What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-13 compared with 2023-08-11 · 327 added, 220 removed, 735 unchanged (43% of the section changed)

2 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating expenses:

4 unchanged sentences

Amortization expense

Goodwill impairment

Impairment of long-lived assets

1 unchanged sentence

Operating loss

Other income (expense), net

Other expense, net

Loss before taxes

7 unchanged sentences

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive income (loss):

Three Months Ended September 30,

Nine Months Ended September 30,

Other comprehensive loss:

Change in foreign currency translation adjustment

Unrealized (loss) gain on cash flow hedges

Unrealized loss on cash flow hedges

Comprehensive loss

4 unchanged sentences

(in thousands, except par value)

September 30,

December 31, 2022

26 unchanged sentences

$ 0.001 par value;

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

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

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

Common stock:

$ 0.001 par value;

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

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

43,387 and 42,066 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

7 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

3 unchanged sentences

Stock-based compensation expense

Deferred income taxes

Goodwill impairment

Impairment of long-lived assets

Deferred income taxes

Changes in operating assets and liabilities:

9 unchanged sentences

Purchases of intangible assets

Net cash paid for acquisition

Net cash used in investing activities

1 unchanged sentence

Proceeds from issuance of common stock under employee stock purchase plan

Withholding taxes related to net share settlement of restricted awards

Withholding taxes related to net share settlement of equity awards

Net proceeds from Former Parent capital contributions

Net transfers from Former Parent

7 unchanged sentences

Income taxes paid, net of refunds

Debt issued in connection with acquisition

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

1 unchanged sentence

(in thousands)

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Comprehensive

Noncontrolling

Balances at April 1, 2023

Balances at July 1, 2023

Change in ownership interest of the Company

Vesting of restricted stock units, net of tax withholding

Issuance of common stock under employee stock purchase plan

Stock-based compensation

1 unchanged sentence

Unrealized loss on cash flow hedges

Balances at June 30, 2023

Six Months Ended June 30, 2023

Balances at September 30, 2023

Nine Months Ended September 30, 2023

Comprehensive

1 unchanged sentence

Balances at January 1, 2023

Issuance of equity to noncontrolling interest

Change in ownership interest of the Company

Vesting of restricted stock units, net of tax withholding

3 unchanged sentences

Unrealized gain on cash flow hedges

Balances at June 30, 2023

Three Months Ended June 30, 2022

Balances at September 30, 2023

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

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

Three Months Ended September 30, 2022

Net Investment

1 unchanged sentence

Noncontrolling

Balances at April 1, 2022

Foreign currency translation adjustment

Issuance of equity to noncontrolling interest

Balances at July 1, 2022

Change in ownership interest of the Company

Issuance of common stock and reclassification of net transfers from Former Parent

Net capital contributions from Former Parent

Net transfers from Former Parent

Balances at June 30, 2022

Six Months Ended June 30, 2022

Foreign currency translation adjustment

Balances at September 30, 2022

Nine Months Ended September 30, 2022

Comprehensive

1 unchanged sentence

Balances at January 1, 2022

Foreign currency translation adjustment

Issuance of equity to noncontrolling interest

Change in ownership interest of the Company

Issuance of common stock and reclassification of net transfers from Former Parent

Net capital contributions from Former Parent

Net transfers from Former Parent

Balances at June 30, 2022

Foreign currency translation adjustment

Balances at September 30, 2022

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

19 unchanged sentences

The Company’s technologies are integrated into consumer devices and media platforms worldwide, driving increased value for partners, customers and consumers.

The Company currently operates in one reportable business segment and groups its business into four categories based on the markets served:

The Company currently operates in one reportable business segment and segregates its revenue into four categories based on the markets served:

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

6 unchanged sentences

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 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.

The results of operations for the three and nine months ended September 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.

1 unchanged sentence

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

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

5 unchanged sentences

The Condensed Consolidated Balance Sheets of Xperi and its subsidiaries for the pre-Transfer periods include Former Parent’s assets and liabilities that are specifically identifiable or otherwise attributable to the Company.

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

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

As of September 30, 2023, the Company owned approximately 77 % 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.

12 unchanged sentences

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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

Use of Estimates

13 unchanged sentences

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

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.

There were no individually significant customers accounting for 10% or more of total revenue for the three and nine months ended September 30, 2023 and 2022.

As of September 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

2 unchanged sentences

Revenue Recognition

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.

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

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

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 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.

Revenue is recognized net of sales taxes collected from customers which are subsequently remitted to governmental authorities.

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 generally 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 technologies and solutions to customers within the Pay-TV, Consumer Electronics, Connected Car and Media Platform product categories.

Refer to Part I, Item 1 of the Form 10-K for detailed information regarding these product categories.

Customers within the Pay-TV category are primarily multi-channel video service providers, consumer electronics (“CE”) manufacturers, and end consumers.

Revenue in this category is primarily derived from licensing the Company’s Pay-TV solutions, including Electronic Program Guides, TiVo internet protocol television (“IPTV”) Solutions, Personalized Content Discovery and enriched Metadata.

For these solutions, the Company provides on-going media or data delivery, either via on-premise licensed software, hosting or access to its platform.

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

For most of the on-premise licensed software arrangements, substantially all functionality is obtained through the Company’s frequent updating of the technology, data and content.

In these instances, the Company typically has a single performance obligation related to these ongoing activities in the underlying arrangement, and revenue is generally recognized over the period the solution is provided.

Hosted solutions and access to our platform is considered a single performance obligation recognized over the period the solution is provided.

Consumer Electronics

The Company licenses its audio and imaging technologies to CE 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 estimates the customer will exceed the minimum and adjusts the revenue based on actual usage once that is reported by the customer.

Connected Car

The Company licenses its digital radio solutions, automotive infotainment and related offerings, and driver and occupant monitoring systems to automotive manufacturers or their supply chain partners.

The Company generally recognizes royalty revenue from these licenses based on units shipped or manufactured, similar to the revenue recognition described above in “

Consumer Electronics ”.

Certain customers may enter into fixed fee or minimum guarantee agreements, also similar to the revenue recognition described above in “

Consumer Electronics”

Automotive infotainment and related revenue is generally recognized over time as the customer obtains access to the solutions and underlying data.

Media Platform

The Company generates revenue from advertising, TV viewership data, and licensing of the Vewd app framework and core middleware solutions.

Advertising revenue is generally recognized when the related advertisement is provided.

TV viewership data revenue is generally recognized over time as the customer obtains the underlying data.

License revenue for the Vewd solutions is generally recognized either on a per-unit royalty or a minimum guarantee or fixed fee basis, similar to as described in the “

Consumer Electronics ”

section above.

Hardware Products, Services and Settlements/Recoveries

The Company sells hardware products, primarily to end consumers, within the Pay-TV, Media Platform and Consumer Electronics product categories.

Hardware product revenue is generally recognized when the promised product is delivered.

The Company also generates non-recurring engineering (“NRE”) revenue within all of its product categories.

The Company recognizes NRE revenue as progress toward completion is made, generally using an input method based on the ratio of costs incurred to date to total estimated costs of the project.

Revenue from each of advertising, NRE services, and hardware products was less than 10 % of total revenue for all periods presented.

The Company actively monitors and enforces its technology licenses, including seeking appropriate compensation from customers that have under-reported royalties owed under a license agreement and from third parties that utilize the Company’s technologies without a license.

As a result of these activities, the Company may, from time to time, recognize revenue from periodic compliance audits of licensees for underreporting royalties incurred in prior periods, or from legal judgments in a license dispute.

These settlements and recoveries may cause revenue to be higher than expected during a particular reporting period and such settlements and recoveries may not occur in subsequent periods.

The Company recognizes revenue from settlements and recoveries when a binding agreement has been executed or a revised royalty report has been received and the Company concludes collection is probable.

Practical Expedients and Exemptions

The Company applies a practical expedient to not perform an evaluation of whether a contract includes a significant financing component when the timing of revenue recognition differs from the timing of cash collection by one year or less.

The Company applies a practical expedient to expense costs to obtain a contract with a customer as incurred as a component of selling, general and administrative expenses when the amortization period would have been one year or less.

The Company applies a practical expedient when disclosing revenue expected to be recognized from unsatisfied performance obligations to exclude contracts with customers with an original duration of one year or less;

amounts attributable to variable consideration arising from (i) a sales-based or usage-based royalty of a technology license or (ii) when variable consideration is allocated entirely to a wholly unsatisfied performance obligation;

or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.

Disaggregation of Revenue

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

Three Months Ended June 30,

Six Months Ended June 30,

The Company’s revenue that is recognized over time consists primarily of per unit royalties, per-subscriber per-month or monthly license fees, single performance obligations satisfied over time, and NRE services.

Revenue that is recognized at a point in time consists primarily of fixed fee or minimum guarantee contracts, hardware products, advertising and settlements/recoveries.

The following table summarizes revenue by timing of recognition (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Recognized over time

Recognized at a point in time

Total revenue

The following table summarizes revenue by product category (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Consumer Electronics

3 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

Europe and Middle East

Latin America

Total revenue

Six Months Ended June 30,

Nine Months Ended September 30,

Europe and Middle East

Latin America

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.

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 Latin America, and it is expected that this revenue will continue to account for a significant portion of total revenue in future periods.

Contract Balances

4 unchanged sentences

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

June 30, 2023

September 30, 2023

December 31, 2022

5 unchanged sentences

Contract Liabilities

Contract liabilities are mainly comprised of deferred revenue related to technology solutions arrangements, multi-period licensing, and other offerings for which the Company is paid in advance while the promised good or service is transferred to the customer at a future date or over time.

Deferred revenue also includes amounts received related to professional services to be performed in the future.

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.

Contract liabilities are mainly comprised of deferred revenue, which arises when cash payments are received, including amounts which are refundable, in advance of performance obligations being completed.

Deferred revenue generally consists of prepaid licenses or other fees, amounts received related to NRE services to be performed in the future, and other offerings for which the Company is paid in advance while the promised good or service is transferred to the customer at a future date or over time.

As of September 30, 2023 and December 31, 2022, the current and noncurrent balances of deferred revenue were $ 45.0 million an d $ 44.5 million, respectively.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Revenue recognized in the period from:

1 unchanged sentence

Performance obligations satisfied in previous periods (true

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

ups, recoveries 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.

Recoveries 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.

(2) For the nine months ended September 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 the same large mobile imaging customer.

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.

1 unchanged sentence

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):

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

Year Ending December 31:

7 unchanged sentences

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

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 and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,

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

These noncurrent unbilled contracts receivable are generally considered to be of high credit quality based on our past collection history and the nature of the customers.

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

Three Months Ended September 30,

Accounts Receivable

6 unchanged sentences

Ending balance

Six Months Ended June 30,

Nine Months Ended September 30,

Accounts Receivable

9 unchanged sentences

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

June 30, 2023

September 30, 2023

December 31, 2022

3 unchanged sentences

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

June 30, 2023

September 30, 2023

December 31, 2022

6 unchanged sentences

Accrued liabilities consisted of the following (in thousands):

June 30, 2023

September 30, 2023

December 31, 2022

4 unchanged sentences

Accrued income tax

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

Three Months Ended June 30,

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

Three Months Ended September 30,

Unrealized Gains (Losses) on Cash Flow Hedges

2 unchanged sentences

Beginning balance

Other comprehensive income (loss) before reclassification

Other comprehensive loss before reclassification

Amounts reclassified from accumulated other comprehensive loss into net loss

1 unchanged sentence

Ending balance

Six Months Ended June 30,

Nine Months Ended September 30,

Unrealized Gains (Losses) on Cash Flow Hedges

2 unchanged sentences

Beginning balance

Other comprehensive income (loss) before reclassification

Other comprehensive (loss) income before reclassification

Amounts reclassified from accumulated other comprehensive loss into net loss

Net current period other comprehensive income (loss)

Net current period other comprehensive (loss) income

Ending balance

2 unchanged sentences

Non-marketable Equity Securities

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.

As of September 30, 2023 and December 31, 2022, other noncurrent assets included equity securities accounted for under the equity method with a carrying amount of $ 4.6 million 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 nine months ended September 30, 2023 and 2022.

Derivatives Instruments

4 unchanged sentences

All the significant inputs to the third-party valuation models are observable in active markets.

Inputs include current market-based parameters such as forward rates, yield curves and credit default swap pricing.

Inputs include current market-based parameters such as forward rates, yield curves

and credit default swap pricing.

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

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

June 30, 2023

September 30, 2023

December 31, 2022

Derivative instruments in cash flow hedges (foreign exchange contracts):

Other current assets

Accrued liabilities

Total fair value

Total notional value

Notional value held to buy U.S.

dollars in exchange for other currencies

Notional value held to sell U.S.

dollars in exchange for other currencies

Undesignated derivative instruments (foreign exchange contracts):

Other current assets

Accrued liabilities

Total fair value

Total notional value

Notional value held to sell U.S.

dollars in exchange for other currencies

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.

1 unchanged sentence

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

September 30, 2023

December 31, 2022

5 unchanged sentences

815—Derivatives and Hedging.

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

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

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—

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

Composition of Certain Financial Statement Captions.

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,

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

Three Months Ended

September 30,

Nine Months Ended September 30,

Research and development

2 unchanged sentences

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.

For the three months ended September 30, 2023, losses recognized on the undesignated derivatives were $ 0.2 million.

For the nine months ended September 30, 2023, gains recognized on the undesignated derivatives were $ 0.5 million .

NOTE 6 –

14 unchanged sentences

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

June 30, 2023

September 30, 2023

December 31, 2022

38 unchanged sentences

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.

Supplemental Pro Forma Information

The following unaudited pro forma financial information assumes the Vewd Acquisition was completed as of January 1, 2021.

The unaudited pro forma financial information as presented below is for informational purposes only and is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information.

This is not necessarily indicative of the results of operations that would have been achieved if the Vewd Acquisition had taken place on January 1, 2021, nor is it necessarily indicative of future results.

Consequently, actual results could differ materially from the unaudited pro forma financial information presented below.

The following table presents the pro forma operating results as if the acquired operations of Vewd had been included in the Company's Condensed Consolidated Statements of Operations as of January 1, 2021 (unaudited, in thousands):

Three Months Ended

Nine Months Ended

September 30, 2022

Net loss attributable to the Company

The unaudited supplemental pro forma information above includes the following pro forma adjustments:

adjustments for transaction related costs and severance and retention costs, adjustments for amortization of intangible assets, and elimination of inter-company transactions between Vewd and the Company.

The unaudited supplemental pro forma information above does not include any cost saving synergies from operating efficiencies.

NOTE 8 –

2 unchanged sentences

During the three months ended September 30, 2022, indicators of potential impairment for the Former Parent’s Product reporting unit were identified such that management concluded it was more-likely-than-not that goodwill was impaired and a quantitative interim goodwill impairment assessment should be performed as of September 30, 2022.

Indicators of potential impairment included a sustained decline in the Former Parent’s stock price during the second half of the third quarter of 2022 reflective of rising interest rates and continued decline in macroeconomic conditions.

Indicators of potential

impairment included a sustained decline in the Former Parent’s stock price during the second half of the third quarter of 2022 reflective of rising interest rates and continued decline in macroeconomic conditions.

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

9 unchanged sentences

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

June 30, 2023

September 30, 2023

Net Carrying Value

4 unchanged sentences

Trademarks/trade name

Non-competition agreements

Non-compete agreements

Total finite-lived intangible assets

14 unchanged sentences

Total intangible assets

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

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

Year Ending December 31:

11 unchanged sentences

The Promissory Note does not contain any financial covenants.

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.

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

Interest expense on the Promisso ry Note was $ 0.7 million and $ 2.2 million for the three and nine months ended September 30, 2023, respectively.

NOTE 10 –

8 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net loss attributable to the Company - basic and diluted

2 unchanged sentences

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,

Three and Nine Months Ended September 30,

Restricted stock awards and units

6 unchanged sentences

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.

1 unchanged sentence

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.

As of September 30, 2023, there were approximately 4.1 million shares reserved for future grants under the 2022 EIP.

Employee Stock Purchase Plans

2 unchanged sentences

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.

Each offering period under the 2022 ESPP is 24 months long and commences 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.

1 unchanged sentence

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.

-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 September 27, 2023, the 2022 ESPP was amended to reduce the length of the offering periods from 24 months to 12 months and reduce an employee’s maximum participant contribution from 100 % to 15 % of their after tax base earnings and commissions through payroll deductions.

The amendment will take effect in the fourth quarter of 2023.

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,

Nine Months Ended September 30,

Expected life (years)

5 unchanged sentences

Stock Options

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

Options Outstanding

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

Balance at December 31, 2022

1 unchanged sentence

Options canceled / forfeited / expired

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 June 30, 2023 is as follows (in thousands, except per share amounts):

Restricted Stock and Restricted Stock Units

Balance at September 30, 2023

There were no stock options granted during the nine months ended September 30, 2023.

Restricted Stock Units

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

based Vesting

1 unchanged sentence

Balance at December 31, 2022

Awards and units granted

Awards and units vested / earned

Awards and units canceled / forfeited

Balance at June 30, 2023

Vested / released

Canceled / forfeited

Balance at September 30, 2023

Performance-Based Awards

1 unchanged sentence

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.

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.

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

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Expected life (years)

Risk-free interest rate

4.54 % —

Dividend yield

Expected volatility

46.14 % —

Stock-Based Compensation

1 unchanged sentence

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 and six months ended June 30, 2023 and 2022 is as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue, excluding depreciation and amortization of intangible assets

2 unchanged sentences

Total stock-based compensation expense

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Restricted stock awards and units

1 unchanged sentence

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 and $ 2.7 million for the three and six months ended June 30, 2023, respectively.

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.

In addition, for the three and nine months ended September 30, 2022, the Company recognized $ 2.4 million and $ 6.9 million of stock-based compensation expense in operating results, respectively, as part of the corporate and shared functional employees expenses allocation.

NOTE 12 –

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 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.

For the three and nine months ended September 30, 2023, the Company recorded an income tax expense of $ 9.7 million and $ 14.5 million on a pretax loss of $ 32.4 million and $ 99.9 million, respectively, which resulted in an effective tax rate of ( 29.9 )% and ( 14.5 )%, respectively.

The income tax expense for the three and nine months ended September 30, 2023 was primarily related to foreign withholding taxes, foreign income 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.

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

For the three and nine months ended September 30, 2022, the Company recorded an income tax expense of $ 2.0 million and $ 12.5 million on a pretax loss of $ 399.7 million and $ 450.7 million, respectively, which resulted in an effective tax rate of

( 0.5 )% and ( 2.8 )%, respectively.

The income tax expense for the three months ended September 30, 2022 was primarily related to foreign withholding taxes and state income taxes, partially offset by a tax benefit due to goodwill impairment;

whereas for the nine months ended September 30, 2022, it was primarily related to foreign withholding taxes, state income taxes, and foreign income taxes, partially offset by a tax benefit due to goodwill impairment.

As of September 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.

1 unchanged sentence

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 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.

Recognition of interest and penalties related to unrecognized tax benefits was immaterial for the three and nine months ended September 30, 2023, whereas no interest and penalties were recognized for the three and nine months ended September 30, 2022.

Accrued interest and penalties were immaterial as of September 30, 2023 and December 31, 2022, respectively.

As of September 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.

11 unchanged sentences

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 six months ended June 30, 2023.

As a result of optimizing its 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 nine months ended September 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.

1 unchanged sentence

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Fixed lease cost (1)

4 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cash payments included in the measurement of operating lease liabilities

1 unchanged sentence

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:

September 30,

December 31, 2022

1 unchanged sentence

Weighted-average discount rate

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

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

Year Ending December 31:

14 unchanged sentences

These arrangements primarily include unconditional purchase obligations to service providers.

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.

As of September 30, 2023, the Company’s total future unconditional purchase obligations were approximately $ 87.4 million.

Additionally, under certain other contractual arrangements, the Company may be obligated to pay up to $ 5.3 million, a majority of which is expected to be paid within the next three years , if certain milestones are achieved.

Inventory Purchase Commitment

2 unchanged sentences

A significant portion of the Company’s purchase commitments arising from these agreements consist of firm, non-cancelable and unconditional purchase commitments.

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

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 September 30, 2023, the Company had total purchase commitments for inventory of $ 0.6 million .

Indemnifications

30 unchanged sentences

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.

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.

For the three months ended September 30, 2022, the amount of these allocations from the Former Parent was $ 16.8 million, which included $ 0.8 million for depreciation expenses and $ 16.0 million for selling, general and administrative expenses.

For the nine months ended September 30, 2022, the amount of these allocations from the Former Parent was $ 47.6 million, which included $ 3.0 million for depreciation expenses and $ 44.6 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.

49 unchanged sentences

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

We operate in one reportable business segment and currently group our business into four categories based on the markets served:

We operate in one reportable business segment and currently group our revenue into four categories based on the markets served:

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

10 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating expenses:

4 unchanged sentences

Amortization expense

Goodwill impairment

Impairment of long-lived assets

1 unchanged sentence

Operating loss

Other income (expense), net

Other expense, net

Loss before taxes

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.

Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

We derive the majority of our revenue from licensing our technologies 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,

Three Months Ended September 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,

The $8.8 million, or 7% increase in revenue for the three months ended September 30, 2023, compared to the same period in the prior year, was primarily attributable to an increase of $4.9 million in Media Platform revenue driven principally by growth in Vewd smart TV application software and middleware platform, and an increase of $3.2 million in Connected Car revenue as the result of continued growth from HD Radio, audio solutions, and the DTS AutoStage solution.

Nine Months Ended September 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.

The $17.4 million, or 5% increase in revenue for the nine months ended September 30, 2023, compared to the same period in the prior year, was primarily attributable to an increase of $15.4 million in Media Platform revenue driven principally by contribution from Vewd, which was acquired in July 2022, as well as growth in monetization, and an increase of $6.6 million in Connected Car revenue as the result of growth from HD Radio, and the DTS AutoSense and DTS AutoStage solutions.

These increases were partially offset by a decline of $4.3 million in Pay TV revenue, as declines in legacy guide and DVR platform revenue were somewhat offset by increases in IPTV solutions.

Cost of Revenue, Excluding Depreciation and Amortization of Intangible Assets

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

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.

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 offerings and non-recurring engineering (“NRE”) services.

Cost of revenue, excluding depreciation and amortization of intangible assets, for the three months ended September 30, 2023 was $26.4 million, as compared to $31.4 million for the three months ended September 30, 2022, a decrease of $5.0 million.

The decrease was primarily due to lower revenue share accrued and paid to third parties in connection with certain Consumer Electronics contracts as well as lower hardware product-related costs due to a decline in hardware product sales in the third quarter of 2023.

Cost of revenue, excluding depreciation and amortization of intangible assets, for the nine months ended September 30, 2023 was $85.1 million, as compared to $85.7 million for the nine months ended September 30, 2022, a decrease of $0.6 million.

The decrease was primarily attributable to lower revenue share accrued and paid, lower hardware product-related costs due to a decline in hardware product sales, partially offset by higher costs incurred in connection with advertising revenue in the nine months ended September 30, 2023.

Research and Development

1 unchanged sentence

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

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.

R&D expense for the three months ended September 30, 2023 was $56.4 million, as compared to $57.1 million for the three months ended September 30, 2022, a decrease of $0.7 million.

The decrease was primarily due to lower severance and retention expense recorded during the three months ended September 30, 2023.

R&D expense for the nine months ended September 30, 2023 was $167.0 million, as compared to $158.6 million for the nine months ended September 30, 2022, an increase of $8.4 million.

The increase was primarily due to employees hired in connection with the Vewd Acquisition in July 2022 and increased stock-based compensation expense, partially offset by a decrease in severance and retention expense during the nine months ended September 30, 2023.

Selling, General and Administrative

1 unchanged sentence

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 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.

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

Selling, general and administrative expenses for the three months ended September 30, 2023, were $59.6 million, as compared to $56.7 million for the three months ended September 30, 2022, an increase of $2.9 million.

The increase was primarily due to

increases in stock-based compensation expense and cloud computing expense, partially offset by lower transaction and separation related costs in the three months ended September 30, 2023.

Selling, general and administrative expenses for the nine months ended September 30, 2023, were $173.9 million, as compared to $156.9 million for the nine months ended September 30, 2022, an increase of $17.0 million.

The increase was primarily due to increases in stock-based compensation expense and cloud computing expense, partially offset by decreases in transaction and separation related costs as well as personnel cost driven by a one-time fringe benefit adjustment in the nine months ended September 30, 2023.

Depreciation Expense

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.

Depreciation expense for the three months ended September 30, 2023 was $4.2 million, as compared to $5.0 million for the three months ended September 30, 2022, a decrease of $0.8 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.

Depreciation expense for the nine months ended September 30, 2023 was $12.5 million, as compared to $15.7 million for the nine months ended September 30, 2022, a decrease of $3.2 million.

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

Amortization Expense

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.

Amortization expense for the three months ended September 30, 2023 was $14.7 million, as compared to $16.6 million for the three months ended September 30, 2022, a decrease of $1.9 million.

The decrease was primarily due to certain intangible assets becoming fully amortized during 2023.

Amortization expense for the nine months ended September 30, 2023 was $44.3 million, as compared to $46.2 million for the nine months ended September 30, 2022, a decrease of $1.9 million.

The decrease was primarily due to certain intangible assets becoming fully amortized during 2023.

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.

2 unchanged sentences

Stock-based Compensation

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue, excluding depreciation and amortization of intangible assets

2 unchanged sentences

Total stock-based compensation expense

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

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.

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

The increases in stock-based compensation expense for the three and nine months ended September 30, 2023, when compared to the corresponding periods in 2022, were primarily a result of granting restricted stock units to an increased number of employees resulting from the Vewd Acquisition and certain insourcing activity, and 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 nine months ended September 30, 2022, we recognized $2.4 million and $6.9 million of stock-based compensation expense in operating results as part of the corporate and shared functional employees expenses allocation.

Goodwill impairment

We did not recognize a goodwill impairment charge during three and nine months ended September 30, 2023.

During the three months ended September 30, 2022, indicators of potential impairment for the Product reporting unit of Xperi Holding were identified such that we concluded it was more-likely-than-not that goodwill was impaired and a quantitative interim goodwill impairment assessment should be performed as of September 30, 2022.

Indicators of potential impairment included a sustained decline in Xperi Holding’s stock price during the second half of the third quarter of 2022 reflective of rising interest rates and continued decline in macroeconomic conditions.

We proceeded to perform a fair value analysis of the Product reporting unit using the market capitalization approach.

Under this approach, we estimated the fair value of the Product reporting unit as of September 30, 2022 using quoted market prices of Xperi’s common stock over its first ten trading days following the Separation, 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, we recognized a goodwill impairment charge of $354.0 million during the three and nine months ended September 30, 2022.

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 six months ended June 30, 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.

As a result of optimizing 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 nine months ended September 30, 2023.

We determined that we may not be able to fully recover the carrying amount of the leased offices due to how 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 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.

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

Other Expense, Net

Other expense, net, for the three months ended September 30, 2023 was $1.3 million, as compared to other expense, net, of $0.5 million for the three months ended September 30, 2022.

Other expense, net, was higher principally due to foreign exchange transaction losses driven by the strengthening of the U.S.

dollar in the third quarter of 2023.

Other expense, net, for the nine months ended September 30, 2023 was $0.1 million, as compared to other expense, net, of $0.3 million for the nine months ended September 30, 2022.

Other expense, net, was lower principally due to an increase in interest income from significant financing components from revenue contracts executed and gains recognized on derivatives not designated as hedge instruments, partially offset by higher foreign exchange transaction losses recognized as well as 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 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.

For the three and nine months ended September 30, 2023, we recorded an income tax expense of $9.7 million and $14.5 million on a pretax loss of $32.4 million and $99.9 million, respectively, which resulted in an effective tax rate of (29.9)% and (14.5)%, respectively.

The income tax expense for the three and nine months ended September 30, 2023 was primarily related to foreign withholding taxes, foreign income 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.

For the three and nine months ended September 30, 2022, we recorded an income tax expense of $2.0 million and $12.5 million on a pretax loss of $399.7 million and $450.7 million, respectively, which resulted in an effective tax rate of (0.5)% and (2.8)%, respectively.

Our income tax expense for the three and nine months ended September 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.

13 unchanged sentences

(in thousands, except for ratios)

June 30, 2023

September 30, 2023

December 31, 2022

1 unchanged sentence

Current ratio

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash used in operating activities

2 unchanged sentences

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 $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”).

Cash and cash equivalents were $131.5 million at September 30, 2023, a decrease of $28.6 million from $160.1 million at December 31, 2022.

This decrease resulted primarily from cash used in operations of $20.6 million, $9.4 million of capital expenditures, and $4.4 million in payment of withholding taxes on net share settlement of equity awards, offset by $5.9 million in proceeds from the issuance of common stock under the Xperi Inc.

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

For information about our material cash requirements, see “Liquidity and Capital Resources”

2 unchanged sentences

Cash Flows from Operating Activities

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.

Net cash used in operating activities was $20.6 million for the nine months ended September 30, 2023, primarily due to our net loss of $114.4 million, $14.7 million of changes in operating assets and liabilities, and a decrease in deferred income taxes of $1.0 million, partially offset by non-cash items such as depreciation expense of $12.5 million, amortization of intangible assets of $44.3 million, stock-based compensation expense of $51.7 million, and an asset impairment charge of $1.1 million.

Net cash used in operating activities was $11.3 million for the nine months ended September 30, 2022, primarily due to our net loss of $463.2 million and $6.8 million of changes in operating assets and liabilities, partially offset by non-cash items such as goodwill impairment of $354.0 million, depreciation expense of $15.7 million, amortization of intangible assets of $46.2 million, and stock-based compensation expense of $29.8 million.

Cash Flows from Investing Activities

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.

Net cash used in investing activities was $9.6 million for the nine months ended September 30, 2023, which was primarily related to capital expenditures.

Net cash used in investing activities was $61.1 million for the nine months ended September 30, 2022, which was primarily related to capital expenditures of $10.5 million and net cash used for the Vewd Acquisition of $50.5 million.

Capital Expenditures

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

Our capital expenditures for property, plant, and equipment consist primarily of purchases of computer hardware and software (including capitalized internal use software), information systems, production and test equipment.

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

2 unchanged sentences

Cash Flows from Financing Activities

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.

Net cash provided by financing activities was $1.5 million for the nine months ended September 30, 2023, primarily due to $5.9 million in proceeds from the issuance of common stock under our 2022 ESPP, partially offset by the payment of $4.4 million in withholding taxes related to net share settlement of equity awards.

Net cash provided by financing activities was $136.0 million for the nine months ended September 30, 2022, which consisted of $52.8 million of net transfers from our Former Parent and $83.2 million of net proceeds from Former Parent capital contributions.

Long-Term Debt

3 unchanged sentences

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

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

Interest is payable quarterly.

6 unchanged sentences

There can be no assurance that equity or debt financing will be available when needed or, if available, that such equity financing will be on terms satisfactory to us and not dilutive to our then-current stockholders or that debt financing will not impose significant restrictions on the operation of our business.

We plan to supplement this short-term liquidity, if necessary, with access to capital markets.

If necessary, we may supplement our short-term liquidity needs with access to capital markets and strategic cost savings initiatives.

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”

1 unchanged sentence

Critical Accounting Estimates

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

See Note 2—

Summary of Significant Accounting Policies of Notes to the Condensed Consolidated Financial Statements for additional detail.

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

For a discussion of our critical accounting estimates, see Part II, Item 7 –

7 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements