What changed in this filing

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Item 1. Financial Statements

2023-08-11 compared with 2023-05-12 · 352 added, 325 removed, 603 unchanged (53% of the section changed)

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(in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating expenses:

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Operating loss

Other income, net

Other income (expense), net

Loss before taxes

(Benefit from) provision for income taxes

Provision for income taxes

net loss attributable to noncontrolling interest

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Net loss per share attributable to the Company - basic and diluted

Weighted-average number of shares used in per share calculations - basic and diluted

Weighted-average number of shares used in net loss per share calculations - basic and diluted

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive income (loss):

Change in foreign currency translation adjustment

Unrealized gain on cash flow hedges

Unrealized (loss) gain on cash flow hedges

Comprehensive loss

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Unbilled contracts receivable, net

Other current assets

Prepaid expenses and other current assets

Total current assets

Long-term unbilled contracts receivable

Unbilled contracts receivable, noncurrent

Property and equipment, net

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Intangible assets, net

Long-term deferred tax assets

Other long-term assets

Deferred tax assets

Other noncurrent assets

LIABILITIES AND EQUITY

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Total current liabilities

Long-term deferred tax liabilities

Deferred revenue, noncurrent

Long-term debt

Deferred revenue, noncurrent

Operating lease liabilities, noncurrent

Other long-term liabilities

Deferred tax liabilities

Other noncurrent liabilities

Total liabilities

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$ 0.001 par value;

6,000 shares authorized as of March 31, 2023 and December 31, 2022;

no shares issued and outstanding as of March 31, 2023 and December 31, 2022

6,000 shares authorized as of June 30, 2023 and December 31, 2022;

no shares issued and outstanding as of June 30, 2023 and December 31, 2022

Common stock:

$ 0.001 par value;

140,000 shares authorized as of March 31, 2023 and December 31, 2022;

42,497 and 42,066 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

140,000 shares authorized as of June 30, 2023 and December 31, 2022;

43,214 and 42,066 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

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(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

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Unbilled contracts receivable

Prepaid expenses and other assets

Accounts payable

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Cash flows from financing activities:

Proceeds from issuance of common stock under employee stock purchase plan

Withholding taxes related to net share settlement of restricted awards

Net transfers from Former Parent

Net cash (used in) provided by financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

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(in thousands)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Comprehensive

Noncontrolling

Balance at January 1, 2023

Balances at April 1, 2023

Vesting of restricted stock units, net of tax withholding

Issuance of common stock under employee stock purchase plan

Stock-based compensation

Foreign currency translation adjustment

Unrealized loss on cash flow hedges

Balances at June 30, 2023

Six Months Ended June 30, 2023

Comprehensive

Noncontrolling

Balances at January 1, 2023

Issuance of equity to noncontrolling interest

Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for taxes

Vesting of restricted stock units, net of tax withholding

Issuance of common stock under employee stock purchase plan

Stock-based compensation

Other comprehensive income

Balance at March 31, 2023

Three Months Ended March 31, 2022

Foreign currency translation adjustment

Unrealized gain on cash flow hedges

Balances at June 30, 2023

Three Months Ended June 30, 2022

Net Investment

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Noncontrolling

Balance at January 1, 2022

Other comprehensive loss

Balances at April 1, 2022

Foreign currency translation adjustment

Issuance of equity to noncontrolling interest

Net transfers from Former Parent

Balance at March 31, 2022

Balances at June 30, 2022

Six Months Ended June 30, 2022

Comprehensive

Noncontrolling

Balances at January 1, 2022

Foreign currency translation adjustment

Issuance of equity to noncontrolling interest

Net transfers from Former Parent

Balances at June 30, 2022

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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As a result of the Distribution, Xperi became an independent, publicly-traded company and its common stock is listed under the symbol “XPER”

on the New York Stock Exchange (“NYSE”).

on the New York Stock Exchange.

In connection with the Separation and the Distribution, Xperi Holding was renamed and continues as Adeia Inc.

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Pay-TV, Consumer Electronics, Connected Car and Media Platform.

Interim Financial Statements

The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information.

Unaudited Interim Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in the United States and the applicable rules and regulations of the U.S.

Securities and Exchange Commission (“SEC”) for interim financial information.

The amounts as of December 31, 2022 have been derived from the Company’s annual audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 3, 2023 (the “Form 10-K”).

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted in accordance with such rules and regulations.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which consist of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented.

These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the year ended December 31, 2022, included in the Form 10-K.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023 or any future period and the Company makes no representations related thereto.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023 or any future period and the Company makes no representations related thereto.

In the Condensed Consolidated Balance Sheet as of December 31, 2022 included in this Form 10-Q filing, the Company has revised the long-term deferred tax liabilities and other long-term liabilities line items to correct an immaterial error in the classification of unrecognized tax benefits.

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The revision has no impact on total long-term liabilities as of December 31, 2022.

accrued and other liabilities by $ 7.7 million with no changes to net cash from operating activities for 2022.

The Company determined that the error was not material to any of its prior annual and interim period financial statements, and correcting it had no impact to the condensed consolidated financial statements for the three months ended March 31, 2023.

In relation to this adjustment, the Company will revise its Consolidated Statement of Cash Flows for the year ended December 31, 2022 to decrease deferred income tax and increase accrued and other liabilities within the changes in operating assets and liabilities section by $ 7.7 million, with no changes to net cash from operating activities for 2022.

The Company determined that the error was not material to any of its prior annual and interim period financial statements, and correcting it had no impact on the condensed consolidated financial statements for the three and six months ended June 30, 2023.

Basis of Presentation

During the three months ended September 30, 2022, all of the assets and liabilities of the Xperi Product business had been transferred to a legal entity (the “Transfer”) under the common control of Xperi.

Subsequent to this transfer and through December 31, 2022, the Company's financial statements and accompanying notes are prepared on a consolidated basis and include Xperi and its subsidiaries in which Xperi has a controlling financial interest.

Subsequent to this Transfer and through December 31, 2022, the Company’s financial statements and accompanying notes are prepared on a consolidated basis and include Xperi and its subsidiaries in which Xperi has a controlling financial interest.

All intercompany balances and transactions are eliminated in consolidation.

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In the fourth quarter of 2018, the Company funded a new subsidiary, Perceive Corporation (“Perceive”), which was created to focus on delivering edge inference solutions.

As of March 31, 2023, the Company owned approximately 77.0 % of the outstanding equity interest of Perceive.

As of June 30, 2023, the Company owned approximately 77.0 % of the outstanding equity interest of Perceive.

The operating results of Perceive have been included in the Company’s condensed consolidated financial statements since the fourth quarter of 2018.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2023, as compared to the significant accounting policies described in the Form 10-K.

There have been no significant changes in the Company’s significant accounting policies during the six months ended June 30, 2023, as compared to the significant accounting policies described in the Form 10-K.

Use of Estimates

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The accounting estimates and assumptions that require management’s most significant, challenging, and subjective judgment include the estimation of licensees’

quarterly royalties prior to receiving the royalty reports, the determination of stand-alone selling price and the transaction price in an arrangement with multiple performance obligations, the assessment of useful lives and recoverability of

other intangible assets and long-lived assets, recognition and measurement of current and deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and purchase accounting resulting from business combinations.

quarterly royalties prior to receiving the royalty reports, the determination of stand-alone selling price and the

transaction price in an arrangement with multiple performance obligations, the assessment of useful lives and recoverability of other intangible assets and long-lived assets, recognition and measurement of current and deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and purchase accounting resulting from business combinations.

Actual results experienced by the Company may differ from management’s estimates.

Concentration of Credit and Other Risks

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash equivalents and accounts receivable.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

The Company maintains cash and cash equivalents with large financial institutions, and at times, the deposits may exceed the federally insured limits.

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financial condition and limits the amount of credit extended when deemed necessary but generally requires no collateral.

There were no individually significant customers with revenue exceeding 10% of total revenue for the three months ended March 31, 2023 and 2022, or that represented 10 % or more of the Company's aggregate trade receivables as of March 31, 2023 and December 31, 2022.

There were no individually significant customers accounting for 10% or more of total revenue for the three and six months ended June 30, 2023.

There was one customer who accounted for more than 10% of total revenue for the three months ended June 30, 2022, whereas no single customer reached or exceeded such threshold for the six months ended June 30, 2022.

As of June 30, 2023 and December 31, 2022, no single customer represented 10 % or more of the Company's net balance of accounts receivable.

Recent Accounting Pronouncements

There have been no recently issued accounting pronouncements that are expected to have a material impact on the Company's condensed consolidated financial statements.

There have been no recently issued accounting pronouncements that are expected to have a material impact on the Company’s condensed consolidated financial statements.

NOTE 3 –

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services, which may include various combinations of goods and services which are generally capable of being distinct and accounted for as separate performance obligations.

Some of the Company’s contracts with customers contain multiple performance obligations.

For these contracts, the individual performance obligations are separately accounted for if they are distinct.

In an arrangement with multiple performance obligations, the transaction price is allocated among the separate performance obligations on a relative stand-alone selling price basis.

The determination of stand-alone selling price considers market conditions, the size and scope of the contract, customer and geographic information, and other factors.

When observable prices are not available, stand-alone selling price for separate performance obligations is based on the cost-plus-margin approach, considering overall pricing objectives.

When variable consideration is in the form of a sales-based or usage-based royalty in exchange for a license of technology or when a license of technology is the predominant item to which the variable consideration relates, revenue is recognized at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied.

Description of Revenue-Generating Activities

The Company derives the majority of its revenue from licensing its technology and solutions to customers.

These arrangements are summarized as Technology License arrangements and Technology Solutions arrangements.

The Company derives the majority of its revenue from licensing its technology (”Technology License”) and solutions (”Technology Solutions”) to customers.

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

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The timing of when performance obligations are satisfied, as well as the fee arrangements underlying each agreement, determine when revenue is recognized.

Technology License Arrangements

The Company licenses its audio, digital radio and imaging technology to consumer electronics (“CE”) manufacturers, automotive manufacturers or their supply chain partners.

The Company generally recognizes royalty revenue from licenses based on units shipped or manufactured.

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

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

Estimating customers’

quarterly royalties prior to receiving the royalty reports requires the Company 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 it reports on a quarterly basis.

Certain customers enter into fixed fee or minimum guarantee agreements, whereby customers pay a fixed fee for the right to incorporate the Company’s technology in the customer’s products over the license term.

In arrangements with a minimum guarantee, the fixed fee component corresponds to a minimum number of units or dollars that the customer must produce or pay, with additional per-unit fees for any units or dollars exceeding the minimum.

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

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

Technology Solutions Arrangements

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

Technology Solutions revenue is primarily derived from licensing the Company’s Pay-TV solutions, Personalized Content Discovery, enriched Metadata, and viewership data;

selling TiVo-enabled devices like the TiVo Stream 4K;

and advertising.

For Technology Solutions, the Company provides on-going media or data delivery, hosting and access to its platform, and software updates.

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

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

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

For those arrangements that include multiple performance obligations, the Company allocates the consideration as described above and recognizes revenue for each distinct performance obligation when control of the promised goods or services is transferred to the customer.

The Company also generates revenue from non-recurring engineering (“NRE”) services, advertising, and hardware products, each of which was less than 10% of tot al revenue for all periods presented.

Revenue Details

The following information depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors by disaggregating revenue by market and geographic location.

Revenue disaggregated by market was as follows (in thousands):

Three Months Ended March 31,

Disaggregation of Revenue

The following table summarizes revenue by market (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Consumer Electronics

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Total revenue

A significant portion of the Company’s revenue is derived from licensees headquartered outside of the U.S., principally in Asi a, Europe and the Middle East, and it is expected that this revenue will continue to account for a significant portion of total revenue in future periods.

The following table presents the Company’s revenue disaggregated by geographic area (in thousands):

Three Months Ended March 31,

The following table summarizes revenue by geographic location (in thousands):

Three Months Ended June 30,

Europe and Middle East

Total revenue

Six Months Ended June 30,

Europe and Middle East

Total revenue

A significant portion of the Company’s revenue is derived from licensees headquartered outside of the U.S., principally in Asia, Europe and the Middle East, and it is expected that this revenue will continue to account for a significant portion of total revenue in future periods.

Contract Balances

Contracts Assets

Contract Assets

Contract assets primarily consist of unbilled contracts receivable that are expected to be received from customers in future periods, where the revenue recognized to date exceeds the amount billed.

The amount of unbilled contracts receivable may not exceed their net realizable value and are classified as long-term assets if the payments are expected to be received more than one year from the reporting date.

Contract assets also include the incremental costs of obtaining a contract with a customer consisting of principally sales commissions, and deferred engineering costs for non-recurring engineering and set-up services to the extent deemed recoverable.

The amount of unbilled contracts receivable may not exceed their net realizable value and is classified as noncurrent if the payments are expected to be received more than one year from the reporting date.

Contract assets also include the incremental costs of obtaining a contract with a customer principally consisting of sales commissions and deferred engineering costs for non-recurring engineering.

Contract assets were recorded in the Condensed Consolidated Balance Sheets as follows (in thousands):

March 31, 2023

June 30, 2023

December 31, 2022

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Other current assets

Long-term unbilled contracts receivable

Other long-term assets

Unbilled contracts receivable, noncurrent

Other noncurrent assets

Total contract assets

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Deferred revenue arises when cash payments are received, including amounts which are refundable, in advance of performance obligations being completed.

As of June 30, 2023 and December 31, 2022, the current and noncurrent balances of deferred revenue were $ 42.7 million and $ 44.5 million, respectively.

The following table presents additional revenue disclosures (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Revenue recognized in the period from:

Amounts included in deferred revenue at the beginning of

Performance obligations satisfied in previous periods (true

ups, licensee reporting adjustments and settlements) (1)(2)

(1) True ups represent the differences between the Company’s quarterly estimates of per-unit royalty revenue and actual production/sales-based royalties reported by licensees in the following period.

Licensee reporting adjustments represent corrections or revisions to previously reported per-unit royalties by licensees, generally resulting from the Company’s inquiries or compliance audits.

Settlements represent resolutions of litigation or disputes during the period for past royalties owed.

(2) For the three and six months ended June 30, 2022, the Company recorded revenue from both the settlement of a contract dispute with a large mobile imaging customer, and the execution of a long-term license agreement with a leading consumer electronics and over-the-top service provider.

The long-term license agreement was effective as of the expiration of the prior agreement, and the Company expected to record revenue from the license agreement in future periods.

Remaining Performance Obligations

Remaining revenue under contracts with performance obligations represents the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied under certain of the Company’s fixed fee arrangements and engineering services contracts.

As of June 30, 2023, the Company’s remaining revenue under contracts with performance obligations was as follows (in thousands):

Year Ending December 31:

2023 (remaining 6 months)

Allowance for Credit Losses

The allowance for credit losses, which includes the allowance for accounts receivable and unbilled contracts receivable, represents the Company’s best estimate of lifetime expected credit losses inherent in those financial assets.

The Company’s lifetime expected credit losses are determined using relevant information about past events (including historical experience), current conditions, and reasonable and supportable forecasts that affect collectability.

The Company’s lifetime expected credit losses are determined based on historical experience, relevant information about past events, current conditions, and reasonable and supportable forecasts that affect collectability.

The Company monitors its credit exposure through ongoing credit evaluations of its customers’

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The Company may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

The Company’s long-term unbilled contracts receivable is derived from fixed-fee or minimum-guarantee arrangements, primarily with large well-capitalized companies.

The Company’s noncurrent unbilled contracts receivable is derived from fixed-fee or minimum-guarantee arrangements, primarily with large well-capitalized companies.

It is generally considered to be of high credit quality due to past collection history and the nature of the customers.

The following table presents the activity in the allowance for credit losses for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

The following table presents the activity in the allowance for credit losses for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,

Accounts Receivable

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Recoveries/charge-off

Balance at end of period

Additional Disclosures

The following table presents additional revenue and contract disclosures (in thousands):

Three Months Ended March 31,

Revenue recognized in the period from:

Amounts included in deferred revenue at the beginning of

Performance obligations satisfied in previous periods (true

ups, licensee reporting adjustments and settlements) (1)

Licensee reporting adjustments represent corrections or revisions to previously reported per-unit royalties by licensees, generally resulting from the Company’s inquiries or compliance audits.

Settlements represent resolutions of litigation or disputes during the period for past royalties owed.

Remaining revenue under contracts with performance obligations represents the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) under certain of the Company’s fixed fee arrangements and engineering services contracts.

As of March 31, 2023, the Company’s remaining revenue under contracts with performance obligations was as follows (in thousands):

Year Ending December 31:

Revenue from contracts with performance obligations expected to be satisfied in:

2023 (remaining 9 months)

Ending balance

Six Months Ended June 30,

Accounts Receivable

Unbilled Contracts Receivable

Accounts Receivable

Unbilled Contracts Receivable

Beginning balance

Provision for credit losses

Recoveries/charge-off

Ending balance

NOTE 4 –

COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Other current assets consisted of the following (in thousands):

March 31, 2023

Prepaid expenses and other current assets consisted of the following (in thousands):

June 30, 2023

December 31, 2022

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Property and equipment, net, consisted of the following (in thousands):

March 31, 2023

June 30, 2023

December 31, 2022

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Accrued liabilities consisted of the following (in thousands):

March 31, 2023

June 30, 2023

December 31, 2022

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Accrued income tax

Accumulated other comprehensive income (loss) (“AOCI”) consisted of the following (in thousands):

Accumulated other comprehensive loss (“AOCI”) consisted of the following (in thousands):

Three Months Ended June 30,

Unrealized Gains (Losses) on Cash Flow Hedges

Foreign Currency Translation Adjustment

Balance at December 31, 2022

Other comprehensive income before reclassification

Foreign Currency Translation Adjustment

Beginning balance

Other comprehensive income (loss) before reclassification

Amounts reclassified from accumulated other comprehensive loss into net loss

Net current period other comprehensive income

Balance at March 31, 2023

Net current period other comprehensive (loss)

Ending balance

Six Months Ended June 30,

Unrealized Gains (Losses) on Cash Flow Hedges

Foreign Currency Translation Adjustment

Balance at December 31, 2021

Other comprehensive loss before reclassification

Net current period other comprehensive loss

Balance at March 31, 2022

Foreign Currency Translation Adjustment

Beginning balance

Other comprehensive income (loss) before reclassification

Amounts reclassified from accumulated other comprehensive loss into net loss

Net current period other comprehensive income (loss)

Ending balance

NOTE 5 –

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Non-marketable Equity Securities

As of March 31, 2023 and December 31, 2022, other long-term assets included equity securities accounted for under the equity method with a carrying amount o f $ 4.9 m illion and $ 4.4 million, respectively.

No impairments to the carrying amount of the Company’s non-marketable equity securities were recognized in the three months ended March 31, 2023 and 2022, respectively.

As of June 30, 2023 and December 31, 2022, other noncurrent assets included equity securities accounted for under the equity method with a carrying amount o f $ 4.7 m illion and $ 4.4 million, respectively.

No impairments to the carrying amount of the Company’s non-marketable equity securities were recognized in the three and six months ended June 30, 2023 and 2022.

Derivatives Instruments

In the fourth quarter of 2022, the Company began to use derivative financial instruments to manage foreign currency exchange rate risk.

The Company’s derivative financial instruments consist of foreign currency forward contracts, which are used primarily to hedge portions of its anticipated foreign currency exposure.

In the fourth quarter of 2022, the Company initiated a foreign exchange hedging strategy to hedge local currency expenses and reduce variability associated with anticipated cash flows.

The Company’s derivative financial instruments consist of foreign currency forward contracts.

The maturities of these instruments are generally less than twelve months.

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For additional information related to the three-level hierarchy of fair value measurements, see Note 6—

The notional and fair values of all derivative instruments were as follows (in thousands):

March 31, 2023

The notional and fair values of all derivative financial instruments were as follows (in thousands):

June 30, 2023

December 31, 2022

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Total notional value

All of the Company's derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparty to net settle amounts owed to each other.

All of the Company’s derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparty to net settle amounts owed to each other.

Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's Condensed Consolidated Balance Sheets on a net basis.

The gross amounts of the Company's foreign currency forward contracts and the net amounts recorded in the Company's Condensed Consolidated Balance Sheets were as follows (in thousands):

March 31, 2023

The gross amounts of the Company’s foreign currency forward contracts and the net amounts recorded in the Company’s Condensed Consolidated Balance Sheets were as follows (in thousands):

June 30, 2023

December 31, 2022

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Cash Flow Hedges

The Company designates certain foreign currency forward contracts as hedging instruments pursuant to ASC 815, Derivatives

and Hedging (“ASC 815”).

The Company designates certain foreign currency forward contracts as hedging instruments pursuant to Accounting Standards Codification (“ASC”) No.

815—Derivatives and Hedging.

The effective portion of the gain or loss on the derivatives are reported as a component of AOCI in stockholders’

equity and reclassified into earnings on the Condensed Consolidated Statements of Operations in the same period during which the hedged transaction affects earnings.

equity and reclassified into earnings on the Condensed Consolidated Statements of Operations in the period upon which the hedged transactions are settled.

For information on the unrealized gain or loss on the derivatives included in and reclassified out of the AOCI into Condensed Consolidated Statements of Operations, refer to Note 4—

Composition of Certain Financial Statement Captions.

The Company expects to reclassify to earnings all of the amounts recorded in AOCI associated with its cash flow hedges over the next twelve months.

For the three months ended March 31, 2023, amounts reclassified to net loss were not significant.

The Company did not enter into any derivative contracts prior to the fourth quarter of 2022.

The following table summarizes the gains recognized upon settlement of the hedged transactions in the Condensed Consolidated Statement of Operations for three and six months ended June 30, 2023 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Research and development

Selling, general and administrative

Undesignated Derivatives

For derivatives that are not designated as hedge instruments, they are measured and reported at fair value.

Changes in the fair

value of these undesignated derivatives are reported in other income, net, on the Condensed Consolidated Statements of Operations.

For the three months ended March 31, 2023, changes in the estimated fair value of the derivatives were not significant.

The Company did not enter any derivative contracts prior to the fourt h quarter of 2022.

For derivatives that are not designated as hedge instruments, they are measured and reported at fair value as a derivative asset or liability in the Condensed Consolidated Balance Sheets with their corresponding change in the fair value recognized as gains or losses in other income (expense), net, in the Condensed Consolidated Statements of Operations.

For the three and six months ended June 30, 2023, gains on the undesignated derivatives were $ 0.5 million and $ 0.7 million, respectively.

NOTE 6 –

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The carrying amounts and estimated fair values were as follows (in thousands):

March 31, 2023

June 30, 2023

December 31, 2022

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BUSINESS COMBINATION

On July 1, 2022, the Company completed the acquisition of Vewd Software Holdings Limited (“Vewd,”

and the “Vewd Acquisition”).

On July 1, 2022, the Company completed the acquisition of Vewd (the “Vewd Acquisition”).

Vewd is a leading global provider of OTT and hybrid TV solutions.

The Vewd Acquisition establishes the Company as a leading independent streaming media platform through its TiVo brand and the largest independent provider of

Smart TV middleware globally.

The Vewd Acquisition established the Company as a leading independent streaming media platform through its TiVo brand and the largest independent provider of Smart TV middleware globally.

The total consideration was approximately $ 102.9 million, consisting of approximately $ 52.9 million of cash and $ 50.0 million of deb t.

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Vewd’s results of operations and cash flows have been included in the Company’s condensed consolidated financial statements for periods subsequent to July 1, 2022, and the related assets and liabilities were recorded at their estimated fair values in the Company’s Condensed Consolidated Balance Sheet as of July 1, 2022.

NOTE 8 –

GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill impairment

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The Company proceeded to perform a fair value analysis of the Product reporting unit, the Company's only reporting unit, using the market capitalization approach.

this approach, management estimated the fair value as of December 31, 2022 using quoted market prices of Xperi’s common stock as of December 30, 2022, the last trading date of 2022, and a control premium representing the synergies a market participant would achieve upon obtaining control of Xperi.

Under this approach, management estimated the fair value as of December 31, 2022 using quoted market prices of Xperi’s common stock as of December 30, 2022, the last trading date of 2022, and a control premium representing the synergies a market participant would achieve upon obtaining control of Xperi.

As a result of the fair value analysis, a goodwill impairment charge of $ 250.6 million was recognized during the three months ended December 31, 2022.

As a result of this impairment charge, the Company's goodwill balance was reduced to $ 0 as of December 31, 2022.

NOTE 8 –

INTANGIBLE ASSETS, NET

As a result of this impairment charge, the Company’s goodwill balance was completely written off as of December 31, 2022.

Identified intangible assets consisted of the following (in thousands):

March 31, 2023

June 30, 2023

Net Carrying Value

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Total intangible assets

As of March 31, 2023, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):

As of June 30, 2023, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):

Year Ending December 31:

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In connection with the Vewd Acquisition as disclosed in Note 7, on July 1, 2022, TiVo Product Holdco LLC, which was subsequently renamed Xperi Inc., issued a senior unsecured promissory note (the “Promissory Note”) to the sellers of Vewd in a principal amount of $ 50.0 million.

Indebtedness outstanding under the Promissory Note bears an interest rate of 6.00 % per

annum, payable in cash on a quarterly basis.

Indebtedness outstanding under the Promissory Note bears an interest rate of 6.00 % per annum, payable in cash on a quarterly basis.

If a certain qualified spin-off transaction occurs, the interest rate will be increased to the greater of (a) 6.00 % and (b) the sum of (i) the highest interest rate payable under any credit facility or bonds, debentures, notes or similar instruments where the issuer or any guarantor borrows money or guarantees obligations on a secured basis on or after the date of such spin-off transaction, plus (ii) 2.00 %.

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The Promissory Note does not contain any financial covenants.

As of March 31, 2023, $ 50.0 million in principal balance was outstanding.

Interest expense on the Promissory Note was $ 0.7 million for the three months ended March 31, 2023.

The Company did not incur any new debt in the first quarter of 2022.

As of June 30, 2023, $ 50.0 million in principal balance was outstanding.

Interest expense on the Promissory Note was $ 0.8 million and $ 1.5 million for t he three and six months ended June 30, 2023, respectively.

NOTE 10 –

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For periods subsequent to the Separation, actual outstanding shares are used to calculate both basic and diluted weighted- average number of common shares outstanding.

Potentially dilutive common shares, such as common shares issuable upon exercise of stock options and vesting of restricted stock awards and units are typically reflected in the computation of diluted net income (loss) per share by application of the treasury stock method.

Potentially dilutive common shares, such as common shares issuable upon exercise of stock options and vesting of restricted stock awards and units are typically reflected in the computation of diluted net income per share by application of the treasury stock method.

Due to the net losses reported, these potentially dilutive securities were excluded from the computation of diluted net loss per share, since their effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amount):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net loss attributable to the Company - basic and diluted

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Net loss per share attributable to the Company - basic and diluted

The following potentially dilutive shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the period presented (in thousands):

Three Months Ended March 31,

The following potentially dilutive shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (in thousands):

Three and Six Months Ended June 30,

Restricted stock awards and units

NOTE 11 –

STOCKHOLDERS' EQUITY

STOCKHOLDERS’

EQUITY AND STOCK-BASED COMPENSATION

Equity Incentive Plans

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2022 Equity Incentive Plan (the “2022 EIP”).

Under the 2022 EIP, the Company may grant equity-based awards to employees, non-employee directors, and consultants for services rendered to the Company (or any parent or subsidiary) in the form of stock options, stock awards, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and performance awards (or any combination thereof).

A total of 10,100,000 shares were reserved for issuance under the 2022 EIP as of the Separation Date.

Under the 2022 EIP, the Company may grant equity-based awards to employees, non-employee directors, and consultants for services rendered to the Company (or any parent or subsidiary) in the form of stock options, stock awards, restricted stock awards (“RSA”), restricted stock units (“RSU”), stock appreciation rights, dividend equivalents and performance awards, or any combination thereof.

A total of 12.2 million shares were reserved for issuance under the 2022 EIP as of June 30, 2023.

The 2022 EIP provides for option grants designated as either incentive stock options or non-statutory options.

Options have been granted with an exercise price not less than the value of the common stock on the grant date and generally have a term of ten years from the date of grant and vest over a four-year period.

The vesting criteria for restricted stock awards and restricted stock units has historically been the passage of time or meeting certain performance-based objectives, and continued service through the vesting period over three or four years for time-based awards or three years for performance-based awards.

As of March 31, 2023, there were approximately 4.4 million shares reserved for future grant under the 2022 EIP.

The vesting criteria for RSUs has historically been the passage of time or meeting certain performance-based objectives, and continued service through the vesting period over three or four years for time-based awards or three years for performance-based awards.

As of June 30, 2023, there were approximatel y 4.2 millio n shares reserved for future grants under the 2022 EIP.

Employee Stock Purchase Plans

In connection with the Separation and on October 1, 2022, the Company adopted the Xperi Inc.

2022 Employee Stock Purchase Plan (the “2022 ESPP”).

The 2022 ESPP is implemented through consecutive overlapping 24 -month offering periods, each of which is comprised of four purchase periods that are generally six months in length.

The first offering period commenced on December 1, 2022 and will end on November 30, 2024.

Each subsequent offering period under the 2022 ESPP will be 24 months long and will commence on each December 1 and June 1 during the term of the plan.

Participants may contribute up to 100 % of their after tax base earnings and commissions through payroll deductions up to the limit imposed by the Internal Revenue Service (”IRS”), and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date.

The purchase price per share will equal 85 % of the fair market value per share on the start date of the offering period or, if lower, 85 % of the fair market value per share on the semi-annual purchase date.

An eligible employee’s right to buy the Company’s common stock under the 2022 ESPP may not accrue at a rate in excess of the $ 25,000 limit imposed by the IRS on the fair market value of such shares per calendar year.

If the fair market value per share of the Company’s common stock on any purchase date during an offering period is less than the fair market value per share on the start date of the 24 -month offering period, then that offering period will automatically terminate and a new 24 -month offering period will begin on the next business day.

All participants in the terminated offering will be transferred to the new offering period.

On May 31, 2023, the Company issued 644,342 shares under the 2022 ESPP, net of shares withheld to satisfy withholding tax requirements for certain employees, for an aggregate net proceeds of $ 5.9 million.

The following table summarizes the valuation assumptions used in estimating the fair value of the 2022 ESPP for the offering period in effect using Black-Scholes option pricing model:

Six Months Ended June 30,

Expected life (years)

Risk-free interest rate

4.33 % —

Dividend yield

Expected volatility

44.11 % —

Stock Options

A summary of the stock option activity is presented below (in thousands, except per share amounts):

Stock option activity for the six months ended June 30, 2023 is as follows (in thousands, except per share amounts):

Options Outstanding

Balance at December 31, 2022

Options exercised

Options canceled / forfeited / expired

Balance at March 31, 2023

Balance at June 30, 2023

There were no stock options granted during the six months ended June 30, 2023 and 2022.

Restricted Stock Awards and Units

Information with respect to outstanding restricted stock awards and units (including both time-based vesting and performance-based vesting) as of March 31, 2023 is as follows (in thousands, except per share amounts):

Information with respect to outstanding restricted stock awards and units (including both time-based vesting and performance-based vesting) as of June 30, 2023 is as follows (in thousands, except per share amounts):

Restricted Stock and Restricted Stock Units

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Awards and units canceled / forfeited

Balance at March 31, 2023

Performance-Based Stock Awards and Units

Performance-based stock awards and units (“PSUs”) may be granted to employees or consultants based upon, among other things, the contributions, responsibilities and other compensation of the particular employee or consultant.

The value and the vesting of such PSUs are generally linked to one or more performance goals or certain market conditions determined by the Company, in each case on a specified date or dates or over any period or periods determined by the Company, and may range from zero to 200 percent of the grant.

For PSUs subject to a market vesting condition, the fair value per award is fixed at the grant date and the amount of compensation expense is not adjusted during the performance period regardless of changes in the level of achievement of the market condition.

Employee Stock Purchase Plans

In connection with the Separation and on October 1, 2022, the Company adopted the Xperi Inc.

2022 Employee Stock Purchase Plan (the “2022 ESPP”).

The 2022 ESPP is implemented through consecutive overlapping 24 -month offering periods, each of which is comprised of four six-month purchase periods.

The first offering period commenced on December 1, 2022 and will end on November 30, 2024.

Each subsequent offering period under the 2022 ESPP will be twenty-four (24) months long and will commence on each December 1 and June 1 during the term of the plan.

Participants may contribute up to 100 % of their base earnings and commissions through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date.

An eligible employee’s right to buy the Company’s common stock under the 2022 ESPP may not accrue at a rate in excess of $ 25,000 of the fair market value of such shares per calendar year for each calendar year of an offering period.

All participants in the terminated offering will be transferred to the new offering period.

As of March 31, 2023, there w ere 5.0 millio n shares reserved for grant under the 2022 ESPP.

NOTE 12 –

Balance at June 30, 2023

Performance-Based Awards

From time to time, the Company may grant performance-based restricted stock units (“PSU”) to senior executives, certain employees and consultants.

The value and the vesting of such PSUs are generally linked to one or more performance goals or certain market conditions determined by th e Company, in each case on a specified date or dates or over any period or periods determined by the Company, and may range from zero to 200 % of the grant.

For PSUs subject to a market condition, the fair value per award is fixed at the grant date and the amount of compensation expense is not adjusted during the performance period regardless of changes in the level of achievement of the market condition.

During the second quarter of 2023, in accordance with the Employee Matters Agreement executed by the Company and the Former Parent in connection with the Separation, the Company modified certain vesting conditions related to market-based PSUs granted in 2022, resulting in a total incremental compensation expense of $ 2.9 million, which will be recognized over the remaining requisite service period through 2025.

For the three months ended June 30, 2023, the incremental compensation expense of this modification was $ 0.3 million.

The following assumptions were used to value the market-based PSUs granted during the period:

Six Months Ended June 30,

Expected life (years)

Risk-free interest rate

Dividend yield

Expected volatility

Stock-Based Compensation

Prior to the Separation, the stock-based compensation expense was based on the expense for employees specifically identifiable to Xperi.

Prior to the Separation, the stock-based compensation expense was only based on the expense for employees specifically identifiable to Xperi.

Consequently, the amounts presented are not necessarily indicative of future awards and do not necessarily reflect the costs that the Company would have incurred as an independent company.

The effect of recording stock-based compensation expense for the three months ended March 31, 2023 and 2022 is as follows (in thousands):

Three Months Ended March 31,

The effect of recording stock-based compensation expense for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue, excluding depreciation and amortization of intangible assets

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Total stock-based compensation expense

In connection with the conversion of the Former Parent’s PSUs into PSUs with respect to Xperi common stock and Adeia common stock, the Company continued recognizing an incremental compensation expense of $ 1.4 million during the three months ended March 31, 2023.

Stock-based compensation expense categorized by various equity components for the three months ended March 31, 2023 and 2022 is summarized in the table below (in thousands):

Three Months Ended March 31,

Stock-based compensation expense categorized by award type for the three and six months ended June 30, 2023 and 2022 is summarized in the table below (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Restricted stock awards and units

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Total stock-based compensation expense

In addition, for the three months ended March 31, 2022, $ 2.5 million of stock-based compensation expense was recognized in operating results as part of the corporate and shared functional employees expenses allocation.

The following assumptions were used to value the PSUs subject to market conditions granted during the period:

Expected life (years)

Risk-free interest rate

Dividend yield

Expected volatility

The Company uses the Black-Scholes option pricing model to determine the estimated fair value of options and ESPP shares.

The fair value of each option grant is determined on the date of grant and the expense is recorded on a straight-line basis.

assumptions used in the model include expected life, volatility, risk-free interest rate, and dividend yield.

There were no stock options granted during the three months ended March 31, 2023 and 2022.

The following assumptions were used to value the Company’s ESPP shares offered in December 2022:

December 2022

Expected life (years)

Risk-free interest rate

Dividend yield

Expected volatility

Prior to the Separation, the valuation assumptions were determined by the Former Parent.

The following assumptions were used to value the Former Parent’s ESPP shares granted to employees specifically identifiable

to Xperi in March 2022:

Expected life (years)

Risk-free interest rate

Dividend yield

Expected volatility

In addition, for the three and six months ended June 30, 2022, the Company recognized $ 2.0 million and $ 4.5 million of stock-based compensation expense in operating results, respectively, as part of the corporate and shared functional employees expenses allocation.

NOTE 12 –

INC OME TAXES

For the three months ended March 31, 2023, the Company recorded an income tax benefit of $ 0.3 million on pretax loss of $ 33.2 million, which resulted in an effective tax rate of 0.9 %.

The income tax benefit for the three months ended March 31, 2023 was primarily related to foreign withholding taxes, partially offset by U.S.

For the three and six months ended June 30, 2023, the Company recorded an income tax expense of $ 5.1 million and $ 4.8 million on a pretax loss of $ 34.3 million and $ 67.5 million, respectively, which resulted in an effective tax rate of ( 14.9 )% and ( 7.1 )%, respectively.

The income tax expense for the three and six months ended June 30, 2023 was primarily related to foreign withholding taxes, foreign income taxes, U.S.

federal income taxes, and state income taxes.

For the three months ended March 31, 2022, the Company recorded an income tax expense of $ 2.1 million on pretax loss of $ 28.4 million, which resulted in an effective tax rate of ( 7.3 )%.

The income tax expense for the three months ended March 31, 2022 was primarily related to foreign withholding taxes, U.S.

For the three and six months ended June 30, 2022, the Company recorded an income tax expense of $ 8.4 million and $ 10.5 million on a pretax loss of $ 22.6 million and $ 51.0 million, respectively, which resulted in an effective tax rate of ( 37.2 )% and ( 20.5 )%, respectively.

The income tax expense for the three months ended June 30, 2022 was primarily related to foreign withholding taxes, U.S.

federal income taxes, and state income taxes;

As of March 31, 2023, gross unrecognized tax benefits of $ 19.4 million increased by an insignificant amount compared to December 31, 2022.

Unrecognized tax benefits were included in long-term deferred tax and other long-term li abilities on the Condensed Consolidated Balance Sheets.

whereas for the six months ended June 30, 2022, it was primarily related to foreign withholding taxes and foreign income taxes.

As of June 30, 2023, gross unrecognized tax benefits of $ 19.3 million decreased by $ 0.1 million compared to December 31, 2022.

Of the $ 19.3 million, $ 8.7 million would affect the effective tax rate, if recognized.

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It is the Company’s policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes.

The Company recognized an immaterial amount of interest and penalties related to unrecognized tax benefits for the three months ended March 31, 2023 and 2022, respectively.

Accrued interest and penalties were $ 0.1 million and $ 0.1 million as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, the Company’s 2018 through 2023 tax years are generally open and subject to potential examination in one or more jurisdictions.

The Company recognized an immaterial amount of interest and penalties related to unrecognized tax benefits for the three and six months ended June 30, 2023, and there was no interest and penalties recognized for the three and six months ended June 30, 2022.

Accrued interest and penalties were $ 0.1 million as of June 30, 2023 and December 31, 2022.

As of June 30, 2023, the Company’s 2018 through 2023 tax years are generally open and subject to potential examination in one or more jurisdictions.

In addition, in the United States, any net operating losses or credits that were generated in prior years but not yet fully utilized in a year that is closed under the statute of limitations may also be subject to examinatio n.

On July 21, 2023, the U.S.

Treasury Department issued Notice 2023-55 announcing temporary relief for taxpayers from certain provisions in the final foreign tax credit regulations released in 2022.

The Company expects that the effect of this notice will be a net income tax benefit due to an increase in the Company’s foreign tax credits, partially offset by a decrease of its deductible withholding tax expense for the current year and for the year ended December 31, 2022.

NOTE 13 –

The Company leases office and research facilities, data centers and office equipment under operating leases which expire through 2029.

The Company’s leases have remaining lease terms of one to six yea rs , with some of the leases offering the option to renew for up to five years and to terminate the lease before the expiration date.

The Company leases office and research facilities, data centers and office equipment under operating leases with various expiration dates thr ough 2030.

Certain leases offer the option to renew for up to ten years and to terminate before the expiration date.

Leases with an initial term of 12 months or less are not recorded on the balance sheets ;

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Certain subleases include variable payments for operating costs.

The subleases are generally co-terminus with the head lease, or shorter.

The subleases are generally co-terminus

with the head lease, or shorter.

Subleases do not include any residual value guarantees or restrictions or covenants imposed by the leases.

Income from subleases is recognized as a reduction to selling, general and administrative expenses.

As a result of consolidating our global real estate footprint and decisions to vacate and sublease certain offices following the Spin-off, the Company recorded impairment charges of $ 1.1 million to r educe the carrying amount of certain operating lease right-of-use (“ROU”) assets and property and equipment, including leasehold improvements, during the three months ended March 31, 2023.

As a result of consolidating our global real estate footprint and decisions to vacate and sublease certain offices following the Spin-Off, the Company recorded impairment charges of $ 1.1 million to r educe the carrying amount of certain operating lease right-of-use (“ROU”) assets and property and equipment, including leasehold improvements, during the six months ended June 30, 2023.

The Company determined that it may not be able to fully recover the carrying amount of the leased offices due to a change in the manner in which the offices are being used, a significant decrease in the expected market price of the leased asset, and expected delays in subleasing the space based on the current real estate leasing market.

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The components of operating lease costs were as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Fixed lease cost (1)

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The following table presents supplemental cash flow information arising from lease transactions (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cash payments included in the measurement of operating lease liabilities

Operating ROU assets obtained in exchange for lease obligations

The weighted-average remaining term of the Company's operating leases and the weighted-average discount rate used to measure the present value of the operating lease liabilities are as follows:

The weighted-average remaining term of the Company’s operating leases and the weighted-average discount rate used to measure the present value of the operating lease liabilities are as follows:

December 31, 2022

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Weighted-average discount rate

Future minimum lease payments and related lease liabilities as of March 31, 2023 were as follows (in thousands):

Future minimum lease payments and related lease liabilities as of June 30, 2023 were as follows (in thousands):

Year Ending December 31:

Operating Lease Payments (1)

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imputed interest

Present value of lease liabilities:

current obligations under leases (accrued liabilities)

Present value of operating lease liabilities

operating lease liabilities, current portion

Noncurrent operating lease liabilities

(1) Future minimum lease payments exclude short-term leases as well as payments to landlords for variable common area maintenance, insurance and real estate taxes.

NOT E 15 –

NOTE 14 –

COMMITMENTS AND CONTINGENCIES

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These arrangements primarily include unconditional purchase obligations to service providers.

As of March 31, 2023, the Company’s total future unconditional purchase obligations were approximately $ 93.5 million.

As of June 30, 2023, the Company’s total future unconditional purchase obligations were approximately $ 84.1 million.

Additionally, under certain other contractual arrangements, the Company may be obligated to pay up to $ 0.8 million, a majority of which is expected to be paid within the next year , if certain milestones are achieved.

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In certain instances, these agreements allow the Company the option to cancel, reschedule or adjust the Company’s requirements based on its business needs prior to firm orders being placed.

As of March 31, 2023, the Company had total purchase commitments for inventory of $ 2.8 million.

As of June 30, 2023, the Company had total purchase commitments for inventory of $ 2.7 million.

Indemnifications

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The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited;

however, the Company believes, given the absence of any such payments in the Company’s history, and the estimated low probability of such payments in the future, that the estimated fair value of these indemnification agreements is immaterial.

In addition, the Company has directors’

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Allocation of Corporate Expenses

Prior to Separation, the Condensed Consolidated Financial Statements included expenses for certain management and support functions which were provided on a centralized basis within the Former Parent, as described in “Note 1 –

The Company and Basis of Presentation.”

The Company and Basis of Presentation .

These management and support functions include, but are not limited to, executive management, sales and marketing, finance, legal, information technology, employee benefits administration, stock-based compensation, treasury, risk management, procurement and other shared services.

These allocations were made on a direct usage basis when identifiable, with the remainder allocated on a pro rata basis of billing, revenue, headcount or other measures of the Company and the Former Parent.

The amount of these allocations from the Former Parent was $ 15.0 million, which included $ 1.2 million for depreciation expenses and $ 13.8 million for selling, general and administrative for the three months ended March 31, 2022.

For the three months ended June 30, 2022, the amount of these allocations from the Former Parent was $ 15.8 million, which included $ 1.1 million for depreciation expenses and $ 14.7 million for selling, general and administrative expenses.

For the six months ended June 30, 2022, the amount of these allocations from the Former Parent was $ 30.7 million, which included $ 2.2 million for depreciation expenses and $ 28.5 million for selling, general and administrative expenses.

Management believes these cost allocations are a reasonable reflection of the utilization of services provided to, or the benefit derived by, the Company during the periods presented.

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Net Investment by Former Parent

As a result of the Company consolidating its financial results, as described in Note 1, net investment by Former Parent in the Condensed Consolidated Balance Sheets and Statement of Equity was fully settled.

As such, there was no balance in net Investment by Former Parent at December 31, 2022, and there was no activity within the account during the three months ended March 31, 2023.

Prior to the Company consolidating its financial results, net investment by Former Parent in the historical Balance Sheets and Statement of Equity represented the Former Parent's historical investment in the Company, the net effect of transactions with and allocations from the Former Parent, and the Company’s accumulated deficit.

As such, there was no balance in net Investment by Former Parent at December 31, 2022.

Prior to the Company consolidating its financial results, net investment by Former Parent in the historical Balance Sheets and Statements of Equity represented the Former Parent's historical investment in the Company, the net effect of transactions with and allocations from the Former Parent, and the Company’s accumulated deficit.

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

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, 2022 found in the Form 10-K filed by Xperi Inc.

The following discussion and analysis is intended to promote understanding of our 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, 2022 found in our Form 10-K filed by Xperi Inc.

on March 3, 2023 (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.

This quarterly report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995.

Words such as “expects,”

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is not intended to mean that other statements not specifically identified are not forward-looking.

All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, product development, demand, acceptance and market share, growth rate, competitiveness, gross margins, levels of research, development and other related costs, expenditures, the outcome or effects of and expenses related to litigation and administrative proceedings related to our patents, our intent to enforce our intellectual property rights, our ability to license our intellectual property, tax expenses, cash flows, our ability to liquidate and recover the carrying value of our investments, our management’s plans and objectives for our current and future operations, our plans for quarterly dividends and stock repurchases, the levels of customer spending or research and development activities, general economic conditions, the impact of the COVID-19 pandemic and related events, the impact of any acquisitions on our financial condition and results of operations, and the sufficiency of financial resources to support future operations and capital expenditures.

All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, product development, demand, acceptance and market share, growth rate, competitiveness, gross margins, levels of research, development and other related costs, expenditures, the outcome or effects of and expenses related to litigation and administrative proceedings, tax expenses, cash flows, our management’s plans and objectives for our current and future operations, the levels of customer spending or research and development activities, general economic conditions, the impact of any acquisitions on our financial condition and results of operations, and the sufficiency of financial resources to support future operations and capital expenditures.

Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us.

Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed under the heading “Risk Factors”

in our annual report on Form 10-K and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), such as our quarterly reports on Form 10-Q and our current reports on Form 8-K.

in our Form 10-K and other documents we file from time to time with the U.S.

Securities and Exchange Commission (“SEC”), such as our quarterly reports on Form 10-Q and our current reports on Form 8-K.

Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable.

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Business Overview

In June 2020, Xperi Holding Corporation (“Xperi Holding,”

“Adeia,”

In June 2020, Xperi Holding Corporation (“Xperi Holding”, “Adeia,”

or the “Former Parent”) announced plans to separate into two independent publicly-traded companies (the “Separation”), one comprising its intellectual property (“IP”) licensing business and one comprising its product business (“Xperi Product”).

On October 1, 2022, the Former Parent completed the Separation (the “Spin-Off”) through a pro-rata distribution (the “Distribution”) of all of the outstanding common stock of its product-related business (“Xperi”, “we”, “our”, or the “Company”) to the stockholders of record of Xperi Holding as of the close of business on September 21, 2022, the record date (the “Record Date”) for the Distribution.

On October 1, 2022, the Former Parent completed the Separation (the “Spin-Off”) through a pro-rata distribution (the "Distribution") of all of the outstanding common stock of its product-related business (“Xperi,”

“we,”

“our,”

or the “Company”) to the stockholders of record of Xperi Holding as of the close of business on September 21, 2022, the record date (the “Record Date”) for the Distribution.

Each Xperi Holding stockholder of record received four shares of Xperi common stock, $0.001 par value, for every ten shares of Xperi Holding common stock, $0.001 par value, held by such stockholder as of the close of business on the Record Date.

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Headquartered in Silicon Valley with operations around the world, we have approximately 2,100 employees and more than 35 years of operating experience.

COVID-19 Impact

The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business.

The impact to date has included periods of significant volatility in markets we serve, in particular the automotive and broad consumer electronics markets.

Additionally, the pandemic has caused some challenges and delays in acquiring new customers and executing license renewals.

These factors have negatively impacted our financial condition and results of operations, contributed to an impairment of our long-lived assets, including goodwill, and may result in increased credit losses and impairments of long-lived assets and investments in other companies.

Our operations, particularly per-unit and variable-fee based revenue, will continue to be susceptible to the volatility, labor shortages, supply chain constraints, high energy prices and inflation, and potential market downturns precipitated by the COVID-19 pandemic as well as the current challenging macroeconomic environment.

Basis of Presentation

Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”).

Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and the applicable rules and regulations of the SEC.

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For a detailed discussion of the basis of presentation, refer to Note 1—

The Company and Basis of Presentation of Notes to the Condensed Consolidated Financial Statements.

The Company and Basis of Presentation of the Notes to the Condensed Consolidated Financial Statements.

Results of Operations

We derive the majority of our revenue from licensing our technology and solutions to customers.

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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating expenses:

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Operating loss

Other income, net

Other income (expense), net

Loss before taxes

(Benefit from) provision for income taxes

Revenue (in thousands, except for percentages):

Three Months Ended March 31,

Increase/ (Decrease)

The $8.0 million, or 7% increase in revenue for the three months ended March 31, 2023, compared to the same period in the prior year, was primarily driven by an increase in minimum guarantee (“MG”) revenue in Consumer Electronics due to new and renewed MG contracts executed during the first quarter of 2023, an increase in Media Platform revenue driven by growth in monetization and contribution from Vewd (acquired in July 2022), and an increase in Connected Car revenue driven by continued growth from the DTS AutoStage and DTS AutoSense solutions.

Provision for income taxes

Comparison of the Three and Six Months Ended June 30, 2023 and 2022

We derive the majority of our revenue from licensing our technology and solutions to customers.

For our revenue recognition policy including descriptions of revenue-generating activities, refer to Note 3—

Revenue of the Notes to Condensed Consolidated Financial Statements.

Three Months Ended June 30,

(dollars in thousands)

The $0.7 million, or 1% increase in revenue for the three months ended June 30, 2023, compared to the same period in the prior year, was primarily attributable to an increase in Media Platform revenue driven by growth in monetization and contribution from Vewd, which was acquired in July 2022, and an increase in Connected Car revenue as the result of continued growth from HD Radio, and the DTS AutoSense and DTS AutoStage solutions.

These increases were partially offset by a decline in Consumer Electronics revenue primarily due to the settlement of a contract dispute with a mobile imaging customer executed in the second quarter of 2022, and overall declines in Pay TV, as declines in legacy guide and DVR platform revenue were somewhat offset by increases in IPTV solutions.

Six Months Ended June 30,

(dollars in thousands)

The $8.6 million, or 4% increase in revenue for the six months ended June 30, 2023, compared to the same period in the prior year, was primarily attributable to an increase in Media Platform revenue driven by growth in monetization and contribution from Vewd, which was acquired in July 2022, an increase in Connected Car revenue as the result of continued growth from HD Radio, and the DTS AutoSense and DTS AutoStage solutions, and an increase in Consumer Electronics revenue primarily due to new and renewed minimum guarantee contracts executed during the six months ended June 30, 2023 that more than offset the impact from the aforementioned settlement executed in the second quarter of 2022.

These increases were partially offset by overall declines in Pay TV, as declines in legacy guide and DVR platform revenue were somewhat offset by increases in IPTV solutions.

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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 non-recurring engineering (“NRE”) services.

Cost of revenue, excluding depreciation and amortization of intangible assets, for the three months ended March 31, 2023 was $27.8 million, as compared to $27.4 million for the three months ended March 31, 2022, an increase of $0.4 million primarily attributable to higher delivery costs related to increased sales in the first quarter of 2023.

Cost of revenue, excluding depreciation and amortization of intangible assets, for the three months ended June 30, 2023 was $30.9 million, as compared to $26.9 million for the three months ended June 30, 2022, an increase of $4.0 million primarily attributable to higher costs incurred in connection with advertising revenue in the second quarter of 2023.

Cost of revenue, excluding depreciation and amortization of intangible assets, for the six months ended June 30, 2023 was $58.6 million, as compared to $54.3 million for the six months ended June 30, 2022, an increase of $4.3 million primarily attributable to higher costs incurred in connection with advertising revenue in the second quarter of 2023.

Research and Development

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

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

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

R&D expense for the three months ended March 31, 2023 was $54.9 million as compared to $50.2 million for the three months ended March 31, 2022, an increase of $4.7 million.

The increase was primarily due to employees hired in connection with the Vewd Acquisition in July 2022, as well as increased stock-based compensation expense in the first quarter of 2023.

R&D expense for the three months ended June 30, 2023 was $55.7 million, as compared to $51.4 million for the three months ended June 30, 2022, an increase of $4.3 million.

The increase was primarily due to employees hired in connection with the Vewd Acquisition in July 2022, as well as increased stock-based compensation expense in the second quarter of 2023.

R&D expense for the six months ended June 30, 2023 was $110.6 million, as compared to $101.6 million for the six months ended June 30, 2022, an increase of $9.0 million.

The increase was primarily due to employees hired in connection with the Vewd Acquisition in July 2022, increased stock-based compensation expense, as well as increases in travel and outside services related expenses in the six months ended June 30, 2023.

Selling, General and Administrative

Selling expenses consist primarily of compensation and related costs for sales and marketing personnel engaged in sales and licensee support, marketing programs, public relations, promotional materials, travel, trade show expenses, and stock-based compensation expense.

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

Selling expenses consist primarily of compensation and related costs (including stock-based compensation expense) for sales and marketing personnel engaged in sales and licensee support, marketing programs, public relations, promotional materials, travel, and trade show expenses.

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

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

Selling, general and administrative expenses for the three months ended March 31, 2023, were $57.8 million, as compared to $49.9 million for the three months ended March 31, 2022, an increase of $7.9 million.

The increase was primarily due to an increase in stock-based compensation, and secondarily due to increases in outside services and personnel related expenses in the first quarter of 2023.

Selling, general and administrative expenses for the three months ended June 30, 2023, were $56.5 million, as compared to $50.3 million for the three months ended June 30, 2022, an increase of $6.2 million.

The increase was primarily due to an

increase in stock-based compensation, and secondarily due to an increase in facilities and insurance expense in the second quarter of 2023, partially offset by a decrease in personnel cost driven by a one-time fringe benefit adjustment.

Selling, general and administrative expenses for the six months ended June 30, 2023, were $114.3 million, as compared to $100.2 million for the six months ended June 30, 2022, an increase of $14.1 million.

The increase was primarily due to an increase in stock-based compensation, and secondarily due to increases in travel, facilities, and insurance related expenses in the first six months of 2023.

Depreciation Expense

Depreciation expense for the three months ended March 31, 2023 was $4.1 million, as compared to $5.6 million for the three months ended March 31, 2022, a decrease of $1.5 million.

Depreciation expense for the three months ended June 30, 2023 was $4.2 million, as compared to $5.1 million for the three months ended June 30, 2022, a decrease of $0.9 million.

The decrease was primarily due to certain fixed assets becoming fully depreciated during 2022.

Depreciation expense for the six months ended June 30, 2023 was $8.3 million, as compared to $10.7 million for the six months ended June 30, 2022, a decrease of $2.4 million.

The decrease was primarily due to certain fixed assets becoming fully depreciated during 2022.

Amortization Expense

Amortization expense for the three months ended March 31, 2023 was $14.8 million and remains consistent as compared to the same period in 2022.

Amortization expense for the three and six months ended June 30, 2023 were $14.8 million and $29.6 million, respectively, and remains consistent as compared to the same periods in 2022.

As a result of previous mergers and acquisitions, we anticipate that amortization expenses will continue to be a significant expense over the next several years.

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Stock-based Compensation

The following table sets forth our stock-based compensation (“SBC”) expense for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

The following table sets forth our stock-based compensation expense for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue, excluding depreciation and amortization of intangible assets

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

The increases in SBC expense for the three months ended March 31, 2023, compared to the corresponding period in 2022, was primarily a result of granting restricted stock awards and units to an increased number of employees resulting from the Vewd Acquisition and certain insourcing activity, and secondarily due to incremental compensation cost recognized from the conversion of employee equity awards in connection with the Spin-Off.

In addition, for the three months ended March 31, 2022, $2.5 million of stock-based compensation expense was recognized in operating results as part of the corporate and shared functional employees expenses allocation.

The increases in stock-based compensation expense for the three and six months ended June 30, 2023, when compared to the corresponding periods in 2022, were primarily a result of granting restricted stock awards and units to an increased number of employees resulting from the Vewd Acquisition and certain insourcing activity, and secondarily due to incremental compensation cost recognized from the conversion of employee equity awards in connection with the Spin-Off.

In addition, for the three and six months ended June 30, 2022, we recognized $2.0 million and $4.5 million of stock-based compensation expense in operating results as part of the corporate and shared functional employees expenses allocation.

Impairment of Long-Lived Assets

As a result of consolidating our global real estate footprint and decisions to vacate and sublease certain offices following the Spin-Off, we recorded non-cash impairment charges of $1.1 million to reduce the carrying amount of certain operating lease right-of-use (“ROU”) assets and property and equipment, including leasehold improvements, during the three months ended March 31, 2023.

We determined that we may not be able to fully recover the carrying amount of the leased offices due to a change in the manner in which the offices are being used, a significant decrease in the expected market price of the leased asset, and expected delays in subleasing the space based on the current real estate leasing market.

We expect additional impairment charges related to operating lease ROU assets in the remainder of 2023 based on current plans to reduce our real estate footprint.

We did not record any asset impairment charge for the three months ended March 31, 2022.

Other Income, Net

Other income, net, for the three months ended March 31, 2023 was $0.4 million, as compared to other income, net, of $0.5 million for the three months ended March 31, 2022.

Other income, net, was lower in 2023 principally due to the interest expense on debt incurred in connection with the Vewd Acquisition discussed below in Liquidity and Capital Resources, partially offset by an increase in interest income from significant financing components from revenue contracts in the first quarter of 2023.

(Benefit from) Provision for Income Taxes

For the three months ended March 31, 2023, we recorded an income tax benefit of $0.3 million on a pretax loss of $33.2 million, which resulted in an effective tax rate of 0.9%.

The income tax benefit was primarily related to foreign withholding taxes, partially offset by U.S.

We may record additional impairment charges related to operating lease ROU assets in the remainder of 2023 based on current plans to reduce our real estate footprint.

We did not record any asset impairment charge for the three and six months ended June 30, 2022.

Other Income (Expense), Net

Other income, net, for three and six months ended June 30, 2023 was $0.9 million and $1.3 million, respectively, as compared to other expense, net, of $0.3 million and other income, net, of $0.2 million for the three and six months ended June 30, 2022, respectively.

Other income, net, was higher in 2023 principally due to an increase in interest income from significant financing components from revenue contracts executed in the first six months of 2023 and gains recognized on derivatives not designated as hedge instruments, partially offset by the interest expense on debt incurred in connection with the Vewd Acquisition discussed below in Liquidity and Capital Resources.

Provision for Income Taxes

For the three and six months ended June 30, 2023, we recorded an income tax expense of $5.1 million and $4.8 million on a pretax loss of $34.3 million and $67.5 million, respectively, which resulted in an effective tax rate of (14.9)% and (7.1)%, respectively.

The income tax expense for the three and six months ended June 30, 2023 was primarily related to foreign withholding taxes, foreign income taxes, U.S.

federal income taxes, and state income taxes.

For the three months ended March 31, 2022, we recorded an income tax expense of $2.1 million on a pretax loss of $28.4 million, which resulted in an effective tax rate of (7.3)%.

The income tax expense was primarily related to foreign withholding taxes, U.S.

federal taxes, and state income taxes.

The year-over-year increase in income tax benefit for the quarter ended March 31, 2023 is largely attributable to the application of a positive effective tax rate to the March 31, 2023 year-to-date pre-tax loss.

Our income tax expense for the three months ended March 31, 2022 was calculated on a separate return basis as if we would file our tax return for the full twelve months of 2022.

For the three and six months ended June 30, 2022, we recorded an income tax expense of $8.4 million and $10.5 million on a pretax loss of $22.6 million and $51.0 million, respectively, which resulted in an effective tax rate of (37.2)% and (20.5)%, respectively.

The income tax expense for the three months ended June 30, 2022 was primarily related to foreign withholding taxes, U.S.

federal income taxes, and state income taxes;

whereas for the six months ended June 30, 2022, it was primarily related to foreign withholding taxes and foreign income taxes.

Our income tax expense for the three and six months ended June 30, 2022 was calculated on a separate return basis as if we would file our tax return for the full twelve months of 2022.

However, activities for periods prior to the October 1, 2022 Separation Date are generally reported on U.S.

income tax returns filed by our Former Parent.

Because of this, income tax expense presented in the Condensed Consolidated Statements of Operations for periods prior to the Separation is not necessarily representative of the taxes that may arise in the future when we file our income tax returns independent from the Former Parent's returns.

In the future, under the Tax Matters Agreement, our Former Parent may utilize certain of our tax attributes generated during pre-Separation periods to reduce its tax liability for tax years ended December 31, 2022 and earlier.

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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)

March 31, 2023

(in thousands, except for ratios)

June 30, 2023

December 31, 2022

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Current ratio

Three Months Ended March 31,

Six Months Ended June 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash provided by financing activities

Our primary liquidity and capital resources are our cash on hand, including cash provided by our Former Parent prior to the Separation.

Cash and cash equivalents were $110.7 million at March 31, 2023, a decrease of $49.4 million from $160.1 million

at December 31, 2022.

This decrease resulted primarily from cash used by operations of $43.1 million, $3.9 million in capital expenditures, and $2.9 million in payment of withholding taxes on net share settlement of restricted awards.

Cash and cash equivalents were $112.2 million at June 30, 2023, a decrease of $47.9 million from $160.1 million at December 31, 2022.

This decrease resulted primarily from cash used in operations of $44.6 million, $6.1 million of capital expenditures, and $3.2 million in payment of withholding taxes on net share settlement of restricted stock units, offset by $5.9 million in proceeds from the issuance of common stock under our employee stock purchase program (“ESPP”).

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, 2022.

in Part II, Item 7 of our Form 10-K.

Our cash requirements have not changed materially since December 31, 2022.

Cash Flows from Operating Activities

Net cash used in operating activities was $43.1 million for the three months ended March 31, 2023, primarily due to our net loss of $32.9 million and $46.9 million in changes in operating assets and liabilities, partially offset by non-cash items of depreciation of $4.1 million, amortization of intangible assets of $14.8 million, stock-based compensation expense of $16.0 million, and an asset impairment charge of $1.1 million.

Net cash used in operating activities was $18.4 million for the three months ended March 31, 2022, primarily due to our net loss of $30.5 million and $16.6 million in changes in operating assets and liabilities, partially offset by non-cash items of depreciation of $5.6 million, amortization of intangible assets of $14.8 million, and stock-based compensation expense of $8.6 million.

Net cash used in operating activities was $44.6 million for the six months ended June 30, 2023, primarily due to our net loss of $72.3 million and $44.6 million of changes in operating assets and liabilities, partially offset by non-cash items such as depreciation expense of $8.3 million, amortization of intangible assets of $29.6 million, stock-based compensation expense of $34.1 million, an asset impairment charge of $1.1 million, and change in deferred income taxes of $0.7 million.

Net cash used in operating activities was $22.3 million for the six months ended June 30, 2022, primarily due to our net loss of $61.5 million and $21.2 million of changes in operating assets and liabilities, partially offset by non-cash items such as depreciation expense of $10.7 million, amortization of intangible assets of $29.6 million, and stock-based compensation expense of $19.2 million.

Cash Flows from Investing Activities

Net cash used in investing activities was $3.9 million and $4.4 million for the three months ended March 31, 2023 and 2022, respectively, which was primarily related to capital expenditures.

Net cash used in investing activities was $6.2 million and $7.2 million for the six months ended June 30, 2023 and 2022, respectively, which was primarily related to capital expenditures.

Capital Expenditures

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

We expect capital expenditures in 2023 to be between $15.0 million to $20.0 million.

We expect capital expenditures in 2023 to be approximately $15.0 million.

These expenditures are expected to be financed with existing cash and cash equivalents.

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Cash Flows from Financing Activities

Net cash used in financing activities was $2.9 million for the three months ended March 31, 2023, which reflected the payment of withholding taxes related to net share settlement of restricted stock unit awards.

Net cash provided by financing activities was $25.8 million for the three months ended March 31, 2022 due to net transfers from the Former Parent.

Net cash provided by financing activities was $2.7 million for the six months ended June 30, 2023, primarily due to $5.9 million in proceeds from the issuance of common stock under our ESPP, partially offset by the payment of $3.2 million in withholding taxes related to net share settlement of restricted stock units.

Net cash provided by financing activities was $44.1 million for the six months ended June 30, 2022 due to net transfers from the Former Parent.

Long-Term Debt

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It was determined that the Spin-Off completed on October 1, 2022 did not trigger any change in the interest rate of the debt.

The Promissory Note matures on July 1, 2025.

The Promissory Note matures on

July 1, 2025.

We may, at any time and on any one or more occasions, prepay all or any portion of the outstanding principal amount, plus accrued and unpaid interest, if any, under the Promissory Note without premium or penalty.

In addition, the Promissory Note has mandatory prepayment provisions upon certain change of control or asset sale events.

At March 31, 2023, $50.0 million was outstanding under the Promissory Note with an annual interest rate of 6.0%.

At June 30, 2023, $50.0 million was outstanding under the Promissory Note with an annual interest rate of 6.0%.

Interest is payable quarterly.

Under the Promissory Note, we are obligated to make a balloon principal payment of $50.0 million in 2025.

Following the Separation from the Former Parent, our capital structure and sources of liquidity changed significantly from our historical capital structure and sources of liquidity.

Subsequent to the Separation, we no longer participate in cash management

and funding arrangements managed by the Former Parent.

Under the Promissory Note, we are obligated to make a balloon principal payment of $50.0 million in July 2025.

Following the Separation from our Former Parent, our capital structure and sources of liquidity changed significantly.

We no longer participate in cash management and funding arrangements facilitated by the Former Parent.

At the time of the Spin-Off, our Former Parent capitalized us such that we carried an amount of cash and cash equivalents of over $180.0 million.

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Our access to capital markets may be constrained and our cost of borrowing may increase under certain business and market conditions, and our liquidity is subject to various risks including the risks identified in “Risk Factors”

included in Item 1A of this Form 10-Q.

included in Item 1A of the Form 10-K.

Critical Accounting Estimates

During the three months ended March 31, 2023, there were no significant changes in our critical accounting estimates.

During the six months ended June 30, 2023, there were no significant changes in our critical accounting estimates.

See Note 2—

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See Note 2—

Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements included in this Form 10-Q for more information.

Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for more information.

Quantitative and Qualitati ve Disclosures About Market Risk

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

What changed 10-Q

Item 1. Financial Statements