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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
Commission File Number:
(Exact Name of Registrant as Specified in Its Charter)
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Trading Symbol(s) |
Name of each exchange on which registered |
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 ☐
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).
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 |
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Accelerated filer |
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Emerging growth company |
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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 28, 2023 was
XPERI INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
TABLE OF CONTENTS
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Page |
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Item 1. |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 |
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3 |
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4 |
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Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 |
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Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2023 and 2022 |
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7 |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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32 |
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Item 4. |
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32 |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 2. |
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34 |
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Item 3. |
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34 |
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Item 4. |
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34 |
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Item 5. |
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34 |
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Item 6. |
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35 |
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36 |
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
XPERI INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Revenue |
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$ |
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$ |
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Operating expenses: |
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Cost of revenue, excluding depreciation and amortization of intangible assets |
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Research and development |
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Selling, general and administrative |
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Depreciation expense |
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Amortization expense |
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Impairment of long-lived assets |
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— |
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Total operating expenses |
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Operating loss |
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Other income, net |
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Loss before taxes |
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(Benefit from) provision for income taxes |
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Net loss |
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Less: net loss attributable to noncontrolling interest |
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Net loss attributable to the Company |
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$ |
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$ |
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Net loss per share attributable to the Company - basic and diluted |
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$ |
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$ |
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Weighted-average number of shares used in per share calculations - basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
XPERI INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Net loss |
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$ |
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$ |
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Other comprehensive income (loss): |
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Change in foreign currency translation adjustment |
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Unrealized gain on cash flow hedges |
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— |
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Comprehensive loss |
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Less: comprehensive loss attributable to noncontrolling interest |
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( |
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Comprehensive loss attributable to the Company |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
XPERI INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
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March 31, |
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December 31, 2022 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Unbilled contracts receivable, net |
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Other current assets |
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Total current assets |
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Long-term unbilled contracts receivable |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Intangible assets, net |
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Long-term deferred tax assets |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Deferred revenue |
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Total current liabilities |
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Long-term deferred tax liabilities |
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Deferred revenue, noncurrent |
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Long-term debt |
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Operating lease liabilities, noncurrent |
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Other long-term liabilities |
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Total liabilities |
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Equity: |
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Preferred stock: $ |
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Common stock: $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total Company stockholders’ equity |
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Noncontrolling interest |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
XPERI INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation of property and equipment |
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Amortization of intangible assets |
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Stock-based compensation expense |
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Deferred income taxes |
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Impairment of long-lived assets |
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— |
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Other |
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( |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Unbilled contracts receivable |
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( |
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Other assets |
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( |
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Accounts payable |
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Accrued and other liabilities |
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( |
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Deferred revenue |
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( |
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( |
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Net cash used in operating activities |
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( |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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Purchases of intangible assets |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Withholding taxes related to net share settlement of restricted awards |
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— |
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Net transfers from Former Parent |
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— |
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Net cash (used in) provided by financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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Net (decrease) increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Interest paid |
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$ |
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$ |
— |
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Income taxes paid, net of refunds |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
XPERI INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
(unaudited)
Three Months Ended March 31, 2023 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Interest |
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Equity |
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Balance at January 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of equity to noncontrolling interest |
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— |
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— |
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( |
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— |
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— |
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— |
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Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for taxes |
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— |
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( |
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— |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Three Months Ended March 31, 2022 |
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Common Stock |
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Additional |
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Net Investment |
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Accumulated |
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Accumulated |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Capital |
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Parent |
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Loss |
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Deficit |
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Interest |
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Equity |
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Balance at January 1, 2022 |
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— |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
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$ |
— |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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Issuance of equity to noncontrolling interest |
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— |
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— |
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— |
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— |
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— |
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— |
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Net transfers from Former Parent |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2022 |
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— |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
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$ |
— |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
XPERI INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION
Xperi Spin-Off
In June 2020, Xperi Holding Corporation (“Xperi Holding,” “Adeia,” or the “Former Parent”) announced plans to separate into
Description of Business
Xperi is a leading consumer and entertainment technology company. The Company believes it creates extraordinary experiences at home and on the go for millions of consumers around the world, elevating content and how audiences connect with it in a way that is more intelligent, immersive and personal. Powering smart devices, connected cars, entertainment experiences and more, the Company has created a unified ecosystem that reaches highly engaged consumers, uncovering significant new business opportunities, now and in the future. The Company’s technologies are integrated into consumer devices and media platforms worldwide, driving increased value for partners, customers and consumers. The Company currently operates in
Interim Financial Statements
The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The amounts as of December 31, 2022 have been derived from the Company’s annual audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 3, 2023 (the “Form 10-K”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the year ended December 31, 2022, included in the Form 10-K.
The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023 or any future period and the Company makes no representations related thereto.
In the Condensed Consolidated Balance Sheet as of December 31, 2022 included in this Form 10-Q filing, the Company has revised the long-term deferred tax liabilities and other long-term liabilities line items to correct an immaterial error in the classification of unrecognized tax benefits. The adjustment results in a $
8
The Company determined that the error was not material to any of its prior annual and interim period financial statements, and correcting it had no impact to the condensed consolidated financial statements for the three months ended March 31, 2023.
Basis of Presentation
During the three months ended September 30, 2022, all of the assets and liabilities of the Xperi Product business had been transferred to a legal entity (the “Transfer”) under the common control of Xperi. Subsequent to this transfer and through December 31, 2022, the Company's financial statements and accompanying notes are prepared on a consolidated basis and include Xperi and its subsidiaries in which Xperi has a controlling financial interest. All intercompany balances and transactions are eliminated in consolidation. Prior to the Transfer, the financial statements and accompanying notes of the Xperi Product business were prepared on a combined basis and were derived from the consolidated financial statements and accounting records of the Former Parent as the Company was not historically held by a single legal entity. All intercompany balances and transactions within the combined businesses of the Company have been eliminated.
The Condensed Consolidated Balance Sheets of Xperi and its subsidiaries for the pre-Transfer periods include Former Parent’s assets and liabilities that are specifically identifiable or otherwise attributable to the Company. In the fourth quarter of 2018, the Company funded a new subsidiary, Perceive Corporation (“Perceive”), which was created to focus on delivering edge inference solutions. As of March 31, 2023, the Company owned approximately
Prior to the Separation, the Company was dependent on the Former Parent for all of its working capital and financing requirements as the Former Parent used a centralized approach to cash management and financing its operations. Financial transactions relating to the Company were accounted for as equity contributions from the Former Parent on the Condensed Consolidated Balance Sheets. Accordingly, none of the Former Parent’s cash and cash equivalents were allocated to the Company for any of the periods presented, unless those balances were directly attributable to the Company. The Company reflects transfers of cash to and from the Former Parent’s cash management system within equity as a component of Net investment by Former Parent on a combined basis and as a component of net capital contribution from Former Parent on a consolidated basis. Other than the debt incurred in connection with the acquisition of Vewd Software Holdings Limited (“Vewd”) discussed in Note 9, the Former Parent’s long-term debt has not been attributed to the Company for any of the periods presented because the Former Parent’s borrowings are not the legal obligation of the Company. The cash and cash equivalents, including the Company’s capitalization from Former Parent on September 30, 2022, is expected to be sufficient to support its operations, capital expenditures and income tax payments, in addition to any investments and other capital allocation needs for at least the next 12 months from the issuance date of these condensed consolidated financial statements.
Prior to the Separation, the Condensed Consolidated Statements of Operations and Comprehensive Loss of the Company reflect allocations of general corporate expenses from the Former Parent, including, but not limited to, executive management, sales and marketing, finance, legal, information technology, employee benefits administration, stock-based compensation, treasury, risk management, procurement and other shared services. These allocations were made on a direct usage basis when identifiable, with the remainder allocated on a pro rata basis of billing, revenue, headcount or other measures as deemed appropriate. Management of the Company and Former Parent consider these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, the Company. The allocations may not, however, reflect the expenses the Company would have incurred as a standalone company for the periods presented. Actual costs that may have been incurred if the Company had been a standalone company would depend on a number of factors, such as the chosen organizational structure, whether functions were outsourced or performed by employees and decisions with respect to areas such as facilities, information technology and operating infrastructure.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2023, as compared to the significant accounting policies described in the Form 10-K.
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 assessment of useful lives and recoverability of
9
other intangible assets and long-lived assets, recognition and measurement of current and deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and purchase accounting resulting from business combinations. Actual results experienced by the Company may differ from management’s estimates.
Concentration of Credit and Other Risks
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash equivalents and accounts receivable. 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
Recent Accounting Pronouncements
There have been no recently issued accounting pronouncements that are expected to have a material impact on the Company's condensed consolidated financial statements.
NOTE 3 – 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.
Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the individual performance obligations are separately accounted for if they are distinct. In an arrangement with multiple performance obligations, the transaction price is allocated among the separate performance obligations on a relative stand-alone selling price basis. The determination of stand-alone selling price considers market conditions, the size and scope of the contract, customer and geographic information, and other factors. When observable prices are not available, stand-alone selling price for separate performance obligations is based on the cost-plus-margin approach, considering overall pricing objectives.
When variable consideration is in the form of a sales-based or usage-based royalty in exchange for a license of technology or when a license of technology is the predominant item to which the variable consideration relates, revenue is recognized at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied.
Description of Revenue-Generating Activities
The Company derives the majority of its revenue from licensing its technology and solutions to customers. These arrangements are summarized as Technology License arrangements and Technology Solutions arrangements. For Technology License arrangements, the customer obtains rights to the technology delivered at the commencement of the agreement. For Technology Solutions arrangements, the customer receives access to a platform, media or data that includes frequent updates, where access to such updates is critical to the functionality of the technology. The timing of when performance obligations are satisfied, as well as the fee arrangements underlying each agreement, determine when revenue is recognized.
10
Technology License Arrangements
The Company licenses its audio, digital radio and imaging technology to consumer electronics (“CE”) manufacturers, automotive manufacturers or their supply chain partners.
The Company generally recognizes royalty revenue from licenses based on units shipped or manufactured. Revenue is recognized in the period in which the customer’s sales or production are estimated to have occurred. This may result in an adjustment to revenue when actual sales or production are subsequently reported by the customer, generally in the month or quarter following sales or production. Estimating customers’ quarterly royalties prior to receiving the royalty reports requires the Company to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers, which could have a material impact on the amount of revenue it reports on a quarterly basis.
Certain customers enter into fixed fee or minimum guarantee agreements, whereby customers pay a fixed fee for the right to incorporate the Company’s technology in the customer’s products over the license term. In arrangements with a minimum guarantee, the fixed fee component corresponds to a minimum number of units or dollars that the customer must produce or pay, with additional per-unit fees for any units or dollars exceeding the minimum. The Company generally recognizes the full fixed fee as revenue at the beginning of the license term when the customer has the right to use the technology and begins to benefit from the license, net of the effect of any significant financing components calculated using customer-specific, risk-adjusted lending rates, with the related interest income being recognized over time on an effective rate basis. For minimum guarantee agreements where the customer exceeds the minimum, the Company recognizes revenue relating to any additional per-unit fees in the periods it believes the customer will exceed the minimum and adjusts the revenue based on actual usage once that is reported by the customer.
Technology Solutions Arrangements
Technology Solutions customers are primarily multi-channel video service providers, CE manufacturers, and end consumers. Technology Solutions revenue is primarily derived from licensing the Company’s Pay-TV solutions, Personalized Content Discovery, enriched Metadata, and viewership data; selling TiVo-enabled devices like the TiVo Stream 4K; and advertising.
For Technology Solutions, the Company provides on-going media or data delivery, hosting and access to its platform, and software updates. For these solutions, the Company generally receives fees on a per-subscriber per-month basis or as a fixed fee, and revenue is recognized during the month in which the solutions are provided to the customer. For most of the Technology Solutions offerings, substantially all functionality is obtained through the Company’s continuous hosting and/or updating of the data and content. In these instances, the Company typically has a single performance obligation related to these ongoing activities in the underlying arrangement. For those arrangements that include multiple performance obligations, the Company allocates the consideration as described above and recognizes revenue for each distinct performance obligation when control of the promised goods or services is transferred to the customer.
The Company also generates revenue from non-recurring engineering (“NRE”) services, advertising, and hardware products, each of which was less than 10% of total revenue for all periods presented.
Revenue Details
The following information depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors by disaggregating revenue by market and geographic location.
Revenue disaggregated by market was as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Pay-TV |
|
$ |
|
|
$ |
|
||
Consumer Electronics |
|
|
|
|
|
|
||
Connected Car |
|
|
|
|
|
|
||
Media Platform |
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
11
A significant portion of the Company’s revenue is derived from licensees headquartered outside of the U.S., principally in Asia, Europe and the Middle East, and it is expected that this revenue will continue to account for a significant portion of total revenue in future periods.
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
U.S. |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Japan |
|
|
|
|
|
|
|
|
|
|
|
|
||||
China |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Europe and Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Contract Balances
Contracts Assets
Contract assets primarily consist of unbilled contracts receivable that are expected to be received from customers in future periods, where the revenue recognized to date exceeds the amount billed. The amount of unbilled contracts receivable may not exceed their net realizable value and are classified as long-term assets if the payments are expected to be received more than one year from the reporting date. Contract assets also include the incremental costs of obtaining a contract with a customer consisting of principally sales commissions, and deferred engineering costs for non-recurring engineering and set-up services to the extent deemed recoverable.
Contract assets were recorded in the Condensed Consolidated Balance Sheets as follows (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Unbilled contracts receivable, net |
|
$ |
|
|
$ |
|
||
Other current assets |
|
|
|
|
|
|
||
Long-term unbilled contracts receivable |
|
|
|
|
|
|
||
Other long-term assets |
|
|
|
|
|
|
||
Total contract assets |
|
$ |
|
|
$ |
|
||
Contract Liabilities
Contract liabilities are mainly comprised of deferred revenue related to technology solutions arrangements, multi-period licensing, and other offerings for which the Company is paid in advance while the promised good or service is transferred to the customer at a future date or over time. Deferred revenue also includes amounts received related to professional services to be performed in the future. Deferred revenue arises when cash payments are received, including amounts which are refundable, in advance of performance obligations being completed.
Allowance for Credit Losses
The allowance for credit losses, which includes the allowance for accounts receivable and unbilled contracts receivable, represents the Company’s best estimate of lifetime expected credit losses inherent in those financial assets. The Company’s lifetime expected credit losses are determined using relevant information about past events (including historical experience), current conditions, and reasonable and supportable forecasts that affect collectability. The Company monitors its credit exposure through ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. In addition, the Company performs routine credit management activities such as timely account reconciliations, dispute resolution, and payment confirmations. The Company may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.
The Company’s long-term unbilled contracts receivable is derived from fixed-fee or minimum-guarantee arrangements, primarily with large well-capitalized companies. It is generally considered to be of high credit quality due to past collection history and the nature of the customers.
12
The following table presents the activity in the allowance for credit losses for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
|
Accounts Receivable |
|
|
Unbilled Contracts Receivable |
|
|
Accounts Receivable |
|
|
Unbilled Contracts Receivable |
|
||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for credit losses |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Recoveries/charge-off |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
Balance at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Additional Disclosures
The following table presents additional revenue and contract disclosures (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Revenue recognized in the period from: |
|
|
|
|
|
|
||
Amounts included in deferred revenue at the beginning of |
|
$ |
|
|
$ |
|
||
Performance obligations satisfied in previous periods (true |
|
$ |
( |
) |
|
$ |
|
|
(1)
Remaining revenue under contracts with performance obligations represents the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) under certain of the Company’s fixed fee arrangements and engineering services contracts. As of March 31, 2023, the
Year Ending December 31: |
|
|
|
|
Revenue from contracts with performance obligations expected to be satisfied in: |
|
|
|
|
(remaining 9 months) |
|
$ |
|
|
|
|
|
||
|
|
|
||
|
|
|
||
|
|
|
||
|
|
|
||
Total |
|
$ |
|
|
NOTE 4 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
Other current assets consisted of the following (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Prepaid income tax |
|
$ |
|
|
$ |
|
||
Prepaid expenses |
|
|
|
|
|
|
||
Finished goods inventory |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
13
Property and equipment, net, consisted of the following (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Equipment, furniture and other |
|
$ |
|
|
$ |
|
||
Building and improvements |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Total property and equipment |
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Accrued liabilities consisted of the following (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Employee compensation and benefits |
|
$ |
|
|
$ |
|
||
Third-party royalties |
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Accrued income tax |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Accumulated other comprehensive income (loss) (“AOCI”) consisted of the following (in thousands):
|
|
Unrealized Gains (Losses) on Cash Flow Hedges |
|
|
Foreign Currency Translation Adjustment |
|
|
Total |
|
|||
Balance at December 31, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income before reclassification |
|
|
|
|
|
|
|
|
|
|||
Amounts reclassified from accumulated other comprehensive loss into net loss |
|
|
|
|
|
— |
|
|
|
|
||
Net current period other comprehensive income |
|
|
|
|
|
|
|
|
|
|||
Balance at March 31, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Unrealized Gains (Losses) on Cash Flow Hedges |
|
|
Foreign Currency Translation Adjustment |
|
|
Total |
|
|||
Balance at December 31, 2021 |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive loss before reclassification |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net current period other comprehensive loss |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at March 31, 2022 |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
NOTE 5 – FINANCIAL INSTRUMENTS
Non-marketable Equity Securities
As of March 31, 2023 and December 31, 2022, other long-term assets included equity securities accounted for under the equity method with a carrying amount of $
14
Derivatives Instruments
In the fourth quarter of 2022, the Company began to use derivative financial instruments to manage foreign currency exchange rate risk. The Company’s derivative financial instruments consist of foreign currency forward contracts, which are used primarily to hedge portions of its anticipated foreign currency exposure. 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 and are classified as Level 2 in accordance with the three-level hierarchy of fair value measurements. 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. For additional information related to the three-level hierarchy of fair value measurements, see Note 6 – Fair Value.
The notional and fair values of all derivative instruments were as follows (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Derivative instruments in cash flow hedges (foreign exchange contracts): |
|
|
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
|
$ |
|
|
$ |
— |
|
||
Liabilities |
|
|
|
|
|
|
||
|
|
— |
|
|
|
|
||
Total fair value |
|
$ |
|
|
$ |
|
||
Total notional value |
|
$ |
|
|
$ |
|
||
Undesignated derivative instruments (foreign exchange contracts): |
|
|
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
|
$ |
|
|
$ |
— |
|
||
Liabilities |
|
|
|
|
|
|
||
|
|
— |
|
|
|
|
||
Total fair value |
|
$ |
|
|
$ |
|
||
Total notional value |
|
$ |
|
|
$ |
|
||
All of the Company's derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparty to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's Condensed Consolidated Balance Sheets on a net basis.
The gross amounts of the Company's foreign currency forward contracts and the net amounts recorded in the Company's Condensed Consolidated Balance Sheets were as follows (in thousands):
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Gross amount of recognized assets |
$ |
|
|
$ |
— |
|
|
Gross amount of recognized liabilities |
|
( |
) |
|
|
( |
) |
Net amount presented in the Condensed Consolidated Balance Sheets |
$ |
|
|
$ |
( |
) |
|
Cash Flow Hedges
The Company designates certain foreign currency forward contracts as hedging instruments pursuant to ASC 815, Derivatives
and Hedging (“ASC 815”). The effective portion of the gain or loss on the derivatives are reported as a component of AOCI in stockholders’ equity and reclassified into earnings on the Condensed Consolidated Statements of Operations in the same period during which the hedged transaction affects earnings. For information on the unrealized gain or loss on the derivatives included in and reclassified out of the AOCI into Condensed Consolidated Statements of Operations, refer to Note 4 – Composition of Certain Financial Statement Captions.
The Company expects to reclassify to earnings all of the amounts recorded in AOCI associated with its cash flow hedges over the next twelve months. For the three months ended March 31, 2023, amounts reclassified to net loss were not significant. The Company did not enter into any derivative contracts prior to the fourth quarter of 2022.
15
Undesignated Derivatives
For derivatives that are not designated as hedge instruments, they are measured and reported at fair value. Changes in the fair
value of these undesignated derivatives are reported in other income, net, on the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2023, changes in the estimated fair value of the derivatives were not significant. The Company did not enter any derivative contracts prior to the fourth quarter of 2022.
NOTE 6 – 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, 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, consisting of foreign currency forward contracts, are reported at fair value and classified as Level 2 (as described in Note 5 – Financial Instruments).
Financial Instruments Not Recorded at Fair Value
The Company’s long-term debt is carried at historical cost and is measured at fair value on a quarterly basis for disclosure purposes.
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
||||
Senior Unsecured Promissory Note |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
If reported at fair value in the Condensed Consolidated Balance Sheets, the Company’s debt would be classified within Level 2 of the fair value hierarchy. The fair value of the debt was estimated based on the quoted market prices for the same or similar issues.
For more detail related to the senior unsecured promissory note, refer to Note 9 – Debt.
Non-Recurring Fair Value Measurements
For purchase accounting related fair value measurements, see Note 7 – Business Combination.
NOTE 7 – BUSINESS COMBINATION
On July 1, 2022, the Company completed the acquisition of Vewd Software Holdings Limited (“Vewd,” and the “Vewd Acquisition”). Vewd is a leading global provider of OTT and hybrid TV solutions. The Vewd Acquisition establishes the Company as a leading independent streaming media platform through its TiVo brand and the largest independent provider of
16
Smart TV middleware globally. The total consideration was approximately $
Purchase Price Allocation
The Vewd Acquisition has been accounted for as a business combination, using the acquisition method.
|
|
Estimated Useful |
|
|
|
|
Final |
|
||
Cash and cash equivalents |
|
|
|
|
|
|
$ |
|
||
Accounts receivable |
|
|
|
|
|
|
|
|
||
Unbilled contracts receivable |
|
|
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
|
|
||
Property and equipment |
|
|
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
|
|
||
Identifiable intangible assets: |
|
|
|
|
|
|
|
|
||
Technology |
|
|
$ |
|
|
|
|
|||
Customer relationships – large |
|
|
|
|
|
|
|
|||
Customer relationships – small |
|
|
|
|
|
|
|
|||
Non-compete agreements |
|
|
|
|
|
|
|
|||
Trade name |
|
|
|
|
|
|
|
|||
Total identifiable intangible assets |
|
|
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
|
|
||
Other long-term assets |
|
|
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
|
|
( |
) |
|
Accrued liabilities |
|
|
|
|
|
|
|
( |
) |
|
Deferred revenue |
|
|
|
|
|
|
|
( |
) |
|
Long-term deferred tax liabilities |
|
|
|
|
|
|
|
( |
) |
|
Noncurrent operating lease liabilities |
|
|
|
|
|
|
|
( |
) |
|
Other long-term liabilities |
|
|
|
|
|
|
|
( |
) |
|
Total purchase price |
|
|
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Vewd’s results of operations and cash flows have been included in the Company’s condensed consolidated financial statements for periods subsequent to July 1, 2022, and the related assets and liabilities were recorded at their estimated fair values in the Company’s Condensed Consolidated Balance Sheet as of July 1, 2022.
Goodwill impairment
During the three months ended September 30, 2022, indicators of potential impairment for the Former Parent’s Product reporting unit were identified such that management concluded it was more-likely-than-not that goodwill was impaired and a quantitative interim goodwill impairment assessment should be performed as of September 30, 2022. Indicators of potential impairment included a sustained decline in the Former Parent’s stock price during the second half of the third quarter of 2022 reflective of rising interest rates and continued decline in macroeconomic conditions. The Company proceeded to perform a fair value analysis of the Product reporting unit using the market capitalization approach. Under this approach, management estimated the fair value of the Product reporting unit as of September 30, 2022 using quoted market prices of Xperi’s common stock, over its first ten trading days following the Separation, and a control premium representing the synergies a market participant would achieve upon obtaining control of Xperi. As a result of the fair value analysis, the Company recognized a goodwill impairment charge of $
During the three months ended December 31, 2022, sufficient indicators of potential impairment were identified such that management concluded it was more-likely-than-not that goodwill was impaired and a quantitative interim goodwill impairment test should be performed as of December 31, 2022. Indicators of potential impairment included a significant, sustained decline in the trading price of Xperi’s common stock during the fourth quarter of 2022. The Company proceeded to perform a fair value analysis of the Product reporting unit, the Company's only reporting unit, using the market capitalization approach. Under
17
this approach, management estimated the fair value as of December 31, 2022 using quoted market prices of Xperi’s common stock as of December 30, 2022, the last trading date of 2022, and a control premium representing the synergies a market participant would achieve upon obtaining control of Xperi. As a result of the fair value analysis, a goodwill impairment charge of $
NOTE 8 – INTANGIBLE ASSETS, NET
Identified intangible assets consisted of the following (in thousands):
|
|
March 31, 2023 |
|
|||||||||||
|
|
Average Life |
|
Gross Amount |
|
|
Accumulated |
|
|
Net Carrying Value |
|
|||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|||
Acquired patents |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Existing technology / content database |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Customer contracts and related relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Trademarks/trade name |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Non-competition agreements |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total finite-lived intangible assets |
|
|
|
|
|
|
|
( |
) |
|
|
|
||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|||
TiVo tradename/trademarks |
|
N/A |
|
|
|
|
|
— |
|
|
|
|
||
Total intangible assets |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
December 31, 2022 |
|
|||||||||||
|
|
Average Life |
|
Gross Amount |
|
|
Accumulated |
|
|
Net Carrying Value |
|
|||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|||
Acquired patents |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Existing technology / content database |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Customer contracts and related relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Trademarks/trade name |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Non-competition agreements |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total finite-lived intangible assets |
|
|
|
|
|
|
|
( |
) |
|
|
|
||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|||
TiVo tradename/trademarks |
|
N/A |
|
|
|
|
|
— |
|
|
|
|
||
Total intangible assets |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
As of March 31, 2023, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):
Year Ending December 31: |
|
|
|
|
2023 (remaining 9 months) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total future amortization |
|
$ |
|
|
NOTE 9 – DEBT
In connection with the Vewd Acquisition as disclosed in Note 7, on July 1, 2022, TiVo Product Holdco LLC, which was subsequently renamed Xperi Inc., issued a senior unsecured promissory note (the “Promissory Note”) to the sellers of Vewd in a principal amount of $
18
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)
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 such entities on the closing date of the acquisition. The Promissory Note does not contain any financial covenants.
As of March 31, 2023, $
NOTE 10 – NET LOSS PER SHARE
On October 1, 2022,
For periods subsequent to the Separation, actual outstanding shares are used to calculate both basic and diluted weighted- average number of common shares outstanding. Potentially dilutive common shares, such as common shares issuable upon exercise of stock options and vesting of restricted stock awards and units are typically reflected in the computation of diluted net income (loss) per share by application of the treasury stock method. Due to the net losses reported, these potentially dilutive securities were excluded from the computation of diluted net loss per share, since their effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amount):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss attributable to the Company - basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
||
Weighted-average number of shares used to compute net loss per share attributable to the Company - basic and diluted |
|
|
|
|
|
|
||
Net loss per share attributable to the Company - basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
The following potentially dilutive shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the period presented (in thousands):
|
|
Three Months Ended March 31, |
|
|
|
|
2023 |
|
|
Options |
|
|
|
|
Restricted stock awards and units |
|
|
|
|
ESPP |
|
|
|
|
Total |
|
|
|
|
19
NOTE 11 – STOCKHOLDERS' EQUITY
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, restricted stock units, stock appreciation rights, dividend equivalents and performance awards (or any combination thereof). A total of
The 2022 EIP provides for option grants designated as either incentive stock options or non-statutory options. Options have been granted with an exercise price not less than the value of the common stock on the grant date and generally have a term of ten years from the date of grant and vest over a four-year period. The vesting criteria for restricted stock awards and restricted stock units has historically been the passage of time or meeting certain performance-based objectives, and continued service through the vesting period over three or four years for time-based awards or three years for performance-based awards.
As of March 31, 2023, there were approximately
Stock Options
A summary of the stock option activity is presented below (in thousands, except per share amounts):
|
|
Options Outstanding |
|
|||||
|
|
Number of |
|
|
Weighted |
|
||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
||
Options canceled / forfeited / expired |
|
|
( |
) |
|
$ |
|
|
Balance at March 31, 2023 |
|
|
|
|
$ |
|
||
Restricted Stock Awards and Units
Information with respect to outstanding restricted stock awards and units (including both time-based vesting and performance-based vesting) as of March 31, 2023 is as follows (in thousands, except per share amounts):
|
|
Restricted Stock and Restricted Stock Units |
|
|||||||||||||
|
|
Number of |
|
|
Number of |
|
|
Total |
|
|
Weighted |
|
||||
Balance at December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Awards and units granted |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Awards and units vested / earned |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
$ |
|
|
Awards and units canceled / forfeited |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
$ |
|
|
Balance at March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Performance-Based Stock Awards and Units
Performance-based stock awards and units (“PSUs”) may be granted to employees or consultants based upon, among other things, the contributions, responsibilities and other compensation of the particular employee or consultant. The value and the vesting of such PSUs are generally linked to one or more performance goals or certain market conditions determined by the Company, in each case on a specified date or dates or over any period or periods determined by the Company, and may range from
20
Employee Stock Purchase Plans
In connection with the Separation and on October 1, 2022, the Company adopted the Xperi Inc. 2022 Employee Stock Purchase Plan (the “2022 ESPP”). The 2022 ESPP is implemented through consecutive overlapping
An eligible employee’s right to buy the Company’s common stock under the 2022 ESPP may not accrue at a rate in excess of $
As of March 31, 2023, there were
NOTE 12 – STOCK-BASED COMPENSATION
Prior to the Separation, the stock-based compensation expense was based on the expense for employees specifically identifiable to Xperi. Consequently, the amounts presented are not necessarily indicative of future awards and do not necessarily reflect the costs that the Company would have incurred as an independent company.
The effect of recording stock-based compensation expense for the three months ended March 31, 2023 and 2022 is as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cost of revenue, excluding depreciation and amortization of intangible assets |
|
$ |
|
|
$ |
|
||
Research and development |
|
|
|
|
|
|
||
Selling, general and administrative |
|
|
|
|
|
|
||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
||
In connection with the conversion of the Former Parent’s PSUs into PSUs with respect to Xperi common stock and Adeia common stock, the Company continued recognizing an incremental compensation expense of $
Stock-based compensation expense categorized by various equity components for the three months ended March 31, 2023 and 2022 is summarized in the table below (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Restricted stock awards and units |
|
$ |
|
|
$ |
|
||
Employee stock purchase plan |
|
|
|
|
|
|
||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
||
In addition, for the three months ended March 31, 2022, $
The following assumptions were used to value the PSUs subject to market conditions granted during the period:
|
|
March 2023 |
|
|
Expected life (years) |
|
|
|
|
Risk-free interest rate |
|
|
% |
|
Dividend yield |
|
|
% |
|
Expected volatility |
|
|
% |
|
21
The Company uses the Black-Scholes option pricing model to determine the estimated fair value of options and ESPP shares.
The fair value of each option grant is determined on the date of grant and the expense is recorded on a straight-line basis. The
assumptions used in the model include expected life, volatility, risk-free interest rate, and dividend yield.
There were
The following assumptions were used to value the Company’s ESPP shares offered in December 2022:
|
|
December 2022 |
|
|
Expected life (years) |
|
|
|
|
Risk-free interest rate |
|
|
% |
|
Dividend yield |
|
|
% |
|
Expected volatility |
|
|
% |
|
Prior to the Separation, the valuation assumptions were determined by the Former Parent.
The following assumptions were used to value the Former Parent’s ESPP shares granted to employees specifically identifiable
to Xperi in March 2022:
|
|
March 2022 |
|
|
Expected life (years) |
|
|
|
|
Risk-free interest rate |
|
|
% |
|
Dividend yield |
|
|
% |
|
Expected volatility |
|
|
% |
|
NOTE 13 – INCOME TAXES
For the three months ended March 31, 2023, the Company recorded an income tax benefit of $
For the three months ended March 31, 2022, the Company recorded an income tax expense of $
As of March 31, 2023, gross unrecognized tax benefits of $
It is the Company’s policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company recognized an immaterial amount of interest and penalties related to unrecognized tax benefits for the three months ended March 31, 2023 and 2022, respectively. Accrued interest and penalties were $
NOTE 14 – LEASES
The Company leases office and research facilities, data centers and office equipment under operating leases which expire through 2029.
22
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.
As a result of consolidating our global real estate footprint and decisions to vacate and sublease certain offices following the Spin-off, the Company recorded impairment charges of $
The components of operating lease costs were as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Fixed lease cost (1) |
|
$ |
|
|
$ |
|
||
Variable lease cost |
|
|
|
|
|
|
||
Less: sublease income |
|
|
( |
) |
|
|
( |
) |
Total operating lease cost |
|
$ |
|
|
$ |
|
||
(1)
The following table presents supplemental cash flow information arising from lease transactions (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash payments included in the measurement of operating lease liabilities |
|
$ |
|
|
$ |
|
||
Operating ROU assets obtained in exchange for lease obligations |
|
$ |
— |
|
|
$ |
|
|
The weighted-average remaining term of the Company's operating leases and the weighted-average discount rate used to measure the present value of the operating lease liabilities are as follows:
|
|
March 31, |
|
|
December 31, 2022 |
|
||
Weighted-average remaining lease term (in years) |
|
|
|
|
|
|
||
Weighted-average discount rate |
|
|
% |
|
|
% |
||
Future minimum lease payments and related lease liabilities as of March 31, 2023 were as follows (in thousands):
|
|
Operating Lease Payments (1) |
|
|
Sublease Income |
|
|
Net Operating Lease Payments |
|
|||
2023 (remaining 9 months) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
2024 |
|
|
|
|
|
( |
) |
|
|
|
||
2025 |
|
|
|
|
|
( |
) |
|
|
|
||
2026 |
|
|
|
|
|
( |
) |
|
|
|
||
2027 |
|
|
|
|
|
— |
|
|
|
|
||
Thereafter |
|
|
|
|
|
— |
|
|
|
|
||
Total lease payments |
|
|
|
|
$ |
( |
) |
|
$ |
|
||
Less: imputed interest |
|
|
( |
) |
|
|
|
|
|
|
||
Present value of lease liabilities: |
|
$ |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Less: current obligations under leases (accrued liabilities) |
|
|
( |
) |
|
|
|
|
|
|
||
Noncurrent operating lease liabilities |
|
$ |
|
|
|
|
|
|
|
|||
23
(1)
NOTE 15 – 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 March 31, 2023, the Company’s total future unconditional purchase obligations were approximately $
Inventory Purchase Commitment
The Company uses contract manufacturers to provide manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate supply, the Company enters into agreements with its contract manufacturers that either allow them to procure inventory based on criteria as defined by the Company or that establish the parameters defining the Company’s requirements. A significant portion of the Company’s purchase commitments arising from these agreements consist of firm, non-cancelable and unconditional purchase commitments. In certain instances, these agreements allow the Company the option to cancel, reschedule or adjust the Company’s requirements based on its business needs prior to firm orders being placed. As of March 31, 2023, the Company had total purchase commitments for inventory of $
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 immaterial. 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, 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.
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.
24
NOTE 16 – RELATED PARTY TRANSACTIONS
For periods prior to the Separation, the Condensed Consolidated Financial Statements have been prepared on a standalone basis and were derived from the condensed consolidated financial statements and accounting records of the Former Parent. The following disclosure summarizes activity prior to the Separation between the Company and the Former Parent, including affiliates of the Former Parent that were not part of the Separation.
Allocation of Corporate Expenses
Prior to Separation, the Condensed Consolidated Financial Statements included expenses for certain management and support functions which were provided on a centralized basis within the Former Parent, as described in “Note 1 – The Company and Basis of Presentation.” These management and support functions include, but are not limited to, executive management, sales and marketing, finance, legal, information technology, employee benefits administration, stock-based compensation, treasury, risk management, procurement and other shared services. These allocations were made on a direct usage basis when identifiable, with the remainder allocated on a pro rata basis of billing, revenue, headcount or other measures of the Company and the Former Parent. The amount of these allocations from the Former Parent was $
Management believes these cost allocations are a reasonable reflection of the utilization of services provided to, or the benefit derived by, the Company during the periods presented. The allocations may not, however, be indicative of the actual expenses that would have been incurred had the Company operated as a standalone public company. Actual costs that may have been incurred if the Company had been a standalone public company would depend on a number of factors, such as the chosen organizational structure, whether functions were outsourced or performed by Company’s employees, and strategic decisions made in areas such as selling, information technology and infrastructure.
Net Investment by Former Parent
As a result of the Company consolidating its financial results, as described in Note 1, net investment by Former Parent in the Condensed Consolidated Balance Sheets and Statement of Equity was fully settled. As such, there was no balance in net Investment by Former Parent at December 31, 2022, and there was no activity within the account during the three months ended March 31, 2023.
Prior to the Company consolidating its financial results, net investment by Former Parent in the historical Balance Sheets and Statement of Equity represented the Former Parent's historical investment in the Company, the net effect of transactions with and allocations from the Former Parent, and the Company’s accumulated deficit.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to promote understanding of the results of operations and financial condition and should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited financial statements and notes thereto for the year ended December 31, 2022 found in the Form 10-K filed by Xperi Inc. on March 3, 2023 (the “Form 10-K”).
This Quarterly Report contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. 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 related to our patents, our intent to enforce our intellectual property rights, our ability to license our intellectual property, tax expenses, cash flows, our ability to liquidate and recover the carrying value of our investments, our management’s plans and objectives for our current and future operations, our plans for quarterly dividends and stock repurchases, the levels of customer spending or research and development activities, general economic conditions, the impact of the COVID-19 pandemic and related events, the impact of any acquisitions on our financial condition and results of operations, and the sufficiency of financial resources to support future operations and capital expenditures.
Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed under the heading “Risk Factors” in our annual report on Form 10-K and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), such as our quarterly reports on Form 10-Q and our current reports on Form 8-K. 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.
Business Overview
In June 2020, Xperi Holding Corporation (“Xperi Holding,” “Adeia,” or the “Former Parent”) announced plans to separate into two independent publicly-traded companies (the “Separation”), one comprising its intellectual property (“IP”) licensing business and one comprising its product business (“Xperi Product”). On October 1, 2022, the Former Parent completed the Separation (the “Spin-Off”) through a pro-rata distribution (the “Distribution”) of all of the outstanding common stock of its product-related business (“Xperi”, “we”, “our”, or the “Company”) to the stockholders of record of Xperi Holding as of the close of business on September 21, 2022, the record date (the “Record Date”) for the Distribution. Each Xperi Holding stockholder of record received four shares of Xperi common stock, $0.001 par value, for every ten shares of Xperi Holding common stock, $0.001 par value, held by such stockholder as of the close of business on the Record Date. As a result of the Distribution, Xperi became an independent, publicly-traded company and its common stock is listed under the symbol “XPER” on the New York Stock Exchange (“NYSE”). In connection with the Separation and the Distribution, our Former Parent was renamed and continues as Adeia Inc. and also changed its stock symbol to “ADEA” on the Nasdaq Global Select Market.
We are a leading consumer and entertainment technology company. We believe we create extraordinary experiences at home and on the go for millions of consumers around the world, elevating content and how audiences connect with it in a way that is more intelligent, immersive and personal. Powering smart devices, connected cars, entertainment experiences and more, we have created a unified ecosystem that reaches highly engaged consumers, uncovering significant new business opportunities, now and in the future. Our technologies are integrated into consumer devices and media platforms worldwide, driving increased value for partners, customers and consumers. We operate in one reportable business segment and currently group our business into four categories based on the markets served: Pay-TV, Consumer Electronics, Connected Car and Media Platform.
26
Headquartered in Silicon Valley with operations around the world, we have approximately 2,100 employees and more than 35 years of operating experience.
COVID-19 Impact
The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business. The impact to date has included periods of significant volatility in markets we serve, in particular the automotive and broad consumer electronics markets. Additionally, the pandemic has caused some challenges and delays in acquiring new customers and executing license renewals. These factors have negatively impacted our financial condition and results of operations, contributed to an impairment of our long-lived assets, including goodwill, and may result in increased credit losses and impairments of long-lived assets and investments in other companies.
Our operations, particularly per-unit and variable-fee based revenue, will continue to be susceptible to the volatility, labor shortages, supply chain constraints, high energy prices and inflation, and potential market downturns precipitated by the COVID-19 pandemic as well as the current challenging macroeconomic environment.
Basis of Presentation
Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”).
During the three months ended September 30, 2022, all of the assets and liabilities of the Xperi Product business had been transferred to a legal entity (the “Transfer”) under the common control of Xperi. Subsequent to this Transfer and through December 31, 2022, our financial statements and accompanying notes are prepared on a consolidated basis and include the financial statements of Xperi and its subsidiaries in which Xperi has a controlling financial interest. All intercompany balances and transactions are eliminated in consolidation. Prior to the Transfer, the financial statements and accompanying notes of the Xperi Product business were prepared on a combined basis and were derived from the consolidated financial statements and accounting records of the Former Parent as we were not historically held by a single legal entity.
For a detailed discussion of the basis of presentation, refer to Note 1 – The Company and Basis of Presentation of Notes to the Condensed Consolidated Financial Statements.
Results of Operations
Revenue
We derive the majority of our revenue from licensing our technology and solutions to customers. For our revenue recognition policy including descriptions of revenue-generating activities, refer to Note 3 – Revenue of the Notes to Condensed Consolidated Financial Statements.
The following table presents our historical operating results for the periods indicated as a percentage of revenue:
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|
Three Months Ended March 31, |
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|||||
|
|
2023 |
|
|
2022 |
|
||
Revenue: |
|
|
100 |
% |
|
|
100 |
% |
Operating expenses: |
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|
|
|
|
||
Cost of revenue, excluding depreciation and amortization of intangible assets |
|
|
22 |
|
|
|
23 |
|
Research and development |
|
|
43 |
|
|
|
42 |
|
Selling, general and administrative |
|
|
45 |
|
|
|
42 |
|
Depreciation expense |
|
|
3 |
|
|
|
5 |
|
Amortization expense |
|
|
12 |
|
|
|
12 |
|
Impairment of long-lived assets |
|
|
1 |
|
|
|
— |
|
Total operating expenses |
|
|
126 |
|
|
|
124 |
|
Operating loss |
|
|
(26 |
) |
|
|
(24 |
) |
Other income, net |
|
|
— |
|
|
|
— |
|
Loss before taxes |
|
|
(26 |
) |
|
|
(24 |
) |
(Benefit from) provision for income taxes |
|
|
— |
|
|
|
2 |
|
Net loss |
|
|
(26 |
)% |
|
|
(26 |
)% |
Revenue (in thousands, except for percentages):
|
|
Three Months Ended March 31, |
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|
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2023 |
|
|
2022 |
|
|
Increase/ (Decrease) |
|
|
% Change |
|
||||
Revenue |
|
$ |
126,839 |
|
|
$ |
118,888 |
|
|
$ |
7,951 |
|
|
|
7 |
% |
The $8.0 million, or 7% increase in revenue for the three months ended March 31, 2023, compared to the same period in the prior year, was primarily driven by an increase in minimum guarantee (“MG”) revenue in Consumer Electronics due to new and renewed MG contracts executed during the first quarter of 2023, an increase in Media Platform revenue driven by growth in monetization and contribution from Vewd (acquired in July 2022), and an increase in Connected Car revenue driven by continued growth from the DTS AutoStage and DTS AutoSense solutions. These increases were partially offset by overall declines in Pay TV, as declines in legacy guide and DVR platform revenue were somewhat offset by increases in IPTV solutions.
Cost of Revenue, Excluding Depreciation and Amortization of Intangible Assets
Cost of revenue, excluding depreciation and amortization of intangible assets, consists primarily of employee-related costs, royalties paid to third parties, hardware product-related costs, maintenance costs and an allocation of facilities costs, as well as service center and other expenses related to providing our technology solution offerings and non-recurring engineering (“NRE”) services.
Cost of revenue, excluding depreciation and amortization of intangible assets, for the three months ended March 31, 2023 was $27.8 million, as compared to $27.4 million for the three months ended March 31, 2022, an increase of $0.4 million primarily attributable to higher delivery costs related to increased sales in the first quarter of 2023.
Research and Development
Research, development and other related costs (“R&D expense”) are comprised primarily of employee-related costs, stock-based compensation expense, engineering consulting expenses associated with new product and technology development, product commercialization, quality assurance and testing costs, as well as costs related to patent applications and examinations, reverse engineering, materials, supplies, and an allocation of facilities costs. All research, development and other related costs are expensed as incurred.
R&D expense for the three months ended March 31, 2023 was $54.9 million as compared to $50.2 million for the three months ended March 31, 2022, an increase of $4.7 million. The increase was primarily due to employees hired in connection with the Vewd Acquisition in July 2022, as well as increased stock-based compensation expense in the first quarter of 2023.
Selling, General and Administrative
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Selling expenses consist primarily of compensation and related costs for sales and marketing personnel engaged in sales and licensee support, marketing programs, public relations, promotional materials, travel, trade show expenses, and stock-based compensation expense. General and administrative expenses consist primarily of compensation and related costs for general management, information technology, finance personnel, legal fees and expenses, facilities costs, stock-based compensation expense, and professional services. Our general and administrative expenses, other than facilities-related expenses, are not allocated to other expense line items.
Selling, general and administrative expenses for the three months ended March 31, 2023, were $57.8 million, as compared to $49.9 million for the three months ended March 31, 2022, an increase of $7.9 million. The increase was primarily due to an increase in stock-based compensation, and secondarily due to increases in outside services and personnel related expenses in the first quarter of 2023.
Depreciation Expense
Depreciation expense for the three months ended March 31, 2023 was $4.1 million, as compared to $5.6 million for the three months ended March 31, 2022, a decrease of $1.5 million. The decrease was primarily due to certain fixed assets becoming fully depreciated during 2022.
Amortization Expense
Amortization expense for the three months ended March 31, 2023 was $14.8 million and remains consistent as compared to the same period in 2022.
As a result of previous mergers and acquisitions, we anticipate that amortization expenses will continue to be a significant expense over the next several years. See Note 8 — Intangible Assets, Net of the Notes to Condensed Consolidated Financial Statements for additional detail.
Stock-based Compensation
The following table sets forth our stock-based compensation (“SBC”) expense for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cost of revenue, excluding depreciation and amortization of intangible assets |
|
$ |
792 |
|
|
$ |
625 |
|
Research and development |
|
|
5,551 |
|
|
|
5,099 |
|
Selling, general and administrative |
|
|
9,625 |
|
|
|
2,913 |
|
Total stock-based compensation expense |
|
$ |
15,968 |
|
|
$ |
8,637 |
|
Stock-based compensation awards include restricted stock awards and units, employee stock plan purchases and employee stock options. The increases in SBC expense for the three months ended March 31, 2023, compared to the corresponding period in 2022, was primarily a result of granting restricted stock awards and units to an increased number of employees resulting from the Vewd Acquisition and certain insourcing activity, and secondarily due to incremental compensation cost recognized from the conversion of employee equity awards in connection with the Spin-Off. In addition, for the three months ended March 31, 2022, $2.5 million of stock-based compensation expense was recognized in operating results as part of the corporate and shared functional employees expenses allocation.
Impairment of Long-Lived Assets
As a result of consolidating our global real estate footprint and decisions to vacate and sublease certain offices following the Spin-Off, we recorded non-cash impairment charges of $1.1 million to reduce the carrying amount of certain operating lease right-of-use (“ROU”) assets and property and equipment, including leasehold improvements, during the three months ended March 31, 2023. We determined that we may not be able to fully recover the carrying amount of the leased offices due to a change in the manner in which the offices are being used, a significant decrease in the expected market price of the leased asset, and expected delays in subleasing the space based on the current real estate leasing market.
We expect additional impairment charges related to operating lease ROU assets in the remainder of 2023 based on current plans to reduce our real estate footprint.
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We did not record any asset impairment charge for the three months ended March 31, 2022.
Other Income, Net
Other income, net, for the three months ended March 31, 2023 was $0.4 million, as compared to other income, net, of $0.5 million for the three months ended March 31, 2022. Other income, net, was lower in 2023 principally due to the interest expense on debt incurred in connection with the Vewd Acquisition discussed below in Liquidity and Capital Resources, partially offset by an increase in interest income from significant financing components from revenue contracts in the first quarter of 2023.
(Benefit from) Provision for Income Taxes
For the three months ended March 31, 2023, we recorded an income tax benefit of $0.3 million on a pretax loss of $33.2 million, which resulted in an effective tax rate of 0.9%. The income tax benefit was primarily related to foreign withholding taxes, partially offset by U.S. federal income taxes and state income taxes. For the three months ended March 31, 2022, we recorded an income tax expense of $2.1 million on a pretax loss of $28.4 million, which resulted in an effective tax rate of (7.3)%. The income tax expense was primarily related to foreign withholding taxes, U.S. federal taxes, and state income taxes.
The year-over-year increase in income tax benefit for the quarter ended March 31, 2023 is largely attributable to the application of a positive effective tax rate to the March 31, 2023 year-to-date pre-tax loss.
Our income tax expense for the three months ended March 31, 2022 was calculated on a separate return basis as if we would file our tax return for the full twelve months of 2022. However, activities for periods prior to the October 1, 2022 Separation Date are generally reported on U.S. income tax returns filed by our Former Parent. Because of this, income tax expense presented in the Condensed Consolidated Statements of Operations for periods prior to the Separation is not necessarily representative of the taxes that may arise in the future when we file our income tax returns independent from the Former Parent's returns. In the future, under the Tax Matters Agreement, our Former Parent may utilize certain of our tax attributes generated during pre-Separation periods to reduce its tax liability for tax years ended December 31, 2022 and earlier. If our Former Parent should use such attributes, this would require an adjustment to our tax accounts.
The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. In making such assessment, significant weight is given to evidence that can be objectively verified. After considering both positive and negative evidence to assess the recoverability of our net deferred tax assets, we determined that it was unlikely that we would realize our federal, certain state and certain foreign deferred tax assets given the substantial amount of tax attributes that will remain unutilized to offset reversing deferred tax liabilities. We intend to continue maintaining a full valuation allowance on our federal deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain federal deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release depends on the level of profitability that we are able to achieve.
Liquidity and Capital Resources
The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents as of and for the periods presented.
|
|
As of |
|
|||||
(in thousands, except for percentages) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Cash and cash equivalents |
|
$ |
110,696 |
|
|
$ |
160,127 |
|
Current ratio |
|
|
2.4 |
|
|
|
2.2 |
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net cash used in operating activities |
|
$ |
(43,103 |
) |
|
$ |
(18,364 |
) |
Net cash used in investing activities |
|
$ |
(3,929 |
) |
|
$ |
(4,365 |
) |
Net cash (used in) provided by financing activities |
|
$ |
(2,917 |
) |
|
$ |
25,754 |
|
Our primary liquidity and capital resources are our cash on hand, including cash provided by our Former Parent prior to the Separation. Cash and cash equivalents were $110.7 million at March 31, 2023, a decrease of $49.4 million from $160.1 million
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at December 31, 2022. This decrease resulted primarily from cash used by operations of $43.1 million, $3.9 million in capital expenditures, and $2.9 million in payment of withholding taxes on net share settlement of restricted awards.
For information about our material cash requirements, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022. Our cash requirements have not changed materially since December 31, 2022.
Cash Flows from Operating Activities
Net cash used in operating activities was $43.1 million for the three months ended March 31, 2023, primarily due to our net loss of $32.9 million and $46.9 million in changes in operating assets and liabilities, partially offset by non-cash items of depreciation of $4.1 million, amortization of intangible assets of $14.8 million, stock-based compensation expense of $16.0 million, and an asset impairment charge of $1.1 million.
Net cash used in operating activities was $18.4 million for the three months ended March 31, 2022, primarily due to our net loss of $30.5 million and $16.6 million in changes in operating assets and liabilities, partially offset by non-cash items of depreciation of $5.6 million, amortization of intangible assets of $14.8 million, and stock-based compensation expense of $8.6 million.
Cash Flows from Investing Activities
Net cash used in investing activities was $3.9 million and $4.4 million for the three months ended March 31, 2023 and 2022, respectively, which was primarily related to capital expenditures.
Capital Expenditures
Our capital expenditures for property, plant, and equipment consist primarily of purchases of computer hardware and software, information systems, production and test equipment. We expect capital expenditures in 2023 to be between $15.0 million to $20.0 million. These expenditures are expected to be financed with existing cash and cash equivalents. There can be no assurance that current expectations will be realized and plans are subject to change upon further review of our capital expenditure needs.
Cash Flows from Financing Activities
Net cash used in financing activities was $2.9 million for the three months ended March 31, 2023, which reflected the payment of withholding taxes related to net share settlement of restricted stock unit awards.
Net cash provided by financing activities was $25.8 million for the three months ended March 31, 2022 due to net transfers from the Former Parent.
Long-Term Debt
In connection with the Vewd Acquisition on July 1, 2022, we issued a senior unsecured promissory note (the “Promissory Note”) to the sellers of Vewd in the 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 we 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. We may, at any time and on any one or more occasions, prepay all or any portion of the outstanding principal amount, plus accrued and unpaid interest, if any, under the Promissory Note without premium or penalty. In addition, the Promissory Note has mandatory prepayment provisions upon certain change of control or asset sale events.
At March 31, 2023, $50.0 million was outstanding under the Promissory Note with an annual interest rate of 6.0%. Interest is payable quarterly. Under the Promissory Note, we are obligated to make a balloon principal payment of $50.0 million in 2025.
Following the Separation from the Former Parent, our capital structure and sources of liquidity changed significantly from our historical capital structure and sources of liquidity. Subsequent to the Separation, we no longer participate in cash management
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and funding arrangements managed by the Former Parent. At the time of the Spin-Off, our Former Parent capitalized us such that we carried an amount of cash and cash equivalents of over $180.0 million.
Our current cash and cash equivalents balance is expected to be sufficient to support our operations, capital expenditures and income tax payments, in addition to any investments and other capital allocation needs, for at least the next 12 months from the issuance date of these financial statements.
Poor financial results, unanticipated expenses, unanticipated acquisitions of technologies or businesses or unanticipated strategic investments could give rise to additional financing requirements sooner than we expect. There can be no assurance that equity or debt financing will be available when needed or, if available, that such equity financing will be on terms satisfactory to us and not dilutive to our then-current stockholders or that debt financing will not impose significant restrictions on the operation of our business.
We plan to supplement this short-term liquidity, if necessary, with access to capital markets. Our access to capital markets may be constrained and our cost of borrowing may increase under certain business and market conditions, and our liquidity is subject to various risks including the risks identified in “Risk Factors” included in Item 1A of this Form 10-Q.
Critical Accounting Estimates
During the three months ended March 31, 2023, there were no significant changes in our critical accounting estimates. See Note 2 – Summary of Significant Accounting Policies of Notes to the Condensed Consolidated Financial Statements for additional detail. For a discussion of our critical accounting estimates, see Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.
Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements included in this Form 10-Q for more information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of our market risk, see Part II, Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the Form 10-K.
Item 4. Controls and Procedures
Attached as exhibits to this Form 10-Q are certifications of Xperi’s Chief Executive Officer and Chief Financial Officer, which are required in accordance with Rule 13a-14 of the Exchange Act. This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications and it should be read in conjunction with the certifications, for a more complete understanding of the topics presented.
Evaluation of Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the evaluation date). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the evaluation date that our disclosure controls and procedures were effective to provide reasonable assurance that the information relating to Xperi, including our subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to Xperi’s
32
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during the last fiscal quarter covered by this Quarterly Report on Form 10-Q that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of our business, we are involved in legal proceedings. In the past, we have litigated to enforce the terms of license agreements, determine infringement or validity of intellectual property rights, and defend ourselves or our customers against claims of infringement or breach of contract. We expect to continue to be involved in similar legal proceedings in the future. Although considerable uncertainty exists, our management does not anticipate that the ultimate disposition of these matters will have a material adverse effect on our results of operations, consolidated financial position or liquidity. However, the ultimate disposition, costs, or liabilities could be material to our results of operations in the period recognized.
Item 1A. Risk Factors
There were no material changes to the risk factors previously disclosed in Part 1, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2022, which is incorporated by reference herein.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
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Item 6. Exhibits
Exhibit Number |
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Exhibit Title |
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2.1 |
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3.1 |
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3.2 |
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10.1+ |
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10.2+ |
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31.1 |
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31.2 |
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32.1 |
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101.INS |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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+ |
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Indicates a management contract or compensatory plan or arrangement |
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 12, 2023
XPERI INC. |
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By: |
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/s/ Robert Andersen |
|
|
Robert Andersen Chief Financial Officer |
36
