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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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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Non-accelerated filer |
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Smaller reporting company |
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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 29, 2024 was
XPERI INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024
TABLE OF CONTENTS
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3 |
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Item 1. |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 |
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4 |
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5 |
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Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 |
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6 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 |
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Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2024 and 2023 |
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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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34 |
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Item 4. |
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34 |
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Item 1. |
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35 |
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Item 1A. |
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35 |
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Item 2. |
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35 |
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Item 3. |
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35 |
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Item 4. |
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35 |
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Item 5. |
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35 |
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Item 6. |
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36 |
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37 |
2
Note About Forward-Looking Statements
This quarterly report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “intends,” “targets” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, product development, demand, acceptance and market share, growth rate, competitiveness, gross margins, levels of research, development and other related costs, expenditures, the outcome or effects of and expenses related to litigation and administrative proceedings, tax expenses, cash flows, our management’s plans and objectives for our current and future operations, the levels of customer spending or research and development activities, general economic conditions, the impact of any acquisitions or divestitures on our financial condition and results of operations, and the sufficiency of financial resources to support future operations and capital expenditures.
Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed under the heading “Risk Factors” in our Form 10-K and other documents we file from time to time with the U.S. Securities and Exchange Commission (“SEC”), such as our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report, other than as required by law. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
3
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
XPERI INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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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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Interest and other income, net |
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Interest expense—debt |
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Gain on divestiture |
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— |
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Loss before taxes |
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Provision for (benefit from) income taxes |
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( |
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Net loss |
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( |
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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 net loss per share calculations - basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
XPERI INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Net loss |
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$ |
( |
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$ |
( |
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Other comprehensive loss: |
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Change in foreign currency translation adjustment |
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Unrealized (loss) gain on cash flow hedges |
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Comprehensive loss |
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( |
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Less: comprehensive loss attributable to noncontrolling interest |
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( |
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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.
5
XPERI INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
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March 31, 2024 |
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December 31, 2023 |
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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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Prepaid expenses and other current assets |
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Assets held for sale |
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— |
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Total current assets |
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Note receivable, noncurrent |
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— |
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Deferred consideration from divestiture |
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— |
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Unbilled contracts receivable, noncurrent |
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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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Deferred tax assets |
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Other noncurrent assets |
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Assets held for sale, noncurrent |
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— |
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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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Liabilities held for sale |
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— |
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Total current liabilities |
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Long-term debt |
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Deferred revenue, noncurrent |
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Operating lease liabilities, noncurrent |
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Deferred tax liabilities |
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Other noncurrent liabilities |
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Liabilities held for sale, noncurrent |
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— |
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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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( |
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( |
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Total Company stockholders’ equity |
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Noncontrolling interest |
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( |
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( |
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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.
6
XPERI INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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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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Gain from divestiture |
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( |
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— |
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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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Impairment of long-lived assets |
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— |
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Deferred income taxes |
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( |
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Other |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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( |
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Unbilled contracts receivable |
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( |
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( |
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Prepaid expenses and other assets |
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( |
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( |
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Accounts payable |
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( |
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( |
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Accrued and other liabilities |
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( |
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( |
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Deferred revenue |
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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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( |
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( |
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Capitalized internal-use software |
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( |
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( |
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Purchases of intangible assets |
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( |
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( |
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Net cash used in divestiture |
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( |
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— |
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Net cash used in investing activities |
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( |
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Cash flows from financing activities: |
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Withholding taxes related to net share settlement of equity awards |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at beginning of period |
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(1) |
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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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Income taxes paid, net of refunds |
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$ |
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$ |
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Interest paid |
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$ |
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$ |
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Supplemental disclosure of noncash investing and financing activities: |
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Note receivable in exchange for consideration from divestiture |
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$ |
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$ |
— |
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Deferred consideration from divestiture |
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$ |
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$ |
— |
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Unpaid withholding taxes related to net share settlement of equity awards |
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$ |
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$ |
— |
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Costs capitalized for internal-use software included in accrued liabilities |
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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.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
(unaudited)
Three Months Ended March 31, 2024 |
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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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Balances at January 1, 2024 |
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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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Change in ownership interest of the Company |
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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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Vesting of restricted stock units, net of tax withholding |
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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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Foreign currency translation adjustment |
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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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Unrealized loss on cash flow hedges |
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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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Balances at March 31, 2024 |
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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.
8
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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Balances 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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Change in ownership interest of the Company |
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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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Vesting of restricted stock units, net of tax withholding |
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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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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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Unrealized gain on cash flow hedges |
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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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( |
) |
Balances 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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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
XPERI INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Xperi Inc. (“Xperi” or the “Company”) is a leading consumer and entertainment technology company. The Company creates extraordinary experiences at home and on the go for millions of consumers around the world, enabling audiences to connect with content in a way that is more intelligent, immersive, and personal. Powering smart devices, connected cars, entertainment experiences and more, the Company brings together ecosystems designed to reach highly-engaged consumers, allowing it and its ecosystem partners to uncover significant new business opportunities, now and in the future. The Company’s technologies are integrated into consumer devices and a variety of media platforms worldwide, driving increased value for its partners, customers, and consumers. The Company operates in
Xperi Spin-Off
In June 2020, Xperi Holding Corporation (“Xperi Holding,” “Adeia,” or the “Former Parent”) announced plans to separate into
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Company’s financial statements were prepared on a consolidated basis and include the accounts of the Company and its wholly owned subsidiaries, as well as an entity in which the Company has a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation.
In the fourth quarter of 2018, the Company funded a new subsidiary, Perceive Corporation (“Perceive”), which was created to focus on delivering edge inference solutions. As of March 31, 2024, the Company owned approximately
Unaudited Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements are presented in accordance with the applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. The amounts as of December 31, 2023 have been derived from the Company’s annual audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2023, filed on March 1, 2024 (the “Form 10-K”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, which consist of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Form 10-K.
The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024 or any future period and the Company makes no representations related thereto.
10
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The accounting estimates and assumptions that require management’s most significant, challenging, and subjective judgment include the estimation of licensees’ quarterly royalties prior to receiving the royalty reports, the determination of stand-alone selling price and the transaction price in an arrangement with multiple performance obligations, the fair value of note receivable and deferred consideration in connection with the Divestiture (as described in Note 6—Divestiture), capitalization of internal-use software, loss contingencies related to indemnification liability, the assessment of useful lives and recoverability of other intangible assets and long-lived assets, recognition and measurement of current and deferred income tax assets and liabilities, the assessment of unrecognized tax benefits, and valuation of performance-based awards with a market condition. Actual results experienced by the Company may differ from management’s estimates.
Concentration of Credit and Other Risks
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with large financial institutions, and at times, the deposits may exceed the federally insured limits. As part of its risk management processes, the Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company has not sustained material credit losses from instruments held at these financial institutions. In addition, the Company has cash and cash equivalents held in international bank accounts that are denominated in various foreign currencies, and has established risk management strategies designed to minimize the impact of certain currency exchange rate fluctuations.
The Company believes that any concentration of credit risk in its accounts receivable is substantially mitigated by its evaluation process, relatively short collection terms, and the high level of credit worthiness of its customers. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral.
There were
Recent Accounting Pronouncements
Accounting Standards Not Yet Adopted
In November 2023, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires significant segment expenses and other segment related items to be disclosed on an interim and annual basis. The new disclosure requirements are also applicable to companies with a single reportable segment. This guidance is effective on a retrospective basis for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the disclosures within its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of specific categories in the effective tax rate reconciliation and additional information for reconciling items that meet a quantitative threshold and further disaggregation of income taxes paid for individually significant jurisdictions. This guidance is effective on a prospective or retrospective basis for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the disclosures within its consolidated financial statements.
11
NOTE 2 – REVENUE
Revenue Recognition
General
Revenue is recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services, which may include various combinations of goods and services which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of sales taxes collected from customers which are subsequently remitted to governmental authorities.
Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the individual performance obligations are separately accounted for if they are distinct. In an arrangement with multiple performance obligations, the transaction price is allocated among the separate performance obligations on a relative standalone selling price (“SSP”) basis. The determination of SSP considers market conditions, the size and scope of the contract, customer and geographic information, and other factors. When observable prices are not available, SSP for separate performance obligations is generally based on the cost-plus-margin approach, considering overall pricing objectives.
When variable consideration is in the form of a sales-based or usage-based royalty in exchange for a license of technology or when a license of technology is the predominant item to which the variable consideration relates, revenue is recognized at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied.
Description of Revenue-Generating Activities
The Company derives the majority of its revenue from licensing its technologies and solutions to customers within the Pay-TV, Consumer Electronics, Connected Car and Media Platform product categories. Refer to Part I, Item 1 of the Form 10-K for detailed information regarding these product categories.
Pay-TV
Customers within the Pay-TV category are primarily multi-channel video service providers, consumer electronics (“CE”) manufacturers, and end consumers. Revenue in this category is primarily derived from licensing the Company’s Pay-TV solutions, including Electronic Program Guides, TiVo video-over-broadband (“IPTV”) Solutions, Personalized Content Discovery and enriched Metadata.
For these solutions, the Company provides on-going media or data delivery, either via on-premise licensed software, hosting or access to its platform. The Company generally receives fees on a per-subscriber per-month basis or as a monthly fee, and revenue is recognized during the month in which the solutions are provided to the customer. For most of the on-premise licensed software arrangements, substantially all functionality is obtained through the Company’s frequent updating of the technology, data and content. In these instances, the Company typically has a single performance obligation related to these ongoing activities in the underlying arrangement, and revenue is generally recognized over the period the solution is provided. Hosted solutions and access to our platform is considered a single performance obligation recognized over the period the solution is provided.
Consumer Electronics
The Company licenses its audio technologies to CE manufacturers or their supply chain partners.
The Company generally recognizes royalty revenue from licenses based on units shipped or manufactured. Revenue is recognized in the period in which the customer’s sales or production are estimated to have occurred. This may result in an adjustment to revenue when actual sales or production are subsequently reported by the customer, generally in the month or quarter following sales or production. Estimating customers’ quarterly royalties prior to receiving the royalty reports requires the Company to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers, which could have a material impact on the amount of revenue it reports on a quarterly basis.
12
Certain customers enter into fixed fee or minimum guarantee agreements, whereby customers pay a fixed fee for the right to incorporate the Company’s technology in the customer’s products over the license term. In arrangements with a minimum guarantee, the fixed fee component corresponds to a minimum number of units or dollars that the customer must produce or pay, with additional per-unit fees for any units or dollars exceeding the minimum. The Company generally recognizes the full fixed fee as revenue at the beginning of the license term when the customer has the right to use the technology and begins to benefit from the license. If applicable, revenue is recognized net of the effect of any significant financing components calculated using customer-specific, risk-adjusted lending rates, with the related interest income being recognized over time on an effective rate basis. For minimum guarantee agreements where the customer exceeds the minimum, the Company recognizes revenue relating to any additional per-unit fees in the periods it estimates the customer will exceed the minimum and adjusts the revenue based on actual usage once that is reported by the customer.
Connected Car
The Company licenses its digital radio solutions, automotive infotainment and related offerings to automotive manufacturers or their supply chain partners.
The Company generally recognizes royalty revenue from these licenses based on units shipped or manufactured, similar to the revenue recognition described above in “Consumer Electronics”. Certain customers may enter into fixed fee or minimum guarantee agreements, also similar to the revenue recognition described above in “Consumer Electronics”. Automotive infotainment and related revenue is generally recognized over time as the customer obtains access to the solutions and underlying data.
Media Platform
The Company generates revenue from advertising, TV viewership data, and licensing of the Vewd app framework and core middleware solutions.
Advertising revenue is generally recognized when the related advertisement is provided. TV viewership data revenue is generally recognized over time as the customer obtains the underlying data. License revenue for the Vewd solutions is generally recognized either on a per-unit royalty or a minimum guarantee or fixed fee basis, similar to as described in the “Consumer Electronics” section above.
Hardware Products, Services and Settlements/Recoveries
The Company sells hardware products, primarily to end consumers, within the Pay-TV, Media Platform, and Consumer Electronics product categories. Hardware product revenue is generally recognized when the promised product is delivered.
The Company also generates non-recurring engineering (“NRE”) revenue within all of its product categories. The Company recognizes NRE revenue as progress is made toward completion, generally using an input method based on the ratio of costs incurred to date to total estimated costs of the project.
Revenue from each of advertising, NRE services, and hardware products was less than
The Company actively monitors and enforces its technology licenses, including seeking appropriate compensation from customers that have under-reported royalties owed under a license agreement and from third parties that utilize the Company’s technologies without a license. As a result of these activities, the Company may, from time to time, recognize revenue from periodic compliance audits of licensees for underreporting royalties incurred in prior periods, or from legal judgments in a license dispute. These settlements and recoveries may cause revenue to be higher than expected during a particular reporting period and such settlements and recoveries may not occur in subsequent periods. The Company recognizes revenue from settlements and recoveries when a binding agreement has been executed or a revised royalty report has been received and the Company concludes collection is probable.
Disaggregation of Revenue
The Company’s revenue that is recognized over time consists primarily of per unit royalties, per-subscriber per-month or monthly license fees, single performance obligations satisfied over time, and NRE services. Revenue that is recognized at a point in time consists primarily of fixed fee or minimum guarantee licensing contracts, hardware products, advertising and settlements/recoveries.
13
The following table summarizes revenue by timing of recognition (in thousands):
|
|
Three Months Ended March 31, |
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|||||
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|
2024 |
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2023 |
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||
Recognized over time |
|
$ |
|
|
$ |
|
||
Recognized at a point in time |
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|
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||
Total revenue |
|
$ |
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|
$ |
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||
|
|
Three Months Ended March 31, |
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|||||
|
|
2024 |
|
|
2023 |
|
||
Pay-TV |
|
$ |
|
|
$ |
|
||
Consumer Electronics |
|
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|
|
|
||
Connected Car |
|
|
|
|
|
|
||
Media Platform |
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
The following table summarizes revenue by geographic location (in thousands):
|
|
Three Months Ended March 31, |
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|||||||||||||
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2024 |
|
|
2023 |
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||||||||||
U.S. |
|
$ |
|
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|
% |
|
$ |
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|
|
% |
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Japan |
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Europe and Middle East |
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China |
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Latin America |
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Other |
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Total revenue |
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$ |
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% |
|
$ |
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% |
||||
A significant portion of the Company’s revenue is derived from licensees headquartered outside of the U.S., principally in Asia, Europe, the Middle East, and Latin America, and it is expected that this revenue will continue to account for a significant portion of total revenue in future periods.
Contract Balances
Contract Assets
A contract asset represents a right to consideration that is conditional upon factors other than the passage of time. Contract assets primarily consist of unbilled contracts receivable that are expected to be received from customers in future periods, where revenue recognized is in excess of the Company’s unconditional right to consideration. The amount of unbilled contracts receivable may not exceed their net realizable value and is classified as noncurrent if the payments are expected to be received more than one year from the reporting date.
Contract Liabilities
Contract liabilities are mainly comprised of deferred revenue, which arises when cash payments are received in advance of performance obligations being satisfied. Deferred revenue generally consists of prepaid licenses or other fees, amounts received related to NRE services to be performed in the future, and other offerings for which the Company is paid in advance while the promised good or service is transferred to the customer at a future date or over time.
14
The following table presents additional revenue disclosures (in thousands):
|
|
Three Months Ended March 31, |
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2024 |
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2023 |
|
||
Revenue recognized in the period from: |
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|
||
Amounts included in deferred revenue at the beginning of |
|
$ |
|
|
$ |
|
||
Performance obligations satisfied in previous periods (true |
|
$ |
|
|
$ |
( |
) |
|
(1)
Remaining Performance Obligations
Remaining performance obligations represent contracted revenue associated with certain non-cancelable fixed fee arrangements and engineering services contracts that have not yet been recognized. As of March 31, 2024, the
Year Ending December 31: |
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Amounts |
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(remaining 9 months) |
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$ |
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||
|
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||
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||
|
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||
|
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|
||
Total |
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$ |
|
|
Allowance for Credit Losses
The following table presents the activity in the allowance for credit losses for the three months ended March 31, 2024 and 2023 (in thousands):
|
|
Three Months Ended March 31, |
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2024 |
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2023 |
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||||||||||
|
|
Accounts Receivable |
|
|
Unbilled Contracts Receivable |
|
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Accounts Receivable |
|
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Unbilled Contracts Receivable |
|
||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for credit losses |
|
|
|
|
|
|
|
|
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( |
) |
|||
Recoveries/charge-off |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
NOTE 3 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
Prepaid expenses and other current assets consisted of the following (in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Prepaid expenses |
|
$ |
|
|
$ |
|
||
Finished goods inventory |
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|
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|
||
Prepaid income taxes |
|
|
|
|
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Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
15
Property and equipment, net consisted of the following (in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Computer equipment and software |
|
$ |
|
|
$ |
|
||
Capitalized internal-use software |
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Office equipment and furniture |
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Building |
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Land |
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Leasehold improvements |
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Construction in progress |
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Total property and equipment |
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||
Less: accumulated depreciation and amortization(1) |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
For the three months ended March 31, 2024 and 2023, capitalization of costs associated with internal-use software was $
Accrued liabilities consisted of the following (in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
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Employee compensation and benefits |
|
$ |
|
|
$ |
|
||
Accrued expenses |
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Accrued other taxes |
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Third-party royalties |
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Accrued income taxes |
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Other |
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Total |
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$ |
|
|
$ |
|
||
NOTE 4 – FINANCIAL INSTRUMENTS
Non-marketable Equity Securities
As of March 31, 2024 and December 31, 2023, other noncurrent assets included equity securities accounted for under the equity method with a carrying amount of $
Derivatives Instruments
The Company uses a foreign exchange hedging strategy to hedge local currency expenses and reduce variability associated with anticipated cash flows. The Company’s derivative financial instruments consist of foreign currency forward contracts. The maturities of these instruments are generally less than twelve months. Fair values for derivative financial instruments are based on prices computed using third-party valuation models. All the significant inputs to the third-party valuation models are observable in active markets. Inputs include current market-based parameters such as forward rates, yield curves and credit default swap pricing.
16
Cash Flow Hedges
The Company designates certain foreign currency forward contracts as hedging instruments pursuant to Accounting Standards Codification (“ASC”) No. 815—Derivatives and Hedging. The effective portion of the gain or loss on the derivatives are reported as a component of accumulated other comprehensive loss (“AOCL”) in stockholders’ equity and reclassified into earnings on the Condensed Consolidated Statements of Operations (Unaudited) in the period upon which the hedged transactions are settled.
The notional and fair values of all derivative financial instruments were as follows (in thousands):
|
Location in Balance Sheet |
|
March 31, 2024 |
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|
December 31, 2023 |
|
||
Derivative instruments designated as cash flow hedges: |
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|
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|
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Fair value—foreign exchange contract assets, net amount |
|
$ |
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|
$ |
|
|||
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Notional value held to buy U.S. dollars in exchange for other currencies |
|
|
$ |
|
|
$ |
|
||
Notional value held to sell U.S. dollars in exchange for other currencies |
|
|
$ |
|
|
$ |
|
||
All of the Company’s derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparty to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's Condensed Consolidated Balance Sheets on a net basis.
The gross amounts of the Company’s foreign currency forward contracts and the net amounts recorded in the Company’s Condensed Consolidated Balance Sheets were as follows (in thousands):
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Gross amount of recognized assets |
$ |
|
|
$ |
|
||
Gross amount of recognized liabilities |
|
( |
) |
|
|
( |
) |
Net derivative assets |
$ |
|
|
$ |
|
||
The changes in AOCL related to the cash flow hedges consisted of the following (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
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|
2024 |
|
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2023 |
|
||
Beginning balance |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive (loss) gain before reclassification |
|
|
( |
) |
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss into net loss |
|
|
( |
) |
|
|
|
|
Net current period other comprehensive (loss) gain |
|
|
( |
) |
|
|
|
|
Ending balance |
|
$ |
|
|
$ |
|
||
The following table summarizes the gains recognized upon settlement of the hedged transactions in the Condensed Consolidated Statement of Operations for three months ended March 31, 2024 and 2023 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Research and development |
|
$ |
|
|
$ |
|
||
Selling, general and administrative |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
17
Undesignated Derivatives
For derivatives that were not designated as hedge instruments, they were measured and reported at fair value as a derivative asset or liability in the Condensed Consolidated Balance Sheets with their corresponding changes in the fair value recognized as gains or losses in interest and other income, net in the Condensed Consolidated Statements of Operations. These instruments were all re-designated as foreign currency cash flow hedges in July 2023.
For the three months ended March 31, 2023, changes in fair value on the undesignated derivatives were insignificant.
NOTE 5 – FAIR VALUE
The Company follows the authoritative guidance for fair value measurement and the fair value option for financial assets and financial liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1 |
Quoted prices in active markets for identical assets. |
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|
Level 2 |
Observable market-based inputs or unobservable inputs that are corroborated by market data. |
|
|
Level 3 |
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
When applying fair value principles in the valuation of assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculates the fair value of its Level 1 and Level 2 instruments based on the exchange traded price of similar or identical instruments, where available, or based on other observable inputs.
The Company’s derivative financial instruments (as described in Note 4—Financial Instruments), consisting of foreign currency forward contracts, are reported at fair value on a recurring basis and classified as Level 2.
Financial Instruments Not Recorded at Fair Value
The following table presents the fair value hierarchy for the Company’s assets and liabilities recorded at their carrying amount, but for which the fair value is disclosed (in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
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|
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Carrying |
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Estimated |
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Carrying |
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Estimated |
|
||||
Assets: |
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|
|
|
|
|
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|
||||
Note receivable, noncurrent |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Deferred consideration from divestiture |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Total assets |
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$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
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|
||||
Liabilities: |
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|
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|
||||
Senior unsecured promissory note |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The fair value of the note receivable and the deferred consideration resulting from the Divestiture (as described in Note 6—Divestiture) were estimated based on an income and market approach with valuation inputs such as the U.S. Treasury constant maturity yields, comparable bond yields, and credit spreads over the term of the same or similarly issued instruments. They are classified within Level 2 of the fair value hierarchy.
The fair value of the Company’s debt (as described in Note 8—Debt) was estimated based on an income and market approach with valuation inputs such as the U.S. Treasury constant maturity yields, comparable bond yields, and credit spreads over the term of the same or similarly issued instruments. The Company classifies its debt within Level 2 of the fair value hierarchy.
18
NOTE 6 – DIVESTITURE
In December 2023, the Company entered into a definitive agreement with Tobii AB (the “Purchaser”), an eye tracking and attention computing company, pursuant to which it agreed to sell to the Purchaser its AutoSense in-cabin safety business and related imaging solutions (the “Divestiture”). The Divestiture represented a
The Divestiture was completed on January 31, 2024 (the “Closing Date”) for a total consideration of $
In connection with the Divestiture, the Company also recorded a liability of $
As of the Closing Date, the Company derecognized the carrying amounts of the following assets and liabilities (in thousands):
|
|
January 31, 2024 |
|
|||||||||
|
|
Current |
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|
Noncurrent |
|
|
Total |
|
|||
Assets: |
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|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
— |
|
|
|
|
||
Unbilled contracts receivable, net |
|
|
|
|
|
|
|
|
|
|||
Prepaid expenses and other current assets |
|
|
|
|
|
— |
|
|
|
|
||
Property and equipment, net |
|
|
— |
|
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
— |
|
|
|
|
|
|
|
||
Other noncurrent assets |
|
|
— |
|
|
|
|
|
|
|
||
Total assets held for sale (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|||
Accounts payable |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Accrued liabilities |
|
|
|
|
|
— |
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
— |
|
|
|
|
||
Operating lease liabilities, noncurrent |
|
|
— |
|
|
|
|
|
|
|
||
Other noncurrent liabilities |
|
|
— |
|
|
|
|
|
|
|
||
Total liabilities held for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Net assets held for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Upon the completion of the Divestiture, the Company recognized a gain of $
The Divestiture did not represent a strategic shift that would have a major effect on the Company’s consolidated results of operations, and therefore, its results of operations were not reported as discontinued operations.
19
Note Receivable from Tobii AB
The Tobii Note, with a fixed interest rate of
The Tobii Note is secured by a floating lien and security interest in certain of the Purchaser’s assets, rights, and properties, and contains customary affirmative and negative covenants including the restrictions on incurring certain indebtedness, and certain change of control and asset sale events, but does not include any financial covenants.
The Tobii Note has the following scheduled principal repayments (in thousands):
Date of Principal Payment: |
|
Amount |
|
|
April 1, 2027 |
|
$ |
|
|
April 1, 2028 |
|
|
|
|
April 1, 2029 |
|
|
|
|
Total principal payments |
|
$ |
|
|
For the three months ended March 31, 2024, the Company recognized interest income of $
Deferred Consideration
The deferred consideration consists of guaranteed future cash payments, which are scheduled to be made by the Purchaser in four annual payments as follows (in thousands):
Date of Payment: |
|
Amount |
|
|
February 15, 2028 |
|
$ |
|
|
February 15, 2029 |
|
|
|
|
February 15, 2030 |
|
|
|
|
February 15, 2031 |
|
|
|
|
Total future payments |
|
$ |
|
|
At the Closing Date, there was $
As of March 31, 2024, the net carrying amount of the deferred consideration is as follows (in thousands):
|
|
March 31, 2024 |
|
|
Total deferred consideration |
|
$ |
|
|
Less: unamortized discount on deferred consideration |
|
|
( |
) |
Net carrying amount |
|
$ |
|
|
Contingent Consideration
The earnout represents potential incremental cash consideration, and the payment is contingent upon the achievement of certain targeted shipments, between January 1, 2024 and December 31, 2030, of qualified automotive products featuring the AutoSense in-cabin safety technology and the related imaging solutions.
At the Closing Date, the Company elected to apply the gain contingency guidance under ASC 450—Contingencies, as it could not reasonably estimate shipment amounts. As a result, the Company deferred the recognition of the contingent consideration until it becomes probable that the Purchaser achieves the targeted shipments.
20
NOTE 7 – INTANGIBLE ASSETS, NET
Identified intangible assets consisted of the following (in thousands):
|
|
March 31, 2024 |
|
|||||||||||
|
|
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-compete agreements |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total finite-lived intangible assets |
|
|
|
|
|
|
|
( |
) |
|
|
|
||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|||
TiVo tradename/trademarks |
|
N/A |
|
|
|
|
|
— |
|
|
|
|
||
Total intangible assets |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
December 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 (1) |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
As of March 31, 2024, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):
Year Ending December 31: |
|
Amounts |
|
|
2024 (remaining 9 months) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total future amortization |
|
$ |
|
|
21
NOTE 8 – DEBT
In connection with the acquisition of Vewd Software Holdings Limited (“Vewd”) on July 1, 2022, the Company issued a senior unsecured promissory note (the “Promissory Note”) to the sellers of Vewd in a principal amount of $
The Promissory Note includes certain covenants that restrict the Company and each guarantor’s ability to, among other things, incur certain indebtedness or engage in any material line of business substantially different from those lines of business conducted by the Company on the closing date of the acquisition. The Promissory Note does not contain any financial covenants.
As of March 31, 2024, $
NOTE 9 – NET LOSS PER SHARE
Basic net loss per share attributable to the Company is computed by dividing the net loss attributable to the Company by the number of weighted-average outstanding common shares in the period. Potentially dilutive common shares, such as common shares issuable upon exercise of stock options, vesting of restricted stock units (“RSUs”), and shares purchased under the Employee Stock Purchase Plan (“ESPP”) are typically reflected in the computation of diluted net income per share by application of the treasury stock method. Due to the net losses reported, these potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to the Company, since their effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted net loss per share attributable the Company (in thousands, except per share amounts):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
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 periods presented (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Options |
|
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
|
||
ESPP |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
22
NOTE 10 – STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Equity Incentive Plans
In connection with the Separation and on October 1, 2022, the Company adopted the Xperi Inc. 2022 Equity Incentive Plan (the “2022 EIP”).
Under the 2022 EIP, the Company may grant equity-based awards to employees, non-employee directors, and consultants for services rendered to the Company (or any parent or subsidiary) in the form of stock options, stock awards, restricted stock awards, RSUs, stock appreciation rights, dividend equivalents and performance awards, or any combination thereof.
The 2022 EIP provides for option grants designated as either incentive stock options or non-statutory options. Stock options have been granted with an exercise price not less than the value of the common stock on the grant date, and have
As of March 31, 2024, there were approximately
Employee Stock Purchase Plans
In connection with the Separation and on October 1, 2022, the Company adopted the Xperi Inc. 2022 Employee Stock Purchase Plan (as amended, the “2022 ESPP”). The 2022 ESPP originally provided consecutive overlapping
If the fair market value per share of the Company’s common stock on any purchase date during an offering period is less than the fair market value per share on the start date of the
As of March 31, 2024, there were
Stock Options
Stock option activity for the three months ended March 31, 2024 is as follows (in thousands, except per share amounts):
|
|
Number of |
|
|
Weighted |
|
||
Balance at December 31, 2023 |
|
|
|
|
$ |
|
||
Options exercised |
|
|
— |
|
|
$ |
— |
|
Options canceled / forfeited / expired |
|
|
( |
) |
|
$ |
|
|
Balance at March 31, 2024 |
|
|
|
|
$ |
|
||
There were
23
Restricted Stock Units
Information with respect to outstanding RSUs (including both time-based vesting and performance-based vesting) for the three months ended March 31, 2024 is as follows (in thousands, except per share amounts):
|
|
Number of |
|
|
Number of |
|
|
Total |
|
|
Weighted |
|
||||
Balance at December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Vested / released |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
$ |
|
|
Canceled / forfeited |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
$ |
|
|
Balance at March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Performance-Based Awards
From time to time, the Company may grant performance-based restricted stock units (“PSU”) to senior executives, certain employees, and consultants. The value and the vesting of such PSUs are generally linked to one or more performance goals or certain market conditions determined by 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
The Company uses the closing trading price of its common stock on the date of grant as the fair value of awards or RSUs and PSUs that are based on Company-designated performance targets. For PSUs that are based on market conditions (the “market-based PSUs”), fair value is estimated by using a Monte Carlo simulation on the date of grant.
The following assumptions were used to value the market-based PSUs granted during the period:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Expected life (years) |
|
|
|
|
|
|
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Dividend yield |
|
|
% |
|
|
% |
||
Expected volatility |
|
|
% |
|
|
% |
||
Stock-Based Compensation
Total stock-based compensation expense for the three months ended March 31, 2024 and 2023 is as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cost of revenue, excluding depreciation and amortization of intangible assets |
|
$ |
|
|
$ |
|
||
Research and development |
|
|
|
|
|
|
||
Selling, general and administrative |
|
|
|
|
|
|
||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
||
Stock-based compensation expense categorized by award type for the three months ended March 31, 2024 and 2023 is summarized in the table below (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
RSUs |
|
$ |
|
|
$ |
|
||
PSUs |
|
|
|
|
|
|
||
Employee stock purchase plan |
|
|
|
|
|
|
||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
||
24
As of March 31, 2024, unrecognized stock-based compensation expense related to unvested equity-based awards is as follows (amounts in thousands):
|
|
March 31, 2024 |
|
|||||
|
|
Unrecognized Stock-Based Compensation |
|
|
Weighted-Average Period to Recognize Expense |
|
||
RSUs |
|
$ |
|
|
|
|
||
PSUs |
|
|
|
|
|
|
||
ESPP |
|
|
|
|
|
|
||
Total unrecognized stock-based compensation expense |
|
$ |
|
|
|
|
||
NOTE 11 – INCOME TAXES
For the three months ended March 31, 2024, the Company recorded an income tax expense of $
For the three months ended March 31, 2023, the Company recorded an income tax benefit of $
As of March 31, 2024, 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. Recognition of interest and penalties related to unrecognized tax benefits was immaterial for the three months ended March 31, 2024 and 2023. As of March 31, 2024 and December 31, 2023, accrued interest and penalties were $
NOTE 12 – LEASES
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.
25
Following the Spin-Off in October 2022, the Company decided to vacate and sublease certain of its office facilities due to a change in the manner in which the offices were being used, a significant decrease in the expected market price of the leased asset, and expected delays in subleasing the space based on the condition of the real estate leasing market. As a result, the Company was required to recognize an impairment loss after determining that the carrying amount of the leased office facilities was not recoverable and exceeded fair value. The Company estimated the fair value using a discounted cash flows approach with assumptions such as expectations of cash flows from projected sublease income, occupancy estimates, and its outlook for the local real estate market.
There were
The components of operating lease costs were as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
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, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
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, 2024 |
|
|
December 31, 2023 |
|
||
Weighted-average remaining lease term (in years) |
|
|
|
|
|
|
||
Weighted-average discount rate |
|
|
% |
|
|
% |
||
Future minimum lease payments and related lease liabilities as of March 31, 2024 were as follows (in thousands):
Year Ending December 31: |
|
Operating Lease Payments (1) |
|
|
Sublease Income |
|
|
Net Operating Lease Payments |
|
|||
2024 (remaining 9 months) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
2025 |
|
|
|
|
|
( |
) |
|
|
|
||
2026 |
|
|
|
|
|
( |
) |
|
|
|
||
2027 |
|
|
|
|
|
( |
) |
|
|
|
||
2028 |
|
|
|
|
|
( |
) |
|
|
|
||
Thereafter |
|
|
|
|
|
( |
) |
|
|
|
||
Total lease payments |
|
|
|
|
$ |
( |
) |
|
$ |
|
||
Less: imputed interest |
|
|
( |
) |
|
|
|
|
|
|
||
Present value of operating lease liabilities |
|
$ |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Less: operating lease liabilities, current portion |
|
|
( |
) |
|
|
|
|
|
|
||
Noncurrent operating lease liabilities |
|
$ |
|
|
|
|
|
|
|
|||
(1)
26
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Purchase and Other Contractual Obligations
In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-cancelable payment obligations, for which it is liable in future periods. These arrangements primarily include unconditional purchase obligations to service providers. As of March 31, 2024, 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, 2024, 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 not material. In addition, the Company has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable the Company to recover any payments under the indemnification agreements from its insurers, should they occur.
Contingencies
The Company and its subsidiaries have been involved in litigation matters and claims in the normal course of business. In the past, the Company or its subsidiaries have litigated to enforce their respective patents and other intellectual property rights, to enforce the terms of license agreements, to determine infringement or validity of intellectual property rights, and to defend themselves or their customers against claims of infringement or breach of contract. The Company expects it or its subsidiaries will be involved in similar legal proceedings in the future, including proceedings to ensure proper and full payment of royalties by licensees under the terms of their license agreements.
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.
27
NOTE 14 – SUBSEQUENT EVENTS
In April 2024, the Company’s Board of Directors (the “Board”) authorized the repurchase of up to $
28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to promote understanding of our results of operations and financial condition and should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited financial statements and notes thereto for the fiscal year ended December 31, 2023 found in our Form 10-K filed by Xperi Inc. on March 1, 2024 (our “Form 10-K”).
Business Overview
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, enabling audiences to connect with content in a way that is more intelligent, immersive, and personal. Powering smart devices, connected cars, entertainment experiences and more, we bring together ecosystems designed to reach highly-engaged consumers, allowing us and our ecosystem partners to uncover significant new business opportunities, now and in the future. Our technologies are integrated into consumer devices and a variety of media platforms worldwide, driving increased value for our partners, customers, and consumers. We operate in one reportable business segment and group our business into four categories: Pay-TV, Consumer Electronics, Connected Car and Media Platform. Headquartered in Silicon Valley with operations around the world, we have approximately 1,850 employees and more than 35 years of operating experience.
Divestiture
In December 2023, we entered into a definitive agreement with Tobii AB, an eye tracking and attention computing company, pursuant to which we agreed to sell our AutoSense in-cabin safety business and related imaging solutions (the “Divestiture”). The Divestiture was completed in January 2024 and streamlined our business, further enhancing our focus on entertainment markets.
Results of Operations
The following table presents our historical operating results for the periods indicated as a percentage of revenue:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenue |
|
|
100 |
% |
|
|
100 |
% |
Operating expenses: |
|
|
|
|
|
|
||
Cost of revenue, excluding depreciation and amortization of intangible assets |
|
|
25 |
|
|
|
22 |
|
Research and development |
|
|
42 |
|
|
|
43 |
|
Selling, general and administrative |
|
|
48 |
|
|
|
45 |
|
Depreciation expense |
|
|
3 |
|
|
|
3 |
|
Amortization expense |
|
|
9 |
|
|
|
12 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
1 |
|
Total operating expenses |
|
|
127 |
|
|
|
126 |
|
Operating loss |
|
|
(27 |
) |
|
|
(26 |
) |
Interest income and other income, net |
|
|
1 |
|
|
|
1 |
|
Interest expense—debt |
|
|
— |
|
|
|
(1 |
) |
Gain on divestiture |
|
|
19 |
|
|
|
— |
|
Loss before taxes |
|
|
(7 |
) |
|
|
(26 |
) |
Provision for (benefit from) income taxes |
|
|
4 |
|
|
|
— |
|
Net loss |
|
|
(11 |
)% |
|
|
(26 |
)% |
29
Comparison of the Three Months Ended March 31, 2024 and 2023
Revenue
We derive the majority of our revenue from licensing our technologies and solutions to customers. For our revenue recognition policy including descriptions of revenue-generating activities, refer to Note 2—Revenue of the Notes to the Condensed Consolidated Financial Statements (Unaudited).
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|
|
|
||||||||||
Revenue |
|
$ |
118,844 |
|
|
$ |
126,839 |
|
|
$ |
(7,995 |
) |
|
|
(6 |
)% |
The $8.0 million, or 6%, decrease in revenue for the three months ended March 31, 2024, compared to the same period in the prior year, was primarily attributable to a decline of $10.6 million in Consumer Electronics revenue due to the Divestiture as well as a decline in minimum guarantee revenue contracts, and a decrease of $3.5 million in Pay-TV revenue, driven largely by declines in core guide products, consumer hardware, and subscription revenue which were partially offset by increases in IPTV Solutions. These decreases were partially offset by an increase of $3.8 million in Connected Car revenue as the result of growth coupled with settlements executed in HD Radio, and an increase of $2.3 million in Media Platform revenue driven principally by growth in our smart TV application software and middleware platform in the first quarter of 2024.
Operating Expenses
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|
|
|
||||||||||
Cost of revenue, excluding depreciation and amortization of intangible assets |
|
$ |
29,756 |
|
|
$ |
27,792 |
|
|
$ |
1,964 |
|
|
|
7 |
% |
Research and development |
|
|
50,439 |
|
|
|
54,856 |
|
|
|
(4,417 |
) |
|
|
(8 |
)% |
Selling, general and administrative |
|
|
56,353 |
|
|
|
57,776 |
|
|
|
(1,423 |
) |
|
|
(2 |
)% |
Depreciation expense |
|
|
3,584 |
|
|
|
4,093 |
|
|
|
(509 |
) |
|
|
(12 |
)% |
Amortization expense |
|
|
11,039 |
|
|
|
14,827 |
|
|
|
(3,788 |
) |
|
|
(26 |
)% |
Impairment of long-lived assets |
|
|
— |
|
|
|
1,096 |
|
|
|
(1,096 |
) |
|
|
(100 |
)% |
Total operating expenses |
|
$ |
151,171 |
|
|
$ |
160,440 |
|
|
$ |
(9,269 |
) |
|
|
(6 |
)% |
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 offerings and non-recurring engineering (“NRE”) services.
Cost of revenue, excluding depreciation and amortization of intangible assets, for the three months ended March 31, 2024 was $29.8 million, as compared to $27.8 million in the same period of the prior year, an increase of $2.0 million, or 7%. The increase was primarily due to higher delivery costs related to an increase in NRE revenue in the first quarter of 2024.
Research and Development
Research and development expenses consist 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 other costs related to patent applications and examinations, materials, supplies, and an allocation of facilities costs. Other than certain software development costs that are capitalized, all research and development costs are expensed as incurred.
Research and development expense for the three months ended March 31, 2024 was $50.4 million, as compared to $54.9 million in the same period of the prior year, a decrease of $4.5 million, or 8%. The decrease was primarily driven by lower research and development spend in the AutoSense in-cabin safety business and related imaging solutions following the Divestiture, a reduction in expenses in the Perceive subsidiary, and an increase in capitalized costs for internal-use software in the first quarter of 2024.
30
Selling, General and Administrative
Selling expenses consist primarily of compensation and related costs (including stock-based compensation expense) for sales and marketing personnel engaged in sales and licensee support, marketing programs, public relations, promotional materials, travel, and trade show expenses. General and administrative expenses consist primarily of compensation and related costs (including stock-based compensation expense) for management, information technology, finance and legal personnel, legal fees and related expenses, facilities costs, and professional services. Our general and administrative expenses, other than facilities-related expenses and fringe benefits, are not allocated to other expense line items.
Selling, general and administrative expenses for the three months ended March 31, 2024 were $56.4 million, as compared to $57.8 million in the same period of the prior year, a decrease of $1.4 million, or 2%. The decrease was primarily attributable to the reduced employee headcount following the Divestiture as well as savings in contractor expenses, partially offset by an increase in one-time transaction costs related to the Divestiture in the first quarter of 2024.
Stock-based Compensation
The following table sets forth our stock-based compensation expense for the three months ended March 31, 2024 and 2023 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cost of revenue, excluding depreciation and amortization of intangible assets |
|
$ |
744 |
|
|
$ |
792 |
|
Research and development |
|
|
4,333 |
|
|
|
5,551 |
|
Selling, general and administrative |
|
|
9,680 |
|
|
|
9,625 |
|
Total stock-based compensation expense |
|
$ |
14,757 |
|
|
$ |
15,968 |
|
We recognized stock-based compensation expense from restricted stock units and purchases made under our employee stock purchase plan. The $1.2 million, or 8%, decrease in stock-based compensation expense for the three months ended March 31, 2024, when compared to the same period of the prior year, was primarily driven by reduced employee headcount as a result of the Divestiture, and secondarily a decrease in equity awards granted in the first quarter of 2024.
Depreciation Expense
We recognized depreciation expense for certain equipment, capitalized internal-use software, leasehold improvements, and buildings and improvements. Depreciation expense for the three months ended March 31, 2024 was $3.6 million, as compared to $4.1 million in the same period of the prior year, a decrease of $0.5 million, or 12%. The decrease was primarily due to certain fixed assets being fully depreciated during 2023.
Amortization Expense
We recognized amortization expense for certain intangible assets we acquired in business combinations that are recognized separately from goodwill. Amortization expense for the three months ended March 31, 2024 was $11.0 million, as compared to $14.8 million in the same period of the prior year, a decrease of $3.8 million, or 26%. The decrease was primarily due to certain intangible assets becoming fully amortized over the past 12 months.
As a result of intangible assets we acquired in previous mergers and acquisitions, we anticipate that amortization expenses will continue to be a significant expense over the next several years. See Note 7—Intangible Assets, Net of the Notes to Condensed Consolidated Financial Statements (Unaudited) for additional detail.
Impairment of Long-Lived Assets
As a result of optimizing our global real estate footprint and subleasing certain offices following the Spin-Off (as defined in Note 1—Description Of Business And Summary Of Significant Accounting Policies), we recorded non-cash impairment charges of $1.1 million to reduce the carrying amount of certain operating lease 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 how the offices are being used, a significant decrease in the expected market price of the leased asset, and expected delays in subleasing the space based on the current real estate leasing market.
We did not record any asset impairment charge for the three months ended March 31, 2024.
31
Gain on Divestiture
As previously disclosed, we completed the Divestiture on January 31, 2024 and streamlined our business, further enhancing our focus on entertainment markets. Upon the completion of the Divestiture, we recognized a gain of $22.9 million during the three months ended March 31, 2024. Refer to Note 6—Divestiture of the Notes to Condensed Consolidated Financial Statements (Unaudited) for additional information.
Provision for (Benefit from) Income Taxes
For the three months ended March 31, 2024, we recorded an income tax expense of $4.3 million on a pretax loss of $9.1 million, which resulted in an effective tax rate of (47.0)%. The income tax expense for the three months ended March 31, 2024 was primarily related to foreign withholding taxes, foreign income taxes, U.S. federal income taxes, and state income taxes.
For the three months ended March 31, 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 for the three months ended March 31, 2023 was primarily related to foreign withholding taxes, partially offset by U.S. federal income taxes and state income taxes.
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 ratios) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
|
||
|
|
(dollars in thousands) |
|
|
|||||
Cash and cash equivalents |
|
$ |
95,216 |
|
|
$ |
142,085 |
|
(1) |
Current ratio |
|
|
2.1 |
|
|
|
1.9 |
|
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Net cash used in operating activities |
|
$ |
(49,787 |
) |
|
$ |
(43,103 |
) |
Net cash used in investing activities |
|
$ |
(4,714 |
) |
|
$ |
(3,929 |
) |
Net cash used in financing activities |
|
$ |
(4,671 |
) |
|
$ |
(2,917 |
) |
Our primary liquidity and capital resources are our cash and cash equivalents on hand. Cash and cash equivalents were $95.2 million at March 31, 2024, a decrease of $59.2 million from $154.4 million, including $12.3 million classified as held for sale in connection with the Divestiture, as of December 31, 2023. This decrease resulted primarily from cash used in operations of $49.8 million, $4.7 million in payments of withholding taxes on net share settlement of equity awards and $4.7 million of capital expenditures and capitalized internal-use software costs.
For information about our material cash requirements, see “Liquidity and Capital Resources” in Part II, Item 7 of our Form 10-K. Our cash requirements have not changed materially since December 31, 2023.
32
Stock Repurchase Program
In April 2024, our Board of Directors (the “Board”) authorized the repurchase of up to $100.0 million of our common stock (the “Program”). Under the Program, we may make repurchases, from time to time, through open market purchases, block trades, privately negotiated transactions, accelerated share repurchase transactions, or other means. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases under the Program. Since the inception of the Program, we have not repurchased any shares of our common stock. The volume, timing, and manner of any repurchases will be determined at our discretion, subject to general market conditions, as well as our management of capital, general business conditions, other investment opportunities, regulatory requirements, and other factors. We currently expect to fund the repurchase program from cash and cash equivalents, short-term investments and/or future cash flows. The repurchase program does not obligate us to repurchase any specific number of shares of common stock, has no time limit, and may be modified, suspended, or discontinued at any time without notice at the discretion of the Board. Any repurchases under the Program may not enhance the value of our common stock.
Cash Flows from Operating Activities
Net cash used in operating activities was $49.8 million for the three months ended March 31, 2024, primarily due to our net loss of $13.4 million being further adjusted by $43.4 million of changes in operating assets and liabilities including payment during the quarter of employee annual bonuses for 2023 performance, and $22.9 million of a non-cash gain recognized from the Divestiture, partially offset by non-cash items such as stock-based compensation expense of $14.8 million, amortization of intangible assets of $11.0 million, and depreciation expense of $3.6 million.
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 stock-based compensation expense of $16.0 million, amortization of intangible assets of $14.8 million, depreciation expense of $4.1 million, and an asset impairment charge of $1.1 million.
Cash Flows from Investing Activities
Net cash used in investing activities was $4.7 million and $3.9 million for three months ended March 31, 2024 and 2023, respectively, which was primarily related to capital expenditures and capitalized internal-use software.
Capital Expenditures
Our capital expenditures for property and equipment consist primarily of purchases of computer hardware and software, capitalized internal-use software, information systems, and production and test equipment. We expect capital expenditures in 2024 to be approximately $20.0 million. These expenditures are expected to be paid 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 $4.7 million and $2.9 million for the three months ended March 31, 2024 and 2023, respectively, which reflected the payment of withholding taxes related to net share settlement of equity awards.
Long-Term Debt
In connection with the acquisition of Vewd Software Holdings Limited (“Vewd”) 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, of which $50.0 million was outstanding at March 31, 2024. Indebtedness outstanding under the Promissory Note bears an interest rate of 6.00% per annum, subject to potential adjustments as described in Note 8—Debt to the Condensed Consolidated Financial Statements included in this Quarterly Report. 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.
33
Short-Term Liquidity/Financings
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, and for the foreseeable future thereafter. As our debt becomes due, we may be required to access the capital markets for additional funding. As we assess inorganic growth strategies, we may need to supplement our cash and cash equivalents with outside sources. As part of our liquidity strategy, we will continue to monitor our current level of earnings and cash flow as well as our ability to access the market in light of those earning levels.
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. Equity or debt financing may not be available when needed or, if available, equity financing may not be on terms satisfactory to us.
We may supplement our short-term liquidity needs with access to capital markets, if necessary, and strategic cost savings initiatives. Our access to capital markets may be constrained and our cost of borrowing may increase under certain business and market conditions, and our liquidity is subject to various risks including the risks identified in “Risk Factors” included in Item 1A of our Form 10-K.
Critical Accounting Estimates
During the three months ended March 31, 2024, there were no significant changes in our critical accounting estimates. 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 our Form 10-K.
Recent Accounting Pronouncements
See Note 1—Description of Business and Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements (Unaudited) included in this Quarterly Report 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 our Form 10-K.
Item 4. Controls and Procedures
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 Securities Exchange Act of 1934, as amended (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. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Change in Internal Control over Financial Reporting
There has been no change 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 has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
34
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
Except as set forth below, there were no material changes to the risk factors previously disclosed in Part 1, Item 1A. of our Form 10-K, which is incorporated by reference herein.
Our stock repurchase program may not be fully consummated, may not enhance long-term stockholder value, may increase the volatility of our stock prices and, as we implement it, will diminish our cash reserves.
Pursuant to the Program adopted in April 2024, we may repurchase of up to $100.0 million of our common stock, from time to time, through open market purchases, block trades, in privately negotiated transactions, accelerated share repurchase transactions, or by other means. Since the inception of the Program, we have not repurchased any shares of our common stock. The volume, timing, and manner of any repurchases will be determined at our discretion, subject to general market conditions, as well as our management of capital, general business conditions, other investment opportunities, regulatory requirements, and other factors. The Program does not have an expiration date and does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares, or to do so in any particular manner. Further, repurchases under the Program could affect our share trading prices or increase their volatility, and any repurchases will reduce our cash reserves. We are under no legal obligation to repurchase any shares, and if we do not do so or if we commence repurchases and then suspend or terminate them, the trading prices of our stock may decrease and their volatility increase. We may not in the future have cash and cash equivalents sufficient to fund all potential repurchases under the Program. Even if we complete the Program, we may not be successful in our goal of enhancing stockholder value. As we use our cash resources in the Program, we have less cash to fund our operations and pursue other opportunities that may provide value to stockholders.
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.
35
Item 6. Exhibits
Exhibit Number |
|
Exhibit Title |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
101.INS |
|
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. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
|
|
|
36
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 9, 2024
XPERI INC. |
||
|
|
|
By: |
|
/s/ Robert Andersen |
|
|
Robert Andersen Chief Financial Officer |
37