Xperi Inc. 10-Q

Item 1. Financial Statements XPERI INC. CONDENSED CONSOLIDATED S TATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenue $ 119,591 $ 126,872 $ 238,435 $ 253,711 Operating expenses: Cost of revenue, excluding depreciation and amortization of intangible assets 28,953 30,856 58,709 58,648 Research and development 45,123 55,701 95,562 110,557 Selling, general and administrative 53,102 56,497 109,455 114,273 Depreciation expense 3,278 4,202 6,862 8,295 Amortization expense 11,042 14,798 22,081 29,625 Impairment of long-lived assets — — — 1,096 Total operating expenses 141,498 162,054 292,669 322,494 Operating loss ( 21,907 ) ( 35,182 ) ( 54,234 ) ( 68,783 ) Interest and other income, net 1,290 1,658 2,332 2,766 Interest expense - debt ( 748 ) ( 750 ) ( 1,496 ) ( 1,490 ) Gain on divestiture — — 22,934 — Loss before taxes ( 21,365 ) ( 34,274 ) ( 30,464 ) ( 67,507 ) Provision for income taxes 9,266 5,090 13,538 4,796 Net loss ( 30,631 ) ( 39,364 ) ( 44,002 ) ( 72,303 ) Less: net loss attributable to noncontrolling interest ( 332 ) ( 969 ) ( 583 ) ( 1,908 ) Net loss attributable to the Company $ ( 30,299 ) $ ( 38,395 ) $ ( 43,419 ) $ ( 70,395 ) Net loss per share attributable to the Company - basic and diluted $ ( 0.67 ) $ ( 0.90 ) $ ( 0.97 ) $ ( 1.66 ) Weighted-average number of shares used in net loss per share calculations - basic and diluted 45,331 42,770 44,926 42,499 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 XPER I INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net loss $ ( 30,631 ) $ ( 39,364 ) $ ( 44,002 ) $ ( 72,303 ) Other comprehensive loss: Change in foreign currency translation adjustment 59 ( 521 ) ( 325 ) 92 Unrealized (loss) gain on cash flow hedges ( 396 ) ( 10 ) ( 1,187 ) 853 Comprehensive loss ( 30,968 ) ( 39,895 ) ( 45,514 ) ( 71,358 ) Less: comprehensive loss attributable to noncontrolling interest ( 332 ) ( 969 ) ( 583 ) ( 1,908 ) Comprehensive loss attributable to the Company $ ( 30,636 ) $ ( 38,926 ) $ ( 44,931 ) $ ( 69,450 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 XPERI INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (unaudited) June 30, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 92,481 $ 142,085 Accounts receivable, net 56,866 55,984 Unbilled contracts receivable, net 80,679 64,114 Prepaid expenses and other current assets 36,365 38,874 Assets held for sale — 15,860 Total current assets 266,391 316,917 Note receivable, noncurrent 28,571 — Deferred consideration from divestiture 6,267 — Unbilled contracts receivable, noncurrent 23,504 18,231 Property and equipment, net 42,241 41,569 Operating lease right-of-use assets 34,756 39,900 Intangible assets, net 184,898 206,895 Deferred tax assets 4,950 5,093 Other noncurrent assets 27,669 32,781 Assets held for sale, noncurrent — 12,249 Total assets $ 619,247 $ 673,635 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 14,314 $ 20,849 Accrued liabilities 90,469 109,961 Deferred revenue 27,728 28,111 Liabilities held for sale — 6,191 Total current liabilities 132,511 165,112 Long-term debt 50,000 50,000 Deferred revenue, noncurrent 22,455 19,425 Operating lease liabilities, noncurrent 24,401 30,598 Deferred tax liabilities 7,003 6,983 Other noncurrent liabilities 12,797 4,577 Liabilities held for sale, noncurrent — 9,805 Total liabilities 249,167 286,500 Commitments and contingencies (Note 13) Equity: Preferred stock: $ 0.001 par value; 6,000 shares authorized as of June 30, 2024 and December 31, 2023; no shares issued and outstanding as of June 30, 2024 and December 31, 2023 — — Common stock: $ 0.001 par value; 140,000 shares authorized as of June 30, 2024 and December 31, 2023; 45,746 and 44,211 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively 46 44 Additional paid-in capital 1,241,931 1,212,501 Accumulated other comprehensive loss ( 4,377 ) ( 2,865 ) Accumulated deficit ( 848,867 ) ( 805,448 ) Total Company stockholders’ equity 388,733 404,232 Noncontrolling interest ( 18,653 ) ( 17,097 ) Total equity 370,080 387,135 Total liabilities and equity $ 619,247 $ 673,635 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 XPE RI INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six Months Ended June 30, 2024 2023 Cash flows from operating activities: Net loss $ ( 44,002 ) $ ( 72,303 ) Adjustments to reconcile net loss to net cash used in operating activities: Gain from divestiture ( 22,934 ) — Depreciation of property and equipment 6,862 8,295 Amortization of intangible assets 22,081 29,625 Stock-based compensation expense 30,060 34,059 Impairment of long-lived assets — 1,096 Deferred income taxes 163 ( 736 ) Other ( 2,001 ) ( 105 ) Changes in operating assets and liabilities: Accounts receivable ( 2,903 ) ( 11,480 ) Unbilled contracts receivable ( 22,027 ) ( 7,324 ) Prepaid expenses and other assets 4,909 1,106 Accounts payable ( 5,360 ) ( 4,691 ) Accrued and other liabilities ( 19,404 ) ( 20,428 ) Deferred revenue 2,635 ( 1,743 ) Net cash used in operating activities ( 51,921 ) ( 44,629 ) Cash flows from investing activities: Purchases of property and equipment ( 2,307 ) ( 2,470 ) Capitalized internal-use software ( 5,825 ) ( 3,638 ) Purchases of intangible assets ( 84 ) ( 91 ) Net cash used in divestiture ( 227 ) — Net cash used in investing activities ( 8,443 ) ( 6,199 ) Cash flows from financing activities: Proceeds from issuance of common stock under employee stock purchase plan 4,328 5,850 Withholding taxes related to net share settlement of equity awards ( 5,929 ) ( 3,127 ) Net cash (used in) provided by financing activities ( 1,601 ) 2,723 Effect of exchange rate changes on cash and cash equivalents 12 137 Net decrease in cash and cash equivalents ( 61,953 ) ( 47,968 ) Cash and cash equivalents at beginning of period (1) 154,434 160,127 Cash and cash equivalents at end of period $ 92,481 $ 112,159 Supplemental disclosure of cash flow information: Income taxes paid, net of refunds $ 9,204 $ 10,109 Interest paid $ 1,504 $ 1,496 Supplemental disclosure of noncash investing and financing activities: Note receivable in exchange for consideration from divestiture $ 27,676 $ — Deferred consideration from divestiture $ 5,854 $ — Costs capitalized for internal-use software included in accrued liabilities $ 743 $ — (1) Includes $ 12.3 million of cash and cash equivalents classified as held for sale at December 31, 2023. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 XPERI INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands) (unaudited) Three Months Ended June 30, 2024 Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Noncontrolling Total Shares Amount Capital Loss Deficit Interest Equity Balances at April 1, 2024 45,031 $ 45 $ 1,221,709 $ ( 4,040 ) $ ( 818,568 ) $ ( 17,389 ) $ 381,757 Change in ownership interest of the Company — — 932 — — ( 932 ) — Vesting of restricted stock units, net of tax withholding 137 — ( 340 ) — — — ( 340 ) Issuance of common stock under employee stock purchase plan 578 1 4,327 — — — 4,328 Stock-based compensation — — 15,303 — — — 15,303 Foreign currency translation adjustment — — — 59 — — 59 Unrealized loss on cash flow hedges — — — ( 396 ) — — ( 396 ) Net loss — — — — ( 30,299 ) ( 332 ) ( 30,631 ) Balances at June 30, 2024 45,746 $ 46 $ 1,241,931 $ ( 4,377 ) $ ( 848,867 ) $ ( 18,653 ) $ 370,080 Six Months Ended June 30, 2024 Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Noncontrolling Total Shares Amount Capital Loss Deficit Interest Equity Balances at January 1, 2024 44,211 $ 44 $ 1,212,501 $ ( 2,865 ) $ ( 805,448 ) $ ( 17,097 ) $ 387,135 Change in ownership interest of the Company — — 973 — — ( 973 ) — Vesting of restricted stock units, net of tax withholding 957 1 ( 5,930 ) — — — ( 5,929 ) Issuance of common stock under employee stock purchase plan 578 1 4,327 — — — 4,328 Stock-based compensation — — 30,060 — — — 30,060 Foreign currency translation adjustment — — — ( 325 ) — — ( 325 ) Unrealized loss on cash flow hedges — — — ( 1,187 ) — — ( 1,187 ) Net loss — — — — ( 43,419 ) ( 583 ) ( 44,002 ) Balances at June 30, 2024 45,746 $ 46 $ 1,241,931 $ ( 4,377 ) $ ( 848,867 ) $ ( 18,653 ) $ 370,080 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 XPERI INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands) (unaudited) Three Months Ended June 30, 2023 Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Noncontrolling Total Shares Amount Capital Loss Deficit Interest Equity Balances at April 1, 2023 42,497 $ 42 $ 1,149,370 $ ( 2,643 ) $ ( 700,835 ) $ ( 15,360 ) $ 430,574 Vesting of restricted stock units, net of tax withholding 72 — ( 210 ) — — — ( 210 ) Issuance of common stock under employee stock purchase plan 644 1 5,849 — — — 5,850 Stock-based compensation — — 18,091 — — — 18,091 Foreign currency translation adjustment — — — ( 521 ) — — ( 521 ) Unrealized loss on cash flow hedges — — — ( 10 ) — — ( 10 ) Net loss — — — — ( 38,395 ) ( 969 ) ( 39,364 ) Balances at June 30, 2023 43,213 $ 43 $ 1,173,100 $ ( 3,174 ) $ ( 739,230 ) $ ( 16,329 ) $ 414,410 Six Months Ended June 30, 2023 Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Noncontrolling Total Shares Amount Capital Loss Deficit Interest Equity Balances at January 1, 2023 42,066 $ 42 $ 1,136,330 $ ( 4,119 ) $ ( 668,835 ) $ ( 14,432 ) $ 448,986 Change in ownership interest of the Company — — ( 11 ) — — 11 — Vesting of restricted stock units, net of tax withholding 503 — ( 3,127 ) — — — ( 3,127 ) Issuance of common stock under employee stock purchase plan 644 1 5,849 — — — 5,850 Stock-based compensation — — 34,059 — — — 34,059 Foreign currency translation adjustment — — — 92 — — 92 Unrealized gain on cash flow hedges — — — 853 — — 853 Net loss — — — — ( 70,395 ) ( 1,908 ) ( 72,303 ) Balances at June 30, 2023 43,213 $ 43 $ 1,173,100 $ ( 3,174 ) $ ( 739,230 ) $ ( 16,329 ) $ 414,410 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 9 XPER I INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Xperi Inc. (“Xperi” or the “Company”) is a leading consumer and entertainment technology company. The Company creates extraordinary experiences at home and on the go for millions of consumers around the world, enabling audiences to connect with content in a way that is more intelligent, immersive, and personal. Powering smart devices, connected cars, entertainment experiences and more, the Company brings together ecosystems designed to reach highly-engaged consumers, allowing it and its ecosystem partners to uncover significant new business opportunities, now and in the future. The Company’s technologies are integrated into consumer devices and a variety of media platforms worldwide, driving increased value for its partners, customers, and consumers. The Company operates in one reportable business segment and groups its business into four categories: Pay-TV, Consumer Electronics, Connected Car and Media Platform. Xperi Spin-Off 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 “Separation Date”), the Former Parent completed the Separation (the “Spin-Off”) through a pro-rata distribution (the “Distribution”) of all the outstanding common stock of its product-related business (formerly known as Xperi Product, and hereinafter “Xperi Inc.,” “Xperi” or the Company to the stockholders of record of the Former Parent as of the close of business on September 21, 2022 , the record date (the “Record Date”) for the Distribution. Each Former Parent stockholder of record received four shares of Xperi common stock, $ 0.001 par value, for every ten shares of the Former Parent’s common stock, $ 0.001 par value, held by such stockholder as of the close of business on the Record Date. 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. In connection with the Separation and the Distribution, the Former Parent was renamed and continues as Adeia Inc. and also changed its stock symbol to “ADEA” on the Nasdaq Global Select Market. Basis of Presentation and Principles of Consolidation The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Company’s financial statements were prepared on a consolidated basis and include the accounts of the Company and its wholly owned subsidiaries, as well as an entity in which the Company has a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation. In the fourth quarter of 2018, the Company funded a new subsidiary, Perceive Corporation (“Perceive”), which was created to focus on edge inference hardware and software technologies. As of June 30, 2024, the Company owned approximately 76.2 % of the outstanding equity interest of Perceive. Unaudited Interim Financial Statements The accompanying unaudited interim condensed consolidated financial statements are presented in accordance with the applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. The amounts as of December 31, 2023 have been derived from the Company’s annual audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2023, filed on March 1, 2024 (the “Form 10-K”). 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 interim 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 unaudited interim condensed consolidated financial statements should be read in conjunction with the Form 10-K. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024 or any future period and the Company makes no representations related thereto. 10 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. 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 fair value of note receivable and deferred consideration in connection with the Divestiture (as described in Note 6— Divestiture ), capitalization of internal-use software, loss contingencies related to indemnification liability, the assessm ent 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 valuation of performance-based awards with a market condition. 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 and cash equivalents, accounts receivable, unbilled contracts receivable, a note receivable and deferred consideration from divestiture. The Company maintains cash and cash equivalents with large financial institutions, and at times, the deposits may exceed the federally insured limits. As part of its risk management processes, the Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company has not sustained material credit losses from instruments held at these financial institutions. In addition, the Company has cash and cash equivalents held in international bank accounts that are denominated in various foreign currencies, and has established risk management strategies designed to minimize the impact of certain currency exchange rate fluctuations. The Company believes that any concentration of credit risk in its accounts receivable and unbilled contracts receivable are substantially mitigated by its evaluation processes and the high level of credit worthiness of its customers. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. There was one individually significant customer with revenue exceeding 10% of total revenue for the three months ended June 30, 2024, whereas no single customer exceeded 10% of total revenue in all other comparative periods presented . As of June 30, 2024 and December 31, 2023, no si ngle custome r represented 10 % or more of the Company’s net balance of accounts receivable. As described in Note 6, in the first quarter of 2024, the Company received a note receivable and deferred consideration from Tobii AB (“Tobii”) as part of the consideration for divesting its AutoSense in-cabin safety business and related imaging solutions (the “Divestiture”). Both of these instruments are potentially exposed to credit risk arising from default on repayment from Tobii. The credit risk associated with the note receivable is mitigated by establishing a floating lien and security interest in certain of Tobii’s assets, rights, and properties, whereas the deferred consideration is not secured by any collateral. The Company uses certain techniques, such as internally generated cash flow projections on the principal and interest of each instrument, to determine the likelihood that the note receivable or deferred consideration will be repaid. Further, the Company assesses each instrument for credit losses and provides a reserve when full payment on the instruments may not occur as expected. Based on the results of the internally generated cash flow projections, the Company expects Tobii to make full payment on both instruments in accordance with the underlying agreement. Accordingly, no allowance for credit losses was recorded as of June 30, 2024. Recent Accounting Pronouncements Accounting Standards Not Yet Adopted In November 2023, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires significant segment expenses and other segment related items to be disclosed on an interim and annual basis. The new disclosure requirements are also applicable to companies with a single reportable segment. This guidance is effective on a retrospective basis for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the disclosures within its consolidated financial statements. 11 In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires disclosure of specific categories in the effective tax rate reconciliation and additional information for reconciling items that meet a quantitative threshold and further disaggregation of income taxes paid for individually significant jurisdictions. This guidance is effective on a prospective or retrospective basis for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the disclosures within its consolidated financial statements. NOTE 2 – REVENUE Revenue Recognition General 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 standalone selling price (“SSP”) basis. The determination of SSP considers market conditions, the size and scope of the contract, customer and geographic information, and other factors. When observable prices are not available, SSP 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. Pay-TV 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 video-over-broadband (“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. There are certain fixed fee on-premise licensed software arrangements where revenue is recognized immediately upon the delivery of the licensed technology. Hosted solutions and access to our platform is considered a single performance obligation with revenue being recognized over the period the solution is provided. Consumer Electronics The Company licenses its audio technologies to CE manufacturers or their supply chain partners. 12 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. If applicable, revenue is recognized 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 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 is made toward completion, 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 13 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. Disaggregation of Revenue 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 licensing contracts, hardware products, advertising and settlements/recoveries. The following table summarizes revenue by timing of recognition (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Recognized over time $ 87,173 $ 98,870 $ 183,855 $ 199,083 Recognized at a point in time 32,418 28,002 54,580 54,628 Total revenue $ 119,591 $ 126,872 $ 238,435 $ 253,711 The following table summarizes revenue by product category (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Pay-TV $ 60,752 $ 58,031 $ 117,558 $ 118,325 Consumer Electronics 17,164 31,716 43,292 68,451 Connected Car 31,423 23,474 55,771 44,022 Media Platform 10,252 13,651 21,814 22,913 Total revenue $ 119,591 $ 126,872 $ 238,435 $ 253,711 The following table summarizes revenue by geographic location (in thousands): Three Months Ended June 30, 2024 2023 U.S. $ 55,832 47 % $ 69,133 54 % Japan 13,873 11 18,566 15 South Korea 16,653 14 6,354 5 Europe and Middle East 9,467 8 8,416 7 Latin America 13,000 11 6,744 5 China 3,545 3 10,527 8 Other 7,221 6 7,132 6 Total revenue $ 119,591 100 % $ 126,872 100 % Six Months Ended June 30, 2024 2023 U.S. $ 115,631 48 % $ 134,292 53 % Japan 25,910 11 36,061 14 South Korea 23,599 10 14,410 6 Europe and Middle East 22,942 10 18,582 7 Latin America 19,917 8 13,367 5 China 16,332 7 22,037 9 Other 14,104 6 14,962 6 Total revenue $ 238,435 100 % $ 253,711 100 % A significant portion of the Company’s revenue is derived from licensees headquartered outside of the U.S., principally in Asia, Europe, 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. 14 Contract Balances Contract Assets A contract asset represents a right to consideration that is conditional upon factors other than the passage of time. Contract assets primarily consist of unbilled contracts receivable that are expected to be received from customers in future periods, where revenue is recognized upon the completion of performance obligations, but in advance of billings. 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 Liabilities Contract liabilities are mainly comprised of deferred revenue, which arises when cash payments are received in advance of performance obligations being satisfied. 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. The following table presents additional revenue disclosures (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenue recognized in the period from: Amounts included in deferred revenue at the beginning of the period $ 6,336 $ 5,547 $ 13,602 $ 12,266 Performance obligations satisfied in previous periods (true ups, recoveries, and settlements) (1) $ 353 $ 597 $ 3,362 $ ( 1,285 ) (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. 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. Remaining Performance Obligations Remaining performance obligations represent contracted revenue associated with certain non-cancelable fixed fee arrangements and engineering services contracts that have not yet been recognized. As of June 30, 2024, the Company’s remaining performance obligations and the period over which they are expected to be recognized were as follows (in thousands): Year Ending December 31: Amounts 2024 (remaining 6 months) $ 35,897 2025 37,782 2026 15,669 2027 5,383 2028 3,102 Thereafter 1,991 Total $ 99,824 15 Allowance for Credit Losses The following table presents the activity in the allowance for credit losses for the three and six months ended June 30, 2024 and 2023 (in thousands): Three Months Ended June 30, 2024 2023 Accounts Receivable Unbilled Contracts Receivable Accounts Receivable Unbilled Contracts Receivable Beginning balance $ 2,868 $ 245 $ 2,067 $ 350 Provision for credit losses ( 856 ) 103 186 ( 25 ) Recoveries/charge-off ( 858 ) — ( 41 ) — Ending balance $ 1,154 $ 348 $ 2,212 $ 325 Six Months Ended June 30, 2024 2023 Accounts Receivable Unbilled Contracts Receivable Accounts Receivable Unbilled Contracts Receivable Beginning balance $ 1,906 $ 190 $ 1,950 $ 369 Provision for credit losses ( 58 ) 161 322 ( 44 ) Recoveries/charge-off ( 694 ) ( 3 ) ( 60 ) — Ending balance $ 1,154 $ 348 $ 2,212 $ 325 NOTE 3 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS Prepaid expenses and other current assets consisted of the following (in thousands): June 30, 2024 December 31, 2023 Prepaid expenses $ 22,542 $ 19,913 Prepaid income taxes 5,686 4,813 Finished goods inventory 5,043 7,279 Other 3,094 6,869 Total $ 36,365 $ 38,874 Property and equipment, net consisted of the following (in thousands): June 30, 2024 December 31, 2023 Computer equipment and software $ 54,348 $ 52,740 Capitalized internal-use software 17,806 11,224 Office equipment and furniture 11,465 11,074 Building 17,876 17,876 Land 5,300 5,300 Leasehold improvements 13,319 11,758 Construction in progress 326 3,319 Total property and equipment 120,440 113,291 Less: accumulated depreciation and amortization (1) ( 78,199 ) ( 71,722 ) Property and equipment, net $ 42,241 $ 41,569 (1) Includes $ 2.6 million and $ 1.6 million as of June 30, 2024 and December 31, 2023, respectively, of accumulated amortization associated with capitalized internal-use software. 16 The following table summarizes the capitalization and amortization of internal-use software for the three and six months ended June 30, 2024 and 2023 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Costs capitalized associated with internal-use software $ 3,303 $ 1,743 $ 6,582 $ 3,638 Amortization of capitalized internal-use software 522 468 1,016 560 Accrued liabilities consisted of the following (in thousands): June 30, 2024 December 31, 2023 Employee compensation and benefits $ 26,664 $ 44,095 Accrued expenses 18,292 24,307 Current portion of operating lease liabilities 14,739 14,760 Third-party royalties 9,152 8,478 Accrued other taxes 7,765 6,464 Accrued income taxes 7,581 1,991 Other 6,276 9,866 Total $ 90,469 $ 109,961 NOTE 4 – FINANCIAL INSTRUMENTS Non-marketable Equity Securities As of June 30, 2024 and December 31, 2023, other noncurrent assets included equity securities accounted for under the equity method with a carrying amount of $ 4.3 million and $ 4.9 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, 2024 and 2023. Derivatives Instruments The Company uses 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. Fair values for derivative financial instruments are based on prices computed using third-party valuation models. 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. Cash Flow Hedges 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 accumulated other comprehensive loss (“AOCL”) in stockholders’ equity and reclassified into earnings on the Condensed Consolidated Statements of Operations (Unaudited) in the period upon which the hedged transactions are settled. 17 The notional and fair values of all derivative financial instruments were as follows (in thousands): Location in Balance Sheet June 30, 2024 December 31, 2023 Derivative instruments designated as cash flow hedges: Fair value — foreign exchange contract assets, net amount Prepaid expenses and other current assets $ — $ 1,184 Fair value — foreign exchange contract liabilities, net amount Accrued liabilities $ 152 $ — Notional value held to buy U.S. dollars in exchange for other currencies $ 1,001 $ 738 Notional value held to sell U.S. dollars in exchange for other currencies $ 53,146 $ 45,468 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): June 30, 2024 December 31, 2023 Gross amount of recognized assets $ 268 $ 1,300 Gross amount of recognized liabilities ( 420 ) ( 116 ) Net derivative (liabilities) assets $ ( 152 ) $ 1,184 The changes in AOCL related to the cash flow hedges consisted of the following (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Beginning balance $ 243 $ 769 $ 1,034 $ ( 94 ) Other comprehensive (loss) gain before reclassification ( 280 ) 322 ( 702 ) 1,181 Amounts reclassified from accumulated other comprehensive loss into net loss ( 115 ) ( 332 ) ( 484 ) ( 328 ) Net current period other comprehensive (loss) gain ( 395 ) ( 10 ) ( 1,186 ) 853 Ending balance $ ( 152 ) $ 759 $ ( 152 ) $ 759 The following table summarizes the total gains recognized upon settlement of the hedged transactions in the Condensed Consolidated Statement of Operations for three and six months ended June 30, 2024 and 2023 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Research and development $ 135 $ 403 $ 484 $ 414 Selling, general and administrative ( 24 ) 59 83 63 Total $ 111 $ 462 $ 567 $ 477 18 Undesignated Derivatives For derivatives that were not designated as hedge instruments, they were measured and reported at fair value as a derivative asset or liability in the Condensed Consolidated Balance Sheets with their corresponding changes in the fair value recognized as gains or losses in interest and other income, net in the Condensed Consolidated Statements of Operations. These instruments were all re-designated as foreign currency cash flow hedges in July 2023. 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 5 – FAIR VALUE The Company follows the authoritative guidance for fair value measurement and the fair value option for financial assets and financial liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets. Level 2 Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. When applying fair value principles in the valuation of assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculates the fair value of its Level 1 and Level 2 instruments based on the exchange traded price of similar or identical instruments, where available, or based on other observable inputs. The Company’s derivative financial instruments (as described in Note 4— Financial Instruments ), consisting of foreign currency forward contracts, are reported at fair value on a recurring basis and classified as Level 2. Financial Instruments Not Recorded at Fair Value The following table presents the fair value hierarchy for the Company’s assets and liabilities recorded at their carrying amount, but for which the fair value is disclosed (in thousands): June 30, 2024 December 31, 2023 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Assets: Note receivable, noncurrent $ 28,571 $ 28,571 $ — $ — Deferred consideration from divestiture 6,267 5,716 — — Total assets $ 34,838 $ 34,287 $ — $ — Liabilities: Senior unsecured promissory note $ 50,000 $ 49,696 $ 50,000 $ 49,659 The fair value of the note receivable, including accrued interest, and the deferred consideration resulting from the Divestiture (as described in Note 6— Divestiture ) were estimated based on an income and market approach with valuation inputs such as the U.S. Treasury constant maturity yields, comparable bond yields, and credit spreads over the term of the same or similarly issued instruments. They are classified within Level 2 of the fair value hierarchy. The fair value of the Company’s debt (as described in Note 8— Debt) was estimated based on an income and market approach with valuation inputs such as the U.S. Treasury constant maturity yields, comparable bond yields, and credit spreads over the term of the same or similarly issued instruments. The Company classifies its debt within Level 2 of the fair value hierarchy. 19 NOTE 6 – DIVESTITURE In December 2023, the Company entered into a definitive agreement with Tobii pursuant to the Divestiture. The Divestiture represented a 100 % equity sale transaction of two of the Company’s wholly-owned subsidiaries and was expected to streamline the Company’s business to further focus its business on entertainment-related products and services. All of the assets and liabilities associated with the Divestiture were classified as held for sale as of December 31, 2023. The Divestiture was completed on January 31, 2024 (the “Closing Date”) for total consideration of $ 44.3 million, comprising $ 10.8 million of cash, a note receivable from Tobii (the “Tobii Note”) of $ 27.7 million, and deferred consideration (as described under Deferred Consideration below) totaling $ 15.0 million, which was estimated to have a fair value of $ 5.8 million based on a present value factor on the Closing Date. The $ 10.8 million of cash included in the total consideration represents the cash balance that was transferred to Tobii on the Closing Date to support operations during the transition and was subsequently returned to the Company, and as such, this amount is included in the assets sold as of January 31, 2024 and in the total consideration received. As previously disclosed in the Form 10-K, Tobii was required to pay the Company the acquired closing cash balance, less certain adjustments, promptly after the Closing Date. In addition, there may be potential earnout payments (as described under Contingent Consideration below) payable in 2031, contingent upon the future success of the divested AutoSense in-cabin safety business. In connection with the Divestiture, the Company also recorded a liability of $ 7.1 million for potential indemnification of certain pre-Closing matters. As of the Closing Date, the Company derecognized the carrying amounts of the following assets and liabilities (in thousands): January 31, 2024 Current Noncurrent Total Assets: Cash and cash equivalents $ 11,025 $ — $ 11,025 Accounts receivable, net 3,392 — 3,392 Unbilled contracts receivable, net 1,398 5,320 6,718 Prepaid expenses and other current assets 812 — 812 Property and equipment, net — 2,291 2,291 Operating lease right-of-use assets — 3,272 3,272 Other noncurrent assets — 2,887 2,887 Total assets held for sale (1) $ 16,627 $ 13,770 $ 30,397 Liabilities: Accounts payable $ 248 $ — $ 248 Accrued liabilities 4,933 — 4,933 Deferred revenue 1,114 — 1,114 Operating lease liabilities, noncurrent — 2,708 2,708 Other noncurrent liabilities — 7,064 7,064 Total liabilities held for sale $ 6,295 $ 9,772 $ 16,067 Net assets held for sale $ 10,332 $ 3,998 $ 14,330 (1) Total assets held for sale also included certain fully amortized finite-lived intangible assets with an original cost of $ 35.2 million. Upon the completion of the Divestiture, the Company recognized a gain of $ 22.9 million in the first quarter of 2024. The Divestiture did not represent a strategic shift that would have a major effect on the Company’s consolidated results of operations, and therefore, its results of operations were not reported as discontinued operations. 20 Note Receivable from Tobii AB The Tobii Note, with a fixed interest rate of 8 % per annum, matures on April 1, 2029 and is payable in three annual installments. Tobii may, at any time and on any one or more occasions, prepay all or any portion of the outstanding principal amount, along with accrued interest, without any penalty. In the event of default, an additional interest of 2 % per annum may be applied to the outstanding balance of the Tobii Note, and the Company has the right to demand full or partial payment on the outstanding balance with unpaid interest. The Tobii Note is secured by a floating lien and security interest in certain of Tobii’s assets, rights, and properties, and contains customary affirmative and negative covenants including the restrictions on incurring certain indebtedness, and certain change of control and asset sale events, but does not include any financial covenants. The Tobii Note has the following scheduled principal repayments (in thousands): Date of Principal Payment: Amount April 1, 2027 $ 10,000 April 1, 2028 10,000 April 1, 2029 7,676 Total principal payments $ 27,676 The Company elected to present accrued interest within the carrying amount of note receivable, noncurrent, in the Condensed Consolidated Balance Sheets. As of June 30, 2024, the carrying amount of the Tobii Note is as follows (in thousands): June 30, 2024 Outstanding principal amount $ 27,676 Add: interest accrued to date 895 Carrying amount—note receivable, noncurrent $ 28,571 For the three and six months ended June 30, 2024, the Company recognized interest income of $ 0.5 million and $ 0.9 million, respectively. Deferred Consideration The deferred consideration consists of guaranteed future cash payments, which are scheduled to be made by Tobii in four annual payments as follows (in thousands): Date of Payment: Amount February 15, 2028 $ 3,000 February 15, 2029 2,250 February 15, 2030 4,500 February 15, 2031 5,250 Total future payments $ 15,000 At the Closing Date, there was $ 9.2 million of discount on the deferred consideration to be accreted as interest income up to the date of the final payment. For the three and six months ended June 30, 2024, the Company accreted $ 0.3 million and $ 0.4 million of the discount as interest income, respectively. As of June 30, 2024, the net carrying amount of the deferred consideration is as follows (in thousands): June 30, 2024 Total deferred consideration $ 15,000 Less: unamortized discount on deferred consideration ( 8,733 ) Net carrying amount $ 6,267 21 Contingent Consideration The earnout represents potential incremental cash consideration, and the payment is contingent upon the achievement of certain targeted shipments, between January 1, 2024 and December 31, 2030, of qualified automotive products featuring the AutoSense in-cabin safety technology and the related imaging solutions. At the Closing Date, the Company elected to apply the gain contingency guidance under ASC 450— Contingencies , as it could not reasonably estimate shipment amounts. As a result, the Company deferred the recognition of the contingent consideration until it becomes realized or realizable. NOTE 7 – INTANGIBLE ASSETS, NET Identified intangible assets consisted of the following (in thousands): June 30, 2024 Average Life (Years) Gross Amount Accumulated Amortization Net Carrying Value Finite-lived intangible assets: Acquired patents 3 - 10 $ 17,281 $ ( 4,583 ) $ 12,698 Existing technology / content database 5 - 10 219,908 ( 187,891 ) 32,017 Customer contracts and related relationships 3 - 9 493,579 ( 377,146 ) 116,433 Trademarks/trade name 4 - 10 39,313 ( 36,963 ) 2,350 Non-compete agreements 1 - 2 3,101 ( 3,101 ) — Total finite-lived intangible assets 773,182 ( 609,684 ) 163,498 Indefinite-lived intangible assets: TiVo tradename/trademarks N/A 21,400 — 21,400 Total intangible assets $ 794,582 $ ( 609,684 ) $ 184,898 December 31, 2023 Average Life (Years) Gross Amount Accumulated Amortization Net Carrying Value Finite-lived intangible assets: Acquired patents 3 - 10 $ 17,281 $ ( 3,478 ) $ 13,803 Existing technology / content database 5 - 10 219,717 ( 181,713 ) 38,004 Customer contracts and related relationships 3 - 9 493,685 ( 365,074 ) 128,611 Trademarks/trade name 4 - 10 39,313 ( 34,453 ) 4,860 Non-compete agreements 1 - 2 3,101 ( 2,884 ) 217 Total finite-lived intangible assets 773,097 ( 587,602 ) 185,495 Indefinite-lived intangible assets: TiVo tradename/trademarks N/A 21,400 — 21,400 Total intangible assets (1) $ 794,497 $ ( 587,602 ) $ 206,895 (1) Total intangible assets excluded certain finite-lived intangible assets with a gross amount of $ 35.2 million, which were fully amortized and classified as held for sale as of December 31, 2023 in connection with the Divestiture (as described in Note 6 — Divestiture ). As of June 30, 2024, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands): Year Ending December 31: Amounts 2024 (remaining 6 months) $ 21,291 2025 34,826 2026 31,495 2027 30,652 2028 30,315 Thereafter 14,919 Total future amortization $ 163,498 22 NOTE 8 – DEBT In connection with the acquisition of Vewd Software Holdings Limited (“Vewd”) on July 1, 2022, the Company 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. 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 %. 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 Company 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. The Promissory Note includes certain covenants that restrict the Company and each guarantor’s ability to, among other things, incur certain indebtedness or engage in any material line of business substantially different from those lines of business conducted by the Company on the closing date of the acquisition. The Promissory Note does not contain any financial covenants. As of June 30, 2024, $ 50.0 million in principal balance was outstanding. Interest expense on the Promisso ry Note was $ 0.8 million for both the three months ended June 30, 2024 and 2023, and $ 1.5 million for the both six months ended June 30, 2024 and 2023. NOTE 9 – NET LOSS PER SHARE Basic net loss per share attributable to the Company is computed by dividing the net loss attributable to the Company by the number of weighted-average outstanding common shares in the period. Potentially dilutive common shares, such as common shares issuable upon exercise of stock options, vesting of restricted stock units (“RSUs”), and shares purchased under the Employee Stock Purchase Plan (“ESPP”) 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 attributable to the Company, since their effect would be anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share attributable the Company (in thousands, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Numerator: Net loss attributable to the Company - basic and diluted $ ( 30,299 ) $ ( 38,395 ) $ ( 43,419 ) $ ( 70,395 ) Denominator: Weighted-average number of shares used to compute net loss per share attributable to the Company - basic and diluted 45,331 42,770 44,926 42,499 Net loss per share attributable to the Company - basic and diluted $ ( 0.67 ) $ ( 0.90 ) $ ( 0.97 ) $ ( 1.66 ) 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, 2024 2023 Options 57 120 Restricted stock units 7,998 7,345 ESPP 92 83 Total 8,147 7,548 23 NOTE 10 – STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION Equity Incentive Plans In connection with the Separation and on October 1, 2022, the Company adopted the Xperi Inc. 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, RSUs, stock appreciation rights, dividend equivalents and performance awards, or any combination thereof. The 2022 EIP provides for option grants designated as either incentive stock options or non-statutory options. Stock options have been granted with an exercise price not less than the value of the common stock on the grant date, and have 10-year contractual terms from the date of grant, and vest over a four-year period. 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, 2024, there were approximately 4.6 million 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 (as amended, the “2022 ESPP”). The 2022 ESPP originally provided consecutive overlapping 24-month offering periods, with four purchase periods that were generally six months in length, commencing on each December 1 and June 1 during the term of the 2022 ESPP. The 2022 ESPP was subsequently amended, and commencing December 1, 2023, the length of the offering periods was reduced from 24 months to 12 months and the employee’s maximum participant contribution was reduced from 100 % to 15 % of the employee’s after-tax base earnings and commissions up to the limit imposed by the Internal Revenue Service. 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. The 2022 ESPP includes a reset provision 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 12 -month offering period. Upon occurrence of the reset, the existing offering period will automatically terminate and a new 12 -month offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering period. The reset provision under the 2022 ESPP was triggered on May 31, 2024, and it was considered a modification in accordance with ASC 718— Stock Based Compensation , with the incremental fair value of $ 2.0 million to be recognized on a straight-line basis over the new 12 -month offering period. On May 31, 2024, the Company issued 577,826 shares under the 2022 ESPP, net of shares withheld to satisfy withholding tax requirements for certain employees, for aggregate net proceeds of $ 4.3 million. As of June 30, 2024, there were 3.1 million shares reserved for future issuance under the 2022 ESPP. The following table summarizes the valuation assumptions used in estimating the fair value of the 2022 ESPP for the offering periods in effect using the Black-Scholes option pricing model: Six Months Ended June 30, 2024 2023 Expected life (years) 0.5 — 1.0 0.5 — 2.0 Risk-free interest rate 5.14 % — 5.39 % 4.33 % — 5.44 % Dividend yield 0.00 % 0.00 % Expected volatility 44.38 % — 45.01 % 44.11 % — 51.19 % 24 Stock Options Stock option activity for the six months ended June 30, 2024 is as follows (in thousands, except per share amounts): Number of Shares Subject to Options Weighted Average Exercise Price Per Share Balance at December 31, 2023 106 $ 26.87 Options exercised — $ — Options canceled / forfeited / expired ( 49 ) $ 21.99 Balance at June 30, 2024 57 $ 31.10 There were no stock options granted during the six months ended June 30, 2024. Restricted Stock Units Information with respect to outstanding RSUs (including both time-based vesting and performance-based vesting) for the six months ended June 30, 2024 is as follows (in thousands, except per share amounts): Number of Shares Subject to Time- based Vesting Number of Shares Subject to Performance- based Vesting Total Number of Shares Weighted Average Grant Date Fair Value Per Share Balance at December 31, 2023 5,396 1,671 7,067 $ 15.51 Granted 2,496 670 3,166 $ 11.23 Vested / released ( 1,468 ) ( 14 ) ( 1,482 ) $ 14.51 Canceled / forfeited ( 562 ) ( 191 ) ( 753 ) $ 18.27 Balance at June 30, 2024 5,862 2,136 7,998 $ 13.74 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 market conditions, 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 Company uses the closing trading price of its common stock on the date of grant as the fair value of awards or RSUs and PSUs that are based on Company-designated performance targets. For PSUs that are based on market conditions (the “market-based PSUs”), fair value is estimated by using a Monte Carlo simulation on the date of grant. The following assumptions were used to value the market-based PSUs granted during the period: Six Months Ended June 30, 2024 2023 Expected life (years) 3.0 2.8 Risk-free interest rate 4.21 % 4.54 % Dividend yield 0.00 % 0.00 % Expected volatility 43.93 % 49.02 % Stock-Based Compensation Total stock-based compensation expense for the three and six months ended June 30, 2024 and 2023 is as follows (in thousands): 25 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Cost of revenue, excluding depreciation and amortization of intangible assets $ 858 $ 927 $ 1,602 $ 1,719 Research and development 5,831 6,405 10,164 11,956 Selling, general and administrative 8,614 10,759 18,294 20,384 Total stock-based compensation expense $ 15,303 $ 18,091 $ 30,060 $ 34,059 Stock-based compensation expense categorized by award type for the three and six months ended June 30, 2024 and 2023 is summarized in the table below (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 RSUs $ 11,160 $ 11,609 $ 20,345 $ 22,364 PSUs 2,775 5,097 7,029 9,322 ESPP 1,368 1,385 2,686 2,373 Total stock-based compensation expense $ 15,303 $ 18,091 $ 30,060 $ 34,059 As of June 30, 2024, unrecognized stock-based compensation expense related to unvested equity-based awards is as follows (amounts in thousands): June 30, 2024 Unrecognized Stock-Based Compensation Weighted-Average Period to Recognize Expense (in years) RSUs $ 65,209 2.0 PSUs 18,373 2.0 ESPP 4,932 0.6 Total unrecognized stock-based compensation expense $ 88,514 NOTE 11 – INCOME TAXES For the three and six months ended June 30, 2024, the Company recorded an income tax expense of $ 9.3 million and $ 13.6 million on a pretax loss of $ 21.4 million and $ 30.5 million, respectively; which resulted in an effective tax rate of ( 43.4 )% and ( 44.4 )%, respectively. The income tax expense for the three and six months ended June 30 , 2024 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, 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 benefit 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. As of June 30, 2024, gross unrecognized tax benefits of $ 16.2 million decreased by $ 7.4 million compared to December 31, 2023. Of the total decrease, $ 6.9 million related to the Divestiture completed in January 2024. Of the $ 16.2 million gross unrecognized tax benefits, $ 2.2 million would affect the effective tax rate, if recognized. The Company is unable to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease. It is the Company’s policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. Recognition of interest and penalties related to unrecognized tax benefits was immaterial for the three and six months ended June 30, 2024 and 2023. As of June 30, 2024 and December 31, 2023, accrued interest and penalties were $ 0.1 million and $ 0.4 million, respectively. As of June 30, 2024, the Company’s 2019 through 2024 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. 26 NOTE 12 – LEASES The Company leases office and research facilities, data centers and office equipment under operating leases with various expiration dates thr o ugh 2030. Certain leases offer the op tion 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 ; expense for these leases is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred and are not included within the lease liability and right-of-use assets calculation. The Company subleases certain real estate to third parties. The sublease portfolio consists of operating leases for previously exited office space. Certain subleases include variable payments for operating costs. 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. Due to the change in how the office facilities were being used, a significant decrease in the expected market price of the operating lease right-of-use (“ROU”) assets, and expected delays in subleasing the office facilities based on the condition of the commercial real estate market, the Company recorded impairment charges of $ 1.1 million in the six months ended June 30, 2023 to reduce the carrying amount of certain operating ROU assets and property and equipment, including related leasehold improvements. There were no impairment charges recorded in the three and six months ended June 30, 2024. The components of operating lease costs were as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Fixed lease cost (1) $ 4,250 $ 5,325 $ 8,536 $ 10,483 Variable lease cost 896 1,457 1,949 2,944 Less: sublease income ( 2,147 ) ( 2,593 ) ( 4,078 ) ( 5,273 ) Total operating lease cost $ 2,999 $ 4,189 $ 6,407 $ 8,154 (1) Includes short-term leases expensed on a straight-line basis. The following table presents supplemental cash flow information arising from lease transactions (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Cash payments included in the measurement of operating lease liabilities $ 4,428 $ 5,000 $ 8,924 $ 10,208 Operating ROU assets obtained in exchange for lease obligations $ 2,024 $ 4,013 $ 2,024 $ 4,013 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: June 30, 2024 December 31, 2023 Weighted-average remaining lease term (in years) 3.05 3.37 Weighted-average discount rate 5.4 % 5.3 % 27 Future minimum lease payments and related lease liabilities as of June 30, 2024 were as follows (in thousands): Year Ending December 31: Operating Lease Payments (1) Sublease Income Net Operating Lease Payments 2024 (remaining 6 months) $ 7,840 $ ( 3,024 ) $ 4,816 2025 16,744 ( 6,333 ) 10,411 2026 10,345 ( 1,563 ) 8,782 2027 4,410 ( 368 ) 4,042 2028 2,202 ( 379 ) 1,823 Thereafter 1,232 ( 291 ) 941 Total lease payments 42,773 $ ( 11,958 ) $ 30,815 Less: imputed interest ( 3,633 ) Present value of operating lease liabilities $ 39,140 Less: operating lease liabilities, current portion ( 14,739 ) Noncurrent operating lease liabilities $ 24,401 (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. NOTE 13 – COMMITMENTS AND CONTINGENCIES Purchase and Other Contractual Obligations In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-cancelable payment obligations, for which it is liable in future periods. These arrangements primarily include unconditional purchase obligations to service providers. As of June 30, 2024, the Company’s total future unconditional purchase obligations were approximately $ 134.9 million. Indemnifications In the normal course of business, the Company provides indemnifications of varying scopes and amounts to certain of its licensees, customers, and business partners against claims made by third parties arising from the use of the Company's products, intellectual property, services or technologies. The Company cannot reasonably estimate the possible range of losses that may be incurred pursuant to its indemnification obligations, if any. Variables affecting any such assessment include, but are not limited to: the scope of the contractual indemnification obligation; the nature of the third party claim asserted; the relative merits of the third party claim; the financial ability of the third party claimant to engage in protracted litigation; the number of parties seeking indemnification; the nature and amount of damages claimed by the party suing the indemnified party; and the willingness of such party to engage in settlement negotiations. The Company has received requests for indemnification, but to date none has been material and no liability has been recorded in the Company’s financial statements. As permitted under Delaware law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. 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 not material. In addition, the Company has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable the Company to recover any payments under the indemnification agreements from its insurers, should they occur. Contingencies The Company and its subsidiaries have been involved in litigation matters and claims in the normal course of business. In the past, the Company or its subsidiaries have litigated to enforce their respective patents and other intellectual property rights, to enforce the terms of license agreements, to determine infringement or validity of intellectual property rights, and to defend themselves or their customers against claims of infringement or breach of contract. The Company expects it or its subsidiaries will be involved in similar legal proceedings in the future, including proceedings to ensure proper and full payment of royalties by licensees under the terms of their license agreements. 28 An adverse decision in any legal actions could result in a loss of the Company’s proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from others, limit the value of the Company’s licensed technology or otherwise negatively impact the Company’s stock price or its business and consolidated financial results. Although considerable uncertainty exists, the Company does not anticipate that the disposition of any of these matters will have a material effect on its business or consolidated financial statements. NO TE 14 – SUBSEQUENT EVENTS In February 2024, the Company began to explore strategic alternatives, including, but not limited to, the sale of substantially all the assets of the Perceive subsidiary (the “Perceive Assets”), which had a total carrying value of approximately $ 7.5 million as of June 30, 2024. The Company concluded that the criteria for presentation of the Perceive Assets as held-for-sale included in ASC 360— Property, Plant and Equipment were met after the balance sheet date of June 30, 2024 but prior to the issuance of these financial statements. Accordingly, the Company plans to reclassify the related Perceive Assets as held-for-sale during the third quarter of 2024. The potential disposition of the Perceive Assets is not considered a strategic shift that will have a major effect on the Company’s consolidated results of operations, and therefore is not considered to be discontinued operations. 29