moving and protecting data.

We are a leader in high-performance memory subsystems, providing chips, Silicon IP and innovations that maximize the performance and security in data-intensive systems.

Whether in the cloud, at the edge or in your hand, real-time and immersive applications depend on data throughput and integrity.

3 unchanged sentences

The Rambus product and technology roadmap, as well as our go-to-market strategy, is driven by the application-specific requirements of our focus markets.

Executive Summary

Highlights from our annual results for the year ended December 31, 2021 were as follows:

• Revenue of $328.3 million;

• Operating expenses of $233.6 million;

• GAAP diluted net income per share of $0.16;

• Net cash provided by operating activities of $209.2 million.

We had record annual product revenue of $143.9 million in 2021, which was primarily driven by our memory interface chips and was up 26% as compared to 2020.

In addition, our cash provided by operating activities for 2021 was $209.2 million, which was a record for the Company and up 13% as compared to 2020.

Operational Highlights

Revenue Sources

Our patented inventions are offered to our customers through patent, technology, software and IP core licenses, as well as memory interface chips.

Today, a significant source of revenue is derived from our Architecture Licenses, through which we provide our customers a license to use a certain portion of our broad worldwide portfolio of patented inventions.

Our Architecture Licenses enable our customers to use the licensed portion of our portfolio of patented inventions in the customer’s own digital electronics products, systems or services.

The licenses may also define the specific field of use where our customers may use or employ our inventions in their products.

License agreements are structured with fixed or variable or a hybrid of fixed and variable royalty payments over certain defined periods ranging for periods of up to ten years.

Leading semiconductor and electronic system companies such as AMD, Broadcom, Cisco, Fujitsu, IBM, Marvell, Mediatek, Micron, Nanya, NVIDIA, Panasonic, Phison, Qualcomm, Renesas, Samsung, SK hynix, Socionext, STMicroelectronics, Toshiba, Western Digital, Winbond, and Xilinx have licensed our patents.

The vast majority of our patents were secured through our internal research and development efforts.

We also offer our customers technology licenses to support the implementation and adoption of our technology in their products or services.

Our customers include leading companies such as IBM, Panasonic, Qualcomm, Samsung, Sony and Toshiba.

Our technology license offerings include a range of technologies for incorporation into our customers’ products and systems.

We also offer a range of services as part of our technology licenses which can include know-how and technology transfer, product design and development, system integration, and other services.

These technology license agreements may have both a fixed price (non-recurring) component and ongoing use fees and in some cases, royalties.

Further, under technology licenses, our customers typically receive licenses to our patents necessary to implement these solutions in their products with specific rights and restrictions to the applicable patents elaborated in their individual contracts with us.

Revenues from royalties accounted for 33%, 41% and 56% of our consolidated revenue for the years ended December 31, 2020, 2019 and 2018, respectively.

The remainder of our revenue is product revenue, contract and other revenue, which includes our product sales, IP core licenses, software licenses and related implementation, support and maintenance fees, and engineering services fees.

The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenue or accounts receivable in any given period.

The Company’s consolidated revenue is comprised of product revenue, contract and other revenue and royalties.

Product revenue consists primarily of memory interface chips and is a significant and growing segment of the business.

Our memory interface chips are sold to major DRAM manufacturers, Micron, Samsung and SK hynix, as well as directly to system manufacturers and cloud providers, for integration into server memory modules.

Product revenue accounted for 44%, 46% and 32% of our consolidated revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

Contract and other revenue consists primarily of Silicon IP, which is comprised of our high-speed interface and security IP.

Revenue sources under contract and other include our IP core licenses, software licenses and related implementation, support and maintenance fees, and engineering services fees.

Contract and other revenue accounted for 14%, 19% and 27% of our consolidated revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

Royalty revenue is derived from our patent licenses, through which we provide our customers certain rights to our broad worldwide portfolio of patented inventions.

Our patent licenses enable our customers to use a portion of our patent portfolio in their own digital electronics products.

The licenses typically range in term up to ten years and define the specific field of use where our customers may utilize our inventions in their products.

Royalties may be structured as fixed, variable or a hybrid of fixed and variable royalty payments.

Leading semiconductor and electronic system companies such as AMD, Broadcom, Cisco,

CXMT, IBM, Infineon, Kioxia, Marvell, Mediatek, Micron, Nanya, NVIDIA, Panasonic, Phison, Qualcomm, Samsung, SK hynix, Socionext, STMicroelectronics, Toshiba, Western Digital, Winbond, and Xilinx have licensed our patents.

The vast majority of our patents originate from our internal research and development efforts.

Revenues from royalties accounted for 42%, 34% and 41% of our consolidated revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

Costs and Expenses

Cost of product revenue for 2020 increased approximately $10.5 million to $37.7 million from $27.2 million as compared to 2019 primarily due to increased cost of sales associated with our memory interface chips.

Tab le of Contents

Cost of contract and other revenue for 2020 decreased approximately $4.3 million to $5.6 million from $9.9 million as compared to 2019 primarily due to incurring lower costs as a result of the divestiture of our former Payments and Ticketing businesses in the fourth quarter of 2019.

Cost of product revenue for 2021 increased approximately $11.7 million to $49.4 million from $37.7 million as compared to 2020, primarily due to increases in sales volumes of our memory interface chips.

Cost of contract and other revenue for 2021 decreased approximately $0.9 million to $4.7 million from $5.6 million as compared to 2020.

Research and development expenses continue to play a key role in our efforts to maintain product innovations.

Our research and development expenses for 2020 decreased $17.0 million as compared to 2019 primarily due to decreased headcount-related expenses of $11.8 million (which includes the reduction in headcount due to the divestiture of the Payments and Ticketing businesses in 2019), consulting costs of $5.2 million, travel costs of $1.9 million and stock-based compensation expense of $1.0 million, offset by increased retention bonus expense related to acquisitions of $2.0 million and prototyping costs of $0.9 million.

Sales, general and administrative expenses for 2020 decreased $15.8 million as compared to 2019 primarily due to decreased headcount-related expenses of $5.4 million, acquisition and divestiture-related costs of $4.1 million, travel costs of $3.4 million, consulting costs of $2.7 million and depreciation expense of $1.2 million, offset by increased bonus accrual expense of $0.5 million and stock-based compensation expense of $0.3 million.

Our research and development expenses for 2021 decreased approximately $4.2 million as compared to 2020, primarily due to decreased engineering development tool costs of $3.6 million, headcount-related expenses of $1.7 million, retention bonus expense related to acquisitions of $1.1 million, allocated information technology costs of $0.8 million, facilities costs of $0.7 million and prototyping costs of $0.6 million, offset by an increase in engineering costs allocated to cost of revenue of $1.9 million, consulting costs of $1.8 million and stock-based compensation expense of $0.6 million.

Sales, general and administrative expenses for 2021 increased approximately $4.6 million as compared to 2020, primarily due to increased consulting, legal and accounting costs of $3.0 million related to the shareholder activism activity and restatement matters, acquisition-related costs (including retention bonus expense) of $1.8 million, allocated information technology costs of $0.8 million, stock-based compensation expense of $0.8 million and recruiting expenses of $0.6 million, offset by decreased facilities costs of $2.2 million, other consulting costs of $0.6 million and sales and marketing costs of $0.6 million.

Impact of the COVID-19 Pandemic

In December 2019, the Novel Coronavirus (COVID-19) was reported in China, in January 2020 the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern, and in March 2020 the WHO declared it a pandemic.

The COVID-19 pandemic has created significant global economic uncertainty and may adversely impact the business of our customers, partners and vendors.

The extent of the impact of the Novel Coronavirus (COVID-19) on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, and impact on our partners or employees, all of which are uncertain and cannot be predicted.

At this point, the extent to which the Novel Coronavirus (COVID-19) may impact our financial condition or results of operations remains uncertain.

In December 2019, the COVID-19 virus was reported in China, in January 2020 the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern, and in March 2020 the WHO declared it a pandemic.

The COVID-19 pandemic and new variants have created significant global economic uncertainty and may adversely impact the business of our customers, partners and vendors.

The extent of the impact of the ongoing COVID-19 pandemic and subsequent variants on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, and impact on our partners or employees, all of which are uncertain and cannot be predicted.

The extent to which the ongoing COVID-19 pandemic and subsequent variants may impact our financial condition or results of operations remains uncertain.

Actual results could differ from any estimates and any such differences could be material to our financial statements.

Furthermore, the effect of the Novel Coronavirus (COVID-19) may not be fully reflected in our results of operations until future periods, if at all.

Furthermore, the effect of COVID-19 and the new variants may not be fully reflected in our results of operations until future periods, if at all.

There are a number of trends that may have a material impact on us in the future, including but not limited to, the evolution of memory and SerDes technology, adoption of security solutions, the use and adoption of our inventions or technologies generally, industry consolidation, and global economic conditions with the resulting impact on sales of consumer electronic systems.

We have a high degree of revenue concentration.

Our top five customers for each reporting period represented approximately 46% of our revenue for 2020 as compared to 46% in 2019 and 49% in 2018.

Our top five customers represented approximately 56% of our revenue for 2021 as compared to 46% in 2020 and 45% in 2019.

The particular customers which account for revenue concentration have varied from period-to-period as a result of the addition of new contracts, expiration of existing contracts, renewals of existing contracts, industry consolidation, and the volumes and prices at which the customers have recently sold to their customers.

6 unchanged sentences

Many system companies purchase semiconductors containing our technologies from our customers and do not have a direct contractual relationship with us.

Our customers generally do not provide us with details as to the identity or volume of licensed semiconductors purchased by particular system companies.

Our customers generally do not provide us with details as to the identity or

volume of licensed semiconductors purchased by particular system companies.

As a result, we face difficulty in analyzing the extent to which our future revenue will be dependent upon particular system companies.

As a part of our overall business strategy, from time to time, we evaluate businesses and technologies for potential acquisition that are aligned with our core business and designed to supplement our growth, including the 2019 acquisitions of Northwest Logic and the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure.

Several of our licensees have renewed or extended their license agreements with us during the year ended December 31, 2021, including Qualcomm, Kioxia and Western Digital.

As a part of our overall business strategy, from time to time, we evaluate businesses and technologies for potential acquisitions that are aligned with our core business and designed to supplement our growth, including the 2021 acquisitions of AnalogX and PLDA, as well as the 2019 acquisitions of Northwest Logic and the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure.

Similarly, we evaluate our current businesses and technologies that are not aligned with our core business for potential divestiture, such as the sale of our Payments and Ticketing businesses to Visa International Service Association in 2019.

We expect to continue to evaluate and potentially enter into strategic acquisitions or divestitures which may adversely impact our business and operating results.

Tab le of Contents

Results of Operations

The following table sets forth, for the periods indicated, the percentage of total revenue represented by certain items reflected in our consolidated statements of operations:

The following table sets forth, for the periods indicated, the percentage of total revenue represented by certain items reflected on our consolidated statements of operations:

Years Ended December 31,

2021 2020 2019

33.3 % 40.5 % 56.4 %

Product revenue

43.9 % 46.3 % 32.1 %

41.6 % 34.3 % 41.4 %

Contract and other revenue

19 unchanged sentences

Total operating expenses 71.2 % 93.2 % 121.4 %

Operating loss (19.3) % (46.6) % (37.6) %

Operating income (loss) 7.4 % (17.9) % (44.0) %

Interest income and other income (expense), net 3.0 % 7.3 % 12.0 %

1 unchanged sentence

Interest and other income (expense), net (0.3) % 3.1 % 7.7 %

Loss before income taxes (16.3) % (38.8) % (30.5) %

Income (loss) before income taxes 7.1 % (14.8) % (36.3) %

Provision for income taxes 1.5 % 1.6 % 1.5 %

Net loss (18.0) % (40.3) % (68.3) %

Net income (loss) 5.6 % (16.4) % (37.8) %

Years Ended December 31, 2020 to 2021 2019 to 2020

1 unchanged sentence

Total Revenue

Royalties $ 81.0 $ 90.8 $ 130.5 (10.8) % (30.4) %

Product revenue $ 143.9 $ 114.0 $ 73.0 26.3 % 56.2 %

Royalties 136.7 84.6 94.4 61.7 % (10.4) %

Contract and other revenue 47.7 47.7 60.2 (0.2) % (20.7) %

Total revenue $ 328.3 $ 246.3 $ 227.6 33.3 % 8.2 %

Royalty revenue

Royalty revenue, which includes patent and technology license royalties, decreased approximately $9.8 million to $81.0 million for the year ended December 31, 2020 from $90.8 million for 2019.

The decrease was due primarily to the timing of renewals and the related structure of architecture license agreements which include both fixed and variable components.

Tab le of Contents

Royalty revenue decreased approximately $39.7 million to $90.8 million for the year ended December 31, 2019 from $130.5 million for 2018.

The decrease was due primarily to the timing of renewals and the related structure of architecture license agreements which include both fixed and variable components.

We are continuously in negotiations for licenses with prospective customers.

We expect patent royalties will continue to vary from period to period based on our success in adding new customers, renewing or extending existing agreements, as well as the level of variation in our customers’ reported shipment volumes, sales price and mix, offset in part by the proportion of customer payments that are fixed or hybrid in nature.

We also expect that our technology royalties will continue to vary from period to period based on our customers’ shipment volumes, sales prices, and product mix.

Product Revenue

1 unchanged sentence

Product revenue increased approximately $29.9 million to $143.9 million for the year ended December 31, 2021 from $114.0 million for 2020.

The increase was due to market share gains of our memory interface chips.

The increase was due to continued market share gains of our memory interface chips.

Product revenue increased approximately $41.0 million to $114.0 million for the year ended December 31, 2020 from $73.0 million for 2019.

The increase was primarily due to greater market share gains of our memory interface chips.

The increase was due to market share gains of our memory interface chips.

We believe that product revenue will continue to increase in 2022 as compared to 2021, mainly from the sale of our memory interface chips.

Our ability to continue to grow product revenue is dependent on, among other things, our ability to continue to obtain orders from customers and our ability to meet our customers’ demands.

However, our ability to continue to grow product revenue is dependent on, among other things, our ability to continue to obtain orders from customers, our ability to meet our customers’ demands and our ability to mitigate any supply chain risk due to the ongoing COVID-19 pandemic and subsequent variants.

Royalty revenue, which includes patent and technology license royalties, increased approximately $52.1 million to $136.7 million for the year ended December 31, 2021 from $84.6 million for 2020.

The increase was primarily due to the timing and structure of license renewals.

Royalty revenue decreased approximately $9.8 million to $84.6 million for the year ended December 31, 2020 from $94.4 million for 2019.

The decrease was primarily due to the timing and structure of license renewals.

We are continuously in negotiations for licenses with prospective customers.

We also expect that our technology royalties will continue to vary from period to period based on our customers’ shipment volumes, sales prices, and product mix.

Contract and Other Revenue

Contract and other revenue consists of revenue from technology development projects.

Contract and other revenue remained flat at $47.7 million for the year ended December 31, 2021 as compared to 2020.

Contract and other revenue decreased approximately $12.5 million to $47.7 million for the year ended December 31, 2020 from $60.2 million for 2019.

The decrease was primarily due to the divestiture of our former Payments and Ticketing businesses resulting in no corresponding revenue in 2020, offset by growth experienced in our Silicon IP offerings.

Contract and other revenue decreased approximately $1.8 million to $60.2 million for the year ended December 31, 2019 from $62.0 million for 2018.

The decrease was primarily due to lower revenue associated with our Payments and Ticketing businesses, which were divested in the fourth quarter of 2019, offset by growth experienced in our Silicon IP offerings.

We believe that contract and other revenue will fluctuate over time based on our ongoing technology development contractual requirements, the amount of work performed, the timing of completing engineering deliverables, and the changes to work required, as well as new technology development contracts booked in the future.

4 unchanged sentences

Cost of product revenue are costs attributable to the sale of memory and security products.

Cost of product revenue also included costs attributable to the sale of lighting products in 2018.

For the year ended December 31, 2020 as compared to 2019, cost of product revenue increased 39.0% primarily due to increased cost of sales associated with higher sales of memory interface chips.

For the year ended December 31, 2019 as compared to 2018, cost of product revenue increased 48.4% primarily due to increased cost of sales associated with higher sales of memory products.

In the near term, we expect costs of product revenue to be higher as we expect higher sales of our various products in 2021 as compared to 2020.

For the year ended December 31, 2021 as compared to 2020, cost of product revenue increased 30.9% primarily due to increases in sales volumes of our memory interface chips.

For the year ended December 31, 2020 as compared to 2019, cost of product revenue increased 39.0% primarily due to increases in sales volumes of our memory interface chips.

In the near term, we expect costs of product revenue to continue to be higher as we expect higher sales of our various products in 2022 as compared to 2021.

Cost of Contract and Other Revenue

3 unchanged sentences

Cost of contract and other revenue reflects the portion of the total engineering costs which are specifically devoted to individual customer development and support services.

For the year ended December 31, 2021 as compared to 2020, cost of contract and other revenue decreased 15.8% due to lower engineering services associated with the contracts.

For the year ended December 31, 2020 as compared to 2019, cost of contract and other revenue decreased 43.0% primarily due to the divestiture of our Payments and Ticketing businesses in the fourth quarter of 2019.

For the year ended December 31, 2019 as compared to 2018, cost of contract and other revenue decreased 15.4% primarily due to lower revenue associated with our former Payments and Ticketing businesses, which were divested in the fourth quarter of 2019.

In the near term, we expect cost of contract and other revenue to vary from period to period based on varying revenue recognized from contract and other revenue.

In the near term, we expect costs of contract and other revenue to vary from period to period based on varying revenue recognized from contract and other revenue.

Research and Development Expenses

6 unchanged sentences

Research and development expenses are those expenses incurred for the development of applicable technologies.

For the year ended December 31, 2021 as compared to 2020, total research and development expenses decreased 3.0% primarily due to decreased engineering development tool costs of $3.6 million, headcount-related expenses of $1.7 million, retention bonus expense related to acquisitions of $1.1 million, allocated information technology costs of $0.8 million, facilities costs of $0.7 million and prototyping costs of $0.6 million, offset by an increase in engineering costs allocated to cost of revenue of $1.9 million, consulting costs of $1.8 million and stock-based compensation expense of $0.6 million.

For the year ended December 31, 2020 as compared to 2019, total research and development expenses decreased 10.8% primarily due to decreased headcount-related expenses of $11.8 million (which includes the reduction in headcount due to the divestiture of the Payments and Ticketing businesses in 2019), consulting costs of $5.2 million, travel costs of $1.9 million and stock-based compensation expense of $1.0 million, offset by increased retention bonus expense related to acquisitions of $2.0 million and prototyping costs of $0.9 million.

For the year ended December 31, 2019 as compared to 2018, total research and development expenses decreased 1.0% primarily due to decreased headcount-related expenses of $3.9 million, allocated information technology costs of $1.6 million and stock-based compensation expense of $1.5 million, offset by increased facilities costs of $2.1 million as discussed below, retention bonus accrual related to acquisitions of $2.0 million and engineering development tool costs of $1.2 million.

On January 1, 2019, we adopted the New Leasing Standard using the alternative transition method.

In accordance with the New Leasing Standard, we were required to derecognize our previous Sunnyvale and Ohio facilities as imputed facility obligations (as accounted for under the previous leasing guidance) and recognize these facilities as operating leases.

This change resulted in no longer recognizing interest expense associated with these imputed facility lease obligations, but instead, recognizing lease expense that was included in operating costs and expenses.

In the near term, we expect research and development expenses to be higher as we continue to make investments in the infrastructure and technologies required to maintain our product innovation in semiconductor, security and other technologies.

Sales, general and administrative costs

Sales, General and Administrative Expenses

Years Ended December 31, 2020 to 2021 2019 to 2020

(Dollars in millions) 2021 2020 2019 Change Change

Sales, general and administrative costs

Sales, general and administrative expenses

$ 74.5 $ 70.7 $ 85.2 5.4 % (16.9) %

1 unchanged sentence

16.5 15.7 15.4 4.9 % 2.0 %

Total sales, general and administrative costs

Total sales, general and administrative expenses

$ 91.0 $ 86.4 $ 100.6 5.3 % (14.0) %

3 unchanged sentences

Due to the long business development cycles we face and the semi-fixed nature of sales, general and administrative expenses in a given period, these expenses generally do not correlate to the level of revenue in that period or in recent or future periods.

For the year ended December 31, 2020 as compared to 2019, total sales, general and administrative costs decreased 15.5% primarily due to decreased headcount-related expenses of $5.4 million, acquisition and divestiture-related costs of $4.1 million, travel costs of $3.4 million, consulting costs of $2.7 million and depreciation expense of $1.2 million, offset by increased bonus accrual expense of $0.5 million and stock-based compensation expense of $0.3 million.

For the year ended December 31, 2019 as compared to 2018, total sales, general and administrative costs increased 3.2% primarily due to increased stock-based compensation expense of $6.3 million primarily due to the termination of the former chief executive officer at the end of June 2018, acquisition and divestiture related costs of $5.2 million and facilities costs of $2.6 million (primarily due to the adoption of the New Leasing Standard beginning in 2019 as discussed above), offset by decreased headcount related expenses of $3.8 million, depreciation expense of $1.8 million, sales and marketing costs of $1.2 million, travel expenses of $1.2 million, consulting costs of $1.0 million, bonus accrual expense of $1.0 million and recruiting costs of $0.6 million.

For the year ended December 31, 2021 as compared to 2020, total sales, general and administrative costs increased 5.3% primarily due to increased consulting, legal and accounting costs of $3.0 million related to the shareholder activism activity and restatement matters during the first quarter of 2021, acquisition-related costs (including retention bonus expense) of $1.8 million, allocated information technology costs of $0.8 million, stock-based compensation expense of $0.8 million and recruiting expenses of $0.6 million, offset by decreased facilities costs of $2.2 million, other consulting costs of $0.6 million and sales and marketing costs of $0.6 million.

For the year ended December 31, 2020 as compared to 2019, total sales, general and administrative costs decreased 14.0% primarily due to decreased headcount-related expenses of $5.4 million, acquisition and divestiture-related costs of $4.1 million, travel costs of $3.4 million and consulting costs of $2.7 million, offset by increased bonus accrual expense of $0.5 million and stock-based compensation expense of $0.3 million.

In the future, sales, general and administrative expenses will vary from period to period based on the trade shows, advertising, legal, acquisition and other sales, marketing and administrative activities undertaken, and the change in sales, marketing and administrative headcount in any given period.

8 unchanged sentences

Amortization expense is related to various acquired IP.

For the year ended December 31, 2021 as compared to 2020, total amortization of acquired intangible assets decreased 5.1% primarily due to certain intangible assets being fully amortized, offset by additional amortization from intangible assets acquired as part of the acquisitions of AnalogX and PLDA in 2021.

For the year ended December 31, 2020 as compared to 2019, total amortization of acquired intangible assets increased 7.9% primarily due to additional amortization from intangible assets acquired as part of the acquisitions from the second half of 2019, partially offset by certain other intangible assets being fully amortized.

For the year ended December 31, 2019 as compared to 2018, total amortization of acquired intangible assets decreased 41.9% primarily due to certain intangible assets being fully amortized.

Restructuring and Other Charges

4 unchanged sentences

* NM — percentage is not meaningful

In November 2020, we initiated a restructuring program to reduce overall expenses which is expected to improve future profitability by reducing spending on research and development efforts and sales, general and administrative programs.

In November 2020, we initiated a restructuring plan to reduce overall expenses to improve future profitability by reducing spending on research and development efforts and sales, general and administrative programs (the “2020 Restructuring Plan”).

As a result, we recorded a charge of $3.3 million primarily related to headcount costs.

1 unchanged sentence

Additionally, we recorded other severance-related charges of $1.4 million.

During 2018, we closed our lighting division and manufacturing operations in Brecksville, Ohio.

As a result, we recorded a charge of $2.2 million related to employee terminations and severance costs, and facility-related costs.

Refer to Note 18, “Restructuring and Other Charges,” of Notes to Consolidated Financial Statements of this Form 10-K for further discussion.

Loss on divestiture

Years Ended December 31, 2019 to 2020 2018 to 2019

(Dollars in millions) 2020 2019 2018 Change Change

Loss on divestiture

$ — $ 7.4 $ — — % 100.0 %

During 2020 and 2018, we did not record a charge for loss on divestiture.

During 2019, we entered into a share purchase agreement with Visa International Service Association (the “Purchaser”), pursuant to which the Purchaser had agreed to acquire all of the outstanding shares of our subsidiary, Smart Card Software Limited, which was comprised of our Payments and Ticketing businesses.

The decision to sell these businesses reflected our review of our business to focus on products and offerings that are core to our semiconductor business.

Consequently, we measured these businesses at the lower of their carrying value or fair value less any costs to sell, and subsequently recognized a loss of approximately $7.4 million during the year ended December 31, 2019.

Refer to Note 17, “Divestiture,” of Notes to Consolidated Financial Statements of this Form 10-K for further discussion.

Change in Fair Value of Earn-Out Liability

1 unchanged sentence

(Dollars in millions) 2021 2020 2019 Change Change

Change in fair value of earn-out liability $ (1.8) $ — $ — 100.0 % — %

During 2020, we recorded a full reduction in the fair value of the earn-out liability related to the 2019 asset purchase agreement to acquire the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure, since the specified performance milestones were not met for calendar year 2020, which resulted in a gain in our consolidated statements of operations.

Change in fair value of earn-out liability $ 5.3 $ (1.8) $ — NM* 100.0 %

_____________________________________

* NM — percentage is not meaningful

During the fourth quarter of 2021, we remeasured the fair value of the earn-out liability related to the acquisition of PLDA, which is subject to certain revenue targets of the acquired business for the next three years.

The remeasurement of the earn-out liability resulted in an additional expense of $5.3 million on our consolidated statements of operations.

Interest and Other Income (Expense), Net

4 unchanged sentences

Interest and other income (expense), net $ (1.0) $ 7.5 $ 17.6 (113.2)% (57.3) %

Interest income and other income (expense), net, primarily consists of interest income of $14.2 million, $20.4 million and $27.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, due to the significant financing component

of licensing agreements.

Interest income and other income (expense), net, consists primarily of interest income of $9.3 million, $14.6 million and $20.5 million for the years ended December 31, 2021, 2020 and 2019, respectively, due to the significant financing component of licensing agreements.

Interest income and other income (expense), net, also includes interest income generated from investments in high quality fixed income securities and any gains or losses from the re-measurement of our monetary assets or liabilities denominated in foreign currencies.

Interest expense for all periods disclosed primarily consists of interest expense associated with the non-cash interest expense related to the amortization of the debt discount and issuance costs on the 1.375% convertible senior notes due 2023 (the “2023 Notes”) and the 1.125% convertible senior notes due 2018 (the “2018 Notes”), as well as the coupon interest related to these notes.

Interest expense decreased in 2019 as compared to the same period in 2018 primarily due to the 2018 Notes maturing in the third quarter of 2018.

We expect our non-cash interest expense to increase steadily as the notes reach maturity.

Interest expense for all periods disclosed consists primarily of interest expense associated with the non-cash interest expense related to the amortization of the debt discount and issuance costs on the 1.375% convertible senior notes due 2023 (the “2023 Notes”), as well as the coupon interest related to these notes.

Refer to Note 12, “Convertible Notes,” of Notes to Consolidated Financial Statements of this Form 10-K for additional details.

Prior to 2019, interest expense also included the interest expense associated with our previous imputed facility lease obligations on the Sunnyvale and Ohio facilities.

For the year ended December 31, 2018, we recognized $4.3 million of interest expense in connection with the imputed financing obligations in our statements of operations.

In accordance with the adoption of ASC 842, the New Leasing Standard, we were required to derecognize our previous Sunnyvale and Ohio facilities as imputed facility obligations (as accounted for under the previous leasing standard) and recognize these facilities as operating leases.

This change resulted in no longer recognizing interest expense associated with these imputed facility lease obligations, but instead, recognizing lease expense which would be included in operating costs and expenses.

Provision for Income Taxes

4 unchanged sentences

Our effective tax rate for the year ended December 31, 2021 differed from the U.S.

statutory rate primarily due to the foreign-derived intangible income deduction and certain capitalized research expenditures, partially offset by the change in the valuation allowance against U.S.

deferred tax assets.

Our effective tax rate for the year ended December 31, 2020 differed from the U.S.

statutory rate primarily due to the expiration of foreign tax credits, partially offset by the change in the valuation allowance against U.S.

2 unchanged sentences

statutory rate primarily due to the full valuation allowance on the current year tax loss.

Our effective tax rate for the year ended December 31, 2018 was different from the U.S.

statutory rate primarily due to the establishment of a full valuation allowance on U.S.

federal deferred tax assets.

We recorded a provision for incomes taxes of $5.0 million for the year ended December 31, 2021, which was primarily comprised of taxes on foreign earnings, the full valuation allowance on U.S.

federal deferred tax assets, withholding tax expense, tax expense from the amortization of indefinite-lived intangibles and an increase in the valuation allowance on California deferred tax assets.

For the year ended December 31, 2021, we paid withholding taxes of $20.4 million.

We recorded a provision for incomes taxes of $3.9 million for the year ended December 31, 2020, which was primarily comprised of taxes on foreign earnings, the full valuation allowance on U.S.

federal deferred tax assets, withholding tax expense, tax expense from the amortization of indefinite-lived intangibles, partially offset by a partial California deferred tax asset valuation allowance release.

3 unchanged sentences

For the year ended December 31, 2019, we paid withholding taxes of $17.1 million.

We recorded a provision for incomes taxes of $87.3 million for the year ended December 31, 2018, which was primarily comprised of the full valuation allowance on U.S.

federal deferred tax assets.

For the year ended December 31, 2018, we paid withholding taxes of $20.4 million.

We periodically evaluate the realizability of our net deferred tax assets based on all available evidence, both positive and negative.

2 unchanged sentences

During 2020, as a result of the enactment of California A.B.

85 and the temporary suspension of California net operating loss utilization for tax years 2020 through 2022, we released $0.6 million of the valuation allowance on our deferred tax asset for California research and development tax credits.

We continue to maintain a full valuation allowance on the remainder of our California and U.S.

85 and the temporary suspension of California net

operating loss utilization for tax years 2020 through 2022, we released $0.7 million of the valuation allowance on our deferred tax asset for California research and development tax credits.

In 2021, based on available evidence, we recorded a full valuation allowance on our California deferred tax assets.

We continue to maintain a full valuation allowance on our California and U.S.

federal deferred tax assets as we do not expect to be able to fully utilize them.

21 unchanged sentences

There is no expiration date applicable to the 2020 Repurchase Program.

The 2020 Repurchase Program replaced the previous 2015 Repurchase Program approved by our Board in January 2015 and canceled the remaining shares outstanding as part of the previous authorization.

The 2020 Repurchase Program replaced the previous program approved by our Board in January 2015 and canceled the remaining shares outstanding as part of the previous authorization.

On November 11, 2020, we entered into the 2020 ASR Program with Deutsche Bank.

The 2020 ASR Program was part of the broader share repurchase program previously authorized by our Board on October 29, 2020.

The 2020 ASR Program was part of the share repurchase program previously authorized by our Board on October 29, 2020.

Under the 2020 ASR Program, we pre-paid to Deutsche Bank the $50.0 million purchase price for our common stock and, in turn, we received an initial delivery of approximately 2.6 million shares of our common stock from Deutsche Bank in the fourth quarter of 2020, which were retired and recorded as a $40.0 million reduction to stockholders’ equity.

The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock.

During the second quarter of 2021, the accelerated share repurchase program was completed and we received an additional 0.1 million shares of our common stock, which were retired, as the final settlement of the accelerated share repurchase program.

On June 15, 2021, we entered into the 2021 ASR Program with Deutsche Bank.

The 2021 ASR Program was part of the share repurchase program previously authorized by our Board on October 29, 2020.

Under the 2021 ASR Program, we pre-paid to Deutsche Bank the $100.0 million purchase price for our common stock and, in turn, we received an initial delivery of approximately 3.9 million shares of our common stock from Deutsche Bank in the second quarter of 2021, which were retired and recorded as a $80.0 million reduction to stockholders’ equity.

The remaining $20.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock.

During the fourth quarter

of 2021, the accelerated share repurchase program was completed and we received an additional 0.4 million shares of our common stock, which were retired, as the final settlement of the accelerated share repurchase program.

As of December 31, 2021, there remained an outstanding authorization to repurchase approximately 12.9 million shares of our outstanding common stock under the 2020 Repurchase Plan.

2 unchanged sentences

Cash provided by operating activities of $209.2 million for the year ended December 31, 2021 was primarily attributable to the cash generated from customer licensing, product sales and engineering services fees.

Changes in operating assets and liabilities for the year ended December 31, 2021 primarily include d decreases in unbilled receivables, inventories, prepaids and other current assets and increases in accounts payable and deferred revenue, offset by increases in accounts receivable, as well as decreases in income taxes payable, accrued salaries and benefits and operating lease liabilities.

Cash provided by operating activities of $185.5 million for the year ended December 31, 2020 was primarily attributable to the cash generated from customer licensing, product sales and engineering services fees.

Changes in operating assets and liabilities for the year ended December 31, 2020 primarily included decreases in unbilled receivables, accounts receivable, prepaids and other current assets, and an increase in accrued salaries and benefits, offset by a decrease in income taxes payable and an increase in inventories.

1 unchanged sentence

Changes in operating assets and liabilities for the year ended December 31, 2019 primarily included decreases in accounts receivable, unbilled receivables and deferred revenue, offset by increases in prepaids and other current assets, inventories and accrued salaries and benefits.

Cash provided by operating activities of $87.1 million for the year ended December 31, 2018 was primarily attributable to the cash generated from customer licensing, technology and software licenses and related implementation, support and maintenance fees, product sales and engineering services fees.

Changes in operating assets and liabilities for the year ended December 31, 2018 primarily included increases in unbilled receivables, accounts receivable and prepaids and other current assets, offset by decreases in accounts payable and accrued salaries and benefits and other liabilities.

Investing Activities

Cash used in investing activities of $90.4 million for the year ended December 31, 2020 consisted of purchases of available-for-sale marketable securities of $899.0 million, $29.7 million paid to acquire property, plant and equipment, and $1.1 million paid to settle a net working capital adjustment related to the divestiture of our Payments and Ticketing businesses, offset by proceeds from the maturities and sale of available-for-sale marketable securities of $817.8 million and $21.6 million, respectively.

Cash used in investing activities of $115.7 million for the year ended December 31, 2021 consisted of purchases of available-for-sale marketable securities of $567.9 million, $97.1 million paid for the acquisitions of AnalogX and PLDA, net of total cash acquired of $8.6 million, and $13.8 million paid to acquire property, plant and equipment, offset by proceeds from the maturities and sale of available-for-sale marketable securities of $336.2 million and $227.0 million, respectively.

Cash used in investing activities of $90.4 million for the year ended December 31, 2020 consisted o f purchases of available-for-sale marketable securities of $899.0 million, $29.7 million paid to acquire property, plant and equipment, and $1.1 million paid to settle a net working capital adjustment related to the divestiture of our Payments and Ticketing businesses, offset by proceeds from the maturities and sale of available-for-sale marketable securities of $817.8 million and $21.6 million, respectively.

Cash used in investing activities of $141.5 million for the year ended December 31, 2019 primarily consisted of purchases of available-for-sale marketable securities of $657.4 million, $21.9 million paid for the acquisition of Northwest Logic, net of cash acquired of $0.1 million, $45.0 million paid for the acquisition of the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure, and $6.5 million paid to acquire property, plant and equipment, offset by proceeds from the maturities and sale of available-for-sale marketable securities of $507.4 million and $6.8 million, respectively, and net proceeds of $76.0 million from the divestiture of our Payments and Ticketing businesses.

Cash used in investing activities of $68.0 million for the year ended December 31, 2018 primarily consisted of purchases of available-for-sale marketable securities of $282.1 million, $10.8 million paid to acquire property, plant and equipment and $3.0 million paid for investment in a privately held company, offset by proceeds from the maturities of available-for-sale marketable securities of $223.1 million, proceeds from the sale of assets held for sale of $3.8 million and proceeds from the sale of an equity security of $1.3 million.

Financing Activities

Cash used in financing activit ies of $114.2 million for the year ended December 31, 2021 was primarily due to an aggregate payment of $100.0 million to Deutsche Bank as part of the 2021 ASR Program.

We also paid $10.6 million in payments of taxes on restricted stock units, $12.5 million under installment payment arrangements to acquire fixed assets and $0.1 million in fees related to the 2021 ASR Program, offset by $9.0 million in proceeds from the issuance of common stock under equity incentive plans.

Cash used in financing activities of $61.2 million for the year ended December 31, 2020 was primarily due to an aggregate payment of $50.0 million to Deutsche Bank as part of the 2020 ASR Program.

1 unchanged sentence

Cash used in financing activities was $0.3 million for the year ended December 31, 2019 and was primarily due to $8.4 million in payments under installment payment arrangements to acquire fixed assets and $7.0 million in payments of taxes on restricted stock units, offset by $15.1 million proceeds from the issuance of common stock under equity incentive plans.

Cash used in financing activities was $127.7 million for the year ended December 31, 2018 and was primarily due to the repayment of the remaining aggregate principal of the 2018 Notes amounting to $81.2 million, which became due in August 2018, an aggregate payment of $50.0 million to Citibank N.A., as part of our accelerated share repurchase program, and $6.8 million in payments of taxes on restricted stock units, offset by $11.4 million proceeds from the issuance of common stock under equity incentive plans.

Contractual Obligations

On December 15, 2009, we entered into a lease agreement for approximately 125,000 square feet of office space located at 1050 Enterprise Way in Sunnyvale, California, which commenced on July 1, 2010 and expired on June 30, 2020.

The office space was used for our corporate headquarters, as well as engineering, sales, marketing and administrative operations and activities.

On July 8, 2019, we entered into a definitive triple net space lease agreement with 237 North First Street Holdings, LLC (the “Landlord”), whereby we leased office space located at 4453 North First Street in San Jose, California, (the “Lease”).

In April 2020, the lease was amended for certain terms (the “Amended Lease”).

The Amended Lease includes approximately 90,000 square feet of office space, which serves as our corporate headquarters and includes engineering, sales, marketing and administrative functions.

The Amended Lease has a term of 128 months from the amended commencement date in April 2020.

The starting rent of the Amended Lease is approximately $3.26 per square foot on a triple net basis.

The annual base rent increases each year to certain fixed amounts over the course of the term as set forth in the Amended Lease and will be $4.38 per square foot in the final year of the Amended Lease term.

In addition to the base rent, we will also pay operating expenses, insurance expenses, real estate taxes, and a management fee under the Amended Lease.

The Amended Lease also allows for an option to expand, wherein we have the right of first refusal to rent additional space in the building.

We have a one-time option

to extend the Amended Lease for a period of 60 months and may elect to terminate the Amended Lease, via written notice to the Landlord, in the event the office space is damaged or destroyed.

Total required payments under the Amended Lease are approximately $41 million.

Pursuant to the terms of the Amended Lease, the landlord agreed to reimburse us up to $9.0 million, related to a tenant improvement allowance.

On November 17, 2017, we entered into an Indenture with U.S.

Bank, National Association, as trustee, relating to the issuance by us of $172.5 million aggregate principal amount of the 2023 Notes.

Refer to Note 12, “Convertible Notes,” of Notes to Consolidated Financial Statements of this Form 10-K for additional details.

As of December 31, 2021, our material contractual obligations were as follows:

6 unchanged sentences

Convertible notes (6)

172,500 — 172,500 — — —

Interest payments related to convertible notes 3,564 2,372 1,192 — — —

6 unchanged sentences

(4) We have commitments with various software vendors for agreements generally having terms longer than one year.

(5) In connection with the acquisitions of Northwest Logic in August 2019 and the Secure Silicon IP and Protocols business in December 2019, we are obligated to pay retention bonuses to certain employees subject to certain eligibility and acceleration provisions including the condition of employment.

(5) In connection with the acquisitions of Northwest Logic in the third quarter of 2019 and the Secure Silicon IP and Protocols business in the fourth quarter of 2019, and the acquisitions of AnalogX and PLDA in the third quarter of 2021, we are obligated to pay retention bonuses to certain employees subject to certain eligibility and acceleration provisions including the condition of employment.

(6) On November 17, 2017, we entered into an Indenture with U.S.

Bank, National Association, as trustee, relating to the issuance by us of $172.5 million aggregate principal amount of the 2023 Notes.

Refer to Note 12, “Convertible Notes,” of Notes to Consolidated Financial Statements of this Form 10-K for additional details.

Share Repurchase Program

On January 21, 2015, our Board approved a share repurchase program authorizing the repurchase of up to an aggregate of 20.0 million shares (the “2015 Repurchase Program”).

Share repurchases under the 2015 Repurchase Program were made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations.

During the years ended December 31, 2020 and 2019, we did not repurchase any shares of our common stock under the 2015 Repurchase Program.

On October 29, 2020, our Board approved the 2020 Repurchase Program authorizing the repurchase of up to an aggregate of 20.0 million shares.

3 unchanged sentences

On November 11, 2020, we entered into the 2020 ASR Program with Deutsche Bank.

The 2020 ASR Program was part of the broader 2020 Repurchase Program.

The 2020 ASR Program was part of the 2020 Repurchase Program previously authorized by our Board on October 29, 2020.

The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock.

The number of shares to be ultimately purchased by us will be determined based on the volume-weighted-average price of the common stock during the terms of the transaction, minus an agreed upon discount between the parties.

Program is expected to be completed within six months from the beginning of the program.

There were no other repurchases of our common stock during 2020.

As of December 31, 2020, there remained an outstanding authorization to repurchase approximately 17.4 million shares of our outstanding common stock under the current share repurchase program.

On June 15, 2021, we entered into the 2021 ASR Program with Deutsche Bank.

The 2021 ASR Program was part of the share repurchase program previously authorized by our Board on October 29, 2020.

The remaining $20.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock.

During the fourth quarter

As of December 31, 2021, there remained an outstanding authorization to repurchase approximately 12.9 million shares of our outstanding common stock under the 2020 Repurchase Plan.

We record share repurchases as a reduction to stockholders’ equity.

6 unchanged sentences

Refer to Note 12, “Convertible Notes,” of Notes to Consolidated Financial Statements of this Form 10-K for additional details.

Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2021, the design and operation of our disclosure controls and procedures were effective at a reasonable assurance level.

As previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2020, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2020, due to the inadequate design and maintenance of controls to evaluate and monitor the accounting for patent and technology licensing arrangements with unusual contract terms.

We have taken necessary remediation steps to address the material weakness discussed above to strengthen our internal control over financial reporting.

These include enhancement of our existing contract review control for patent and technology licensing arrangements, as well as implementation of a new control designed to evaluate and monitor, at inception and on a quarterly basis, the accounting assessment of patent and technology licensing arrangements with unusual terms.

Consequently, our management has concluded that the identified material weakness in internal control over financial reporting has been considered remediated as of December 31, 2021, as the related internal controls have been in operation for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively.

Critical Accounting Policies and Estimates

11 unchanged sentences

all services offerings are priced within tightly controlled bands and all contracts that include support and maintenance state a renewal rate or price that is systematically enforced.

Our revenue consists of royalty, product and contract and other revenue.

Royalty revenue consists of patent and technology license royalties.

Our revenue consists of product, royalty and contract and other revenue.

Products primarily consist of memory interface chips sold directly and indirectly to module manufacturers and OEMs worldwide through multiple channels, including our direct sales force and distributors.

Royalty revenue consists of patent and technology license royalties.

Contract and other revenue consists of software license fees, engineering fees associated with integration of our technology solutions into our customers’ products and support and maintenance fees.

Product Revenue

Product revenue is recognized upon shipment of product to customers, net of accruals for estimated sales returns and allowances, and to distributors, net of accruals for price protection and rights of return on products unsold by the distributors.

To date, none of these accruals have been significant.

We transact with direct customers primarily pursuant to standard purchase orders for delivery of products and generally allow customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date.

Royalty Revenue

1 unchanged sentence

These arrangements do not typically grant the licensee the right to terminate for convenience and where such rights exist, termination is prospective, with no refund of fees already paid by the licensee.

There is no interdependency or interrelation between the IP included in the portfolio licensed upon

contract inception and any IP subsequently made available to the licensee, and we would be able to fulfill our promises by transferring the portfolio and the additional IP use rights independently.

There is no interdependency or interrelation between the IP included in the portfolio licensed upon contract inception and any IP subsequently made available to the licensee, and we would be able to fulfill our promises by transferring the portfolio and the additional IP use rights independently.

However, the numbers of additions to, and removals from the portfolio (for example when a patent expires and renewal is not granted to us) in any given period have historically been relatively consistent;

4 unchanged sentences

• For variable arrangements, we recognize revenue based on an estimate of the licensee’s sale or usage of the IP during the period of reference, typically quarterly, with a true-up recorded when we receive the actual royalty report from the licensee.

Product Revenue

To date, none of these accruals have been significant.

Contract and Other Revenue

10 unchanged sentences

Key estimates used in recognizing revenue predominantly consist of the following:

• For fixed-fee arrangements in which cash is being received over a period exceeding a year, we calculate a customer-specific lending rate using a Daily Treasury Yield Curve Rate that changes depending on the date on which the licensing arrangement was entered into and the term (in years) of the arrangement, and take into consideration a licensee-specific risk profile determined based on a review of the licensee’s “Full Company View” Dun & Bradstreet report obtained on the date the licensing arrangement was signed by the parties, with a risk premium being added to the Daily Treasury Yield Curve Rate considering the overall business risk, financing strength and risk indicators, as listed.

• We recognize revenue on variable fee licensing arrangements on the basis of estimates.

• For fixed-fee arrangements in which cash is being received over a period exceeding a year, we calculate a customer-specific lending rate using a Daily Treasury Yield Curve Rate that changes depending on the date on which the licensing arrangement was entered into and the term (in years) of the arrangement, and take into consideration a licensee-specific risk profile determined based on a review of the licensee’s report obtained on the date the licensing arrangement was signed by the parties, with a risk premium being added to the Daily Treasury Yield Curve Rate considering the overall business risk, financing strength and risk indicators, as listed.

• We recognize revenue on variable fee licensing arrangements on the basis of sales and usage.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination.

39 unchanged sentences

In addition, we are required to assess the realization of the deferred tax asset or liability to be included on the consolidated balance sheet as of the reporting dates.

As of December 31, 2020, our consolidated balance sheet included net deferred tax assets, before valuation allowance, of approximately $164.3 million, which consists of net operating loss carryovers, tax credit carryovers, amortization, employee stock-based compensation expenses, certain liabilities and certain assets.

As of December 31, 2021, our consolidated balance sheet included net deferred tax assets, before valuation allowance, of approximately $186.9 million, which consists of net operating loss carryovers, tax credit carryovers, capitalized research, amortization, employee stock-based compensation expenses, certain liabilities and certain assets.

As of December 31, 2021, we have a valuation allowance of $206.9 million, resulting in net deferred tax liabilities of $19.9 million.

11 unchanged sentences

Our forfeiture rate represents the historical rate at which our stock-based awards were surrendered prior to vesting.

The accounting guidance for share-based payments requires forfeitures to be estimated at the time of grant and revised on a cumulative basis, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Refer to Note 14, “Equity Incentive Plans and Stock-Based Compensation,” of Notes to Consolidated Financial Statements of this Form 10-K for more information regarding the valuation of stock-based compensation.

The accounting guidance for

share-based payments requires forfeitures to be estimated at the time of grant and revised on a cumulative basis, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Refer to Note 14.

Equity Incentive Plans and Stock-Based Compensation,” of Notes to Consolidated Financial Statements of this Form 10-K for more information regarding the valuation of stock-based compensation.

Business Combinations

2 unchanged sentences

As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.

Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date including our estimates for intangible assets, contractual obligations assumed and pre-acquisition contingencies where applicable.

3 unchanged sentences

Recent Accounting Pronouncements

Refer to Note 3, “Recent Accounting Pronouncements,” of Notes to Consolidated Financial Statements of this Form 10-K for a full description of recent accounting pronouncements including the respective expected dates of adoption.

Refer to Note 3, Recent Accounting Pronouncements,” of Notes to Consolidated Financial Statements of this Form 10-K for discussion of recent accounting pronouncements including the respective expected dates of adoption.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis