10-Q 1 xper-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-41486

 

XPERI INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

83-4470363

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

2190 Gold Street, San Jose, California

 

95002

(Address of Principal Executive Offices)

 

(Zip Code)

(408) 519-9100

(Registrant’s Telephone Number, Including Area Code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock (par value $0.001 per share)

XPER

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

The number of shares outstanding of the registrant’s common stock as of April 29, 2024 was 45,148,108.

 

 


 

XPERI INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

TABLE OF CONTENTS

 

 

 

 

Page

 

Note About Forward-Looking Statements

 

3

 

 

 

 

 

PART I

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023

 

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023

 

5

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

 

6

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

 

7

 

Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2024 and 2023

 

8

 

Notes to Condensed Consolidated Financial Statements

 

10

Item 2.

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

 

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

34

Item 4.

Controls and Procedures

 

34

 

 

 

 

 

PART II

 

 

Item 1.

Legal Proceedings

 

35

Item 1A.

Risk Factors

 

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

Item 3.

Defaults Upon Senior Securities

 

35

Item 4.

Mine Safety Disclosures

 

35

Item 5.

Other Information

 

35

Item 6.

Exhibits

 

36

 

 

 

 

Signatures

 

 

37

 

 

 

 

2


 

Note About Forward-Looking Statements

 

This quarterly report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “intends,” “targets” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, product development, demand, acceptance and market share, growth rate, competitiveness, gross margins, levels of research, development and other related costs, expenditures, the outcome or effects of and expenses related to litigation and administrative proceedings, tax expenses, cash flows, our management’s plans and objectives for our current and future operations, the levels of customer spending or research and development activities, general economic conditions, the impact of any acquisitions or divestitures on our financial condition and results of operations, and the sufficiency of financial resources to support future operations and capital expenditures.

 

Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed under the heading “Risk Factors” in our Form 10-K and other documents we file from time to time with the U.S. Securities and Exchange Commission (“SEC”), such as our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report, other than as required by law. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

3


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

XPERI INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenue

 

$

118,844

 

 

$

126,839

 

Operating expenses:

 

 

 

 

 

 

Cost of revenue, excluding depreciation and amortization of intangible assets

 

 

29,756

 

 

 

27,792

 

Research and development

 

 

50,439

 

 

 

54,856

 

Selling, general and administrative

 

 

56,353

 

 

 

57,776

 

Depreciation expense

 

 

3,584

 

 

 

4,093

 

Amortization expense

 

 

11,039

 

 

 

14,827

 

Impairment of long-lived assets

 

 

 

 

 

1,096

 

Total operating expenses

 

 

151,171

 

 

 

160,440

 

Operating loss

 

 

(32,327

)

 

 

(33,601

)

Interest and other income, net

 

 

1,042

 

 

 

1,108

 

Interest expensedebt

 

 

(748

)

 

 

(740

)

Gain on divestiture

 

 

22,934

 

 

 

 

Loss before taxes

 

 

(9,099

)

 

 

(33,233

)

Provision for (benefit from) income taxes

 

 

4,272

 

 

 

(294

)

Net loss

 

 

(13,371

)

 

 

(32,939

)

Less: net loss attributable to noncontrolling interest

 

 

(251

)

 

 

(939

)

Net loss attributable to the Company

 

$

(13,120

)

 

$

(32,000

)

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

 

$

(0.29

)

 

$

(0.76

)

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

 

 

44,521

 

 

 

42,224

 

 

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

4


 

XPERI INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(13,371

)

 

$

(32,939

)

Other comprehensive loss:

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

(384

)

 

 

613

 

Unrealized (loss) gain on cash flow hedges

 

 

(791

)

 

 

863

 

Comprehensive loss

 

 

(14,546

)

 

 

(31,463

)

Less: comprehensive loss attributable to noncontrolling interest

 

 

(251

)

 

 

(939

)

Comprehensive loss attributable to the Company

 

$

(14,295

)

 

$

(30,524

)

 

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)

 

 

 

March 31, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

95,216

 

 

$

142,085

 

Accounts receivable, net

 

 

63,650

 

 

 

55,984

 

Unbilled contracts receivable, net

 

 

70,363

 

 

 

64,114

 

Prepaid expenses and other current assets

 

 

42,889

 

 

 

38,874

 

Assets held for sale

 

 

 

 

 

15,860

 

Total current assets

 

 

272,118

 

 

 

316,917

 

Note receivable, noncurrent

 

 

27,676

 

 

 

 

Deferred consideration from divestiture

 

 

6,016

 

 

 

 

Unbilled contracts receivable, noncurrent

 

 

16,117

 

 

 

18,231

 

Property and equipment, net

 

 

41,712

 

 

 

41,569

 

Operating lease right-of-use assets

 

 

36,360

 

 

 

39,900

 

Intangible assets, net

 

 

195,894

 

 

 

206,895

 

Deferred tax assets

 

 

4,893

 

 

 

5,093

 

Other noncurrent assets

 

 

29,604

 

 

 

32,781

 

Assets held for sale, noncurrent

 

 

 

 

 

12,249

 

Total assets

 

$

630,390

 

 

$

673,635

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

19,706

 

 

$

20,849

 

Accrued liabilities

 

 

83,502

 

 

 

109,961

 

Deferred revenue

 

 

26,327

 

 

 

28,111

 

Liabilities held for sale

 

 

 

 

 

6,191

 

Total current liabilities

 

 

129,535

 

 

 

165,112

 

Long-term debt

 

 

50,000

 

 

 

50,000

 

Deferred revenue, noncurrent

 

 

22,704

 

 

 

19,425

 

Operating lease liabilities, noncurrent

 

 

26,795

 

 

 

30,598

 

Deferred tax liabilities

 

 

7,006

 

 

 

6,983

 

Other noncurrent liabilities

 

 

12,593

 

 

 

4,577

 

Liabilities held for sale, noncurrent

 

 

 

 

 

9,805

 

Total liabilities

 

 

248,633

 

 

 

286,500

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Preferred stock: $0.001 par value; 6,000 shares authorized as of March 31, 2024 and December 31, 2023; no shares issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock: $0.001 par value; 140,000 shares authorized as of March 31, 2024 and December 31, 2023; 45,031 and 44,211 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

45

 

 

 

44

 

Additional paid-in capital

 

 

1,221,709

 

 

 

1,212,501

 

Accumulated other comprehensive loss

 

 

(4,040

)

 

 

(2,865

)

Accumulated deficit

 

 

(818,568

)

 

 

(805,448

)

Total Company stockholders’ equity

 

 

399,146

 

 

 

404,232

 

Noncontrolling interest

 

 

(17,389

)

 

 

(17,097

)

Total equity

 

 

381,757

 

 

 

387,135

 

Total liabilities and equity

 

$

630,390

 

 

$

673,635

 

 

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

6


 

XPERI INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(13,371

)

 

$

(32,939

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Gain from divestiture

 

 

(22,934

)

 

 

 

Depreciation of property and equipment

 

 

3,584

 

 

 

4,093

 

Amortization of intangible assets

 

 

11,039

 

 

 

14,827

 

Stock-based compensation expense

 

 

14,757

 

 

 

15,968

 

Impairment of long-lived assets

 

 

 

 

 

1,096

 

Deferred income taxes

 

 

223

 

 

 

(200

)

Other

 

 

313

 

 

 

1,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(10,521

)

 

 

(6,019

)

Unbilled contracts receivable

 

 

(4,324

)

 

 

(9,124

)

Prepaid expenses and other assets

 

 

(2,788

)

 

 

(5,709

)

Accounts payable

 

 

(821

)

 

 

(1,108

)

Accrued and other liabilities

 

 

(26,427

)

 

 

(23,855

)

Deferred revenue

 

 

1,483

 

 

 

(1,133

)

Net cash used in operating activities

 

 

(49,787

)

 

 

(43,103

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,845

)

 

 

(1,967

)

Capitalized internal-use software

 

 

(2,603

)

 

 

(1,894

)

Purchases of intangible assets

 

 

(39

)

 

 

(68

)

Net cash used in divestiture

 

 

(227

)

 

 

 

Net cash used in investing activities

 

 

(4,714

)

 

 

(3,929

)

Cash flows from financing activities:

 

 

 

 

 

 

Withholding taxes related to net share settlement of equity awards

 

 

(4,671

)

 

 

(2,917

)

Net cash used in financing activities

 

 

(4,671

)

 

 

(2,917

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(46

)

 

 

518

 

Net decrease in cash and cash equivalents

 

 

(59,218

)

 

 

(49,431

)

Cash and cash equivalents at beginning of period

 

 

154,434

 

(1)

 

160,127

 

Cash and cash equivalents at end of period

 

$

95,216

 

 

$

110,696

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Income taxes paid, net of refunds

 

$

4,235

 

 

$

1,603

 

Interest paid

 

$

756

 

 

$

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

 

 

$

 

Unpaid withholding taxes related to net share settlement of equity awards

 

$

918

 

 

$

 

Costs capitalized for internal-use software included in accrued liabilities

 

$

676

 

 

$

 

(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 March 31, 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

 

 

 

 

 

 

 

 

41

 

 

 

 

 

 

 

 

 

(41

)

 

 

 

Vesting of restricted stock units, net of tax withholding

 

 

820

 

 

 

1

 

 

 

(5,590

)

 

 

 

 

 

 

 

 

 

 

 

(5,589

)

Stock-based compensation

 

 

 

 

 

 

 

 

14,757

 

 

 

 

 

 

 

 

 

 

 

 

14,757

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(384

)

 

 

 

 

 

 

 

 

(384

)

Unrealized loss on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

(791

)

 

 

 

 

 

 

 

 

(791

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,120

)

 

 

(251

)

 

 

(13,371

)

Balances at March 31, 2024

 

 

45,031

 

 

$

45

 

 

$

1,221,709

 

 

$

(4,040

)

 

$

(818,568

)

 

$

(17,389

)

 

$

381,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 March 31, 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

 

 

431

 

 

 

 

 

 

(2,917

)

 

 

 

 

 

 

 

 

 

 

 

(2,917

)

Stock-based compensation

 

 

 

 

 

 

 

 

15,968

 

 

 

 

 

 

 

 

 

 

 

 

15,968

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

613

 

 

 

 

 

 

 

 

 

613

 

Unrealized gain on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

863

 

 

 

 

 

 

 

 

 

863

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,000

)

 

 

(939

)

 

 

(32,939

)

Balances at March 31, 2023

 

 

42,497

 

 

$

42

 

 

$

1,149,370

 

 

$

(2,643

)

 

$

(700,835

)

 

$

(15,360

)

 

$

430,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

9


 

XPERI 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 delivering edge inference solutions. As of March 31, 2024, the Company owned approximately 77.5% 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.

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 months ended March 31, 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 assessment of useful lives and recoverability of other intangible assets and long-lived assets, recognition and measurement of current and deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and 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 and accounts receivable. The Company maintains cash and cash equivalents with large financial institutions, and at times, the deposits may exceed the federally insured limits. 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 is substantially mitigated by its evaluation process, relatively short collection terms, 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 were no individually significant customers with revenue exceeding 10% of total revenue for the three months ended March 31, 2024 and 2023. As of March 31, 2024 and December 31, 2023, no single customer represented 10% or more of the Company’s net balance of accounts receivable.

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.

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.

11


 

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. 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 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.

12


 

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 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.

13


 

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

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Recognized over time

 

$

96,682

 

 

$

100,213

 

Recognized at a point in time

 

 

22,162

 

 

 

26,626

 

Total revenue

 

$

118,844

 

 

$

126,839

 

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

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Pay-TV

 

$

56,806

 

 

$

60,294

 

Consumer Electronics

 

 

26,128

 

 

 

36,735

 

Connected Car

 

 

24,348

 

 

 

20,548

 

Media Platform

 

 

11,562

 

 

 

9,262

 

Total revenue

 

$

118,844

 

 

$

126,839

 

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

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

U.S.

 

$

59,799

 

 

 

50

%

 

$

65,159

 

 

 

51

%

Japan

 

 

12,037

 

 

 

10

 

 

 

17,495

 

 

 

14

 

Europe and Middle East

 

 

13,475

 

 

 

11

 

 

 

10,166

 

 

 

8

 

China

 

 

12,787

 

 

 

11

 

 

 

11,510

 

 

 

9

 

Latin America

 

 

6,917

 

 

 

6

 

 

 

6,623

 

 

 

5

 

Other

 

 

13,829

 

 

 

12

 

 

 

15,886

 

 

 

13

 

Total revenue

 

$

118,844

 

 

 

100

%

 

$

126,839

 

 

 

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.

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 recognized is in excess of the Company’s unconditional right to consideration. 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.

14


 

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

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenue recognized in the period from:

 

 

 

 

 

 

Amounts included in deferred revenue at the beginning of
   the period

 

$

7,266

 

 

$

6,719

 

Performance obligations satisfied in previous periods (true
   ups, recoveries, and settlements)
(1)

 

$

3,009

 

 

$

(1,881

)

(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 March 31, 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 9 months)

 

$

43,800

 

2025

 

 

31,234

 

2026

 

 

13,891

 

2027

 

 

3,899

 

2028

 

 

2,038

 

Thereafter

 

 

966

 

Total

 

$

95,828

 

Allowance for Credit Losses

The following table presents the activity in the allowance for credit losses for the three months ended March 31, 2024 and 2023 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

Accounts Receivable

 

 

Unbilled Contracts Receivable

 

 

Accounts Receivable

 

 

Unbilled Contracts Receivable

 

Beginning balance

 

$

1,906

 

 

$

190

 

 

$

1,950

 

 

$

369

 

Provision for credit losses

 

 

798

 

 

 

58

 

 

 

136

 

 

 

(19

)

Recoveries/charge-off

 

 

164

 

 

 

(3

)

 

 

(19

)

 

 

 

Ending balance

 

$

2,868

 

 

$

245

 

 

$

2,067

 

 

$

350

 

 

NOTE 3 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

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

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Prepaid expenses

 

$

25,344

 

 

$

19,913

 

Finished goods inventory

 

 

5,988

 

 

 

7,279

 

Prepaid income taxes

 

 

5,544

 

 

 

4,813

 

Other

 

 

6,013

 

 

 

6,869

 

Total

 

$

42,889

 

 

$

38,874

 

 

15


 

 

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

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Computer equipment and software

 

$

53,748

 

 

$

52,740

 

Capitalized internal-use software

 

 

14,503

 

 

 

11,224

 

Office equipment and furniture

 

 

11,294

 

 

 

11,074

 

Building

 

 

17,876

 

 

 

17,876

 

Land

 

 

5,300

 

 

 

5,300

 

Leasehold improvements

 

 

13,297

 

 

 

11,758

 

Construction in progress

 

 

768

 

 

 

3,319

 

Total property and equipment

 

 

116,786

 

 

 

113,291

 

Less: accumulated depreciation and amortization(1)

 

 

(75,074

)

 

 

(71,722

)

Property and equipment, net

 

$

41,712

 

 

$

41,569

 

(1)
Includes $2.1 million and $1.6 million as of March 31, 2024 and December 31, 2023, respectively, of accumulated amortization associated with capitalized internal-use software.

For the three months ended March 31, 2024 and 2023, capitalization of costs associated with internal-use software was $3.3 million and $1.9 million, respectively. Amortization of capitalized internal-use software was $0.5 million for the three months ended March 31, 2024, whereas it was immaterial for the three months ended March 31, 2023.

Accrued liabilities consisted of the following (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Employee compensation and benefits

 

$

26,556

 

 

$

44,095

 

Accrued expenses

 

 

17,927

 

 

 

24,307

 

Current portion of operating lease liabilities

 

 

14,059

 

 

 

14,760

 

Accrued other taxes

 

 

8,075

 

 

 

6,464

 

Third-party royalties

 

 

7,658

 

 

 

8,478

 

Accrued income taxes

 

 

3,012

 

 

 

1,991

 

Other

 

 

6,215

 

 

 

9,866

 

Total

 

$

83,502

 

 

$

109,961

 

 

NOTE 4 – FINANCIAL INSTRUMENTS

Non-marketable Equity Securities

As of March 31, 2024 and December 31, 2023, other noncurrent assets included equity securities accounted for under the equity method with a carrying amount of $4.2 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 months ended March 31, 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.

16


 

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.

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

 

Location in Balance Sheet

 

March 31, 2024

 

 

December 31, 2023

 

Derivative instruments designated as cash flow hedges:

 

 

 

 

 

 

 

Fair valueforeign exchange contract assets, net amount

Prepaid expenses and other current assets

 

$

271

 

 

$

1,184

 

 

 

 

 

 

 

 

 

Notional value held to buy U.S. dollars in exchange for other currencies

 

 

$

1,119

 

 

$

738

 

Notional value held to sell U.S. dollars in exchange for other currencies

 

 

$

49,581

 

 

$

45,468

 

All of the Company’s derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparty to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's Condensed Consolidated Balance Sheets on a net basis.

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

 

March 31, 2024

 

 

December 31, 2023

 

Gross amount of recognized assets

$

559

 

 

$

1,300

 

Gross amount of recognized liabilities

 

(288

)

 

 

(116

)

Net derivative assets

$

271

 

 

$

1,184

 

The changes in AOCL related to the cash flow hedges consisted of the following (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Beginning balance

 

$

1,034

 

 

$

(94

)

Other comprehensive (loss) gain before reclassification

 

 

(422

)

 

 

859

 

Amounts reclassified from accumulated other comprehensive loss into net loss

 

 

(369

)

 

 

4

 

Net current period other comprehensive (loss) gain

 

 

(791

)

 

 

863

 

Ending balance

 

$

243

 

 

$

769

 

The following table summarizes the gains recognized upon settlement of the hedged transactions in the Condensed Consolidated Statement of Operations for three months ended March 31, 2024 and 2023 (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Research and development

 

$

349

 

 

$

11

 

Selling, general and administrative

 

 

107

 

 

 

4

 

Total

 

$

456